IRS revokes a dormant private foundation's 501(c)(3) status for never operating for exempt purposes

Plain-English summary

The IRS revoked a private foundation's tax-exempt status under section 501(c)(3). The foundation was set up by a declaration of trust and was recognized as exempt after filing a streamlined Form 1023-EZ, but on audit the IRS found it never actually carried out any charitable activity. The organization's own representative and its founder told the examiner the group had been dormant, that its bank accounts were frozen because of a legal case involving the founder, and that the entity should be dissolved. Because a 501(c)(3) must be operated primarily for exempt purposes and this one engaged in no exempt activity, the IRS concluded it failed the operational test and revoked the exemption. The representative indicated agreement with the proposed revocation. Contributions to it are no longer deductible under section 170, and the organization must resume filing taxable returns.

Ruling snapshot

• Question: Should the organization's IRC § 501(c)(3) exemption be revoked because it never operated for exempt purposes?
• Outcome: Revocation
• Key authorities: IRC § 501(c)(3); Treas. Reg. § 1.501(c)(3)-1(a)(1) and -1(c); IRC § 170; IRC § 507

Full text (IRS public release)

Internal Revenue Service
Tax Exempt and Government Entities

IRS Taxpayer ID number (last 4 digits):

Form:

Department of the Treasury Date: March 29, 2023

Tax periods ended:

Release Number: 202325008
Release Date: 6/23/2023 Person to contact:

UIL Code: 501.03-00 Name:
ID number:

Telephone:
Fax:

Last day to file petition with United States
Tax Court:

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 under IRC Section 501(a) must be both organized and operated
exclusively for exempt purposes. You did not engage in any activity that accomplished one or more exempt
purposes under IRC Section 501(c)(3). As such, your organization did not operate exclusively for exempt
purposes.

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 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 990-PF, Return of Private Foundation
or Section 4947(a)(1) Trust Treated as Private Foundation, by the 15th day of the fifth 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 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.

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:

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.

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

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 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,

[illegible signature]
Lynn A. Brinkley
Director, Exempt Organizations Examinations

Enclosures:
Publication 1
Publication 594
Publication 892

cc:

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

Department of the Treasury Date:
Internal Revenue Service March 29, 2023
Tax Exempt and Government Entities

IRS Taxpayer ID number:

Taxpayer or applicant name:
Form or application number:

Periods ended:

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

Dear

We're sending the enclosed material to you because of a power of attorney or other authorization we have
on file.

If you have questions, contact the person listed at the top of this letter.

Sincerely,
Jonathan Beccarelli

Jonathan Beccarelli
Revenue Agent, Exempt Organization Exam

Enclosures:
This letter
Letter 6337

cc:

Letter 937-A (Rev. 3-2021)
Catalog Number 39205F

Department of the Treasury Date:
Internal Revenue Service 07/14/2022
Tax Exempt and Government Entities

IRS Taxpayer ID number:

Form:
Tax periods ended:
Person to contact:

ID number:
Telephone:
Fax:

Manager's contact information:

ID number:
CERTIFIED MAIL — Return Receipt Requested Telephone:

Response due date:
08/14/2022

Dear
Why you're receiving this letter

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.

If you disagree

1. Request a meeting or telephone conference with the manager shown at the top of this letter.

2. Send any information you want us to consider.

3. File a protest with the IRS Appeals Office. If you request a meeting with the manager or send additional
   information as stated in 1 and 2, above, you'll still be able to file a protest with IRS Appeals Office after
   the meeting or after we consider the information.

The IRS Appeals Office is independent of the Exempt Organizations division and resolves most disputes
informally. If you file a protest, the auditing agent may ask you to sign a consent to extend the period of
limitations for assessing tax. This is to allow the IRS Appeals Office enough time to consider your case.
For your protest to be valid, it must contain certain specific information, including a statement of the
facts, applicable law, and arguments in support of your position. For specific information needed for a
valid protest, refer to Publication 892, How to Appeal an IRS Determination on Tax-Exempt Status.

Fast Track Mediation (FTM) referred to in Publication 3498, The Examination Process, generally doesn't
apply now that we've issued this letter.

