IRS revokes a 501(c)(3)'s exemption, finding it ran a commercial behavioral-health business, was not a church, and let earnings inure to its officers

View official IRS release (PDF)

Plain-English summary

This is a final adverse determination revoking an organization's 501(c)(3) exemption after a church tax inquiry and examination under Section 7611. The group was recognized as a charity but later reported to the IRS that it was a church. The IRS found its primary activity was providing behavioral health services billed to a third-party payer, operated in a commercial manner like the many for-profit companies offering the same services. Its religious activities appeared secondary and incidental, and it could not show the usual attributes of a church (regular congregation, distinct membership, recurring worship, records). The examiner also found that organization funds flowed to the officers and their family members: cash used to buy real estate held in the president's name, a wire transfer abroad described as a gift, and a payment toward a daughter's student loan. Because the group was operated for a substantial nonexempt commercial purpose and part of its earnings inured to private individuals, and because it did not keep or produce adequate records, the IRS revoked the exemption effective a redacted date, ended deductibility under Section 170, and directed it to file Form 1120.

Ruling snapshot

• Question: Should the organization's 501(c)(3) exemption be revoked for operating a commercial behavioral-health business, failing to qualify as a church, and allowing inurement to officers and their families?
• Outcome: Revocation of exempt status
• Key authorities: IRC §§ 501(c)(3), 170, 511, 513, 4958, 6001, 6033, 6104(c), 7428, 7611; Treas. Reg. § 1.501(c)(3)-1(a),(c),(e),(f); Living Faith, Inc. v. C.I.R.; De La Salle Institute v. U.S.; Unitary Mission Church of Long Island v. C.I.R.; Church of Scientology of California v. Commissioner; Association for Honest Attorneys v. Commissioner

Full text (IRS public release)

Department of the Treasury Date:

Internal Revenue Service September 28, 2022
IRS Tax Exempt and Government Entities Taxpayer ID number (last 4 digits):

Form:

Tax periods ended:
Release Number: 202317022
Release Date: 4/28/2023 Person to contact:

Name:
UIL Code: 501.03-00 ID number:

Telephone:
Fax:

Last day to file petition with United States
Tax Court:

December 27, 2022
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 both organized and operated exclusively for charitable, educational, or other exempt purposes within the meaning of IRC Section 501(c)(3). Additionally, your primary activity is the provision of behavioral health services. You are operated in a commercial manner with substantial income-producing activities that are of a kind normally conducted by nonexempt commercial entities. You have not established that you continue to qualify for tax-exempt status as a church or that your church activities were not secondary and incidental to your overall operations. Furthermore, part of your earnings inured to the benefit of your officers and their family members, which constitutes inurement prohibited under IRC Section 501(c)(3). As such, you failed to meet the requirements of IRC Section 501(c)(3) and Treasury Regulations Section 1.501(c) (3)-1(a).

Organizations that are not exempt under Internal Revenue Code (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 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 can file an action for declaratory judgment under the provisions of Section 7428 of the Code in either:

• The United States Tax Court,
• The United States Court of Federal Claims, or
• The United States District Court for the District of Columbia

Letter 6337 (Rev. 8-2022)
Catalog Number 74808E

You must file a petition or complaint in one of these three courts within 90 days from the date we mailed this determination letter to you. You can download a fillable petition or complaint form and get information about filing at each respective court's website listed below or by contacting the Office of the Clerk of the Court at one of the addresses below. Be sure to include a copy of this letter and any attachments and the applicable filing fee with the petition or complaint.

You can eFile your completed U.S. Tax Court petition by following the instructions and user guides available on the Tax Court website at ustaxcourt.gov/dawson.html. You will need to register for a DAWSON account to do so. You may also file your petition at the address below:

United States Tax Court
400 Second Street, NW
Washington, DC 20217
ustaxcourt.gov

The websites of the U.S. Court of Federal Claims and the U.S. District Court for the District of Columbia contain instructions about how to file your completed complaint electronically. You may also file your complaint at one of the addresses below:

US Court of Federal Claims

717 Madison Place, NW

Washington, DC 20439

uscfc.uscourts.gov

US District Court for the District of Columbia
333 Constitution Avenue, NW

Washington, DC 20001

dcd.uscourts.gov

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.

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:

Internal Revenue Service
Taxpayer Advocate Office

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.

Letter 6337 (Rev. 8-2022)
Catalog Number 74808E

Find tax forms or publications by visiting 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.

You may fax your documents to the fax number shown above, using either a fax machine or online fax service. Protect yourself when sending digital data by understanding the fax service's privacy and security policies.

Keep the original letter for your records.

Sincerely,

[signature]

Acting Director, Exempt Organizations Examinations

Enclosures:

Publication 1

Publication 594
Publication 892

Form 886-A and Exhibits

cc.

Letter 6337 (Rev. 8-2022)
Catalog Number 74808E

Form 5701
Department of the Treasury - Internal Revenue Service

Notice of Proposed Adjustment

Name of taxpayer | Issue number
Name and title of person to whom delivered | Date
Entity for this proposed adjustment | Response due

Based on the information we now have available and our discussions with you, we believe the proposed adjustment listed below should be included in the revenue agent's report. However, if you have additional information that would alter or reverse this proposal, please furnish this information as soon as possible.

Years | Amount

Account or Return Line

SAIN Number | UIL Code

Revocation of exempt status under IRC Sec. 501(c)(3)

Reasons for proposed adjustment (If the explanation of the adjustment will be longer than the space provided below, the entire explanation should begin on Form 886-A (explanation of items))

See Form 886-A, Explanation of items, and Exhibits enclosed.

Taxpayer's/Representative's action

[ ] Agreed [ ] Agreed in part [ ] Disagreed [ ] Have additional information; will submit by

Taxpayer's/Representative's signature Date
If disagreed in part or in full - check here for consideration of Fast Track Settlement

[ ] Taxpayer [ ] IRS

Team Manager Date

Catalog Number 42770J
www.irs.gov
Form 5701 (Rev. 4.2019)

Form 886-A, EXPLANATIONS OF ITEMS (Exhibits)
Name of taxpayer | Taxpayer ID | Tax year ended
Issues

1. Whether ( , or
   ) is operated primarily for carrying on an unrelated trade or business purpose that do not further its exempt purpose under Internal Revenue Code (IRC) Section (sec.) 501(c)(3)?

2. Whether the religious body and activities are secondary and incidental
   to its overall operations that disqualify its status as a church?

3. Whether unaccountable paychecks or reimbursements, cash withdrawals, and
   benefits flowing to the officers and their family members constitute inurement prohibited under IRC sec. 501(c)(3)?

4. Whether the organization is operated exclusively for exempt purposes, or
   whether its status as an organization exempt under IRC sec. 501(c)(3) should be revoked effective ?

