IRS revokes charity accused of operating an illegal trust mill

Plain-English summary

An organization obtained IRC § 501(c)(3) status after representing that it would help seniors live independently through counseling, transportation, funding, and home-accessibility improvements. The IRS examination relied on law-enforcement records and interviews indicating that the organization's principals instead used it in an illegal trust mill scheme involving worthless living trusts and fraudulent private annuities sold to elderly people. The report also found material misstatements in the exemption application, no charitable activity or public support, personal use of incoming funds, and failures to file required Forms 990. The IRS concluded that the organization was not operated exclusively for exempt purposes and had operated materially differently from its representations. It revoked exemption retroactive to the original application date, ended the deductibility of contributions after that date, and required corporate income tax returns.

Ruling snapshot

• Question: Did the organization remain qualified under IRC § 501(c)(3), and from what date should any revocation apply?
• Outcome: Revocation
• Key authorities: IRC §§ 170, 501, 509, 6001, 6033, and 7428; Treas. Reg. § 1.501(c)(3)-1; Rev. Proc. 2008-9

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 February 2, 2016

Number: 201620015 Taxpayer Identification Number:

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

UIL Code: 501.03-00 Identification Number:

Contact Telephone Number:
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 is hereby revoked and you are no longer exempt under section 501(a) of the
Code effective February 4, 20XX.

The revocation of your exempt status was made for the following reason(s):

You are not operating exclusively for any charitable purpose, educational purpose, or
any other exempt purpose. Our examination reveals that you are not engaged primarily
in activities which accomplish charitable, educational or other exempt purposes as
required by Treas. Reg. 1.501(c)(3)-1(c)(1). Your activities, including your financial
transactions, more than insubstantially furthered non-exempt purposes.

Contributions to your organization are no longer deductible under IRC §170 after
February 4, 20XX.

You are required to file Form 1120 U. S. Corporation Income Tax Return. These
returns should be filed with the appropriate Service Center for tax years ended
December 31, 20XX, December 31, 20XX, December 31, 20XX and for all 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 (TSA) is an independent organization within the
IRS that can help protect your taxpayer rights. TSA 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 TSA assistance, which is always
free, TSA will do everything possible to help you. Visit taxpayeradvocate.irs.gov
or call 1-877-777-4778.

This letter supersedes the automatic revocation notice posted to IRS.gov on
March 11, 20XX.

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


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

Exempt Organizations: Examinations

1100 Commerce Street, 4900 DAL

Dallas, TX 75242

Date:

December 15, 2014
Taxpayer Identification Number:

Form:

Tax Year(s) Ended:

Person to Contact/ID Number:
Contact Numbers:

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.

Effect of revocation status

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


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.

Sincerely,

Stephen A. Martin
Acting Director, EO Examinations

Enclosures:

Report of Examination
Form 6018
Publication 892
Publication 3498

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


Form 886-A Schedule number or exhibit
Explanations of Items
Name of Taxpayer Tax Identification Number Year/Period ended
20XX, 20XX, 20XX

Issues:
Whether continues to qualify for exemption under Section 501(c)(3) of the
Internal Revenue Code?
Whether has operated as a not-for-profit organization?
Whether has failed to file required forms?
Whether qualifies for revocation from the date of inception?

Facts:

Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue
Code

filed Articles of Incorporation with the State of on February 02, 19XX. Article
Two of the Bylaws states that EO is organized exclusively for charitable purposes within the meaning of Code
§501(c)(3). The article goes on to state that the specific objectives and purposes of the corporation shall be
to assist seniors with their independent living, charitable giving and ability to live their own lives with respect
and dignity.

The Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue
Code, stated that the organization planned to do this by:

1. Providing counseling, planning, transportation, and funding to seniors on a case by case basis.
2. Building wheelchair access ramps leading into the home.

3. Installation of safety railings within bathtub or shower areas.

4. Making adjustments to kitchen and bathroom countertops to make them more easily accessible to
seniors.

The Form 1023 stated that the organizations sources of financial support would be “Contributions, benefits”.

The Form 1023 listed as President and as Vice
President.
On July 12, 20XX and August 13, 20XX, , an Exempt Organization Specialist with the IRS,

requested additional information to clarify answers given on the Form 1023 using Letters 2382 and 1312.

In response to Question #6 of the letter dated August 13, 20XX, “Please provide a complete list of the
names, titles, and mailing addresses of all your current directors and/or trustees along with any applicable
compensation amounts.”, replied as follows:

Form 886-A Department of the Treasury-Internal Revenue
Service

BS


Form 886-A Schedule number or exhibit
Explanations of Items
Name of Taxpayer Tax Identification Number Year/Period ended
20XX, 20XX, 20XX

1. , Executive Director, approx. $. annual compensation;
2. , Marketing, Board Member, no compensation;
3. , Secretary, no compensation;
4. , Attorney, Board Member, no compensation; (Note: was
criminal defense attorney at that time.)
5. , Attorney, legal Counsel, no compensation (Note: was
law partner and co-counsel at that time.)
6. , Attorney, Legal Counsel, no compensation (Note: was

criminal defense attorney at that time.)

Each of these letters included a list of additional questions to clarify the Form 1023 application. The letters’
instructions said that any response to the questions in the letter should be accompanied by the following
declaration:

Under penalties of perjury, I declare that I have examined this information, including accompanying documents, and,
to the best of my knowledge and belief, the information contains all the relevant facts relating to the request for the
information, and such facts are true, correct, and complete.

The declaration was signed by at the end of both responses.
Deputy District Attorney (DDA) of the contacted attorneys , and

and expressed surprise that had listed them as board members on documents
submitted to the IRS. Both and advised that they had never attended any
meetings for the board members, officers, directors, or trustees of .
DDA contacted attorney by phone; he advised that he was not then, nor had
he ever been, associated with . said that he was retained to represent

only in the criminal charges. related that he was unaware that

had identified him on any document as a legal counsel for . He related that he had never

attended any meetings for the board members, officers, directors, or trustees of

Exemption was granted under Section 501(c)(3) and Section 170(b)(1)(A)(vi) of the Internal Revenue Code,
on September 02, 20XX, as a publicly supported organization.

Operation as a Not-For-Profit Company

The stated primary focus of the organization was to assist seniors with their independent living, charitable

by phone; both advised that they were not then, nor had they ever been board members of
giving and ability to live their own lives with respect and dignity.