4. Request technical advice from the Office of Associate Chief Counsel (Tax Exempt Government Entities)
   if you feel the issue hasn't been addressed in published precedent or has been treated inconsistently by the
   IRS.

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

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,
[illegible signature]

John A. Matias, Supervisory, Internal Revenue Agent
for Lynn A. Brinkley

Acting Director, Exempt Organizations Examinations

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

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

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

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) Section (Sec.) 501(c)(3).

FACTS

Formation

The Organization was created in on by a Declaration of Trust Agreement
"between , Founder and as the trustee(s)."

The Agreement states "[T]he Founder, , hereby transfers property to the Trustee(s),
and the Trustee(s) hereby declare and agree that they have received this day from
as , the sum of ) and that they will hold and manage the same, and any additions to
it, in trust, as follows:" and then lists Articles.

of the Agreement states the following:

The is created exclusively for charitable, religious, scientific, literary
and educational purposes, including, for such purposes, the making of distributions to organizations
that qualify as exempt organizations under section 501(c)(3) of the Internal Revenue Code.

Application for Recognition of Exemption
On the Organization submitted a Form 1023-EZ, Streamlined Application for Recognition of
Exemption Under Section 501(c)(3) of the Internal Revenue Code.

Under Part III, "Your Specific Activities," , Briefly describe the organization's mission or most significant
activities, the application provided "The Foundation's mission is to

, , and the
Exemption
On the Organization received recognition of exemption under IRC Sec. 501(c)(3) as a
private foundation, effective

Activities
As previously stated in the Organization's Form 1023-EZ application, the Organization was created to
. The Organization intended to carry out this objective
by

However, as determined during the examination, it appears these activities never commenced because the
Organization's bank accounts were frozen due to case brought against the
Organization's founder, who serves as the Organization's : , and , and
several involved with the Organization.

Catalog Number 20810W Page 1 www.irs.gov Form 886-A (Rev. 5-2017)

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

Financials Per Form 990

For the Year Ended
[figures redacted]

Revenue:
Contributions, Gifts, Grants, etc., received
Total Revenue

Expenses:
Other Employee Salaries and Wages
Legal Fees
Other Professional Fees
Taxes
Occupancy
Travel, Conferences, and Meetings
Other Expenses
Contributions, Gifts, Grants Paid
Total Expenses

Assets:
Cash — non-interest-bearing
Savings and Temporary Cash Investments
Other Notes and Loans Receivable
Prepaid Expenses and Deferred Charges
Investments — Other
Other Assets (Deposits)

Total Assets

Liabilities:
Loans from Officers, Directors, Trustees, etc.
Mortgages and Other Notes Payable
Total Liabilities

Net Assets or Fund Balances:
Capital Stock, Trust Principal, or Current Funds
Retained Earnings, Accumulated Income, Endowment
Total Net Assets or Fund Balances
Total Liabilities and Net Assets/Fund Balances

Examination
On , the sent contact letter and Information Document
Request (IDR) package, which included Publication 1, Notice 609, and Publication 3498-A, to inform the
Organization of the examination.

The held the Interview with the Organization's
, via a conference call on . At that time, it became evident that another

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

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

Explanations of Items

Name of taxpayer Tax Identification Number (last 4 digits) Year/Period ended
interview to include the Organization's founder, , who also serves as the
Organization's , was necessary. The additional interview was held via conference call on
During the Interviews the confirmed that was, indeed, the
Organization's , serving as the Organization's , , and . Per the
's notes from the interviews, stated that the Organization has been
dormant with regard to any charitable activities.

statement was further confirmed in an email from on where
he provided the following brief history and explanation of the Organization's operations:

The , dated , removes
JC ") as a regulated to that [of] a
, No longer subject to the jurisdiction of the :
s

As such, ( ") becomes the and
possesses absolute control and voting power of

Simultaneously, amended the Articles of Incorporation of and changed the
name to (" "), a

Having ' , , , and , the ;
and , except for the , the was now left with

, to function as a tax-exempt entity under Section 501(c)(3) of the
Internal Revenue Code of 1986, as amended ("Code").

