Business league exemption revoked for inadequate records

Plain-English summary

An organization recognized under section 501(c)(6) described itself as a membership group offering educational meetings and seminars for chief executives and entrepreneurs. During examination, it could not produce records supporting its Form 990, financial information, activities, membership structure, common business interest, or claimed educational work. The IRS concluded that it could not determine whether the organization operated as a qualifying business league and also relied on the recordkeeping requirements of section 6001 and Revenue Ruling 59-95. The organization's president agreed to revocation on Form 6018-A. The IRS revoked the exemption effective January 1 of the redacted year and required the organization to file federal income tax returns.

Ruling snapshot

• Question: Did the organization continue to qualify for exemption as a business league under section 501(c)(6)?
• Outcome: Revocation
• Key authorities: IRC §§ 501(c)(6), 6001, and 6033; Treas. Reg. §§ 1.501(c)(6)-1 and 1.6001-1(e); Rev. Rul. 59-95

Full text (IRS public release)

DEPARTMENT OF THE TREASURY

Internal Revenue Service
TE/GE EO Examinations

1100 Commerce Street, MC 4920 DAL
Dallas, TX 75242

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION
Release Number: 201509041 Date: May 15, 2014
Release Date: 2/27/2015
UIL Code: 501.06-00

Person to Contact:
Identification Number:
Contact Telephone Number:

EIN:

CERTIFIED MAIL - RETURN RECEIPT REQUESTED
Dear

In a determination letter dated November 20XX, you were held to be exempt from Federal income tax under section 501(c)(6) of the Internal Revenue Code, (the Code).

Based on recent information received, we have determined you have not operated in accordance with the provisions of section 501(c)(6) of the Code. Accordingly, your exemption from Federal income tax is revoked effective January 1, 20XX. This is a final letter with regard to your exempt status.

We previously provided you a report of examination explaining why we believe revocation of your exempt status was necessary. At that time, we informed you of your right to contact the Taxpayer Advocate, as well as your appeal rights. On November 11, 20XX, you signed Form 6018-A, Consent to Proposed Action, agreeing to the revocation of your exempt status under section 501(c)(6) of the Code.

You are required to file Federal income tax returns for the tax period(s) shown above. If you have not yet filed these returns, please file them 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 2

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:

Internal Revenue Service
Office of the Taxpayer Advocate

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

Thank you for your cooperation.

Sincerely,

Mary A. Epps
Acting Director, EO Examinations

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

100 Myrtle Avenue 6th Floor

Brooklyn, New York 11201

Date: November 8, 2013

Taxpayer identification number:

Form:
990
Tax year(s) ended:
December 31, 20XX
Person to contact/ID number:

Contact numbers:
Telephone:
Fax:

Manager's name/ID number:

Manager’s contact number:

Response due date:
December 9, 2013

Certified Mail — Return Receipt Requested
Dear

Why you are receiving this letter
Enclosed is a copy of our report of examination explaining why revocation of your organization's tax-exempt status is necessary.

What you need to do if you agree

If you agree with our findings, please sign the enclosed Form 6018-A, Consent to Proposed Action, and return it to the contact at the address listed above. We'll send you a final letter revoking your exempt status.

If we don’t hear from you

If we don’t hear from you within 30 calendar days from the date of this letter, we'll process your case based on the recommendations shown in the report of examination and this letter will become final.

Letter 3610-R (10-2012)
Catalog Number 59432G

Effects of revocation

In the event of revocation, you'll be required to file federal income tax returns for the tax year(s) shown above. File these returns with the contact at the address listed above within 30 calendar 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.

What you need to do if you disagree with our findings

If you disagree with our position, you may request a meeting or telephone conference with the supervisor of the 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.

If you and Appeals don’t agree on some or all of the issues after your Appeals conference, or if you don't 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.

You may also request that we refer this matter for technical advice as explained in Publication

892. Please contact the person identified in the heading of this letter if you're considering
     requesting technical advice. If we send a determination letter to you based on a technical advice memorandum issued by the Exempt Organizations Rulings and Agreements office, then 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 Service (TAS). TAS is your voice at the IRS. This service helps taxpayers whose problems with the IRS are causing financial difficulties; who have tried but haven’t been able to resolve their problems with the IRS; and those who believe an IRS system or procedure is not working as it should. If you believe you are eligible for TAS assistance, you can call the toll-free number 1-877- 777-4778 or TTY/TDD 1-800-829-4059. For more information, go to www.irs.gov/advocate. 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 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.

2 Letter 3610-R (10-2012)
Catalog Number 59432G

Thank you for your cooperation.

