Determination 1039037: IRS revoked an organization’s exemption after it used the status to obtain liquor licenses

Plain-English summary

The IRS revoked an organization’s tax-exempt status under IRC § 501(c)(10), effective January 1, 20XX. The organization operated a bar and used its claimed exemption to qualify for liquor licenses after it could not meet the applicable food-sales requirements. The IRS found that the organization’s activity was commercial and that it lacked the fraternal characteristics required for exemption. The organization signed Form 6018-A consenting to the revocation and was required to file Form 1120 for future periods.

Ruling snapshot

• Question: Did the organization operate exclusively for exempt purposes under IRC § 501(c)(10)?
• Outcome: Revocation
• Key authorities: IRC § 501(c)(10)

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE

Attn: Mandatory Review, MC 4920 DAL
1100 Commerce St.
Dallas, Texas 75242 501.10-00
TAX EXEMPT AND
GOVERNMENT ENTITIES

DIVISION Date: June 10, 2010
Release Number: 201039037
Release Date: 10/1/10

LEGEND

ORG = Organization name Employer Identification Number:

XX = Date Address = address Person to Contact/ID Number:
Contact Numbers:

ORG Voice :

ADDRESS Fax:

Dear

Under group ruling number 9470 in May, 19XX, you were held to be exempt from
Federal income tax under IRC § 501(c)(10).

We have determined you have not operated in accordance with the provisions of
IRC §501(c)(10). We have explained the basis for our determination in the enclosed
report of examination.

On 1/11/20XX, you signed Form 6018-A, Consent to Proposed Action, agreeing to the
revocation of your exempt status under section 501(c)(10) of the Code. Therefore, your
exemption from Federal income tax is revoked effective January 1, 20XX.

You have filed taxable returns on Form(s) 1120, for the year(s) ended 12/31/20XX,
12/31/20XX, 12/31/20XX with us. For future periods, you are required to file Form 1120
with the appropriate service center indicated in the instructions for the return.

This is a final adverse determination letter with regard to your status under IRC §
501(c)(10).

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
Internal Revenue Service
1100 Commerce Street
Dallas, TX 75242

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

November 3, 2009

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 34801 V

You may also request that we refer this matter for technical advice as explained in
Publication 892, Exempt Organization Appeal Procedures for Unagreed Issues. If a
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,

Sunita B. Lough
Director, EO Examinations

Enclosures:
Publication 892
Publication 3498
Form 6018

Report of Examination
Envelope

Letter 3610 (04-2002)
Catalog Number 34801V

Form 886A Department of the Treasury - Internal Revenue Service Schedule No. or
Explanation of Items Exhibit
Name of Taxpayer Year/Period Ended
ORG June 30, 20XX
LEGEND
ORG = Organization name XX = Date City = city State = state
President = President CEO = CO
ISSUE

Whether ORG is operated exclusively for exempt purposes described within Internal Revenue
Code section 501(c)(10).

FACTS

ORG (hereinafter “ORG”) whose employer identification number is #, was incorporated on
April 4", 20XX. ORG is recognized as an organization exempt from federal income tax as
described in IRC section 501(c)(10) of the Code, and is under the group ruling number
ORG maintains two liquor licenses. Their primary license number is #, and this is to sell liquor
by the drink for a tax exempt entity. The secondary license number is #, and this is to sell liquor
by the drink on Sundays.

In Chapter 311, Section 311.090 of the State Revised Statutes, Liquor Control Law, “in
order for a licensee to sell intoxicating liquor outside city limits, a licensee must meet certain
provisions such as having obtained an exemption from the payment of federal income taxes as
provided in IRC sections 501(c)(3), 501(c)(4), 501(c)(5), 501(c)(7), 501(c)(8), 501(c)(10),
501(c)(19), or 501(d) of the United States Internal Revenue Code of 1954, as amended in any
incorporated city having a population of less than 19,500 inhabitants as determined by the last
decennial census under the provisions and methods set out in this chapter.” Also, in Chapter
311, Section 311.097 of the State Revised Statutes, Liquor Control Law states “that an
organization can obtain a license to sell liquor by the drink if at least 50% of the gross income of
which is derived from the sale of prepared meals or food consumed on such premises or which
has an annual gross income of at least $ from the sale of prepared meals or food consumed on
such premises. CO was unable to meet the food sales requirements. Since President's
inception with the CO, President has been able to sell liquor by the drink because of his
organization’s exemption from Federal income tax under IRC 501(c)(10).

CO is located in City, State. CO meets the requirements in Section 311.090 of the State
Revised Statutes Liquor Control Law, because as of the last decennial census the population
was , which is well above the 19,500 minimum required for an organization to obtain a
license to sell liquor by the drink without being exempt from federal income tax.

Form 886-A (Rev.4-68) Department of the Treasury - Internal Revenue Service
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