Inactivity and missing dissolution records trigger revocation

Plain-English summary

An education-focused organization stopped conducting exempt activities but retained land and did not complete or substantiate dissolution. The IRS repeatedly requested stamped dissolution articles, an agreement documenting transfer of the remaining land to an unrelated party, and a signed final return. The organization provided none of them. Because its returns showed no continuing exempt activity and it failed to provide records needed to verify its operations and disposition of assets, the IRS revoked its Section 501(c)(3) status.

Ruling snapshot

• Question: Did an inactive organization remain exempt when it did not document dissolution, transfer of its remaining land, or a final return?
• Outcome: Revocation effective July 1 of the redacted year.
• Key authorities: IRC §§ 501(c)(3), 6001, and 6033(a)(1); Treas. Reg. § 1.6001-1

Full text (IRS public release)

DEPARTMENT OF THE TREASURY

INTERNAL REVENUE SERVICE
1100 Commerce Street, MC 4920DAL
Dallas, TX 75242

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

Number: 202110027
Release Date: 3/12/2021
UIL: 501.03-00

Date: September 18, 2020
Taxpayer ID Number: [redacted]
Form: [redacted]
Tax Period(s) Ending: [redacted]
Person to Contact: [redacted]
Identification Number: [redacted]
Telephone Number: [redacted]

CERTIFIED MAIL — Return Receipt Requested
LAST DAY FOR FILING A PETITION WITH THE TAX COURT: [redacted]

Dear [redacted]:

This is a final determination that you do not qualify for exemption from federal income tax
under Internal Revenue Code (IRC) Section 501(a) as an organization described in IRC
Section 501(c)(3), effective July 1, 20XX. Your determination letter dated December 13,
19XX is revoked.

Our adverse determination as to your exempt status was made for the following reasons:

Organizations described in IRC Section 501(c)(3) and exempt under Section
501(a) must be both organized and operated exclusively for exempt
purposes. You have not demonstrated that you are operated exclusively for
charitable, educational, or other exempt purposes within the meaning of
Section 501(c)(3). An organization will not be so regarded if more than an
insubstantial part of its activities is not in furtherance of an exempt purpose.
You have not established that you have operated exclusively for an exempt
purpose.

As such, you failed to meet the requirements of IRC Section 501(c)(3) and Treasury
Regulations Section 1.501(c)(3)-1(a), in that you have not established that you were
organized and operated exclusively for exempt purposes and that no part of your earnings
inured to the benefit of private shareholders or individuals.

Contributions to your organization are no longer deductible under IRC Section 170.

1

Organizations that are not exempt under IRC 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 IRC Section 7428 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 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, NW
Washington, DC 20217

U. S. Court of Federal Claims
717 Madison Place, NW
Washington, DC 20439

U. S. District Court for the District of Columbia
333 Constitution Ave., N.W.
Washington, DC 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 IRC Section 7428.

We'll notify the appropriate state officials (as permitted by law) of our determination that you
aren't an organization described in IRC Section 501(c)(3).

You may be eligible for help from the Taxpayer Advocate Service (TAS). 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.

Taxpayer Advocate assistance can’t be used as substitute for established IRS procedures,
formal appeals processes, etc. The Taxpayer Advocate is not able to reverse legal or
technically correct tax determination, nor extend the time fixed by law that you have to file a
petition in Court. The Taxpayer Advocate can, however, see that a tax matter that may not have
been resolved through normal channels gets prompt and proper handling.

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

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

Sincerely,

Enclosures:
Publication 892

Sean E. O'Reilly
Director, Exempt Organizations Examinations

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

Date:
02/11/2020
Taxpayer ID number: [redacted]
Form: [redacted]
Tax periods ended: [redacted]

Person to contact:
Name: [redacted]
ID number: [redacted]
Telephone: [redacted]
Fax: [redacted]
Address: [redacted]

Manager's contact information:
Name: [redacted]
ID number: [redacted]
Telephone: [redacted]

Response due date: [redacted]

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.

