202150030: IRS revokes a charity's 501(c)(3) status after it stopped filing returns and did not respond to the audit

Plain-English summary

A public charity recognized under Internal Revenue Code § 501(c)(3) lost its exemption for the simplest of reasons: it stopped filing its annual return and never responded to the IRS. Every exempt organization must file an annual Form 990-series return (§ 6033) and keep books and records available for inspection (§ 6001). Here the organization filed its last return years earlier, then failed to file for the year under examination. The IRS mailed an information document request and later a draft audit report by certified mail; the first mailing came back undeliverable and the organization never answered the second, never filed the missing return, and never contacted the revenue agent. State records showed the corporation had gone into involuntary dissolution. Because the organization produced no information showing it continued to operate for exempt purposes, the IRS could not verify its qualification and revoked the exemption, citing Rev. Rul. 59-95 (an organization whose records are too incomplete to furnish the required financial statements can lose its exemption). The revocation is retroactive, so contributions are no longer deductible under § 170 and the organization must file corporate income tax returns (Form 1120). The lesson is basic but common: an exempt organization that goes dark, stops filing, and ignores the IRS will have its status revoked.

Ruling snapshot

• Question: Should the organization's 501(c)(3) exemption be revoked where it failed to file its annual return and did not respond to the examination?
• Outcome: revocation, effective January 1, 20XX (contributions no longer deductible; Form 1120 required)
• Key authorities: IRC §§ 501(c)(3), 6011(a), 6033(a), 170; Treas. Reg. § 1.6001-1(e); Rev. Rul. 59-95

Full text (IRS public release)

This document is an OCR transcription of a scanned IRS release. Wording is preserved verbatim; obvious scanning misreads have been corrected, and page furniture and footers are transcribed as scanned. Unreadable spots are marked [illegible].

[Page 1]

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
1100 Commerce Street, MC 4920DAL
Dallas, TX 75242

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

Date: June 19, 2020

Number: 202150030 Taxpayer ID Number:
Release Date: 12/17/2021
Form:
Tax Period(s) Ending:
Person to Contact:
Identification Number:
Telephone Number:
Fax Number:

UIL: 501.03-00

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

Dear

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 January 1, 20XX. Your determination letter dated April 5, 20XX is
revoked.

Our adverse determination as to your exempt status was made for the following reasons:
You did not respond to our requests for information about your finances and
activities necessary to complete the examination. You have not demonstrated that
you are organized and operated exclusively for exempt purposes within the
meaning of IRC Section 501(c)(3).

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.

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 20005

U.S. District Court for the District of Columbia
333 Constitution Ave., NW
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 about this letter, please contact the person whose name and
telephone number are shown in the heading of this letter.

Sincerely,

Sean E. O'Reilly
Director, EO Examinations

Enclosures:
Publication 892

[Page 2]

Department of the Treasury Date: 6-22-18
Internal Revenue Service
IRS Tax Exempt and Government Entities Taxpayer Identification Number:
Exempt Organizations Examinations

Form:
Tax Year(s) Ended:
Person to Contact:
Employee ID:
Telephone:
Fax:
Manager's Contact Information:
Telephone:
Response Due Date:

CERTIFIED MAIL — Return Receipt Requested

Dear

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

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

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.

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.

For 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,

Paul R. Herzog for
Maria Hooke
Director, Exempt Organizations
Examinations

Enclosures:
Form 886-A
Form 6018
Publication 892
Publication 3498-A

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

[Page 3]

Form 886-A Schedule number or exhibit
(Rev. January 1994) EXPLANATIONS OF ITEMS

Name of taxpayer Tax Identification Number Year/Period ended
December 31, 20XX

ISSUE:

Whether the IRC (Internal Revenue Code) § (section) 501(c)(3) tax exempt status of
should be revoked because it is not operated exclusively for tax exempt
purposes?