then prepared and submitted a streamlined application for Recognition of Exemption Under
Section 501(c)(3) of the Code, Form 1023-EZ. At the time of preparing the 1023-EZ, it was to be a
stand-alone nonprofit entity which anticipated that gross receipts would not exceed $ in any of
the next and would not have total assets in excess of $

Then, contributes all the issued and outstanding stock of for
Shortly thereafter, was

The
This

Catalog Number 20810W Page 3 www.irs.gov Form 886-A (Rev. 5-2017)

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

Explanations of Items

Name of taxpayer Tax Identification Number (last 4 digits) Year/Period ended
All have been , ;
Accordingly, the tax-exempt mission of has come to a halt. The only money coming
has been from in the form . Moreover, of the
and has to on a timely basis
Based on the information the received in partial response to the IDR and the
information provided in the Interviews, he issued a IDR on requesting
additional details regarding the Organization's activities, items listed in the minutes, and items listed on the
Organization's Form 990 for the year ended . He also requested additional information
regarding the relationship between along with any loan
documents or documentation related to the "Loans from officers, directors, trustees, and other disqualified
persons" and "Mortgages and other notes payable" as listed on the Organization's Form 990 for the year
ended .

Since the in to the case being transferred to the
(the Examiner), the Examiner wasn't able to discuss the case with the Revenue
Agent and had to rely on the documents included in the case file to determine to what extent the Organization
responded to the IDRs issued. In doing so, the Examiner determined that the Organization only provided
responses to the IDRs or the failed to include the responses in the case file.

As such, and after careful review of the documents provided in the case file, the Examiner contacted
, the Organization's , to determine what information had been previously provided
and to determine what information was necessary to move the case forward. During the conversation
reaffirmed previous statements made verbally and in writing that the Organization was precluded
from operating for its tax-exempt purpose due to
of the bank accounts to be used for such tax-exempt purposes. He further stated during that conversation,
and subsequent conversations, that he believed the Organization should be terminated or dissolved since it
wasn't able to conduct its tax-exempt purposes, indicating he would agree to a proposed revocation.

The Examiner explained that he still needed to review the Organization's financial statements and bank
statements for the year ended , since neither was included in the file's documents, and
that he'd be issuing another IDR to request these statements. stated that he had the financial
statements and bank statements for both the and agreed to provide
these documents, but requested the Examiner wait until after the upcoming tax return deadline to
issue the IDR. The Examiner agreed to do so.

Subsequently, the Examiner issued on requesting the financial statements and bank
statements for the , along with any other statements for accounts (i.e. credit card, , etc.)
used by the , as well as a brief statement regarding how the were related.
On , the due date for , the Examiner received faxes from . The fax
only included the following statement from : "There is no Trial Balance for
; still obtaining bank statements for ; had to be ordered from the bank." But on the cover sheet
for the fax, stated, "Draft Trial Balance as of for

Catalog Number 20810W Page 4 www.irs.gov Form 886-A (Rev. 5-2017)

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
." The fax then included a Trial Balance as of titled
" aka "
A review of the trial balance provided, along with another set of workpapers submitted by to the
, revealed that the revenue and expense items listed on the trial balance and the
related workpaper, as well as several of the assets and liabilities, tied exactly to the items reported on the
Organization's F990-PF for the year ended

The faxes received were described on the cover sheet as being credit card statements for
the Organization for . However, a review of these statements revealed that they were for a combined
prepared for " , " representing
corporate credit cards; to to , and to
. Although the charges listed on the credit card statements appeared to be for legitimate
business purposes, it was unclear if, or how, these charges were related to the Organization.

Since the IDR responses provided weren't complete, the Examiner called to discuss and to find
out when he would have the bank statements and be able to provide them along with the brief statement
regarding the relationship between the . During the discussion,
stated that he had sent _ faxes instead of just the the Examiner received but didn't state
what the faxes contained. Since explained again how busy he was with his
practice and the deadline, the Examiner agreed to provide an extension of business days for
him to obtain and submit the remaining information.