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. 8-2019)
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,

Maria Hooke
Director, Exempt Organizations Examinations

Enclosures:
Form 886-A
Form 6018, F4621

Letter 3618 (Rev. 8-2019)
Catalog Number 34809F

Form 886-A Department of the Treasury — Internal Revenue Service Schedule number
(May 2017) Explanations of Items or exhibit
Name of taxpayer: [redacted] Tax Identification Number (last 4 digits): [redacted] Year/Period ended
20XX

ISSUES:

Whether [redacted], located in [redacted], [redacted], continues to
qualify for exemption under Section 501(c)(3) of the Internal Revenue Code?

FACTS:

[redacted] was granted tax-exempt status in February 13, 19XX
under Internal Revenue Code Section § 501(a) as an organization described in § 501(c)(3). The
organization conducted its operations out of [redacted], [redacted]. According to its Articles of
Incorporation, the purposes of [redacted] are as follows.

The Corporation is organized for the purposes of: (a) enrich the quality of education of our
youth, and (b) assist every student to reach their full potential and provide a broad range
of career options, and (c) ensure a local work force capable of competing in a global
economy, and (d) attract and expand business/industry growth in our area, and encourage
communication and cooperation between business, industry, the school system and the
community.

The organization filed Form 990-EZ for the year ended June 30, 20XX on May 21, 20XX.

The originally filed Form 990 for June 30, 20XX shows the following:

Income:
Program Service Revenue $0
Investment Income $0

Expenses:
Grants & Similar amounts paid $0
Professional Fees $0
Other Expenses $0

Net Assets:
Cash, Savings, and Invest $0

We began an examination November 5, 20XX and found [redacted] Partnership is no longer
Operating and has not dissolved of a piece of land to another 501(c)(3).

We issued a request for information (Information Document Request, or IDR) on
September 12, 20XX. The request was for financial and organizational information for the year
under examination.

Catalog Number 20810W Page 1 www.irs.gov Form 886-A (Rev. 5-2017)

Form 886-A Department of the Treasury — Internal Revenue Service Schedule number
(May 2017) Explanations of Items or exhibit
Name of taxpayer: [redacted] Tax Identification Number (last 4 digits): [redacted] Year/Period ended
20XX

The Information was due back to us by November 5, 20XX. We issued a second Information
Document Request on November 15, 20XX. The request was for the following information for the
year under examination. The information was due back to us on January 19, 20XX and no
further extensions would be granted.

• A copy of the stamped Articles of Dissolution filed with the state where the
organization was incorporated.

• A signed copy of the agreement showing the distribution of the remaining assets (land)
of the organization. The agreement must be signed by both unrelated parties and it
must specify the process and time frames for transfer of title.

• Original final return signed by an officer of the organization with “Final Return” box
checked on the upper left-hand corner of the return.

We spoke with [redacted] on January 15, 20XX requesting status of the unfulfilled Information
document request. [redacted] stated he spoke with [redacted] & we was going to have all the
requested documentation by January 19, 20XX

To date, we have not received Articles of Dissolution, Agreement showing the distribution of the
remaining assets (land) of the organization, and the Final return.

LAW

IRC § 501(c)(3) exempts from Federal income tax corporations, and any community chest, fund,
or foundation, organized and operated exclusively for religious, charitable, scientific, testing for
public safety, literary, or educational purposes, or for the prevention of cruelty to children or
animals, no part of the net earnings of which inures to the benefit of any private shareholder or
individual, no substantial part of the activities of which is carrying on propaganda, or otherwise
attempting to influence legislation and which does not participate in, or intervene in (including the
publishing or distributing of statements), any political campaign on behalf of any candidate for
public office.

IRC § 6001 provides that every person liable for any tax imposed by the IRC, or for the collection
thereof, shall keep adequate records as the Secretary of the Treasury or his delegate may from
time to time prescribe.

