IRS revokes an inactive organization's section 501(c)(3) exemption

Plain-English summary

The IRS revoked an inactive organization's recognition as exempt under IRC § 501(c)(3), effective January 1 of the specified year. The organization had stopped operating, reported that it intended to dissolve, and had no assets or regular financial activity. The IRS concluded that the organization no longer met the operational requirements for exemption and stated that contributions would no longer be deductible under IRC § 170. The examination materials explain that the organization had not filed certified dissolution papers with the state and could instead terminate the matter by providing those papers within 30 days.

Ruling snapshot

• Question: Did an inactive organization continue to meet the operational requirements for exemption under IRC § 501(c)(3)?
• Outcome: Revocation of the organization's section 501(c)(3) exemption, effective January 1 of the specified year.
• Key authorities: IRC §§ 501, 170, 6104, 7428, and 6110.

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
TE/GE: EO Examinations
625 Fulton Street, Room 503

Brooklyn, NY 11201 501-03.00
TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION
December 12, 2012
Release Number: 201335025 Taxpayer Identification Number:
Identification Number:
LEGEND Contact Telephone Number:

ORG - Organization name
XX - Date Address - address

ORG
ADDRESS

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 January 8, 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):

As a result of our examination for the tax year ended December 31, 20XX, it was
determined that your organization has been inactive since 20XX and that there have
been no operations or regular financial activities conducted or planned. As such, you
failed to meet the operational requirements for continued exemption under IRC
501(c)(3).

Contributions to your organization are no longer deductible under IRC §170 after
January 1, 20XX.

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

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 Internal
Revenue Code.

If you decide to contest this determination under the declaratory judgment provisions of
section 7428 of the Code, a petition to the United States Tax Court, the United States
Claims Court, or the district court of the United States for the District of Columbia must
be filed before the 91st Day after the date this determination was mailed to you. Please
contact the clerk of the appropriate court for rules regarding filing petitions for
declaratory judgments by referring to the enclosed Publication 892. You may write to
these courts at the following addresses:

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

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

Enclosure:
Publication 892

Internal Revenue Service Department of the Treasury
Tax Exempt and Government Entities Division

Exempt Organizations: Examinations

12301 Research Blvd

STE 4-180, MS: 4949 AUNW

Austin, TX 78759

Date: August 16, 2012 Taxpayer Identification Number:
Form:
Tax Year(s) Ended:
Person to Contact/ID Number:

ORG Contact Numbers:
ADDRESS 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.

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

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

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

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

Schedule No. or Exhibit

Form 886A EXPLANATION OF ITEMS
(Rev. January 1994)
Name of Taxpayer Tax Identification Number | Year/Period Ended
ORG EIN December 31, 20XX
LEGEND
ORG ~— ORGANIZATION NAME XX - DATE EIN — EIN STATE — STATE
ISSUES

1. Whether revocation of the organization's tax-exempt status, under IRC section 501(c)(3),
   is necessary because of inactivity.

FACTS

ORG, _. (hereinafter referred to as the organization) received recognition of exemption from
the IRS as an organization described in Internal Revenue Code (IRC) section 501(c)(3) in
January, 20XX. According to the organization's articles of incorporation, “the Corporation is
organized exclusively for the purpose of providing services and programs designed to assist
children and families, specifically identified as ‘foster children’ and ‘foster families’ primarily
during the transitional stages of foster care placement and while transitioning toward independent
self-sufficiency in the community. Specific programs and services will relate to the provision of
necessities such as clothing and personal hygiene products, educational and recreational supplies
and activities, as well as the establishment of scholarships, employment readiness training and
job placement programs.”

During the examination of the Form 990 for the years ending December 31, 20XX and 20XX, it
was determined that the organization stopped all activities in the 20XX year. According to a
letter received on June 4, 20XX “the organization decided to dissolve in 20XX due to the lack of
participation of officers. The organization had no assets and the banking fees depleted the
organization's account”, see attachment A.

During the examination, the organization filed a final Form 990 for the year ending December
31, 20XX to indicate that the organization had terminated and had zero income and zero
expenses in the 20XX year. We have not received a certified copy of the articles of dissolution to
show that the organization has filed with the State of State. The State State’s Department of State
Division of Corporations Entity Information database indicates that the organization is still
active, see attachment B.

LAW

Section 501(c)(3) of the Internal Revenue Code (IRC) exempts from Federal income tax:
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
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 and which does not

Form 886-A (1-1994) Department of the Treasury - Internal Revenue Service
Page: -1-

886A Schedule No. or Exhibit
Form 88 EXPLANATION OF ITEMS

(Rev. January 1994)

Name of Taxpayer Tax Identification Number | Year/Period Ended
ORG EIN December 31, 20XX

participate in, or intervene in (including the publishing or distributing of statements), any
political campaign on behalf of any candidate for public office.

Treasury Regulations section 1.501(c)(3)-1(a)(1) provides that in order to be exempt as an
organization described in section 501(c)(3) of the Code, the organization must be one that is
both organized and operated exclusively for one or more of the purposes specified in that section.

Treasury Regulation section 1.501(c)(3)-1(c)(1) provides that an organization will be regarded as
“operated exclusively” for one or more exempt purposes only if it engages primarily 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.

Revenue Ruling 61-170, 1961-2 CB 112 ruled 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.

TAXPAYER’S POSITION
The taxpayer has stated that the organization has had no operational activities since 20XX.
GOVERNMENT’S POSITION

As a result of our examination of your activities and financial records for the year ending
December 31, 20XX it was determined that your organization has been inactive for several years
and that there have been no operations or financial activities conducted. As such, ORG, _,, fails
to meet the operational requirements for continued exemption under IRC section 501(c)(3). The
Operational Test, Treas. Reg. Section 1.501(c)(3)-1(c), is specifically related to an organization’s
activities. Even if an organization passes the organizational test by having adequate language
regarding their charitable activities, the organization must also meet the operational test to qualify
for exemption under IRC section 501(c)(3).

We are proposing revocation of the organization’s exempt status, because the organization
decided to dissolve in 20XX due to the lack of participation of officers and the organization has
not filed the articles of dissolution with the state that the organization was incorporated in.

If you provide a certified copy of the articles of dissolution to show that the organization has filed
with the State of State within 30-day, we will follow through with a termination of the
organization.

Form 886-A (1-1994) Department of the Treasury - Internal Revenue Service
Page: -2-

886A Schedule No. or Exhibit

Form EXPLANATION OF ITEMS

(Rev. January 1994)

Name of Taxpayer Tax Identification Number | Year/Period Ended

ORG EIN December 31, 20XX
CONCLUSION

We are proposing revocation of the of the determination of the exempt status, under IRC
501(c)(3), ofthe ORG, _, with a revocation date effective J anuary 1, 20XX.

If you agree to the proposed revocation, please sign form 6018, and mail back to the person listed
in the attached letter, with in 30 days of receipt of this letter. If you do not agree to the proposed
revocation please refer to the letter and attached publications for the appeals process, or contact
the person listed in the letter.

We will not be pursing delinquent Form 1120 returns for the tax period ending December 31,
20XX, because the amount of income for the year was de minimis.

Form 886-A (1-1994) Department of the Treasury - Internal Revenue Service
Page: -3-