IRS revokes a social welfare organization's tax exemption

Plain-English summary

An organization had been recognized as tax-exempt under Section 501(c)(4) and reported activities for emergency service workers, including social events, an awards banquet, a scholarship, and charitable donations. The IRS opened an audit and repeatedly requested records concerning the organization's activities and finances, but the organization did not respond. The IRS therefore could not verify that the organization primarily promoted the common good and general welfare or that its net earnings did not benefit private individuals. It revoked the exemption because the organization failed to establish continued qualification and failed to provide records required by Sections 6001 and 6033.

Ruling snapshot

• Question: Did the organization establish that it continued to qualify as a Section 501(c)(4) social welfare organization?
• Outcome: Revocation.
• Key authorities: IRC §§ 501(a), 501(c)(4), 6001, 6033; Treas. Reg. §§ 1.501(c)(4)-1, 1.6001-1, 1.6033-1(h)(2); Rev. Rul. 59-95

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
1100 Commerce Street, MC 4920 DAL
Dallas, TX 75242

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

Date: APR 10 2018

Release Number: 201830016

Release Date: 7/27/2018

UIL Code: 501.03-00

Person to Contact:
Identification Number:
Employee Telephone Number:
In Reply Refer to:
EIN:

LAST DAY FOR FILING A PETITION
WITH THE TAX COURT:

CERTIFIED MAIL – Return Receipt Requested

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)(4) for the tax period(s) above. Your exempt status is hereby-revoked effective January 1, 20 .

Our adverse determination as to your exempt status was made for the following reason(s):

You have not demonstrated that you are operated exclusively for exempt purposes within the
meaning of Internal Revenue Code § 501(c)(4) and Treasury Regulations 1.501(c)(4)-1. Exempt
social welfare organizations should primarily promote the common good and general welfare of
the people of the community as a whole. An organization that primarily benefits a private group
of citizens cannot qualify for exemption. An organization embraced within this section is one
which is operated primarily for the purpose of bringing about civic betterments and social
improvements. Your activities are not directed primarily in promoting in some way the common
good and general welfare of the people of the community. Additionally, 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 I.R.C. § 6001, 6033(a)(1) and Rev. Rul. 59-95, 1959-1 C.B. 627.

1

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. 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

Enclosure: Publication 892

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Form 886-A
(Rev. January 1994)

EXPLANATIONS OF ITEMS

Schedule number or exhibit

Name of taxpayer

Tax Identification Number

Year/Period ended

December 31, 20XX

Date of this Report: March 15, 20XX

Issues:

Whether (the “ ”) continues to qualify for exemption from
Federal income tax under Section 501(c)(4) of the Internal Revenue Code (the “Code”).

Facts:

Organizational facts:

The filed a Form 1024, Application for Recognition of Exemption Under Section 501(a),
on December 6, 20XX. The received an exemption as a social welfare organization
described under Section 501(c)(4) of the Code on June 09, 20XX, with an effective date of May
15, 20XX.

The describes its activities as follows in its Form 1024:

1. To promote and foster cooperation and fraternalism among members and
   fellow emergency service workers, every May we sponsor and host an annual
   awards banquet. This past May was our annual banquet. This banquet allows our
   members to gather and fraternize outside of the work environment. It also allows us
   to recognize and award those who stand out as exemplary health care providers.
   The work done to prepare for this banquet by the committee takes about 0% of our
   time.

2. To promote the profession of , and provide an opportunity that a young
   person may not have had, the raises funds for an
   annual scholarship to a graduating high school senior. The Scholarship Committee
   raises funds for the scholarship through merchandise sales, a run, and a golf
   tournament. The scholarship has been awarded and distributed for five years, with
   plans to continue awarding scholarships in May of each year. This takes about 0%
   of our time.

3. To promote fraternalism the paramedic hosts several social events
   throughout the year that are open to all employees of and their
   families. Annually we host a Summer outing, normally held at a water park over
   Weekend. These events are organized by the Board of Directors and account for
   approximately 0% of our time.

4. To promote our organization and our profession in the community, we make
   donations and support other charitable organizations throughout the year. These
   include annual donations to the Food Bank of during the Christmas season,

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

Form 886-A
(Rev. January 1994)

EXPLANATIONS OF ITEMS

Schedule number or exhibit

Name of taxpayer

Tax Identification Number

Year/Period ended

December 31, 20XX

The in September, and the each May. Our Board
of Directors coordinate the charitable donations. This accounts for about 0% of our
time.

In addition, it stated, “The applied for recognition of exemption under Section 501 in
20XX. The has lost its status as a result of failure to file tax Form 990 for multiple,
consecutive years. The failure was an oversight, which the wishes to rectify.”

The filed its Articles of Incorporation in the State of , and the stated purpose was
“to engage in any lawful act or activity for which corporation may be organized under the General
Corporation Law of . This corporation shall be a nonprofit corporation, is organized as
and at all times shall be operated exclusively for charitable, education and scientific programs
within the meaning of Section 501(c)(3)....” The State of date stamped the Articles on
December 8, 20XX. See Attachment 1 for a complete copy of the Form 1024 and Articles of
Incorporation.

