Organization loses exemption after withholding examination records

Plain-English summary

A social welfare organization repeatedly failed to provide records requested during an IRS examination of its Forms 990. Over many months, representatives promised information, sought extensions, failed to respond to calls and letters, and ultimately said the organization would not provide the documents. The IRS found that it could not verify the organization's reporting, recordkeeping, or continued operation for exempt purposes under IRC § 501(c)(4). It revoked the exemption and required the organization to file Form 1120 as a taxable corporation. The examination report also noted that the organization did not respond to the proposed revocation or provide its position.

Ruling snapshot

• Question: Should the organization's IRC § 501(c)(4) exemption be revoked because it failed to provide records needed for an examination?
• Outcome: Revocation
• Key authorities: IRC §§ 501(c)(4), 6001, and 6033; Treas. Reg. §§ 1.6001-1(e) and 1.6033-1(h)(2); Rev. Rul. 59-95

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE

1100 Commerce
Dallas, Texas 75242

Release Number: 201505043
Release Date: 1/30/2015 August 28, 2007

Person to Contact:
501-04.00 Identification Number:
Contact Telephone Number:

In Reply Refer to: TE/GE Review Staff

Dear

This is a Final Adverse Determination as to your exempt status under section 501(c) (4) of the
Internal Revenue Code.

Our adverse determination was made for the following reasons: Failure to provide records of the
organization and failure to meet the reporting requirements under section 6001 and 6033 of the
Internal Revenue Code.

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 to conduct an examination of your Form
990 for the year ended 12/31 and 12/31/ , no requested information has been provided to
us.

fails to meet the requirement
for exemption under IRC 501(c) (4) and 528. Section 1.501(c)(4)-1 of the Income Tax Regulations
which states an organization is operated exclusively for the promotion of social welfare if it is
primarily engaged in promoting in some way the common good and general welfare of the
community.

Based on the above, we are revoking your organization's exemption from Federal income tax under
section 501(c) (4) of the Internal Revenue Code effective January 1,

You are required to file Federal income tax returns on Form 1120. These returns should be filed
with the appropriate Service Center for all years beginning after December 31,

2

You are required to file Form 1120, U.S. Corporation Income Tax Return. Form 1120 must be filed
by the 15th day of the third month after the end of your annual accounting period. A penalty of $20 a
day is charged when a return is filed late, unless there is reasonable cause for the delay. However,
the maximum penalty charged cannot exceed $10,000 or 5 percent of your gross receipts for the year,
whichever is less. This penalty may also be charged if a return is not complete, so please be sure
your return is complete before you file it.

You 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 (214)413-6500, or 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,

Marsha A. Ramirez
Director, EO Examinations

Attached: copy of 886-A

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
M/S 1112, P.O. BOX 12307
OGDEN, UT 84412

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION
Taxpayer Identification number:
Date: May 5, 2007 Form(s):
Tax Year(s) Ended:
December 31,

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
organization’s exempt status is necessary.

If you do not agree with our position you may appeal your case. The enclosed Publication 3498, The
Examination Process, explains 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.

If you request a conference, we will forward your written statement of protest to the Appeals Office and they
will contact you. For your convenience, an envelope is enclosed.

If you and Appeals do not agree on some or all of the issues after your Appeals conference, or if you do not
request an Appeals conference, you may file suit in United States Tax Court, the United States Court of Federal
Claims, or United States District Court, after satisfying procedural and jurisdictional requirements as described
in Publication 3498.

Letter 3610 (Rev. 11-2003)
Catalog Number 34801V

You may also request that we refer this matter for technical advice as explained in Publication 892, Exempt
Organization Appeal Procedures for Unagreed Issues. If a determination letter is issued to you based on
technical advice, no further administrative appeal is available to you within the IRS on the issue that was the
subject of the technical advice.

If you accept our findings, please sign and return the enclosed Form 6018, Consent to Proposed Adverse Action.
We will then send you a final letter revoking your exempt status. If we do not hear from you within 30 days
from the date of this letter, we will process your case on the basis of the recommendations shown in the report
of examination and this letter will become final. In that event, you will be required to file Federal income tax
returns for the tax period(s) shown above. File these returns with the Ogden Service Center within 60 days
from the date of this letter, unless a request for an extension of time is granted. File returns for later tax years
with the appropriate service center indicated in the instructions for those returns.

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 Ramirez
Director, EO Examinations

Enclosures:
Publication 892
Publication 3498
Form 6018-A
Report of Examination
Envelope

Letter 3610 (Rev. 11-2003)
Catalog Number 34801V

Form 886-A Schedule number or exhibit
(Rev. January 1994) REPORT OF EXAMINATION 0001
Name of taxpayer Tax Identification Number Year/Period ended

Issue Name: Tax Exempt Status

Per Return: 990
Per Exam: December 31,
Issue:

Whether the Organization’s tax-exempt status under IRC Section 501(c)(4) should be revoked because it
failed to provide necessary information to complete the examination of its Form 990 for the tax periods
shown above.

Facts:

The organization failed to respond to the Internal Revenue Service attempts to obtain information to
perform an examination of form 990 for the tax period(s) ending December 31, and December
31, The Service requested information as follows:

• March 2, — The organization was sent an examination letter (Letter 3606) with Form
4549, Information Document Request (IDR), and was contacted by phone. Revenue Agent
, the president at the time, to discuss the parameters of
the examination. The rights of the organization, outlined in Publication 1, were also discussed
at that time. stated that , the Treasurer/Secretary, would be the
primary contact person for the organization during the examination.

