Dormant charity loses exemption for promoting a private tutoring business

Plain-English summary

A charity received exemption based on plans to help homeless and low-income people through tutoring, job support, and related programs. During examination, its representative said the organization was dormant and had conducted no business activity beyond filing annual electronic notices. The IRS found no evidence that the promised charitable programs operated and determined that the organization’s website and domain instead promoted the president’s for-profit tutoring business. Because its activities served a substantial private, nonexempt purpose and failed the operational test, the IRS revoked exemption and required corporate income tax returns.

Ruling snapshot

• Question: Did the organization continue to operate exclusively for charitable purposes under IRC § 501(c)(3)?
• Outcome: Revocation
• Key authorities: IRC §§ 170, 501(c)(3); Treas. Reg. §§ 1.501(c)(3)-1(a)(1), 1.501(c)(3)-1(c)(1), 1.501(c)(3)-1(d); Better Business Bureau of Washington, D.C. v. United States, 326 U.S. 279 (1945)

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
1100 Commerce Street, MC 4920
Dallas, TX 75242

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION
Date: September 23, 2015
Number: 201552031 Person to Contact:

Release Date: 12/24/2015
Identification Number:

Contact Telephone Number:
Telephone Number:
Fax:

EIN:

UIL: 501.03-00

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 to you dated December 27, 20XX 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 reason(s):

You have not demonstrated that you are operated exclusively for charitable, educational, or other
exempt purposes within the meaning of I.R.C. section 501(c)(3). Organizations that are described in
I.R.C. section 501 (c)(3) and section 501(a) must be organized and operated exclusively for an exempt
purpose. You have not established that you have operated exclusively for an exempt purpose.

As such, you failed to meet the requirements of Internal Revenue Code section 501 (c)(3) and Treasury
Regulation Section 1.501(c)(3)-1(d), in that you failed to establish that you were operated exclusively for
an exempt purpose.

Contributions to your organization are no longer deductible under section 170 of the Internal Revenue
Code, effective January 1, 20XX.

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, 20XX, and for all subsequent years.

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 Claim 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. 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 that 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 courts at the
following addresses:

United States Tax Court
400 Second Street, NW
Washington, DC 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. 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. 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.

You may 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

_ Telephone:

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

Sincerely yours,

Margaret Von Lienen
Director, EO Examinations

Enclosures:
Publication 892

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

Exempt Organizations: Examinations

MS: 4900 PHX.JM

4041 N. Central Ave #112

Phoenix, AZ 85012

Date:
May 13, 2015
Taxpayer Identification Number:

Form:
Tax Year(s) Ended:

Person to Contact/ID Number:

Contact Numbers:
Telephone:
Fax:

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.

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

Effect of revocation status
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.

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

Thank you for your cooperation.

Enclosures:

Report of Examination
Form 6018
Publication 892
Publication 3498

Sincerely,

Margaret Von Lienen
Director, EO Examinations

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

Form 886-A Schedule number or

(Rev. January 1994) EXPLANATIONS OF ITEMS exhibit

Name of taxpayer EIN: Period Ending:
December 31, 20XX

Issue

Should the exempt status under Internal Revenue Code (IRC) Section (Sec.) 501(c)(3) of the

be revoked effective January 1, 20XX
because the Organization does not meet the operational test (operated exclusively for charitable
purposes) requirements of Treasury (Treas.) Regulation (Reg.) Sec. 1.501(c)(3)-1(a)(1)?

Facts
Background Information

According to the Secretary of State’s website, was incorporated in
on November 17, 20XX.

On December 27, 20XX, the Internal Revenue Service issued Letter 1045 notifying _ of its
exempt status under I.R.C. Sec. 501(c)(3). Per the current Internal Revenue Service records,

is recognized as tax exempt under IRC Sec. 501(c)(3) and its foundation status is a
public charity under IRC Sec. 170(b)(1)(A)(vi).

On January 6, 20XX, the Agent spoke with (President) the current President of

, and explained was selected for audit for the period ending December 31, 20XX.
The President did not want to give any information without receive written confirmation of the
audit. The Agent mailed the President Letter 3606 and Information Document Request #1.

, (Taxpayer's Representative) in letters dated January 12, 20XX and
February 24, 20XX stated the following:

1. The President of is

2. Our records indicate that the Organization has not conducted any business activity since
   the application was filed, other than filing the required 990-N (e-postcard) tax returns to
   keep the Organization current with the Internal Revenue Service.

3. Because the Organization is currently dormant, all items listed on your Form 4564-
   Information Document Request are not available because they have not yet been
   prepared.

Form 1023 — Application for exempt status

provided a description of its activities when applying for exempts status, the activities
below were provided with Form 1023.

1. The purpose of now and in the future is to provide funding for educational
   research and tutoring/seminars to help people become independent and self-sufficient.

2. We are specifically looking to help those who are capable or have the potential to
   achieve financial independence and emotional stability, again as set forth by the DSM-V.

3. Many homeless people are capable to work and have job skills right now. We will help
   them improve these skills for work in offices or with any job they wish to pursue.

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

Form 886-A Schedule number or

(Rev. January 1994) EXPLANATIONS OF ITEMS exhibit

Name of taxpayer EIN: Period Ending:
December 31, 20XX

4. Homeless people who also have on the job training in solicitation will be hired to work on
   the streets, getting donations from people who stop at traffic lights. The latter practice is
   commonly known as pan-handling. We intend to enable and to empower the homeless
   to continue this activity, for the benefit of themselves and for our programs.

5. To prevent diversion of funds we will charge the worker a minimal daily fee for being
   able to solicit funds. With the permission of districts in , we will charge from
   $ - per shift and permit the worker to keep anything beyond their solicitations.

