Unresponsive charity loses exemption for failing to provide records

Plain-English summary

The IRS selected a section 501(c)(3) organization for examination of its annual information return. Repeated telephone calls, certified letters, and searches for updated addresses did not produce a response from the organization or its officers. As a result, the organization did not provide the records or additional information needed to show that it continued to satisfy the conditions for exemption. The IRS concluded that the organization failed the recordkeeping and reporting requirements of sections 6001 and 6033. It revoked the exemption effective on a redacted date and directed the organization to file corporate income tax returns for later periods.

Ruling snapshot

• Question: Could the organization retain section 501(c)(3) status after failing to respond to the examination or provide records?
• Outcome: Revocation.
• Key authorities: IRC §§ 501(c)(3), 6001, and 6033; Treas. Reg. §§ 1.6001-1 and 1.6033-1; Rev. Rul. 59-95.

Full text (IRS public release)

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

Release Number: 201517013
Release Date: 4/24/2015
ORG

UIL Code: 501.03-00

DEPARTMENT OF THE TREASURY
Internal Revenue Service

January 23, 2015

Taxpayer Identification Number:
Form:

Tax Year(s) Ended:

March 31, 20XX
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 (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,

Nanette M. Downing
Director, EO Examinations

Enclosures:
Publication 892
Publication 3498
Report of Examination

Letter 3618 (04-2002)
Catalog Number 34809F

Form 886-A Schedule number or exhibit
(Rev. January 1994) EXPLANATIONS OF ITEMS

Name of taxpayer Tax Identification Number | Year/Period ended

ORG March 31, 20XX

LEGEND

ORG - Organization name XX - Date address - Address

City - City state - State president - President Vice

President - Vice President

Issue:

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

Facts:

ORG was selected for an audit of its Form 990, Return of Organization Exempt From Income Tax, for the tax period ending March 31, 20XX. Internal Revenue Service correspondence and attempts to contact the organization and its officers, by phone, for an appointment were not responded to.

A chronology of the IRS’s efforts to contact the organization are:

6/26/20XX - Sent Letter 3611 for appointment on 07-09-, to the address of record, Address, City, State Zip code. Sent with Pub 1, but no IDR.

6/27/20XX_ - Called the phone number for person in charge of books, phone number, President, at return address; got voice mail, left message to contact Agent.

11/15/20XX - Called the phone number listed on the Form 990, phone number, this number is not in service. Called the number listed on the 20XX, (Application for a Charitable Bingo License), phone number it is disconnected. Called the personal phone number from, (ACCURINT) of President, President phone number that number is disconnected. Called the personal phone number of Vice President, Vice President found on ACCURINT phone number. Got voice mail, but not identified. Did not leave a message. Sent Form 4759 Postal Tracer to see if there is a new address for the EO.

1/31/20XX_ - Mailed certified Letter 3611, IDR & Pub 1, for appointment on 2/25/20XX to the address of record. Also mailed copies of certified Letter 3611, IDR & Pub 1 to personal address, (per ACCURINT), of EO President, President at Address, City, State Zip code and personal address, (per ACCURINT), of EO Vice-President, Vice President at Address, City, State Zip code.

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) EXPLANATIONS OF ITEMS

Name of taxpayer Tax Identification Number | Year/Period ended

ORG March 31, 20XX

2/8/20XX - Received certified letter back,” return to sender forward time expired”, that was addressed to the address of record. However it did provide another address. Sent Letter 3611, IDR, & Pub 1 to Address, City, State Zip code.

2/20/20XX - Received postal tracer back. “Not known at address”, no new address provided.

2/25/20XX - Researched status of certified mailings on USPS.com web site. Mail to Address indicates “moved left no address”. Mail to Presidents’ address, Address, City, State Zip code was unclaimed. Mail to Vice Presidents’ address - Address, City, State Zip code was unclaimed.

Law:

IRC § 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.

IRC § 6033(a)(1) provides, except as provided in IRC § 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.

Treas. Reg. § 1.6001-1(a) in conjunction with Treas. Reg. § 1.6001-1(c) provides that every organization exempt from tax under IRC § 501(a) and subject to the tax imposed by IRC § 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 IRC § 6033.

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

Treas. Reg. § 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

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) EXPLANATIONS OF ITEMS

Name of taxpayer Tax Identification Number | Year/Period ended

ORG March 31, 20XX

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 § 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 IRC § 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.

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

It is the IRS's position that ORG failed to meet the reporting requirements under IRC
§§ 6001 and 6033 to be recognized as exempt from federal income tax under

IRC § 501(c)(3). Accordingly, the organization's exempt status is revoked effective April 1, 20XX.

Form 1120 returns should be filed for the tax periods ending on or after March 31, 20XX.

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