IRS revokes an organization's exemption after repeated failures to provide information

Plain-English summary

The IRS revoked an organization's tax-exempt status under IRC §§ 501(a) and 501(c)(3), effective January 1 of a redacted year. The IRS stated that the organization did not establish that it continued to operate exclusively for exempt purposes. The attached examination report says the organization failed to provide requested records, did not file past-due information returns, and did not explain why those returns were not due. Contributions were no longer deductible under IRC § 170, and the organization was required to file Form 1120 returns.

Ruling snapshot

• Question: Did the organization establish that it continued to qualify for exemption under IRC § 501(c)(3)?
• Outcome: Revocation
• Key authorities: IRC §§ 501(a), 501(c)(3), 170, 6033(a)(1), 6104(c), and 7428; Treas. Reg. § 1.6033-2(i)(2); Rev. Rul. 59-95

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
TEGE Appeals Programs CERTIFIED
300 N. Los Angeles Street
Los Angeles, CA 90012

Release Number: 201231017
Release Date: 8/3/2012
Date: May 10, 2012

[illegible] Person to Contact:

Taxpayer Identification Number:

Employee ID Number:

Tel:
Fax:
Refer Reply to:

In Re: Exempt status
Tax Years:

UIL Index:
501.03-00

Dear [illegible]

This is a final adverse determination as to your exempt status under section
501(a) as an organization described under section 501(c)(3) of the Internal Revenue
Code. Our adverse determination was made for the following reason(s):

You did not establish that you are observing the conditions required for the
continuation of exempt status. You did not establish that you were operated exclusively
for educational, charitable or other exempt purposes as required by section 501(c)(3) of
the Internal Revenue Code.

Contributions to your organization are not deductible under Code § 170. You are
required to file federal Form 1120 for the year(s) shown above.

If you decide to contest this determination under the declaratory judgment
provisions of Code section 7428, a petition to the United States Tax Court, the United
States Court of Claims, or the district court of the United States for the District of
Columbia must be filed before the 91st (ninety-first) day after the date this determination
was mailed to you. Contact the clerk of the appropriate court for rules for filing petitions
for declaratory judgment. To secure a petition form from the United States Tax Court,
write to the United States Tax Court, 400 Second Street, N.W., Washington, D.C.
20217.

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.

Taxpayer Advocate assistance cannot be used as a substitute for established
IRS procedures, formal appeals procedures, etc. The Taxpayer Advocate is not able to
reverse legal or technically correct tax determinations, or 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 final adverse determination of
your exempt status, as required by Code section 6104(c).

If you have any questions, please contact the person whose name and telephone
number are shown in the heading of this letter.

Sincerely,

Karen A. Skinder
Appeals Team Manager

cc:

Internal Revenue Service Department of the Treasury

TE/GE Division
450 Golden Gate Avenue MS SF 7-4-01
San Francisco, California 94102-3412

Taxpayer Identification Number:

Date:
Form:
ORG
Tax Year(s) Ended:
ADDRESS
Person to Contact/ID Number:
Contact Numbers:
Telephone:
Fax:

Certified Mail - Return Receipt Requested

Dear [illegible]

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 Adverse Action.
We will send you a final modification or 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
Director, EO Examinations

Enclosures:
Publication 892
Publication 3498
Report of Examination

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

Schedule number or exhibit

Form 886-A EXPLANATION OF ITEMS
(Rev. January 1994)
Year/Period ended

Name of taxpayer Tax Identification Number Year/Period ended
ORG EIN Dec 31, 20XX and 20XX

ISSUE:

Is ORG exempt from tax under Internal Revenue Code Section 501(c)(3)?

FACTS:

Internal Revenue Service records show that ORG was recognized as exempt under section 501(c)(3) of the Internal Revenue Code in
October 19XX.

The Internal Revenue Service received Form 990-PF for the year ending December 31, 20XX from [illegible] on December 16,
20XX. It received Form 990-PF for the year ending December 31, 20XX on February 16, 20XX. The Internal Revenue Service has no
record of receiving any Forms 990-PF for any subsequent years.

On March 1, 20XX, the Internal Revenue Service sent Letter 3611, Publication One and Form 4564, Information Document Request
to ORG. Information was requested for the year ending December 31, 20XX. The letter set an examination appointment for March
30, 20XX.

