Determination 1037034: IRS revoked a dormant section 501(c)(4) organization's exemption

Plain-English summary

The IRS issued a final adverse determination for a subordinate organization covered by a section 501(c)(4) group exemption. The organization had ceased operations, had no financial resources or assets, and failed to file required Form 990 returns and other reports. The IRS revoked its exemption effective December 31 of a redacted year and required the organization to file Form 1120 returns for later years. The release includes the final letter, a proposed-action letter, and the examination report explaining the reporting failures.

Ruling snapshot

• Question: Did the dormant organization continue to qualify for exemption under IRC § 501(c)(4)?
• Outcome: Revocation
• Key authorities: IRC §§ 501(c)(4), 6001, 6033, and 6104(c); Treas. Reg. §§ 1.6001-1(a), 1.6001-1(c), 1.6001-1(e), and 1.6033-1(h)(2)

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE

Attn: Mandatory Review, MC 4920 DAL

1100 Commerce St. 501.04-00
TAX EXEMPT AND Dallas, TX 75242
GOVERNMENT ENTITIES
DIVISION

Date: June 9, 2010

Release Number: 201037034
Release Date: 9/17/10

LEGEND Employer Identification Number:
ORG = Organization name Person to Contact/ID Number:
XX=Date Address = address Contact Numbers:

Voice:
ORG Fax:
ADDRESS

CERTIFIED MAIL ~ RETURN RECEIPT REQUESTED

Dear

This is a final adverse determination letter with regard to your status under
section 501(c)(4) of the Internal Revenue Code.

You were established in June 19XX as a subordinate under group exemption
number 1710. The parent organization was granted tax exempt status as an
organization described in section 501(c)(4) of the Code in January 19XX.

Based on recent information received, we have determined you have not
operated in accordance with the provisions of section 501(c)(4) of the Code.
You ceased operations at the end of 20XX. Currently, you have no financial
resources and no assets. You also failed to meet the reporting requirements
under IRC §§ 6001 and 6033 necessary for continued exemption from federal
income tax under IRC § 501(c)(4).

Accordingly, your exemption from Federal income tax is revoked effective
December 31, 20XX.

You are required to file Federal income tax returns on Form 1120. These returns
should be filed with the appropriate Service Center for all years beginning after
December 31, 20XX.

2

You have the right to contact the Office of the Taxpayer Advocate. Taxpayer
Advocate assistance is not a substitute for established IRS procedures, such as
the formal Appeals process. The Taxpayer Advocate cannot reverse a legally
correct tax determination, or extend the time fixed by law that you have to file a
petition in a United States court. The Taxpayer Advocate can, however, see that
a tax matter that may not have been resolved through normal channels gets
prompt and proper handling. You may call toll-free, 1-877-777-4778, and ask for
Taxpayer Advocate Assistance. If you prefer, you may contact your local
Taxpayer Advocate at: (405) 297-4055 (not toll-free).

If you have any questions, please contact the person whose name and telephone
number are shown at the beginning of this letter.

Sincerely,

Nanette M. Downing
Director, EO Examinations

DEPARTMENT OF THE TREASURY
Pe Bi - Internal Revenue Service

Nat eal
TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

January 28, 2010

Taxpayer Identification Number:

ORG
ADDRESS Form:

Tax Year(s) Ended:
Person to Contact/ID Number:

Contact Numbers:
Telephone:
Fax:

CERTIFIED MAIL - RETURN RECEIPT REQUESTED

Dear

We have enclosed a copy of our report of examination explaining why we believe an
adjustment of your organization's exempt status is necessary.

If you do not agree with our position you may appeal your case. The enclosed
Publication 3498, The Examination Process, explains how to appeal an Internal
Revenue Service (IRS) decision. Publication 3498 also includes information on your
rights as a taxpayer and the IRS collection process.

If you request a conference, we will forward your written statement of protest to the
Appeals Office and they will contact you. For your convenience, an envelope is
enclosed.

If you and Appeals do not agree on some or all of the issues after your Appeals
conference, or if you do not request an Appeals conference, you may file suit in United
States Tax Court, the United States Court of Federal Claims, or United States District
Court, after satisfying procedural and jurisdictional requirements as described in
Publication 3498.

