IRS revokes a charity's 501(c)(3) status after it failed to produce records substantiating its exempt purpose

Plain-English summary

A § 501(c)(3) organization (which appears to run gaming, raffle, and meal
fundraisers connected to youth sports) was selected for audit. The IRS made
repeated attempts by mail and phone to obtain its records. A treasurer eventually
spoke with the examiner and answered questions about the group's fundraising
events, membership dues, and gaming income, but the organization never produced
the receipts, bank records, or ledgers needed to substantiate the amounts on its
return, and it had not filed a required annual return for the audit year. Because
tax law (IRC §§ 6001 and 6033) requires exempt organizations to keep records and
let the IRS examine them, and the group did not establish that it was organized
and operated exclusively for exempt purposes, the IRS revoked its exemption. As a
result, contributions are no longer deductible under § 170 and the organization
must file corporate income tax returns (Form 1120). This document bundles the
final revocation (Letter 6337), the proposed revocation (Letter 3618), and the
Form 886-A audit report, which includes the examiner's interview notes. Names,
dates, and dollar figures were redacted by the IRS.

Ruling snapshot

• Question: Should a charity's § 501(c)(3) exemption be revoked when it fails to produce records substantiating that it meets the organizational and operational tests?
• Outcome: Revocation (final adverse determination)
• Key authorities: IRC §§ 501(c)(3), 511, 6001, 6033(a)(1), 170; Treas. Reg. §§ 1.501(c)(3)-1, 1.6001-1, 1.6033-1(h)(2), 1.61-1; Rev. Rul. 59-95

Full text (IRS public release)

Department of the Treasury                          Date: May 17, 2021
Internal Revenue Service
Tax Exempt and Government Entities                  Taxpayer ID number:

Form:

Tax periods ended:

Release Number: 202233018

Release Date: 8/19/2022                             Person to contact:
UIL Code: 501.03-00                                 Name:
                                                    ID number:
                                                    Telephone:
                                                    Fax:

CERTIFIED MAIL - RETURN RECEIPT REQUESTED
Dear

Why we are sending you this letter
This is a final determination that you don't 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
          . Your determination letter dated          , 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 IRC Section 501(a) must be both organized and operated
exclusively for exempt purposes. You have failed to produce documents to establish that you are operated
exclusively for exempt purposes and that no part of your net earnings inures to the benefit of private
shareholders or individuals. You failed to respond to repeated reasonable requests to allow the Internal
Revenue Service to examine your records regarding your receipts, expenditures, or activities as required by IRC
Sections 6001 and 6033(a)(1) and Rev. Rul. 59-95, 1959-1 C.B. 627.

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.

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

What you must do if you disagree with this determination
If you want to contest our final determination, you have 90 days from the date this determination letter was
mailed to you to file a petition or complaint in one of the three federal courts listed below.

How to file your action for declaratory judgment

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.

Please contact the clerk of the appropriate court for rules and the appropriate forms for filing an action for
declaratory judgment by referring to the enclosed Publication 892, How to Appeal an IRS Determination on
Tax-Exempt Status. You may write to the courts at the following addresses:

United States Tax Court        U.S. Court of Federal Claims    U.S. District Court for the District of Columbia
400 Second Street, NW          717 Madison Place, NW           333 Constitution Ave., N.W.
Washington, DC 20217           Washington, DC 20439            Washington, DC 20001

Letter 6337 (12-2020)
Catalog Number 74808E

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).

Information about the IRS Taxpayer Advocate Service

The IRS office whose phone number appears at the top of the notice can best address and access your tax
information and help get you answers. However, you may be eligible for free help from the Taxpayer Advocate
Service (TAS) if you can't resolve your tax problem with the IRS, or you believe an IRS procedure just isn't
working as it should. TAS is an independent organization within the IRS that helps taxpayers and protects
taxpayer rights. Contact your local Taxpayer Advocate Office at:

Internal Revenue Service
Taxpayer Advocate Office

Or call TAS at 877-777-4778. For more information about TAS and your rights under the Taxpayer Bill of Rights,
go to taxpayeradvocate.irs.gov. Do not send your federal court pleading to the TAS address listed above. Use
the applicable federal court address provided earlier in the letter. Contacting TAS does not extend the time to
file an action for declaratory judgment.

