Determination 1045029: private foundation exemption is revoked for missing records and filings

Plain-English summary

The IRS revoked a private foundation's exemption under section 501(c)(3), effective from a redacted date. The organization did not provide requested records or respond to repeated requests for information needed to establish that it operated exclusively for exempt purposes. The determination states that the organization failed to file required Form 990 returns and that the IRS could not verify whether its expenditures were charitable. The organization must file Form 1120, and the determination explains that contributions are no longer deductible under section 170.

Ruling snapshot

• Question: Did the private foundation 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

Internal Revenue Service

[illegible]
TE/GE EO Examinations
1100 Commerce Street
Dallas, TX 75242
TAX EXEMPT AND
GOVERNMENT ENTITIES Date: July 20, 2010 501.03-00
DIVISION

Release Number: 201045029
Release Date: 11/12/10

LEGEND

ORG = Organization name XX = Date Address

ORG Person to Contact:

ADDRESS Identification Number:
In Reply Refer to: TE/GE Review Staff
EIN:

CERTIFIED MAIL - Return Receipt Requested

Dear

This is a Final Adverse Determination Letter as to your exempt status under section
501(c)(3) of the Internal Revenue Code. Your exemption from Federal income tax under
section 501(c)(3) of the code is hereby revoked effective January 1, 20XX.

Our adverse determination was made for the following reasons:

Organizations described in I.R.C. § 501(c)(3) and exempt under section
501(a) must be both organized and operated exclusively for exempt purposes.
You have failed to produce documents or otherwise establish that you are
operated exclusively for exempt purposes and that no part of your net earnings
inures to the benefit of private shareholders or individuals. You failed to
respond to repeated reasonable requests to allow the Internal Revenue Service
to examine your records regarding your receipts, expenditures, or activities as
required by I.R.C. § 6001, 6033(a)(1) and Rev. Rul. 59-95, 1959-1 C.B. 627.

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 December 31, 20XX and for all

years thereafter.

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 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 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,

Tel: (605) 377-1600, 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,

Douglas H. Shulman
Commissioner
By

Nanette M. Downing
Director, EO Examinations
Enclosures:
Publication 892
Publication 1546

PRE, TE/GE EO Examinations
ie 30 East 7th St. Suite 1130B
. Mail Stop 4925
St. Paul, MN 55101

Date: October 20, 2010

ORG Taxpayer Identification Number:
ADDRESS Tax Form:
Tax Year 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, please sign and return the enclosed Form 6018, Consent to
Proposed Action - Section 7428. If you have already given us a signed Form 6018,
you need not repeat this process. 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 revocation letter.

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

Form 886-A : Schedule number or exhibit

[illegible] EXPLANATIONS OF ITEMS

Name of taxpayer 7 | Tax Identification Number - Year(s) ended:

ORG December 31, 20XX
EIN December 31, 20XX

LEGEND

ORG = Organization name XX = Date City = city State = state

Issue:

Whether ORG located in City, State qualifies for exemption under Section 501(c)(3) of the
Internal Revenue Code

Facts:

ORG is an exempt organization located in City, State that is exempt under Section 501(c)(3)
of the Internal Revenue Code (IRC). Letter 1045 was issued on May 13, 20XX that
stated the organization was exempt from federal income tax under Section 501(a) of the
Internal Revenue Code as an organization described in Section 501(c)(3) with a Foundation
Status Classification under Section 509(a)(2).

Exhibit A provides copies of IRS correspondence requesting the Exempt Organization file the
Form 990 for tax periods ending December 31, 20XX and December 31, 20XX.

Law:

IRC Section (§) 501(c)(3) exempts from Federal income tax: corporations, and any community
chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific,
testing for public safety, literary, or educational purposes, or for the prevention of cruelty to
children or animals, no part of the net earnings of which inures to the benefit of any private
shareholder or individual, no substantial part of the activities of which is carrying on
propaganda, or otherwise attempting to influence legislation and which does not participate in,
or intervene in (including the publishing or distributing of statements), any political campaign on
behalf of any candidate for public office.

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 Service laws. The Secretary may also prescribe by forms or regulations
the requirement of every organization to 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.

Form 886-A (1-1994)
Issued October 20, 20XX

' Schedule number or exhibit

Form 886-A

[illegible] EXPLANATIONS OF ITEMS

Name of taxpayer ~ | Tax Identification Number Year(s) ended:
ORG December 31, 20XX

EIN December 31, 20XX

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 Service 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 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.

Taxpayer’s Position

The taxpayer's position is unknown at this time

Government’s Position

ORG was requested to provide books and records to the IRS to show they continue to be
exempt under Section 501(c)(3) of the IRC. In addition, the Exempt Organization was

Form 886-A (1-1994)
Issued October 20, 20XX

Form 886-A
Rev. January 1994 EXPLANATIONS OF ITEMS

Name of taxpayer Tax Identification Number | Year(s) ended:
ORG December 31, 20XX
EIN December 31, 20XX

issued correspondence requesting a Form 990 be filed for tax years 20XX and 20XX. Under
IRC Section 6001 and 6033, an exempt organization must keep records and file an annual
tax return. Treasury Regulation 1.6033-1(h)(2) provides that “every organization which has
established its right to exemption from tax” is required to submit information as required to
inquire if an organization shall continue to be exempt. It is the Government's position that
information from ORG has not been provided to determine if they continue to be exempt from
tax.

Conclusion:

ORG of City, State has failed to meet the reporting requirements as an exempt organization
as required under IRC Sections 6001 and 6033 along with Treasury Regulations 1.6001-1(a),
1.6001-1(e), and 1.6033-1(h)(2). Accordingly, since the organization has failed to observe the
requirements to file a return for its continued existence as an exempt organization under
Section 501(c)(3) of the IRC, the tax-exempt status is revoked effective January 1, 20XX.

' Schedule number or exhibit

Form 886-A (1-1994)
Issued October 20, 20XX

[illegible]