IRS revokes inactive charity that could not document current activities

Plain-English summary

A charity was originally recognized for Spanish-language education and training for child-care providers. During examination, it reported that the instructor had left the United States, the original training had stopped, and informal faith-enrichment meetings had begun instead. The organization had no bank account, had never received donations from the general public, and could not document ownership of reported cash assets or substantiate current activities conducted on its behalf. Materials supplied during the examination either referred to another entity or described long-past activities. The IRS concluded that the organization had not demonstrated current charitable operations and revoked exemption effective January 1 of the redacted year.

Ruling snapshot

• Question: Did the organization continue to operate exclusively for charitable or educational purposes under IRC § 501(c)(3)?
• Outcome: Revocation
• Key authorities: IRC §§ 170, 501(c)(3), 509(a)(1), 6001, 6033, and 7428; Treas. Reg. §§ 1.501(c)(3)-1 and 1.6001-1

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

January 27, 2016

Number: 201620013 Taxpayer Identification Number:

Release Date: 5/13/2016
Person to Contact:

Identification Number:

UIL Code: 501.03-00
Contact Telephone Number:

CERTIFIED MAIL

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 June 20, 2003 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):

As a result of our examination for the tax year ended December 31, 20XX, it was
determined that your organization has been inactive since 20XX and that there have
been no operations or regular financial activities conducted or planned. As such, you
failed to meet the operational requirements for continued exemption under IRC
501(c)(3).

Contributions to your organization are no longer deductible under IRC §170 after
January 1, 20XX.

You are required to file income tax returns on Form 1120. These returns should be
filed with the appropriate Service Center for the tax year ending December 31, 20XX
and for all tax years thereafter in accordance with the instructions of the return.

Processing of income tax returns and assessments 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 under the declaratory judgment provisions of
section 7428 of the Code, a petition to the United States Tax Court, the United States
Claims Court, or the district court of the United States for the District of Columbia must
be filed before the 91st Day after the date this determination was mailed to you. Please
contact the clerk of the appropriate court for rules regarding filing petitions for
declaratory judgments by referring to the enclosed Publication 892. You may write to
these courts at the following addresses:

United States Tax Court United States Court of Federal Claims
400 Second Street, NW 717 Madison Place, NW
Washington, D.C. 20217 Washington, D.C. 20005

United States District Court for the District of Columbia
333 Constitution Avenue, NW
Washington, D.C. 20001

The Taxpayer Advocate Service (TAS) is an independent organization within the
IRS that can help protect your taxpayer rights. TAS can offer you help if your tax
problem is causing a hardship, or you've tried but haven't been able to resolve
your problem with the IRS. If you qualify for TAS assistance, which is always
free, TAS will do everything possible to help you. Visit taxpayeradvocate.irs.gov
or call 1-877-777-4778.

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

Sincerely,

Paul A. Marmolejo
Acting Director, EO Examinations

Enclosure:
Publication 892


Tax Exempt and Government Entities Division Taxpayer Identification Number:
2525 Capitol Street #217
Fresno, CA 93721-2227 Form:

Department of the Treasury Date: October 27, 2015
Internal Revenue Service

Tax year(s) ended:

Person to contact / ID number:

Contact numbers:
Phone Number:
Fax Number:

Manager's name / ID number:

Manager's contact number:
Phone Number:

Certified Mail - Return Receipt Requested Response due date:

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
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

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


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.

Thank you for your cooperation.

Margaret Von Lienen
Director, EO Examinations

Enclosures:

Report of Examination
Form 6018

Publication 892
Publication 3498

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


Form 886 A Department of the Treasury - Internal Revenue Service Schedule No. or Exhibit
Explanation of Items

Name of Taxpayer: Year/Period Ended:
December 31, 20XX

Issues:
Does continue to qualify for exemption from Federal income tax under

Internal Revenue Code section 501(c)(3)?

Facts:

incorporated on February 12, 20XX in XXXXX. Article 7 of the
EO’s Articles of Incorporation states the EO is organized for charitable, educational, and
scientific purposes including, for such purposes, the making of distributions to
organizations that qualify as exempt organizations under section 501(c)(3) of the Internal
Revenue Code (Code). is listed as one of the two initial directors and signed
the Articles of Incorporation.

