Determination 1045026: organization loses exemption after failing to establish continued qualification

Plain-English summary

The IRS revoked the organization's section 501(c)(3) exemption effective January 1 of a redacted year. The organization did not establish that it operated exclusively for an exempt purpose, serve a sufficiently public interest, or file the required information returns. The attached examination report concludes that the organization failed to meet the reporting requirements under sections 6001 and 6033 and therefore was not entitled to continued exemption. The organization was required to file Form 1120 for subsequent years.

Ruling snapshot

• Question: Did the organization continue to qualify for exemption under IRC § 501(c)(3)?
• Outcome: Revocation
• Key authorities: IRC §§ 170, 501, 6001, 6033, 6104, and 7428; Treas. Reg. §§ 1.6001-1 and 1.6033-1

Full text (IRS public release)

DEPARTMENT OF THE TREASURY 501.03-00
INTERNAL REVENUE SERVICE
1100 Commerce Street

Dallas, TX 75242

Date: August 6, 2010

Person to Contact:

Release Number: 201045026
Release Date: 11/12/10

LEGEND
ORG = Organization name
XX = Date Address = address

Badge Number:
Contact Telephone Number:
Contact Address:

Employer Identification Number:

CERTIFIED MAIL

Dear

This is a final notice of adverse determination that your exempt status under section
501(c)(3) of the Internal Revenue Code is revoked. Recognition of your exemption under
Internal Revenue Code section 501(c)(3) is revoked effective January 1, 20XX the following

reason(s):

You have not demonstrated that you are operated exclusively for an exempt purpose as required
in order to be described in section 501(c)(3). You have not demonstrated that you are and have
been engaged primarily in activities that accomplish one or more exempt purposes. You have

not demonstrated that you serve a public interest rather than serving private interests to a more

than insubstantial degree.

Contributions to your organization are no longer deductible effective January 1, 20XX.

Since your exempt status has been revoked, you are required to file Form 1120, U.S.
Corporation Income Tax Return, for all years beginning on or after January 1, 20XX.

Income tax returns for subsequent years are to be filed with the appropriate Service Center
identified in the instructions for those returns.

It is further determined that your failure to file a written appeal constitutes a failure to exhaust
your available administrative remedies. However, 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 Court of Claims, or the district court of the United States for the District of
Columbia before the (ninety-first) 91st day after the date that this determination was mailed to
you. Contact the clerk of the appropriate court for rules for initiating suits for declaratory
judgment. To secure a petition form, write to the following address:

Please understand that filing a petition for a declaratory judgment under IRC section 7428 will
not delay the processing of subsequent income tax returns and assessment of any taxes due.

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 the Taxpayer Advocate assistance or you can contact the Advocate from the site
where this issue was determined by writing to:

Taxpayer Advocate assistance cannot be used as substitute for established IRS procedures,
formal appeals processes, etc. The Taxpayer Advocate is not able to reverse legal or technically
correct tax determination, nor extend the time fixed by law that you have to file a petition in
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.

This letter should be kept within your permanent records.

If you have any questions, please contact the person whose name and telephone number are
shown above.

Sincerely,

Nanette M. Downing
Director, EO Examinations

Enclosures:
Publication 892

DEPARTMENT OF THE TREASURY
Internal Revenue Service

TAX EXEMPT AND
GOVERNMENT ENTITIES

DIVISION
December 10, 2010

| ORG
ADDRESS

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

ined

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:

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

ee Explanation of Items eechtilote
Name of Taxpayer Year/Period Ended
ORG 20XX
LEGEND
ORG = Organization name XX = Date

ISSUES 1:

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

ISSUES 2:

Should the organization’s 501(c)(3) tax exempt status be revoked because it has failed to
establish it is observing the conditions required for continuation of its exempt status and is not
engaged in any significant exempt activity?

FACTS:

Exhibit A provides copies of the Internal Revenue Service correspondence requesting that
[:xempt Organization file the Form 990 for the tax period ending, December 31, 20XX. Exempt
Organization failed to respond to the Internal Revenue Service correspondence or file the Forms
990 for the tax period ending

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.

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
Name of Taxpayer Year/Period Ended
20XX
ORG 20XX

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 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.

Government Position

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.

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
January 1, 20XX

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

Page: -2-

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

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 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
January 1, 20XX.

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