Revocation of 501(c)(3) status for failing the operational test and not keeping or producing records

Plain-English summary

The IRS revoked the tax-exempt status of a charity that had been
recognized under section 501(c)(3) as a public charity. The organization's
stated purpose was to help poor and underprivileged children, funded
mainly by collecting donated cars, other vehicles, electronics, and
household goods, selling them, and using the proceeds for charitable aid.
On audit, the organization did not provide books, records, or testimony.
Working from Department of Justice information, internet ads, public
records, and bank statements, the examiner found no evidence the group
actually gave funds or goods to needy families, and the organization's CEO
stated there were no records to support income, expenses, or
contributions and orally agreed to the revocation. The IRS concluded the
organization failed the operational test (it was not shown to operate
primarily for exempt purposes) and failed its recordkeeping and
information-return duties under sections 6001 and 6033. Under Revenue
Ruling 59-95, failing to keep required records or comply with section 6033
can itself justify revocation. Because status is revoked, contributions
are no longer deductible under section 170 and the organization must file
regular income tax returns. 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 the organization's 501(c)(3) exemption be revoked
  when it failed the operational test and could not produce books and
  records?
• Outcome: Revoked (final adverse determination; taxpayer orally
  agreed)
• Key authorities: IRC §§ 501(c)(3), 6001, 6033, 170; Treas. Reg. §§
  1.501(c)(3)-1(a)(1), (c)(1), 1.6001-1, 1.6033-2; Rev. Rul. 59-95

Full text (IRS public release)

Department of the Treasury                    Date: August 26, 2021
Internal Revenue Service
IRS Tax Exempt and Government Entities         Taxpayer ID number:

Number: 202240027
Release Date: 10/7/2022

Form:

Tax periods ended:

Person to contact:
Name:
ID number:
Telephone:
UIL: 501.03-00                                 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: You have not
established that you are operated exclusively for an exempt purpose within the meaning of IRC
Section 501(c)(3). You have failed to keep and retain records to determine whether you have been operating in
accordance with the requirements for organizations exempt under IRC Section 501(c)(3), and to provide records
to the Internal Revenue Service upon reasonable requests as required by IRC Sections 6001 and 6033(a)(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.

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

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.

Letter 6337 (12-2020)
Catalog Number 74808E

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: October 27, 2021
Internal Revenue Service                      Taxpayer ID number:
IRS Tax Exempt and Government Entities

Form:
Tax periods ended:

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

Manager's contact information:
Name:
ID number:
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.

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


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.

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.

Enclosures:
Form 886-A
Form 4621-A
Form 6018
Publication 892
Publication 3498

Sincerely,

Director, Exempt Organizations
Examinations

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


Form 886-A          EXPLANATION OF ITEMS          Schedule number or exhibit
Name of taxpayer          Tax identification Number          Year/Period ended

ISSUE
Whether exemption under Internal Revenue Code (IRC) 501(c)(3) should be revoked since it does not meet the
operational test and was unable to produce books and records?

FACTS
        has not provided documentation or testimony for the audit. All of information reviewed and
discussed below came from the Department of Justice (        ), the internet, public
records, etc.
        incorporated with the Secretary of State on        with the directors
listed as        ,        and        . The organization's articles of incorporation
states that its purpose was to provide relief to poor, underprivileged children.        articles
specify that the means of providing such relief includes, but not limited to, receiving funds from the
general community by soliciting support from individual contributors.

        filed a Statement of Information with the Secretary of State of        reporting
        ,        , and        were Officers for        on        .        dissolved on
        .
On        ,        filed and received authority from Secretary of State to operate in        .
        became the registered agent for        on        .
        filed Form        on        for        . Form        , Part II, states that the
organization's purpose is to provide relief to        and
planned to        by        , and payment of
expenses and fees for recreational activities. The funding for above activity would be from
donations of automobiles, land, other motorized vehicles, electronic equipment, and household
furnishings.        would sell these items to the general public and the proceeds would be used to
carry out the organization's purpose.        planned to advertise its services in newspapers, radio,
billboards, fliers, TV, and selective mailings and would use volunteers for tutoring, providing
transportation and leadership for        , soliciting individuals and businesses for
donations, and doing miscellaneous errands.        received exemption under IRC 501(c)(3) as a
public charity with an effective date of        .

