501(c)(3) private foundation loses exemption after it went inactive; founder agreed to revocation

Plain-English summary

The IRS revoked the tax exemption of a small organization that had been recognized as a 501(c)(3) private foundation. To keep exemption, a 501(c)(3) must be both organized and operated exclusively for charitable, educational, or other exempt purposes. On audit, the IRS found the organization was inactive and had not carried on any substantial activity that accomplished an exempt purpose. During the examination the founder and treasurer explained that classifying the group as a private foundation had been an error (they had intended to be a public charity, and had actually filed the short-form public-charity return), but by that point the treasurer no longer wanted to continue the organization because of health reasons and there was no one to take over. The treasurer agreed with the IRS that revocation was appropriate. Because the group had been a private foundation as of the effective date, it remains a taxable private foundation until it formally terminates that status under section 507, must file both corporate income tax returns and Form 990-PF, and contributions to it are no longer deductible. This is a routine wind-down: an exempt organization that stops operating for its exempt purpose loses the exemption.

Ruling snapshot

• Question: Does an inactive organization still qualify for exemption under IRC § 501(c)(3) as a private foundation when it carried on no substantial exempt activity?
• Outcome: Revocation (agreed to by the organization)
• Key authorities: IRC §§ 501(c)(3), 509(a); IRC § 507 (termination of private foundation status)

Full text (IRS public release)

(Scanned document; OCR-proofread. Obvious scan misreads were corrected; wording is preserved verbatim, and redaction gaps left by the IRS appear as blank spaces or underscores. The taxpayer's name, which the IRS redacted throughout the header and body, appears to have been left in a few lines of the audit report; it is shown as [redacted] here to match the document's own redaction scheme.)

Department of the Treasury
Internal Revenue Service                                   Date: August 23, 2022
IRS Tax Exempt and Government Entities

Release Number: 202305014
Release Date: 2/3/2023
UIL Code: 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 have not
demonstrated that you are both organized and operated exclusively for charitable, educational, or other exempt
purposes within the meaning of IRC Section 501(c)(3). You were inactive and did not engage in any substantial
activity that accomplished one or more exempt purposes under IRC Section 501(c)(3).

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.

Because you were a private foundation as of the effective date of the adverse determination, you are considered
to be a taxable private foundation until you terminate your private foundation status under IRC Section 507.

In addition to your income tax return, you must also continue to file Form      , Return of Private Foundation
or Section 4947(a)(1) Trust Treated as Private Foundation, by the      of the      month after the end of
your annual accounting period.

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,
       A. Brinkley
Acting Director, Exempt Organizations Examinations

Enclosures:
Publication 1
Publication 594
Publication 892

Letter 6337 (12-2020)
Catalog Number 74808E


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Department of the Treasury
Internal Revenue Service                                   Date: 05/16/2022
IRS Tax Exempt and Government Entities

Response due date: 06-15-2021

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 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,

For Lynn A. Brinkley
Acting Director, Exempt Organizations Examinations

Enclosures:
Form 886-A
Form 6018

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


------------------------------------------------------------------------

Form 886-A                Explanation of Items

Issues:
Whether [redacted] (Organization) qualifies for exemption
of Federal income tax under Internal Revenue Code (IRC) Section (Sec.) 501(c)(3), as a private
foundation.

Facts:
The Organization filed Form      , Streamlined Application for Recognition of Exemption
Under Section 501(c)(3) of the Internal Revenue Code, on       . Internal
Revenue Service Letter         granted the organization exempt status under 501(c)(3) as a
private foundation on       , with an effective date of exemption on       .

The organization stated its mission in the Form      is to, "         "

The Form      , states the organization must be organized and operated exclusively to
further one or more         purposes. The form gives the applicant options to choose from and
the organization selected      of the         , "Charitable" and "Educational".

The organization selected line      of Part      — Foundation Classification, which states, "
        ."

The organization's main activities are displaying         , and         of past
        , and the sale of         that will protect the public and make them aware
of the organization's goal to name a         after a past         , most
members of the organization are         .

On       , the organization filed a Form      , Short Form Return of
Organization Exempt from Income Tax, for the period ending       .

The Agent during an interview with the Founder and Treasurer of the organization, asked,
given their activities, why         applied for exempt status as a foundation. The Founder and
Treasurer said it was an error,         thought         did apply for public charity.

Law:
Internal Revenue Code (IRC)
IRC Sec. 501(c)(3) provides that an organization organized and operated exclusively for
charitable or educational purposes is exempt from Federal income tax.

IRC Sec. 509(a) General rule - For purposes of this title, the term "private foundation" means a
domestic or foreign organization described in section 501(c)(3) other than—

1. an organization described in section 170(b)(1)(A) (other than in clauses (vii) and
   (viii));
(2) an organization which—
(A) normally receives more than      of its support in each taxable year from
    any combination of—
    (i) gifts, grants, contributions, or membership fees

Treasury Regulations (Treas. Reg.)

Organization's Position
The Organization's Founder and Treasurer has indicated agreement with Government's
position. While the organization may qualify for reclassification as a public charity, the Treasurer
does not want to continue with the organization due to health reasons.

Government's Position
It is the Government's position, [redacted] does not qualify
for exemption of Federal income tax under Internal Revenue Code (IRC) Section (Sec.)
501(c)(3), private foundation.

Under IRC Sec. 509(a), the general rule is the term "private foundation" means a domestic or
foreign organization described in section 501(c)(3) other than...those described in IRC Sec.
170(b)(1)(A)(i)-(vi) and (ix). Thus, making all IRC Sec. 501(c)(3) organizations private
foundations unless they are excepted.

In the facts above, the Treasurer selected charitable and educational as         purpose, but
instead of checking the appropriate line box         selected line      for private foundation in
error. This error does seem unintentional, as the Treasurer subsequently filed the Form
for a public charity and not Form      , Return of Private Foundation.

As indicated above the organization may qualify for reclassification as a public charity, the
Treasurer has indicated, due to health concerns         does not want to continue the organization,
and there is no one to else to continue in his place.

Treasurer has stated         agrees with Internal Revenue Service, that the revocation of the
organization exempt status is appropriate.

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, effective       .
(this is the date the exemption went into effect, and this is a short tax year).

Form      , U.S. Corporate Income Tax Return, returns should be filed for the tax periods
after       , and Form      , Return of Private Foundation.

Form 886-A (Rev. 4-68)