IRS revokes a cannabis "church" for illegal purpose and inurement to its two controllers

Plain-English summary

This is the IRS's final determination that an organization does not qualify as a section 501(c)(3) charity, with revocation effective back to a redacted date. The organization had claimed to be a church. Churches are treated as exempt without having to apply, so the IRS used its special church-inquiry and church-examination procedures to look into it. The organization never responded to any of the IRS letters, so the IRS built its case from bank summonses, third-party contacts, and public court records. Those records showed the organization was operating a marijuana dispensary: a local government had sued it as a public nuisance and obtained a permanent injunction, and one of its leaders declared that cannabis was used as a sacrament during and after religious services. The IRS gives two reasons for pulling exemption. First, distributing and consuming marijuana is illegal under federal law, so a substantial part of the organization's activity serves a nonexempt (illegal) purpose, which fails the operational test. Second, the organization's money inured to the private benefit of the two individuals who controlled its finances: bank records showed personal debit-card spending, checks to the individuals and to businesses they owned, and church funds used to buy real estate through an LLC they controlled. Because it fails on both illegality and inurement, the organization loses exemption and contributions to it are no longer deductible under section 170.

Ruling snapshot

• Question: Does a self-declared church that distributes cannabis and channels funds to its controllers qualify under IRC § 501(c)(3)?
• Outcome: revocation (fails the operational test because a substantial activity is illegal under federal law, and its earnings inure to private individuals)
• Key authorities: IRC § 501(c)(3); Treas. Reg. §§ 1.501(c)(3)-1(a), (b)(4), (c)(1); IRC § 170; 21 U.S.C. §§ 802, 821, 841; Rev. Rul. 75-384; Better Business Bureau v. United States, 326 U.S. 279; Harding Hospital v. United States, 505 F.2d 1068; Mysteryboy Inc. v. Commissioner, T.C. Memo 2010-13

Full text (IRS public release)

Department of the Treasury Date:
Internal Revenue Service June 5, 2023
Tax Exempt and Government Entities Taxpayer ID number (last 4 digits):
Form:
Number: 202336025 Tax periods ended:
Release Date: 9/8/2023
Person to contact:
Name:
ID number:
Telephone:
UIL: 501.03-00 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 explaining why your organization doesn't qualify as an organization described in
Internal Revenue Code (IRC) Section 501(c)(3) for the tax periods above.

Our adverse determination as to your exempt status was made for the following reasons:

You did not respond to our requests for additional information regarding your finances and activities as required
under Treasury Regulation Section 1.6033-2(i)(2).

You have not demonstrated that you are both organized and operated exclusively for charitable, educational, or
other exempt purposes within the meaning of IRC Section 501(c)(3). As such, you failed to meet the
requirement of IRC Section 501(c)(3) and Treas. Reg. Sections 1.501(c)(3)-1(a).

Additionally, you have not demonstrated that you are operated exclusively for charitable, educational, or other
exempt purposes within the meaning of IRC Section 501(c)(3) because the organization's assets inure to the
benefit of a private shareholders or individuals.

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.

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.

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


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

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).

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


Information about the IRS Taxpayer Advocate Service

The IRS office whose phone number appears at the top of the notice can best address and access your tax
information and help get you answers. However, you may be eligible for free help from the Taxpayer Advocate
Service (TAS) if you can't resolve your tax problem with the IRS, or you believe an IRS procedure just isn't
working as it should. TAS is an independent organization within the IRS that helps taxpayers and protects
taxpayer rights. Contact your local Taxpayer Advocate Office at:

Or call TAS at 877-777-4778. For more information about TAS and your rights under the Taxpayer Bill of Rights,
go to taxpayeradvocate.IRS.gov. Do not send your federal court pleading to the TAS address listed above.
Use the applicable federal court address provided earlier in the letter. Contacting TAS does not extend the time
to file an action for declaratory judgment.

Where you can find more information
Enclosed are Publication 1, Your Rights as a Taxpayer, and Publication 594, The IRS Collection Process, for
more comprehensive information.

Find tax forms or publications by visiting 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:
Form 886-A
Form 4621-A
Publications 1, 594, and 892

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


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

Name of Taxpayer: Year/Period Ended:

Issues:

Issue 1 — Does the ( ) qualify for exemption under
Internal Revenue Code section 501(c)(3)?

