Missing organizing provisions caused exemption revocation

Plain-English summary

An organization received section 501(c)(3) status after attesting on Form 1023-EZ that its organizing document contained the required limits on purpose and disposition of assets at dissolution. During an examination, it supplied a charter that lacked both a qualifying purpose clause and a dissolution clause, and it did not provide bylaws or conforming documents despite repeated requests. The IRS concluded that the organization had never established that it satisfied the organizational test and had inaccurately represented its documents on Form 1023-EZ. It revoked the exemption effective July 1 of the redacted year, ended deductibility of contributions after that date, and directed the organization to file corporate income tax returns for later periods.

Ruling snapshot

• Question: Did the organization remain eligible for section 501(c)(3) exemption when it failed to establish that its organizing documents contained the required purpose and dissolution provisions?
• Outcome: No; the IRS revoked the organization's exemption effective July 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 nine-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.

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

Date: February 22, 2019

Number: 201925016
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 July 1, 20XX. Your determination letter dated December 12, 20XX is revoked.

The revocation of your exempt status was made for the following reason(s):

Organizations described in I.R.C. section 501(c)(3) and exempt under section 501(a) must be both
organized and operated exclusively for exempt purposes. You have not demonstrated you are
organized exclusively for exempt purposes as required by Treasury Regulation 1.501(c)(3)-1(b).

Contributions to your organization are no longer deductible under IRC §170 after July 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:
07/09/2018

Taxpayer ID number:

Form:
Tax periods ended:

Person to contact:

Employee ID number:
Telephone number:
Fax:

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: July 09, 20XX

Issues:

Whether the exempt status of [redacted] (the Organization) under IRC § 501(c)(3)
should be revoked, effective July 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 December 1, 20XX, and was granted tax-exempt status as a
501(c)(3) on December 12, 20XX, with an effective date of May 15, 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.

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 Organization does not appear to have any organizing documents.
The organizing documents that the agent obtained from [redacted] does not
include a purpose clause to limit the purpose of the Organization to one or more exempt
purposes or include a dissolution clause.

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

The agent made several attempts to contact the Organization to request that [redacted] to provide
and/or conform its organizing documents. Specifically, the agent attempted to contact
Organization by letter and also called a representative of the [redacted]. The
agent did not receive any organizing documents containing the necessary information
required for a 501(c)(3) organizing documents.

• Correspondence for the audit was as follows:

o Letter 3606 (Rev. 6-2012) with attachments, was mailed to the organization
on February 1, 20XX with a response date of March 2, 20XX. This letter
requested the organizing documents, description of activities and financials.

o Letter 3844-A (Rev. 12-2015) with attachments, was mailed to the
organization on July 12, 20XX, with a response date of August 12,
20XX.

o Letter 3844-A (12-2015), with attachments, was mailed certified to the
organization at [redacted], per Form 1023-
EZ application, on March 14, 20XX, with a response date of April 14, 20XX.
Article Number [redacted].

o Letter 3844-A (12-2015), with attachments, was mailed to [redacted],
President at [redacted], on March 14,
20XX, with a response date of April 14, 20XX. Article Number [redacted].

o Letter 3844-A (12-2015), with attachments, was mailed to [redacted]
at [redacted], Treasurer, on March 14,
20XX, with a response date of April 14, 20XX. Article Number [redacted].

o A response was received from organization on May 18, 20XX. They
provided a charter. The charter did not include a purpose or dissolution
clause but it did mention bylaws. The bylaws were not included in the
response that was received.

o Letter 3844-B (11-2015), with attachments, was mailed to organization at
[redacted], on July 12, 20XX with a response date of August 14, 20XX. Letter was
requesting copy of bylaws, a complete copy of original organizing and/or
any amendments to verify that they meet the organizational test. Article
Number [redacted]. Letter was delivered and signed for on
July 18, 20XX.

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

o Letter 5077-B (01-2017), TE/GE IDR Delinquency Notice, was mailed to
organization at [redacted], on September
06, 20XX with a response date of October 06, 20XX, Article Number
[redacted].

o Letter 6017 (09-2017), Taxpayer Contact after Disaster - TE/GE, was mailed
to organization at [redacted], on October 05,
20XX. Letter advised that due to recent disaster we are suspending the exam
until the suspension period expires.

• Telephone contact for the audit was as follows:

o January 29, 20XX, called the phone number listed on the Form 1023-EZ
application of [redacted] and spoke with [redacted]. She advised
that she will let the President know.

o March 14, 20XX, called the [redacted] at [redacted] and
number is no longer working.

o April 04, 20XX, received call from [redacted] from [redacted] and
granted 30 day extension due to information being requested is needing to be
translated into English.

o May 11, 20XX, received call from [redacted] from [redacted] and was
advised response was in the mail. There were some issues gathering
information due to a strike at the university.

o September 05, 20XX, called [redacted] at [redacted] and it went to
voice mail so agent left a 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

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

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
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

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'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
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 July 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 July 1, 20XX.

Form 1120, U.S. Corporation Income Tax Return, should be filed for the tax periods
after June 30, 20XX.

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