IRS revokes an organization’s exemption after it ceased operations

Plain-English summary

The IRS revoked an organization’s exemption under IRC § 501(c)(3) after finding that it had ceased operations and failed to establish that it was operating for an exempt purpose. The organization had operated a one-year summer camp for disabled children, then stopped operating the camp and applied for exemption under another name. It also failed to file required annual information returns and did not maintain records sufficient to support its exempt status. The IRS concluded that the organization failed the reporting requirements under §§ 6001 and 6033, and required Form 1120 filings after the revocation. Contributions were no longer deductible under § 170.

Ruling snapshot

• Question: Should the organization’s § 501(c)(3) exemption be revoked because it ceased operations and failed to meet recordkeeping and annual-filing requirements?
• Outcome: Revocation.
• Key authorities: IRC §§ 501(c)(3), 170, 511, 6001, 6033, 6104, and 7428; Treas. Reg. §§ 1.501(c)(3)-1, 1.6001-1, and 1.6033-1; Rev. Rul. 59-95.

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
1100 Commerce Street
MS:4920:DAL

Dallas, TX 75242
TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

501-03.00

Release Number: 201405020

Release Date: 1/31/2014 Person to Contact:

Date: January 12, 2010 Identification Number:
Contact Telephone Number:
In Reply Refer to: TE/GE Review Staff
EIN:

LAST DATE FOR FILING A PETITION
WITH THE TAX COURT:

CERTIFIED MAIL - Return Receipt Requested

Dear

This is a Final Adverse Determination Letter as to your exempt status under section 501(c)(3) of
the Internal Revenue Code (the Code). Your exemption from Federal income tax under section
501(c)(3) of the Code is hereby revoked effective December 3,

Our adverse determination was made for the following reason(s):

You failed to meet the requirements of IRC section 501(c)(3) and Treas. Reg. section 1.501
(c)(3) -1(d) in that you failed to establish that you are operating for an exempt purpose.
Furthermore, you have ceased operations.

You have agreed to this final determination of revocation by signing Form 6018, Consent to
Proposed Action - Section 7428, on October 31 ;

Contributions to your organization are no longer deductible under section 170 of the Internal
Revenue Code.

Processing of income tax returns and assessment of any taxes due will not be delayed should a
petition for declaratory judgment be filed under section 7428 of the Internal Revenue Code,

-2-

the United States for the District of Columbia before the 91st day after the date this determination
was mailed to you. Contact the clerk of the appropriate court for the rules for initiating suits for
declaratory judgment.

You also have the right to contact the office of the Taxpayer Advocate. However, you should
first contact the person whose name and telephone number are shown above since this person can
access your tax information and can help you get answers.

You can call 1-877-777-4778 and ask for Taxpayer Advocate assistance. Or you can contact the
Taxpayer Advocate from the site where the tax deficiency was determined by calling (401) 338-
8099 or by writing to:

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

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

Sincerely yours,

{ ,

/ hi nelle FFL be WIUNG 7

Nanette M. Downing
Acting Director, EO Examinations

DEPARTMENT OF THE TREASURY
Internal Revenue Service
TE/GE Examinations
1100 Commerce Street
TAX EXEMPT AND Dallas, TX 75242

GOVERNMENT ENTITIES
DIVISION

May 7, 2008

Taxpayer Identification Number:

ORG
ADDRESS Form:

Tax Year(s) Ended:
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 (04-2002)
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 A. Rameriz

Enclosures:
Publication 892
Publication 3498
Report of Examination

Letter 3618 (04-2002)
Catalog Number 34809F

Form 886-A Schedule number or exhibit
(Rev. January 1-4) EXPLANATIONS OF ITEMS
Name of taxpayer Tax Identification Number | Year/Period ended
EIN 12/31/20XX
ORG
LEGEND
ORG - Organization name EIN - ein XX - Date State - state CO-

1 & CO-2 - 1st & 2nd COMPANIES

Issue:

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

Facts:

ORG is a State not-for-profit corporation, incorporated on June 16, 20XX. The stated
purpose of the corporation is to be organization exclusively for religious, education,
and charitable purposes within the meaning of section 501(c)(3) of the Internal
Revenue Code or the corresponding section of any future federal tax code.

On April 8, 20XX, ORG applied for recognition as a tax-exempt organization
described in section 501(c)(3) on Form 1023. On October 15, 20XX based on the
information that ORG provided in its application for exemption, and on the
assumption that they would operate in the manner represented in its application,
ORG was recognized, as a tax-exempt organization described in section 501(c)(3).
The organization was exempted for the summer camp portion of the day care center
called CO-1

In the summer of 20XX ORG (CO-1). Started a summer camp program for disabled
kids. The organization only operated one year under ORG The organization ceased
the summer camp at the end of 20XX and on February 3, 20XX CO-1 applied for
exemption under the name of CO-2

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. Exempt Organization failed to provide the Internal Revenue
with correspondence or file the Forms 990 for the tax period ending December 31,
20XX.

Law:

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.

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

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

IRC § 6033(a)(1) provides, except as provided in IRC § 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.

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 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 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 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 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 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

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

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

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: Taxpayer was contacted to explain the outcome of the exam
and to offer a managerial conference but there was no response from the taxpayer.

Conclusion: It is the IRS's position that the organization failed to meet the reporting
requirements under IRC §§ 6001 and 6033 to be recognized as exempt from federal
income tax under IRC § 501(c)(e). Accordingly, the organization's exempt status is
revoked effective January 1, 20XX.

Form 1120 returns should be filed for the tax periods ending on or after 12/31/20XX.

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