Revokes work-unit morale organization's exemption

Plain-English summary

An organization received section 501(c)(3) status after filing Form 1023-EZ, but its bylaws focused on improving the health, welfare, and morale of members of a specified work unit and their families. Its activities consisted mainly of two barbecue parties, other social events, and going-away gifts. During examination, the organization repeatedly supplied only partial information and did not provide adequate organizing documents, records, or responses needed to verify continued eligibility. The IRS concluded that the organization did not meet the organizational and operational tests and failed the recordkeeping and reporting requirements of sections 6001 and 6033. The final determination states that revocation was effective March 21 of a redacted year, while the examination report's conclusion states January 1 of a redacted year.

Ruling snapshot

• Question: Did the work-unit morale organization remain eligible under section 501(c)(3) and comply with IRS record and information requests?
• Outcome: Revocation. The final letter and examination report state different redacted effective dates.
• Key authorities: IRC §§ 501(a), 501(c)(3), 511, 6001, 6033, and 7428; 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, work unit, state, locations, dates, phone numbers, tracking numbers, and other identifying details.]

TEGE EO Examinations Mail Stop 4920 DAL
1100 Commerce St.
Dallas, Texas 75242

Date: May 18, 2018

Number: 201833024
Release Date: 8/17/2018 Tax Year Ending:

Taxpayer Identification Number:
Person to Contact:
Employee Identification Number:

Employee Telephone Number:
(Phone)
(Fax)

UIL Code: 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 Match 21, 20XX. Your determination letter dated October 22, 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 one of more of the
purposes identified in section 501(c)(3). Your constitutive document provides your purpose is to
improve the health, welfare, and morale of the members and family of a specified work unit. Your
principal activities have consisted of staging social and recreational gatherings designed to boost
the morale of the members of the work unit. These purposes and activities do not fulfill the
organizational and operational requirements for an organization described in section 501(c)(3).
Accordingly, your exempt status is revoked effective March 21, 20XX.

Contributions to your organization are no longer deductible under IRC §170 after March 21, 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

Date: October 27 2017
Internal Revenue Service Taxpayer Identification Number:

IRS TE/GE Exempt organizations

Department of the Treasury

Form:
Tax year(s) ended:

Person to contact/ ID number:

/
Contact numbers:
Toll Free
Long Distance
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

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 may also 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.

For Maria Hooke
Director, Exempt Organizations Examinations

Enclosures:

Report of Examination
Form 6018

Form 886-A
Publication 892
Publication 3498

Date of Notice: October 27, 20XX
Form 886-A

Explanation of Items

Issues:

Whether , ( ), which qualified for exemption
from Federal income tax under Section 501(c)(3) of the Internal Revenue Code, should be
revoked due to its failure to respond and produce records to substantiate that they meet
the organizational and operational test?

Facts:

,( ) applied for tax-exempt status by filing
the Form 1023-EZ on October 1, 20XX, and was granted tax-exempt status as a
501(c)(3) on October 22, 20XX, with an effective date of March 21, 20XX.

An organization exempt under 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 activities and operations align
with their approved exempt status.

The organization failed to respond to the Internal Revenue Service attempts to obtain
information to perform an audit of Form 990-N for the tax year December 31, 20XX.

The Form 1023-EZ application list the phone number of for the president
of ( ). No response came from the president at this number but I then had contact
with the treasurer from a returned call at the number

Per the State of web-site, it indicates the organization does not exists on their
records, copy attached from state web-site.

Your formation document, your Bylaws, in part, state your purpose and objectives are:

To improve the health, welfare, and morale of the member of the
and their families.

In furtherance of your purposes, you host two BBQ parties to help boost the morale of

the maintenance squadron. Any donations from individuals or companies are used to
provide for the two BBQs, parties, or going away gifts for people leaving the squadron.

• Correspondence for the audit was as follows:

• Letter 3606 (Rev. 6-2012) with Form 4564, Information Document Request,
(IDR) and publication 1, was mailed to the organization on June 6, 20XX, with
a response date of July 6, 20XX. This letter was received by the
organization.

• Received partial response from organization on October 21, 20XX. This
included the Constitution and By Laws of the organization (neither one being
state stamped or state approved), a list of activities, a budget for the year,
and a copy of one formal meeting minutes.

• Letter 3844-B (Rev. 11-2015) with attachments, was mailed certified to the
organization on January 25, 20XX, with a response date of February 27,
20XX, Article Number . Per the United States
Postal Service (USPS) tracking, this was received on January 30, 20XX at
9:55 as delivered to agent. However, this letter was received back at the
Internal Revenue Service on February 21, 20XX showing as insufficient
address on the envelope, with the return receipt received, unsigned, on
February 2, 20XX.