The EO submitted Form 1023, Application for Recognition of Exemption Under Section
501(c)(3); to the Internal Revenue Service (IRS) on May 12, 20XX. The narrative
description in Part II, Activities and Operational Information, provides:

empowers the by developing and
implementing Spanish language educational programs and resources that
respond to the needs of child-care providers and enrich the lives of their families.

was founded in the summer of 20XX in cooperation with and to
provide child-care provider training and education to the Spanish-speaking
community of the metro region.

Joint Ventures:
Fall 20XX- Spring 20XX: Introductory provider training. pilot classes,
funded classes. Counties: students served.

Spring 20XX: Enhanced basic & basic . pilot class. County:
students served.

proposed ventures:
Summer 20XX — Fall 20XX: Introductory provider training, funded
classes, enhanced basic & basic , funded classes, students
served.

The IRS issued Letter 1045, dated June 20, 20XX recognizing the EO as an exempt
organization under Code section 501(c)(3) and as a public charity under Code section
509(a)(1).

In the interview conducted with , Treasurer of the EO and a , on
September 24, 20XX he provided the following information:

Form 886-A (Rev.4-68) Department of the Treasury - Internal Revenue Service
Page: 1 of 5


Form 886 A Department of the Treasury - Internal Revenue Service Schedule No. or Exhibit
Explanation of Items

Name of Taxpayer: Year/Period Ended:
December 31, 20XX

The EO initially provided day care training to Spanish speaking individuals. The training
was in Spanish and provided by left the United States
sometime in 20XX. The EO was unable to continue to provide the training in Spanish and
began to provide faith enrichment services to families in stated

is due to return to in December 20XX and resume the Spanish speaking courses.

In 20XX the EO purchased approximately $ of Spanish-language material.
provided five documents in Spanish at the initial interview.

The items mention , but none mention the EO.

meets with Spanish speaking families to discuss and usually provides a copy of

each of the materials to the families. He meets with families as

needed, but not on a scheduled basis. He doesn’t keep a written record of the families he

meets with or issues discussed, but he estimates he met with at least 25 families in 20XX.

It is unclear whether meets with the individuals in his capacity of

or as a representative of EO.

The EO has not received donations and has not had a bank account since 20XX. The
$ reported as net assets on the EO’s 20XX Form 990EZ is
money pledged to the EO, but which has not been paid.

The EO did not provide documentation to show ownership of the $ in cash
assets. purchases a money order with his personal funds to pay the few
bills the EO receives, such as state registration and other fees.

The EO has never received donations from the general public. The donations reported on
the EO’s 20XX, 20XX, and 20XX Forms 990 are amounts pledged by and
not actual donations.

The Board of Director has always been composed of (President),
(Secretary), and (Treasurer); the same individuals listed on Form 1023.

provided a document entitled (Report) dated 02/22/20XX for review.
The Report references ; to educate 30 Spanish speaking persons as home
child care providers in and a $ grant. The Report provides the
names of 32 students and a curriculum related to required items by the State to obtain a
home care provider certificate.

Form 886-A (Rev.4-68) Department of the Treasury - Internal Revenue Service
Page: 2 of 5


Form 886 A Department of the Treasury - Internal Revenue Service Schedule No. or Exhibit
Explanation of Items

Name of Taxpayer: Year/Period Ended:
December 31, 20XX

provided documentation entitled subsequent to the initial
interview. The material is in Spanish and the title translates to .

Law:

Code section 501(c)(3) exempts from federal income tax organizations organized and
operated exclusively for charitable, educational, and other exempt purposes, provided that
no part of the organization's net earnings inures to the benefit of any private shareholder
or individual.

Regulations section 1.501(c)(3)-1(a) states in part that in order to be exempt as an
organization described in Code section 501(c)(3), the 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. The term “exempt purpose or purposes”, as used in this section, means any
purpose or purposes specified in section 501(c)(3).

