IRS revokes exempt status after an organization fails to substantiate operations

Plain-English summary

The IRS revoked an organization’s recognition as exempt under § 501(c)(3), effective on the redacted date. The organization did not produce documents needed to establish that it operated exclusively for exempt purposes, that its earnings did not benefit private individuals, or that it maintained adequate books and records. The IRS also stated that the organization must file Form 1120 returns for the specified year and later years. The package includes the final revocation letter, the proposed revocation letter, and an examination explanation.

Ruling snapshot

• Question: Did the organization continue to qualify for exemption under § 501(c)(3)?
• Outcome: Revocation, the IRS revoked the organization’s exempt status.
• Key authorities: IRC §§ 501(c)(3), 6001, 6033(a)(1), 170, 7428, and 6110(k)(3); Treas. Reg. § 1.6033-2(h)(2).

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
1100 Commerce Street 501.03-00
Dallas, TX 75242

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

Date: March 20, 2013

Number: 201330042
Release Date: 7/26/2013

LEGEND Person to Contact:

ORG - Organization name Badge Number:

XX - date Address - address Contact Telephone Number:
Contact Address:

Employer Identification Number:
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 May 23,
20XX, is hereby revoked and you are no longer exempt under section 501(a) of the Code
effective January 1, 20XX.

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

You have failed to produce documents to establish that you are operated exclusively for exempt
purposes within the meaning of Internal Revenue Code section 501(c)(3), and that no part of
your net earnings inure to the benefit of private shareholders or individuals. Also, you have
failed to keep adequate books and records as required by IRC section 6001 and the regulations
thereunder. In our letters dated June 15, 20XX and July 5, 20XX, we requested information
necessary to conduct an examination of your Form 990 for the year ended December 31, [illegible]
We have not received the requested information.

Section 1.6033-2(h)(2) of the Income Tax Regulations provides, in part, that every organization
which is exempt from tax, shall submit such additional information as may be required by the
Internal Revenue Service for the purpose of inquiring into its exempt status. You have not
provided the requested information.

You are required to file Federal income tax returns on Form 1120. These returns should be filed
with the appropriate Service Center for the year ending December 31, 20XX, and for all the tax
years thereafter in accordance with instructions of the return.

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: United

States Tax Court, the United States Court of Federal Claims, or the United States District Court
for the District of Columbia. A petition in one of these three courts must be filed before the
91st day after the date that this determination was mailed to you if you wish to seek review of
our determination. Please contact the clerk of the respective court for rules regarding filing
petitions for declaratory judgment by referring to the enclosed Publication 892. Please note that
the United States Tax Court is the only one of these courts where a declaratory judgment action
can be pursued without the services of a lawyer. You may write to the United States Tax Court
at the following address:

Please understand that filing a petition for a declaratory judgment under IRC section 7428 will
not delay the processing of subsequent income tax returns and assessment of any taxes due.

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
the Taxpayer Advocate assistance. If you prefer, you may contact your local Taxpayer Advocate
at:

Taxpayer Advocate assistance cannot be used as substitute for established IRS procedures,
formal appeals processes, etc. The Taxpayer Advocate is not able to reverse legal or technically
correct tax determination, nor extend the time fixed by law that you have to file a petition in
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.

This letter should be kept within your permanent records.

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
Enclosures:
Publication 892

Department of the Treasury Date:

Internal Revenue Service September 14, 2012
RS Tax Exempt and Government Entities Division Taxpayer Identification Number:
I 450 Golden Gate Avenue Mail Stop SF 7-4-01
San Francisco, California 94102-3412 Form:
Tax year(s) ended:
ORO RESS Person to contact / ID number:

Contact numbers:
Manager's name / ID number:

Manager's contact number:

Response due date:

Certified Mail - Return Receipt Requested
Dear

Why you are receiving this letter
We propose to revoke your status as an organization described in section 501(c)(3) of the Internal Revenue
Code (Code). Enclosed is our report of examination explaining the proposed action.

What you need to do if you agree

If you agree with our proposal, please sign the enclosed Form 6018, Consent to Proposed Action — Section
7428, and return it to the contact person at the address listed above (unless you have already provided us a
signed Form 6018). We'll issue a final revocation letter determining that you aren't an organization described in
section 501(c)(3).

After we issue the final revocation letter, we’ll announce that your organization is no longer eligible for
contributions deductible under section 170 of the Code.

