Determination 1040027: IRS revoked a dissolved organization's section 501(c)(3) exemption

Plain-English summary

The IRS revoked an organization’s federal income tax exemption under IRC § 501(c)(3), effective January 1, 20XX. The organization had ceased operating, failed to keep required records, and failed to file required annual information returns. The organization told the examiner that it had dissolved several years earlier, but it could not provide documents proving the dissolution and agreed that its exemption should be revoked. Contributions to the organization were no longer deductible under IRC § 170, and the organization was directed to file Form 1120 for the year ending December 31, 20XX, and later years.

Ruling snapshot

• Question: Did the organization continue to qualify for exemption under IRC § 501(c)(3)?
• Outcome: Revocation
• Key authorities: IRC §§ 170, 501(a), 501(c)(3), 6001, 6033(a)(1), 6104(c), and 7428; IRC § 511; Treas. Reg. §§ 1.501(c)(3)-1(d), 1.6001-1(a), 1.6001-1(c), 1.6001-1(e), and 1.6033-1(h)(2); Rev. Rul. 59-95

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
TE/GE: EO Examination
1100 Commerce 501.03-00
Dallas, Texas 75242

TAX EXEMPT AND

GOVERNMENT ENTITIES

DIVISION
Date: June 30, 2010

Number: 201040027
Release Date: 10/8/2010

LEGEND

ORG = Organization name XX = Date Employer Identification Number:

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

ORG Voice:

ADDRESS Fax:

LAST DATE FOR FILING A PETITION
WITH THE TAX COURT: September 28, 20XX

CERTIFIED MAIL — RETURN RECEIPT REQUESTED

Dear

This is a Final Adverse Determination Letter as to your exempt status under section
501(a) of the Internal Revenue Code. Your exemption from Federal income tax as an
organization described in section 501(c)(3) of the Code is hereby revoked effective
January 1, 20XX. You have agreed to this adverse determination by signing Form 6018
on October 29, 20XX.

Our adverse determination was made for the following reasons:

You have ceased operating as an exempt organization and you failed to
keep the required records and file annual information returns necessary for
the continuation of your exempt status as an organization described in
section 501(c)(3) of the Code.

Internal Revenue Code Section 6001 requires organizations exempt from tax
to keep such records and render such statements as are required by such
rules and regulations as the Secretary may prescribe. Treasury Regulations
section 1.6033-2 (h)(2) requires organizations exempt from tax to submit
such additional information as may be required by the Internal Revenue
Service for the purpose of inquiring into the organization’s exempt status.

You have failed to meet the requirements of IRC section 501(c)(3) and
Treas. Reg. section 1.501 (c)(3) -1(d) in that you failed to establish that you
were operated exclusively for an exempt purpose.

Contributions to your organization are no longer deductible under section 170 of the
Internal Revenue Code. You are required to file Federal income tax returns on Form 1120
for the year ended December 31, 20XX, and for all years thereafter. Those returns should
be filed with the appropriate Service Center.

Processing of income tax returns and assessment of any taxes due will not be delayed
should a petition for declaratory judgment be filed under section 7428 of the Internal
Revenue Code.

If you decide to contest this determination in court, you must initiate a suit of declaratory
judgment in the United States Tax Court, the United States Claims Court or the District
Court of the United States for the District of Columbia before the 91st day after the date
this determination was mailed to you. Contact the clerk of the appropriate court for rules
for initiating suits for declaratory judgment. You may write to the Tax Court at the following
address:

You also have the right to contact the office of the Taxpayer Advocate. You can call 1-
877-777-4778 and ask for Taxpayer Advocate assistance. Or you can contact the
Taxpayer Advocate office located nearest you by calling (801) 799-6958 or by writing to:

Taxpayer Advocate assistance cannot be used as a substitute for established IRS
procedures, formal appeals processes, etc. The Taxpayer Advocate is not able to reverse
legal or technically correct tax determinations or extend the time fixed by law that you have
to file a petition in the United States Tax 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.

We will notify the appropriate State Officials of this action, as required by section 6104(c)
of the Internal Revenue Code.

If you have any questions in regards to this matter please contact the person whose name
and telephone number are shown in the heading of this letter.

Thank you for your cooperation.

Sincerely yours,

Nanette M. Downing
Director, EO Examinations

DEPARTMENT OF THE TREASURY
Internal Revenue Service

1616 Capitol Av Ste 450 Stop 4710 OMA
Omaha, NE 68102-4923

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

October 23, 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
revocation of your exempt status under section 501(c)(3) of the Internal Revenue Code
(Code) is necessary.

If you accept our findings, take no further action. We will issue a final revocation letter.

If you do not agree with our proposed revocation, you must submit to us a written
request for Appeals Office consideration within 30 days from the date of this letter to
protest our decision. Your protest should include a statement of the facts, the
applicable law, and arguments in support of your position.

An Appeals officer will review your case. The Appeals office is independent of the
Director, EO Examinations. The Appeals Office resolves most disputes informally and
promptly. The enclosed Publication 3498, The Examination Process, and Publication
892, Exempt Organizations Appeal Procedures for Unagreed Issues, explain 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.

You may also request that we refer this matter for technical advice as explained in
Publication 892. If we issue a determination letter to you based on technical advice, no
further administrative appeal is available to you within the IRS regarding the issue that
was the subject of the technical advice.

Letter 3618 (04-2002)
Catalog Number 34809F

If we do not hear from you within 30 days from the date of this letter, we will process
your case based on the recommendations shown in the report of examination. If you do
not protest this proposed determination within 30 days from the date of this letter, the
IRS will consider it to be a failure to exhaust your available administrative remedies.
Section 7428(b)(2) of the Code provides, in part: "A declaratory judgment or decree
under this section shall not be issued in any proceeding unless the Tax Court, the
Claims Court, or the District Court of the United States for the District of Columbia
determines that the organization involved has exhausted its administrative remedies
within the Internal Revenue Service." We will then issue a final revocation letter. We
will also notify the appropriate state officials of the revocation in accordance with section
6104(c) of the Code.

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.

Thank you for your cooperation.

Sincerely,

Sunita Lough
Director, EO Examinations

Enclosures:
Publication 892
Publication 3498
Report of Examination

Letter 3618 (04-2002)
Catalog Number 34809F

Form 886-A Schedule number or exhibit
(Rev. January 1994) EXPLANATIONS OF ITEMS

Name of taxpayer Tax Identification Number | Year/Period ended
ORG EIN 20XX/ December 31

LEGEND
ORG = Organization name XX = Date

Issue:

Whether ORG qualifies for exemption under Section 501(c)(3) of the Internal Revenue
Code.

Facts:

Exhibit A provides copies of the Internal Revenue Service correspondence
requesting that ORG provide the necessary documents to prove the dissolution of the
organization. ORG failed to produce the documents requested from the Internal
Revenue Service correspondence or file the Forms 990 for the tax period ending
December 31, 20XX.

Law:

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.

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
(Rev, January 1994) EXPLANATIONS OF ITEMS

Name of taxpayer Tax Identification Number | Year/Period ended

ORG EIN 20XX/ December 31

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.

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.

Taxpayer’s Position: Taxpayer advised the examiner that ORG was dissolved
several years ago and the final return had been filed along with a dissolution of
assets. Unfortunately, they have not been able to provide the necessary documents
to prove such action. They agree the organization no longer exists and should be
revoked.

Government’s Position: Because the Taxpayer was unable to provide the
necessary documentation to prove the dissolution of ORG, the Service finds it
necessary to initiate revocation to correct our records.

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)(3). Accordingly, the organization's exempt status is
revoked effective January 1, 20XX.

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