IRC § 6033(a)(1) provides, except as provided in IRC § 6033(a)(2), every organization exempt
from tax under § 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

Catalog Number 20810W Page 2 www.irs.gov Form 886-A (Rev. 5-2017)

Form 886-A Department of the Treasury — Internal Revenue Service Schedule number
(May 2017) Explanations of Items or exhibit
Name of taxpayer: [redacted] Tax Identification Number (last 4 digits): [redacted] Year/Period ended
20XX

internal revenue laws. The Secretary may also prescribe by forms or regulations the requirement
of every organization to 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.

Treas. Reg. § 1.6001-1(c) states that in addition to 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 -
3.

Treas. Reg. § 1.6001-1(e) states that the books or records required by this section shall be kept at
all times available for inspection by authorized Internal Revenue Service officers or employees
and shall be retained as long as the contents thereof may be material in the administration of any
Internal Revenue law.

In accordance with the above cited provisions of the Code and Regulations under IRC § 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.

GOVERNMENT’S POSITION

Failure to Meet the Operational Test

[redacted] has failed to show us that they meet the operational
test for a § 501(c)(3) organization for the year under examination. In order to meet the operational
test, they must show that they engage primarily in activities which accomplish one or more of such
exempt purposes specified in section § 501(c)(3). We will not regard an organization as having
met this test if more than an insubstantial part of its activities is not in furtherance of an exempt
purpose.

As evidence of their failure to operate for exempt purposes, we reviewed the Form 990-EZ and
found little or no support for exempt operations. The originally filed Form 990-EZ for June 30,
20XX shows they have $0 in Cash; however, this was incorrectly reported on line 22 cash &
savings. The amount should have been reported on line 23 under Land and Buildings. The

Catalog Number 20810W Page 3 www.irs.gov Form 886-A (Rev. 5-2017)

Form 886-A Department of the Treasury — Internal Revenue Service Schedule number
(May 2017) Explanations of Items or exhibit
Name of taxpayer: [redacted] Tax Identification Number (last 4 digits): [redacted] Year/Period ended
20XX

subsequent year returns also do not show any exempt purpose activities. Clearly, they have not
been performing exempt purpose activities since July 1, 20XX, which is required for a §501(c)(3)
organization to keep their tax-exempt status. Accordingly, we are proposing revocation because
they do not operate for exempt purposes.

Failure to Provide Records

The EO has failed to provide records as is required in Code § 6033(a)(1) and Regulation §
1.6033-1(h)(2). They failed to provide any agreement showing the distribution of the remaining
assets (land) of the organization, Articles of Dissolution filed with the state where the organization
was incorporated, and the final return that we requested during the examination. We attempted to
obtain these records by mail and phone.

Without the EO’s records, we cannot verify that they are operating according to their exempt
purpose. Our position is that the organization, then, is not operating for exempt purposes. They
have provided nothing to the contrary.

TAXPAYER’S POSITION

Taxpayer’s Position has not been provided.

CONCLUSION

By not complying with the Code and Regulations, the organization has jeopardized its exempt
status. The filing that they have provided to us failed to show that they are operating for exempt
purposes. They have also failed to provide required documentation, thereby failing to be
complaint with the Code, and failing to show any evidence of their exempt activities. We have no
reason to believe that the [redacted] is operating for exempt
purposes.

As a result of the examination, we have determined that [redacted]
is not operating for exempt purposes as a §501(c)(3) organization. They have not provided any
information to the contrary. Accordingly, since the organization failed to operate primarily for
exempt purposes, we are proposing revocation of their tax-exempt status, effective July 1, 20XX.

Since the organization will no longer have tax-exempt status beginning July 1, 20XX, they are
liable for filing Form 1120, U.S. Corporation Income Tax Return, as of that date.

Catalog Number 20810W Page 4 www.irs.gov Form 886-A (Rev. 5-2017)