Facts
Purpose of Formation

The was formed in . The Article of Incorporation states that the purpose of the is "

Form 1120 Filed for through

The filed Forms 1120, U.S. Corporation Income Tax Return, for and . The Form 1120 is a return. The Form 1120 reports minimal activity ($ gross receipt, and a net loss of $ ). Schedule K, Other Information, of Form 1120 reports that its business activity and services:

Exempt Status

The applied for tax exemption in . Schedule A of Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code, did not indicate that it possesses a written creed, formal code of doctrine, religious history, and other characteristics of a church. Part IV, Narrative Description of Your Activities, of Form 1023, in part, provides that

is a nonprofit organized and
operated exclusively for charitable purposes. Specifically, this organization has been formed to educate the public on subjects useful to the individual and beneficial to the community and to provide relief to the poor, distressed and underprivileged.... Our team was founded by . We realize our board of directors is complied of families. This is the only team we have and trust. All money in and out will be documented on paper and shown publicly through our books. It is written in our by-laws that no director will be allowed to take any compensation at any time. We look forward to providing safety and security to those in need. No profit will be expected or accepted.

The organization received a letter of determination, dated , recognized as an exempt organization under IRC sec. 501(c)(3) and public charity status under IRC sec. 170(b)(1)(A)(vi).

Fictitious Firm Name

On , , President of the organization, filed an application to that the organization is conducting business in this county under a fictitious firm name, ( ).

Provider Enrollment Application
On , the organization enrolled in for providing
under taxonomy code , in
which a provider is defined as:

The application was submitted by with other providers linked to the organization: and

Website and Premises

The organization's website is at . Its
premises was at . It moved to the current location
in , see Exhibit A-1 for its webpages and
image captures of its premises.

Form Filed for through
Forms were filed for tax years with the same taxpayer ID as the
. Forms were signed by as President. She is also
listed as the person who "possesses the organization's books and records." The Forms report the following information:

| Salaries/employee benefits
| Revenue less Expenses
| Total Assets (cash)
| Total Liabilities
| Net Assets/Fund Balance

Part I Section 1 of Forms describes the organization's mission or most significant activities —

Information reported by State of

Form 1099-MISC, Miscellaneous income, filed by State of indicated that the organization received annual payments from : $ ( ),
$ ( ), and $ ( ).

Notice of Church Tax Inquiry (NCTI)

On , Letter 5307, Notice of Church Inquiry, with attachments were issued to the organization expressing the concerns that the organization received all or a majority of its income for medical payments from , and the organization's religious activities were merely incidental to the organization's other functions and activities and are, therefore, insufficient to demonstrate that the organization was a " " for tax purposes. Additionally, the salary expense reported on Form was not fully reported on any Form 941, Employer's Quarterly Federal Tax Return, Form W-2, Wage and Tax Statement, or Form 1099-MISC.

Form 2848
On provided a Form 2848, Power of Attorney and
Declaration of Representative, stating he was an Enrolled Agent (EA). However, his EA status was invalid and thus we are not communicating with him on this case.

Initial Responses to Church Tax Inquiry
On and , provided the following information and
documents in response to the church tax inquiry:

e Answers to the church tax inquiry questions
e Flyer for " " event scheduled on
e Invitation for " " event scheduled on
e Introduction of the organization and what it does e The organization's statement on warfare and freedom e Photos taken in the organization's event e Flyer for " " event scheduled on

Follow-up Notice of Church Tax Inquiry

On , Letter 5308, Follow-up Notice of Church Inquiry, with attachments were issued to notify the organization that a complete response to the Notice of Church Tax Inquiry was not received. The letter listed omitted items and extended the organization's response time to the church tax inquiry.

Supplemental Response to Church Tax Inquiry
On , the organization provided supplemental information in writing to answer the church tax inquiry questions.

Notice of Church Tax Examination (NCTE)

On , Letter 5309, Notice of Church Examination, with attachments were issued to notify the organization that a church tax examination was being approved. The letter offered the organization a pre-examination conference to discuss and attempt to resolve concerns before the examination begins.

Pastor of the organization, stated that it did not receive the Letter 5309. On
, the letter and attachments were resent by mail to the organization's new address. On , confirmed receipt of the Letter 5309 and attachments.

Pre-examination Conference
On , a pre-exam conference was scheduled on . On
and joined the pre-examination
conference held by the EO Examinations staff to discuss the concerns of church tax inquiry. The concerns raised in the NCTI and NCTE remained after the conference.

Examination of Form
On , Letter 3611 was issued to the organization, enclosed with a form 4564, Information Document Request (IDR#1), began an audit of Form

Decline to Sign Form 872

From to , verbal communications were made between the Examiner and on the organization's difficulties to retain representation, the organization's questions and preparation of documents for IDR, the 3rd party contact rules, and whether the organization consents to extend the time to assess tax. On stated that the organization will not sign any documents, including Form 872, provided by the IRS, but the organization will submit the documents in response to IDR.

Response to IDR#1

On , in response to IDR#1, the organization provided the documents below with a statement to explain why the organization was not able to provide other documents requested on IDR#1: Many official materials and transactions sent to via . e A List of Providers with their (see discussion on Page through ) e A Leaflet of with introduction of its services e Minutes of Board Meeting dated and e bank statements for of the organization's account (Account #
) at ( )
e bank statements for of / account
( ) at
e Pay Stubs for medical service providers: ($ ),
($ ), ($ ), and ($ )
e petty cash logs for reporting period from to
($ ) and from to ($ )
e pages of worksheets named "Detail Sheet Expenses" and "Expenditure / Expenses Analysis", the information on the worksheets is summarized in the table below.

[Table: Type | Amount | Explanations. Amounts redacted. Rows as printed:]

• Gas for transporting clients — $ per day (fueling of operational vehicles including volunteers' vehicles)
• Rent — $ per for including lot at
• Feeding of clients and the needy — $ per day (and to the need)
• office renovation including Partitioning
• Computers expenses — Computers including biofeedback equipment
• Furnitures — Furnitures including chairs, tables, file cabinets, and shelves
• Student assistance program — Student/Scholarship assistance
• Welfare laundry expenses
• Welfare housing assistance expenses
• New vehicle purchases for program use — Vehicles
• Light bill expenses — Utilities
• Water bill expenses — Utilities
• bill expenses — Utilities
• Payment to public services — Utilities
• Repair expenses for
• Program travel expenses — Utilities
• Payments to workers / subcontractors
• Payment to other payroll
• Welfare housing assistance for clients
• for clients other
• expenses in collaboration with of
• Clients study books / bible — Bibles, tracts, and children ministry books
• programs (Children Program, Program) marketing expenses for clients — Printing, Posters, and Marketing
• Total
• Explanations are abstracted from "Expenditure / Expenses Analysis"

Response to IDR#2
On , in response to IDR#2, the organization provided that its activities in general can be broadly broken down as Activities and , which are summarized as follows:

