Exemption revoked for defective articles and failure to provide records

Plain-English summary

An organization had attested in its streamlined exemption application that its organizing document limited its purposes and properly dedicated its assets on dissolution. State records showed that the document did neither, so the organization had never satisfied the section 501(c)(3) organizational test. During an audit, the IRS repeatedly mailed information requests to an updated address and left numerous telephone messages, but the organization did not respond or produce records. The IRS concluded that the original application contained a material misrepresentation and that the organization also failed the reporting and recordkeeping requirements in sections 6001 and 6033. It revoked the exemption effective from the original exemption date.

Ruling snapshot

• Question: Could an organization retain section 501(c)(3) status when its articles failed the organizational test and it did not provide audit records?
• Outcome: Revocation, effective from the original exemption date
• Key authorities: IRC §§ 501(c)(3), 6001, and 6033; Treas. Reg. §§ 1.501(c)(3)-1 and 1.6001-1; Rev. Rul. 59-95

Full text (IRS public release)

Department of the Treasury ; 49
Internal Revenue Service Date: May 19, 2021

Tax Exempt and Government Entities Taxpayer ID number:
Number: 202242020

Release Date: 10/21/2022

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 are not organized
exclusively for one or more exempt purposes. Your articles of organization do not limit your purposes to one or
more exempt purposes. Your articles of organization also expressly empower you to engage, otherwise than as
an insubstantial part of your activities, in activities which in themselves are not in furtherance of one or more
exempt purposes. In addition, your assets are not dedicated to an exempt purpose. You have also failed to
produce documents to establish that you are 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) as well as 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.

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 .7
Director, Exempt Organizations Examinations

Enclosures:
Publication 1
Publication 594
Publication 892

Letter 6337 (12-2020)
Catalog Number 74808E

Department of the Treasury Date:
Internal Revenue Service February 25, 2020
Tax Exempt and Government Entities

I S Taxpayer ID number:

Form:
Tax periods ended:

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

Address:

Name:
ID number:

Dear : Telephone:
Response due date:
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.

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,

for Maria Hooke
Director, Exempt Organizations Examinations

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

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

Name of Taxpayer Year/Period Ended

Whether the exempt status of (the Organization) under IRC §
501(c)(3) should be revoked, effective because it is not organized
exclusively for exempt purposes within the meaning of section 501(c)(3) and Treas. Reg. §
1.501 (c)(3)-1(b)?

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 respond and produce records?

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 ; , scientific, , or
and to and

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

The organization attested on Form , part II, box 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.

They 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) or that they did not need an express dissolution provision
in your organizing document because they rely on the operation of state law in the state in
which you are formed for your dissolution provision.

The organizing documents obtained from the State of do not limit the purpose of
the Organization to or more exempt purposes nor does it contain a proper dissolution
clause.

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

Name of Taxpayer Year/Period Ended

The Tax Compliance Officer (TCO) made several attempts to contact the Organization
to request that it conform its organizing documents. Specifically, the TCO attempted to
contact Organization by letter on occasions sent to the address on record. On
, the officer made telephone contact with the Organization’s
Secretary, and was informed that the Organizations
address was not used and instead provided with the Secretary’s
home address of .

The TCO proceeded with renegotiating a due date of

On , Letter 3611, Form 4564 Information Document Request and
Publication 1 was sent United States certified mail (tracking #
). Certified letter was signed for on at . No response

from organization was received.

On , Letter 3844-A, Letter 3611 and Form 4564 /nformation
Document Request was sent United States certified mail (tracking #

). Certified letter was signed for on at . No
response from organization was received.
On , Letter 5077-B, Letter 3611and Form 4564 Information Document
Request was sent certified mail (tracking # ).
Delivery attempt was made on at . Letter being returned to

sender due to failure to pick-up.

The officer also called a representative of the Organization on occasions. The officer
received no response to the letters or to the voice mail messages.

Telephone contact for the audit was as follows:

On , Tax Compliance Officer (TCO called the phone
number listed on Form with a tax year ending (number also
corresponds with the number listed on Form ) for the Secretary of

[ ]. A message was left with TCO credentials on the voicemail for
the officer of the organization to return my call.

On a call was received from organization Secretary to
TCO Voicemail.

On TCO returned call to organization and during call was
informed that the organization no longer utilizes the address listed on the and had
not received the Letter 3611, Information Document Request Form 4564 or Publication 1.
A new address , the home address of the
organization Secretary was obtained, and organization Secretary was

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

Name of Taxpayer Year/Period Ended

informed that new copies of Letter 3611, Form 4564 and Publication 1 would be promptly

mailed out Certified Mail. TCO and Secretary renegotiated a due
date of .
On , TCO called the phone for the Secretary of

. A message was left with TCO credentials on the voicemail for
the officer of the organization to return the call.

On , TCO called the phone for the Secretary of
]. A message was left with TCO credentials on the voicemail for
the officer of the organization to return the call.

On , TCO called the phone for the Secretary of
. A message was left with TCO credentials on the voicemail for the officer
of the organization to return the call.

On TCO called the phone for the Secretary of
[ ]. A message was left with TCO credentials on the voicemail for the officer
of the organization to return the call.

On TCO researched and found a possible number for the possible
President of [ ]. A message was
left with TCO credentials on the voicemail for the officer of the organization to return the
call.

On TCO received a phone call from the number previously called for the
potential organization President and informed by an individual that the
number does not belong to

On TCO called the phone for the Secretary of
[ ]. A message was left with TCO credentials on the voicemail for the officer
of the organization to return the call.

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.

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

Name of Taxpayer Year/Period Ended

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
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

Form 886-Aev.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

Name of Taxpayer Year/Period Ended

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,
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.

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

Name of Taxpayer Year/Period Ended

Rev. Proc. 2019-5, Sec 11.02 (3) Inaccurate information on request. A determination
letter issued to an organization that submitted a request in accordance with this revenue
procedure may not be relied upon by the organization submitting the request if it was
based on any inaccurate material information submitted by the organization. Inaccurate
material information includes an incorrect representation or attestation as to the
organization’s organizational documents, the organization’s exempt purpose, the
organization’s conduct of prohibited and restricted activities, or the organization’s eligibility
to file Form

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

Based on the above facts and law, the Organization has not established that its organizing
documents limiting the purpose of the organization to one or more exempt purpose, or a
proper dissolution clause that meet the organizational test under IRC section 501 (c)(3), at
the time of applying for tax exemption.

If an organization fails to meet either the organizational test or the operational test, it is
not exempt.

The Organization fails the organizational test because it did not establish that it had an
organizing document that complied with section 501(c)(3) at the time of applying for tax
exemption. Because it never had an organizing document that meets the requirements
of section 501(c)(3), and because it misrepresented that fact in its Form , the
revocation is effective as of the date of exemption,

Furthermore, 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 forms, 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

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
Name of Taxpayer Year/Period Ended
status.
Conclusion:

Based on the foregoing reasons, it is the IRS's position that the organization failed to
establish that it meets the organizational test as required IRC §§ 501(c)(3) for it to be
exempt from federal income tax under IRC § 501(c)(3). It is also 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 , 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: -7-