IRS proposed revocation for failure to file required returns

Plain-English summary

The IRS proposed revoking a social welfare organization's tax-exempt status because it failed to file required Form 990 returns and did not provide the requested records or responses. The organization was given an opportunity to protest the proposed revocation and request Appeals Office consideration. The examination report states that the exemption would be revoked effective April 19 of a redacted year. It also states that Form 1120 returns should be filed for periods after that date.

Ruling snapshot

• Question: Did the organization meet its reporting and recordkeeping requirements for exemption under section 501(c)(4)?
• Outcome: Revocation.
• Key authorities: IRC §§ 501(c)(4), 6001, 6033, 6104(c), and 7428(b)(2); Treas. Reg. §§ 1.6001-1 and 1.6033-1

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
Internal Revenue Service
TE/GE Division
1100 Commerce Street
Dallas, TX 75242

GOVERNMENT ENTITIES
DIVISION

October 22, 2007

Taxpayer Identification Number:

Number: 201318028
Release Date: 5/3/2013
Form:
Tax Year(s) Ended:

ORG
ADDRESS
Person to Contact/ID Number:
UIL: 501.04-00
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, 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 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,

Marsha Ramirez
Director, EO Examinations

Enclosures:
Publication 892
Publication 3498
Report of Examination

Form 886-A
Explanation of Items

Name of Taxpayer: ORG
Year/Period Ended: 20XX13, 20XX12, & 20XX12

Issue: Whether exempt organization qualifies for exemption under Section 501(c)(4)
of the Internal Revenue Code.

Facts: Exhibit A provides copies of the Internal Revenue Service correspondence
requesting that Exempt Organization file the Form 990 for the tax period ending
December 31, 20XX, December 31, 20XX and December 31, 20XX or to respond to
the Internal Revenue Service correspondence as to why they are not filing. The
organization has appealed their revocation on June 29, 20XX. They requested a two
week extension on June 29, 20XX, which we approved. They still have not filed their
returns.

Law: Section 6001 of the Code provides that every person liable for any tax imposed
by the Code, or for the collection thereof, shall keep adequate records as the Secretary
of the Treasury or his delegate may from time to time prescribe.

Section 6033(a)(1) of the Code provides, except as provided in section 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.

Section 1.6001-1(a) of the regulations in conjunction with section 1.6001-1(c) provides
that every organization exempt from tax under section 501(a) of the Code and subject
to the tax imposed by section 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
section 6033.

Section 1.6001-1(e) of the regulations 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.

Section 1.6033-1(h)(2) of the regulations 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 section 6033.

In accordance with the above cited provisions of the Code and regulations under
sections 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.

Government's Position: We propose to revoke the organization's tax exemption
under section 501(c)(4).

Taxpayer's position: Unknown.

Conclusion: It is the Internal Revenue Service's position that the organization failed
to meet the reporting requirements under sections 6001 and 6033 to be recognized
as exempt from federal income tax under 501(c)(4) of the Internal Revenue Code.
Accordingly, the organization's exempt status is revoked effective April 19, 20XX.

The organization will not continue to qualify for tax exemption under section
501(c)(4) as of April 19, 20XX.

Form 1120 returns should be filed for the tax periods after April 19, 20XX.

Form 886-A
Explanations of Items

Name of taxpayer: ORG
Tax Identification Number: EIN
Year/Period ended: 20XX12 - 20XX12

During our examination, your organization was informed to file Form 990 for years ending December 31, 20XX, December 31, 20XX and December 31, 20XX within 30 days. The returns were not filed. An attempt was made to contact the President but no contact was made. An “On Demand” letter was sent to your organization certified mail. We have received the receipt showing the organization has received our letter. The “On Demand” letter gave the organization 30 more days to respond. No response was received. A letter was sent to your organization informing the organization that we were revoking the organization's tax exemption. This letter gave the organization the right to appeal. The organization appealed the procedures on June 29, 20XX. The organization also requested a two week extension to comply with our request. The extension was granted. The Internal Revenue Service waited over an additional 90 days but organization did not respond. Your organization's tax exemption was revoked due to your refusal to file the required forms.