Form 886-A Department of the Treasury-Internal Revenue
Service


Form 886-A Schedule number or exhibit
Explanations of Items

Name of Taxpayer Tax Identification Number Year/Period ended

20XX, 20XX, 20XX

Numerous complaints were filed by elderly residents in stating that , and co-
conspirators and were selling the elderly residents worthless living trusts and
fraudulent annuities through their companies and

The investigation by the local police and the District Attorney’s Office has revealed that

and his co-conspirators, and , were utilizing and
another entity, , to operate a “trust mill scam” to sell elderly residents worthless living trusts
and fraudulent annuities. The defendants were representing to elderly victims that the granted
501(c)(3) status proved that was a legitimate charitable organization.

The officers of , and , along with another individual
( ), identified as a member of the Board of Directors and in charge of marketing
for , have been arrested by the Sheriff's Office for selling elderly residents
worthless living trusts and fraudulent annuities through their companies (___) and
. Two preliminary hearings have been held on the cases and all defendants have been bound
over for felony trial.

During the preliminary court hearing on , 20XX_, an expert witness rendered an opinion that

_____ officers were operating _____ and _____ as a “trust mill scam,” in which they solicited elders to

allow them to draft living trust or living trust updates for the victims, in order to gain access to the victims

financial information and assets. The defendants then solicited the victims, who had assets, to invest in the
annuity. The expert witness and the Department of Insurance have advised

that is not authorized to sell annuities in and considered the

annuity was fraudulent.

On 01-31-20XX, 07-19-20XX, and 03-28-20XX, DDA and DAI conducted free

talk interviews with in the presence of defense attorney . The
interviews were all conducted at the District Attorney's Office at the . Some of the admissions,
implications, and statements made by are set forth below.

1. ; , and met in approximately 20XX or 20XX, when they
were all employed as salesmen by at in .

characterized as essentially a “trust mill” operation.

2. In approximately 20XX/20XX, established in ,asa
business to sell living trusts and living trust updates. lived in at that
time.

3. In approximately 20XX, terminated his association with and

and continued to work with until it

went out of business in about 20XX.

Form 886-A Department of the Treasury-Internal Revenue
Service


Form 886-A Schedule number or exhibit
Explanations of Items
Name of Taxpayer Tax Identification Number Year/Period ended
20XX, 20XX, 20XX

4. moved to , near the border with , and started working
with selling living trusts and trust updates with
5. In about 20XX/20XX, and formed a partnership and
gave the business to to own and operate.
6. and continued to work together primarily in , with
selling living trusts and living trust updates to elderly clients and
notarizing the trusts and trust updates for , while also soliciting the elderly clients to
purchase insurance annuities from through various insurance companies.

was a commissioned Notary Public and a licensed insurance agent in

7. was not a Notary Public or a licensed insurance agent in
told that had a previous criminal theft conviction in

and had served time in a state prison. also told
that had previously been a licensed insurance agent and a licensed

stock broker in

8. In late 20XX and early 20XX, and formulated an agreement to
establish as a 501(c)(3) tax exempt organization and identify and market
as a non-profit charitable organization to help senior citizens remain living independently.
admitted that he and agreed and planned to operate and
as a “trust mill scam,” which they both knew to be an illegal operation.

9. advised he and had numerous discussions and made numerous
agreements about how to operate and . Most of the discussions and
agreements took place in condo residence in

10. advised that came up with the idea of selling seniors a “private
annuity” through as a way to make money, which and
intended to invest to enrich themselves.

11. admitted he and never intended to be a non-profit,
charitable organization; but, in fact, they planned to use to enrich themselves, while
deceitfully marketing as a non-profit charitable organization to help senior citizens.

12. also came up with the idea to have elderly clients sign the separate one page
annuity agreements, which essentially stated that interest on the client’s investment
would accrue in the client’s account until death when the balance and principal would revert to
and agreed they could get elderly clients to sign the
agreements, without the clients realizing what they were signing, and they would not provide the
clients with copies of the separate one page agreements. admitted his and

Form 886-A Department of the Treasury-Internal Revenue
Service


Form 886-A Schedule number or exhibit
Explanations of Items

Name of Taxpayer Tax Identification Number Year/Period ended

20XX, 20XX, 20XX

intention was to deceitfully keep the clients monies after the clients’ deaths.
admitted he and agreed that if any client’s heirs made a claim to
for the invested money after the client’s death, and
would then simply claim the clients intended their investments to be donations to
admitted that he and never intended for the individual clients, or the
clients’ heirs, to get the annuity money back.

13. admitted that copied an Insurance Company Annuity
booklet, almost word for word, to use as the Annuity contract booklet.
was an authorized agent for and agreed they would
modify the booklet to use for annuities and they would purposely not have

clients complete any application form, nor would they sign the booklet as
representatives or officers. admitted they knew the annuities were not
in compliance with the law and they hoped they would not get caught. had the
modified Annuity booklet contracts printed at as they sold the alleged
annuities. admitted there were no company and no persons standing behind

except himself and admitted had no
financial backup reserves and the annuities were essentially fraudulent.

14. admitted he knew that was improperly incorporated and that
had no Board of Directors. admitted he and both knew
the information provided to the IRS on the initial IRS application for 501(c)(3) tax
exempt status was false. admitted that he and formulated

as a for-profit organization to enrich themselves and never intended to
be a non- profit charitable organization. primary source of funds was to be from the
sale of annuities to elderly people. admitted they filed for 501(c)(3)
status partly in an attempt to circumvent and cover themselves from regulation by the
Department of Insurance. said the supplemental IRS inquiries on the
501(c)(3) application were filed with the IRS by .

15. stated that it was their plan for , and later , to initially sell
the living trusts or living trust updates, and would notarize the alleged trust
documents. , and later , would also sell the fraudulent
annuities, and was to manage and invest the incoming funds.
indicated that he erroneously thought that if and were the front men
who sold the fraudulent trusts and annuities, then could remain in the
background and be protected from legal action if clients made complaints.

16. continued that he did notarize documents of some of the trusts sold by
but on many of the trusts, simply gave pre-signed pages bearing
signature and Notary Public stamp and never met or notarized client
Form 886-A Department of the Treasury-Internal Revenue
Service


Form 886-A

Explanations of Items

Schedule number or exhibit

Name of Taxpayer

Tax Identification Number

Year/Period ended

20XX, 20XX, 20XX

signatures for many of the trust sold by

acknowledged he knew such

false notarizations were illegal.