The did not file Forms 990, Return of Organization Exempt From Income Tax, since
20XX.

Operational facts:

We initiated an audit of the tax year ended December 31, 20XX, to ensure that the
activities and operations align with its approved exempt status.

We contacted the three times as follows. However, we did not receive any response from
the .

September 27, 20XX: We mailed a Letter 3606 with attachments requesting records to review the
activities and operation. The due date was October 27, 20XX.

November 7, 20XX: We mailed a Letter 3844-A, via certified with return receipt, to follow up on
our prior request. The response due date was November 21, 20XX. Although we
did not receive the return receipt indicating the letter was delivered, the Post Office
did not return the letter to us either.

Law:

Section 501(a) of the Code provides exemption from taxation to organizations described in
subsection (c).

Section 501(c) of the Code provides a list of organizations that can qualify for exemption from
taxation.

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

Form 886-A
(Rev. January 1994)

EXPLANATIONS OF ITEMS

Schedule number or exhibit

Name of taxpayer

Tax Identification Number

Year/Period ended

December 31, 20XX

Section 501(c)(4)(A) of the Code states, “Civic leagues or organizations not organized for profit
but operated exclusively for the promotion of social welfare, or local associations of employees,
the membership of which is limited to the employees of the designated person or persons in a
particular municipality, and the net earnings of which are devoted exclusively to charitable,
educational, or recreational purposes.”

Section 6001 of the Code states in part, “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.”

Section 6033(a)(1) states in part, “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.”

Section 1.501(c)(4)-1(a) of Federal Tax Regulations (the “Regulations”) elaborates on
requirements to be exempt as a civic organization as follows:
(1) In general. — A civic league or organization may be exempt as an organization
described in section 501(c)(4) if:

(i) It is not organized or operated for profit; and
(ii) It is operated exclusively for the promotion of social welfare.

(2) Promotion of social welfare

(i) In general. — An organization is operated exclusively for the promotion of
social welfare if it is primarily engaged in promoting in some way the common
good and general welfare of the people of the community. An organization
embraced within this section is one which is operated primarily for the purpose of
bringing about civic betterments and social improvements. A “social welfare”
organization will qualify for exemption as a charitable organization if it falls within
the definition of “charitable” set forth in paragraph (d)(2) of §1.501(c)(3)-1 and is
not an “action” organization as set forth in paragraph (c)(3) of §1.501(c)(3)-1.

(ii) Political or social activities. — The promotion of social welfare does not
include direct or indirect participation or intervention in political campaigns on
behalf of or in opposition to any candidate for public office. Nor is an
organization operated primarily for the promotion of social welfare if its primary

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

Form 886-A
(Rev. January 1994)

EXPLANATIONS OF ITEMS

Schedule number or exhibit

Name of taxpayer

Tax Identification Number

Year/Period ended

December 31, 20XX

activity is operating a social club for the benefit, pleasure, or recreation of its
members, or is carrying on a business with the general public in a manner similar
to organizations which are operated for profit. ...

Section 1.6001-1(c) of the “Regulations” defines “records” for exempt organizations as “in
addition to such permanent books and records as are required by paragraph (a) of this section
with respect to the tax imposed by section 511 on unrelated business income of certain exempt
organizations, 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.”

Section 1.6001-1(e) of the Regulations describes retention of records as “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 become
material in the administration of any internal revenue law.”

Section 1.6033-1(h)(2) of the Regulations states in part 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 section
6033.”

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

Organization’s Position:

The position is unknown at the time of this this report.

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

Form 886-A
(Rev. January 1994)

EXPLANATIONS OF ITEMS

Schedule number or exhibit

Name of taxpayer

Tax Identification Number

Year/Period ended

December 31, 20XX

Government’s Position:

An organization exempt under Section 501(c)(4) of the Code needs to be organized and operated
exclusively to promote the common good and general welfare of its community, such as bringing
about civic betterment and social improvements.

Since the did not respond to our requests, it fails to meet the requirements set forth in
Section 1.6033-1(h)(2) of the Regulations. We are unable to verify that the is organized
and operated exclusively for one or more of the purposes specified in Section 501(c)(4) of the
Code.

The exempt status under Section 501(c)(4) of the Code should be revoked, because it
failed to demonstrate to us that it is operating in accordance with the rules and regulations cited in
the Law section above.

Conclusion:

Based on the foregoing reasons, the does not qualify for exemption under section
501(c)(4), and its tax-exempt status should be revoked.

It is our position that the fails to meet the substantiation requirements under Sections
6001 and 6033 of the Code to be recognized as exempt from federal income tax under Section
501(c)(4) of the Code. Accordingly, the exempt status is revoked effective January 1,
20XX.

The is required to file Forms 1120, U.S. Corporation Income Tax Return, for the tax
periods ending December 31, 20XX, and after.

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