Enclosures:

Report of Examination
Form 6018-A
Publication 892
Publication 3498

Sincerely,

Nanette M. Downing
Director, EO Examinations

Letter 3610-R (10-2012)
Catalog Number 59432G

Schedule number or exhibit

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

Name of taxpayer Tax Identification Number Year/Period ended
20XX
Issue:
Whether continues to satisfy the requirements for tax exemption under section

501(c)(6) of the Internal Revenue Code.
Facts:

was granted exemption in 20XX as an organization described under Internal Revenue Code Section 501(c)(6). As stated in their Form 1024, Application for Recognition of Exemption under 501(a), the purpose of the organization is to conduct educational meetings and seminars for chief executive officers and entrepreneurs in order to help CEOs grow their business by providing peer counseling and helping to find foreign partners, customers and money.

During the examination it was explained that is a member organization consisting of Chief Executive Officers from all lines of business in the United States and overseas. The purpose of the organization is to provide educational courses and seminars to assist these individuals in becoming better CEO's. To accomplish this purpose, business professionals collaborated to exchange ideas and learn through the experiences of others.

There was no evidence provided to demonstrate that the organization was operating as an organization described under IRC Section 501(c)(6). The organization was unable to produce any records to support the information reported on the Form 990 nor if the organization conducts any activities. Therefore, it could not be determined if this is a membership organization, what the common business interest is, nor the particular line of business or business segment the members represented.

Law:

Section 501(c)(6) of the Internal Revenue Code exempts from federal income tax, Business leagues, chambers of commerce, real-estate boards, boards of trade, or professional football leagues (whether or not administering a pension fund for football players), not organized for profit and no part of the net earnings of which inures to the benefit of any private shareholder or individual.

Section 1.501(c)(6)-1 of the Federal Tax Regulations states that a business league is an association of persons having some common business interest, the purpose of which is to promote such common interest and not to engage in a regular business of a kind ordinarily carried on for profit. It is an organization of the same general class as a chamber of commerce or board of trade. Thus, its activities should be directed to the improvement of business conditions of one or more lines of business as distinguished from the performance of particular services for individual persons. An organization, whose purpose is to engage in a regular business of a kind ordinarily carried on for profit, even though the business is conducted on a cooperative basis or produces only sufficient income to be self-sustaining, is not a business league. An association engaged in furnishing information to prospective investors, to enable them to make sound investments, is not a business league, since its activities do not further any common business interest, even though all of its income is devoted to the purpose stated. A stock or commodity exchange is not a business league, a chamber of commerce, or a board of trade within the meaning of section 501(c)(6), and

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

Schedule number or exhibit

Form 886-A

(Rev. January 1994) EXPLANATIONS OF ITEMS

Name of taxpayer Tax Identification Number Year/Period ended
20XX

is not exempt from tax. Organizations otherwise exempt from tax under this section are taxable upon their unrelated business taxable income.

Internal Revenue Code section 6001 states that every person liable for any tax imposed by this title, or for the collection thereof, shall keep such records, render such statements, make such returns, and comply with such rules and regulations as the Secretary may from time to time prescribe.

Treasury Regulation 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 so long as the contents thereof may become material in the administration of any internal revenue law.

Revenue Ruling 59-95, 1959-01 CB 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 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 the continuation of exempt status.

Taxpayer’s Position:

The President of the organization, , agrees to revocation of the organization’s tax exempt status.

Government's Position:

It is the government's position that the tax exempt status of should be revoked for failing to maintain adequate records and for its failure to operate.

failed to keep and provide adequate records to determine the full nature of its operations. The organization was not able to provide any financial documents to substantiate the information reported on the Form 990. Furthermore, the organization did not have any documentation to substantiate that the purpose of the organization, which is to provide courses and seminars to CEOs in order to teach them how to be better CEOs, was attained. Based on the lack of supporting records it can not be determined if the organization served its tax exempt purpose or whether it veered from its tax exempt purpose as stated in its application, by-laws, articles and other legal documents.

Revenue Ruling 59-95 held that failure or inability to file the required information return or otherwise to comply with the provision of section 6033 of the Internal Revenue 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 an exempt status.

Using this revenue ruling and IRC section 6001 as precedent, it is the government’s position that the tax exempt status of the under section 501(c)(6) of the Internal Revenue Code should be revoked.

Form 886-A (1-1994) Catalog Number 20810W Page_ 2 publish.no.irs.gov Department of the Treasury-Internal Revenue Service

Schedule number or exhibit

Form 886-A
(Rev. January 1994) EXPLANATIONS OF ITEMS
Name of taxpayer Tax Identification Number Year/Period ended
20XX
Conclusion:
The tax exempt status of the under section 501(c)(6) of the Internal Revenue

Code should be revoked because the organization has not established that it is observing conditions required for the continuation of exempt status by failing to maintain adequate records to support its exempt activities.

Accordingly, we propose to revoke your exempt status under Internal Revenue Code section 501(c)(6), effective January 1, 20XX.

Form 886-A (1-1994) Catalog Number 20810W Page 3 publish.no.irs.gov Department of the Treasury-Internal Revenue Service