17,

also admitted that he had purposely destroyed his Notary Public Journal because he

expected the District Attorney's Office would be attempting to obtain it.

18.

advised that and

with incoming funds from the sale of

to manage and invest some of the funds.

a

account he opened at

were supposed to provide
annuities and was

related he did invest some of the funds into

and

19.

also used the incoming funds for their respective living expenses.

admitted he did not open separate investment accounts in the names of the elderly
investors, nor did he keep detailed records under the names of the elderly investors,

because they did not intend to pay the money back to the elderly investors or the investors’ heirs after
the investors’ deaths.

20. stated he and began to have disagreements over some of the
____ annuities being sold and other matters. felt like things were spinning
out of control, was out of control, and did not feel comfortable with the
way things were going. Consequently, and agreed that

would withdraw from effective 06-11-20XX and sign a written
agreement to that effect. and notified the accountants
and presented with a written “Transfer of Power

Agreement” for .
closely and should not have signed the agreement.
after 06-11-20XX , but he still associated with
for himself from the

out of

admitted that he did withdraw $

alleged he signed the agreement without reading it

alleged that he was essentially

in the months prior to withdrawing from

account

and , accountants of , of , were interviewed by
District Attorney Investigator on 03-11-XX ( #XX — #XX). During that
interview they stated that:

1. In approximately January 20XX, contacted to assist
and in filing an IRS Form 1023 and related forms to apply for 501(c)(3) non-profit tax
exempt status for , an organization and were jointly
staring.
Form 886-A Department of the Treasury-Internal Revenue

Service


Form 886-A Schedule number or exhibit
Explanations of Items
Name of Taxpayer Tax Identification Number Year/Period ended
20XX, 20XX, 20XX

2. had filed a few IRS 1023 applications in the past, but had never filed
such an application. took over the project of assisting and

with preparing the appropriate IRS and other forms and applications to get
approval with IRS.

3. and advised they did not recall ever having a joint meeting with both
and regarding , it was always with , OF
later , individually.
4. In preparing the IRS 1023, advised that he sat down with
and went through the form with question by question and line by line.

related that all answers to all questions on the initial IRS 1023 Application (signed by
on 08-03-20XX) were provided by

5. made no attempts to verify answers or information provided by or
, but simply drafted the answers and information as provided by and
without question.

6. and related that neither , Nor , ever
related anything to them about selling annuities of any type to seniors, or planning to sell annuities to
seniors through

7. and related that in June 20XX_, for reasons unknown to them,
withdrew from and took over all further

control. They provided a copy of the Transfer of Power Agreement between and
indicated that most probably provided him with a

copy of the transfer agreement. The agreement, signed by both and on
06-11-20XX .

8. In July and August 20XX , received letters from IRS requesting additional information

for the pending IRS 1023 Application to grant tax exempt non-profit status to
worked with on the IRS requests for additional

information. Around this time frame, had reviewed web site
" , and was concerned that the statements indicative of primary
activities on the website were not in sync with those stated in the 1023 Application
submitted to IRS on 08-03-20XX. told that the 1023 Application
and the website needed to be in sync.

9. also advised that to comply with IRS requests, would
have to appoint a Board of Directors for

Form 886-A Department of the Treasury-Internal Revenue
Service


Form 886-A Schedule number or exhibit

Explanations of Items

Name of Taxpayer Tax Identification Number Year/Period ended

20XX, 20XX, 20XX

10.

11.

12.

13.

14.

15.

16.

related that essentially, drafted responses to the IRS requests for
additional information and emailed his draft responses to , who cleaned up the draft
responses with some punctuation and organization changes and sent them back to
for approval.

related that then submitted the additional information to the IRS.

related that also needed to complete a personal tax return for
20XX and requested to provide with
financial records in order to complete a tax return for .

did subsequently contract with for bookkeeping
services. provided and/or with bank
records for 20XX. provided those records to .

subsequently told that was unable to obtain

records from and never provided any financial or activity records on to enable
to prepare a tax return.

In the August 20XX IRS request for additional information, IRS specifically requested

to provide a complete list of the names, titles, and mailing addresses of all

officers, directors and/or trustees. was surprised to find in

email to on 08-23-20XX , that was listed

among the Board of Directors, as the Auditor; and
CPA, was listed as the Bookkeeper. related that
had never asked him, or mentioned to him that would be on the Board of
Directors for and related that he had no interest or desire to serve
on the Board of Directors.

related he then told that he ( ) was not interested

in serving on the Board of Directors for and told that
had to talk with all of the persons listed as members of the

Board of Directors to confirm they were willing to serve on the board. deleted his
name and the name of from list of members of the

Board of Directors, before sending his proposed draft back to for
submission to IRS.

did not contact the other persons listed as members of the

Board of Directors. submitted the list to IRS without the names of
and

Form 886-A Department of the Treasury-Internal Revenue

Service


Form 886-A Schedule number or exhibit
Explanations of Items

Name of Taxpayer Tax Identification Number Year/Period ended

20XX, 20XX, 20XX

17. On 04-07-20XX, sent an email requesting to file an
extension for 20XX personal income taxes, for , and

18. On 04-09-20XX, replied to that had decided to
cease their tax preparation services to him and should make other tax preparation
arrangements. replied, "so, guilty b4 chance 2prove innocence? Not the

American way is it?"

, CPA, of , Was interviewed by DAI of the
District Attorney's Office On 04-20-20XX, at his office in .

1. accounting practice is focused on business bookkeeping. was
contacted in late summer or early fall 20XX by a CPA networking associate, about
completing some bookkeeping work for one of ‘tax clients,

has never met in person, but has had email and possibly telephone
communications with in 20XX .

2. It was understanding that and wanted
to complete bookkeeping reports for business and
non-profit organization, , for the year 20XX. related that he received all
records on and through , but he never
received any records on , because said he could not obtain the

records from his former business partner,

3. had told that large donation deposits into the _.§_—= Ss AC Count
were actually donations intended for , but on checks written to

said he ( ) subsequently transferred the large deposits to a separate
account. was unable to verify statements because

never provided any bank statements or other records for

4. prepared no tax returns for ; ,or
5. was under the impression that he would be contracted to prepare bookkeeping reports
for and for 20XX , but he has been provided with no 20XX
or records by either or ;
6. advised he has not been contacted further by since about October
20XX . related he has no further information about , , or
Form 886-A Department of the Treasury-Internal Revenue

Service


Form 886-A Schedule number or exhibit
Explanations of Items
Name of Taxpayer Tax Identification Number Year/Period ended
20XX, 20XX, 20XX
Failure to file Required Forms
The IRS's Information Data Retrieval System (IDRS), lists the current status of as Exemption

Revoked (Status Code 97) on March 11, 20XX, due to the failure to file Form 990 or Form 990N for 3-
consecutive years.

