Determination Letter 1321040 Released May 24, 2013 Revocation Transcribed from scan

Determination 1321040: IRS revokes exemption after recordkeeping and private-benefit failures

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This page covers one taxpayer's ruling from 2013, which can't be cited as precedent. Ask about your situation and see what the current Code and IRS guidance say, with citations.

Not precedent. Under 26 U.S.C. § 6110(k)(3), this written determination may not be used or cited as precedent. It resolved one taxpayer's situation on its specific facts, and identifying details were redacted by the IRS before release. The official IRS release (linked on this page as a PDF) is the authoritative source.

About this page: The plain-English summary and ruling snapshot below were written by Ezel based on the official IRS release. The full text is the IRS's own document.

Transcribed from a scanned original: the IRS released this determination as an image-only PDF. The full text below is a machine transcription, proofread against the scan. Check the original PDF before quoting exact language.

View official IRS release (PDF)

Plain-English summary

The IRS revoked an organization's exemption under IRC § 501(c)(3), effective January 1, 2007. The determination says the organization did not meet the recordkeeping requirements of IRC § 6033 and that a substantial amount of its assets benefited its founder and president. The examination materials describe payments and expenses that were not substantiated as serving the organization's exempt purposes, including personal or inadequately documented expenses. Contributions to the organization were no longer deductible under IRC § 170, and the organization was required to file Form 1120. The letter also explains the right to seek declaratory judgment under IRC § 7428.

Ruling snapshot

Question: Did the organization continue to qualify for exemption under IRC § 501(c)(3)?
Outcome: Revocation, based on recordkeeping failures and private benefit or inurement.
Key authorities: IRC §§ 501(c)(3), 6001, 6033, 170, 507, and 7428; Treas. Reg. §§ 1.6001-1(e), 1.6033-2(i)(2), and 1.501(c)(3)-1(d)

Full text (IRS public release)

Transcriber's note: this document is a scan. The text below preserves the official IRS release and redacted placeholders. Only obvious OCR misreads were corrected. Case-citation QC identified no separately parseable case citations in this determination.

Internal Revenue Service Department of the Treasury

Appeals Office

Release Number: 201321040

Release Date: 5/24/2013 Taxpayer Identification Number:

Person to Contact:

Employee ID:

Tel:

Fax: .

Contact Hours: ;
Tax Period(s) Ended:

DateMAR - 4 2013

UIL: YiL Code: 501.09-03

Certified Mail

Dear Taxpayer:

This is a final adverse determination regarding your exempt status under section 501(c)(3) of the Internal

Revenue Code (the “Code”). It is determined that you do not qualify as exempt from Federal income tax
under section 501(c)(3) of the Code effective January 01, 2007.

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

e You did not meet the recordkeeping requirements to maintain your exempt status as required
under section 6033 of the Code.
_ @ A substantial amount of your assets inured to the private benefit of your founder and president.
Because a substantial amount of your charitable assets were used for private purposes, you are
not operated exclusively for exempt purposes described in section 501(c)(3) of the Code.

Contributions to your organization are not deductible under section 170 of the Code.

You are required to file Federal income tax returns on Forms 1120 for the tax period stated in the heading
of this letter and for all tax years thereafter. File your return with the appropriate Internal Revenue Service
Center per the instructions of the return. For further instructions, forms, and information please visit

www. irs, gov.

if you were a private foundation as of the effective date of revocation, you are considered to be taxable
private foundation until you terminate your private foundation status under section 507 of.the Code. In
_addition to your income tax return, you must also continue to file Form 990-PF by the 15th Day of the fifth

month after the end of your annual accounting period.

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 Code.

If you decide to contest this determination, you may file an action for declaratory judgment under the
provisions of section 7428 of the Code in one of the following three venues: 1) United States Tax Court,
2) the United States Court of Federal Claims, or 3) the United States District Court for the District of
Columbia. A petition or complaint in one of these three courts must be filed within 90 days from the date
this determination letter was mailed to you. Please 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. See also Publication

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 matters
that may not have been resolved through normal channels get prompt and proper handling. If you want
Taxpayer Advocate assistance, please contact the Taxpayer Advocate for the IRS office that issued this
letter. You may call toll-free, 1-877-777-4778, for the Taxpayer Advocate or visit. www.irs.gov/advocate

for more information.