Where you can find more information
Enclosed are Publication 1, Your Rights as a Taxpayer, and Publication 594, The IRS Collection Process, for
more comprehensive information.

Find tax forms or publications by visiting www.irs.gov/forms or calling 800-TAX-FORM (800-829-3676).
If you have questions, you can call the person shown at the top of this letter.

If you prefer to write, use the address shown at the top of this letter. Include your telephone number, the best
time to call, and a copy of this letter.

Keep the original letter for your records.

Sincerely,

[illegible signature]

Sean E. O'Reilly
Director, Exempt Organizations Examinations

Enclosures:
Publication 1
Publication 594
Publication 892

Letter 6337 (12-2020)
Catalog Number 74808E

Department of the Treasury                          Date: [illegible]/2020
Internal Revenue Service                            Taxpayer ID number:
IRS Tax Exempt and Government Entities

Form:

Tax periods ended:

Person to contact:
Name:
ID number:
Telephone:
Fax:
Hours:
Manager's contact information:
Name:
ID number:
Telephone:
Response due date:

12/21/2020

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

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

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.

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).

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

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

Sincerely,

[illegible signature]

for Sean E. O'Reilly
Director, Exempt Organizations
Examinations

Enclosures:

Form 886-A

Form 6018

Form 4621-A
Publication 892
Publication 3498-A

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

Form 886-A          Department of the Treasury - Internal Revenue Service          Schedule No. or
Explanation of Items                                                               Exhibit
                                                    Year/Period Ended
Date of Notice:
Issues:
Whether          (the organization), which qualified for exemption from
Federal income tax under Section 501(c)(3) of the Internal Revenue Code, should be
revoked due to its failure to provide records substantiating the organization meets the
organizational and operational tests?

Facts:

          applied for tax-exempt status by filing the Form          ,
Streamlined Application for Recognition of Exemption Under Section 501(c)(3) of the
Internal Revenue Code, on          and was granted tax-exempt status as a
501(c)(3) on          with an effective date of

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 was selected for audit to ensure that the activities and operations align
with their approved exempt status.

The organization failed to respond to the Internal Revenue Service attempts to obtain
information to perform an audit of Form          for the tax year
The organization has not filed a Form          series return for the tax year
The organization attested on Form          , 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.

The          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).

Form 886-A (Rev. 4-68)          Department of the Treasury - Internal Revenue Service
Page: -1-

Form 886-A          Department of the Treasury - Internal Revenue Service          Schedule No. or
Explanation of Items                                                               Exhibit
                                                    Year/Period Ended
The Form          application list the phone number of          for the treasurer
of

•  Correspondence for the audit was as follows:

•  Letter 3611, EO Initial Appointment - No Prior Contact, (Rev. 8-2019) with
attachments, was mailed to the organization on          with a
response date of          . This letter was not return by the post office
as being undeliverable.

•  Letter 3844-A, Correspondence Audit Follow Up, (          ), with
attachments, was mailed to the President, on          with
a response date of          . This letter was not returned by the post
office as being undeliverable.

•  Letter 3844-A, Correspondence Audit Follow Up, (          ), with
attachments, was mailed to the Treasurer, on
with a response date of          . This letter was not returned by the post
office as being undeliverable.

•  Letter 5077-B, TE/GE IDR Delinquency Notice, (Rev. 1-2017) TE/GE IDR
Delinquency Notice, was mailed to the President, on
with a response date of          . This letter was not return by the
post office as being undeliverable

•  Letter 5077-B, TE/GE IDR Delinquency Notice, (Rev. 1-2017) was mailed to
the Treasurer, on          , with a response date of
          . This letter was not return by the post office as being undeliverable

•  Telephone contact for the audit was as follows:

•          , Tax Compliance Officer (TCO) received a call from the
phone number listed on the Form          application for the Treasurer of
          . The caller identified herself as          .          advised
that          had stepped down as the Treasurer of the organization.
          stated that the current President is          and the
Treasurer is          .          advised that the address showing for the
entity is her home address.          stated          would contact the President and
Treasurer and pass on the correspondence to them.          also would advise
them to submit F8822-B for an address change.