Form 990
The organization failed to file Forms 990 for the tax years ending 20XX and 20XX. If the organization does
not meet any of the filing exceptions and its annual gross receipts are normally more than $ , it must

file Form 990 or Form 990EZ. Third party records indicate the following:

Year Income per Bank

20XX
20XX

received 100% of its income from the updating of fraudulent trusts and selling fraudulent
private annuities to senior citizens.

The organization had a filing requirement for 20XX and 20XX because gross receipts exceeded $

Forms 990 are due the 15th day of the 5th month following the end of the organization’s tax year. Forms 990
for the tax years ending 20XX and 20XX have not been filed to date and are currently delinquent.

Law:

Internal Revenue Code (“Code”) §501(a) provides that an organization described in §501(c) (3) is exempt
from income tax. Code §501(c)(3) exempts from federal income tax corporations organized and operated
exclusively for charitable, educational, and other purposes, provided that no part of the net earnings inure to
the benefit of any private shareholder or individual. The term charitable includes relief of the poor and
distressed. Federal Tax Regulations (“Regulations”) §1.501(c) (3)-1(d) (2).

An IRC §170(b)(1)(A)(vi) organization is defined as an organization referred to in subsection (c)(2) which
normally receives a substantial part of its support (exclusive of income received in the exercise or
performance by such organization of its charitable, educational, or other purpose or function constituting the
basis for its exemption under §501(a)) from a governmental unit referred to in subsection (c)(1) or from direct
or indirect contributions from the general public.

Form 886-A Department of the Treasury-Internal Revenue
Service


Schedule number or exhibit

Form 886-A

Explanations of Items

Name of Taxpayer Tax Identification Number Year/Period ended

20XX, 20XX, 20XX

IRC §170(c)(2)(B) defines a charitable organization as a corporation, trust, or community chest, fund, or
foundation that is organized and operated exclusively for religious, charitable, scientific, 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;

Regulations §1.501(a)-1(a)(3) states that an organization claiming exemption under section 501(a) and
described in any paragraph of section 501(c) (other than section 501(c)(1)) shall file the form of application
prescribed by the Commissioner and shall include such information as required by such form and the
instructions issued with respect thereto.

Regulations §1.501(a)-1(b)(1)(iii) states that an organization described in section 501(c)(3) shall submit with,
and as a part of, an application filed after July 26, 1959, a detailed statement of its proposed activities.

Regulations §1.501(a)-1(b)(2) states that in addition to the information specifically called for by this section,
the Commissioner may require any additional information deemed necessary for a proper determination of
whether a particular organization is exempt under section 501(a), and when deemed advisable in the interest
of an efficient administration of the internal revenue laws, he may in the cases of particular types of
organizations prescribe the form in which the proof of exemption shall be furnished.

Regulations §1.501(c)(3)-1(a)(1) provides that, in order to be exempt as an organization described in Code
§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.

Regulations §1.501(c)(3)-1(c)(1) provides that 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 Code §501(c)(3). An organization will not be so regarded if more than an
insubstantial part of its activities is not in furtherance of an exempt purpose. The existence of a substantial
nonexempt purpose, regardless of the number or importance of exempt purposes, will cause failure of the
operational test. Better Business Bureau of Washington, D.C. v. U.S., 326 U.S. 279 (1945).

Regulations §1.501(c)(3)-1(c)(2) provides that the operational test is not satisfied where any part of the
organization's earnings inure to the benefit of private shareholders or individuals, and where the organization
serves a private benefit rather than public interests.

Regulations §1.501(c)(3)-1(d)(ii) provides that an organization is not organized or operated exclusively for
one or more exempt purposes unless it serves a public rather than private interest. Thus, it is necessary for
an organization to establish that 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. Prohibited private interests include those of unrelated third
parties as well as insiders. Christian Stewardship Assistance, Inc. v. Commissioner, 70 T.C. 1037 (1978);
American Campaign Academy v. Commissioner, 92 T.C. 1053 (1989). Private benefits include an

Form 886-A Department of the Treasury-Internal Revenue
Service


Form 886-A Schedule number or exhibit
Explanations of Items

Name of Taxpayer Tax Identification Number Year/Period ended

20XX, 20XX, 20XX

“advantage; profit; fruit; privilege; gain; [or] interest.” Retired Teachers Legal Fund v. Commissioner, 78 T.C.
280, 286 (1982).

The presence of a single substantial nonexempt purpose can destroy the exemption regardless of the
number or importance of exempt purposes. Better Bus. Bureau v. United States, 326 U.S. 279. 238, 90 L.
Ed. 67, 66 S. Ct. 112 (1945); Am. Campaign Acad. V. Commissioner, 92 T.C. 1053, 1065 (1989); see also
Old Dominion Box Co., Inc. v. United States, 477 F2d. 340 (4th Cir. 1973), cert. denied, 413 US 910 (1973)
(“operating for the benefit of private parties who are not members of a charitable class constitutes a
substantial nonexempt purpose”.) When an organization operates for the benefit of private interests, such as
designated individuals, the creator or his family, or persons directly or indirectly controlled by such private
interests, the organization by definition does not operate exclusively for exempt purposes. Am. Campaign
Acad. V. Commissioner, supra at 1065-1066.

IRC §6001 provides 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. Whenever in the judgment of the Secretary it is
necessary, he may require any person, by notice served upon such person or by regulations, to make such
returns, render such statements, or keep such records, as the Secretary deems sufficient to show whether or
not such person is liable for tax under this title”

IRC §6033(a)(1) provides that “Except as provided in paragraph (2), every organization exempt from taxation
under §501(a) shall file an annual return, stating specifically the items of gross income, receipts, and
disbursements, and such other information for the purpose of carrying out the internal revenue laws as the
Secretary may by forms or regulations prescribe, and shall 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; except that, in the discretion of the Secretary, any organization described in §401(a)
may be relieved from stating in its return any information which is reported in returns filed by the employer
which established such organization.