1. Activities
   [Table: Name of Activity/Program | Staff Engaged in Activity/Program | Occurrence to Staff | Wage Expenses of activity/expense | Records of Activity. As printed:]
   - Prayers / Services — $ - $ and — Records: None
   - Bible Study / Sunday School Teachers — $ — Purchases of the Bibles, printing of Sunday school bulletins, transportation allowance for workers, and writing materials for children Sunday School — Records: None
   - $ — Costs of handling and transportation for more than pounds of products - $ per day — Records: None
   - Visitation and occurrence program — $ — Costs of free given in nylon bags cannot be estimated — Records: None
   - Pastor with the sessions (assistance of the workers present in the service) Service — $ — Costs of utilities — Records: None
   - Spiritual counseling / The Department — $ — Costs of the Bibles purchases — Records: None
   - Welfare services — $ — Refer to Expenditure / Expenses Analysis — Records: None

2. ( )
   According to the leaflet of , the following services were provided to the public

The organization provided that all records associated with were submitted to for auditing and were never returned to the organization.

pieces of documents were enclosed with the organization's written response: certificates issued to (certificate of ordination and certificate of authority to solemnize marriages), and bulletin dated . For other source documents requested on IDR#2, the organization provided the statements below to explain why the requested documents were not provided:

e Receipts and documents lost in transit during office relocation. e The operators and personnel left the after the contract was put on hold by and documents lost. e The cash vouchers signed and approved by the Finance Officer were lost on transit during the relocation of the after the suspension of the contract by e The records were lost during relocation and as a result of suspension of contract with . e The materials requested were lost during the relocation of the and the suspension of the contract with and the workers were officially informed by the about the suspension and termination of contract. e The administrator who is in charge of issuing paycheck for salaries and petty cash for various operations was hospitalized and was signing checks on the sick bed at , , hence the alleged discrepancies.

Interview with the Organization's Officers

During an interview conducted on , president of the organization, claimed that all the organization's records and documents were stored in boxes and placed outside while the organization was relocated to the current address. The boxes and records were severely damaged in an overnight rain.

Further, the organization destroyed all the documents because these documents were no longer useful.

IDR#3
On , IDR#3 was issued to the organization to clarify the information provided by the organization and findings during the audit, including the following sales/purchases of real properties the organization's officers engaged in:
[Table: Date | Type of Transaction | Parcel Number | Type of Property | Address | Sale Price | Ownership. As printed:]

• Purchased — Commercial / Industrial
• Sold — Commercial / Industrial
• Purchased — Commercial / Industrial
• Purchased — Single Family Residence
• Purchased — Single Family Residence

Extension in Response to IDR#3 and Current Activities

On stated that there were missing pages in the
IDR#3 sent on. asked what's the worst scenario at the end of examination because they really don't have the records being requested. Examiner answered to him that examiner is still collecting information from the organization or from other sources. Outcome of examination will be determined when examiner has sufficient information for conclusion. Examiner asked if the organization is in operation. confirmed that the organization continues the following activities after it moved to the current location: e Prayer services - at am and at pm e - from to am ( changed to due to ) e Bible study - bible study from to pm Letter 5798, TE/GE Information Document Request Extension Notice, was sent with IDR#3 on the same date to the organization in response to request. Drive-By An Internal Revenue Agent in Small Business/Self-Employed (SBSE) Division conducted a drive-by on ( ), ( ), ( ), and ( ), see Exhibit A-2.

Form 2848 and Delinquent Notice

On , Representative, provided a Form 2848 to
represent the organization for the audit. The representative requested a conference call after his review of IDR#3. A conference call was scheduled on

Letter 5077-D, Delinquent Notice, was mailed to the organization, copied Representative.

Pre-summons Letter

On , the representative stated that the organization continued having difficulties gathering documents. The representative stated that he will assist the organization to respond to IDR#3 in writing. Letter 5077A, pre-summons letter, was mailed to the organization and the representative.

Decline to Respond to IDR

On , the organization's representative stated that, after his discussion with the organization's officers, they decided not to respond to IDR#3, because the organization has provided all the records it has. Examiner re-asked the representative, some questions on IDR#3 requested their explanations in writing, for instance, how could the president be able to purchase a real estate property in $ under her name with her salary income from the organization? The representative stated that he can provide a list of arguments to protect the organization's and/or exempt status, even from tax assessment, but will examiner accept it, and move forward? If not, he and the organization will choose to go to tax court directly, rather than responding to IDR.

Responses to 3rd Party Contacts
Letter 3164-E, 3rd Party Contact Notice, was issued to the organization on and , for the contact periods from through
, and through . 3rd party contacts were made
during the periods to verify or obtain information the organization was not able to provide. Letter 1995, Third Party Contact Letter to Request Information, was issued to the organization's workers. Among respondents, confirmed that they did not attend any activities. confirmed in writing that they had assisted
, confirmed that he volunteered as an usher. All did not provide specific information about the services, the size of congregation, the number of services, or other activities. provided phone number, but she did not respond to Examiner's follow-up call to clarify her written responses, see Exhibit A-3.

Bank Accounts, Authorized Signer(s), and Types of Transactions The organization used the following bank accounts for its operations and activities in
. The information is summarized from the organization's bank records (see Exhibit B). Credits and debits of these bank accounts are categorized by Wired Transfers In, Deposits of Cash, Deposits of Checks, Wired Transfers Out, Cash Withdrawals, Purchases made by Debit Card, and Checks Issued (see Exhibit B-1 through B-19). Transfers between these accounts and bank fees are not included.

Bank Account # (Last 4-Digit)
Opening Date
Account Name , dba
Authorized Signer(s)
Wired Transfers In
Deposits of Cash
Deposits of Checks
Wired Transfers Out
Withdrawals of Cash
Purchases made by Debit Card
Checks Issued

1. Wired Transfers In - The amount $ of wired transfers (Exhibit B-1)
   was all from ( ).

2. Deposits of Cash — No contemporaneous records show the source of $
   (Exhibit B-11) and $ (Exhibit B-6) cash deposits. claimed that the cash deposits were made to take care of payroll to avoid late payment and delay clearing checks.

3. Deposits of Checks (Exhibits B-6, B-12, & B-16) were from the individuals
   and entities below:
   - , dba
   o
   ( )
   a. According to , ( ) was initiated by the
   organization to obtain a - To help the elderly who need the help of caregivers and to be able to train volunteers to be licensed and work as Caregivers. b. , a Sole Proprietor, was of the medical providers listed in the organization's enrollment application submitted to . Effective and have been listed on the Office of Inspector General Exclusions List from under for years (see Exhibit C). c. or received $ payments from d. received $ gift from (Exhibit B-5 Page 2). e. , registered by , is the Director.
   , , and did not respond to Letter 1995.

