Other 1105044: Exemption revoked after a charity failed to file required annual returns

Plain-English summary

The IRS revoked a charitable organization’s exemption under IRC § 501(c)(3). The organization failed to file annual returns and did not respond to IRS requests for information about its receipts, expenditures, or activities. The IRS concluded that the organization had not established that it continued to operate exclusively for exempt purposes or that its earnings did not benefit private individuals. Contributions were no longer deductible after the effective date, and the organization was required to file Form 1120.

Ruling snapshot

• Question: Should the organization’s IRC § 501(c)(3) exemption be revoked because it failed to file required annual returns and respond to IRS requests?
• Outcome: Revocation.
• Key authorities: IRC §§ 170, 501(c)(3), 6001, 6033, 6104(c), and 7428; Treas. Reg. §§ 1.6001-1(a), 1.6001-1(c), 1.6001-1(e), and 1.6033-1(h)(2); Rev. Rul. 59-95; Rev. Proc. 83-23.

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
TEGE EO Examinations Mail Stop 4920 DAL
1100 Commerce St.
Dallas, Texas 75242
501.03-00

Date: November 9, 2010

Release Number: 201105044
Release Date: 2/4/11

LEGEND

ORG - Organization name

XX - Date Address - address

Taxpayer Identification Number:
Person to Contact:

Employee Identification Number:
Employee Telephone Number:
(Phone)

ORG
(Fax)

ADDRESS

CERTIFIED MAIL - RETURN RECEIPT

Dear

This is a final adverse determination regarding your exempt status under section 501(c)(3) of the
Internal Revenue Code (the Code). Our favorable determination letter to you dated December
19XX is hereby revoked and you are no longer exempt under section 501(a) of the Code effective
July 1, 20XX.

The revocation of your exempt status was made for the following reason(s):

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 file your annual returns to
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
reasonable requests to file your annual returns regarding your receipts, expenditures, or activities
as required by sections 6001 and 6033(a)(1) of the Code and Rev. Rul. 59-95, 1959-1 C.B. 627.

Contributions to your organization are no longer deductible under IRC § 170 after July 1, 20XX.

You are required to file income tax returns on Form 1120. These returns should be filed with the
appropriate Service Center for the tax year ending June 30, 20XX, and for all tax years thereafter in
accordance with the instructions of the return.

Processing of income tax returns and assessments 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 under the declaratory judgment provisions of section
7428 of the Code, a petition to the United States Tax Court, the United States Claims Court, or the
district court of the United States for the District of Columbia must be filed before the 91st day
after the date this determination was mailed to you. Please contact the clerk of the appropriate
court for rules regarding filing petitions for declaratory judgments by referring to the enclosed
Publication 892. You may write to the United States Tax Court at the following address:

You also 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 contact the person whose name and telephone number are
shown in the heading of this letter.

Sincerely,

Nanette M. Downing
Director, EO Examinations

Enclosures:
Publication 892

Internal Revenue Service Department of the Treasury
TEGE: Room 523 Group 7910

625 Fulton Street
Brooklyn, NY 11201

Taxpayer Identification Number:

Date: May 24, 2010

Form:

ORG
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 (Rev. 11-2003)
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 (Rev. 11-2003)
Catalog Number: 34809F

Form 886-A (Rev. January 1994) EXPLANATIONS OF ITEMS

Name of taxpayer ORG Tax Identification Number EIN Year/Period ended 06/30/20XX

LEGEND

ORG = Organization name XX = Date State = state President = president

Issue:

Whether ORG was required to file Form 990 under Section 6033 of the Internal Revenue Code for tax year
ending June 30, 20XX?

Facts:

ORG was incorporated in the state of State on March 11, 19XX. Form 1023 Application for Exemption
with the Internal Revenue Service, was filed by the organization requesting tax exempt status under
Section 501(c)(3) of the Internal Revenue Code on September 19, 19XX. Tax exemption was granted to
the ORG as a 501(c)(3) publicly supported organization on December 8, 19XX.

ORG was selected for examination for tax year ending June 30, 20XX. During the course of this
examination it was discovered that the organization failed to file returns for tax years ending June 30,
20XX and June 30, 20XX. The organization was required to file since the previous tax year ended June
30, 20XX the organization had reported total revenue of $ on Form 990, Part I, Line 12. ORG had gross
receipts in excess of $ for tax year ending June 30, 20XX. The organization reported payroll of $ for
period July 1 through December 31, 20XX and payroll of $ for period January 1, 20XX through June 30,
20XX.

ORG ceased operating due to loss of its main benefactor and lack of funds to continue operations.
Exhibit A provides copies of the Internal Revenue Service certified correspondence requesting that ORG
files the Form 990 for the tax period ended June 30, 20XX and June 30, 20XX during this examination.

Law:

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 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.

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 officers or employees, and shall be retained as long
as the contents thereof may be material in the administration of any internal revenue law.

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

Form 886-A EXPLANATIONS OF ITEMS

Name of taxpayer ORG Tax Identification Number EIN Year/Period ended 06/30/20XX

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. Proc. 83-23, 1983-1 C.B. 687, states in part every organization exempt from federal income tax under
Internal Revenue Code section 501(a) must file an annual information return except an exempt
organization (other than a private foundation) having gross receipts in each tax year that normally are not
more than $25,000.

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 and to determine its liability for any
unrelated business income tax.

TAXPAYER’S POSITION

President has stated that organization would agree to revocation.

GOVERNMENT’S POSITION

The government’s position is that the ORG’s exempt status should be revoked under section
501(c)(3) of the Internal Revenue Code for failing to file its annual return when required to do so.

Conclusion:

It is the Service’s position that the organization failed to meet the reporting requirements under IRC
§§ 6001 and 6033 to be recognized as exempt from federal income tax under IRC § 501(c)(3).
Accordingly, we propose to revoke the organization’s exempt status effective July 1, 20XX.

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