FORM
The Form        had a due date of        .        filed the Form        on
        . The statute is        . No return has been filed for        .

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


Form 886-A          EXPLANATION OF ITEMS          Schedule number or exhibit
Name of taxpayer          Tax identification Number          Year/Period ended

The Form        reported the following income and expenses:

Contributions, Gifts, Grants, & Similar        —
Amounts

Expenses:

Salaries        $
Professional Fees
Occupancy
Printing
Other Expenses:
Advertising & Promotion
Information Technology
Insurance
DMV
Office Expense
Other Fees
Postage & Shipping
Towing
Travel

Total Expenses        $

Net Loss        (        )

Form        , Schedule        , states that the primary exempt purpose of        is to provide
        and organizations that help those with the things they need most.
Also, on Schedule        , discusses its program service accomplishments and states, "
        were given away.        operates a program
focused on receiving donated        , them to working order and giving to        .

ADVERTISING VEHICLES
        advertises on        ,        , and        . Some of the ads on
        state the        can be viewed at        in        and that
money from the sale will be donated to non-profit providing        , clothing and
transportation to        in need. Other ads state, "
        The ads on
        states, "

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


Form 886-A          EXPLANATION OF ITEMS          Schedule number or exhibit
Name of taxpayer          Tax identification Number          Year/Period ended

BANK ACCOUNT
On        ,        became primary signer on        and        was removed as authorized signer on account. In        ,
some of the cancelled checks list        as the Payor instead of        .
A review of bank statements and deposited items shows that        deposited checks from selling
autos to        and made cash deposits ranging from $        to $        in        . The
deposits per bank statements totaled $        in        . The income reported on the return totaled
$        . It's unknown what the difference is for, however,        advertised and sold cars at
        and used the services of individuals who were
not compensated by        .
A review of cancelled checks showed that        did not make any contributions to
charities or        .

ATTEMPTS TO CONTACT
Sent letter 3611, Form 4564, and Publication 1 on        . The letter was returned
as undeliverable. A postal tracer was sent to        , and the post office
indicated that        moved and left no forwarding address.
On        , the agent called the last known telephone number listed on        for
        and left a message for        to call me. The call was not returned. Letter 3611 was
sent on        to        via regular and certified mail. The certified card was
signed and returned on        . The tracking information on        
Service website, shows that the letter was delivered on        and left with an
individual.        was the deadline to respond to letter 3611. A response was not
received from        .
On        , the agent talked to        of        .        stated        does not
have any documentation to verify income, expenses or contribution of vehicles to needy families.
The agent informed        that exempt status will be revoked because it was not operating
for an exempt purpose.        orally agreed to the revocation.

LAW
IRC Section 501(c)(3) exempts from taxation any corporation organized and operated exclusively
for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to
foster national or international amateur sports competition, or for the prevention of cruelty to
children or animals, provided no part of the net earnings of which inures to the benefit of any
private shareholder or individual.

Treasury Regulation Section 1.501(c)(3)-1(a)(1) provides that in order to be exempt as an
organization described in IRC Section 501(c)(3), an organization must be both organized and

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


Form 886-A          EXPLANATION OF ITEMS          Schedule number or exhibit
Name of taxpayer          Tax identification Number          Year/Period ended

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 or operational test, it is not exempt.

Treas. Reg. 1.501(c)(3)-1(c)(1) provides that an organization will be regarded as operated
exclusively for one or more exempt purposes only if it engages primarily in activities which
accomplish one or more of such exempt purposes specified in 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.

IRC § 6001 provides that every person liable for any tax imposed by the IRC, 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.