PRESIDENT, President of ORG, met with the Internal Revenue Service on June 9, 20XX. He was interviewed, but did not have any
of the documents requested on March 1, 20XX.

On June 10, 20XX, the Internal Revenue Service sent another Form 4564, Information Document Request to ORG. The form asked
ORG to have the requested documents available at the next appointment, set for July 19, 20XX.

PRESIDENT, President of ORG, met with the Internal Revenue Service on July 19, 20XX. He did not have any of the documents
requested on June 10, 20XX.

On July 19, 20XX, the Internal Revenue Service sent another Form 4564, Information Document Request to ORG. The form asked
ORG to mail the requested documents by August 9, 20XX.

On August 9, 20XX, the Internal Revenue Service received some of the documents requested: Bank statements and cancelled checks
for 20XX.

On September 20, 20XX, the Internal Revenue Service sent another Form 4564, Information Document Request to ORG. The
documents requested were for brokerage accounts, a copy of the court’s decision in a lawsuit filed against ORG, and documentation
for expense reimbursement paid to PRESIDENT.

On November 22, 20XX, the Internal Revenue Service sent another copy of the September 20, Document Request with the notation
stating “Second copy of this request Please respond.”

On November 24, 20XX, the Internal Revenue Service sent Letter 3606, Publication One and Form 4564, Information Document
Request to ORG asking for information regarding the Form 990-PF filed for the year ending December 31, 20XX. The documents
requested were copies of brokerage statements, bank statements, cancelled checks, and documents explaining the exempt purpose of
$ [illegible] in other expenses shown in Statement 3 attached to the return.

On November 29, 20XX, the Internal Revenue Service sent a letter by certified mail to ORG noting that it had no record that the
organization had filed Forms 990-PF for the year 20XX and that the return was past due. The letter asked that the organization file
the returns with the examining agent within 90 days or explain why they were not due.

On January 5, 20XX, the Internal Revenue Service sent Letter 1477 by certified mail to ORG with copies of the last document
request. Letter 1477 gives the organization 15 days to respond and noted that failure to respond would result in revocation.

On March 18, 20XX received a copy of the court’s decision in a lawsuit filed against ORG by e-mail, but no other requested
documents.

The Internal Revenue Service has no record of receiving the past due return or the documents requested by the last Forms 4564,
Information Document Request, other than the court decision.

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

Schedule number or exhibit

Form 886-A EXPLANATION OF ITEMS
(Rev. January 1994)
Year/Period ended

Name of taxpayer Tax Identification Number Year/Period ended
ORG EIN Dec 31, 20XX and 20XX

LAW:

Internal Revenue Code section 501(c)(3) provides for exemption from tax for “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 to foster national or international amateur sports competition (but only if no part of its activities involve the provision of
athletic facilities or equipment), 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 (except as otherwise provided in subsection (h)), and which does not participate in, or
intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any
candidate for public office.

Internal Revenue Code section 6033(a)(1) provides that “...every organization exempt from taxation 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 purpose
of carrying out the internal revenue laws as the Secretary may by forms or regulations prescribe, and shall 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;...”

§1.6033-2(i)(2) of the Income Tax Regulations provides that “Every organization which is exempt from tax, whether or not it is
required to file an annual information return, shall submit such additional information as may be required by the Internal Revenue
Service for the purpose of inquiring into its exempt status and administering the provisions of subchapter F (section 501 and
following), chapter 1 of subtitle A of the Code, section 6033, and chapter 42 of subtitle D of the Code.”

Revenue Ruling 59-95, 1959-1 C.B. 627, held that failure or inability to file the required information return or otherwise to comply
with the provision of section 6033 of the Code 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 an exempt status.

GOVRNMENT’S POSITION:

Despite repeated requests, ORG has not responded to requests for information, has not filed a past due return nor has it explained
why the return for 20XX might not be due. Because of its failure to observe the conditions for the continuation of an exempt status,
its exempt status should be revoked as of January 1, 20XX.

TAXPAYER’S POSITION:

ORG has not submitted its position.

CONCLUSION:

Exemption under section 501(c)(3) of the Internal Revenue Code is revoked effective January 1, 20XX. The organization is required
to file forms 1120, US Corporation Income Tax Returns, for 20XX and all subsequent years.

Form 886-A (1-1994) Catalog Number 20810W Page 2 publish.no.irs.gov Department of the Treasury-Internal Revenue Service