Letter 3610 (04-2002)
Catalog Number 34801V

You may also request that we refer this matter for technical advice as explained in
Publication 892, Exempt Organization Appeal Procedures for Unagreed Issues. lfa
determination letter is issued to you based on technical advice, no further administrative
appeal is available to you within the IRS on the issue that was the subject of the
technical advice.

If you accept our findings, please sign and return the enclosed Form 6018, Consent to
Proposed Adverse Action. We will then send you a final letter modifying or revoking
exempt status. If we do not hear from you within 30 days from the date of this letter, we
will process your case on the basis of the recommendations shown in the report of
examination and this letter will become final. In that event, you will be required to file
Federal income tax returns for the tax period(s) shown above. File these returns with
the Ogden Service Center within 60 days from the date of this letter, unless a request
for an extension of time is granted. File returns for later tax years with the appropriate
service center indicated in the instructions for those returns.

You have the right to contact the office of the Taxpayer Advocate. Taxpayer Advocate
assistance is not a substitute for established IRS procedures, such as the formal
appeals process. The Taxpayer Advocate cannot reverse a legally correct tax
determination, or extend the time fixed by law that you have to file a petition in a United
States court. The Taxpayer Advocate can, however, see that a tax matter that may not
have been resolved through normal channels gets prompt and proper handling. You
may call toll-free 1-877-777-4778 and ask for Taxpayer Advocate Assistance. If you
prefer, you may contact your local Taxpayer Advocate at:

If you have any questions, please call the contact person at the telephone number
shown in the heading of this letter. If you write, please provide a telephone number and
the most convenient time to call if we need to contact you.

Letter 3610 (04-2002)
Catalog Number 34801 V

Thank you for your cooperation.

Sincerely,

For Nanette M. Downing
Acting Director, EO Examinations

Enclosures:
Publication 892
Publication 3498
Form 6018

Report of Examination
Envelope

Letter 3610 (04-2002)
Catalog Number 34801V

Form 886-A Schedule number or exhibit
mes ena EXPLANATIONS OF ITEMS

Name of taxpayer | Tax Identification Number | Year/Period ended

ORG

December 31, 20XX

LEGEND
ORG = Organization name XX = Date Officer = officer Manager =
manager RA = RA

Issue:

Whether ORG qualifies for exemption under Section 501(c)(4) of the Internal Revenue
Code.

Facts:

The Internal Revenue Service has made reasonable requests to ORG to file Form
990 for the tax period ending December 31, 20XX.
The following requests were made:

1. Cover Letter 3606, Form 4564, Information Document Request, (IDR), and
   Publication 1 were sent to the organization on June 18, 20XX.

2. Agent called EO Officer at (405) 412-5019 several occasions to discuss the
   case and requested delinquent Return for 20XX12, but demands for filing were
   not met.

3. A 90 day notice and demand letter and IDR were sent by certified mail to the
   organization on September 22, 20XX. The certified receipt was returned
   signed on 09/28/20XX by Officer.

4. A letter was sent to EO Manager on October 16, 20XX requesting delinquent
   Returns forms 941 and 990 but not respond was receipted.

ORG, has failed to respond to IRS correspondences and phone calls, and failed to
file the Form 990 for the tax period ending December 31, 20XX. The organization
reported wages paid in 20XX of $ and failed to file Forms 941. Substitute-for-Returns
were established by RA and Letter 3596 and form 2504 (Agreement to Assessment
and Collection of Additional Tax) was mailed to EO for consent but the form was not
return. The organization was required to file a 990 return as well for the year ending
December 31, 20XX, but failed to respond to multiple correspondence sent and
phone calls.

Background:

ORG, was established in June 19XX as part of a group ruling, group exemption number:
1710. The organization was granted tax exempt status as a 501(c)(4) non-profit
organization in January, 19XX. According to the executive director, Officer, the
organization no longer exists and does not conduct exempt activities. EO ceased

Form 886-A (1-1994) Catalog Number 20810W Page publish no irs.gov Department of the Treasury-Internal Revenue Service

Form 886-A Schedule number or exhibit

(Ie Milan 228?) EXPLANATIONS OF ITEMS
Name of taxpayer Tax Identification Number | Year/Period ended
ORG

December 31, 20XX

operations at the end of 20XX. Currently, the organization has no financial resources
and no assets. A letter was received from Quartermaster of the national office, RA,
confirming ORG ceased of operations in 20XX.