On the Examiner issued an extension, with a due date of , requesting the missing
items from . On the Examiner noted that the requested items hadn't been provided and
called to discuss. Since wasn't available, the Examiner left a message requesting a
call back and explaining he'd call again on his next scheduled workday if he didn't hear from . On
, the Examiner's next workday, since he hadn't received a response or call back from
, the Examiner called again and left a message. The Examiner explained that he'd
be issuing a delinquency notice if he didn't hear from by the close of business. No response was
received so the Examiner issued a delinquency notice on with a due date of and
began preparing this Form 886-A as the Revenue Agent's Report.

The Examiner called again on and reminded him of the due date for
the delinquency notice. stated that he was out of the office, but that he intended to respond after
he had a chance to discuss with the Examiner to make sure he was providing the necessary information.

was unable to meet the deadline and was unavailable to pick up when the Examiner
called thereafter. However, on , called and left a message to let the Examiner
know that, besides the most difficult tax season he'd ever experienced, he'd also been subjected to some
immediate family tragedies that were affecting his ability to respond. He stated, though, that he intended to
respond by the following .

When failed to respond on by , the Examiner called him on to discuss
whether or not he'd be able to given the circumstances that were beyond his control. The Examiner explained
that since the Organization was not operating according to its tax-exempt purpose based on the verbal and
written testimony provided by and the Organization's founder, ,

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

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

Explanations of Items

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

and based on the information previously provided, that if the Organization was still willing to agree to the
proposed revocation, the Examiner would be able to complete his report (this Form 886-A) for the proposed
revocation and issue same to the Organization for agreement. , again, stated he intended
to agree to the proposed revocation on behalf of the Organization.

(Note that the Examiner considered

but decided based on
. Since the Organization isn't operating in accordance with its tax-exempt purpose and since
stated times that the Organization should be dissolved or terminated, as well as stating

that he'd agree to the proposed revocation on behalf of the Organization, the Examiner determined that
)

LAW

Internal Revenue Code (IRC)

IRC Sec. 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.

Treasury Regulations (Treas. Reg.)

Treas. Reg. Sec. 1.501(c)(3)-1(a)(1) states that in order to be exempt as an organization described in section
501(c)(3), an organization must be both organized and operated exclusively for one or more of the purposes
specified in such section. If an organization fails to meet either the organizational test or the operational test,
it is not exempt.

Treas. Reg. Sec. 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.

GOVERNMENT'S POSITION

It is the Government's position that the Organization does not qualify for exemption under IRC Sec. 501(c)(3).

Under Treas. Reg. Sec. 1.501(c)(3)-1(a), 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

Catalog Number 20810W Page 6 www.irs.gov Form 886-A (Rev. 5-2017)

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

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

Under Treas. Reg. Sec. 1.501(c)(3)-1(c), 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 IRC Sec. 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.

Here, as stated in the verbal testimony of , the Organization's , and
the verbal and written testimony of , the Organization's , due to
, which resulted in the
Organization, the Organization "has been dormant with regard to any
charitable activities" and its "tax-exempt mission ... has come to a halt." As such, the Organization
has been unable to engage primarily in activities that accomplished one or more of the exempt purposes
specified in IRC Sec. 501(c)(3) as required under Treas. Reg. Sec. 1.501(c)(3)-1(c).

Thus, the Organization failed to meet the requirements for tax exemption under IRC Sec. 501(c)(3) and the
Regulations thereunder.

TAXPAYER'S POSITION

, the Organization's , stated that the Organization should be terminated or
dissolved since it was unable to meet its tax-exempt purpose due to the
Organization. He further stated he'd
be willing to accept the proposed revocation

The Organization is being solicited for its position at this time.

CONCLUSION

The Organization 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, resulting in its failure to comply with the requirements
of IRC Sec. 501(c)(3) and Treas. Reg. Sec. 1.501(c)(3)-1(c).

It is the Government's position that the Organization failed to operate exclusively to accomplish one or more
of such exempt purposes specified in IRC Sec. 501(c)(3). Because the Organization was not operated
exclusively for the exempt purpose under IRC Sec. 501(c)(3), its federal tax-exempt status under such
section should be revoked effective . The Organization is liable for filing Form 1120, U.S.
Corporation Income Tax Return, for the year ended and all years thereafter.

Catalog Number 20810W Page 7 www.irs.gov Form 886-A (Rev. 5-2017)