Issue 2 — Does the available information indicate assets inure to the benefit
of anyone?

Facts:

incorporated in on and Article II states
, see Attachment 1.

Article VI provides a dissolution clause and states upon dissolution or winding up the
Corporation, its assets remaining after payment, or provision for payment, of all debts
and liabilities of this corporation shall be distributed to a nonprofit fund, foundation or
corporation which is organized and operated exclusively for charitable, educational,
and/or religious purposes and which has established its tax exempt status under
Internal Revenue Code section 501(c)(3).

Article VII states The property of this corporation is irrevocably dedicated to religious
purposes and no part of the net income or assets of this corporation shall ever inure to
the benefit of any director, officer or member thereof or to the benefit of any private
person. The Articles of Incorporation are signed by as the incorporator.
On submitted Form 1023, Application for Recognition of Exemption
Under Section 501(c)(3) of the Internal Revenue Code, see Attachment 2. Part I, box 2
shows , box 3 shows box 6a
shows as the primary contact, and box 6b provides a contact phone
number. Part V shows as president & director, as
secretary & director, and as Treasurer & Director; and all show
as their contact address. Part X Public Charity
Status, question 5a shows the box 509(a)(1) and 170(b)(1)(A)(i) box is checked to
indicate that the application is a church or a convention or association of churches and
completed Schedule A Churches. attached Attachment 4, Appendix to Form
1023 to provide additional information and states from , is the
authorized representative, but a Form 2848 was not in the case file. Attachment 4
provides a narrative of activities and states will host Sunday
church services and Bible study on Wednesday and Sunday evenings. Part XI is
signed by as president.

Form 886-A (Rev. 4-68) Department of the Treasury - Internal Revenue Service
Page: 1 of 19


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

Name of Taxpayer: Year/Period Ended:

On the Internal Revenue Service (IRS) issued Letter 1312, Request for
Additional Information, to requesting resumes for all of officers, directors, and
or trustees, see Attachment 3.

On the IRS issued Letter 1314, EO Determination Request Closed — Failure to
Establish, to on which states the IRS did not receive the requested
information and is closing the case without making a determination because the IRS
does not have sufficient information to consider the request, see Attachment 4.

On filed Form 990-EZ, Short Form Return of Organization Exempt
From Income Tax, for the period ending . The heading of Form 990-EZ
indicates initial return, an application is pending, shows ;
address and provides a contact number. Part I and II show zeros. Part IV
shows as president & director, as secretary & director,
and as Treasurer & Director. Part V shows the books and records are
in care of , shows the , and
provides the same telephone number as the heading. Part VI shows
as the Treasurer & Director but it is not signed. The paid preparer section shows
from ; and shows a contact telephone number. Schedule A shows
identified as a church. Schedule O states mission is to
The Secretary of State website shows status suspended, as of
the date of this report, and references the . The website shows
as the inactive date and shows a Statement of Information was due on
, and presumably not filed.

On the IRS began an inquiry into activities and the examining
Revenue Agent (RA) mailed Letter 5307, Church Tax Inquiry Notice, via
certified mail, with inquiry questions to the , ;
address, see Attachment 5. Letter 5307 provided a response date, but a
response was not provided.

On the United States Postal Service (USPS) returned PS Form 3811,
Domestic Return Receipt, to the RA. Box A of the receipt shows an illegible signature,
box B shows an illegible name, and box C shows as the delivery date, see
Attachment 6.

On the RA mailed Letter 5308, Follow Up Church Tax Inquiry, to ;
via certified mail, as a follow up to Letter 5307, to the
address, see Attachment 7. Letter 5308 included Letter 5307 and follow up

Form 886-A (Rev. 4-68) Department of the Treasury - Internal Revenue Service
Page: 2 of 19


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

Name of Taxpayer: Year/Period Ended:

questions. Letter 5308 provided as a response date, but a response was not
provided.

On the RA initiated an exam of and mailed Letter 5309, Notice of
Church Examination, via certified mail, to the , ;
address, see Attachment 8.

The USPS returned PS Form 3811 to the RA. Box A of the receipt shows an illegible
signature, box B shows an illegible name, and box C shows as the delivery
date, see Attachment 9. Letter 5309 provided a response date, but a
response was not provided.