Paragraph 6033(a)(2) lists mandatory exceptions to paragraph (1) as (i) churches, their integrated auxiliaries,
and conventions or associations of churches, (ii) any organization (other than a private foundation, as defined
in §509(a)) described in subparagraph (C), the gross receipts of which in each taxable year are normally not
more than $5,000, or (iii) the exclusively religious activities of any religious order.

Revenue Ruling 80-278, 1980-2 CB 175, (Jan. 01, 1980) establishes that in making the determination of
whether an organization’s activities are consistent with exemption under section 501(c)(3) of the Code, the
Service will rely on a three-part test. The organization’s activities will be considered permissible under
section 501(c)(3) if:

(1) The purpose of the organization is charitable;
(2) The activities are not illegal, contrary to a clearly defined and established public policy, or in conflict
with express statutory restrictions; and

Form 886-A Department of the Treasury-Internal Revenue
Service


Form 886-A Schedule number or exhibit
Explanations of Items

Name of Taxpayer Tax Identification Number Year/Period ended

20XX, 20XX, 20XX

(3) The activities are in furtherance of the organization’s exempt purpose and are reasonably related to
the accomplishment of that purpose.

Revenue Ruling 75-384, 1975-2 CB 204, (Jan. 01, 1975) states that as a matter of trust law, one of the main
sources of the general law of charity, no trust can be created for a purpose which is illegal. The purpose is
illegal if the trust property is to be used for an object which is in violation of the criminal law, or if the trust
tends to induce the commission of crime, or if the accomplishment of the purpose is otherwise against public
policy. IV Scott on Trusts Sec. 377 (3d ed. 1967). Thus, all charitable trusts (and by implication all charitable
organizations, regardless of their form) are subject to the requirement that their purposes may not be illegal
or contrary to public policy. See Rev. Rul. 71-447, 1971-2 C.B. 230; Restatement (Second), Trusts (1959)
Sec. 377, Comment (c).

Rev. Proc. 2008-9, I.R.B. 2008-2 (January 14, 2008) , Section 12, states that a determination letter or ruling
recognizing exemption may be revoked or modified by a notice to the taxpayer to whom the determination
letter or ruling was issued. It went on to say that the revocation or modification of a determination letter or
ruling recognizing exemption may be retroactive if the organization omitted or misstated a material fact,
operated in a manner materially different from that originally represented, or engaged in a prohibited
transaction and where there is a material change, inconsistent with exemption, in the character, the purpose,
or the method of operation of an organization, revocation or modification will ordinarily take effect as of the
date of such material change.

Government’s Position:
Issue 1

It is the Government's Position that the Form 1023, Application for Recognition of Exemption Under Section
501(c)(3) of the Internal Revenue Code, for was knowingly filed with material misstatements,
was never intended to be operated in a manner that would qualify for exemption under §501(c)(3) of the
Internal Revenue Code, and has failed to operate exclusively for charitable, educational, and other purposes.

In its Form 1023 application, described itself as an organization that shall assist seniors with
their independent living, charitable giving, and ability to live their own lives with respect and dignity. The
organization stated that its primary sources of financial support were to be “contributions, benefits’.

The Form 1023 application stated that the organization planned to do this by: (1) providing counseling,
planning, transportation, and funding to seniors on a case by case basis. (2) building wheelchair access
ramps leading into the home, (3) installation of safety railings within bathtub or shower areas, and (4) Making
adjustments to kitchen and bathroom countertops to make them more easily accessible to seniors.

On 01-31-20XX, 07-19-20XX, and 03-28-20XX, Deputy District Attorney (DDA) and District
Attorney Investigator (DIA) of the Office of the , conducted free talk interviews
Form 886-A Department of the Treasury-Internal Revenue

Service


Form 886-A

Schedule number or exhibit

Explanations of Items

Name of Taxpayer

Tax Identification Number Year/Period ended

20XX, 20XX, 20XX

with

in the presence of defense attorney . A review of the

records of these interviews revealed that:

1. , and met in approximately 20XX or 20XX, when they
were all employed as salesmen by at in

characterized as essentially a “trust mill” operation.

2. In approximately 20XX/20XX, established in ,asa
business to sell living trusts and living trust updates. lived in at that
time.

3. In approximately 20XX, terminated his association with and

and continued to work with until it

went out of business i in about 20XX.

4. moved to , near the border with , and started working
with selling living trusts and trust updates with
5. In about 20XX/20XX, and formed a partnership and
gave the business to to own and operate.
6. and continued to work together primarily in , with
selling living trusts and living trust updates to elderly clients and
notarizing the trusts and trust updates for , while also soliciting the elderly clients to
purchase insurance annuities from through various insurance companies.
was a commissioned Notary Public and a licensed insurance agent in
7. In late 20XX and early 20XX, the stated officers of , President, and,
, Vice President, formulated an agreement to establish as
a 501 (c)(3) tax exempt organization and identify and market as a non-profit charitable
organization to help senior citizens remain living independently.
8. He and agreed and planned to operate as a “trust mill
scam,” which they both knew to be an illegal operation.
9. admitted they filed for 501 (c)(3) status partly in an attempt to circumvent and cover
themselves from regulation by the Department of Insurance.
10. admitted he knew that was improperly incorporated and that
had no Board of Directors.
Form 886-A Department of the Treasury-Internal Revenue

Service


Schedule number or exhibit

Form 886-A
Explanations of Items
Name of Taxpayer Tax Identification Number Year/Period ended
20XX, 20XX, 20XX
and , accountants of , of , Were interviewed by
District Attorney Investigator on 03-11-XX. During that interview they stated
that:

1. In approximately January 20XX, contacted to assist
and in filing an IRS Form 1023 and related forms to apply for 501(c)(3) non-profit tax
exempt status for , an organization and were jointly
staring.
2. had filed a few IRS 1023 applications in the past, but had never filed
such an application. took over the project of assisting and
with preparing the appropriate IRS and other forms and applications to get
approval with IRS.
3. and advised they did not recall ever having a joint meeting with both
and regarding , it was always with , or
later , individually.
4. In preparing the IRS 1023, advised that he sat down with
and went through the form with question by question and line by line.
related that all answers to all questions on the initial IRS 1023 Application (signed by
on 08-03-20XX) were provided by
5. made no attempts to verify answers or information provided by or

, but simply drafted the answers and information as provided by and

without question.

and related that neither , nor , ever
related anything to them about selling annuities of any type to seniors, or planning to sell annuities to
seniors through

and related that in June 20XX _, for reasons unknown to them,

withdrew from and took over all further

control. They provided a copy of the Transfer of Power Agreement between and

. indicated that most probably provided him with a
copy of the transfer agreement. The agreement, signed by both and on 06-11-
20XX .

