IRS proposes revocation after a charity remained inactive

Plain-English summary

The IRS proposed revoking an organization's federal tax exemption under IRC § 501(c)(3). The organization had not operated for more than three years and had not filed required returns. Its representative told the IRS that the organization could not obtain funding for its proposed projects and that its only activity was maintaining a website. The IRS concluded that the organization did not satisfy the operational test because it was not conducting activities that furthered an exempt purpose.

Ruling snapshot

• Question: Did the inactive organization qualify for exemption under IRC § 501(c)(3)?
• Outcome: Revocation proposed.
• Key authorities: IRC §§ 170(b)(1)(A)(vi), 501(a), 501(c)(3), 6104(c), and 7428; Treas. Reg. §§ 1.501(c)(3)-1(a)(1), (c), (c)(1), and (d)(1)(i); Rev. Rul. 72-369

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
Internal Revenue Service
MC 4915: DAL
1100 Commerce Street
Dallas, Texas 75242

GOVERNMENT ENTITIES
DIVISION

August 27, 2008

Taxpayer Identification Number:
Number: 201406013

Release Date: 2/7/2014 Form:
Tax Year(s) Ended:
ORG
ADDRESS Person to Contact/ID Number:
UIL: 501.03-00 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,

Larry Clevenger
EO, Revenue Agent

Enclosures:
Publication 892
Publication 3498
Report of Examination

Letter 3618 (04-2002)
Catalog Number 34809F

Form 886-A Department of the Treasury - Internal Revenue Service Schedule No. or
Explanation of Items Exhibit
Name of Taxpayer Year/Period Ended
ORG 20XX12

LEGEND
ORG - Organization name XX - Date State - State President - president

Issue:

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

Facts:

ORG was formed and incorporated in the state of State in 19XX, per President. The State of
State has no record of the corporation's filing. The State of State has a record of ORG
filing July 12, 20XX; however, the person filing this organization is not the
founder of ORG.

The Organization was granted exemption from Federal Income Taxes under IRC Section
501(a), as described in Section 501(c)(3) and further described in Section 170(b)(1)(A)(vi), on
July 20, 19XX. The Internal Revenue Service has misplaced the Administrative Record for this
organization.

Contact was made with the Organization. Upon making contact with the President (President)
of the Organization, President was asked whether returns were filed for 20XX. President stated
that no returns had been filed with the Internal Revenue Service. He also stated that when he
moved to State from State after forming the corporation that he did not apply in State as a foreign
corporation nor did he ever follow up on filings with the State of State.

President notified the Agent that the Organization was not operating, due to inability to obtain
funding for any of its proposed projects. President stated that the only activity of the organization
was the operation of its website and that his son, at a cost of $ per month, maintained the
website.

President provided the Agent with a faxed copy of the Determination Letter dated July 20,
19XX.

Information including a Form 6018-A, was sent July 28, 20XX to President by mail soliciting
pertinent information about failure to operate. This was mailed to a P.O. Box, as it appeared that

President was no longer at his apartment which was the address and telephone number the Agent
was previously using.

Law

IRC Section 501(a) states that an organization described in subsection (c) or (d) shall be exempt
from taxation under this subtitle unless such exemption is denied under Section 502 concerning
feeder organization or Section 503 concerning organizations engaged in prohibited transactions.

Organizations exempt from federal taxes as described in IRC Section 501(c)(3) include
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; and which does not participate in, or intervene
in, any political campaign on behalf of (or in opposition to) any candidate for public office.

Treasury Regulation Section 1.501(c)(3)-1(a)(1) states 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 purposes specified in that section. If an
organization fails to meet either the organizational or operational test, it is not exempt.

Treasury Regulation Section 1.501(c)(3)-1(c) specifies that with regard to the primary activities
within the operational test, 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).

Treasury Regulation Section 1.501(c)(3)-1(c)(1) provides that an organization will not be
regarded as operated exclusively for exempt purposes if more than an insubstantial part of its
activities is not in furtherance of exempt purposes.

Treasury Regulation Section 1.501(c)(3)-1(d)(1)(i) states that an organization is not organized
or operated exclusively for one or more exempt purposes unless it serves a public rather than a
private interest. Thus, 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.

Revenue Ruling 72-369 states, in part, that in order for an organization to pass the operational
test the organization's resources must be devoted to purposes that qualify as exclusively
charitable.

Taxpayer's Position

ORG has did not stated its position.

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

Form 886-A Department of the Treasury - Internal Revenue Service Schedule No. or
Explanation of Items Exhibit
Name of Taxpayer Year/Period Ended
ORG 20XX12

Government's Position

The IRS section 501(c)(3) tax exempt status of ORG should be revoked because it is not
operated exclusively for tax exempt purposes pursuant to the requirements set forth in section
1.501(c)(3)-1(c)(1) of the regulations.

ORG's lack of activities for more than three years also stands in contrast to section 1.501(c)(3)-
1(c)(1) of the regulations in that the lack of operations is evidence that there is no furtherance of
any exempt purpose.

In contrast to section 1.501(c)(3)-1(d)(1)(ii) of the regulations which calls for an organization to be
organized and operated for a public rather than a private benefit, the Organization has not
operated or engaged in any charitable activities since its inception.

The Organization does not pass the operational test as specified in section 1.501(c)(3)-1(c) of
the regulations because the lack of activities means they were not operated exclusively for one or
more exempt purposes. To be considered as operating exclusively for exempt purposes, the
Organization would have had to engage primarily in activities which accomplish one or more of
such exempt purposes as specified in section 501(c)(3) of the Code.

As ORG has not operated exclusively for charitable purposes for an extended period, the tax
exempt status of the Organization should be revoked.

Conclusion:

ORG does not qualify for tax exempt status under IRC section 501(a) as described in section
501(c)(3) of the Code. The lack of any qualified activity indicates that this organization should
not be allowed to continue as a tax-exempt organization. Revocation of the tax-exempt status of
ORG is proposed.

Form 886-A (rev. 4-68) Department of the Treasury - Internal Revenue Service
Page: -3-