Dissolved organization lost exemption after ignoring audit requests

Plain-English summary

The IRS revoked an organization's exemption under IRC § 501(c)(3). The organization filed short Form 990-N notices, but those filings did not establish that it was conducting exempt activities. It also did not provide financial records, organizational documents, minutes, or other information requested during an examination, even after certified mail and an attempted field visit. The IRS further found that the organization had been legally dissolved and therefore no longer met the organizational test for exemption. Because it could not establish either qualifying operations or continued corporate existence, its exemption was revoked.

Ruling snapshot

• Question: Did the dissolved organization remain exempt when it failed to document charitable operations or provide requested audit records?
• Outcome: revocation
• Key authorities: IRC §§ 501(c)(3), 6001, and 6033; Treas. Reg. §§ 1.6001-1 and 1.6033-1; Rev. Rul. 59-95

Full text (IRS public release)

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

December 7, 2016

Number: 201715002 Taxpayer Identification Number:
Release Date: 4/14/2017

                                         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 December 2, 19XX is hereby revoked and you are no longer exempt under
section 501(a) of the Code effective January 1, 20XX.

Organizations described in section 501(c)(3) of the Internal Revenue Code and exempt
from tax under section 501(a) must be both organized and operated exclusively for
exempt purposes. You have failed to produce documents or otherwise establish that
you are operated exclusively for exempt purposes 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. Moreover, you failed the organizational test for exemption because
your corporate status has been dissolved; therefore, you are not a corporation,
community chest, fund, or foundation as required by I.R.C section 501(c)(3).

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,

Mary Epps
Acting Director, EO Examinations

Enclosure:
Publication 892

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

Date:
August 5, 2016
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 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
Taxpayer Advocate Service

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,

Margaret Von Lienen
Director, EO Examinations

Enclosures:

Report of Examination
Form 6018
Determinations Package
Publication 892
Publication 3498

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

Schedule number or exhibit

Form 886-A
(Rev. January 1994) EXPLANATIONS OF ITEMS

Name of taxpayer Tax Identification Number Year/Period ended
December 31,
20XX

ISSUE

1. Whether the [redacted] continues to qualify for
   exemption under Section 501(c)(3) of the Internal Revenue Code?

FACTS

The organization was granted tax-exempt status on December 2, 19XX under Internal Revenue
Code Section 501(a) as an organization described in Section 501(c)(3). According to its Articles of
Incorporation dated May 1, 19XX, the purposes of the EO are:

Solely those exempt purposes as defined in Section 501(c)(3) of the Internal Revenue Code of
1954, and specifically do not include any pecuniary profit, gain, or private advantage for the
incorporators, directors, or officers of the corporation, and it is organized solely for charitable and
educational purposes.

The exempt purpose of the organization as stated in the original application for exemption (Form
1023) is to:

[redacted]

The organization filed Form 990-N for the year ended December 31, 20XX and as such, no
financial information was available from the review of the filed return to enable the Secretary to
make a determination of whether the organization’s activities were charitable in nature.
Additionally, no evidence was available to determine whether the organization was conducting
activities in accordance with its stated purpose.

We began an examination on July 27, 20XX. We left voicemails for the president, ([redacted]),
at various phone numbers found in the case file and through a review of Accurint records.
[Redacted] did not respond to the various voice mail messages left in attempt to reach him.

We issued a request for information (Information Document Request, or IDR) on September 14,
20XX along with an initial contact Letter 3611. The request was for financial and organizational
information for the year under examination and set the examination for October 13, 20XX at the
principal address listed for the organization. The organization failed to respond to the request for
documentation as it did not respond to the request by October 13, 20XX.

On December 3, 20XX, we prepared a subsequent Letter 3611 along with a copy of the original
information document request and mailed the documents certified (see exhibit A) to the taxpayer's
address of record. We set the subsequent examination date for January 4, 20XX at the address of
record for the organization. Additionally, we completed a postal tracer request (see exhibit B) on
December 3, 20XX to verify the address of the taxpayer.

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

Schedule number or exhibit

Form 886-A
(Rev. January 1994) EXPLANATIONS OF ITEMS

Name of taxpayer Tax Identification Number Year/Period ended
December 31,
20XX

We received verification of receipt of the certified mailing (see exhibit C) for the second L3611
signed by [redacted]. We also received verification of the address of record from the postal tracer
(see exhibit D). We drove to the address of record on January 4, 20XX to meet with the taxpayer
and conduct the field examination; however, the taxpayer did not answer the door of the residence
and did not appear to be present at the premises.

To date, we have not received financials, organizational information, meeting minutes, board of
director lists, and other documents requested on IDR 001.

Exhibit E provides copies of the Internal Revenue Service correspondence sent to the taxpayer
attempting to schedule the examination and to obtain the required documentation to verify the
activities of the organization. The exempt organization failed to respond to the Internal Revenue
Service correspondence for the tax period ending December 31, 20XX.

LAW

Section 501(c)(3) of the Internal Revenue Code provides an exemption from federal income tax
for: corporations, and any community chest, fund, or foundation, organized and operated
exclusively for religious, charitable, scientific, testing for public safety, literary, or educational
purposes, or for the prevention of cruelty to children or animals. The exemption is available where:
no part of the net earnings of which inures to the benefit of any private shareholder or individual,
no substantial part of the activities of which is carrying on propaganda, or otherwise attempting to
influence legislation, and which does not participate in, or intervene in, any political campaign on
behalf of any candidate for public office.

Section 6001 of the Internal Revenue Code provides that every person liable for any tax imposed
by the IRC, or for the collection thereof, shall keep adequate records as the Secretary of the
Treasury or his delegate may from time to time prescribe.