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

Form 886-A          Department of the Treasury - Internal Revenue Service          Schedule No. or
Explanation of Items                                                               Exhibit

                                                    Year/Period Ended

•          through external research located a different phone number for
the current treasurer,          of          . When calling this
phone number at          (          ) TCO was advised by a          that
          was not available and TCO would need to call back in the evening. TCO
attempted call again at          (          ). There was no answer, TCO left first
and last name, call back number, identification number and tour of duty on
voice mail requesting a call back.

•          through external research located a different phone number for
          president,          of          . When calling this phone number
TCO was advised that there was no person named          available the
number belongs to

•          at          (          ), who identified          as
the current EO treasurer left a voicemail on TCO's phone line requesting a
call back at

•          at          (          ), TCO contacted          by phone.
After completion of disclosure probes to confirm          was
authorized as the EO treasurer the following items were discussed:

Q: The tax return shows fundraising events in the amount of $          . What are these
events? Schedule G reports only one fundraising event,          . What exactly is
this? Why are there no expenses reported for this event on the Schedule G? Should some
of the expenses reported as other expenses be assigned to this fundraising event?

A: Tickets are sold for cash prizes which are awarded through a random drawing. The EO
has a copy of the state license for this. There is also a Raffle table in which bids are placed
on donated item. There is a meal involved with this event in which food and alcohol are
included. This is a          and over event. Details regarding the meal will be submitted.

Q: There is membership dues reported of $          . What are the cost of dues? Who is in the
membership? Are there specific criteria for members?

A: $          charge to each player associated with school, ages          through

Q: The tax return reports gaming activities of $          with expenses of $          for a net of
$          . The Schedule G reports this as Bingo and reports that it was not run with volunteer
labor. How exactly was this run and where?

A: All volunteer labor, will determine if 50/50 or bingo, does not believe there was actual
bingo.

Q: Schedule A only reports the membership income. Why are the other sources of income
not reported?

A: Will need to determine what all should be on here once she obtains financial records

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

Form 886-A          Department of the Treasury - Internal Revenue Service          Schedule No. or
Explanation of Items                                                               Exhibit

                                                    Year/Period Ended

Q: Will you be able to provide receipts for all expenditures shown on the tax return? Do
you keep a general ledger?
A: will need to research to see what is available

Q: Has Form          for tax period ended          been filed yet?
A: Will check with the accountant to see if the return has been filed and when.

          (Tres) agreed to have all items requested in by          or
will call back with a reason for the delay.          will also be submitting an 8822-B for an
address change.

•          TCO called          (Tres) at          (          ) to
follow up on submission of items due this date. The following items were
discussed:
Q: Has the return for tax year          been filed?

A: has not been filed yet. Tres. Is aware of potential for late filing penalty

Q: Are you aware that a Form          can be used to file for this organization rather than a
Form          ?

A: Yes, we discussed that previously.

Q: What are you waiting to get in order to submit documentation for validation of amounts
reported on the year of audit?

A: Do not have copies of checks, have statements from the bank. TCO agreed to allow
          to notate on the bank statement          items are and where they are reported on the
tax return if she is unable to obtain copies of the checks.

Q: When can you get this information in by?
A:

•          TCO left a voicemail on          on          (Tres) phone for a call
back regarding the status of items that were to be submitted on
•          TCO left a voicemail on          on          (Tres) phone for a call
back regarding the status of items that were to be submitted on

Law:

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

Form 886-A          Department of the Treasury - Internal Revenue Service          Schedule No. or
Explanation of Items                                                               Exhibit

                                                    Year/Period Ended

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.

IRC §511 of the Internal Revenue Code imposes a tax at corporate rates under section 11
on the unrelated business taxable income of certain tax-exempt organizations.

