Missing organizing documents caused exemption revocation

Plain-English summary

An organization obtained section 501(c)(3) status through Form 1023-EZ after attesting that its organizing document contained the required limits on purpose and disposition of assets at dissolution. During an examination, it produced documents with only a vague purpose, no dissolution clause, unsigned bylaws, and no proof that the bylaws had been filed with the state. The organization later filed a certificate of dissolution but did not supply the remaining information requested by the IRS. The IRS concluded that it had never established compliance with the organizational test and revoked its exemption effective January 1 of the redacted year.

Ruling snapshot

• Question: Did the organization remain eligible for section 501(c)(3) exemption when it could not establish that its organizing documents contained the required purpose and dissolution provisions?
• Outcome: No; the IRS revoked the organization's exemption effective January 1 of the redacted year.
• Key authorities: IRC §§ 170, 501(a), 501(c)(3), 6033, and 7428; Treas. Reg. § 1.501(c)(3)-1; Rev. Rul. 59-95; Rev. Proc. 2018-5

Full text (IRS public release)

Transcriber's note: this document is a ten-page scan containing a final revocation letter, a proposed revocation letter, and an examination report. All page images were checked. Obvious OCR errors in headings, words, numbering, punctuation, and section citations were corrected by comparison with the images; repeated form layout and page footers were linearized, and redacted blank text is identified where needed. Original grammatical and typographical irregularities are preserved. The wording is otherwise verbatim.

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
TEGE EO Examinations Mail Stop 4920 DAL
1100 Commerce St.
Dallas, Texas 75242

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

Date: February 19, 2019
Number: 201925014
Release Date: 6/21/2019

Tax Year Ending:
Taxpayer Identification Number:
Person to Contact:
Employee Identification Number:
Employee Telephone Number:

UIL: 501.03-00

CERTIFIED MAIL — RETURN RECEIPT
Dear [redacted]:

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 January 1, 20XX. Your determination letter dated September 29, 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 exempt purposes. You
have failed to produce documents or otherwise establish that you are organized exclusively for
exempt purposes or that you have the proper dissolution clause in your organizing document.

Contributions to your organization are no longer deductible under IRC §170 after January 1, 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


Department of the Treasury
Internal Revenue Service
Tax Exempt and Government Entities Division
Exempt Organizations Examination

Date:
06/29/2018

Taxpayer ID number:

Form:
Tax periods ended:

Person to contact:

Employee ID number:
Telephone number:
Fax:

Address:

Manager's contact information:

Employee ID number:
Telephone number:
Response due date:

CERTIFIED MAIL — Return Receipt Requested
Dear [redacted]:

Why you’re receiving this letter
We enclosed a copy of our audit report, Form 886-A, Explanation of Items, explaining that we propose to revoke
your tax-exempt status as an organization described in Internal Revenue Code (IRC) Section 501(c)(3).

If you agree

If you haven't already, please sign the enclosed Form 6018, Consent to Proposed Action, and return it to the
contact person shown at the top of this letter. We'll issue a final adverse letter determining that you aren't an
organization described in IRC Section 501(c)(3) for the periods above.

After we issue the final adverse determination letter, we'll announce that your organization is no longer eligible
to receive tax deductible contributions under IRC Section 170.

If you disagree

1. Request a meeting or telephone conference with the manager shown at the top of this letter.

2. Send any information you want us to consider.

3. File a protest with the IRS Appeals Office. If you request a meeting with the manager or send additional
information as stated in 1 and 2, above, you'll still be able to file a protest with IRS Appeals Office after
the meeting or after we consider the information.

The IRS Appeals Office is independent of the Exempt Organizations division and resolves most disputes
informally. If you file a protest, the auditing agent may ask you to sign a consent to extend the period of
limitations for assessing tax. This is to allow the IRS Appeals Office enough time to consider your case.
For your protest to be valid, it must contain certain specific information, including a statement of the
facts, applicable law, and arguments in support of your position. For specific information needed for a
valid protest, refer to Publication 892, How to Appeal an IRS Determination on Tax-Exempt Status.

Fast Track Mediation (FTM) referred to in Publication 3498, The Examination Process, generally doesn't
apply now that we've issued this letter.

Letter 3618 (Rev. 9-2017)
Catalog Number 34809F


4. Request technical advice from the Office of Associate Chief Counsel (Tax Exempt Government Entities)
if you feel the issue hasn't been addressed in published precedent or has been treated inconsistently by the

IRS.

If you’re considering requesting technical advice, contact the person shown at the top of this letter. If you
disagree with the technical advice decision, you will be able to appeal to the IRS Appeals Office, as
explained above. A decision made in a technical advice memorandum, however, generally is final and
binding on Appeals.
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
adverse determination letter.
Contacting the Taxpayer Advocate Office is a taxpayer right
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 877-777-4778.

