Determination 1129042: IRS revoked exemption after an organization failed to provide examination records

Plain-English summary

The IRS revoked an organization's recognition as tax-exempt under section 501(c)(3) after the organization failed to provide information requested during an examination of its Form 990. The final determination made the revocation effective January 1 of the redacted year and required the organization to file Form 1120 returns. Contributions made after that effective date were no longer deductible under section 170. The release also includes the proposed revocation letter and an examination explanation citing the organization's recordkeeping and reporting duties.

Ruling snapshot

• Question: Whether the organization continued to qualify for exemption under IRC § 501(c)(3).
• Outcome: Revocation.
• Key authorities: IRC §§ 170, 501(a), 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.

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
TAX EXEMPT AND

GOVERNMENT ENTITIES
DIVISION

Date: April 25, 2011

Release Number: 201129042
Release Date: 7/22/2011
UIL Code: 501.03-00
LEGEND

ORG - Organization name

XX - Date Address - address Taxpayer Identification Number:

Person to Contact:

Employee Identification Number:
Employee Telephone Number:
ORG

ADDRESS

CERTIFIED MAIL
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
November 9, 20XX is hereby revoked and you are no longer exempt under section 501(a) of
the Code effective January 1. 20XX.

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

In our letter(s) dated July 20, 20XX, August 6, 20XX, August 20, 20XX and September 27,
20XX, we requested information necessary to conduct an examination of your Form 990 for
the year ended December 31, 20XX. We have not received the requested information.

Section 1.6033-2(h)(2) of the Income Tax Regulations provides, in part, that every
organization which is exempt from tax, shall submit such additional information as may be
required by the Internal Revenue Service for the purpose of inquiring into its exempt status.

Since you have not provided the requested information, we hereby revoke your
organization’s exemption from Federal income tax under section 501(c)(3) of the Internal
Revenue Code effective January 1, 20XX

Contributions to your organization are no longer deductible under IRC §170 after January 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 December 31, 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:

We will notify the appropriate State Officials of this action, as required by Code section
6104(c). You should contact your State officials if you have any questions about how this
final determination may affect your State responsibilities and requirements.

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

DEPARTMENT OF THE TREASURY

INTERNAL REVENUE SERVICE
TE/GE EO Examinations
Examiner’s Address
REVERS

Examiner’s Address

TAX EXEMPT AND

GOVERNMENT ENTITIES

DIVISION
Date: November 8, 2010
ORG
ADDRESS Taxpayer Identification Number:
Form:

Tax Year(s) Ended
Person to Contact/ID Number:

Contact Numbers:

CERTIFIED MAIL — RETURN RECEIPT REQUESTED
Dear

We propose to revoke our recognition of your exempt status as an organization described in
section 501(c)(3) of the Internal Revenue Code (Code). We enclose our report of
examination explaining why we are proposing this action.

If you accept our proposal, please sign and return the enclosed Form 6018, Consent to
Proposed Action - Section 7428, unless you have already provided us a signed Form 6018.
We will issue a final revocation letter determining you are not an organization described in
section 501(c)(3). After the issuance of the final revocation letter we will publish an
announcement that you have been deleted from the cumulative list of organizations
contributions to which are deductible under section 170 of the Code. If you do not respond to
this proposal, we will similarly issue a final revocation letter. Failing to respond to this
proposal may adversely impact your legal standing to seek a declaratory judgment because
you may be deemed to have failed to exhaust administrative remedies.

If you do not agree with our proposed revocation and wish to protest our proposed revocation
to the Appeals Office of the Internal Revenue Service, then 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. This written request is called a protest. For your protest to be valid it needs to
contain certain specific information which generally includes a statement of the facts, the
applicable law, and arguments in support of your position. For the specific information
needed for a valid protest, please refer to page 6 of the enclosed Publication 3498, The
Examination Process, and page 2 of the enclosed Publication 892, Exempt Organizations

Appeal Procedures for Unagreed Issues. These documents also explain how to appeal an
IRS proposed action.

If you do submit a valid protest, then 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 and Publication 892 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. Please note that
Fast Tract Mediation Services referred to in Publication 3498, generally do not apply after
issuance of this letter.

You may also request that we refer this matter for Technical Advice as explained in
Publication 892 and an annual revenue procedure. Please contact the individual identified
on the first page of this letter if you are considering requesting Technical Advice. If we issue
a determination letter to you based on a Technical Advice Memorandum issued by the EO
Rulings and Agreements function, then no further administrative appeal will be available to
you within the IRS on the matter.

If you agreed with the proposed revocation or if you receive a final revocation letter, you will
be required to file Federal income tax returns for the tax period(s) shown above. File these
returns with the Ogden Service Center within 30 days of the date you agreed with the
revocation or the date of your final revocation letter, whichever is sooner, unless a request for
extension of time is granted. File returns for later tax years with the appropriate service
center indicated in the instructions for those returns.

We will notify the appropriate state officials of the revocation in accordance with section
6104(c) of the Code. Currently, only certain states are eligible to receive notification of
proposed revocation actions. You can call the person at the heading of this letter to find out
if your State is eligible to receive a notice of revocation of your tax-exempt status.

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

Form 886-A Schedule number or exhibit
(Rev. January 1994) EXPLANATIONS OF ITEMS

Name of taxpayer Tax Identification Number | Year/Period ended

ORG EIN December 31, 20XX

LEGEND
ORG - Organization name XX - Date

Issue:

Whether The ORG continues to qualify for exemption under Section 501(c)(3) of the
Internal Revenue Code.

Facts:

Exhibit A provides copies of the Internal Revenue Service correspondence
requesting that Exempt Organization provide documentation to substantiate their
exempt status for the tax period ending December 31, 20XX. Exempt Organization
failed to respond to the Internal Revenue Service correspondence and failed to
provide documentation to substantiate their exempt status.

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

Form 886-A Schedule number or exhibit
(Rev. January 1994) EXPLANATIONS OF ITEMS

Name of taxpayer Tax Identification Number | Year/Period ended

ORG EIN December 31, 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 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 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 IRC §§ 6001 and 6033 to be recognized as exempt from federal
income tax under IRC § 501(c)(3). Accordingly, it is proposed that the organization's
exempt status be revoked effective January 1, 20XX.

Form 1120 returns should be filed for the tax periods ending on or after January 1,
20XX.

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