IRS revokes an inactive charity's exemption

Plain-English summary

The IRS revoked an organization's exemption under IRC § 501(c)(3), effective July 1 of a redacted year. An examination found that the organization had been inactive and had no operations or regular financial activities conducted or planned. The IRS concluded that the organization failed the operational requirements for continued exemption. The organization was required to file Form 1120 for the year of revocation and later years.

Ruling snapshot

• Question: Did an inactive organization continue to qualify for exemption under IRC § 501(c)(3)?
• Outcome: Revocation.
• Key authorities: IRC §§ 501(a), 501(c)(3), 170, 6104(c), 7428, and 1120; Treas. Reg. § 1.501(c)(3)-1(a)(1)

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
TE/GE: EO Examinations
625 Fulton Street, Room 503 501.03-00
Brooklyn, NY 11201

TAX EXEMPT AND

GOVERNMENT ENTITIES

DIVISION February 13, 2012

Number: 201222045
Release Date: 6/1/2012

LEGEND Taxpayer Identification Number:
ORG - Organization name Person to Contact:
XX - Date Address - address Identification Number:

Contact 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 July 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):

As a result of our examination for the tax year ended June 30, 20XX, it was determined
that your organization has been inactive and that there have been no operations or
regular financial activities conducted or planned. As such, you failed to meet the
operational requirements for continued exemption under IRC 501(c)(3).

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
these courts at the following addresses:

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

Enclosure:
Publication 892

Letter 3607(04-2002)
Catalog Number: 34198J

Internal Revenue Service — Department of the Treasury
Tax Exempt and Government Entities Division

Exempt Organizations: Examinations

625 Fulton St 5th floor

Brooklyn, NY 11201

Taxpayer Identification Number:
Date: June 9, 2011 Form:
Tax Year(s) Ended:

Person to Contact/ID Number:

Contact Numbers:

Telephone:

ORG Fax:
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 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.

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

Letter 3618 (Rev 11-2003)
Catalog Number 34809F

2

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 (Rev 11-2003)
Catalog Number 34809F

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

Name of taxpayer Tax Identification Number | Year/Period ended

ORG EIN 20XX06
LEGEND
ORG - Organization name XX - Date

During our examination of your return, Form 990, for the fiscal year ended June 30,
20XX, we noted that you discontinued operations and the filing of returns after July 1,
20XX.

In order to be exempt under IRC 501(c)(3), an organization must be both “organized”
and “operated” exclusively for one or more purposes specified in that section. If an
organization fails to meet either the organizational test or the operational test, it is not
exempt. (Regs 1.501(c)(3)-1 (a)(1)). The organizational test relates to the rules for
governing an organization and the purposes stated in its articles of organization. The
operational test relates to the organization’s activities.

As a result of your continued inactivity, we have determined that your fail to meet the
operational test. Accordingly, we propose to revoke your exemption from Federal
income tax as an organization described in section 501(c)(3) of the Internal Revenue
Code effective July 1, 20XX.

If you accept our findings, please sign and return the enclosed Form 6018,
Consent to Proposed Action — Section 7428.

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