Determination 1040031: IRS revokes an organization’s tax exemption for lack of evidence

Plain-English summary

The IRS revoked an organization’s federal income tax exemption under IRC § 501(c)(3), effective July 1, 20XX. The organization had not filed its required Form 990 and did not respond to repeated requests for information or attempts to contact its officers. The IRS concluded that it could not verify any continuing exempt activity or conduct an audit of the organization’s records. Contributions were no longer deductible under IRC § 170, and the organization was required to file Form 1120.

Ruling snapshot

• Question: Did the organization demonstrate that it was properly operating 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. §§ 1.501(c)(3)-1(c)(1), 1.6001-1(c), 1.6001-1(e), and 1.6033-2(h)(2)

Full text (IRS public release)

DEPARTMENT OF THE TREASURY

Internal Revenue Service
TE/GE EO Examinations

1100 Commerce Street

Dallas, TX 75424 501.03-00
TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION
May 18, 2010
Number: 201040031
Release Date: 10/8/2010
LEGEND
ORG = Organization name Person to Contact:

XX = Date Address = address Identification Number:

Contact Telephone Number:
ORG In Reply Refer to: TE/GE Review Staff
ADDRESS EIN:

CERTIFIED MAIL - Return Receipt Requested
LAST DATE FOR FILING A PETITION
WITH THE TAX COURT: August 16, 20XX

Dear

This is a final revocation letter as to your exempt status under section 501(c) (3) of the
Internal Revenue Code. The Internal Revenue Service’s recognition of your organization as
an organization described in section 501(c) (3) is hereby revoked effective July 1, 20XX.

We have made this determination for the following reasons:

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 section 501(a) must be organized and
operated exclusively for an exempt purposes. You have provided no
information regarding your receipts, expenditures or activities. You have
not established that you have operated exclusively for an exempt purpose.

As such, you failed to meet the requirements of I.R.C. 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. These returns should be
filed with the appropriate Service Center for the year ending June 30, 20XX, and for all years
thereafter.

2.

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 for declaratory
judgment in the United States Tax Court, the United States Claim 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 the rules for
initiating suits for declaratory judgment.

You also have the right to contact the office of the Taxpayer Advocate. However, you
should first contact the person whose name and telephone number are shown above since
this person can access your tax information and can help you get answers.

You can call 1-877-777-4778 and ask for Taxpayer Advocate assistance. Or you can contact
the Taxpayer Advocate from the site where the tax deficiency was determined by calling,
(973) 921-4043, or write:

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, nor 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, please contact the person whose name and telephone number are
shown in the heading of this letter.

Sincerely yours,

Nanette M. Downing
Director, EO Examinations

DEPARTMENT OF THE TREASURY
Internal Revenue Service
200 Sheffield St, 3rd Floor
Mountainside, NJ 07092

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

November 24, 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
EXPLANATION OF ITEMS

(Rev. January 1994) 990

Name of taxpayer Tax Identification Number Year/Period ended

ORG EIN June 30, 20XX
LEGEND
ORG = Organization name XX = Date

Issue: Whether exempt organization 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 Exempt
Organization file the Form 990 for the tax period ending June 30, 20XX . Exempt Organization failed to
respond to the Internal Revenue Service correspondence or file the Forms 990 for the tax period ending June
30, 20XX.

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

Section 6033(a)(1) of the Code provides, except as provided in section 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.

Section 1.6001-1(a) of the regulations in conjunction with section 1.6001-1(c) provides that every organization
exempt from tax under section 501(a) of the Code and subject to the tax imposed by section 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 section 6033.

Section 1.6001-1(e) of the regulations 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.

Section 1.6033-1(h)(2) of the regulations 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 section 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 section 6033 of the Code and the
regulations which implement it, may result in the termination of the exempt status of an organization previously

Form 886-A (1-1994) Catalog Number 20810W Page 1 of 2 publish.no.irs.gov Department of the Treasury-Internal Revenue Service

Form 886-A Schedule number or exhibit
EXPLANATION OF ITEMS

(Rev. January 1994) 990

Name of taxpayer Tax Identification Number Year/Period ended

ORG EIN June 30, 20XX

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 sections 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
sections 6001 and 6033 to be recognized as exempt from federal income tax under 501(c)(3) of the Internal
Revenue Code. Accordingly, the organization's exempt status is revoked effective July 1, 20XX.

Form 1120 returns should be filed for the tax periods after July 1, 20XX.

Form 886-A (1-1994) Catalog Number 20810W Page 2 of 2 publish.no.irs.gov Department of the Treasury-Internal Revenue Service