4. Wired Transfers Out — Among the wired transfers out (Exhibits B-2, B-10),
   $ was wired to a title company to purchase a residential property, at
   , under name, $
   was wired to a foreign bank account in possessed by
   , the organization's president's as a gift. $ was sent to pay off of , the organization's president's
   . $ was transferred to personal bank
   account. The rest $ was wired to and
   accounts that could not be identified by the
   organization.

5. Cash Withdrawals - Among the cash withdrawals (Exhibits B-3, B-7, B-10, &
   B-13), $ was withdrawn by a) by
   / $ by or . The rest of
   $ cash was withdrawn by . The organization claimed
   that "the cash withdrawals are part of the petty cash vouchers used for Volunteers assistance in form of transport and personal needs".

6. Purchases made by Debit Card (Exhibits B-4, B-8 & B-14) — In addition to
   the payments to listed below, the purchases
   occurred at places including restaurants, gas stations, grocery stores, nails spas, and $ payments for college tuition and a student loan. The organization claimed that all debit purchases were for expenses. No contemporaneous records substantiate this claim.

With respect to , only payments show on bank statements.
[Table: Date | Account | Description | Amount. As printed:]

• Purchase at authorized on
• Purchase at authorized on
• Purchase at authorized on
• Purchase at on
• Purchase at
• Purchase at
• Purchase at authorized on
• Purchase
• Purchase at authorized on

7. Checks Issued - Except $ payments (Exhibits B-5 Page 3 & B-17) to
   ( ) which was claimed for training
   purpose, substantially all checks were issued to individuals or entities that were associated with operations. In response to IDR#2, the organization claimed that the differences between the total amount of checks issued to each worker and the amount reported on Form W-2 or Form 1099- MISC were the reimbursements to the workers for their expenses paid during their duties (job title listed below). Records that support reimbursement claims were not provided. The payees, total amount of checks issued, amount reported on Form W-2 or 1099-MISC, payees' job title at , and explanations to the differences are summarized below.

[Table: Payees of checks | Amount reported on W-2 and/or 1099-MISC | Amount of checks | Job title at | Explanation. Dollar amounts redacted. Job titles / notes as printed:]

• Temporary Driver — N/A — The discrepancy is a result of payments for rent and bills.
• Receptionist — N/A
• Volunteer/Student — N/A
• Driver
• After School Student
• Tech
• Case Manager
• Therapist — N/A — Not a Staff, assisted in the procurement of the materials.
• Consultant
• Quality Assurance
• Medical Director
• Office Assistant
• Tech.
• Driver
• Landlord (Property owner) — N/A
• Driver — N/A
• Therapist — N/A
• Therapist/Clinical supervisor
• Therapist
• Driver — N/A
• Tech. — N/A
• Driver — N/A
• Office Assistant — N/A
• Case Manager
• Therapist — N/A
• Front Desk Officer — N/A — The difference is a result of expenses.
• Driver — N/A
• Driver — N/A

Registration and Application of ( )
On , the organization registered through
( ) and received a : , as an organization
specializing in . The authorized official of this
record is , Secretary of the organization. The and medical specialization of the workers are listed above (see Exhibit D for the workers' profiles).
*Mandated by Health Insurance Portability and Accountability Act (HIPAA), a is a unique identification number for covered health care providers. Covered health care providers, all health plans, and health care clearinghouses must use in their administrative and financial transactions.

Services and Hours Billed to

submitted nearly claims for its units of services in billed to . Each unit is nearly equivalent to hour of services. Days of operation and hours of service in each are summarized (see Exhibit E, Page
). The records showed that provided services to its clients — days in

Nonresponsive to IDR#4 and IDR#5
The Service identified several properties that were purchased with the organization's funds but held in the name of the organization's officers. On , IDR#4, enclosed with escrow documents for the properties stated below, was issued to the organization and its representative. In addition to clarification of the organization's by-laws and conflict of interest policy, it asked for the organization to explain the purposes and usages of the real estate properties purchased under the name of
: at and

On , IDR#5, enclosed with escrow documents for the property stated below, was issued to the organization and its representative. IDR#5 asked for explanation of the organization's Form , a $ return, but Form filed by State of showed that the organization received $ from the state government in . It also asked for the purpose and usage of the real estate property

The information requested on IDR#4 and IDR#5 was due on and respectively. The organization or representative did not respond to IDR#4 and IDR#5.

Books, Records, and Unanswered Questions of the Organization The organization did not provide general ledger, journals, or any source documents that substantiate the source(s) of revenue and the purpose(s) of the expenses for
. Substantially all requests for information and documents from the organization on IDR#1 through IDR#5 remain outstanding, including the unanswered questions below:

1. Records or training materials of the organization's claimed activities, including
   baptism, marriage, and membership, programs for young children, school and discipleship, ; for , and explanations of each activity how does it further the organization's exempt purpose.
2. During an interview conducted on , the organization's president
   stated that all the organization's records and documents were placed and stored in boxes when the organization was moving to new location in . They put the boxes, with the organization's documents, outside the building. Later all the organization's records and documents were severely damaged in a heavy rain overnight. The records and documents were subsequently destroyed and disposed of. a. On what date was the organization moved to the current location? when did they find out the organization's records were damaged? and when did they destroy records? b. Did they take any remedial action to recover the damaged records? A description of the actions they took after the incident. c. The Check Up Provider Contract, the organization entered with ( ), required the organization maintain adequate medical, financial and administrative records for years from the date of payments. Did they report to the incident? If yes, what's the proof of the notification. If not, why.
3. The context of sales/purchases of properties of each real property listed
   below, the exempt purposes and usage history after its acquisition, and the proceeds of sale (or property exchange under IRC sec. 1031) from the property at a. (purchase) b. (purchase and sale) c. (purchase) d. (purchase)
4. On , the organization issued a payment of $ (check# ) to
   , the officers' daughter. On , the organization
   provided a petty cash log, prepared by for reporting period from to where she reported the cash advance for construction, partitioning, furniture, and office equipment, including computers. , the officers stated that the organization did not use any accounting software, spreadsheets or any sort of similar electronic format to collect data, to process information, and to keep the organization's books. a. What's the purpose of the computers? b. What information and documents were stored in the computers? c. Who were the users of the computers in ? Who has the custody afterward? Where are these computers now?
5. The organization's president received Form 1099-MISC from
   for her services performed during the years from
   through . Descriptions of her duties and of the training and experiences she received in this tax service was requested.
6. The organization filed Forms 1120 through . The Form 1120 is a
   zero-dollar return. The Form 1120 reported $ gross receipts,
   $ rents, other deductions $ , and a net loss of $ . Schedule K, Other Information, of Forms 1120 reported its business activity and services: a. What's the source of $ revenue? What were $ deductions? b. The business address of both Form 1120 returns, ;
   , was the same as the organization's address in .
   Descriptions of the organization's business and the activities conducted at this location were requested, including explanations if the organization's activities changed after it applied and received recognition of IRC sec. 501(c)(3) exempt status in
7. Schedule A of Form 1023 indicated that the organization does not possess a
   written creed, formal code of doctrine, religious history, and other attributes of a . Part IV, Narrative Description of Your Activities, of Form 1023, in part, provides that the organization is a charitable organization in general: is a nonprofit organized and operated exclusively for charitable purposes. Specifically, this organization has been formed to educate the public on subjects useful to the individual and beneficial to the community and to provide relief to the poor, distressed and underprivileged.... However, Form filed for and the years after claimed that the organization is a . An explanation in writing was requested as to the changes in methods of operation, activities, and the reason for deviation from what was described in the application.
8. What are the purposes and usages of the real estate properties after the
   acquisitions?
   a. In , $ ($ + $ ) of the organization's
   funds was used to purchase the real estate property at ,
   , under the name of the organization's President,
   . Third Party Escrow Instructions for Deposit of Funds show that these funds were not loan proceeds and were deposited in the referenced escrow for the benefit of as principal. b. In $ ($ + $ ) of the organization's funds was used to purchase the real estate property at
   , under the name of the organization's
   president, . This is the home address she used for filing her Form 1040, U.S. Individual Income Tax Return. c. In , $ of the organization's funds was part of the deposits to purchase the real estate property at ;
   , under the name of the organization's president,
   ( % interest), and ( % interest). The rest
   the deposits were from ($ ) and
   * ( ) provides services to investors defer tax due in connection
   with the sale of real property, enabling them to access their equity to consolidate, diversify, leverage or relocate their investments.

