IRS revokes an organization's exemption after missed reporting

Plain-English summary

The IRS revoked an organization's tax-exempt status after it failed to file required Forms 990 for two tax periods and did not timely respond to IRS requests for the information. The examination report discusses exemption under section 501(c)(4), recordkeeping and reporting duties under sections 6001 and 6033, and the effect of failing to meet those duties. The report relies on Rev. Rul. 59-95 and concludes that the exemption should be revoked, with Form 1120 returns required for later periods. The letter and report contain different references to section 501(c)(3) and section 501(c)(4), so the document's operative conclusion is stated as written in the report.

Ruling snapshot

• Question: Whether the organization qualified for exemption under section 501(c)(4) after failing to file Forms 990 and provide requested information.
• Outcome: Revocation
• Key authorities: IRC §§ 11, 501(c)(3), 501(c)(4), 511, 6001, 6033, 6104(c), and 7428(b)(2); Treas. Reg. §§ 1.61-1, 1.6001-1(e), and 1.6033-1(h)(2); Rev. Rul. 59-95, 1959-1 C.B. 627

Full text (IRS public release)

UIL Code: 501.04-00

Internal Revenue Service Department of the Treasury
Internal Revenue Service

1973 N. Rulon White Blvd.
Release Number: 201323030 M/S 1112

Release Date: 6/7/2013 Ogden, UT 84201

Taxpayer Identification Number:
Date: 2/2/2008

Form:

ORG

Tax Year(s) Ended:
ADDRESS

Person to Contact/ID Number:

Contact Numbers:
Telephone:

Fax:

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 (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.

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,

Marsha Ramirez
Director, EO Examinations

Enclosures:
Publication 892
Publication 3498
Report of Examination

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

Form 886A Department of the Treasury - Internal Revenue Service Schedule No. or
Explanation of Items Exhibit

Name of Taxpayer Tax Identification Number Year/Period Ended
ORG
EIN December 31, 20XX and
December 31, 20XX
LEGEND
ORG - Organization name XX - Date
Issue:

Whether ORG qualifies for exemption under Section 501(c)(4) of the Internal Revenue Code

Facts:

ORG failed to file the required Form 990 for the tax periods ending December 31, 20XX and
December 31, 20XX. ORG failed to respond to the Internal Revenue Service attempts to obtain
this information in a timely manner.

Law:

Section 1.61-1 of the regulations provides that gross income means all income from whatever
source derived, unless excluded by law. Gross income includes income realized in any form,
whether in money, property, or services. Income may be realized, therefore, in the form of
services, meals, accommodations, stock, or other property, as well as cash.

Section 511 of the Internal Revenue Code imposes a tax at corporate rates under section 11 on
the unrelated business taxable income of certain tax-exempt organizations, including those
described in section 501(c)(4).

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 1.6001-1(e) of the regulations states that the books or records required by this section
shall be kept at all time 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 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.

Form 886-A (Rev. 4-68) Department of the Treasury - Internal Revenue Service
Page: -1-

Form 886A Department of the Treasury - Internal Revenue Service Schedule No. or

Explanation of Items Exhibit
Name of Taxpayer Tax Identification Number Year/Period Ended
ORG
EIN December 31, 20XX and
December 31, 20XX

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.

Section 501(c)(4) of the Code provides that a civic organization not organized for profit but
operated exclusively for the promotion of social welfare is exempt from Federal income tax.

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 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 exempt status.

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.

Conclusion:

It is the IRS’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
January 1, 20XX.

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

In accordance with IRM 4.75.22.12(9)(e), the effective date of the revocation will be the first day
after the end of the 90-day period (March 3, 20XX).

Form 886-A (Rev. 4-68), Department of the Treasury - Internal Revenue Service
Page: -2-