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

Sincerely Yours,

Appeals Team Manager

Enclosure: Publication 892

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
TE/GE EO Examinations
4330 Watt Ave; Stop# 6209
Sacramento, CA 95821

TAX EXEMPT AND

GOVERNMENT ENTITIES
DIVISION January 6, 20XX
LEGEND |
ORG = Organization name Taxpayer Identification Number:

XX - Date Address - address
Form Number:

Tax Year Ended:

Person to Contact: .

Employee Identification Number:

Employee Telephone Number:
ORG Phone:

CERTIFIED MAIL — RETURN RECEIPT
REQUESTED

Dear President

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 Action - Section 7428. If you have already given us a signed Form 6018,
you need not repeat this process. 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.

in lieu of Letter 3618

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.

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

in lieu of Letter 3618

; Schedule number or exhibit
Form 886-A EXPLANATIONS OF ITEMS

(Rev. January 1994)

Name of taxpayer Tax Identification Number Year/Period ended
ORG EIN 12/31/20XX
LEGEND .

ORG - Organization name XX - Date President - president motto - motto
RA-1, RA-2 & RA-3 — 157, 2° ¢ 322 pa CO-1, CO-2, CO-3, CO-4, CO-5, CO-6 & CO-7 -

187, 26>, 382) 47) STH 6TH ¢ 7T™ COMPANIES

Issue

Whether ORG (ORG) qualifies for exemption under section 501(c)(3) of the Internal Revenue
Code?

Whether any part of ORG net earnings inured to the benefit of any private shareholder or
individual?

Should 501(c)(3) tax-exempt status be revoked, effective January 1, 20XX, for failure to operate
exclusively for exempt purposes and for violating the prohibition on inurement as set forth in
Internal Revenue Code section 501(c)(3)? :

Facts -

The organization was granted exemption under section 501(c)(3) with foundation code
170(b)(1)(A)(vi) on May 25, 20XX. To this date, this determination has not been changed. The
purpose of ORG is to promote and support humane education in our nation’s schools. It is the
intent of this corporation to operate exclusively for charitable purposes, including but not limited to:
speaking for non-human species from what is imagined to be their point of view and not to
endorse their use for purposes that would be deemed detrimental to them on an individual or

' species basis as determined by the society. According to the articles of incorporation the
organization was formed for the purpose of.rendering humane and charitable services to animals
and for all other legal purposes. No substantial part of the activities of the corporation shall inure
to the benefit of, or be distributable to, its contributors, directors, officer, or other private persons.
The organization was founded by President. He has been the President of the organization since
it was created.

The organization’s gross receipts are normally less than $. The only return that has been
filed by the organization was Form 990-N for the 20XX period (to prevent automatic revocation).

The organization has been operating out of President’s residence. Its activities consisted of
rescuing motto, providing the motto’ food and shelter on President's property, finding homes for
the rescued motto, conducting outreach and educational activities related to pets in the
community.

President was contacted on November 15, 20XX and the initial appointment was scheduled
on December 14, 20XX. An appointment letter (L3613) and information document request, Form
4564 (IDR) was sent to ORG requesting information needed to conduct the examination and

Department of the Treasury-Internal Revenue Service

Forn 886-A, (1-1994) Catalog Number 208 10W Page 1 publish.no.irs.gov

OO ee

; = Schedule number or exhibit
Form 886-A EXPLANATIONS OF ITEMS
(Rev. January 1994)
Name of taxpayer Tax Identification Number : Year/Period ended
ORG EIN 12/31/20KX

determine whether the organization was organized and operating for exempt purposes. important
items requested in IDR#1 were:

Governing Instruments: (Articles of Incorporation, Bylaws, etc.)
Minutes of Meetings for the 20XX period
IRS Determination Letter .
Original application for exemption (Form 1023)

Copies of any other Federal tax/information returns filed
Copies of literature printed/distributed
Chart of Accounts
Books and records of assets, liabilities, receipts, disbursements: general ledger/income
statement/balance sheet/etc. .
Sample of source documents for January 20XX- December 20XX such as: receipts, bills,
invoices, vouchers
Records of Grants, Contributions, and Donation received during 20XX
PayPal records
Check Register, bank statements, and canceled checks
Contracts/Leases/Rental Agreements used by the organization

On November 17, 20XX, President called to explain the organization was not active in
20XX and he did not keep any records. After his mobile home was condemned a lot of.
information was thrown out because he didn’t think it was important. President was asked what
books and records he does have. There was no information for 20XX as well as 20XX and 20XX.