Law

Internal Revenue Code

Internal Revenue Code (IRC) sec. 501(c)(3) provides for exemption from Income Tax for corporations, and any community chest, fund, or foundation, 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

IRC sec. 7611(c)(1)(A) provides that the Secretary shall complete any church tax status inquiry or examination (and make a final determination with respect thereto) not later than the date which is 2 years after the examination notice date.

IRC sec. 7611(d)(1) provides that in general the Secretary may

(A) determine that an organization is not a church which — (i) is exempt from taxation by reason of section 501(a), or (ii) is described in section 170(c), or

(B) (i) send a notice of deficiency of any tax involved in a church tax examination, or (ii) in the case of any tax with respect to which subchapter B of chapter 63 (relating to deficiency procedures) does not apply, assess any underpayment of such tax involved in a church tax examination, only if the appropriate regional counsel of the Internal Revenue Service determines in writing that there has been substantial compliance with the requirements of this section and approves in writing of such revocation, notice of deficiency, or assessment.

Treasury Regulations

Treasury Regulations (Treas. Reg.) sec. 1.501(c)(3)-1(a)(1) provides 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.

Treas. Reg. sec 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.

Treas. Reg. sec 1.501(c)(3)-1(c)(2) provides that an organization is not operated exclusively for one or more exempt purposes if its net earnings inure in whole or in part to the benefit of private shareholders or individuals.

Treas. Reg. sec 1.501(c)(3)-1(e) states that an organization may meet the requirements of section 501(c)(3) although it operates a trade or business as a substantial part of its activities, if the operation of such trade or business is in furtherance of the organization's exempt purpose or purposes and if the organization is not organized or operated for the primary purpose of carrying on an unrelated trade or business, as defined in section 513. In determining the existence or nonexistence of such primary purpose, all the circumstances must be considered, including the size and extent of the trade or business and the size and extent of the activities which are in furtherance of one or more exempt purposes. An organization which is organized and operated for the primary purpose of carrying on an unrelated trade or business is not exempt under section 501(c)(3) even though it has certain religious purposes, its property is held in common, and its profits do not inure to the benefit of individual members of the organization.

Treas. Reg. sec 1.501(c)(3)-1(f)(2)(i) states that, regardless of whether a particular transaction is subject to excise taxes under section 4958, the substantive requirements for tax exemption under section 501(c)(3) still apply to an applicable tax-exempt organization described in section 501(c)(3) whose disqualified persons or organization managers are subject to excise taxes under section 4958. Accordingly, an organization will no longer meet the requirements for tax-exempt status under section 501(c)(3) if the organization fails to satisfy the requirements of paragraph (b), (c) or (d) of this section.

Treas. Reg. sec 1.501(c)(3)-1(f)(2)(ii) provides that, in determining whether to continue to recognize the tax-exempt status of an applicable tax-exempt organization (as defined in section 4958(e) and sec. 53.4958-2) described in sec. 501(c)(3) that engages in one or more excess benefit transactions that violate the prohibition on inurement under sec. 501(c)(3), the Commissioner will consider all relevant facts and circumstances, including, but not limited to, the following —

(A) The size and scope of the organization's regular and ongoing activities that further exempt purposes before and after the excess benefit transaction or transactions occurred;

(B) The size and scope of the excess benefit transaction or transactions (collectively, if more than one) in relation to the size and scope of the organization's regular and ongoing activities that further exempt purposes;

(C) Whether the organization has been involved in multiple excess benefit transactions with one or more persons;

(D) Whether the organization has implemented safeguards that are reasonably calculated to prevent excess benefit transactions; and

(E) Whether the excess benefit transaction has been corrected (within the meaning of section 4958(f)(6) and §53.4958-7), or the organization has made good faith efforts to seek correction from the disqualified person(s) who benefited from the excess benefit transaction.

IRC sec. 6033(a)(1) provides, except as provided in IRC sec. 6033(a)(2), every organization exempt from tax under § 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. The Secretary may also prescribe by forms or regulations the requirement of every organization to 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. sec. 1.6001-1(c) states that in addition to such permanent books and records as are required by paragraph (a) of this section with respect to the tax imposed by sec. 511 on unrelated business income of certain exempt organizations, every organization exempt from tax under sec. 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 sec. 6033.

Treas. Reg. sec 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 Service officers or employees, and shall be retained as long as the contents thereof may be material in the administration of any Internal Revenue law.

Court's Rulings

Living Faith, Inc. v. C.I.R., T.C. Memo. 1990-484 (1990)

The Court held that petitioner did not qualify as a tax-exempt organization because its sole activity the sale of health foods, was commercial in nature and that it therefore failed to satisfy the operational test of section 501(c)(3). Petitioner's activity was conducted as a business and was in direct competition with other restaurants and health food stores. Competition with commercial firms is strong evidence of a substantial nonexempt commercial purpose.

De La Salle Institute v. U.S., 195 F.Supp. 891 (1961)

The Court held that plaintiff did not qualify as a tax-exempt organization because the operation of the chapels at plaintiff's parochial schools and novitiate is incidental to plaintiff's principal activities, although very important to plaintiff's members. The tail cannot be permitted to wag the dog. The incidental activities of plaintiff cannot make plaintiff a church.

