IRS revokes charity that repeatedly refused to provide examination records

Plain-English summary

An organization recognized under section 501(c)(3) did not provide the records and information the IRS needed to examine its activities and operations. The IRS sent repeated letters, contacted board members, granted additional time, and made several telephone calls. One person used profanity toward the examining agent, and another call was terminated. Because the organization did not substantiate that it continued to satisfy the organizational and operational tests or comply with the recordkeeping and reporting requirements of sections 6001 and 6033, the IRS revoked its exemption effective January 1 of a redacted year.

Ruling snapshot

• Question: Did the organization continue to qualify under section 501(c)(3) when it repeatedly failed to provide records and information requested during examination?
• Outcome: Revocation effective January 1, 20XX.
• Key authorities: IRC §§ 501(a), 501(c)(3), 6001, and 6033; Treas. Reg. §§ 1.501(c)(3)-1, 1.6001-1, and 1.6033-1; Rev. Rul. 59-95

Full text (IRS public release)

[Redaction note: the IRS release blanks the organization's identity, taxpayer identification number, contact information, dates, board-member identities, addresses, and other identifying details.]

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
TEGE EO Examinations Mail Stop 4920 DAL
1100 Commerce St.
Dallas, Texas 75242

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

Date: September 12, 2017

Number: 201808024

Release Date: 2/23/2018 Tax Year Ending:

Taxpayer Identification Number:
Person to Contact:

Employee Identification Number:
Employee Telephone Number:

(Phone)
(Fax)

UIL: 501.03-00

CERTIFIED MAIL — RETURN RECEIPT

Dear

This is a final determination that you do not qualify for exemption from Federal income tax under
Internal Revenue Code (the “Code”) section 501(a) as an organization described in Code section
501(c)(3) effective January 1, 20xx. Your determination letter dated August 6, 20xx is revoked.

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

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 sections 6001 and 6033(a)(1) and the regulations thereunder.

Contributions to your organization are no longer deductible under IRC §170 after January 1, 20xx.

Organizations that are not exempt under section 501 generally are required to file federal income
tax returns and pay tax, where applicable. For further instructions, forms, and information, please
visit www.irs.gov.

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: 1) United States
Tax Court, 2) the United States Court of Federal Claims, or 3) the United States District Court for
the District of Columbia. A petition or complaint in one of these three courts must be filed within
90 days from the date this determination letter was mailed to you. Please contact the clerk of the
appropriate court for rules and the appropriate forms for filing petitions for declaratory judgment
by referring to the enclosed Publication 892. You may write to the courts at the following
addresses:

United States Tax Court
400 Second Street, N.W.
Washington, D.C. 20217

U.S. Court of Federal Claims
717 Madison Place, N.W.
Washington, D.C. 20439

U.S. District Court for the District of Columbia
333 Constitution Ave., N.W.
Washington, D.C. 20001

Processing of income tax returns and assessments of any taxes due will not be delayed if you file
a petition for declaratory judgment under section 7428 of the Internal Revenue Code.

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
www.taxpayeradvocate.irs.gov or call 1-877-777-4778.

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

Sincerely,

Maria Hooke
Director, EO Examinations

Enclosure:
Publication 892

Department of the Treasury Date: August 17, 2016
Internal Revenue Service Employer Identification Number:
IRS Tax Exempt and Government Entities Taxpayer Identification Number:
Exempt Organizations Examinations
Form:
Tax Year(s) Ended:
Person to Contact/ID Number:
Contact Numbers:
Telephone:
Fax:
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

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

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.

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

Form 886-A Department of the Treasury - Internal Revenue Service Schedule No. or
Explanation of Items Exhibit
Name of Taxpayer Year/Period Ended
20xx12

Date of Notice:

Issues:

Whether the organization continues to qualify for exemption from Federal income tax under
Section 501(c)(3) of the Internal Revenue Code (IRC).

Facts:

The organization filed Form 1023 for exemption on June 30, 20xx and was granted
exemption under IRC Sec. 501(c)(3) on August 6, 20xx with an effective date of exemption
of May 22, 20xx.

An organization exempt under IRC 501(c)(3) needs to be organized and operated exclusively
for religious, charitable, scientific, testing for public safety, literary or educational purposes and
to foster national and amateur sports competition.

The organization was selected for audit to ensure that the examined organization’s activities
and operations align with its approved exempt status.

The organization failed to respond to the Internal Revenue Service attempts to obtain
information to perform an audit of Form 990 for the above mentioned tax period.

• Correspondence for the audit was as follows:

— June 4, 20xx, Letter 3606 (Rev. 6-2012) with attachments was mailed to the
organization on, with a response date of July 2, 20xx.

— July 29, 20xx, “No Response Follow up Letter” with attachments was mailed to
the organization on with response date of August 12, 20xx.

— October 27, 20xx Letter 3606 (Rev. 6-2012) with attachments was mailed to the
organization on by with a response date of November 24, 20xx. Case re-assigned
on October 23, 20xx.

— December 9, 20xx, search Accurint to obtain additional contact information @
Board Members, send contact letters to additional board members listed on Form
1023. Response date December 31, 20xx.

— March 30, 20xx, final contact letters mailed via Certified Mail to organizations
board members. Response date April 22, 20xx.

