Charity exemption revoked after repeated examination contacts failed

Plain-English summary

A charity obtained Section 501(c)(3) status through Form 1023-EZ and was later selected for examination. IRS letters sent to several located addresses came back undeliverable or refused, calls to officers produced no contact, and a postal tracer found no forwarding address. During its search for contact information, the IRS found a news report questioning the charity's handling of cash collections and learned that its registered agent and president was deceased. The IRS based revocation on the organization's failure to provide records or establish that it continued to operate for exempt purposes. It revoked the exemption effective on the redacted date.

Ruling snapshot

• Question: Did the organization continue to qualify under Section 501(c)(3) when repeated attempts to obtain examination records received no response?
• Outcome: revocation
• Key authorities: IRC §§ 501(a), 501(c)(3), 6001, 6033; Treas. Reg. §§ 1.501(c)(3)-1(a), 1.6001-1, 1.6033-1(h)(2); Rev. Rul. 59-95

Full text (IRS public release)

DEPARTMENT OF THE TREASURY

Internal Revenue Service

TE/GE EO Examinations

1100 Commerce Street
Dallas, TX 75242

TAX EXEMPT AND
GOVERNMENT ENTITIES Date: FEB-9 2018

DIVISION

Person to Contact:

Release Number: 201830015 Identification Number:

Release Date: 7/27/2018 Employee Telephone Number: In Reply

UIL Code: 501.03-00 Refer to: TE/GE Review Staff
EIN:

LAST DATE FOR FILING A PETITION WITH
THE TAX COURT: MAY 10 2018

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 January 1, 20XX.

Our adverse determination was made for the following reasons:

Organizations described in I.R.C. § 501(c)(3) and exempt 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 inures 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 §§
6001, 6033(a)(1) 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, NW
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. 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.

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, EO Examinations

Enclosures:
Publication 892

Department of the Treasury Date:

Internal Revenue Service August 8, 2017
IRS Tax Exempt and Government Entities Division Taxpayer Identification Number:
Form:

Tax year(s) ended:

December 31, 20XX

Person to contact / ID number:

Contact numbers:
Phone Number:
Fax Number:
Manager's name / ID number:

Manager's contact number:

Phone Number:
Response due date:

September 8, 2017
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 in the heading of this letter. You also may file a protest with the

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

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,

Director, EO Examinations

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

Enclosures:

Report of Examination
Form 6018

Form 4621

Copy of Form 1023EZ

Copy of Determination Let.

Publication 892
Publication 3498

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

Form 886A Department of the Treasury - Internal Revenue Service Schedule No. or
Explanation of Items Exhibit
Name of Taxpayer Year/Period Ended
20XX
Date of Notice: August 8, 20XX
Issues:
Whether continues to qualify for exemption from Federal income tax under

Section 501(c)(3) of the Internal Revenue Code.
Facts:

Organization applied with Form 1023EZ Streamlined Application for recognition of Exemption
Under Section 501(c)(3) of the Internal Revenue Code on August 27, 20XX. Organization
attested to the organizational structure and states they are incorporated in the State of

is President, Director and Registered Agent of

Organization received Determination Letter 5436 giving them public charity status. Letter
5436 was dated September 17, 20XX.

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

State of Articles of Incorporation were reviewed from the state website and found
to have the correct organizing documents. The state of did identify organization
was delinquent in filing annual state return.

Organization filed with the States of and to transact business in their states.

Letter 3606 with IDR Information Document Request was sent to address on record in
and came back as undeliverable.

Form 1023EZ had a phone number for the organizations CPA. Called and talked with
secretary requesting a current address and/or phone number. Secretary had the same

address as Form 1023EZ. Secretary did have a phone number for . Many
attempts were made to reach per phone calls. Numerous voicemails were left
asking for to call me back.

Follow-up Letter 3844 with copy of original letter and IDR was sent certified to

address. Letter 3844 was sent with Letter 3606 and IDR certified to the address the State of
had and the same address which was on the Form 1023EZ. Both letters came back
undeliverable. New address was located in . Letter 3844 with 3606 and IDR was sent
certified. Letters came back undeliverable.

Researched phone numbers for all officers and no contact was made.

In researching for addresses and phone numbers I came across a news article and news

story regarding and . Article was regarding questionable

practices by a Charity that claims to help veterans through cash donations solicited from
customers outside of grocery stores and where is that money really going?