Unitary Mission Church of Long Island v. C.I.R., 74 T.C. 507 (1980)

In this case, there is no evidence in the administrative record of any differing duties that the minister performed over these years. There is also insufficient evidence in the record regarding some of the travel expenses paid to the minister and his wife and regarding two loans made to the minister's secular employer. Parsonage allowances of fluctuating amounts were also paid in some years to petitioner's other two ministers; yet, there is no evidence in the record about any services they performed for petitioner. The Court held that petitioner is not entitled to exemption from Federal taxation under IRC sec 501(c)(3), because a part of its net earnings inures to the benefit of private shareholders or individuals.

Church of Scientology of California v. Commissioner, 83 T.C. No. 25 (1984)

The Court held that petitioner, Church of Scientology, does not qualify for exemption from taxation under sections 501(a) and 501(c)(3) because it is operated for a substantial commercial purpose and because its net earnings benefit the founder, his family, and Operation Transport Services (OTC), a private noncharitable corporation controlled by key Scientology officials.

Association for Honest Attorneys v. Commissioner, T.C. Memo. 041 (2018)

The Court held that petitioner did not qualify for tax exemption because the net earnings of petitioner inured to the benefit of its CEO/president; petitioner operated primarily for the benefit of private rather than public interests; and more than an insubstantial part of petitioner's activities furthered nonexempt, private purposes.

Analysis
Days and Hours of Operation, Gross Profits and Workers Each

The information provided in Hours and Days of Operation (Exhibit E) and Workers Received Paycheck / Gross Profits each (Exhibit F) is summarized below.
[Table columns as printed: Days of Operation | Clients-Hours Served Billed | Hours of Operation | Clients-Hours Served per Day (Average) | Hours Served per Hour (Average) | Workers Received Paychecks | Costs of Operation | Profit / Gross Profits | Margin Ratio | Accum. Gross Profits. Values: illegible / redacted.]

• Checks issued in contained payments for renovation issued to ,
  ($ check # ) and unaccountable operation expenses issued to ($ checks # , # , # ). The information above shows that the organization's workforce is used in full or beyond its capacity for non- related operations in the same space and time that the organization claims use for services or activities in . In addition to the paychecks to the family, the operations create huge profits for the organization. There are nearly organizations in registered their in the same taxonomy — (Exhibit G). A large portion of these organizations are formed as a Limited Liability Company (LLC), a business structure that can combine the pass-through taxation of a partnership or sole proprietorship with the limited liability of a .

Attributes of Church
Certain characteristics are generally attributed to churches. These attributes of a church have been developed by the IRS and by court decisions. Each attribute is discussed below:

1. Distinct legal existence
   The organization was incorporated in in by
   ( after ). It has a legal existence as a
   in the Articles of Incorporation and
   By-Laws. However, as illustrated by the undocumented cash withdrawals, real estate transactions for personal use, and other benefits flowing to and her family members, the organization is operated as a private business of a few individuals. The distinct legal existence of the organization exists in paper only, but not in operation.

2. Recognized creed and form of worship

a. Creed
The organization did not provide a written creed or formal code of doctrine, but a general . The statement is published on its website and on its flyer for an event on . The passage, citing , and
. It draws readers' attention by bringing in hopes: At the end, it calls for actions: The published statements also include promotion of the organization's Spiritual counseling, welfare services and services.

b. Form of Worship
The organization provided that their form of worship is basically that entails , , and . Words of " " are printed on a bulletin dated , as a part of services, am to pm. Such wordings are printed on a flyer for an event, offering free snacks and soft drinks, on , pm to pm.

Such form of worship might occur in the events. However, the organization failed to provide any other records or forms of communications to show such worship was recurring outside of the one event that occurred in of
. Alternatively, there is ample evidence that the organization engaged in behavioral and welfare services on behalf of . The organization's limited worship services, when compared to its numerous hours of services billed to , show that its worship services are secondary or incidental to its overall operations.

3. Definite and distinct government
   The organization provided the statement below to show this attribute: the Board of Directors with the Chairman as the head; The Pastor is the Spiritual Director; Assistant Pastors in charge of the folds Ministries- , Welfare, Healing, Counseling and ; Director for Administration, Workers. The organization also provided its minutes dated and
   . The meetings began with prayers. The minutes discuss various activities, staff and volunteers, financials, projects and business reports, and the associated expenses. While the organization appears to be governed by an government. A closer look shows the organization's operations are focused on its dba, . As stated above, the organization failed to document the mentioned activities, financials, projects, and financial reports as it claims all documentation perished in a rain. Furthermore, as proved the fact that % of the organization's income is from and the substantial expenses on activities and staff, the government is merely or incidental to its overall operations.

4. Formal code of doctrine and discipline
   The organization failed to provide a specific code of doctrine and discipline in the every-day behavior of the congregants of the

5. Distinct religious history
   The organization claimed that it is a , an inter denominational established as a welfare and ministry. The organization described aspects of the ministry to elaborate its religious history:
   ,
   services are conducted by the pastor with the assistance of the workers present in the service. Workers like the Choirs, Ushers, and Instrumentalists. service is like a " " open to those who want to receive freedom from and therefore, there are no permanent attendees and no specific number.
   [Welfare] is a affair[s] and done between the hours of am to pm...Sign post, group preaching and fellow up, in House Announcement are done through the bulletin and open announcement on the pulpit during and services. The planning and operations of the welfare committee is supervised by the and the council. In the and the community.

The organization failed to provide any other records or forms of communications show such worship was recurring outside of the one event that occurred in of

All respondents to Letter 1995, Third Party Contact Letter to Request Information, did not mention the service. respondents confirmed that they assisted free . is also one of service items. Bank records show that transactions in a total amount of $ expenses on services throughout
. Based on the facts of this case, services appear to be secondary or incidental to its overall operations.

6. Membership that is not associated with any other or denomination
   The organization's initial response claimed that it has members. The organization's response was later changed to members in response to IDR#2. The organization failed to provide records or information to establish to show where the claimed number of members comes from. The organization failed to provide records or information to establish who its members were, how to contact them, what was their attendance, whether members were unassociated with other , how often they met, or document any other purely religious services.

7. Organization of ordained ministers
   The organization stated that it has an ordained minister with license to conduct marriages. Certificates of minister ordination and authority to solemnize marriage were provided to support this statement. However, except for flyer and bulletin, the organization failed to provide any income, expenses, or other records to substantiate that any weddings, baptisms, or other religious ceremonies had ever been conducted by a minister of the organization. On the other hand, the organization's registered records show, the minister has registered his as a and received compensation for his services to

8. Ordained ministers selected after completing prescribed courses of study
   The organization stated that it does not license ministers.