Additional information
You can get any of the forms and publications mentioned in this letter by visiting our website at
www.irs.gov/forms-pubs or by calling 800-TAX-FORM (800-829-3676).

If you have questions, you can contact the person shown at the top of this letter.

Sincerely,

[signature illegible]

for Maria Hooke
Director, Exempt Organizations Examinations

Enclosures:

Form 6018

Form 4621-A Report of Examination
Form 886-A

Publication 892

Publication 3498-A

Letter 3618 (Rev. 9-2017)
Catalog Number 34809F


Form 886A
Explanation of Items
Name of Taxpayer
Year/Period Ended
20XX

Date of Notice: June 29, 20XX

Issues:

Whether the exempt status of [redacted] (the Organization) under IRC § 501(c)(3) should
be revoked, effective January 1, 20XX because it is not organized exclusively for exempt
purposes within the meaning of section 501(c)(3) and Treas. Reg. § 1.501(c)(3)-1(b)?

Facts:

[Redacted] applied for tax-exempt status by filing the Form 1023-EZ, Streamlined
Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue
Code, on September 8, 20XX, and was granted tax-exempt status as a
501(c)(3) on September 29, 20XX, with an effective date of August 7, 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 attested on Form 1023-EZ, part II, box 2 that they have the organizing
document necessary for their organizational structure, which they marked that they are
a corporation.

Section 501(c)(3) requires that an organizing document must limit your purposes to one or
more exempt purposes within section 501(c)(3). The organization attested that their
organizing document contains this limitation.

They also attested that their organizing document does not expressly empower you to
engage, otherwise than as an insubstantial part of your activities, in activities that in
themselves are not in furtherance of one or more exempt purposes.

The organization attested that their organizing document contains the dissolution provision
required under section 501(c)(3) or that they did not need an express dissolution provision
in your organizing document because they rely on the operation of state law in the state in
which you are formed for your dissolution provision.

The organizing documents that the agent obtained from [redacted] on January 26, 20XX
contains a vague purpose and does not contain a dissolution clause. The certificate of
incorporation refers to bylaws. There were some bylaws included but there were not
enough details or information provided to know if the bylaws were submitted to the state.

[Redacted] did send some more bylaws on March 08, 20XX. There was nothing included
in response to show that these bylaws were filed with the state at the time of

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

Page: -1-

Form 886A
Explanation of Items
Name of Taxpayer
Year/Period Ended
20XX

being incorporated or even filed later. The bylaws received on March 08, 20XX were
also unsigned.

Organization filed a certificate of dissolution with State of [redacted] on May 09, 20XX.

The agent made several attempts to contact the Organization to request a complete
copy of their organizing documents that was filed with the state. Due to them filing
certificate of dissolution there were also attempts to secure information to finalize
termination.

• Correspondence for the audit was as follows:

o Letter 3606 (Rev. 6-2012) with attachments, was mailed to the organization
on October 31, 20XX, with a response date of December 1, 20XX. This letter
was not returned by the post office as being undeliverable.

o Three separate faxes were received from organization on January 26, 20XX.

o Letter 3844-B (Rev. 11-2015) with attachments, was mailed certified to the
organization on February 06, 20XX, with a response date of March 08, 20XX.
This letter was requesting additional information and missing information. This
letter was not returned by the post office as being undeliverable.

o Response to Letter 3844-B from organization was received on March 08,
20XX.

o Form 4564, Information Document Request, was mailed on April 24, 20XX
with a response date of May 04, 20XX. Form 4564 contained the updated
contact information of the new agent assigned and also listed what
information was still needed to complete the examination. Article Number

[Redacted]. Received PS Form 3811 back and it is
showing signed by [redacted].

o May 17 and 18, 20XX, received Certificate of Dissolution that was filed with
the State of [redacted] on May 09, 20XX.

o Letter 5077-B (Rev. 01-2017), TE/GE IDR Delinquency Notice, was mailed to
the organization, on June 11, 20XX, with a response date of June 25, 20XX.
Included updated contact information along with missing items still needed to
conclude the examination. Article Number [redacted].
Per USPS tracking this was delivered on June 14, 20XX at 5:21 pm.