Additional questions were sent in letters to by , an Exempt Organization
Specialist with the IRS.

Form 886-A Department of the Treasury-Internal Revenue

Service


Form 886-A Schedule number or exhibit

Explanations of Items

Name of Taxpayer Tax Identification Number Year/Period ended

20XX, 20XX, 20XX

The interview with , and , accountants of , of , by
District Attorney Investigator on 03-11-XX also provided information on these
letters. They stated that:

1. in July and August 20XX , received letters from IRS requesting additional information

for the pending IRS 1023 Application to grant tax exempt non-profit status to .
worked with on the IRS requests for additional

information. Around this time frame, had reviewed web site
" ," and was concerned that the statements indicative of primary
activities on the website were not in sync with those stated in the 1023 Application
submitted to IRS on 08-03-20XX. told that the 1023 Application
and the website needed to be in sync.

2. also advised that to comply with IRS requests, would

have to appoint a Board of Directors for

3. related that essentially, drafted responses to the IRS requests for
additional information and emailed his draft responses to , who cleaned up the draft
responses with some punctuation and organization changes and sent them back to
for approval.

4. related that then submitted the additional information to the IRS.

5. In the August 20XX IRS request for additional information, IRS specifically requested
to provide a complete list of the names, titles, and mailing addresses of all

officers, directors and/or trustees. was surprised to find in
email to on 08-23-20XX that _ was listed among
the Board of Directors, as the Auditor; and , CPA,
was listed as the Bookkeeper. related that had
never asked him, or mentioned to him that would be on the Board of Directors for
and related that he had no interest or desire to serve on the

Board of Directors.

6. related he then told that he ( ) was not interested
in serving on the Board of Directors for and told that
had to talk with all of the persons listed as members of the
Board of Directors to confirm they were willing to serve on the board. deleted his
name and the name of from list of members of the
Board of Directors, before sending his proposed draft back to for

submission to IRS.

Form 886-A Department of the Treasury-Internal Revenue
Service


Form 886-A Schedule number or exhibit

Explanations of Items

Name of Taxpayer Tax Identification Number Year/Period ended

20XX, 20XX, 20XX

7. did not contact the other persons listed as members of the
Board of Directors. submitted the list to IRS without the names of
and
In a response to additional questions sent in a letter to by , an Exempt
Organization Specialist with the IRS, listed , Attorney and
Attorney, as Board Members and , Attorney, as Legal Counsel.

The letter’s instructions said that any response to the questions in the letter should be accompanied by the
following declaration:

Under penalties of perjury, I declare that I have examined this information, including accompanying documents, and,
to the best of my knowledge and belief, the information contains all the relevant facts relating to the request for the
information, and such facts are true, correct, and complete.

The declaration was signed by at the end of the response.

Deputy District Attorney (DDA) of the contacted attorneys , and
by phone; both advised that they were not then, nor had they ever been board members for
and expressed surprise that had listed them as board members on documents
submitted to the IRS. Both and advised that they had never attended any
meetings for the board members, officers, directors, or trustees of .

DDA contacted attorney by phone; he advised that he was not then, nor has
he ever been, associated with . said that he was retained to represent

only in the criminal charges. related that he was unaware that
had identified him on any document as a legal counsel for . He related that he has never
attended any meetings for the board members, officers, directors, or trustees of

The admissions made during the interviews by and the statements made during the
interviews of , and , accountants of , show that the officers of
the organization, and , have a history going back to approximately 20XX or
20XX, when they were all employed as salesmen by at in ., Of
running what characterized as essentially a “trust mill” operation. The two continued the
operation of selling trusts through after they left at and came up
with the idea to start

Both and intentionally made false and misleading statements when filing
Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal
Revenue Code, in order to obtain exempt status under IRC §501(c)(3). They did this in an attempt to hide

Form 886-A Department of the Treasury-Internal Revenue
Service


Schedule number or exhibit

Form 886-A

Explanations of Items

Name of Taxpayer Tax Identification Number Year/Period ended

20XX, 20XX, 20XX

the fact that they were involved in an illegal “trust mill” scam to sell worthless trusts and “personal annuities”
to senior citizens

Their conduct of criminal activities is contrary to Revenue Ruling 80-278, 1980-2 CB 175, (Jan. 01, 1980) and
Revenue Ruling 75-384, 1975-2 CB 204, (Jan. 01, 1975) that states that as a matter of trust law, one of the
main sources of the general law of charity, no trust can be created for a purpose which is illegal. The
purpose is illegal if the trust property is to be used for an object which is in violation of the criminal law.

Rev. Proc. 2008-9, I.R.B. 2008-2 (January 14, 2008) , Section 12, states that a determination letter or ruling
recognizing exemption may be revoked or modified by a notice to the taxpayer to whom the determination
letter or ruling was issued.

The Rev. Proc. went on to say that the revocation or modification of a determination letter or ruling
recognizing exemption may be retroactive if the organization omitted or misstated a material fact, operated in
a manner materially different from that originally represented, or engaged in a prohibited transaction and
where there is a material change, inconsistent with exemption, in the character, the purpose, or the method of
operation of an organization, revocation or modification will ordinarily take effect as of the date of such
material change.

Operating as a not-for-profit
The Form 1023 stated that the organizations sources of financial support would be “Contributions, benefits”.

The officers of and , along with another individual
, identified as a member of the Board of Directors and in charge of marketing for

have been arrested by the Sheriff's Office for selling elderly victims worthless
living trusts and fraudulent annuities through their companies and . All the
defendants have been arrested, but are currently out of custody. Two preliminary hearings have been held
on the cases and all defendants have been bound over for felony trial.

On 01-31-20XX, 07-19-20XX, and 03-28-20XX, Deputy District Attorney (DDA) and District
Attorney Investigator (DIA) of the Office of the , conducted free talk interviews
with in the presence of defense attorney . In the course of
these interviews admitted that:

1. , and met in approximately 20XX or 20XX, when they
were all employed as salesmen by at in

characterized as essentially a “trust mill” operation.