Section 6033(a)(1) of the Internal Revenue Code provides that except as provided in IRC §
6033(a)(2), every organization exempt from tax under § 501(a) shall file an annual return, stating
specifically the items of gross income, receipts and disbursements, and such other information for
the purposes of carrying out the internal revenue laws. The Secretary may also prescribe by forms
or regulations the requirement of every organization to 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.

Treasury Regulation Section 1.6001-1(c) states that 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.

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

Schedule number or exhibit

Form 886-A
(Rev. January 1994) EXPLANATIONS OF ITEMS

Name of taxpayer Tax Identification Number Year/Period ended
December 31,
20XX

Treasury Regulation Section 1.6001-1(e) states that the books or records required by this section
shall be kept at all times available for inspection by authorized Internal Revenue Service officers
or employees, and shall be retained as long as the contents thereof may be material in the
administration of any Internal Revenue law.

In accordance with the above cited provisions of the Code and Regulations under IRC § 6001 and
6033, organizations recognized as exempt from federal income tax must meet certain reporting
requirements. These requirements relate to the filing of a complete and accurate annual
information (and other required federal tax forms) and the retention of records sufficient to
determine whether such entity is operated for the purposes for which it was granted tax-exempt
status.

Revenue Ruling 59-95, 1959-1 C.B. 627, concerns an exempt organization asked to produce
financial statement and statement of its operations for a certain year. However, its records were so
incomplete that the organization was unable to furnish such statements. The Internal Revenue
Service held that the failure or inability to file the required information return or otherwise to
comply with the provisions of IRC § 6033 and the regulations which implement it, may result in the
termination of the exempt status of an organization previously held exempt, on the grounds that
the organization has not established that it is observing the conditions required for the continuation
of exempt status.

GOVERNMENT'S POSITION

1. Failure to Meet the Operational Test

The EO has failed to show us that they meet the operational test for a § 501(c)(3) organization for
the year under examination. In order to meet the operational test, they must show that they
engage primarily in activities which accomplish one or more of such exempt purposes specified in
section § 501(c)(3). We will not regard an organization as having met this test if more than an
insubstantial part of its activities is not in furtherance of an exempt purpose.

As evidence of their failure to operate for exempt purposes, we reviewed the Form 990-N filings
and found little or no support for exempt operations. The Form 990-N filed for the year ended
December 31, 20XX does not state the exempt purpose or describe the activities of the
organization. It does not show that they incurred expenses on their exempt function program
services. The subsequent years returns Form 990-N also do not show any exempt purpose
activities. The organization has failed to show that they have been performing exempt purpose
activities since January 1, 20XX, which is required for a §501(c)(3) organization to keep their tax-
exempt status. Accordingly, we are proposing revocation because they do not operate for exempt
purposes.

Failure to Provide Records

The EO has failed to provide records as is required in Code § 6033(a)(1) and Regulation §
1.6033-1(h)(2). They failed to provide any organizational or financial information that we

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

Schedule number or exhibit

Form 886-A
(Rev. January 1994) EXPLANATIONS OF ITEMS

Name of taxpayer Tax Identification Number Year/Period ended
December 31,
20XX

requested during the examination. We attempted to obtain these records numerous times by mail
and phone. Without the EO’s records, we cannot verify that they are operating according to their
exempt purpose. Our position is that the organization, then, is not operating for exempt purposes.
They have provided nothing to the contrary.

In accordance with the above cited provisions of the Code and regulations under IRC §§ 6001 and
6033, organizations recognized as exempt from federal income tax must meet certain reporting
requirements. These requirements relate to the filing of a complete and accurate annual
information (and other required federal tax forms) and the retention of records sufficient to
determine whether such entity is operated for the purposes for which it was granted tax-exempt
status and to determine its liability for any unrelated business income tax.

The Organization has failed repeatedly to respond to the Service’s request for information in
contrast to section 1.6033-1(h)(2) of the regulations, which require an organization to provide such
information as requested to allow the Service to make a determination of that organization’s
exempt status.

It is the Service's position that the organization failed to meet the reporting requirements under
IRC §§ 6001 and 6033 to be recognized as exempt from federal income tax under IRC §
501(c)(3). Accordingly, we propose that the organization's exempt status be revoked effective
January 1, 20XX.

TAXPAYER'S POSITION

The taxpayer's position is unknown at this time.

CONCLUSION

By not complying with the Code and Regulations, the organization has jeopardized its exempt
status. The Forms 990-N that the organization has filed fail to show that they are operating for
exempt purposes. They have also failed to provide required documentation, thereby failing to be
complaint with the Code, and failing to show any evidence of their exempt activities. We have no
reason to believe that the EO is operating for exempt purposes.

As a result of the examination, we have determined that the EO is not operating for exempt
purposes as a §501(c)(3) organization. They have not provided any information to the contrary.
Accordingly, since the organization failed to operate primarily for exempt purposes, we are
proposing revocation of their tax-exempt status, effective January 1, 20XX.

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

Schedule number or exhibit

Form 886-A
(Rev. January 1994) EXPLANATIONS OF ITEMS

Name of taxpayer Tax Identification Number Year/Period ended
December 31,
20XX

Since the organization will no longer have tax-exempt status beginning January 1, 20XX, they are
liable for filing Form 1120, U.S. Corporation Income Tax Return, as of that date.

It is the Services position that the Organization does not qualify for exemption from federal income
tax under IRC §501(c)(3). The proposed date of the revocation is January 1, 20XX.

Form 886-A (1-1994) Catalog Number 20810W Page 5 publish.no.irs.gov Department of the Treasury-Internal Revenue Service