Form 886-A (Rev. 4-68)
Department of the Treasury - Internal Revenue Service
Page: -2-


Form 886A
Explanation of Items
Name of Taxpayer
Year/Period Ended
20XX

• Telephone contact for the audit was as follows:

o November 13, 20XX, Agent called [redacted], President, at
[redacted] and received VMS. Left a message for an officer of the organization to
return the phone call.

o December 01, 20XX, received a phone from [redacted],
President, he advised misread the due date and also that the organization was
in the process of dissolving. Agent went over information needed for dissolving
an organization and negotiated a new due date of January 05, 20XX.

o January 05, 20XX, Agent received voice mail from the President advising that
the requested information is being put in the mail today. Called president back
and advised message was received and will forward to response next week.

o January 23, 20XX, Agent called President and left a voice message advising
that the response has not been received.

o February 02, 20XX, Called the President and received voice mail, so left a
message that Letter 3844-B is being mailed with attachments for additional
information needed. Left a brief overview the additional information that was
being requested.

o February 28, 20XX, Agent called the President and received voice mail, so left
message about case reassignment and contact information.

o April 03, 20XX, Agent called the President and discussed the issue with the
organizing documents and what is needed in order to dissolve the
organization.

o April 17, 20XX, Agent called the President at [redacted] and the
number has been disconnected.

o April 18, 20XX, researched and found [redacted] as a potential number
for the President. Called the number and it is was busy. Tried calling a bit later
and got a message that the number has been disconnected.

o April 18, 20XX, Agent called [redacted], Secretary, at [redacted]
and left voice message.

o April 18, 20XX, Agent called [redacted], Chairman of the Board, at
[redacted]. [Redacted] thought organization was terminated. Advised it appeared to
in process and was trying to follow up with the President and now the number

Form 886-A (Rev. 4-68)
Department of the Treasury - Internal Revenue Service
Page: -3-


Form 886A
Explanation of Items
Name of Taxpayer
Year/Period Ended
20XX
has been disconnected. [Redacted] is going to try to get hold him.
o May 07, 20XX, Agent called [redacted] and [redacted] and left
messages.
o May 08, 20XX, [redacted], Chairman of the Board, called back
and left voice mail leaving a phone number of [redacted] of [redacted].
o May 09, 20XX, Agent called [redacted], President, at [redacted].

No one picked up and mailbox was not set up to leave voice message.

o May 10, 20XX, Agent called [redacted], President, at [redacted].
No one picked up and mailbox was not set up to leave voice message.

o May 14, 20XX, [redacted], President, called and left a voice message
apologizing for not getting back sooner due to personal reasons. He advised
that he was waiting for the attorney to get the state dissolution document.

o May 31, 20XX, Agent called [redacted], President, at [redacted].
No one picked up and mailbox was not set up to leave voice message.

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.

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(b)(1)(i) 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

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

Page: -4-


Form 886A
Explanation of Items
Name of Taxpayer
Year/Period Ended
20XX

organization to engage, otherwise than as an insubstantial part of its activities, in activities
which in themselves are not in furtherance of one or more exempt purposes.

Regulation 1.501(c)(3)-1(b)(4) 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 by operation of law, be distributed for one or more exempt purposes, or to the Federal
Government, or to a State or local government, for a public purpose, or would be
distributed by a court to another organization to be used in such manner as in the
judgment of the court will best accomplish the general purposes for which the dissolved
organization was organized. However, an organization does not meet the organizational
test if its articles or the law of the State in which it was created provide that its assets
would, upon dissolution, be distributed to its members or shareholders.

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 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.

Rev. Proc. 2018-5, Sec 11.02 (3) Inaccurate information on request. A determination
letter issued to an organization that submitted a request in accordance with this revenue
procedure may not be relied upon by the organization submitting the request if it was
based on any inaccurate material information submitted by the organization. Inaccurate
material information includes an incorrect representation or attestation as to the
organization’s organizational documents, the organization's exempt purpose, the
organization’s conduct of prohibited and restricted activities, or the organization's eligibility
to file Form 1023-EZ.

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

Government’s Position

Based on the above facts, the Organization has not established that it had organizing
documents limiting the purpose of the organization to one or more exempt purposes, or a

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


Form 886A
Explanation of Items
Name of Taxpayer
Year/Period Ended
20XX

proper dissolution clause that meet the organizational test under IRC section 501(c)(3), at
the time of applying for tax exemption.

If an organization fails to meet either the organizational test or the operational test, it is
not exempt.

The Organization fails the organizational test because it did not establish that it had an
organizing document that complied with section 501(c)(3) at the time of applying for tax
exemption. Because it never had an organizing document that meets the requirements
of section 501(c)(3), and because it misrepresented that fact in its Form 1023-EZ, the
revocation is effective as of January 1, 20XX.

Conclusion:

Based on the foregoing reasons, it is the IRS's position that the organization failed to
establish that it meets the organizational test as required IRC §§ 501(c)(3) for it to be
exempt from federal income tax under IRC § 501(c)(3). Accordingly, the 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
December 31, 20XX.

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

Page: -6-