Form 886-A(Rev.4-68) Department of the Treasury - Internal Revenue Service
Page: -1-

Form 886A

Department of the Treasury - Internal Revenue Service

Explanation of Items

Schedule No. or
Exhibit

Name of Taxpayer

Year/Period Ended

20XX

Article goes on about reporter talking to about . Reporter asked
about oversight of the charity. Per reporter seems to contradict himself when

responding to questions regarding the charity. admitted the men who collect

donations have been allowed to reach into the donation box at the end of the day to keep the

cash without his personal oversight. "They've been actually keeping most of the money

themselves," said. "They've been collecting and opening up. They've had access to
the [donation box] keys. And they've been reporting what they've brought in."

Additional research identifies as deceased as of July 11, 20XX. Internal
Revenue records were updated with his death on March of 20XX.

Numerous attempts have been made trying to contact someone from this organization. No
responses have been received. The organization has failed to respond to the Internal
Revenue Service attempts to obtain information to perform an examination of the December

31, 20XX tax year.

Exhibit A (below) provides a list of the Internal Revenue Service correspondence or phone
calls made to organization requesting the organization provide information pertaining to audit
for the December 31, 20XX tax year.

Summary of Exhibit A

Contact type Correspondence sent/ Date sent Certified Mail Receipt
Phone contact Or Sent signed date or
Date called Phone
response
Letter 3606 Sent No
IDR 12-28-20XX
Publication 1 Info Due By
01-29-20XX
Phone call Called Called
who is identified on 1-11-20XX
CPA 1023EZ as contact.
who completed Does not have POA.
the 1023 EZ Secretary gave me
phone number.
Called and left VM for
Phone call to call me regarding Called No reply
exam and correct 1-11-20XX
President address.
Phone call Left VM 1-17-20XX No Reply
Sent Letter 3844 1-28-20XX Sent certified 2-6-20XX
with copy of Received
Form 886-A(Rev.4-68) Department of the Treasury - Internal Revenue Service

Page: -2-

Form 886A

Department of the Treasury - Internal Revenue Service

Explanation of Items

Schedule No. or
Exhibit

Name of Taxpayer

Year/Period Ended

20XX

Letter 3606/IDR
Publication 1

To addresses in
and

Sent certified

Undeliverable

2-14-20XX
Undeliverable

Phone call Left VM 2-10-20XX No Reply
President
Phone call phone gives 2-15-20XX
Secretary busy sound
Phone call Called left VM 2-23-20XX
Treasurer Called again talked

with woman who

answered phone. She

said I have the wrong

number.
Letter 3844-A 2-24-20XX Sent Certified Letter came
with copy of % back
Letter 3606 "Refused
IDR Undeliverable"
Publication 1
Form 4759 03-28-20XX 04-17-20XX
Sent to Post No new
Office for address
Forwarding identified
address. by Post Office
Law:
501(c)(3)

§501(c)(3) Requires tax exempt entities 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.

§Reg 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).

Form 886-A(Rev.4-68)

Department of the Treasury - Internal Revenue Service

Page: -3-

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

IRC §6001 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.

Treas. Reg. § 1.6001-1(a) in conjunction with Treas. Reg. § 1.6001-1(c) provides that every
organization exempt from tax under IRC § 501(a) and subject to the tax imposed by IRC § 511
on its unrelated business income must keep such permanent books or accounts or records,
including inventories, as are sufficient to establish the amount of gross income, deduction,
credits, or other matters required to be shown by such person in any return of such tax. Such
organization shall also keep such books and records as are required to substantiate the
information required by IRC § 6033.

Treas. Reg. § 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 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 IRC §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.

Treas. Reg § 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 Code and IRC §6033.

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 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:

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 return (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 is granted
tax-exempt status and to determine its liability for any unrelated business income tax.

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

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

Several attempts have been made to contact the organization by phone calls and certified
letters. Letters have been sent to address on record and addresses located by research of
. Letters have come back as undeliverable.

Postal Tracer was sent to the United States Post Office for help in contacting organization.
Reply was received from Post Office as "Not Known".

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

Further research identified Registered Agent in and President of
is deceased as of July 11, 20XX.

Organization's Position:

Not known at this time.

Conclusion:

It is the IRS'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).
Furthermore, the organization has failed to establish that it continues to qualify for tax exempt
status. Accordingly, the organization's exempt status is revoked effective January 1, 20XX.

Form(s) 1120, U.S. Corporation Income Tax Return should be filed for the tax periods ending
on or after December 31, 20XX.

Form 886-A(Rev.4-68) Department of the Treasury - Internal Revenue Service
Page: -5-