Revocation of 501(c)(3) status for failure to produce records for audit

Plain-English summary

The IRS revoked the tax-exempt status of an organization that had been
recognized under section 501(c)(3) after filing the short Form 1023-EZ.
When the IRS selected the group for a routine audit to confirm its
activities matched its approved exempt purpose, the organization never
produced the requested records. The Form 886-A audit report documents a
long trail of mailed letters (several returned undeliverable) and phone
calls: the president repeatedly promised documents, then said none would
be sent because the organization had closed, and finally asked the IRS to
revoke the exemption and agreed to the revocation. Because the group did
not show it was organized and operated exclusively for exempt purposes and
did not meet the recordkeeping and information-return duties of sections
6001 and 6033, the IRS revoked its status under the reasoning of Revenue
Ruling 59-95 (inability to produce required records can end an exemption).
Once revoked, contributions are no longer deductible under section 170 and
the organization must file corporate income tax returns (Form 1120). This
document combines the final revocation letter (Letter 6337), the earlier
proposed-revocation letter (Letter 3618), and the Form 886-A audit
explanation.

Ruling snapshot

• Question: Should 501(c)(3) exemption be revoked when the
  organization failed to produce records to establish it operates for
  exempt purposes?
• Outcome: Revoked (taxpayer agreed to revocation)
• Key authorities: IRC §§ 501(c)(3), 6001, 6033, 511, 170; Treas. Reg.
  §§ 1.501(c)(3)-1(a)(1), (c)(1), 1.6001-1, 1.6033-1(h)(2); Rev. Rul.
  59-95

Full text (IRS public release)

Department of the Treasury                    Date: July 19, 2021
Internal Revenue Service
Tax Exempt and Government Entities            Taxpayer ID number:
Number: 202240022

Release Date: 10/7/2022

Form:
Tax periods ended:

Person to contact:
Name:
ID number:
Telephone:
Fax:
UIL: 501.03-00

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: You did not produce
documents to establish that you are organized and operated exclusively for exempt purposes within the meaning
of IRC Section 501(c)(3), and that no part of your net earnings inure 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. 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.

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.

Letter 6337 (12-2020)
Catalog Number 74808E


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

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:

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,

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: 05/01/2020
Internal Revenue Service                      Taxpayer ID number:
Tax Exempt and Government Entities
IRS

Form:
Tax periods ended:

Person to contact:
Name:
ID number:
Telephone:
Fax:
Address:

Manager's contact information:
CERTIFIED MAIL - Return Receipt Requested          ID number:
Telephone:
Response due date:

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 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,

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 Exhibit
Explanation of Items
Name of Taxpayer          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 produce records?

Facts:
The Organization 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        , 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 provide requested documentation to the Internal Revenue Service to perform an
audit of Form        for the tax year        .

The Form 1023-EZ application list the phone number of        for        , President of        .

- Correspondence for the audit was as follows:
    - Letter 3606, EO Examination Appointment and Information Document Request Transmittal (Rev. 6-2012)
      with attachments, was mailed to the organization on        , with a response date of        . The letter
      requested organizational documents, publications, meeting minutes, delinquent returns, and financial
      records. This letter was returned by the post office as unable to be delivered as addressed.

    - Letter 3844-A, Correspondence Audit Follow Up (Rev. 12-2015) with attachments, was mailed certified
      to new addresses found in        for the Organization and the President, on        . The letters had a
      response date of        , the letter was signed and received by an unknown party and returned unopened
      and noted "not deliverable as addressed".

    - Letter 3844-A, Correspondence Audit Follow Up (Rev. 12-2015) with attachments, was mailed certified
      to new addresses found in        for the President, and Officers who were listed on the Form 1023-EZ,
      Streamlined Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue
      Code. The letter had a response date of        . Per the United States Postal Service (USPS) tracking,
      the letter was signed and received by the President (        ) and        of the Officers (        ). The
      remaining letters were return undeliverable or unclaimed.

    - Form 4564 Information Document Request (IDR), with attachments, was mailed certified to the        ,
      President, per phone conversation, on        , with a negotiated response date of        .

    - Letter 5077-B, TE/GE IDR Delinquency Notice (1-2017), with attachments, was mailed certified to both
      confirmed addresses for        , Officer and        , President on        , with a response date of        .
      The certified return receipt was signed and returned by        officers.

    - Form 4564 (IDR) with enclosed exchange of documents was mailed to the both confirmed addresses for
              , President and        , Officer on        .

- Telephone contact for the audit was as follows:
    -         , Tax Compliance Officer (TCO) called the phone number listed on the Form 1023-EZ application
      for the President of        and received VMS. Left a message for the president of the organization to
      return my phone call.

    -         , TCO called the phone number listed on the Form        tax year ending        application for the
      President which was the same number listed on the        application, received VMS and again left a
      message for the president to return my phone call.

    -         , TCO received a call from        , President. Address was verified and letters, attachments Pub 1,
      and the exam process were discussed. The president agreed to have all requested documents mailed by
              .

    -         , TCO attempted phone call to        , President and received VMS. Left a message for president to
      return my call.

    -         , TCO called president. President state she has not mailed any documents due to the recent
      holidays and requested additional time. TCO stated she will discuss with manager and return her call for
      request for additional time.

    -         , TCO returned call to president and received VMS. Left message that manager allowed until
              for all documents to be mailed.

    -         , TCO received a call from the president stating she will not be sending any documentation due to
      the organization is now closed. The TCO discussed termination and revocation and the steps involved
      with each. The president stated she will not be taking the actions needed for termination and that she
      prefers the agency revoke the organization's exemption status and she will sign and agree to the
      revocation.

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.

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(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.

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.

Organization's Position
Taxpayer's position is to agree to the revocation. The president stated the organization is closed and not
operating, however will not be taking the needed steps to terminate the organization.

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 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: -6-