Revokes inactive fire association's section 501(c)(4) status

Plain-English summary

An organization had been recognized under section 501(c)(4) for volunteer fire protection and related civic purposes, but it disbanded after the fire chief stopped using volunteer firefighters. Its only remaining activity was charitable gaming, with excess income used for scholarships to local students. The IRS concluded that the organization no longer operated primarily to promote social welfare and revoked its section 501(c)(4) status effective January 1 of a redacted year. The treasurer agreed to the proposed revocation. The final letter also says that the organization had reapplied and been approved under section 501(c)(3), so it would continue filing Form 990 rather than lose tax-exempt status altogether.

Ruling snapshot

• Question: Did the disbanded volunteer fire organization continue to qualify under section 501(c)(4) when it no longer conducted its original exempt activities?
• Outcome: Revocation of section 501(c)(4) status, while a separately approved section 501(c)(3) status continued.
• Key authorities: IRC §§ 501(a), 501(c)(4), 503, and 504; Treas. Reg. § 1.501(c)(4)-1; Rev. Rul. 58-617

Full text (IRS public release)

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

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
DIVISION

Date: APR 25 2018

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

Number: 201833022
Release Date: 8/17/2018

LAST DATE FOR FILING A PETITION
WITH THE TAX COURT:

UIL Code: 501.03-00

CERTIFIED MAIL -Return Receipt Requested

Dear

This is a Final Adverse Determination Letter as to your exempt status under section 501(c)(4) of the Internal Revenue Code (IRC). Your exemption from Federal income tax under IRC section 501(c)(4) is revoked effective January 1, 20XX.

Our adverse determination was made for the following reasons:

You have not established that you are operated exclusively for promotion of social welfare and other non-profitable purposes and the net earnings of which are devoted exclusively to charitable, educational or recreational purposes under IRC section 501(a) as described under RC section 501(c)(4).

Since you have re-applied and was approved for a tax-exempt status under IRC 501(c)(3), you will continue to file Form 990 returns with the appropriate Service Center for the year ending December 31, 20XX and for all years thereafter.

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.

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

Date:
May 15, 2017

Taxpayer Identification Number:

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)(4) 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)(4).

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 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,

Maria D. Hooke
Director, EO Examinations

Enclosures:

Report of Examination
Form 6018
Publication 892
Publication 3498

Form 886A

Department of the Treasury - Internal Revenue Service

Explanation of Items

Schedule No. or Exhibit

Name of Taxpayer

Year/Period Ended
December 31, 20XX

ISSUE:

Whether , continues to qualify for exemption as an
organization described in the Internal Revenue Code (IRC) Section 501(c)(4) because of no exempt activity since 20XX which includes the year of examination.

FACTS:

was incorporated under the laws of the State of
as a non-profit corporation on February 2, 19XX for the purpose of the following:

1. To save human lives and protect property endangered by fire and other
   disaster.

2. To promote the teaching and practice of fire prevention in the Town of ,
   and its environs.

3. To cooperate with other organizations in furthering worthy civic projects, not
   inconsistent with the primary purpose of this organization.

On July 30, 19XX, was recognized to be exempt
from federal income tax as an organization described in IRC Section 501(c)(4).

During initial interview on December 13, 20XX, the organization’s Treasurer stated that the was disbanded in 20XX due to the Fire Chief not using volunteer firefighters. With the only activity conducted is gaming with the excess income going for scholarships to local students.

LAW:

IRC §501(a)

Exemption From Taxation. —An organization described in subsection (c) or (d) or
§401(a) shall be exempt from taxation under this subtitle unless such exemption is denied under §502 or §503.

IRC §501(c)(4)(A)

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 a designated person or persons in a particular municipality, and the net earnings of which are devoted exclusively to charitable, educational, or recreational purposes.

IRC §501(c)(4)(B)

Subparagraph (A) shall not apply to an entity unless no part of the net earnings of such entity inures to the benefit of any private shareholder or individual.

Federal Tax Regulations

§1.501(c)(4) Civic organizations and local associations of employees

Reg. §1.501(c)(4)-1 does not reflect P.L. 99-514, P.L. 100-203, P.L. 100-647, P.L. 101- 73 or P.L. 104-168.

(a) Civic organizations

(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 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. See, however, section 501(c)(6) and §1.501(c)(6)-1, relating to business leagues and similar organizations. A social welfare organization that is not, at any time after October 4, 1976, exempt from taxation as an organization described in section 501(c)(3) may qualify under section 501(c)(4) even though it is an “action” organization described in §1.501(c)(3)-1(c)(3)(ii) or (iv), if it otherwise qualifies under this section. For rules relating to an organization that is, after October 4, 1976, exempt from taxation as an organization described in section 501(c)(3), see section 504 and §1.504-1.

Revenue Rulings

Revenue Ruling 58-617, 1958-2 CB 260, (Jan. 01, 1958)

Rulings and determinations letters granting exemption from federal income tax to an organization described in section 501(a) of the Internal Revenue Code of 1954, to which contributions are deductible by donors in computing their taxable income in the manner and to the extent provided by section 170 of the Code, are effective only so long as there are no material changes in the character of the organization, the purposes for which it was organized, or its methods of operation. Failure to comply with this requirement may result in serious consequences to the organization for the reason that the ruling or determination letter holding the organization exempt may be revoked retroactively to the date of the changes affecting its exempt status, depending upon the circumstances involved, and subject to the limitations on retroactivity of revocation found in section 503 of the Code.

TAXPAYER’S POSITION:

The organization’s Treasurer declared that the organization has no operational activities with only charitable gaming income as their financial activities. Agent discussed revocation with the organization’s Treasurer on December 14, 20XX and she agreed to the proposed revocation as organization is no longer operating for an exempt purpose.

GOVERNMENT'S POSITION AND CONCLUSION:

is no longer qualified for exemption from federal
income tax under Code §501(c)(4). exempt status
should be revoked back to the tax period beginning the first day of the organization’s fiscal year of December 31, 20XX. income is subject to taxation as of January 1, 20XX.

If you agree to this conclusion please sign the attached Forms.

If you disagree please submit a statement of your position.