2. In approximately 20XX/20XX, established in ,asa
business to sell living trusts and living trust updates. lived in at that
time.

Form 886-A Department of the Treasury-Internal Revenue

Service


Form 886-A Schedule number or exhibit
Explanations of Items
Name of Taxpayer Tax Identification Number Year/Period ended -
20XX, 20XX, 20XX

3. In approximately 20XX, terminated his association with and
and continued to work with until it

went out of business in about 20XX.

4. moved to , near the border with , and started working
with selling living trusts and trust updates with

5. In about 20XX/20XX, and formed a partnership and
gave the business to to own and operate.

6. came up with the idea to have elderly clients sign the separate one page

annuity agreements, which essentially stated that interest on the client's investment
would accrue in the client’s account until death when the balance and principal would revert to
and agreed they could get elderly clients to sign the
agreements, without the clients realizing what they were signing, and they would not provide the
clients with copies of the separate one page agreements. admitted his and
intention was to deceitfully keep the clients monies after the clients’ deaths.
admitted he and agreed that if any client’s heirs made a claim to
for the invested money after the client's death, and
would then simply claim the clients intended their investments to be donations to
admitted that he and never intended for the individual clients, or ‘the
clients’ heirs, to get the annuity money back.

7. admitted that copied an Insurance Company Annuity
booklet, almost word for word, to use as the Annuity contract booklet.
was an authorized agent for and agreed they would
modify the booklet to use for annuities and they would purposely not have

clients complete any application form, nor would they sign the booklet as
representatives or officers. admitted they knew the annuities were not
in compliance with the law and they hoped they would not get caught. had the
modified Annuity booklet contracts printed at as they sold the alleged
annuities. admitted there were no company and no persons standing behind

except himself and admitted had no
financial backup reserves and the annuities were essentially fraudulent.

8. admitted they filed for 501(c)(3) status partly in an attempt to circumvent and cover
themselves from regulation by the Department of Insurance.

9. stated that it was their plan for , and later , to initially sell
the living trusts or living trust updates, and would notarize the alleged trust
documents. , and later , would also sell the fraudulent

Form 886-A Department of the Treasury-Internal Revenue
Service


Form 886-A Schedule number or exhibit

Explanations of Items

Name of Taxpayer Tax Identification Number Year/Period ended

20XX, 20XX, 20XX

10.

11.

12.

13.

14.

annuities, and was to manage and invest the incoming funds.
indicated that he erroneously thought that if and were the front men
who sold the fraudulent trusts and annuities, then could remain in the

background and be protected from legal action if clients made complaints.

continued that he did notarize documents of some of the trusts sold by
but on many of the trusts, simply gave pre-signed pages bearing
signature and Notary Public stamp and never met or notarized client
signatures for many of the trust sold by . acknowledged he knew such

false notarizations were illegal.

also admitted that he had purposely destroyed his Notary Public Journal because he
expected the District Attorney’s Office would be attempting to obtain it.

advised that and were supposed to provide
with incoming funds from the sale of annuities and was
to manage and invest some of the funds. related he did invest some of the funds into

a account he opened at ; ; and
also used the incoming funds for their respective living expenses.

admitted he did not open separate investment accounts in the names of the elderly

investors, nor did he keep detailed records under the names of the elderly investors,
because they did not intend to pay the money back to the elderly investors or the investors’ heirs after
the investors’ deaths.

stated he and began to have disagreements over some of the
annuities being sold and other matters. felt like things were spinning
out of control, was out of control, and did not feel comfortable with the
way things were going. Consequently, and agreed that

would withdraw from effective 06-11-20XX and sign a written
agreement to that effect. and notified the accountants
and . presented with a written “Transfer of Power
Agreement” for . alleged he signed the agreement without reading it
closely and should not have signed the agreement. alleged that he was essentially
out of after 06-11-20XX , but he still associated with
admitted that he did withdraw $ for himself from the
account in the months prior to withdrawing from .

Examination of bank and brokerage statements provided by the District Attorney's Office
indicates that received % of its income from client fees associated with the
updating of trusts and from the sale of the “private annuities” and from the , and later

Form 886-A Department of the Treasury-Internal Revenue
Service


Form 886-A Schedule number or exhibit

Explanations of Items

Name of Taxpayer Tax Identification Number Year/Period ended

20XX, 20XX, 20XX

. There is no indication of any public support. There is no indication of grants
from government agencies or donations from the public.

There is no indication that was involved in any charitable activities.

Treas. Reg. 1.501(c)(3)-1(c) (1) states that an organization will be regarded as “operated exclusively” for one
or more exempt purposes only if it engages primarily in activities which accomplish one or more of such
exempt purposes specified in section 501(c)(3). An organization will not be so regarded if more than an
insubstantial part of its activities is not in furtherance of an exempt purpose. Furthermore, In Better Bus.
Bureau v. United States, 326 U.S. 279. 238, 90 L. Ed. 67, 66 S. Ct. 112 (1945) the court stated that a single
non-educational purpose, if substantial in nature, will destroy the exemption regardless of the number or
importance of truly educational purposes.

The admissions by as to the operation of the “trust mill” and the examination of the account
information supplied by the District Attorney’s Office convincingly show that

, and later , had no intention of running as an exempt
organization. This lack of intent and the fact that , and also
used the incoming funds for their respective living expenses, are substantial enough to destroy

the exemption.

has Failed to File Required Forms
Form 990

The organization failed to file Forms 990 for the tax years ending 20XX and 20XX . If the organization does
not meet any of the exceptions and its annual gross receipts are normally more than $25,000, it must file
Form 990 or Form 990EZ. Third party records indicate the following:

Year Income per Bank
20XX
20XX
knew that had a filing requirement for . The interview with
, and , accountants of , of , by
District Attorney Investigator on 03-11-XX provided information that:

1. related that also needed to complete a personal tax return for
20XX and requested to provide with
financial records in order to complete a tax return for .
Form 886-A Department of the Treasury-Internal Revenue
Service


Form 886-A Schedule number or exhibit
Explanations of Items
Name of Taxpayer Tax Identification Number Year/Period ended
20XX, 20XX, 20XX

2. did subsequently contract with for bookkeeping
services. provided and/or with bank
records for 20XX. provided those records to
subsequently told that was unable to obtain
records from and never provided any financial or activity records on
to enable to prepare a tax return.

