The IRS revokes a 501(c)(3) organization's exemption because it never conducted any activities and would not let the IRS examine its records

Plain-English summary

The IRS revoked a charity's tax-exempt status under section 501(c)(3). The organization had been formed to take over another entity that appeared to be winding down, but once that situation was resolved the new organization never had to step in and simply never did anything. It had no activities, no revenue, no bank account, and never even adopted bylaws, and it was planning to dissolve. When the IRS examined it, the organization failed to produce documents or otherwise show that it was organized and operated exclusively for exempt purposes, and it did not respond to repeated requests to let the IRS look at its records. Because an exempt organization must actually operate for charitable (or other listed) purposes and must let the IRS inspect its books, the IRS concluded the organization flunked the operational test and revoked the exemption. Contributions to it are no longer deductible under section 170. The practical lesson: a 501(c)(3) that goes dormant and does not respond to an audit can lose its exemption even without any wrongdoing.

Ruling snapshot

• Question: Can 501(c)(3) exemption be sustained when the organization conducted no activities and failed to produce records or respond to the IRS examination?
• Outcome: revocation (fails the operational test; effective a redacted date)
• Key authorities: IRC §§ 501(a), 501(c)(3), 170, 6001, 6033(a)(1); Treas. Reg. §§ 1.501(c)(3)-1(a)(1), (c)(1), 1.6033-2(i)(2); Rev. Rul. 59-95

Full text (IRS public release)

Scanned document; transcribed from the IRS release with obvious OCR errors corrected. Redactions (blank spaces and dates removed by the IRS under section 6110) are left blank.

Department of the Treasury
Internal Revenue Service
IRS Tax Exempt and Government Entities

Date: July 26, 2022

Taxpayer ID number:
Number: 202304015
Release Date: 1/27/2023

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: Organizations described in IRC Section 501(c)(3) and exempt from tax under Section 501(a) must be both organized and operated exclusively for exempt purposes. You have failed to produce documents or otherwise establish that you are organized and 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, 6033(a)(1), Treasury Regulation Section 1.6033-2(i)(2) and Revenue Ruling 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
400 Second Street, NW
Washington, DC 20217

U.S. Court of Federal Claims
717 Madison Place, NW
Washington, DC 20439

U.S. District Court for the District of Columbia
333 Constitution Ave., NW
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:

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,

Lynn A. Brinkley
Acting Director, Exempt Organizations Examinations

Enclosures:
Publication 1
Publication 594
Publication 892

Letter 6337 (12-2020)
Catalog Number 74808E

Department of the Treasury
Internal Revenue Service
IRS Tax Exempt and Government Entities

CERTIFIED MAIL — Return Receipt Requested

Dear

Why you're receiving this letter

Date: 10/26/2021

Taxpayer ID number:
Form:
Tax periods ended:

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

Manager's contact information:
Name:
ID number:
Telephone:
Response due date:

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.

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

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.

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,

For Sean F. O'Reilly
Director, Exempt Organizations Examinations

Enclosures:
Form 886-A
Form 6018

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

Form 886-A Department of the Treasury — Internal Revenue Service Schedule number or exhibit

Explanations of Items

Name of taxpayer Tax Identification Number (last 4 digits) Year/Period ended

Issues:

Whether (the Organization) qualifies for exemption from federal income tax under Internal Revenue Code (IRC) §501(c)(3).

Facts:

was incorporated as a nonprofit corporation on in the state of using the generic Articles of Incorporation provided on the Secretary of State's website. was granted exemption as an IRC §501(c)(3) public charity, effective . In response to the IDR issued on and the interview conducted on the following information was received from regarding its history:

was formed to take over the which appeared to be in the process of suspending their operations. These issues with the were resolved and only remained to step in if needed. has not conducted any activities since its formation.

As such, does not have any books and records, has no bank account and never created a set of bylaws.

is planning to dissolve and file a final tax return for the tax year ending

Activities:

had no activities, no revenue sources and was not operating 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, as described in IRC §501(c)(3) during the tax year ended

Law:

IRC §501(c)(3) exempts from income tax entities 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 (but only if no part of its activities involve the provision of athletic facilities or equipment), or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private shareholder or individual, no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation (except as otherwise provided in subsection (h)), and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office.

Treas. Reg. §1.501(c)(3)-1(a)(1) states, "In order to be exempt as an organization described in §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 or operational test, it is not exempt."

Treas. Reg. §1.501(c)(3)-1(c)(1) states 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.

Taxpayer's Position:

Taxpayer's Position has not been provided.

Government's Position:

Based on the examination results and the facts listed under the heading of this report, fails the operational test as stated in Treas. Reg. 1.501(c)(3)-1(a)(1) and as such does not qualify for exemption under IRC §501(c)(3).

Conclusion:

does not qualify for exemption from federal income tax as it failed to substantiate that it is operated exclusively for one or more exempt purposes due, resulting in its failure to comply with the requirements of IRC §501(c)(3) and Treas. Reg. §1.501(c)(3)-1(c)(1).

It is the Government's position that failed to operate exclusively to accomplish or more of such exempt purposes specified in IRC §501(c)(3). Because was not operated exclusively for the exempt purpose under IRC §501(c)(3), its Federal tax-exempt status under such section should be revoked effective is liable for filing Form , U.S. Corporation Income Tax Return, and paying any related tax liabilities for the tax year ended and all years thereafter.

Catalog Number 20810W Page 2 www.irs.gov Form 886-A (Rev. 5-2017)