On the RA mailed Letter 5464, Information Document Request Cover Letter —
Exempt Organization, and Form 4564, Information Document Request (IDR), to
to the address, see Attachment 10.
The IDR provided a response date, but a response was not received.
On the RA mailed Letter 3164-E, Third Party Contact, to to the
; , address to advising that the IRS plans to contact
other individuals regarding . Letter 3164-E allowed to request a list
of individuals the IRS plans to contact, a request was not received.

On the RA mailed Forms 2039, Summons, to ,
and requesting banking information, each responded and provided
banking records related to

responded and provided records for account ending with . The
records show as the account owner and the
; ' address. The signature card for the account shows
and as account holders. Check images show
and/or signature.
Bank records show utilized in the and years, the
table below shows the total incoming and outgoing funds:

Form 886-A (Rev. 4-68) Department of the Treasury - Internal Revenue Service
Page: 3 of 19


Form 886-A Department of the Treasury - Internal Revenue Service Schedule No. or Exhibit
Explanation of Items
Name of Taxpayer: Year/Period Ended:
Account Ending
Year Deposits Debits Checks Fees
SubTotals:
Total Deposits:
Total Expenditures:

The statements were reviewed and the description provided in the
withdraws and other debits section show debit purchases from commercial
establishments such as , , , , ,
, , , , , and . The
purchases alone total . The statements show at least 16 bank
withdraws totaling $ including a $ withdraw on to close
out the account.

provided check images and of the checks were signed by
and total $ . Some of the payee names indicate individuals
and some indicate a commercial business but most of the images show the memo line
is blank.

check images show signed checks totaling
$ . Payees were individuals and commercial businesses but most of the
images show the memo line is blank. Three check images show the payee is
and total $

responded and provided records for account ending with . The
records show as the account owner and the
, , address. The signature card for the account shows
as the president and account holder. Check images show
and/or signature.

Bank records show utilized in the and years, the
table below shows the total incoming and outgoing funds:

Form 886-A (Rev. 4-68) Department of the Treasury - Internal Revenue Service
Page: 4 of 19


Form 886-A Department of the Treasury - Internal Revenue Service Schedule No. or Exhibit
Explanation of Items
Name of Taxpayer: Year/Period Ended:
Account Ending
Year Deposits Checks Debits Withdraws Other Withdraws Fees
Total Deposits:
Total Expenditures:

The statements were reviewed and the description provided in the ATM &
DEBIT CARD WITHDRAWALS section show debit purchases from commercial
establishments such as , , , , and . The bank statements also show nine bank
withdrawals totaling $ including a $ withdrawal on to
close out the account.

Chase Bank provided check images and checks were signed by
. Payees were individuals and commercial businesses but most of the images
show the memo line is blank. Two checks made out total $ ,
two check made out to total $ , seven checks made out to
total $ , five checks made out to totaling
$ , and two check made out to total $ . The
payments to and are discussed later in this report.
responded and provided records for account ending with . The
records show as the account owner and the
, , address. A signature card was not available, all
available paid check images show signature and the account was
opened on and closed on
Account Ending
Year Deposits Debits Checks Fees
Total Deposits:
Total Expenditures:

The statements ATM/Debit Card transaction this statement period
section shows six transactions including a $ withdraw on closing
the account. The debit transaction show purchases from restaurants and gas stations.

Form 886-A (Rev. 4-68) Department of the Treasury - Internal Revenue Service
Page: 5 of 19


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

Name of Taxpayer: Year/Period Ended:

provided check images and of those images show the checks
were signed by . Payees were individuals and commercial businesses
but most of the images show the memo line is blank.

The table below shows the total deposit and expenditure amounts:

Total Deposits and Expenditures
Deposits Expenditures

Totals:

On the RA mailed Letters 1995, Third Party Contact Letters to Request
Information, to the ; ; , and
. The , and responded
and their responses are discussed later in this report.