IRC §6001 of the Code provides that every person liable for any tax imposed by this title,
or for the collection thereof, shall keep such records, render such statements, make such
returns, and comply with such rules and regulations as the Secretary may from time to
time prescribe. Whenever in the judgment of the Secretary it is necessary, he may require
any person, by notice served upon such person or by regulations, to make such returns,
render such statements, or keep such records, as the Secretary deems sufficient to show
whether or not such person is liable for tax under this Title.

IRC §6033(a)(1) of the Code provides, except as provided in section 6033(a)(2), every
organization exempt from tax under section 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 internal revenue laws as the Secretary may
by forms or regulations prescribe, and 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.

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
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

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

Form 886-A          Department of the Treasury - Internal Revenue Service          Schedule No. or
Explanation of Items                                                               Exhibit

                                                    Year/Period Ended

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.

Regulation §1.501(c)(3)-1(c)(1) of the regulations provides that an organization will not be
regarded as "operated exclusively" for one or more exempt purposes described in section
501(c)(3) of the Code if more than an insubstantial part of its activities is not in furtherance
of a 501(c)(3) purpose. Accordingly, the organization does not qualify for exemption under
section 501(c)(3) of the Code.

Regulation §1.6001-1(c) of the Code provides that 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 1.6033-3.

Regulation §1.6001-1(e) of the Code provides that the books or records required by this
section shall be kept at all time available for inspection by authorized internal revenue
officers or employees, and shall be retained as long as the contents thereof may be
material in the administration of any internal revenue law.

Regulation §1.6033-1(h)(2) of the regulations provides that every organization which has
established its right to exemption from tax, whether or not it is required to file an annual
return of information, shall submit such additional information as may be required by the
district director for the purpose of enabling him to inquire further into its exempt status and
to administer the provisions of subchapter F (section 501 and the following), chapter 1 of
the Code and section 6033.

Regulation §1.61-1 of the regulations provides that Gross income means all income from
whatever source derived, unless excluded by law. Gross income includes income realized
in any form, whether in money, property, or services. Income may be realized, therefore, in
the form of services, meals, accommodations, stock, or other property, as well as in cash.

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,

Form 886-A (Rev. 4-68)          Department of the Treasury - Internal Revenue Service
Page: -6-

Form 886-A          Department of the Treasury - Internal Revenue Service          Schedule No. or
Explanation of Items                                                               Exhibit

                                                    Year/Period Ended

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.

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

Based on the above facts, the organization did not respond to verify that they are
organized and operated exclusively for one or more of the purposes specified in IRC
Section 501(c)(3). If an organization fails to meet either the organizational test or the
operational test, it is not exempt.

In accordance with the above-cited provisions of the Code and regulations under
sections 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 and to determine its liability for any
unrelated business income tax.

Section 1.6033-1(h)(2) of the regulations specifically state that exempt organizations
shall submit additional information for the purpose on enabling the Internal Revenue
Service to inquire further into its exempt status.

Using the rationale that was developed in Revenue Ruling 59-95, the Organization's
failure to provide requested information should result in the termination of exempt
status.

Conclusion:

Based on the foregoing reasons, the organization does not qualify for exemption under
section 501(c)(3) and its tax-exempt status should be revoked.

It is the IRS's position that the organization failed to establish that it meets the reporting
requirements under IRC §§ 6001 and 6033 to be recognized as exempt from federal
income tax under IRC § 501(c)(3). Furthermore, the organization has not established
that it is observing the conditions required for the continuation of its exempt status or

Form 886-A (Rev. 4-68)          Department of the Treasury - Internal Revenue Service
Page: -7-

Form 886-A          Department of the Treasury - Internal Revenue Service          Schedule No. or
Explanation of Items                                                               Exhibit

                                                    Year/Period Ended

that it is organized and operated exclusively for an exempt purpose. Accordingly, the
organization's exempt status is revoked effective          .

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

Form 886-A (Rev. 4-68)          Department of the Treasury - Internal Revenue Service
Page: -8-