Regulations section 1.501(c)(3)-1(c)(1) provides that an organization will not be regarded
as operated exclusively for exempt purposes if more than an insubstantial part of its
activities is not in furtherance of exempt purposes.

Regulations section 1.501(c)(3)-1(b)(4) states in part that an organization is not organized
exclusively for one or more exempt purposes unless its assets are dedicated to an exempt
purpose. An organization's assets will be considered dedicated to an exempt purpose, for
example, if, upon dissolution, such assets would, by reason of a provision in the
organization's articles or by operation of law, be distributed for one or more exempt
purposes, or to the Federal government, or to a State or local government, for a public
purpose, or would be distributed by a court to another organization to be used in such
manner as in the judgment of the court will best accomplish the general purposes for
which the dissolved organization was organized. However, an organization does not meet
the organizational test if its articles or the law of the State in which it was created provide
that its assets would, upon dissolution, be distributed to its members or shareholders.

Regulations section 1.501(c)(3)-1(c)(1) provides that an organization will not be regarded
as operated exclusively for exempt purposes if more than an insubstantial part of its
activities is not in furtherance of exempt purposes.

Regulations section 1.501(c)(3)-1(d)(3) defines the term educational as the instruction or
training of the individual for the purpose of improving or developing his capabilities; or the
instruction of the public on subjects useful to the individual and beneficial to the

Form 886-A (Rev.4-68) Department of the Treasury - Internal Revenue Service
Page: 3 of 5


Form 886 A Department of the Treasury - Internal Revenue Service Schedule No. or Exhibit
Explanation of Items

Name of Taxpayer: Year/Period Ended:
December 31, 20XX

community. Examples of educational organizations are primary or secondary school, a
college, or a professional or trade school, which has a regularly scheduled curriculum, a
regular faculty, and a regularly enrolled body of students in attendance at a place where
the educational activities are regularly carried on.

Regulations section 1.6001—1 state in part except as provided in paragraph (b) of this
section, any person subject to tax under subtitle A of the Code (including a qualified State
individual income tax which is treated pursuant to section 6361 (a) as if it were imposed by
chapter 1 of subtitle A), or any person required to file a return of information with respect
to income, shall keep such permanent books of account or records, including inventories,
as are sufficient to establish the amount of gross income, deductions, credits, or other
matters required to be shown by such person in any return of such tax or information. In
addition to such permanent books and records as are required by paragraph (a) of this
section with respect to the tax imposed by section 511 on unrelated business income of
certain exempt organizations, every organization exempt from tax under section 501(a)
shall keep such permanent books of account or records, including inventories, as are
sufficient to show specifically the items of gross income, receipts and disbursements.
Such organizations shall also keep such books and records as are required to
substantiate the information required by section 6033. See section 6033 and Regulation
section 1.6033-1 through 1.6033—3. 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.

Taxpayer’s Position:

The EO has not provided a definitive position at this time.

Government’s Position:

The EO does not continue to qualify for exemption under Code section 501(c)(3) because
it did not demonstrate that it is operated exclusively for a charitable purpose. The EO was
unable to demonstrate that it carries on any charitable activities.

The EO no longer carries on the activities it proposed on Form 1023 and stopped
providing day care provider classes sometime in 20XX.

provided oral testimony of the activities he carries on, but he did not provide
any supporting documentation to show the activities actually took place or that the
activities were conducted on the EO’s behalf. The documentation is not convincing
evidence in itself to demonstrate a charitable activity on behalf of the EO. The Report
presented only provides information on long-past activities.

Form 886-A (Rev.4-68) Department of the Treasury - Internal Revenue Service
Page: 4 of 5


Form 886 A Department of the Treasury - Internal Revenue Service Schedule No. or Exhibit
Explanation of Items

Name of Taxpayer: Year/Period Ended:
December 31, 20XX

was afforded an opportunity to provide support to demonstrate the EO
currently carries on a charitable but he did not provide any corroborating information.

Conclusion:
The EO does not continue to qualify for exemption under Code section 501(c)(3) because
it did not demonstrate that it carries on a charitable activity.

Form 886-A (Rev.4-68) Department of the Treasury - Internal Revenue Service
Page: 5 of 5