On the RA mailed Letters 1995 to ,
, and , but they did not respond.

response states they funded a private loan to a company called
to purchase a property at ; ; and
received four payments totaling $ , see Attachment 11. A property search
revealed that the transaction was conducted by and a summons was
provided to on . and check images
show $ was paid to , see attachment 12.
responded to the summons with documents. The documents were
reviewed and they show the property was purchased by ( ).
The Order Sheet is dated , shows as the buyer, shows Attention
, and shows , , ; as
address. The documents contained an ACTION BY WRITTEN CONSENT OF THE
SOLE INCORPORATORS OF , A Limited Liability
Company dated and states that , , and
were elected to serve as Directors of . The FINAL BUYER'S
STATEMENT shows the contract sales price is $ M. The documents contained a
Limited Liability Company Agreement , a Limited Liability

Form 886-A (Rev. 4-68) Department of the Treasury - Internal Revenue Service
Page: 6 of 19


Form 886-A Department of the Treasury - Internal Revenue Service Schedule No. or Exhibit
Explanation of Items
Name of Taxpayer: Year/Period Ended:
Company document executed by and on . Exhibit
A to that documents provides a list of member and shows and
and both list , ; as their address, see
Attachment 13.

( ) filed Limited Liability Company Articles of Organization
on with the Secretary of State and state purpose is to
engage in any lawful act or activity for which a limited liability company may be
organized under the Limited Liability Act.

IRS records show filed Forms 1065, U.S. Return of Partnership Income, for the
tax years ending to and issued a Schedule K to and
both years. All Schedule K show and
each had a 50% interest in . check images show as the
payee on seven checks totaling $ , see attachment 14.

On a ( ) attorney initially responded to Letter 1995 with a
telephone call to the RA and said the was able to shut down because it
was operating as a marijuana dispensary without proper approval. The attorney later
provided documents related to the legal action to shut down , see
Attachment 15.

The Complaint, Case Number , was filed by the Attorney on
with the ; ( ) and lists
a ; , and as the defendants.

The Complaint enumerated three causes of action. The first cause is a Public Nuisance
Based Upon Distribution of Marijuana at real property and business commonly known
as , located at ; , . The Complaint states in
part is owner/operator, manager of ; is the
secretary/operator/owner/member of

The second cause is "Public Nuisance" and "Nuisance Per Se" Based Upon Violations
of the Municipal Code at ; . address. The
Complaint states is violating the Zoning Code, Title of
the ( ). Title
marijuana and is located in a
and the of marijuana

Form 886-A (Rev. 4-68) Department of the Treasury - Internal Revenue Service
Page: 7 of 19


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

Name of Taxpayer: Year/Period Ended:

The third cause is Unlawful and Unfair Businesses Practices Based Upon Violations of
Law and Acts/Omissions:
at address. The Complaint states is illegally distributing
marijuana from its location because it does not have a permit to distribute marijuana.

The filed a Declaration from the for the on
with the Court in support of the Complaint and states the facts set forth herein
are within my personal knowledge and, if sworn as a witness, I could and would testify
competently to such facts. The Supervisor states that based on his own investigation
and review of and proceedings he is familiar with the
property at being used to sell and distribute marijuana, which is a
violation of , see Attachment 16.

The Supervisor states that he is familiar with the provision of the Permanent Injunction
filed with the Court on which prohibits the property at
from being used to make medical marijuana available. The Permanent
Injunction lists , and
as the defendants, see Attachment 16, Exhibit A.

The Supervisor states that on he reviewed page and he
is informed and believes that is a website that allows businesses to set up a
free account and post photos and message their customers.

indicates its located at , and its website is
, see Attachment 16, Exhibit E.

The Supervisor states that on he reviewed page,
is a website that claims to be the most reliable online resource to find
cannabis storefronts, doctors, and deals. page indicates
is located at ; , and includes a menu of
different marijuana products and pricing. The products include different strains of
marijuana, such as , , , as well as extracts, edibles and topicals, see
Attachment 16, Exhibit F.