6. At the end of the Description of Activities is a section called “Members that receive
   benefits from you”. The following is the paragraph from that section:

“Tutors and tutoring services will be contracted to provide services to eligible
students. Low income or no income people or homeless people or office staff will
be working for us and receiving wages. College students who demonstrate
academic need for help for a particular subject will receive free or discounted
tutoring as well as opportunities to perform research. Board Member relatives will
not receive benefits.”

Website

web address is www. .com. A search on the web address
provided:

1. The registrant name, admin name, and tech name are all listed as “
2. The registrant organization, admin organization, and tech organization are all listed as:

The following is a detailed description of the webpage:

1. First line of the web page:

2. Second line of the web page:

3. Third line of the webpage:

4. Forth line of the webpage:

5. Fifth line of the webpage:

6. Six line of the webpage: ( ).

7. Seventh Line is the start of a bulleted paragraph:

The goal of is to provide the following benefits to its members:

8. The relevant parts of the first full paragraph are:
   a.

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

Form 886-A Schedule number or

(Rev. January 1994) EXPLANATIONS OF ITEMS exhibit

Name of taxpayer EIN: Period Ending:
December 31, 20XX

Archive.org (a historical archive of internet webpages) shows webpage, as described
above, was in effect during the audit year and year subsequent to the audit year.

LAW

Internal Revenue Code

IRC Sec. 501(c)(3) - Organizations described in I.R.C. Sec. 501(c)(3) are exempt from income
tax. These organizations include 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 to foster national or international amateur sports
competition (but only if no part of its activities involve the provision of athletic facilities or
equipment), or for the prevention of cruelty to children or animals, no part of the net earnings of
which inures to the benefit of any private shareholder or individual, no substantial part of the
activities of which is carrying on propaganda, or otherwise attempting, to influence legislation
(except as otherwise provided in subsection (h)), and which does not participate in, or intervene
in (including the publishing or distributing of statements), any political campaign on behalf of (or
in opposition to) any candidate for public office.

Treasury Regulations

Treas. Reg. Sec. 1.501(c)(3)-1(a)(1) - Organizational and operational tests - |n order to be
exempt as an organization described in I.R.C. Sec. 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.

Treas. Reg. Sec. 1.501(c)(3)-1(c)(1) - An organization will be regarded as “operated
exclusively” for one or more exempt purposes only if it engages primarily in activities that
accomplish one or more of such exempt purposes specified in the Internal Revenue Code.

Treas. Reg. Sec. 1.501(c)(3)-1(d)(1)(ii) - clarifies the meaning of the term exempt purpose. An
organization is not organized or operated exclusively for one or more exempt purpose unless it
serves a public rather than a private interest. To meet this requirement it is necessary for an

organization to establish that it is not organized or operated for the benefit of private interests
such as designated individuals, the creator or his family, shareholders of the organization, or
persons controlled, directly or indirectly, by such private interests.

Treas. Reg. Sec. 1.501(c)(3)-1(d)(2) - provides that the term ““charitable” is used in section
501(c)(3) in its generally accepted legal sense. Such term includes: Relief of the poor and
distressed or of the underprivileged; advancement of religion; advancement of education or
science; lessening of the burdens of Government; and promotion of social welfare by
organizations designed to accomplish any of the above purposes, or (1) to lessen neighborhood
tensions; (2) to eliminate prejudice and discrimination; (3) to defend human and civil rights
secured by law; or (4) to combat community deterioration and juvenile delinquency.

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

Form 886-A Schedule number or

(Rev. January 1994) EXPLANATIONS OF ITEMS exhibit

Name of taxpayer EIN: Period Ending:
December 31, 20XX

Cases

Better Business Bureau of Washington, D.C. v. United States, 326 U.S. 279 (1945) -
The existence of a substantial nonexempt purpose, regardless of the number or importance of
exempt purposes, will cause failure of the operational test.

Government's Position

It is the Government’s position the exempt status of the
( ) should be revoked effective January 1, 20XX because the Organization does
not meet the operational test (operated exclusively for charitable purposes).

application for exemption (From 1023) states will assist the homeless with
employment and tutoring so they may be independent and self-sufficient. On webpage
there is nothing related to assisting the homeless, how the homeless can get tutoring to become
self-sufficient or how they can get jobs. The Organization was granted exempt status based on
their planned assistance (tutoring) of a charitable class (the homeless), however, there is no
indication this activity is being conducted. Additionally, per the Power of Attorney, further stated
that nothing has been done with this Organization or activity.

Subsequent to the start of the audit, webpage was changed; removing the name
from promoting the President’s for-profit tutoring services. However, the domain

www. .com is registered in the name of and is the property of and

should only be used in the operation of exempt purpose. Even at the time of this writing,

exempt purpose assets are in use for for-profit activities.

has not provided documents to support their exempt purpose and has not established
they are meeting the requirements of the operational test. All activities of are for the
promotion of a for-profit nonexempt purpose.

Organization’s Position

The Taxpayer's Representative has stated is currently dormant and not operating.
Conclusion
sole purpose is to promote the President's for profit business . does

not meet the requirements of the operational test and its exempt status should be revoked
effective January 1, 20XX. Form 1120, U.S. Corporation Income Tax Return should be filed for
20XX and each year thereafter as long as it remains subject to Federal Income Tax. If the
proposed revocation becomes final, appropriate State officials will be notified of such actions in
accordance with IRC Sec. 6104(c).

Form 886-A (1-1994) Catalog Number 20810W Page 4 publish.no.irs.gov Department of the Treasury-Internal Revenue Service