Treas. Reg. 1.6001-1(a) states that any person subject to tax under subtitle A of the Code or any
person required to file a return of information with respect to income, shall keep such permanent
books of account or records, including inventories, as are sufficient to establish the amount of
gross income, deductions, credits, or other matters required to be shown by such person in any
return of such tax or information.

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 officers or employees, and shall be
retained as long as the contents thereof may be material in the administration of any internal
revenue law.

IRC 6033(a)(1) provides, except as provided in IRC § 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.

Treas. Reg. 1.6033-1(h)(2) 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 IRC § 6033.

Section 1.6033-2(i)(2) of the Income Tax Regulations provides, in part, that every organization
which is exempt from tax shall submit such additional information as may be required by the
Internal Revenue Service for the purposes of inquiring into its exempt status.

Revenue Ruling 59-95, 1959-1 CB 627, provides that a failure to file required information return or
comply with the provision of section 6033 of the Code and the regulations which implement it, may

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


Form 886-A          EXPLANATION OF ITEMS          Schedule number or exhibit
Name of taxpayer          Tax identification Number          Year/Period ended

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 an exempt status.

GOVERNMENT'S POSITION
In order to qualify for exemption under IRC 501(c)(3), an organization must be both organized and
operated exclusively for one or more of the purposes specified in that section. If an organization
fails to meet either the organizational test or the operational test, it is not exempt. Treas. Reg. §
1.501(c)(3)-1(a)(1).        has shown it met the organizational test.

An organization will be regarded as operated exclusively for one or more exempt purposes only if
it engages primarily in activities which accomplish one or more of such exempt purposes specified
in 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.        exempt purpose was to provide
relief to the poor, underprivileged, and        or organizations by providing food,
clothing,        , and payment of fees and expenses for recreational activities or to
provide        to families in need. A review of cancelled checks and bank statements from
        showed that        did not give funds to        organizations. Also,        has not shown it donated
        in need.        did not provide any documentation to verify that it operated
exclusively for exempt purposes under IRC 501(c)(3), therefore, it failed the operational test and
is not exempt under IRC 501(c)(3).

IRC 6001 requires        to keep records and file returns, Treas. Reg. 1.6001-1(a) requires        to
keep permanent books of accounts or records to establish income, deductions, credits, etc.,
Treas. Reg. 1.6001-1(e) requires        to have books available for inspection by IRS employees,
and Treas. Reg. 1.6033-1(h)(2) requires        to submit information as requested for purposes of
inquiring about its exempt status. We attempted to obtain these records numerous times by mail
and telephone.        failed to provide records as is required in these sections. In Rev. Rul.
59-95, an organization's failure or inability to file required information returns or otherwise to
comply with the provisions of IRC 6033 and the regulations which implement it, may result in the
termination of the organization's exempt status based on the grounds that the organization has not
established that it is observing the conditions that are required for the continuation of its exempt
status.        has not complied with IRC 6001 or 6033 and the corresponding regulations,
therefore, exempt status should be revoked as of        .

TAXPAYER'S POSITION
        , CEO of        , does not have any records to support income, expenses or
contribution of        to needy        and orally agreed to the revocation.

Form 886-A (1-1994)          Catalog Number 20810W          Page 5          publish.no.irs.gov          Department of the Treasury-Internal Revenue Service


Form 886-A          EXPLANATION OF ITEMS          Schedule number or exhibit
Name of taxpayer          Tax identification Number          Year/Period ended

CONCLUSION
By not complying with the Code and Regulations, the organization has jeopardized its exempt
status.        has failed to provide required documentation, thereby failing to be compliant with the
Code, and failing to show any evidence of its exempt activities. We have no reason to believe that
        is operating for exempt purposes.

As a result of the examination, we have determined that        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 with an effective date of        .

Since the organization will no longer have tax-exempt status beginning in        , they are liable for
filing Form        , Income Tax Return, as of that date.

Form 886-A (1-1994)          Catalog Number 20810W          Page 6          publish.no.irs.gov          Department of the Treasury-Internal Revenue Service