IRS revokes exemption after an organization stops operating

Plain-English summary

The IRS revoked an organization's recognition as exempt under IRC § 501(c)(3). The organization had stopped operating, failed to respond to repeated requests for records, and had not filed an annual Form 990 for the listed period. The IRS concluded that the organization could not establish that it operated exclusively for exempt purposes and had failed to satisfy recordkeeping and reporting requirements. The organization was required to file Form 1120 returns for years beginning on or after the redacted effective date.

Ruling snapshot

• Question: Did the organization continue to qualify for exemption after ceasing operations and failing to provide records and reports?
• Outcome: revocation
• Key authorities: IRC §§ 170, 501, 6001, 6033, 6104, and 7428; Treas. Reg. §§ 1.501(c)(3)-1, 1.6001-1, and 1.6033-2

Full text (IRS public release)

INTERNAL REVENUE SERVICE
1100 Commerce Street
Dallas, TX 75242

501.03-00

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

Date: August 31, 2010

Person to Contact:
Release Number: 201101025
Release Date: 1/7/11

LEGEND Badge Number:
ORG ~ Organization name Contact Telephone Number:
XX - Date Address - address Contact Address:

Employer Identification Number:
CERTIFIED MAIL
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 April 1, 20XX.

Our adverse determination was made for the following reasons:

Organizations described in IRC §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 IRC §§ 6001, 6033(a)(1)

and the regulations thereunder.

Our records also indicate you have not filed an annual return on Form 990 since the year ended March 31, 20XX. IRC § 6033(a)(1) provides that with certain exceptions, every organization exempt from taxation under 501(a) shall file an annual return.

Contributions to your organization are no longer deductible effective April 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 April 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

[illegible]
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 you 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
107 Charles Lindbergh Blvd
Garden City, New York 11530

TAX EXEMPT AND
GOVERNMOCNT ENTITIES
OIVISION

May 18, 2010

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,

Nanette M. Downing
Director, EO Examinations

Enclosures:
Publication 892
Publication 3498
Report of Examination

Letter 3618 (04-2002)
Catalog Number 34809F

Department of the Preastas - Tnterad) Revenue Service Schedule No. or

vn 886A ?
i Explanation of Items _ | Exhibit }of2
Name of Laxpayer Year/Petriod Ended
ORG | 3/31/20XX
PIN: bl
LEGEND
ORG - Organization name XX - Date City - city State - state ISSUES:

Whether the ORG qualifies for exemption under Section 501(c)(3) of the Internal Revenue Code, because the organization has no operations and does not meet the operational test as a charitable organization under Internal Revenue Code (IRC) 501 (c)(3)?

FACTS:

The ORG ceased operation sometime in November 20NN when it moved from its original office in City, State. The last Form 990 was filed for the year ended March 31, 20XX. There appears that no activities nor was any income generated or expenditures paid by this entity since that time. We have made several attempts to contact the last known officers who were listed on the Form 990 for the year ended March 31, 20NN but to no avail. .

LAW:

Requirements for Exemption Under IRC 501(c)Q)

FINAL-REG, TAX-REGS. §1.501(c)(3)-1(a)(1). Organizational and operational tests. (1) In order to be exempt as an organization described in section 501(c)(3), an organization must be both organized and operated exclusively for one or more of the purposes specified in such section. If an organization fails to meet either the organizational test or the operational test, it is not exempt.

(2) The term “exempt purpose or purposes’, as used in this section, means any purpose or purposes specified in section 501 (c)(3), as defined and elaborated in paragraph (d) of this

section.

(d) Exempt purposes--(1) In general. @) An organization may be exempt as an organization described in section 501(c)(3) if it is organized and operated exclusively for one or more of the following purposes:

(a) Religious,

(b ) Chantable,

(c) Scientific,

(d) ‘Testing for public safety,

(e) Literary,

(f) educational, or

(g) Prevention of cruelty to children or animals.
FINAL-REG, TAX-REGS , §1.501(c)(3)-1(c)(1) Operational test --(1) Primary activities. An organization will be regarded as “operated exclusively” for one or more exempt purposes only if it engages primarily in activities which accomplish one or more of such exempt

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

Page: 1-2

Form 886A

Department of the Treasury - Internal Revenue Service
Explanation of Items

Schedule No. or
Exhibit 2 of 2

Name of Taxpayer
ORG
EIN: EIN

Year/Period Ended
3/31/20XX

purposes specified in section 501(c)(3).

Conclusions:

The government contends that the ORG, failed to meet the “operational test” under Regulations Section 1.501(c)(3)-1(d)(ii). It failed to establish that it is operated exclusively for public and charitable purposes.

Based on the above information it was determined that the organization does not meet the “operational test” under IRC 501(c)(3) because it conducts no charitable activities. Therefore, revocation of its exempt status is proposed effective April 1st, 20XX.

Form 886-A (Rev.4-68)

Department of the Treasury - Internal Revenue Service

Page: 2-2