3. On 04-07-20XX, sent an email requesting to file an
extension for 20XX personal income taxes, for , and

, CPA, of , was interviewed by DAI of the
District Attorney's Office On 04-20-20XX, at his office in .

1. accounting practice is focused on business bookkeeping. was
contacted in late summer or early fall 20XX by , a CPA networking associate, about
completing some bookkeeping work for one of tax clients,

has never met in person, but has had email and possibly telephone
communications with in 20XX .

2. It was understanding that and wanted
to complete bookkeeping reports for business and
non-profit organization, , for the year 20XX. related that he received all
records on and through , but he never
received any records on , because said he could not obtain the

records from his former business partner,

3. had told that large donation deposits into the account
were actually donations intended for , but on checks written to
said he subsequently transferred the large deposits to a separate
account. was unable to verify statements because

never provided any bank statements or other records for

4. prepared no tax returns for ; ,or
5. was under the impression that he would be contracted to prepare bookkeeping reports
for and for 20XX , but he has been provided with no 20XX or
records by either or .
never followed through with the filing requirements despite the requests from

the CPAs that he contacted.

Form 886-A Department of the Treasury-Internal Revenue
Service


Form 886-A Schedule number or exhibit
Explanations of Items

Name of Taxpayer Tax Identification Number Year/Period ended

20XX, 20XX, 20XX

The organization had a filing requirement for 20XX and 20XX_ because gross receipts exceeded $25,000.
The organization had a filing requirement under IRC §6033, as it is an IRC §501(a) organization. Third party
records indicate that the organization does not qualify for the filing requirement exemption under IRC
§6033(a)(2)(ii) that exempts any organization (other than a private foundation, as defined in §509(a)) the
gross receipts of which in each taxable year are normally not more than $5,000.

Forms 990 are due the 15th day of the 5th month following the end of the organization’s tax year. Forms 990
for the tax years ending 20XX and 20XX_ have not been filed to date and are currently delinquent.

The IRS’s Information Data Retrieval System (IDRS), lists the current status of as Exemption
Revoked (Status Code 97) on March 11, 20XX, due to the failure to file Form 990 or Form 990N for 3-
consecutive years.

Organization’s Position:

The organization has no response at this time.

Summary:
On the basis of the examination of the books, records, and activities of , and the interviews
conducted by the , the organization fails to qualify for exempt status under IRC §501(c)(3).
Admissions made during the interviews by and the statements made during the interviews of
, and , accountants of , show that the officers of the
organization, and , and later , have a history going back to
approximately 20XX or 20XX, when they were all employed as salesmen by at
in ., Of running what characterized as essentially a “trust mill”
operation. and continued the operation of selling trusts through
after they left at and came up with the idea to start
Both and intentionally made false and misleading statements when filing

Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal
Revenue Code, in order to obtain exempt status under IRC §501(c)(3).

The officers of and , Knowingly and willfully made false or
misleading statements when filing the original Form 1023, Application for Recognition of Exemption Under
Section 501(c)(3) of the Internal Revenue Code, for . Admissions by indicate
that the false and misleading statements made on the Form 1023 were a deliberate and pre-planned to
enable to qualify for exempt status as a 501(c)(3) organization.

Form 886-A Department of the Treasury-Internal Revenue
Service


Form 886-A Schedule number or exhibit
Explanations of Items

Name of Taxpayer Tax Identification Number Year/Period ended

20XX, 20XX, 20XX

Statements made by , and , accountants of , who

and hired to file the Form 1023 indicate that answered all the
questions on the original application. They also stated that after additional inquiries came in
would send the replies for editing and then send them back to . When
inquiries about the members of the Board of Directors were received, told that
he needed to ask the listed members if they were willing to be members of the Board.
knowingly made material misrepresentations by giving names of attorneys that
knew were not members of the Board and signed those misrepresentations under a “penalties of

perjury” declaration.

Exemption was granted under Section 501(c)(3) and Section 170(b)(1)(A)(vi) of the Internal Revenue Code,
on September 02, 20XX , as a publicly supported organization after these inquiries were answered..

failed to operate exclusively for charitable or educational purposes. and
knowingly made material misrepresentations in the filing of the organization’s
Form 1023 to hide the fact that they, and later , did this in an attempt to hide the fact that they

were involved in an illegal “trust mill” scam to sell worthless trusts and “personal annuities” to senior citizens
to enrich themselves and never return the proceeds to the senior citizens that had invested in the “trusts”.
This failure to operate exclusively for charitable or educational purposes in contrary to Revenue Ruling 80-

278, 1980-2 CB 175, (Jan. 01, 1980 and Revenue Ruling 75-384, 1975-2 CB 204, (Jan. 01, 1975).

_____sreceives no public support. has received % of its financial support
from client fees from the sale of trust updates and “private annuities”. Since income was
shown to be % from the sale of illegal trust updates and “private annuities” to senior Citizens,
fails the public support test of Treas. Reg. §1.170A-9(e) that allows classification of
as a public charity under IRC §509(a)(1) & 170(b)(1)(A)(vi).

has failed to file Forms 990 for the calendar years 20XX and 20XX . CPAs
and both requested records from in order to file
Forms 990. failed to provide any records to the CPAs. The Form 990 for the tax year ending
20XX was due May 15, 20XX_ and the Form 990 for the tax year ending 20XX was due May 15, 20XX.
These returns have not been filed to date and are currently delinquent. The IRS’s Information Data Retrieval
System (IDRS), lists the current status of as Exemption Revoked (Status Code 97) on March
11, 20XX, due to the failure to file Form 990 or Form 990N for 3-consecutive years.

Based on the examination of the record supplied by the District Attorney's Office and activities
of , as detailed in the interviews of and , and ,
accountants of , revocation of exempt status is being proposed back to the

date that the original Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the
Internal Revenue Code, was filed, February 4, 20XX. This is the date of the original false and misleading

statements made by and that resulted in the granting of
Form 886-A Department of the Treasury-Internal Revenue
Service


Form 886-A Schedule number or exhibit
Explanations of Items

Name of Taxpayer Tax Identification Number Year/Period ended

20XX, 20XX, 20XX

exempt status under IRC §509(a)(1) & 170(b)(1)(A)(vi). (Rev. Proc. 2008-9, I.R.B. 2008-2 (January 14,
2008), Section 12.)

SA should file Forms 1120, U.S. Corporation Income Tax Return, for each year under examination and each
subsequent year.

Form 886-A Department of the Treasury-Internal Revenue
Service