FACTS:

      (the "Organization") is an exempt organization under IRC § 501(c)(3) as

a public charity and not a private foundation. The Organization files an annual Form 990, "Return
of Organization Exempt From Income Tax Under Section 501(c) of the Internal Revenue Code".
The return is due by the 15th day of the 5th month following the close of their tax year. The
Organization last filed a return for year ending December 31, 20XX.

For year ending December 31, 20XX, a Form 990 was not filed with the IRS. This return was due to
the IRS by May 15, 20XX. A return has not been received by the IRS as of June 20XX.

Organizing Documents:

The Organization applied for exempt status by completing and submitting a Form 1023 (Application
for Recognition under Section 501(c)(3) of the Internal Revenue Code) to the Internal Revenue
Service (IRS). The Form 1023 was received by the IRS on December 27, 20XX. In Part II,
"Organizational Structure", the Organization checked "yes" for their status as a "corporation". The
Organization answered "no" to the Form 1023 questions on their status as a "limited liability
corporation", an "unincorporated association", and "trust".

The Articles of Incorporation submitted with the Form 1023 listed the Organization's name as
, listed as a corporation formed under and pursuant to chapter 37A of the
Statutes, a Non-profit Corporation Act. The Articles stated they were a corporation described under
IRC § 501(c)(3).

Form 990-EZ filed for year ending December 31, 20XX:

A Form 990-EZ was filed with the IRS for 20XX. The 20XX Form 990 Part V, line 36 included a
question regarding their operations:

"Did the organization undergo a liquidation, dissolution, termination, or significant disposition of net
assets during the year?"

The response to this question by the Organization was "no".

Form 886-A (1-1994) Catalog Number 20810W Page 1 publish.no.irs.gov
Department of the Treasury-Internal Revenue Service
issued June 22, 2018

[Page 4]

Form 886-A Schedule number or exhibit
(Rev. January 1994) EXPLANATIONS OF ITEMS

Name of taxpayer Tax Identification Number Year/Period ended
December 31, 20XX

Correspondence issued for 20XX Form 990:

The IRS began an examination of the 20XX tax year. On April 20, 20XX, we issued Letter 3611,
Information Document Request (IDR) 1, IDR 2, and Publication 1 (Your Rights as a Taxpayer). The
proposed examination date(s) were May 21 through May 24, 20XX. The envelope containing our
correspondence was returned unopened to the IRS office as undeliverable by
the US Post Office.

On May 16, 20XX, we issued a "Draft" Audit Report, Letter, and Publication 3498 by Certified
Mail to at the following address: . The
Audit Report explained that the Organization failed to file a tax return for . The Certified Mail
postcard was signed and returned to the IRS office with a signature by .
The letter and Report requested the Organization respond by June 13, 20XX with a completed
Form 990 for year ending December 31, 20XX. No response was received by the due date.

Secretary of State Business Records review:

The annual filing with the Secretary of State is available for public review at
https:// .us. The website listed the filings as a corporation for
from December 15, 20XX
to July 30, 20XX. As of March 8, 20XX, the website listed the Organization as "involuntary
dissolution".

LAW:

Internal Revenue Code (IRC) section (§) 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 § 6011(a) provides that the Secretary shall require any person made liable for any tax imposed
by this title, or with respect to the collection thereof, shall make a return or statement according to
the forms and regulations prescribed by the Secretary. Every person required to make a return or
statement shall include therein the information required by such forms or regulations.

Form 886-A (1-1994) Catalog Number 20810W Page 2 publish.no.irs.gov
Department of the Treasury-Internal Revenue Service
Issued June 22, 2018

[Page 5]

Form 886-A Schedule number or exhibit
(Rev. January 1994) EXPLANATIONS OF ITEMS

Name of taxpayer Tax Identification Number Year/Period ended
December 31, 20XX

IRC § 6033(a) provides that every organization exempt from taxation under section 501(a) of the
IRS shall file an annual return, stating specifically the items of gross income, receipts, and
disbursements.

