Exemption revoked after an organization failed to provide requested records

Plain-English summary

The IRS revoked an organization's section 501(c)(3) exemption after the organization did not provide requested information about its activities, records, and dissolution. The examination materials state that the organization did not establish that it operated exclusively for exempt purposes or that it had properly dissolved. The IRS cited recordkeeping and information-reporting requirements under sections 6001 and 6033, and stated that the organization must file Form 1120 returns for the specified periods. Contributions to the organization were no longer deductible under section 170.

Ruling snapshot

• Question: Did the organization satisfy the requirements to retain its section 501(c)(3) exemption?
• Outcome: Revocation.
• Key authorities: IRC §§ 501(c)(3), 6001, 6033, 170, 7428, and 6104; Treas. Reg. §§ 1.6001-1 and 1.6033-1

Full text (IRS public release)

DEPARTMENT OF THE TREASURY

INTERNAL REVENUE SERVICE
TE/GE: EO Examination 501-03.00
1100 Commerce St. - 4920 DAL

Dallas, TX 75242
TAX EXEMPT AND

GOVERNMENT ENTITIES
DIVISION

Release Number: 201407025 Date: October 14, 2009
Release Date: 2/14/2014
Person to Contact:
Identification Number:
Contact Telephone Number:
In Reply Refer to: TE/GE Review Staff
EIN:

LAST DATE FOR FILING A PETITION
WITH THE TAX COURT:

Dear :

This is a Final Adverse Determination as to your exempt status under section 501(c)(3) of
the Internal Revenue Code.

Our adverse determination was made for the following reasons:

Exemption from income tax is a matter of legislative grace and taxpayers have the burden
of establishing their entitlement to exemptions. Section 6033 requires organizations
exempt from tax to keep such records and render such statements as are required by such
rules and regulations as the Secretary may prescribe. Treasury Regulations section
1.6033-2 (h)(2) requires organizations exempt from tax to submit such additional
information as may be required by the Internal Revenue Service for the purpose of
inquiring into the organization’s exempt status.

Despite numerous requests to you to provide information about your activities and
information that you have properly dissolved, you have not provided this information.
You have not provided the requested information to show that you operate for an
exclusive exempt purpose.

Based upon the above, we are revoking your organization's exemption from Federal
income tax under section 501(c)(3) of the Internal Revenue Code effective
January 1,

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

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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, , and
for all years thereafter.

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.

If you decide to contest this determination in court, you must initiate a suit for declaratory
judgment in the United States Tax Court, the United States Claims Court or the District
Court of 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
(651) 312-7999 or writing to: Internal Revenue Service, Taxpayer Advocates Office, 316
North Robert Street, St. Paul, MN 55101. 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.

We will notify the appropriate State Officials of this action, as required by section
6104(c) of the Internal Revenue Code.

If you have any questions, please contact the person whose name and telephone number

are shown in the heading of this letter.

Sincerely yours,

Sunita B. Lough,
Director, EO Examinations

Internal Revenue Service Department of the Treasury
Internal Revenue Service

1100 Commerce Street
Dallas, Tx 75242

Taxpayer Identification Number:

Date: July 29, 2009
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,

Sunita Lough
Director, EO Examinations

Enclosures:
Publication 892
Publication 3498
Report of Examination

Letter 3618 (Rev. 11-2003)
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 December 31,
20XX

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(ORG) filed for exemption on October 12, 19XX. The organization received its
approval for exempt status under Section 501(c)(3) of the Internal Revenue
Code on December 2, 19XX.

The private foundation advance ruling period ended December 31, 19XX. On May
17, 19XX, it was determined the organization was classified under section
170(b)(1)(A)(vi) and would continue its tax exempt status under section
501(c)(3).

On July 7, 20XX, the Internal Revenue Agent sent a letter to the last known
address of the officer listed on the Form 1023 requesting information on its
activities, income and expenditures.

On July 25, 20XX, a response was received from President, President in the
form of the following:

• the State of State Intent to Dissolve filing form dated July 16, 20XX

• a one-page word document which stated how the assets were disbursed,
  however there was no substantiation provided (i.e. cancelled checks,
  letter from recipients, etc.) and in addition a

• Form 990 for 20XX12.

The information provided did not suffice the requirement to disclose how
assets were distributed upon dissolution. In addition, it appears the ORG
filed for dissolution with the State after the initial contact for
examination.

On August 4, 20XX, the Internal Revenue Agent sent a letter to President
requesting additional information regarding the dissolution of ORG.

On August 16, 20XX, a response was received from President with no additional
information provided. He reported a breach of confidential information and
expressed his concern that the IRS was wasting government’s time and money in
pursuing the examination of his organization.

On September 14, 20XX, the Internal Revenue Service sent a letter to President
stating that “as of this date, we have not received the requested
information”. A request was made again for information regarding the
dissolution of the organization. A second letter dated September 14, 20XX was
sent to President requesting the completion of the Schedule A in its entirety.

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 December 31,
20XX

On October 3, 20XX, a response was received from President with no additional
information being provided regarding the dissolution. However, there was
documents provided which stated “the organization does not have to file the
Form 990 if gross receipts were normally $ or less”.

On January 22, 20XX, the Internal Revenue Agent sent a letter to President
explaining the requirements for completing the Form 990 in its entirety. It
further explained that the organization’s gross receipts for 20XX were $. As
a result, the Form 990 should have been filed as required.

A second letter dated January 22, 20XX was sent to President requesting the
organization to submit final verification from the State and any related
documents regarding the dissolution of the organization.

On February 4, 20XX, a response was received from President with the following
information:

• A reason was provided for not submitting the Form 990 timely. According
  to President, there was a letter from the IRS stating there were no
  filing requirements, if gross receipts were $ or less requirement

• An explanation that the organization submitted a form and check to the
  State of State to dissolve organization. However, the State of State
  informed the organization to reactivate the organization and then
  dissolve it under a different section. According to President, the
  organization will need to decide if it makes sense to keep the
  organization active based on this information.

On April 13, 20XX, the Internal Revenue Agent made a final attempt to secure
requested information regarding the dissolution. In addition, the organization
was requested to submit if the organization was currently active. If so, then
please submit documentation regarding the organization’s exempt status.

There has been no response from the organization.

LAW:

IRC Section 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.

Treas. Reg. Section 1.6001-1(a) in conjunction with Treas. Reg. Section
1.6001-1(c) provides that every organization exempt from tax under IRC Section
501(a) and subject to the tax imposed by IRC Section 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 books and
records as are required to substantiate the information required by IRC
Section 6033.

Treas. Reg. Section 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

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

Form 886 A Department of the Treasury - Internal Revenue Service Schedule No. or
Explanation of Items Exhibit
Name of Taxpayer Year/Period Ended
ORG December 31,
20XX

contents thereof may be material in the administration of any internal revenue
law.

Treas. Reg. Section 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
Section 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 comply with the
provisions of IRC Section 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 continuation of exempt status.

In accordance with the above cited provisions of the Code and regulations
under IRC 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

The organization has not provided the requested information on its activities
to show that they are exempt activities or that the organization has properly
dissolved.

It is the IRS’s position that the organization failed to meet the requirements
under IRC Section 6001 and 6033 to be recognized as exempt from federal income
tax under IRC Section 501(c)(3). 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
December 31, 20XX.

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