If we don't hear from you

If you don't respond to this proposal within 30 calendar days from the date of this letter, we’ll issue a final
revocation letter. Failing to respond to this proposal will adversely impact your legal standing to seek a
declaratory judgment because you failed to exhaust your administrative remedies.

Effect of revocation status
If you receive a final revocation letter, you'll be required to file federal income tax returns for the tax year(s)
shown above as well as for subsequent tax years.

What you need to do if you disagree with the proposed revocation
If you disagree with our proposed revocation, you may request a meeting or telephone conference with the
supervisor of the IRS contact identified in the heading of this letter. You also may file a protest with the

Letter 3618 (Rev. 6-2012)
Catalog Number 34809F

IRS Appeals office by submitting a written request to the contact person at the address listed above within 30
calendar days from the date of this letter. The Appeals office is independent of the Exempt Organizations
division and resolves most disputes informally.

For your protest to be valid, it must contain certain specific information including a statement of the facts, the
applicable law, and arguments in support of your position. For specific information needed for a valid protest,
please refer to page one of the enclosed Publication 892, How to Appeal an IRS Decision on Tax-Exempt Status,
and page six of the enclosed Publication 3498, The Examination Process. Publication 3498 also includes
information on your rights as a taxpayer and the IRS collection process. Please note that Fast Track Mediation
referred to in Publication 3498 generally doesn’t apply after we issue this letter.

You also may request that we refer this matter for technical advice as explained in Publication 892. Please
contact the individual identified on the first page of this letter if you are considering requesting technical
advice. If we issue a determination letter to you based on a technical advice memorandum issued by the Exempt
Organizations Rulings and Agreements office, no further IRS administrative appeal will be available to you.

Contacting the Taxpayer Advocate Office is a taxpayer right

You have the right to contact the office of the Taxpayer Advocate. Their assistance isn’t a substitute for
established IRS procedures, such as the formal appeals process. The Taxpayer Advocate can't reverse a legally
correct tax determination or extend the time you have (fixed by law) to file a petition in a United States court.
They can, however, see that a tax matter that hasn't 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:

Internal Revenue Service
Office of the Taxpayer Advocate

For additional information

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:

Report of Examination
Form 6018

Publication 892
Publication 3498

Letter 3618 (Rev. 6-2012)
Catalog Number 34809F

Schedule number or exhibit

Form 886-A EXPLANATION OF ITEMS

(Rev. January 1994)

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

ORG - Organization name EIN - ein XX-Date State-state Treasurer - treasurer
ISSUE:

Is ORG an organization exempt from tax under section 501(c)(3) of the Internal Revenue Code?

FACTS:
ORG was recognized as an organization exempt from tax under section 501(c)(3) of the Internal Revenue Code on May 23, 20XX.

ORG filed Form 990, Return of Organization Exempt From Income Tax, for the year ending December 31, 20XX. It was received by
the Internal Revenue Service on May 19, 20XX.

On June 15, 20XX, the Internal Revenue Service sent Letter 3611, Form 4564, and Publication One, Your Rights as a Taxpayer, to
ORG. Letter 3611 stated “We plan to conduct an examination for the above periods on the date, time, and location as indicated above.
We would appreciate your calling our office as soon as possible to confirm this appointment.” The date of the appointment was July
11, 20XX, the time was 9:00 am. The letter asked that ORG call with location of its books and records, because the address given on
the return was known to be a commercial mail receiving agency. Form 4564 listed documents to have available for the examination.

On June 27, 20XX, the Internal Revenue Service attempted to call ORG. We called the number on the return, got a voice mail
recording and left a message. This call was not returned. We also called the number of TREASURER, who was listed on the return as
the treasurer and the possessor of the books and records of ORG. TREASURER informed us that he was no longer associated with
ORG, had not been for a couple of years, and did not know their current address or phone number.

On July 5, 20XX, the Internal Revenue Service sent a letter to ORG, listing our attempts to contact them, and asking that they contact
us within 30 days to schedule an appointment for an examination. This letter was sent to their last known address, the commercial
mail receiving agency. A copy of the letter was sent to the President of the organization, at the last known address we could locate, and
another copy to the current address of the organization shown on the records of the STATE Secretary of State (which was also the
address of the registered agent.)

The letters to the organization and the president were returned undeliverable; the letter to the registered agent was acknowledged by a
certified receipt.

No response was received to this letter.

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;...”

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