IRS 1042039: IRS revoked exemption after an organization failed to file returns and provide information

Plain-English summary

The IRS revoked an organization's exemption under IRC § 501(c)(3), effective on a redacted date. The organization failed to establish that it continued to operate exclusively for an exempt purpose, did not file required annual returns, and did not respond to IRS requests for information. The examination report states that the organization failed to provide requested records and Forms 990-PF. The IRS required the organization to file Forms 990-PF and Form 1120 for specified years and notified the appropriate state officials.

Ruling snapshot

• Question: Did the organization continue to qualify for exemption under IRC § 501(c)(3) after failing to file returns and respond to IRS information requests?
• Outcome: Revocation
• Key authorities: IRC §§ 170, 501, 6001, 6033, 6104(c), and 7428; Treas. Reg. §§ 1.6001-1(e) and 1.6033-2(i)(2); Rev. Rul. 59-95

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
TE/GE - EO Mandatory Review 501.03-00
1100 Commerce Street, MC 4920-DAL
Dallas, TX 75242

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

Date: July 14, 2010
Employer Identification Number:

Person to Contact:
Number: 201042039
Identification Number:

In Reply Refer To:
TE/GE Review Staff

LEGEND
ORG = Organization name XX = Date
Address = address

ORG
ADDRESS

CERTIFIED MAIL — Return receipt requested

Dear :

This is a final adverse determination that you do not qualify for exemption from income tax
under section 501(a) of the Internal Revenue Code (I.R.C.) as an organization described in
I.R.C. section 501(c)(3). Internal Revenue Service recognition of your status as an organization
described in I.R.C. section 501(c)(3) is revoked, effective September 1, 20XX. Our adverse
determination is made for the following reason(s):

You have not established you are operated exclusively for charitable, educational,
scientific, or religious purposes. You have failed to file an annual return as required by §
6033. You have failed to reply to the IRS’s requests for information to determine if you still
qualify for tax exempt status under § 501(c)(3) as required by § 6001. Accordingly, you no
longer qualify for income tax-exemption under § 501(a) as an organization described in §
501(c)(3).

Contributions made to you are no longer deductible as charitable contributions by donors for
purposes of computing taxable income for Federal income tax purposes. See Rev. Proc. 82-39
1982-2 C.B. 759, for the rules concerning the deduction of contributions made to you between
October 1, 20XX and the date a public announcement, such as publication in the Internal
Revenue Bulletin, is made stating that contributions to you are no longer deductible.

You are required to file income tax returns on Forms 990-PF (as a taxable private foundation)
and 1120 for all years beginning after August 31, 20XX. Returns for the years ending August
31, 20XX, 20XX, and 20XX must be filed with this office within 60 days from the date of this

letter, unless a request for an extension of time is granted. Send such returns to the following
address:

Tax returns for subsequent years are to be filed with the appropriate Campus identified in the
instructions for those returns.

If you decide to contest this determination in court, you must initiate a suit for declaratory
judgment in 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:

The processing of income tax returns and assessment of any taxes due will not be delayed
because a petition for declaratory judgment has been filed under I.R.C. section 7428.

If you have questions about this letter, please write to the person whose name and address are
shown on this letter. If you write, please attach a copy of this letter to help identify your account.
Keep a copy for your records. Also, please include your telephone number and the most
convenient time for us to call, so we can contact you if we need additional information.

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. Your local Taxpayer Advocate can be
contacted at: Phone Fax.

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 I.R.C. section 6104(c).
This is a final revocation letter.

Sincerely,

Nanette M Downing
Director, EO Examinations

TAX EXEMPT AND TEGE:EO: 7909---5th Floor

GOVERNMENT ENTITIES
DIVISION

DEPARTMENT OF THE TREASURY
Internal Revenue Service
10 MetroTech Center; 625 Fulton Street
Brooklyn, NY 11201

January 14, 2010

Taxpayer Identification Number:

ORG Form:

ADDRESS
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,

Nanette M. Downing
Acting Director, EO Examinations

Enclosures:
Publication 892
Publication 3498
Report of Examination

Letter 3618 (04-2002)
Catalog Number 34809F

Form 886-A Department of the Treasury - Internal Revenue Service Schedule No. or
Explanation of Items Exhibit A
Name of Taxpayer Year/ Period Ended
ORG 08 /31/20XX
LEGEND
ORG = Organization name XX = Date
ISSUE:

Whether ORG qualifies for exemption under section 501(c)(3) of the Internal
Revenue Code as a private foundation after failure to provide requested
information.

FACTS:

ORG failed to respond to numerous Form 4564, Information Document Requests
sent to the organization by the Internal Revenue Service (the Service). The
organization did not submit the data in response to any of the aforementioned
correspondence.

The initial contact letter was mailed to the last known address of the organization
as well as to three officers listed in the last return filed by the entity for the tax
period ending August 31, 20XX. Telephone contacts were made with the
Department Fire Chief. The Fire Chief was informed that if the entity failed to
respond that the Service would propose revocation of its exemption status. The
officer has indicated that it has failed to file the required tax returns due to a
lack of funds to pay for the services of an accountant. The organization’s current
accountant has agreed to assist them after the tax season. The officer stated that the
accountant has all of their financial data at his office.

Exhibit A provides copies of the Internal Revenue Service correspondence
requesting that the organization file the delinquent Forms 990-PF for the tax
periods ending August 31, 20XX; 20XX; 20XX; 20XX and 20XX. The private
foundation failed to respond to the Internal Revenue Service correspondence and
file the Forms 990-PF requested for the above tax periods.

LAW:

Internal Revenue Code section 6001 provides that every person liable for any tax
imposed by the Internal Revenue Code, or for the collection thereof, shall keep

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

Form 886-A Department of the Treasury - Internal Revenue Service Schedule No. or
Explanation of Items Exhibit A
Name of Taxpayer Year/Period Ended
ORG 08 /31/20XX

Internal Revenue Code section 6033(a)(1) provides that every organization
exempt from taxation 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 purpose of carrying out the internal revenue laws as the Secretary may by
forms or regulations prescribe, and shall 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.

Federal Tax Regulations section 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 so long as
the contents thereof may become material in the administration of any internal
revenue law.

Federal Tax Regulations section 1.6033-2(i)(2) provides that every organization
which is exempt 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
Internal Revenue Service for the purpose of inquiring into its exempt status and
administering the provisions of subchapter F (section 501 and the following),
chapter I of the Code and section 6033 of the Code.

Revenue Ruling 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
Internal Revenue Code section 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
sections 6001 and 6033 as well as the revenue ruling, organizations recognized as
exempt from federal income tax must meet certain reporting requirements. These

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

requirements relate to 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.

CONCLUSIONS:

It is the position of the Internal Revenue Service that the organization failed to
meet the reporting requirements under IRC sections 6001 and 6033 to be
recognized as exempt from federal income tax under IRC section 501(c)(3) as a
private foundation. Accordingly, the organization’s exempt status is revoked

effective April 14, 20XX.

Form 1120 returns should be filed for the tax periods ending on or after

August 31, 20XX.

Form 886-A rev.4-68) Department of the Treasury - Internal Revenue Service
Page: -3-