201841008: Denies 501(c)(3) status because the applicant did not document a valid nonprofit corporation

Plain-English summary

An organization applied for section 501(c)(3) status while its filed articles showed it as a stock-issuing for-profit business corporation. The articles had neither a clause limiting the organization to exempt purposes nor a dissolution clause dedicating its assets to exempt use, so they failed the organizational test. The applicant said it had dissolved the for-profit entity and incorporated a nonprofit, but it supplied only an unfiled dissolution document and did not provide filed copies of either document despite repeated IRS requests. Because exemption depends on the administrative record and gaps are resolved against the applicant, the IRS concluded that the organization had not proved it qualified under section 501(c)(3). The applicant did not protest the proposed denial, so the adverse determination became final and contributions are not deductible under section 170.

Ruling snapshot

• Question: Did the applicant establish that it was organized as a qualifying section 501(c)(3) nonprofit?
• Outcome: Denied
• Key authorities: IRC § 501(c)(3); Treas. Reg. § 1.501(c)(3)-1(a)(1), (b)(1)(i), and (b)(4); Rev. Proc. 2018-5; Universal Life Church v. United States; New Dynamics Foundation v. United States; IRC § 170

Full text (IRS public release)

[Redaction note: the IRS release blanks the applicant's identity, identification number, contact information, required return, and tax years.]

Department of the Treasury
Internal Revenue Service
P.O. Box 2508
Cincinnati, OH 45201
Date:

July 17, 2018
Employer ID number:

Number: 201841008
Release Date: 10/12/2018

Contact person/ID number:
Contact telephone number:
Form you must file:

Tax years:

UIL Code: 501.00-00, 501.03-05, 501.29-00

Dear

This letter is our final determination that you don’t qualify for tax-exempt status under Section 501(c)(3) of the
Internal Revenue Code (the Code). Recently, we sent you a proposed adverse determination in response to your
application. The proposed adverse determination explained the facts, law, and basis for our conclusion, and it
gave you 30 days to file a protest. Because we didn’t receive a protest within the required 30 days, the proposed
determination is now final.

Because you don’t qualify as a tax-exempt organization under Section 501(c)(3) of the Code, donors can’t
deduct contributions to you under Section 170 of the Code. You must file federal income tax returns for the tax
years listed at the top of this letter using the required form (also listed at the top of this letter) within 30 days of

this letter unless you request an extension of time to file.

We’ll make this final adverse determination letter and the proposed adverse determination letter available for
public inspection (as required under Section 6110 of the Code) after deleting certain identifying information.
Please read the enclosed Notice 437, Notice of Intention to Disclose, and review the two attached letters that
show our proposed deletions. If you disagree with our proposed deletions, follow the instructions in the Notice
437 on how to notify us. If you agree with our deletions, you don’t need to take any further action.

We'll also notify the appropriate state officials of our determination by sending them a copy of this final letter
and the proposed determination letter (under Section 6104(c) of the Code). You should contact your state
officials if you have questions about how this determination will affect your state responsibilities and
requirements.

If you have questions about this letter, you can contact the person listed at the top of this letter. If you have
questions about your federal income tax status and responsibilities, call our customer service number at
1-800-829-1040 (TTY 1-800-829-4933 for deaf or hard of hearing) or customer service for businesses at
1-800-829-4933.

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

Enclosures:

Notice 437

Redacted Letter 4036, Proposed Adverse Determination Under IRC Section 501(c)(3)
Redacted Letter 4038, Final Adverse Determination Under IRC Section 501(c)(3) - No Protest

Department of the Treasury
Internal Revenue Service
: Cincinnati, OH 45201
Date:
May 24, 2018

Employer ID number:
Contact person/ID number:
Contact telephone number:

Contact fax number:

Legend: UIL:

B= Date 501.00-00

C = State 501.03-05
501.29-00

Dear

We considered your application for recognition of exemption from federal income tax under Section 501(a) of
the Internal Revenue Code (the Code). Based on the information provided, we determined that you don’t qualify
for exemption under Section 501(c)(3) of the Code. This letter explains the basis for our conclusion. Please
keep it for your records.

Issues
Do you qualify for exemption under Section 501(c)(3) of the Code? No, for the reasons stated below.