On November 30, 20XX, IDR#2 was sent to President requesting documents he could
obtain from third parties. IDR#2 requested:

All bank statements, and canceled checks for period under examination.
PayPal records.
A sample of source documents for January 20XX- December 20XX such as receipts, bills,
invoices, vouchers.
Records of Grants, Contributions, and Donations received.

. The only documents provided were the bank statements (no copies of checks). On April
29, 20XX, the organization’s bank records and PayPal records were summonsed. The PayPal
account was locked and had not been used in 20XX.

The bank statements showed that $ was deposited into the organization’s business
checking account at CO-1. Most of the organization’s funds came from donations. President also
received $ cash-back throughout the year when donation checks were deposited into the account
(the $ was not included in total deposits). There was $ in withdrawals from the checking account.

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

Z ‘Schedule sumer or exhibit
Form 886-A

(Rev. January 1994) EXPLANATIONS OF ITEMS

Name of taxpayer Tax Identification Number Year/Period ended
ORG EIN 12/31/20XX

On November 7, 20XX, IDR#3 was sent to President requesting substantiation for a sample of
transactions listed in the summonsed bank records. The following transactions were obtained
from the organizations monthly bank statements, cancelled checks, deposit slips, and records for

all debit and credit memos.

4/2/20XX
4130/20XX
5/17/20XX
8/9/20XX
10/18/20XX
10/16/20XX
11/1/20XX
41/13/20XX
12/13/20XX

Total

Form 886-A (i-1994) Catalog Number 20810W —Page__3 publish.no.irs.gov Department of the Treasury-Internal Revenue Service

2122120XX CO-6
3/30/20XX CO-6
4/6/20XX C04

5/9/20XX CO-7

President did not provide any contemporaneous substantiation for the aforementioned
transactions. A handwritten response was provided in which President wrote an explanation for
the transactions he recalled. He also typed an attachment which stated:

“Knowing all along that I'm not the best at keeping financial records and receipts, I've always. gone
with the option of others just paying my bills for me. Found volunteers that were willing to pick up my
mortgage payments, gas, electric, phone and internet bills on a monthly basis.

Form 886-A (1-1994) Catalog Number 20810W Page 4 publish.no.irs.gov Department of the Treasury-Internal Revenue Service

Form 886-A

(Rev. January 1994) EXPLANATIONS OF ITEMS

Name of taxpayer Tax Identification Number Year/Period ended
ORG EIN 12/31/20XX

| even had those who would send money fo me specifically for certain financial obligations such as
my food and ongoing improvements around the facility to ensure the safety and comfort of all the

motto in my care.

One couple paid for my well to be dug, another donated a nice SUV for me to use. ‘Most of these |
never had the opportunity to ‘write off their contribution to ORG since they simply paid the bills
directly. A gentleman in OC pays my home and car insurance.

Currently the dog food is being provided at no cost to myself or the organization, utilities are still be

paid by others and the purchase of cd's and mailing charges to get them to schools with humane

‘education is also paid by interested parties.”

‘Law

IRC §501(c)(3) provides for exemption of organizations organized and operated exclusively
for charitable purposes, and no part of the net earnings of which inures to the benefit of any
private shareholder or individual.

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)(3), 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. § 4.501(c)(3)-1(a) states that in order to be exempt as an organization
described in section 501(c)(3), an organization must be both organized and operated exclusively .
for one or more of the purposes specified in such section. If an organization fails to meet either
the organizational test or the operational test, it is not exempt.

Treas. Reg. § 1.501(c)(3)-1(b) Organizational test--(1) In general. (i) An organization is
organized exclusively for one or more exempt purposes only if its articles of organization:

(a) Limit the purposes of such organization to one or more exempt purposes; and

(b) Do not expressly empower the organization to engage, otherwise than as an
insubstantial part of its activities, in activities, which in themselves are not in furtherance

of one or more exempt purposes.