The Supervisor states that he executed an at property
on and he took photographs of the first and second floors. He also inspected
the basement floor and took pictures of two packages addressed to , see
Attachment 16, Exhibits G, H, I, and J.

filed a page response to the Complaint on with the Court and
objects to Plaintiffs Request in its entirety to the extent that it does not
specify a reasonable time and place for inspection and copying, see Attachment 17.
Page and page are a copy of Application for

Form 886-A (Rev. 4-68) Department of the Treasury - Internal Revenue Service
Page: 8 of 19


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

Name of Taxpayer: Year/Period Ended:

Membership. The Application states

Page of response is titled and
provides:

Page provides:

also filed a page Declaration of in support of with
the Court on , see Attachment 18. The Declaration states in part: I,
, declare as follows:

1. I am a at the and have been since it
opened in .
2. I provide weekly on at : pm.

Form 886-A (Rev. 4-68) Department of the Treasury - Internal Revenue Service
Page: 9 of 19


Form 886-A Department of the Treasury - Internal Revenue Service Schedule No. or Exhibit
Explanation of Items
Name of Taxpayer: Year/Period Ended:

3. Recently the has requested an additional at : pm to
accommodate additional members.
4. My are based and focus on helping the members of the
achieve a greater appreciation of the based on
utilization of cannabis as
5. provides for greater plasticity of thought in
analysis and with
The provided a for to
and responded. Some of the
records are redacted for employee information and sensitive proprietary business
information including pricing information. Some of the documents were redacted
completely, other documents were printed emails exchanged between and
and are not attached to this report. The response contains approximately
invoices that show at , as the
customer, have a date range from to , and appear to be issued on the
th of the month, see Attachment 19.

The response contains copies of what refers to Marketing
Agreements. The copy on pages and show the same date , show
as the name of the dispensary, and is signed by
as the manager. Pages and show the same date , show
as the name of the dispensary, and is signed by as the
manager. Page shows as the date, shows as the
name of the dispensary, and is signed by as the manager. Page shows
as the date, shows as the name of the dispensary,
and is signed by as the manager.

provided a page response to the of
related to on and among the documents
provided a copy of the Marketing Agreement with executed on
, see Attachment 20. is listed as the dispensary at the
, , , address.

provided an eight page response on to the Request for the
identity of all persons who serve on the Board of Directors and the names
of all employees and volunteers from to present, see Attachment 21.
provided information on individuals.

page response contained a
REPORT conducted on the property located at

Form 886-A (Rev. 4-68) Department of the Treasury - Internal Revenue Service
Page: 10 of 19


Form 886-A Department of the Treasury - Internal Revenue Service Schedule No. or Exhibit
Explanation of Items
Name of Taxpayer: Year/Period Ended:

, , on . The report shows the inspection
was ordered by , the property owner is listed as unknown, and the report
was sent to , see Attachment 22.

On the RA called , this is the number for and for
, records custodian, given on the Form 990-EZ. The call went right
to voice mail, no greeting other than leave a message was provided, RA left a message,
but did not get a call back.

On the RA called , this number was secured from the
business signature card for listed as the president. The
person who answered, presumably a male, said he was not nor was he
associated with . He did say that must have had this number because
the person who answered has received numerous calls looking for

On the RA called because this number was found in a search
for . The search indicated this number belonged to
. The first time the RA called the number was busy, the number was called
again on and numerous other times but the number was busy.
On the RA conducted a search on and found that
; , , , and work for
at in , . The search showed
as the chief executive officer. A Secretary of State search found
as the Agent at in
On the RA conducted a search for with the
address, as shown on the Form 990-EZ and a hit provided the
; , , this is the same address as the
address for

On the RA spoke to at and he provided two
different numbers, and , associated with but was
not sure who they belonged to. also provided two possible email addresses
and The
number is the number shown on the signature card. The
number was called and it sounded as if the call was answered but no one responded to
the RA. The RA called a second time and left a voice message, the greeting did not
reveal anything about the owner. An email was sent to both email addresses
and , but a response
was not received.

Form 886-A (Rev. 4-68) Department of the Treasury - Internal Revenue Service
Page: 11 of 19


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

Name of Taxpayer: Year/Period Ended:

On the RA conducted a name search for with the
address and no hits were found. RA conducted another search with the
as the resident city and did not identify any individual associated with the

the RA conducted a name search for with the
address and no hits were found. RA conducted another search with the
as the resident city and did not identify any individual associated with the

On the RA conducted a name search for with the
address, as shown on the Form 990-EZ and no hits were found. RA
conducted another search with the as the resident city and did not
identify any individual associated with the

On the RA conducted a name search for with
address and a hit found. The hit showed ;
. The hit also provided , and
phone numbers. The was previously provided by
the number was called various time but no one ever answered, and the
number was called various times but the phone was always busy.

On the RA conducted a name search for with the
address and no hits were found.