Facts
You were incorporated on B as a business corporation under C law. Your Articles of Incorporation (“Articles”)
do not include a purpose clause or a dissolution clause. In addition, your Articles authorize you to issue stock.

Your specific purposes are to partner with and assist non-profit organizations in several areas. Those areas
include bringing an end to child slavery, assisting malnourished or ill children, providing educational funding
for children, providing microfinancing for families to start small businesses, and providing funding for
caretakers to obtain higher education.

We suggested that you amend your Articles to remove all references to stock and convert to a non-profit
corporation in order to qualify for exemption under Section 501(c)(3) of the Code. In addition, we suggested
that you include a purpose clause which states that you are operated exclusively for Section 501(c)(3) purposes
and a dissolution clause which states that upon dissolution your assets will be distributed for Section 501(c)(3)
purposes. To this you responded that you were “initially formed as a corporation for the benefit of ultimately
applying for and converting to a non-profit organization with 501(c)(3) status.” You said initially under the
original Articles one shareholder possessed all shares of stock. Subsequent to approval of your 501(c)(3)
request, you will amend your Articles to “remove all shares and references of shares.”

You later indicated that you had dissolved the for-profit corporation. You submitted an unfiled copy of your
Articles of Dissolution as a for-profit entity and indicated you filed Articles of Incorporation as a non-profit

entity. Despite multiple requests for filed copies of these documents, you have not provided any. We are left to
rely on the information in the administrative case file.

Law

Section 501(c)(3) of the Code provides for the recognition of exemption of organizations that are organized and
operated exclusively for religious, charitable or other purposes as specified in the statute. No part of the net
earnings may inure to the benefit of any private shareholder or individual.

Treasury Regulation Section 1.501(c)(3)-1(a)(1) states that, in order to be exempt as an organization described
in section 501(c)(3) of the Code, 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.

Treas. Reg. Section 1.501(c)(3)-1(b)(1)(i) provides that an organization is organized exclusively for one or
more exempt purposes only if its articles of organization:

(a) Limit the purposes of such organization to one or more exempt purposes; and
(b) Do not expressly empower the organization engage, otherwise than as an insubstantial part of its
activities, in activities that in themselves are not in furtherance of one or more exempt purposes.

Treas. Reg. Section 1.501(c)(3)-1(b)(4) holds that an organization is not organized exclusively for one or more
exempt purposes unless its assets are dedicated to an exempt purpose. An organization’s assets will be
considered dedicated to an exempt purpose, for example, if, upon dissolution, such assets would, by reason of a
provision in the organization’s articles or operation of law, be distributed for one or more exempt purposes.

Revenue Procedure 2018-5, 2018-1 I.R.B. 233, Section 3 states that a determination letter or ruling on exempt
status is issued based solely upon the facts and representations contained in the administrative record. The
applicant is responsible for the accuracy of any factual representations contained in the application. Section 6
(and its predecessors) provides that a favorable determination letter or ruling will be issued to an organization
only if its application and supporting documents establish that it meets the particular requirements of the section
under which exemption from federal income tax is claimed.

In Universal Life Church v. United States, 372 F. Supp. 770 (E.D. Cal. 1974), the court concluded that “one
seeking a tax exemption has the burden of establishing his right to a tax-exempt status.”

New Dynamics Foundation v. United States, 70 Fed. Cl. 782 (2006), was an action for declaratory judgment
that the petitioner brought to challenge the denial of his application for exempt status. The court, in finding that
the actual purposes displayed in the administrative record supported the Service’s denial, stated “It is well-
accepted that, in initial qualification cases such as this, gaps in the administrative record are resolved against the
applicant.” The court noted that if the petitioner had evidence that contradicted these findings, it should have
submitted it as part of the administrative process. The court also highlighted the principle that exemptions from
income tax are matters of legislative grace.

Application of law
A ruling on exempt status is based solely on facts and representations in the administrative file. You have not
provided supporting documentation to establish you meet the requirements of Section 501(c)(3) of the Code.

Section 501(c)(3) sets forth two main tests for qualification for exempt status. As stated in Treas. Reg.
1.501(c)(3)-1(a)(1), an organization must be both organized and operated exclusively for purposes described in
Section 501(c)(3).