Treas. Reg. § 1.6001-1(e) states that the books or records required by this section shall be kept at
all times and made available for inspection to 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.

Revenue Ruling 59-95, 1959-1 C.B. 627, (Jan. 01, 1959) explains that an organization previously
held exempt from Federal income tax was requested to produce a financial statement as of the
end of the year and a statement of its operations during such year. However, its records were so
incomplete that it was unable to furnish such statements. Section 6033 of the IRC provides that
every organization, except as provided therein, exempt from taxation under section 501(a) of the
Code shall file an annual return, stating specifically the items of gross income, receipts, and
disbursements, and shall keep such records, render under oath such statements, make such other
returns and comply with such rules and regulations as the Secretary of the Treasury or his
delegate may from time to time prescribe.

GOVERNMENT'S POSITION:

The Organization has not provided evidence that they are operated exclusively for exempt purposes
within the meaning of Internal Revenue Code (IRC) section 501(c)(3) as a public charity.

The Organization was issued Letter 3611, Information Document (IDR) 1, IDR 2, and Publication 1
on April 20, 20XX. This correspondence requested information on your operations as an exempt
organization, your activities as an exempt organization, along with required filing of the annual Form
990 series information return (Form 990, Form 990-EZ, or Form 990-N) for 20XX. Under Treas.
Reg. 1.6001-(e), the exempt organization was required to provide books and records for . The
IRS was not provided books and records for 20XX as requested in IDR 1 and IDR 2.

The correspondence was returned as undeliverable to the IRS office.

On May 16, 20XX, a Letter was issued to , in care of .
The Letter included a Draft Audit Report that explained the
required Form 990 series to be filed with the IRS and proposed revocation if the return was not filed.
Under IRC § 6011, the tax return must be filed annually with the IRS to maintain tax exempt status.
The response date was June 13, 20XX. The Organization did not respond to the Audit Report by
telephone or in writing. The Organization did not complete and submit a Form 990 for year ending
December 31, 20XX.

Form 886-A (1-1994) Catalog Number 20810W Page 3 publish.no.irs.gov
Department of the Treasury-Internal Revenue Service
Issued June 22, 2018

[Page 6]

Form 886-A Schedule number or exhibit
(Rev. January 1994) EXPLANATIONS OF ITEMS

Name of taxpayer Tax Identification Number Year/Period ended
December 31, 20XX

As an exempt organization under IRC §501(c)(3), an annual return must be filed as provided under
IRC § 6033 and as explained in Rev. Ruling 59-95. In addition to the annual return, a request for
information under IRC §6011 that documents or substantiates the information on the annual return
be provided to the IRS as requested.

In conclusion, the Organization has failed to file an annual return and provide documents to
support the information on the annual return. They have not provided information showing they
continue to be exempt and should be revoked as an exempt organization under IRC §501(c)(3).
The revocation will be effective January 1, 20XX, with an annual Form 1120 required to be filed by
the due date with the IRS.

TAXPAYER'S POSITION:

The taxpayer's position on revocation of their exempt status is unknown. The taxpayer has been
notified by mail to provide information on their continued status as an exempt organization under
IRC §501(c)(3). The taxpayer has not contacted the Revenue Agent as listed in the
correspondence issued on April 20, 20XX and May 16, 20XX.

CONCLUSION:

      has not filed their annual Form 990 for tax year ending December 31,

20XX. The return was due May 17, 20XX, with no extensions to file requested for the 20XX year.
The Report showed the taxpayer is not meeting their status as an exempt organization under IRC
§501(c)(3), with revocation of their exempt status proposed effective January 1, 20XX. The taxpayer
will file a Form 1120 with the IRS beginning with tax year 20XX.

Form 886-A (1-1994) Catalog Number 20810W Page 4 publish.no.irs.gov
Department of the Treasury-Internal Revenue Service
issued June 22, 2018