• March 3, called to discuss the ongoing examination. The IDR, which was
sent with the examination letter, was discussed with . She agreed to provide the
documents and information requested of the organization. She indicated that the information
would be provided by March 15,

• April 7, — The organization did not respond or provide the information and documents
that were requested of it. The organization was contacted by phone. answered
the phone and indicated that would return the phone call shortly, by latest the next
day.

• April 17, — The organization did not reply to the phone message left on April 7,
The IRS agent called to discuss the status of the examination. She indicated that
she had left a voice message with the agent on April 12, . No such message was
received, committed to faxing the documents and information requested by April
26,

• May 3, — No information or documents were received from the organization. The IRS
agent called the organization and left a message with the receptionist.

• May 11, — The organization did not reply to the message left on May 3, The
organization was called and a second message was left with the receptionist. The receptionist
indicated that would return the call.

• May 15, — The organization did not reply to the messages left on May 3, and May 11,

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) REPORT OF EXAMINATION 0001
Name of taxpayer Tax Identification Number Year/Period ended

. The organization was called to discuss the status of the examination.
indicated that she had not compiled any of the information, because she was attending to the
needs of her sick uncle. She requested an extension of time to provide the information. She
committed to faxing the information by May 19,

• June 2, — The organization did not provide the information or documents requested of it.
The organization was contacted by phone, committed to provide the documents
and information by June 9, . The importance of providing the information was
emphasized to .

• June 16, — The organization did not provide the information or documents requested of
it. The organization was contacted by phone. When the Revenue Agent asked to speak with
, the receptionist held her hand over the phone and it appeared that she was talking
to . The individual told the receptionist to tell the Revenue Agent that she was not
there. A message was then left with the receptionist to have call the Revenue
Agent.

• June 19, — The organization did not reply to the message left on June 16, . The
organization was once again contacted by phone, and a message was left with the receptionist.

• June 22, — The organization did not reply to the messages left on June 16, and June 19,
The Revenue Agent then attempted to contact to discuss with her the
status of the examination and the lack of cooperation that the organization was providing.
When the Revenue Agent asked the receptionist if he could speak with
answered the phone. indicated that she was put in as the new President of
the organization, and that all correspondence should go through her. She also indicated that
she would not provide the documents that were requested of the organization, and that she felt
that the IRS had not rights to those documents.

• June 23, — A follow-up letter was sent certified mail. The organization was informed
that the scope of the examination had been broadened. The organization was given until July
5, . The certified receipt was signed by .

• July 5, — The organization faxed a request to extend the due date from July 5, to
July 10, , to provide the information requested of it from the June 23, Information
Document Request.

• July 17, — The organization failed to provide the information and documents requested
of it. The organization was contacted by phone to discuss the status of the examination.
indicated that she had mailed all of the information requested from the organization on
July 11,

• August 24, — The package that indicated that she mailed on July 11,
was not received. The IRS agent called the organization and left a message with the
receptionist.

• August 30, — The organization failed to respond to the message left on August 24,
The IRS agent called the organization and left a second message with the receptionist.

• October 3, — The organization failed to respond to the message left on August 24, and
August 30, . The IRS agent called the organization and left a third message with the

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) REPORT OF EXAMINATION 0001
Name of taxpayer Tax Identification Number Year/Period ended

receptionist.

• October 11, — The organization failed to respond to the message left on August 24,
August 30, and October 3, . The organization was contacted by phone. The Revenue
Agent asked to speak with an officer of the organization other than
, the organization’s current Treasurer, indicated that is the only individual
authorized to discuss tax matters.

• November 21, — The organization has failed to provide any of the documents that were
requested of it during the examination. The IRS agent called the organization and left a
message with the receptionist.

• January 30, — The organization was issued a draft report of examination, proposing a
revocation of their exempt status due to lack of response. The report was sent certified mail.

Law:

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

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 1.6001-1(e) of the regulations states that the books or records required by this section shall be
kept at all time 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 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.

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) REPORT OF EXAMINATION 0001
Name of taxpayer Tax Identification Number Year/Period ended
ORG December 31, 20xx

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.

Government's Position:

In accordance with the above-cited provisions of the Code and regulations under sections 6001 and
6033, organizations recognized as exempt from federal income tax must meet certain reporting
requirements. These requirements relate to:

1) The filing of a complete and accurate annual information (and other required federal tax
forms);

2) 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; and

3) The availability of these records for inspection by authorized internal revenue officers or
employees.

The organization failed item #3, to make available the records for inspection by authorized internal
revenue officers or employees, by refusing to provide the necessary information as requested, and
refusing to respond to the efforts of the Service to obtain necessary information. Therefore, item #1
and #2 are also failed in that they could not be determined to have been met.

It is the IRS's position that the organization's exempt status should be revoked based on, according to
Revenue Ruling 59-95, 1959-1 C.B. 627 (as stated above), "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 was issued a draft report of examination, proposing a revocation of their exempt
status due to lack of response. The organization failed to respond to the draft report and has not
provided its position.

Conclusion:

The Government concludes that the organization does not qualify for exemption from Federal income
tax under IRC § 501(c)(4). As a result of this finding, the organization will be subject to the income tax
imposed by IRC § 11 and is required to file Forms 1120 for all tax periods ending after January 1, 20xx.

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