You are formed as a for-profit corporation under state law. Your Articles do not limit your activities to those
described in Section 501(c)(3) of the Code or contain a dissolution clause which dedicates your assets to
Section 501(c)(3) purposes. As a result, you have not satisfied the organizational test described in Treas. Reg.
Sections 1.501(c)(3)-1(b)(1)(i) and 1.501(c)(3)-1(b)(4).

Despite multiple requests for your filed Articles of Dissolution of the for-profit entity and Articles of
Incorporation for the non-profit entity, you have failed to provide them. Therefore, there is not sufficient
documentation to establish that you are exempt from taxation as required by Section 501(c)(3) of the Code and
Rev. Proc. 2018-5. As in Universal Life Church, you have the burden of establishing that you qualify for tax
exemption.

As stated in New Dynamics Foundation, an organization must establish, through its administrative record, that it
meets the requirements for exemption. Any gaps in the administrative record will be resolved against the
applicant. The Articles you provided with your application do not meet the statutory and regulatory
requirements for exemption. You have failed to provide a filed copy of your Articles of Dissolution as a for-
profit entity and Articles of Incorporation as a non-profit entity. Therefore, you have not established that you
meet the requirements for exemption under Section 501(c)(3) of the Code.

Conclusion

Based on the information submitted, you have failed to establish that you are organized for exempt purposes
within the meaning of Section 501(c)(3) of the Code and the related income tax regulations. Therefore, based on
the administrative record, you fail to qualify for exemption under Section 501(c)(3).

If you don’t agree
You have a right to file a protest if you don’t agree with our proposed adverse determination. To do so, you

must send a statement to us within 30 days of the date of this letter. The statement must include:

• Your name, address, employer identification number (EIN), and a daytime phone
  number

• A copy of this letter highlighting the findings you disagree with

• An explanation of why you disagree, including any supporting documents

• The law or authority, if any, you are relying on

• The signature of an officer, director, trustee, or other official who is authorized to sign for the
  organization, or your authorized representative

• One of the following declarations:

For an officer, director, trustee, or other official who is authorized to sign for the organization:

Under penalties of perjury, I declare that I examined this protest statement, including
accompanying documents, and to the best of my knowledge and belief, the statement contains all
relevant facts and such facts are true, correct, and complete.

For authorized representatives:

Under penalties of perjury, I declare that I prepared this protest statement, including
accompanying documents, and to the best of my knowledge and belief, the statement contains all
relevant facts and such facts are true, correct, and complete.

Your representative (attorney, certified public accountant, or other individual enrolled to practice before the
IRS) must file a Form 2848, Power of Attorney and Declaration of Representative, with us if he or she hasn’t
already done so. You can find more information about representation in Publication 947, Practice Before the
IRS and Power of Attorney.

We’ll review your protest statement and decide if you provided a basis for us to reconsider our determination. If
so, we’ll continue to process your case considering the information you provided. If you haven’t provided a
basis for reconsideration, we’ll forward your case to the Office of Appeals and notify you. You can find more
information about the role of the Appeals Office in Publication 892, How to Appeal an IRS Decision on Tax-
Exempt Status.

If you don’t file a protest within 30 days, you can’t seek a declaratory judgment in court at a later date because
the law requires that you use the IRS administrative process first (Section 7428(b)(2) of the Code).

Where to send your protest
Please send your protest statement, Form 2848, if needed, and any supporting documents to the applicable
address:

U.S. mail: Street address for delivery service:
Internal Revenue Service Internal Revenue Service

EO Determinations Quality Assurance EO Determinations Quality Assurance
Room 7-008 550 Main Street, Room 7-008

P.O. Box 2508 Cincinnati, OH 45202

Cincinnati, OH 45201

You can also fax your statement and supporting documents to the fax number listed at the top of this letter. If
you fax your statement, please contact the person listed at the top of this letter to confirm that he or she received
it.

If you agree

If you agree with our proposed adverse determination, you don’t need to do anything. If we don’t hear from you
within 30 days, we’ll issue a final adverse determination letter. That letter will provide information on your
income tax filing requirements.

You can find all forms and publications mentioned in this letter on our website at www.irs.gov/formspubs. If
you have questions, you can contact the person listed at the top of this letter.

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

Enclosure:
Publication 892