Charity loses exemption after withholding examination records

Plain-English summary

A recognized § 501(c)(3) organization did not provide records requested during an IRS examination. The IRS mailed an information request, visited the organization's facility, sent a second request by certified mail, and made repeated attempts to reach its president without receiving the requested information. Because the organization did not establish that it operated exclusively for exempt purposes or complied with the examination requirements, the IRS revoked its exemption effective at the start of the specified year. The organization was required to file Form 1120, and contributions to it were no longer deductible. The examination report also stated that its assets had to be distributed to other qualifying § 501(c)(3) entities as required by its articles of incorporation.

Ruling snapshot

• Question: Could the organization retain § 501(c)(3) status after failing to provide records requested for an IRS examination?
• Outcome: revocation
• Key authorities: IRC §§ 170, 501(c)(3), 6001, 6033(a)(1), and 7428; Treas. Reg. § 1.6033-2(i)(2)

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
TE/GE: EO Examinations
1100 Commerce Street, MC 4920DAL
Dallas, TX 75242

TAX EXEMPT AND

GOVERNMENT ENTITIES
DIVISION August 3, 2016
Number: 201646006 Taxpayer Identification Number:

Release Date: 11/10/2016
Person to Contact:

UIL: 501.03-00 Identification Number:

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 April 14, 20XX is hereby revoked and you are no longer exempt under
section 501(a) of the Code effective January 1, 20XX.

You have failed to establish that you are operated exclusively for exempt purposes
within the meaning of Internal Revenue Code section 501(c)(3), and that no part of your
net earnings inure to the benefit of private shareholders or individuals. You failed to
respond to repeated reasonable requests to allow the Internal Revenue Service to
examine your records regarding your receipts, expenditures, or activities as required by
I.R.C. sections 6001, 6033(a)(1), Treasury Regulation 1.6033-2(i)(2) and Rev. Rul. 59-95,
1959-1 C.B. 627.

Contributions to your organization are no longer deductible under IRC §170.

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,

Margaret Von Lienen

Director, EO Examinations

Enclosure:
Publication 892


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

Exempt Organizations: Examinations

MS: 4923 CHI

230 S. Dearborn Street Floor 1700

Chicago, IL 60604

Date:

July 7, 2015
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.

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

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


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.

Sincerely,

Margaret Von Lienen
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 Department of the Treasury - Internal Revenue Service Schedule No. or
Explanation of Items Exhibit 990
Name of Taxpayer December 31,
20XX
ISSUE: Whether continues to qualify for tax exempt status under

IRC 501(c)(3)?

FACTS:

was granted tax exempt status under IRC 501(c)(3) on November 16, 20XX.
Your organization has failed to provide the information requested in our Information Document
Request sent on April 20, 20XX via mail. Due to no response to initial contact letter issued on
April 20, 20XX the Service visited your facility located at ,
on May 11, 20XX in attempt to communicate with an officer of the organization; however to no
avail. Information Document Question #2 was issued on June 2, 20XX via certified mail no
response. There were numerous attempts to communicate in person and over the phone with the
President resulting in no response. As of July 6, 20XX, we still have not received any of the
information requested. The information was requested as a part of our examination to determine
whether or not the organization is operating in the manner stated in its application for recognition
of exemption and to determine if the income and expenses has been correctly reported on the
returns on their returns for the periods ending December 31, 20XX.

LAW:

Section 1-6033-2(i)(2) of the Income Tax Regulations provides, in part, that every organization
which is exempt from tax, whether or not it is required to file an annual information return, shall
submit such additional information as may be required by the Internal Revenue Service for the
purpose of inquiring into its tax exempt status. Failure to comply with our request for information
could result in the loss of your tax-exempt status.

CONCLUSION:

Revocation is being proposed because has not complied with the
requirements of Section 1.6033-2(i)(2) of the Income Tax Regulations to provide the information
requested in order to make a determination on the organization exempt status described in Internal
Revenue Code Section 501 (c)(3).

If the revocation is either agreed to or upheld, you will be required to file Form 1120, Corporate Tax
Return. Also contributions to you will no longer be deductible to donors as charitable contributions
as defined in Section 170(c) of the Code. Finally, your assets must be distributed to other entities
qualifying under IRC 501(c)(3) as designated in your Articles of Incorporation.

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

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