Determination 1040029: IRS revokes an organization’s tax exemption for failure to respond

Plain-English summary

The IRS revoked an organization’s federal income tax exemption under IRC § 501(c)(3), effective January 1, 20XX. The organization failed to provide information about its receipts, expenditures, or activities after repeated requests from the IRS. The final examination report says the organization did not respond to contact requests concerning its exempt status and reporting obligations. Contributions were no longer deductible, and the organization was required to file Form 1120.

Ruling snapshot

• Question: Did the organization demonstrate that it continued to operate exclusively for exempt purposes under IRC § 501(c)(3)?
• Outcome: Revocation
• Key authorities: IRC §§ 170, 501(a), 501(c)(3), 6001, 6033(a)(1), 6104(c), and 7428; 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
TEGE EO Examinations Mail Stop 4920 DAL
1100 Commerce St.
Dallas, Texas 75242 501.03-00

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

Date: June 16, 2010

Number: 201040029
Release Date: 10/8/2010

LEGEND
ORG = Organization name XX = Date Address = address

ORG Taxpayer Identification Number
ADDRESS Person to Contact
Employee Identification Number:
Contact Numbers:

CERTIFIED MAIL:

Dear

This is a final adverse determination regarding your exempt status under section 501(c)(3) of
the Internal Revenue Code (the Code). Our favorable determination letters to you dated
August 26, 20XX and October 31, 20XX are hereby revoked and you are no longer exempt
under section 501(a) of the Code effective January 1, 20XX.

The revocation of your exempt status was made for the following reason(s):

You have not demonstrated that you are operated exclusively for charitable, educational, or
other exempt purposes within the meaning of I.R.C. section 501(c)(3). Organizations
described in I.R.C. section 501(c)(3) and exempt under 501(a) must be organized and
operated exclusively for exempt purposes. You have provided no information regarding your
receipts, expenditures, or activities, as required by Treas. Reg. § 1.6033-2(h)(2). You have
not established that you have operated exclusively for an exempt purpose.

You are required to file income tax returns on Form 1120. These returns should be filed with
the appropriate Service Center for the tax year ending December 31, 20XX and for all tax
years thereafter in accordance with the instructions of the return.

Processing of income tax returns and assessments 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 under the declaratory judgment provisions of
section 7428 of the Code, a petition to the United States Tax Court, the United States Claims
Court, or the district court of the United States for the District of Columbia must be filed
before the 91st Day after the date this determination was mailed to you. Please contact the
clerk of the appropriate court for rules regarding filing petitions for declaratory judgments by
referring to the enclosed Publication 892. You may write to the United States Tax Court at
the following address:

You also 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:

See the enclosed Notice 1546, Taxpayer Advocate Service — Your Voice at the IRS, for
Taxpayer Advocate telephone numbers and addresses.

We will notify the appropriate State Officials of this action, as required by Code section
6104(c). You should contact your State officials if you have any questions about how this
final determination may affect your State responsibilities and requirements.

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

Sincerely
Doug Shulman

Commissioner
By

Nanette M. Downing
Director, EO Examinations

Enclosure(s)
Publication 1546

Internal Revenue Service Department of the Treasury
Tax Exempt and Government Entities Division

2303 W. Meadowview Road

Suite 100

Greensboro, NC 27407

Date: May 14, 2010

Taxpayer Identification Number:
Form:

ORG Person to Contact/ID Number:
Contact Telephone Number:
ADDRESS Contact Fax Number:

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 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.

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

Letter 3618 (Rev 11/2003)
Catalog Number 34809F

2

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,

Leonard Williams
Revenue Agent, EO Examinations

Enclosures:
Publication 892
Publication 3498

Report of Examination

Letter 3618 (Rev 11/2003)
Catalog Number 34809F

Form 886A Department of the Treasury - Internal Revenue Service Schedule No. or
Explanation of Items Exhibit
Name of Taxpayer Year/Period Ended
ORG 20XX12

LEGEND
ORG = Organization name XX = Date City = city State = state RA-
1 = 1st RA CEO = CEO
Issue:

Whether ORG continues to qualify for exemption under Section 501(c)(3) of the Internal Revenue Code.
Facts:

Copies of Internal Revenue Service correspondence requesting the Exempt Organization officers affiliated
with the organization during the tax period listed above contact the Service in regards to return
substantiation and exempt status. Certified letters mailed to the officers listed on the Form 990 were
returned undeliverable or unclaimed. A Form 4759 postal tracer provided a change of address located in
City, State. Certified letters mailed to this address were delivered and signed for by RA-1, husband of
CEO, CEO of ORG Exempt Organization failed to respond to the Internal Revenue Service
correspondence requesting contact in regards to the tax period ending December 31, 20XX.

Law:

IRC 7602(a) provides authority to summon for the purpose of ascertaining the correctness of any return,
making a return where none has been made, determining the liability of any person for any internal
revenue tax or the liability at law or in equity of any transferee or fiduciary of any person in respect of
any internal revenue tax, or collecting any such liability, the Secretary is authorized.

IRC 7602(a)(1) provides authority to examine any books, paper, records and other data which may be
relevant or material to such inquiry.

IRC 7602(a)(2) provides authority to summons the person liable for tax or required to perform the act, or
any officer or employee of such person, or any person having possession, custody, or care of books of
account containing entries relating to the business of the person liable for tax or required to perform the
act, or any other person the Secretary may deem proper, to appear before the secretary at a time and
place named in the summons and to produce such books, papers, records, or other data, and to give
such testimony, under oath, as may be relevant or material to such inquiry.

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 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 revenues laws as
the Secretary may be 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

Form 886-A (rev.4-68) Department of the Treasury - Internal Revenue Service
Page: -1-

Form 886A Department of the Treasury - Internal Revenue Service Schedule No. or

Explanation of Items Exhibit
Name of Taxpayer Year/Period Ended
ORG 20XX12

to establish the amount of gross income, deductions, credits, or other materials 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 purposes 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. 59-95-1 C.B. 627, concerns an exempt organization that was requested to produce a financial
statement and statement of its operations for 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:

Organization failed to respond to the contact request in regards to the tax year ending December 31,
20XX.

Conclusion:

It is the IRS's position that the organization failed to meet the reporting requirements under IRC 7602,
6001 and 6033 to be recognized as exempt from federal income tax under IRC 501(c)(3).

Form 886-A (rev.4-68) Department of the Treasury - Internal Revenue Service
Page: -2-