Treas. Reg. § 1.501(c)(3)-1(c) Operational test--(1) Primary activities. An organization will
be regarded as operated exclusively for one or more exempt purposes only if it engages primarily

Department of the Treasury-Internal Revenue Service

Form 886-A. (1-1994) Catalog Number 20810W Page 5 publish.no.irs.gov

; Schedule number or exhibit
‘Form 886-A. | | EXPLANATIONS OF ITEMS
(Rev. January 1994)
Name of taxpayer Tax Identification Number Year/Period ended
ORG EIN 12/3 1/20XKX

in activities which accomplish one or more of such exempt purposes specified in section 501(c)(3).
An organization will not be so regarded if more than an insubstantial part of its activities is not in

furtherance of an exempt purpose.

Treas. Reg. § 1.501(c)(3)-1(c)(2) Distribution of earnings. An organization is not operated
exclusively for one or more exempt purposes if its net earnings inure in whole or in part to the
benefit of private shareholders or individuals.

Treas. Reg. § 1.501(c)(3)-1(d)(i) Exempt purposes-- An organization may be exempt as
an organization described in section 501(c)(3) if it is organized and operated exclusively for one or
more of the following purposes:

(a) Religious,

(b) Charitable,

(d) Testing for public safety,

(e) Literary,

(f) Educational, or

(g) Prevention of cruelty to children or animals.

Treas. Reg. § 1.501(c)(3)-1(d)(ii) An organization is not organized or operated exclusively
for one or more of the purposes specified in subdivision (i) of this subparagraph unless it serves a
public rather than a private interest. Thus, to meet the requirement of this subdivision, it is
necessary for an organization to establish that.it is not organized or operated for the. benefit of
private interests such as designated individuals, the creator or his family, shareholders of the
organization, or persons controlled, directly or indirectly, by such private interests.

. 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

Department of the Treasury-Internal Revenue Service

Form 886-A (1-1994) Catalog Number 20810W Page__6 publish.no.irs.gov

Schedule number or exhibit
Form 886-A

(hor January 1994 EXPLANATIONS OF ITEMS

Name of taxpayer Tax Identification Number Year/Period ended
ORG 7 EIN 12/31/20XX

shall be retained as long as the contents thereof may be material in the administration of any

~. internal revenue law.

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 retum 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. 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 fumish 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

The facts have been presented to the ORG and they disagree with the government's
position. The organization believes they qualify for exemption under section 501(c)(3) and
provided an explanation of some of the activities done to support their position. The organization
mentions they filed Form 990N in 20XX and 20XX. The organization received a small amount of
income and some of the funds were provided specifically to President. President lives in a remote
area and does not have a vehicle. One of the supporters allotted $ a month for the CO-4 deliver
food service. The funds were deposited in the organizations account. President states he
provided a written explanation for all of the expenses that the assigned agent requested
substantiation for and some of his responses were misquoted. For example, none of the
organizations money was used to pay for his mortgage because he never paid or owed rent on the
property and in 20XX it was purchased and placed in his name. President also explains that RA-1
was a handyman that was hired on occasion for necessary repairs to the kennels and surrounding
infrastructure. None of the work done by RA-1 was for personal benefit. See Exhibit A for the
complete written position provided by taxpayer. ;

Form 886-A (1-1994) Catalog Number 20810W —Page__7 publish.no.irs.gov Department of the Treasury-Internal Revenue Service

Schedule number or exhibit

‘Form 886-A.

(Rev. January 1994) EXPLANATIONS OF ITEMS

Name of taxpayer Tax Identification Number YearlPeriod ended
ORG EIN | 12/31/20KX

Government's Position

Based on the above cited law, it is the government's position that ORG has failed to

" meet its reporting/recordkeeping requirements and has not demonstrated it meets the
requirements under section 501(c)(3). Section 6033 requires organizations exempt from tax to |
keep records and render statements as are required by rules and regulations prescribed: by the
Secretary. Treasury Regulation section 1.6033-2(i)(2) requires organizations exempt from tax
to submit such additional information as may be required by the Internal Revenue Service for .
the purpose of inquiring into the organization’s exempt status. |

The organization failed to demonstrate it met the operational test for a § 501(c)(3).
organization. In order to meet the operational test, ORG must show it engages primarily in
activities which accomplish one or more of such exempt purposes specified in section § 501(c)(3).
Further, information has been obtained which shows ORG has not operated exclusively for
charitable purposes because part of the organizations net earnings inured to the benefit of its
President, President. .