Nonetheless, ORG, did not follow proper procedures for termination of its exempt
status, Articles of dissolution were not filed, nor a final Return was submitted when
requested.

Failure to File Form 990s:

IRC § 6001 provides that every person liable for any tax imposed by the IRC, or for the
collection thereof, shall keep adequate records as the Secretary of the Treasury or his
delegate may from time to time prescribe.

IRC § 6033(a)(1) provides, except as provided in IRC § 6033(a)(2), every organization
exempt from tax under section 501(a) shall file an annual return, stating specifically the
items of gross income, receipts and disbursements, and such other information for the
purposes of carrying out the internal revenue laws as the Secretary may by forms or
regulations prescribe, and keep such records, render under oath such statements,
make such other returns, and comply with such rules and regulations as the Secretary
may from time to time prescribe.

Treas. Reg. § 1.6001-1(a) in conjunction with Treas. Reg. § 1.6001-1(c) provides that
every organization exempt from tax under IRC § 501(a) and subject to the tax imposed
by IRC § 511 on its unrelated business income must keep such permanent books or
accounts or records, including inventories, as are sufficient to establish the amount of
gross income, deduction, credits, or other matters required to be shown by such person
in any return of such tax. Such organization shall also keep such books and records as
are required to substantiate the information required by IRC § 6033.

Treas. Reg. § 1.6001-1(e) states that the books or records required by this section shall
be kept at all times available for inspection by authorized internal revenue officers or
employees, and shall be retained as long as the contents thereof may be material in the
administration of any internal revenue law.

Treas. Reg § 1.6033-1(h)(2) provides that every organization which has established its
right to exemption from tax, whether or not it is required to file an annual return of
information, shall submit such additional information as may be required by the district
director for the purpose of enabling him to inquire further into its exempt status and to
administer the provisions of subchapter F (section 501 and the following), chapter 1 of
the Code and IRC § 6033.

Form 886-A (1-1994) Catalog Number 208 1OW Page publish no irs gov Department of the Treasury-Internal Revenue Service

Form 886-A | Schedule number or exhibit
(Rev. January [994)

EXPLANATIONS OF ITEMS

Name of taxpayer _ | Tax Identification Number | Year/Period ended

ORG
| December 31, 20XX
|

Rev. Rul. 59-95, 1959-1 C.B. 627, concerns an exempt organization that was requested
to produce a financial statement and statement of its operations for a certain year.
However, its records were so incomplete that the organization was unable to furnish
such statements. The Service held that the failure or inability to file the required
information return or otherwise to comply with the provisions of IRC § 6033 and the
regulations which implement it, may result in the termination of the exempt status of an
organization previously held exempt, on the grounds that the organization has not
established that it is observing the conditions required for the continuation of exempt
status.

In accordance with the above cited provisions of the Code and regulations under
IRC §§ 6001 and 6033, organizations recognized as exempt from federal income tax
must meet certain reporting requirements. These requirements relate to the filing of a
complete and accurate annual information (and other required federal tax forms) and
the retention of records sufficient to determine whether such entity is operated for the
purposes for which it was granted tax-exempt status and to determine its liability for
any unrelated business income tax.

Conclusion:

It is the IRS's position that the organization failed to meet the reporting requirements
under IRC §§ 6001 and 6033 to be recognized as exempt from federal income tax
under IRC § 501(c)(4). Accordingly, the proposed revocation would be effective as of
December 31, 20XX. Any contributions to the organization would no longer be
deductible as charitable contributions. Any contributions to this organization by those
who were in part responsible for or were aware of the activities or deficiencies on the
part of the organization that gave rise to loss of exempt status will not be allowed as
a deduction effective the date of revocation.

If this revocation becomes final, appropriate State officials will be advised of the
action in accordance with Internal Revenue Code 6104(c) and applicable regulations.

Form 886-A (1-1994) Catalog Number 208 10W Page publish no irs.gov Department of the Treasury-Internal Revenue Service