IRS revokes inactive religious organization's exemption

Plain-English summary

The IRS revoked the section 501(c)(3) exemption of a religious organization whose activities had been suspended for several years. The organization reported receiving no donations and paying no expenses, and it supplied no documentation showing that it would resume operations. It also had not filed Forms 990 or 990-EZ since an earlier year, although it filed one Form 990-N. The IRS concluded that the organization failed the operational test and the recordkeeping and reporting requirements of sections 6001 and 6033. Exemption was revoked effective January 1 of the redacted year, contributions were no longer deductible, and Form 1120 returns were required.

Ruling snapshot

• Question: Did an inactive religious organization with inadequate activity and filing records continue to qualify under IRC § 501(c)(3)?
• Outcome: Revoked.
• Key authorities: IRC §§ 501(a), 501(c)(3), 6001, 6033, 6104(c), 7428; Treas. Reg. §§ 1.501(c)(3)-1, 1.6001-1, 1.6033-1.

Full text (IRS public release)

UIL 501.03-00

DEPARTMENT OF THE TREASURY

INTERNAL REVENUE SERVICE
TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION
Date:

March 20, 2014

Release Number: 201445012
Employer Identification Number:

Release Date: 11/7/2014
Person to Contact/ID Number:

Contact Numbers:

CERTIFIED MAIL — RETURN RECEIPT REQUESTED

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
dated January 19, 19XX 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 reasons:

IRC 501(c)(3) of the Internal Revenue Code 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...

Section 1.501(c)(3)-1(c)(1) of the regulations 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) of the Code.

You have not established that your are operated exclusively for exempt
purposes described in section 501(c)(3) of the Code.

Contributions to your organization are no longer deductible under section 170 of the
Internal Revenue Code. You are required to file Federal income tax returns on Form

1120. Those returns should be filed with the appropriate Service Center.

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, 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 Claims Court or the District Court
of the United States for the District of Columbia. A petition or complaint in one of these
three courts must be filed before the 91st day after the date 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 and the appropriate forms regarding filing petitions for
declaratory judgment by referring to the enclosed Publication 892. Please note 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 court at
the following addresses:

United States Tax Court,
400 Second Street NW
Washington, D.C. 20217

US Court of Federal Claims
717 Madison Place, NW
Washington, DC 20005

U. S. District Court for the District of Columbia
333 Constitution Ave., N.W.
Washington, DC 20001

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 you have to file a petition in a United
States court. The Taxpayer Advocate can, however see a tax matter that may not have
been resolved through normal channels gets prompt and proper handling. You can call

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

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 in regards to this matter please contact the person whose
name and telephone number are shown in the heading of this letter.

Thank you for your cooperation.

Sincerely yours,

Nanette M. Downing
Director, EO Examinations

Enclosure:
Publication 892

UIL 501.03-00

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

Date:
12/05/2013
Taxpayer Identification Number:

Form:

Tax Year(s) Ended:
20XX12

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

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

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 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.

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

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 EXPLANATIONS OF ITEMS
(Rev. January 1994)

Name of taxpayer Tax Identification Number Year/Period ended
20XX
Issue:
Whether continues to qualify for exempt status under IRC

section 501(c)(3) of the Internal Revenue code (IRC), because the organization has no
operations and does not meet the operational test under IRC 501(c)(3)?

Facts:

The was incorporated in 19XX and received exemption from tax under IRC section
501(c)(3), ruling date in January, 19XX. The organization is a religious organization that
supports . The organization has not filed either a Form 990 or
Form 990 EZ since the last return filed for the year 20XX. The organization did file Form 990N
for 20XX.

The organization stated in a letter received May 03, 20XX that they had no donations received
or expenses made. The organization indicated that their activities have been temporarily
suspended since 20XX.

Law:

FINAL-REG, TAX-REGS. §1.501(c)(3)-1(a)(1). Organizational and operational tests. (1)
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.

(2) The term “exempt purpose or purposes”, as used in this section, means any purpose or
purposes specified in section 501(c)(3), as defined and elaborated in paragraph (d) of this
section.

(d) Exempt purposes--(1) In general. (i) An organization may be exempt as an
organization described in section 501(c)(3) if it is organized and operated exclusively for
one or more of the following purposes:

(a) Religious,

(b ) Charitable,

(c) Scientific,

(d ) Testing for public safety,

(e) Literary,

(f ) Educational, or

(g) Prevention of cruelty to children or animals.

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

Schedule number or exhibit

Form 886-A EXPLANATIONS OF ITEMS
(Rev. January 1994)

Name of taxpayer Tax Identification Number Year/Period ended

20XX

Section 1.501(c)(3)-1(c)(1) of the Income tax regulations states 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.”

Section 6001 of the Code provides that every person liable for any tax imposed by the
Code, or for the collection thereof, shall keep adequate records as the Secretary of the
Treasury or his delegate may from time to time prescribe.

Section 6033(a)(1) of the Code provides, except as provided in section 6033(a)(3),
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.

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

Section 1.6001-1(e) of the regulations 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.

Section 1.6033-1(h)(2) of the regulations 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 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

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

Schedule number or exhibit

Form 886-A
(Rev. January 1994) EXPLANATIONS OF ITEMS

Name of taxpayer Tax Identification Number Year/Period ended

20XX

Service held that the failure or inability to file the required information return or otherwise to
comply with the provisions of section 6033 of the Code 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.

Taxpayer's Position:

The organization stated in a letter received May 03, 20XX that they had no donations received
or expenses made. The organization indicated that their activities have been temporarily
suspended since 20XX. Therefore, they do not have no records of income or expenses for
20XX.

Government's Position:

The government contends that the Internal Revenue Code clearly states that
organizations exempt under Internal Revenue Code (IRC) 501(c)(3) must establish that they
meet both the organizational and operational tests of IRC 501(c)(3) per Reg. §1.501(c)(3)-

1(a)(1).

Further, Section 1.501(c)(3)-1(c)(1) provides that an organization will not be regarded to
be under IRC 501(c)(3) unless it engages primarily in activities which accomplish one or more
of such exempt purposes specified in section 501(c)(3).

The Internal Revenue Service asked the Organization for concrete information about its
actual and planned activities that was necessary for the determination of Organization's
qualifications for IRC 501(c)(3) exemption.

Due to the organization is no longer operates active and has not submitted documentation
to indicate that it will resume activity. The organization should be revocation.

Conclusion:
It is the IRS' position that , failed to meet the operational test of IRC 501(c)(3)
because it had has no activities since 20XX. Also it failed the reporting requirements under

sections 6001 and 6033 to be recognized as exempt from federal income tax under 501(c)(3)
of the Internal Revenue Code. Accordingly, the Organization's exempt status should be
revoked effective January 1, 20XX.

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