• Letter 3844-B (11-2015), February 23, 20XX, Letter returned as undeliverable
due to insufficient address.

• March 23, 20XX, I received another partial response from the organization.
This contained a more detailed financial report of revenues and expenses for
the year under examination.

• May 5, 20XX, Letter 3844-B (11-2015), with 2nd IDR. The letter including the
organization’s determination files, was mailed certified to the organization,
per the address located on IDRS, with a respond date of June 7, 20XX.
Article Number . Per USPS tracking this was
received by the organization on May 12, 20XX, at 9:56 am.

• Telephone contact for the audit was as follows:

• July 13, 20XX, I called the phone number listed on the Form 1023 application
for the President of and left a voice message for the president
to please call me back.

• July 25, 20XX, I received a voice message back from the Treasurer/Secretary
and he left a phone number, . I attempted to return the call to
this officer of the org and had to leave a message of my own. I left my name,
phone number, and best time to call.

• August 17, 20XX, No response. I called the phone number listed on the

Form 1023-EZ application for the President and phone number for the
Treasurer/Secretary and had to leave a voice message because no one
answered either line.

• August 18, 20XX, received a call back from the Treas./Sec. I explained that
we needed better worded articles of association (Purpose and Dissolution
Clauses) with date signed by officers. I also asked if there was just one
meeting minutes for the year, to which he said that was all. He indicated he
would get that information to me within the week.

• August 29, 20XX, No reply. Called number of the Treas./Sec. and left a voice
message to call me.

• September 27, 20XX, Still no reply. Called and spoke with Treas./Sec. and
explained we still did not receive our information. He said because they are
on an that the mail is sometimes slow going out or coming in. I said we
would wait another week.

• November 1, 20XX, after receiving a response and still having questions, I
called both the President and Treas./Sec. and left a message that I needed to
talk to them.

• November 2, 20XX, I spoke with Treas./Sec. to explain what was needed and
he indicated he would get the information to me as soon as he could.

• February 23, 20XX, I left a voice message with Treas./Sec. to obtain
additional information from the org.

• February 28, 20XX, I stayed later to contact officer of organization. I
explained we needed additional information and what I was. Treas./Sec. said
he would mail information to me within the week.

• April 4, 20XX, Had to leave another voice message to Treas./Sec. to call me
back.

• July 24 & 25, 20XX, Attempted to contact Treas./Sec. and left messages to
have him call me.

• August 1, 20XX, Contacted Treas./Sec. to ask if they were going to reply to
the last IDR I sent them. He knew nothing about it and checked his mailroom
and found it, after sitting there over a month. He said he would look at it and
respond to me. I gave him until August 17, 20XX to reply.

• August 21, 20XX, No reply from org. I called and left a message with another

military officer at the base to have the Treas./Sec. call me.

• September 12, 20XX, I attempted a conference call with upper management
and with the officer of the organization and finally reached them. Was unable
to connect all three of us. Asked about them responding and he indicated
they are extremely busy with hurricanes in . Their group is getting
planes maintained for trips to for aide to the area thickened. I gave
him until October 15, 20XX to respond or letter of revocation would be going
out to them.

Law:

Internal Revenue Code (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 Internal Revenue Code imposes a tax at corporate rates under section 11
on the unrelated business taxable income of certain tax-exempt organizations.

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.

IRC §6033(a)(1) of the Code 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.

Treasury Regulations (Regulation) 1.501(c)(3)-1 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).

Regulation §1.501(c)(3)-1(a)(1) of the regulations 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.

Regulation 1.501(c)(3)-1(c)(1) of the regulations 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.

Regulation §1.6001-1(c) of the Code provides that 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. See
section 6033 and §§ 1.6033-1 through 1.6033-3.

Regulation §1.6001-1(e) of the Code 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.

Regulation §1.6033-1(h)(2) of the regulations 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 section 6033.

Regulation §1.61-1 of the regulations 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.

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

Form 8 86 A Department of the Treasury - Internal Revenue Service Schedule No. or

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
Taxpayer's position is unknown at this time.
Government’s Position

Based on the above facts, the organization did not respond 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 determine 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 regulations specifically state that exempt organizations
shall submit additional information for the purpose of 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 termination of exempt
status.

Conclusion:

Based on the foregoing reasons, the organization does not qualify for exemption under
section 501(c)(3) and its tax exempt status should be revoked.

It is the IRS's position that the organization failed to establish that it meets 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 not established
that it is observing the conditions required for the continuation of its exempt status or
that it is organized and operated exclusively for an exempt purpose. Accordingly, the

Name of Taxpayer Year/Period Ended

organization's exempt status is revoked effective January 1, 20XX.

Form 1120, U.S. Corporation Income Tax Return, should be filed for the tax periods
after January 1, 20XX.