— May 17, 20xx, proof of receipt that Certified Letter was signed for and received
@ 4/8/20xx at location

• Telephone contact for the audit was as follows:

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

Page: -1-

Form 886-A Department of the Treasury - Internal Revenue Service Schedule No. or
Explanation of Items Exhibit
Name of Taxpayer Year/Period Ended
20xx12

— September 18, 20xx. Revenue Agent (RA) called , Chairman, from
the Form 1023 and spoke to her. She said she was glad she received call
because of her travel schedule for work she just got the two audit letters last
week. RA reviewed why they are being audited (went through talking points) and
what information is needed. RA discussed a reasonable time frame to respond.
RA granted her until 10/12/xx. RA provided contact information and asked for
information to be faxed...RA also informed her today is the last day of 120 day
detail to EO Exam and the case will be reassigned but I still want her to call me if
she needs anything and to fax the response to me and I will forward it to the
appropriate person. She understood...

— December 1, 20xx, RA called the phone number listed on the Form 1023
application. RA left voice message to inquire about status of previous inquiries,
requested that an officer to return the phone call by December 11, 20xx.

— May 17, 20xx, RA spoke to an individual identified as at
approximately 12:24 pm PST; the individual used profanity toward RA. Told RA to
“F!@k Off”, RA attempted to provide contact information. She terminated phone
contact. RA initiated a second call back, leave a voice message to advise to
contact RA after receipt of letter that RA would mail.

— June 9, 20xx, RA called organization spoke to an individual identified as
at approximately 12:08 pm PST she hung up the phone. RA will attempt
no further contact.

Law:

Internal Revenue Code (IRC) §61 of the Code provides that Gross income means all income
from whatever source derived, unless excluded by law. Gross income includes income realized
in any form, whether in money, property, or services. Income may be realized, therefore, in the
form of services, meals, accommodations, stock, or other property, as well as in cash.

IRC §501(c)(3) of the Code provides that an organization organized and operated exclusively
for charitable or educational purposes is exempt from Federal income tax, provided no part of
its net earnings inures to the benefit of any private shareholder or individual.

IRC §511 of the Code imposes a tax at corporate rates under section 11 on the unrelated
business taxable income of certain tax-exempt organizations, including those described in
section 501(c)(3).

IRC §6001 of the Code 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.

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

Page: -2-

Form 886-A Department of the Treasury - Internal Revenue Service Schedule No. or
Explanation of Items Exhibit
Name of Taxpayer Year/Period Ended
20xx12

Federal Tax Regulations (FTR) §1.6001-1(c) provides that such permanent books and
records as are required by paragraph (a) of this section with respect to the tax imposed by IRC
section 511 on unrelated business income of certain exempt organizations, every organization
exempt from tax under IRC 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 IRC § 6033. See IRC § 6033 and FTR
§1.6033-1 through § 1.6033-3.

FTR §1.6001-1(e) provides that the books or records required by this section shall be kept at all
time available for inspection by authorized internal revenue officers or employees, and shall be
retained as long as the contents thereof may be material in the administration of any internal
revenue law.

IRC §6033(a)(1) provides, except as provided in section 6033(a)(2), every organization exempt
from tax under section 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 as the Secretary may by forms or regulations prescribe, and 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.

FTR §1.6033-1(h)(2) provides that every organization which has established its right to
exemption from tax, whether or not it is required to file an annual return of information, shall
submit such additional information as may be required by the district director for the purpose of
enabling him to inquire further into its exempt status and to administer the provisions of
subchapter F (section 501 and the following), chapter 1 of the IRC and section 6033.

Section 1.501(c)(3)-1(a) In order to be exempt under §501(c)(3) the organization must be both
organized and operated exclusively for one or more of the purposes specified in the section.
(religious, charitable, scientific, testing for public safety, literary or educational).

FTR §1.501(c)(3)-1(a)(1) states that in order to be exempt as an organization described in
section 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.

Section 1.501(c)(3)-1(c)(1) provides that an organization will not be regarded as "operated
exclusively" for one or more exempt purposes described in section 501(c)(3) of the Code if
more than an insubstantial part of its activities is not in furtherance of a 501(c)(3) purpose.

Accordingly, the organization does not qualify for exemption under section 501(c)(3) of the
Code.

Rev. Rul. 59-95, 1959-1 C.B. 627, concerns an exempt organization that was requested to
produce a 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
Service held that the failure or inability to file the required information return or otherwise to
comply with the provisions of section 6033 of the Code and the regulations which implement it,
may result in the termination of the exempt status of an organization previously held exempt, on

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

Page: -3-

Form 886-A Department of the Treasury - Internal Revenue Service Schedule No. or
Explanation of Items Exhibit
Name of Taxpayer Year/Period Ended
20xx12

the grounds that the organization has not established that it is observing the conditions required
for the continuation of exempt status.

Organizations Position:

The organization has failed to respond to all attempts to contact them.

Governments Position:

Based on the above facts, the organization failed to verify that they are organized and
operated exclusively for one or more of the purposes specified in IRC Section 501(c)(3). If
an organization fails to meet either the organizational test or the operational test, it is not
exempt.

In accordance with the above-cited provisions of the Code and regulations under sections
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 verify and support 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.

Section 1.6033-1(h)(2) of the Federal Tax Regulations specifically state that exempt
organizations shall submit additional information for the purpose on enabling the Internal
Revenue Service to inquire further into its exempt status.

Using the rationale that was developed in Revenue Ruling 59-95, the Organization’s failure
to provide requested information should result in the revocation of exempt status.

Conclusion:

Based on the above facts, the organization failed to verify that they are organized and
operated exclusively for one or more of the purposes specified in IRC Section 501(c)(3). If
an organization fails to meet either the organizational test or the operational test, it is not
exempt.

It is the IRS's position that the organization failed to meet the reporting requirements under
sections 6001 and 6033 to be recognized as exempt from federal income tax under
501(c)(3) of the Internal Revenue Code. Accordingly, the organization's exempt status is
revoked effective January 1, 20xx.

Form 1120 returns should be filed for the tax periods after January 1, 20xx.

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

Page: -4-