Organization loses exemption for nonexempt operation and inurement

Plain-English summary

The IRS revoked an organization's section 501(c)(3) exemption after concluding that it had not established operation exclusively for exempt purposes. The final letter also states that the organization did not establish that none of its net earnings inured to private shareholders or individuals. Contributions ceased to be deductible, and the organization was required to file corporate income tax returns. Revocation was effective January 1 of the redacted year. The released file references an examination report and exhibits, but it does not include the detailed factual analysis underlying these conclusions.

Ruling snapshot

• Question: Did the organization establish exclusive operation for exempt purposes and the absence of private inurement?
• Outcome: revocation
• Key authorities: IRC §§ 170 and 501(c)(3)

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 Date:
DIVISION JUN 12 2017
Number: 201751017 Person to Contact:
Release Date: 12/22/2017 Identification Number:

Telephone Number:
In Reply Refer to:

UIL: 501.03-00
LAST DATE FOR FILING A PETITION

WITH THE TAX COURT:

CERTIFIED MAIL - Return Receipt Requested

Dear

This is a Final Adverse Determination Letter that your exempt status under section 501(c)(3)
of the Internal Revenue Code (IRC) is revoked. Recognition of your exemption under IRC

section 501(c)(3) is revoked effective January 1, 20xx.
Our adverse determination was made for the following reason(s):

You have not established that you are operated exclusively for an exempt
purpose or that you have been engaged primarily in activities that accomplish
one or more exempt purposes within the meaning of IRC section 501(c)(3).

You have not established that no part of your net earnings inure to the benefit
of any private shareholder or individual.

Contributions to your organization are not deductible under section 170 of the Internal
Revenue Code.

You are required to file Federal income tax returns on Form 1120. These returns should be
filed with the appropriate Service Center for the year ending December 31, 20xx and for all

years thereafter.

Processing of income tax returns and assessment of any taxes due will not be delayed should
a petition for declaratory judgment be filed under section 7428 of the Internal Revenue

Code.

If you decide to contest this determination in court, you must initiate a suit for declaratory
judgment in the United States Tax Court, the United States Claim Court or the District
Court of the United States for the District of Columbia before the 91st day after the date this


determination was mailed to you. Contact the clerk of the appropriate court for the rules for
initiating suits for declaratory judgment.

The Taxpayer Advocate Service (TAS) is an independent organization within the IRS that
can help protect your taxpayer rights. We 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 our assistance, which is always free, we will do everything possible to help you.
Visit taxpayeradvocate.irs.gov or call 1-877-777-4778.

We will notify the appropriate State Officials of this action, as required by section 6104(c) of
the Internal Revenue Code.

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

Sincerely yours,

Maria Hooke
Director, Exempt Organizations Examinations

Enclosure:
Publication 892


Department of the Treasury
Internal Revenue Service
TE/GE Exempt Organizations Examinations

Date: 12/27/2016 Taxpayer Identification Number:
Form:

Filing periods ended:

Person to Contact / ID Number:

Contact Numbers:

Manager's Name /ID Number:

Response Due Date:

Dear

Why I Am Sending You This Letter

I would like to notify you of the proposed adjustments to your exempt status. This proposal is based
on the records you provided for the years under examination. | am requesting that you review our
proposed adjustment and respond in one of the following ways:

• If you feel there is additional information, which may change the outcome of the examination,
you may provide the additional information. Note: information is due no later than the
response due date.

© Ifyou do not agree with our conclusion, you may choose to appeal our decision.

¢ Ifyou agree with my conclusions, please sign and return Form 5701.

Overall, we request that you return Form 5701 with your response. I ask that you send me the
acknowledgement by Thursday, January 26,

Communication

Please call me to discuss any potential issues and keep me informed of unavoidable delays. I'll do
likewise. The audit will proceed faster if we address questions and concerns and provide information
to each other in a timely manner. You may also speak to my manager at any time. My manager's
name and phone number are also shown in the heading of this letter.


Thank you for your cooperation in this matter.

Sincerely,
Mary A. Epps
Acting Director, EO Examinations
Enclosures:
Form 5701
Form 886-A

Attachment (Exhibits 1 through 6)