Organization loses exemption after withholding examination records

Plain-English summary

An organization had previously lost its section 501(c)(3) exemption, unsuccessfully challenged that revocation in Tax Court, and later obtained a new exemption. During a later examination, an officer said the organization was not conducting activities. The IRS repeatedly requested records about its receipts, expenditures, activities, and Forms 990, but scheduled meetings were missed or postponed and the requested information was never provided. Without those records, the organization could not establish that it operated exclusively for exempt purposes or that its earnings did not benefit private persons. The IRS revoked the exemption effective September 2 of the redacted year, the effective date of the organization's later exemption.

Ruling snapshot

• Question: Does the organization remain exempt when it does not provide records needed to examine its activities, income, and expenses?
• Outcome: revocation
• Key authorities: IRC §§ 501(c)(3), 6001, and 6033(a)(1); Treas. Reg. § 1.6033-2(i)(2); 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 Date: JUL 06 2017
DIVISION

Taxpayer Identification Number:

Number: 201751021 Person to Contact:
Release Date: 12/22/2017

Employee Identification Number:

Employee Telephone Number:

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 as to your exempt status under section
501(c)(3) of the Internal Revenue Code. Your exemption from Federal income tax under
section 501(c)(3) of the Code is hereby revoked effective September 2, 20xx.

Our adverse determination was made for the following reasons:

Organizations described in section 501(c)(3) of the Code and exempt under
section 501(a) of the Code 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 inures 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 sections 6001 and 6033(a)(1) of the
Code, the regulations thereunder, and Rev. Rul. 59-95, 1959-1 C.B. 627.

Contributions to your organization are no longer deductible under section 170 of the
Internal Revenue Code.

You are required to file Federal income tax returns on Form 1120. If you have not
already filed these returns and the agent has not provided you instructions for converting
your previously filed Form 990 to Form 1120, you should file these income tax returns
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, you may file an action for declaratory
judgment under the provisions of section 7428 of the Code in one of the following three
venues: United States Tax Court, the United States Court of Federal Claims, or the
United States District Court for the District of Columbia. A petition or complaint in one
of these three courts must be filed before the 91st day after the date this determination
was mailed to you if you wish to seek review of our determination. Please contact the
clerk of the respective court for rules and the appropriate forms regarding filing petitions
for declaratory judgment by referring to the enclosed Publication 892. Please note that the
United States Tax Court is the only one of these courts where a declaratory judgment
action can be pursued without the services of a lawyer. You may write to the courts at the
following addresses:

United States Tax Court
400 Second Street, N W
Washington, DC 20217

US Court of Federal Claims
717 Madison Place, NW
Washington, DC 20005

U. S. District Court for the District of Columbia
333 Constitution Ave., N.W.
Washington, DC 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 yours,

Maria Hooke
Director, Exempt Organizations Examinations

Enclosures:
Publication 892


Department of the Treasury Date: September 16, 2016

Internal Revenue Service
IRS Tax Exempt and Government Entities
Exempt Organizations Examinations

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
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 inthe heading of this letter. You also

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


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. Thank you for your cooperation.

Sincerely,

Margaret Von Lienen
Director, EO Examinations

Enclosures:

Report of Examination
Form 6018
Publication 892
Publication 3498

2 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
12/31/xx &
12/31/xx
ISSUE: Whether continues to qualify for tax exempt status under Internal

Revenue Code (IRC) § 501(c)(3)?

FACTS:
,                 , was most recently granted tax exempt status under IRC § 501(c)(3) on

December 12, 20xx, with an effective date of September 2, 20xx.

original exempt status was granted on November 9, 20xx, with an effective date of
July 10, 20xx. The Internal Revenue Service examined activities during the years 20xx-
20xx, and on October 22, 20xx, the IRS issued a final adverse determination, revoking its
recognition of tax-exempt status. Revocation of exempt status was upheld in United
States Tax Court, vs. Commissioner, Docket No. xxxx-xxx, dated August xx, 20xx. The
adverse determination was retroactive to incorporation date of July 10, 20xx.

, former President of , who passed away in April, 20xx, submitted a new Form
1023, Application for Recognition of Exemption Under 501(c)(3) of the Internal Revenue Code, on
September 2, 20xx. In this application on page 24, question 2c, “Did you or did an organization to
which you are a successor previously apply for tax exemption under section 501(c)(3) or any other
section of the Code?” The “No” box was checked. This appears to contradict the fact that this
organization was previously exempt.

was selected for an examination for years ending December 31, 20xx and
December 31, 20xx. On March 30, 20xx, the IRS contacted via telephone and left a
message. On April 1st, the initial appointment letter and information document request (IDR) was
sent for a tentatively scheduled appointment on April 18th. On April 11th,

, a board member of _ contacted IRS and requested the appointment be
rescheduled to May 2, 20xx. On May 2nd, left a message that they needed
to reschedule the initial appointment. This initial appointment was changed to May 17, 20xx. The
agent arrived at the taxpayer's location, but no one from the organization was present. On
May 24th certified letters were sent to both home and business
addresses. These letters were subsequently returned as unclaimed and refused, respectively.

On June 7th, , another board member, contacted the IRS indicating that he would like to
cooperate and provide all requested information. An appointment with the IRS was scheduled and
held June 20th. did not have any of the requested information available for initial
appointment. During a brief interview, indicated that is currently not conducting any
activities. A subsequent meeting was scheduled for July 8th. On July 7th                 called to state
that he would not have the information requested until 3pm on July 8". As a result, appointment
was cancelled. However, assured the IRS that all requested information would be mailed
and at the IRS office by July 18, 20xx.

As of August 24, 20xx, the IRS still has not received any of the information requested. Numerous
requests were made and has failed to provide the information requested in our Information
Document Requests. The information was requested as a part of our examination to determine

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

12/31/xx &
12/31/xx

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 have been correctly reported on the
Forms 990 for the periods ending December 31, 20xx 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 § 1.6033-2(i)(2) of the Income Tax Regulations which requires an organization to provide the
information requested in order to make a determination on the organization’s exempt status
described in Internal Revenue Code § 501(c)(3). Therefore, exempt status under IRC § 501(c)(3)
should be revoked effective September 2, 20xx. Should this revocation either be agreed to or
upheld, Form 1120, U.S. Corporation Income Tax Return, must be filed starting with tax period
ending December 31, 20xx. In addition, contributions to will no longer be
deductible to donors as charitable contributions as defined in IRC § 170(c). Finally, all assets of
must be distributed to other entities qualifying under IRC § 501(c)(3) as
designated in your Articles of Incorporation.

Note: If you are planning to appeal the proposed revocation, please refer to Publication 892 which
is enclosed. Appeal should contain statement of facts declared true under penalties of

perjury. Please refer to Publication 892, page 1 for example of statement signed under penalties
of perjury.

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