9. Literature of its own
   In response to this attribute, the organization stated that, "

10. Established places of worship
    The organization claimed that it leased an established place of worship. The image captures of building front at show that the place is a clinic-like building with only one entrance. The place allows only one person to get in or out at a time. Such a place does not appear to allow for large gatherings of people at the same time. The organization's place of worship was at the same location where the organization provided services. The claims submitted by the organization to showed that was in operation on in . The organization failed to provide information to establish that the meeting place could accommodate religious gathering or that such gathering did, in fact, occur. The claimed worship, prayer services, and other activities did not appear to take place when a SBSE Agent conducted a drive-by for observation.

11. Regular congregations
    The organization claimed that it had a regular congregation with groups of administrative personnel and volunteers/workers in the programs. The organization claims that the size of its membership is or members, and their regular attendance on service is members on average. The organization provided no records to substantiate these numbers. No explanation was given on how this group of people share the same place with clients and workers on the in . The organization has not established that its meeting location could accommodate people meeting at the same time. Bank records show only individuals or entities issued checks to the organization as contributions, besides the family. Analysis of available information shows that the organization's workforce, time, and space are used in full or beyond its capacity for operation. The organization failed to establish that its congregation, as claimed by the organization, did not consist of mostly clients receiving behavioral services. Gathering of such congregation did not appear when the SBSE Agent conducted drive-by during its scheduled service.

12. Regular religious services
    The organization claimed that its services are on ; for Bible studies and special prayers; and -Welfare program with open to all. The organization has not provided records to establish these activities. As shown by its full range of health services being used for operation, the organization's religious services are incidental. The observation of SBSE Agent during her drive-by shows that the organization's religious services are not regular.

13. Sunday schools for the religious instruction of the young
    The organization stated that it has "no school for the religious instruction of the young. But in in collaboration with , the conducted Day Treatment program for young children that need help in learning and social activities". Checks of one organization's bank account are printed with the program of " " symbol. The day care program is considered business as it was assisted by , which is not a part of activities.

14. Schools for the preparation of its members
    The organization claimed that it has "
    . The organization shares educational
    and religious program with the
    ( ). Compared with the organization's expenses on
    services, the organization's $ training expenses paid to are secondary or incidental to its overall operations.

Considerations under Treas. Reg. sec 1.501(c)(3)-1(f)(2)(ii)

The Treas. Reg. section above provides that, in determining whether to continue to recognize the tax-exempt status of an applicable tax-exempt organization (as defined in section 4958(e) and sec. 53.4958-2) described in sec. 501(c)(3) that engages in one or more excess benefit transactions that violate the prohibition on inurement under sec. 501(c)(3), the Commissioner will consider all relevant facts and circumstances, including, but not limited to, the following —

(A) The size and scope of the organization's regular and ongoing activities that further exempt purposes before and after the excess benefit transaction or transactions occurred; The organization's activities that promote exempt purposes have been minimal throughout . The bulk of activities have focused on the behavioral services which were not established to be conducted for exempt purposes. The organization provided similar services and received substantial payments from in and . Escrow documents show potential excess benefit transactions also occurred in . The organization's claim of regular and ongoing activities did not appear to take place in the organization's current premises when a SBSE Revenue Agent conducted drive-by on
, , and

(B) The size and scope of the excess benefit transaction or transactions (collectively, if more than one) in relation to the size and scope of the organization's regular and ongoing activities that further exempt purposes; The size and scope of the excess benefit transactions are large, frequent, and excessive. In addition, the size and scope of established exempt activities appear to be secondary or incidental to its overall operations and small when compared to transactions that inured to the benefit of the organization's officers.

(C) Whether the organization has been involved in multiple excess benefit transactions with one or more persons; The organization has been involved in multiple excess benefit transactions with major officers. There have been several incidences where organization funds have been used to purchase property for officers of the organization. The organization has failed to establish that cash and expenses were not used for the benefit of the organization's officers. There are additional incidences of benefits that also flow to the officers' family members.

(D) Whether the organization has implemented safeguards that are reasonably calculated to prevent excess benefit transactions; and No indications show that the organization has implemented safeguards that are reasonably calculated to prevent excess benefit transactions.

(E) Whether the excess benefit transaction has been corrected (within the meaning of section 4958(f)(6) and §53.4958-7), or the organization has made good faith efforts to seek correction from the disqualified person(s) who benefited from the excess benefit transaction. No indications show that the excess benefit transaction has been corrected.

All relevant facts and circumstances have been considered and summarized in the bold scripts above.

Government's Position on Issues

1.
It is the Government's position that the organization is operated primarily for carrying on an unrelated trade or business purpose.

Under Treas. Reg. sec 1.501(c)(3)-1(e), an organization may meet the requirements of section 501(c)(3) although it operates a trade or business as a substantial part of its activities, if the operation of such trade or business is in furtherance of the organization's exempt purpose or purposes and if the organization is not organized or operated for the primary purpose of carrying on an unrelated trade or business, as defined in IRC sec. 513. In determining the existence or nonexistence of such primary purpose, all the circumstances must be considered, including the size and extent of the trade or business and the size and extent of the activities which are in furtherance of one or more exempt purposes. An organization which is organized and operated for the primary purpose of carrying on an unrelated trade or business is not exempt under sec. 501(c)(3) even though it has certain religious purposes, its property is held in common, and its profits do not inure to the benefit of individual members of the organization.

Under the Ruling of Living Faith, Inc. v. C.I.R., petitioner did not qualify as a tax- exempt organization because its sole activity the sale of health foods, was commercial in nature and that it therefore failed to satisfy the operational test of section 501(c)(3). Petitioner's activity was conducted as a business and was in direct competition with other restaurants and health food stores. Competition with commercial firms is strong evidence of a substantial nonexempt commercial purpose.

The circulation of clients flowing through the organization and billing for is substantial — days in . For the of , operated every day, with to clients per day or to clients per hour served by to workers. The claims submitted to the show that worked around the clock - billing every available hour to maximize its profits.

The organization is doing business as , which is in direct competition with other limited liability companies who offer similar services in the same area. Competition with commercial firms is strong evidence of a substantial nonexempt commercial purpose.

The organization's services occupy most of its time, space, and manpower. The size and extent of the business is more than significant. The organization failed to establish how its services furthered its exempt purpose or served a charitable class. Furthermore, its services furthered nonexempt purposes, which were primary and more than insubstantial. An organization which is organized and operated for the primary purpose of carrying on an unrelated trade or business is not exempt under sec. 501(c)(3) even if it has certain religious purposes. Although the organization claims that it conducts charitable work on its formal documents, information from returns, and limited responses to IDRs, and the information on available records show otherwise. Therefore, the organization is operated primarily for carrying on an unrelated trade or business purpose.

2.
It is the Government's position that the organization's religious body and activities are secondary and incidental to its overall operations that disqualify its status as a church.

Under the Ruling of De La Salle Institute v. U.S., plaintiff did not qualify as a tax- exempt organization because the operation of the chapels at plaintiff's parochial schools was incidental to plaintiff's principal activities, although very important to plaintiff's members. The Judge stated that the tail cannot be permitted to wag the dog. The incidental activities of plaintiff cannot make plaintiff a church.