Forms 4564 sent to ORG requested documents such as bylaws, minutes, and
application for exemption which were needed to determine if organizational requirements were
met. Forms 4564 requested documents such as copies of Federal tax/information returns filed,
and prior Service audit reports/letters/correspondence which were needed to determine if ORG
met all filing requirements. The Forms 4564 also requested documents such as books and -
records of assets, liabilities, receipts, disbursements, check register, bank statements, and a
sample of source documents for expenses which were needed to determine how funds were
used and whether they were used for charitable purposes. The organization was given an
adequate opportunity-to provide the information required to conduct the examination. The
organization did not provide books and records for the period under examination (or |
subsequent years) and did not meet the recordkeeping requirements in IRC §§ 6001 and 6033.

The organization had over $ in gross receipts and $ in expense. Substantiation was
requested for a sample of questionable transactions identified in the summonsed bank
information. Contemporaneous substantiation was not provided for any of these expenses to
demonstrate how they served a charitable purpose. President provided an explanation of the
expenditures he remembered; however his explanation indicated the organizations earnings
inured to the benefit of private shareholders or individuals. The organizations funds were used
to pay for his personal expenses.

President has signature authority on the organization’s bank account and makes the
decisions on the direction and policy of ORG. He is the founder and President of the _
organization and is considered an insider.

As seen in the summonsed bank information and President's response to IDR#3, the
organization’s funds have been used to pay his mortgage payments, gas, electric, phone, and

Department of the Treasury-Internal Revenue Service

Form 886-A (1-1994) Catalog Number 20810W Page 8 publish.no.irs.gov

Schedule number or exhibit

rom 886-A |

(Rev. January 1994) EXPLANATIONS OF ITEMS

Name of taxpayer Tax Identification Number Year/Period ended
ORG EIN 12/31/20XX

Internet bills. No information was provided to demonstrate the expenses were allocated to take
into account personal use and exempt use. President benefits from the organization paying his
portion of the aforementioned expenses. This is not necessary for ORG tax-exempt purpose
and is inurement. .

A substantial amount of the organization’s checks were written out to “Cash” to pay for
gasoline. Since there wasn't corroborative information such as mileage logs, the assigned

agent could not determine if these expenses served the organizations interests or private
interests.

RA-1, an individual that performed services for the organization, was paid $ during the
period under examination. RA-1 is a handyman that worked on various jobs on President's
property. No substantiation was provided to show how these expenses served the

organization's interests. The organization did not furnish or file RA-1 a Form 1099.

CO-4, an online supermarket and food delivery service, was paid $ by the organization. |
CO-4 website was reviewed and the only item for motto was “doggie sundaes”. The assigned
agent could not determine how these expenses served the organization's exempt purpose. Using
organization funds to pay for President's groceries is also inurement.

‘An organization is not organized or operated exclusively for exempt purposes unless it
serves a public rather than a private interest. The organization has not established that it's not
_ organized or operated for the benefit of private interests such as designated individuals, the
creator or his family, shareholders of the organization, or persons controlled, directly or
indirectly, by such private interests. See Treas. Reg. § 1.501(c)(3)-1(d)(ii)

This situation is similar to the case in Revenue Ruling 59-95. In that case, tax-exempt
status was revoked for failure to establish that it was observing the required conditions for
exempt status, namely, providing financial statements.

Conclusion

It is the Service's position that ORG 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).
The organization did not provide information or demonstrate that it was organized and operating
exclusively for exempt purposes and no part of net earnings inured to the benefit of any private
shareholder or individual.

Accordingly, the organization's exempt status should be revoked effective January 1, 20XX.
Contributions will no longer be deductible under section 170 of the Internal Revenue Code.

Form 886-A (1-1994) Catalog Number 20810W ——Page__9) publish.no.irs.gov Department of the Treasury-Internal Revenue Service

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On this page

Document type

Determination Letter

IRS subject

Inurement

Topics

Tax-exempt organizations

Code sections

§ 501, § 6001, § 6033, § 170, § 507, § 7428

Ruling dated

March 4, 2013

Publicly released

May 24, 2013

View Official PDF