Here, the organization claims its , day care, and other programs listed on publications are part of activities, which serve a charitable class. No records were provided by the organization to demonstrate who they are, how they are referred to the organization, and by what criteria the organization determines their charitable class. Actual records show the organization pays minimal expenses and spends insubstantial amount of time on these programs when compared to its other activities. With respect to its services, the organization carries on these activities in such a manner and in such a volume that it constitutes a substantial and primary purpose of the organization, such that the organization should not be accorded exempt status.

The organization's claims for payments include Clinical Services Progress Notes, Records Form for Mental Health Assessment, Treatment Plan, and other records of clients. The content of these notes, assessment records, and treatment plans are similar to medical records and a business that provides medical services. The information on these documents does not show how the services and the whole process involved furthers the organization's religious or charitable purposes. The organization has failed to establish whether and how it services a charitable class or a charitable purpose.

As discussed in greater detail above, the organization has failed to establish that it possesses attributes of a church:

e Its legal existence only exists on paper as it regularly failed to account for and substantiate organizational expenses and funds from the organization were not used to benefit officers and their families. e Its statement on warfare and freedom functions as a marketing tool for e Its worship services were not consistent or regularly carried on. e Its government is merely or incidental to its overall operations. e The organization failed to establish a formal code of doctrine or discipline. e The organization failed to establish that there was distinct religious history. e The organization failed to establish and document that it had a membership that was distinct from other or its services clients. e Its minister was not paid for activities, but for his services to e The organization failed to establish that it has a literature of its own. e Its place of worship is a Clinic-like building shared with its business, in which operates days in a year. e The organization failed to establish that its congregation did not consist of mostly clients receiving behavioral services. e The organization failed to establish that its religious services were not secondary and incidental to its other activities. e It does not have a school for the religious instruction of the young. e It pays minimal expenses for its in-house training schools.

The organization claims that it possesses most of attributes above. The reliable information and records do not support this claim.

The organization's workers consist of drivers, office assistants, technicians, therapists, case managers, rehabilitation practitioners, a medical director, and a quality assurance consultant. Together they work as a medical clinic. They are paid by , through the organization, as subcontractors. Available information establishes they are conducting a medical business under the name of

Therefore, the organization's religious body and activities are secondary and incidental to its overall operations that disqualify its status as a church.

3. It is the Government's position that unaccountable paychecks or
   reimbursements, cash withdrawals, and benefits flowing to the organization's officers and their family members constitute inurement prohibited under IRC sec. 501(c)(3).

Under Treas. Reg. sec 1.501(c)(3)-1(c)(2), an organization is not operated exclusively for one or more exempt purposes if its net earnings inure in whole or in part to the benefit of private shareholders or individuals.

Under Treas. Reg. sec 1.6001-1(e), the books or records required by this section shall be kept at all times available for inspection by authorized Internal Revenue Service officers or employees, and shall be retained as long as the contents thereof may be material in the administration of any Internal Revenue law.

Under court's ruling of Unitary Mission Church of Long Island v. C.I.R., the court held that petitioner is not entitled to exemption from Federal taxation under IRC sec 501(c)(3), because there was no evidence in the administrative record about the services performed, insufficient evidence in the record regarding some of the travel expenses paid to the minister and his wife, and regarding two loans made to the minister's secular employer.

Under the ruling of Church of Scientology of California v. Commissioner, petitioner does not qualify for exemption from taxation under sections 501(a) and 501(c)(3) because it is operated for a substantial commercial purpose and because its net earnings benefit the founder, his family, and Operation Transport Services (OTC), a private noncharitable corporation controlled by key Scientology officials.

Under the ruling of Association for Honest Attorneys v. Commissioner, the court held that petitioner did not qualify for tax exemption because the net earnings of petitioner inured to the benefit of its CEO/president; petitioner operated primarily for the benefit of private rather than public interests; and more than an insubstantial part of petitioner's activities furthered nonexempt, private purposes.

Although Forms 941, W-2, and 1099-MISC were filed, payroll or related records are not available to illustrate the figures on these returns. The explanations given to the discrepancies from the amounts of paychecks issued to the officers resulted from reimbursements for rents, bills, and expenses. No simultaneous records were provided to substantiate the explanations. No documents are available to determine if their hours of services and pay are reasonable, what was the amount of expenses, and how these expenses and their services further the organization's exempt purposes.

Substantial amounts of cash withdrawals frequently occur in the organization's bank accounts throughout the year. The organization failed to establish background information to substantiate and justify the withdrawals. No evidence was provided to show that any withdrawal was authorized by the board. No contemporaneous records substantiate what expenses are paid in cash and how the expenses further the organization's exempt purposes.

Substantial amounts of the organization's funds flowed to the organization's president and her family members, including $ used to purchase a real estate property under her name, $ wired transfer to her account in as a gift to his service in military, and $ sent to the Department of Education to pay off her daughter's student loan owed in college. No simultaneous records were provided to show that these benefits are not inurement. The organization's net earnings inure in whole or in part to the benefit of private individuals.

Therefore, the unaccountable paychecks or reimbursements, cash withdrawals, and benefits flowing to the organization's officers and their family members constitute inurement prohibited under IRC sec. 501(c)(3).

4. It is the Government's position that the organization is not operated exclusively
   for exempt purposes, and its status as an organization exempt under IRC sec. 501(c)(3) should be revoked effective

Under IRC sec. 501(c)(3), exemption from Income Tax is provided for corporations, and any community chest, fund, or foundation, 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.

The organization is operated for profit, the organization's religious body activities are secondary and incidental to its overall operations, and a more than insubstantial part of earnings of the organization inure to the benefit of private individuals and furthered a substantial nonexempt purpose.

Therefore, the organization is not operated exclusively for exempt purposes, and its status as an organization exempt under IRC sec. 501(c)(3) should be revoked effective .

Taxpayer's Position

The taxpayer's position is unknown when the initial report is issued on

Conclusion

The organization failed to establish that it was not engaged in a substantial commercial activity or that it was not carrying on a substantial unrelated trade or business. The organization failed to establish that it was not operated for a substantial non-exempt purpose. The organization failed to establish that it continued to qualify for tax-exempt status as a church or that its activities were not secondary and incidental to its overall operations. The organization's unreported payments and reimbursements, cash withdrawals, and benefits flowing to the officers and their family members constitute inurement for private purposes prohibited under IRC sec. 501(c)(3).

These operations and activities all warrant revocation of the organization's IRC Sec. 501(c)(3) status effective . Form 1120, U.S. Corporation Income Tax Return, should be filed for and each year thereafter as long as the organization remains subject to federal income tax. If the proposed revocation becomes final, appropriate state officials will be notified of such action in accordance with IRC Sec. 6104(c).