On the RA conducted a driver's license search for . The search
was conducted with and without as the state of residence, but no hits were found.

the RA conducted an address search for and in IRS records.
The search for showed ; ; , ;
, , , , and , ; ;
. The search for showed ; , ;
, and ; , '
On the RA sent a drafted letter to at the
requesting his assistance with a tax matter, a response was not
received, and the letter was later returned by the USPS, see Attachment 23.

On the RA sent a drafted letter to at the
requesting his assistance with a tax matter, a response was not
received, and the letter was later returned by the USPS, see Attachment 24.

Form 886-A (Rev. 4-68) Department of the Treasury - Internal Revenue Service
Page: 12 of 19


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

Name of Taxpayer: Year/Period Ended:

On the RA sent a drafted letter to at the
requesting his assistance with a tax matter, a response
was not received, and the letter was later returned by the USPS, see Attachment 25.

On the RA sent Letter 5464 and three Forms 4564 to to the
address, see Attachment 26. The Forms 4564
provided a listing of bank transactions that give rise to potential excess benefit
transactions and requested contemporaneous substantiation and documentation for the
transactions. Forms 4564 provide a response due date, but a response was
not provided.

On the RA sent Letter 5464 and three Forms 4564 to to the
address, see Attachment 27. The
Forms 4564 provided a listing of bank transactions that give rise to potential excess
benefit transactions and requested contemporaneous substantiation and documentation
for the transactions. Forms 4564 provide a response due date, the letter was
returned by the USPS on

On the RA sent Letter 5464 and three Forms 4564 to to the
address, see Attachment 28. The
Forms 4564 provided a listing of bank transactions that give rise to potential excess
benefit transactions and requested contemporaneous substantiation and documentation
for the transactions. Forms 4564 provide a response due date, but a
response was not provided and the letter was returned by the USPS on

On the RA sent Letter 5464 and three Forms 4564 to to the
, see Attachment 29.
The Forms 4564 provided a listing of bank transactions that give rise to potential excess
benefit transactions and requested contemporaneous substantiation and documentation
for the transactions. Forms 4564 provide a response due date, but a response
was not provided.

On the RA sent a drafted letter to to the
; ; , address requesting assistance regarding seven
checks paid to by totaling $ , see Attachment 30. The
drafted letter provides a response due date; the letter was returned by the
USPS on
Law:

Internal Revenue Code (IRC) section 501(c)(3) exempts from federal income tax
organizations organized and operated exclusively for charitable, educational, and other

Form 886-A (Rev. 4-68) Department of the Treasury - Internal Revenue Service
Page: 13 of 19


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

Name of Taxpayer: Year/Period Ended:

exempt purposes, provided that no part of the organization's net earnings inures to the
benefit of any private shareholder or individual.

IRC section 511 imposes a tax at corporate rates under section 11 on the unrelated
business taxable income of certain tax-exempt organizations.

IRC section 6001 provides that every person liable for any tax imposed by this title, or
for the collection thereof, shall keep such records, render such statements, make such
returns, and comply with such rules and regulations as the Secretary may from time to
time prescribe. Whenever in the judgment of the Secretary it is necessary, he may
require any person, by notice served upon such person or by regulations, to make such
returns, render such statements, or keep such records, as the Secretary deems
sufficient to show if such person is liable for tax under this title.

IRC section 6033(a)(1), except as provided in section 6033(a)(2), provides in part that
every organization exempt from tax under section 501(a) shall file an annual return,
stating specifically the items of gross income, receipts and disbursements, and such
other information for the purposes of carrying out the internal revenue laws as the
Secretary may by forms or regulations prescribe, and keep such records, render under
oath such statements, make such other returns, and comply with such rules and
regulations as the Secretary may from time to time prescribe.

Federal Tax Regulations (Regulations) section 1.501(c)(3)-1(a) states in part that in
order to be exempt as an organization described in Code section 501(c)(3), the
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. The term "exempt purpose
or purposes", as used in this section, means any purpose or purposes specified in
section 501(c)(3).

Regulations section 1.501(c)(3)-1(b)(4) states in part that an organization is not
organized exclusively for one or more exempt purposes unless its assets are dedicated
to an exempt purpose. An organization's assets will be considered dedicated to an
exempt purpose, for example, if, upon dissolution, such assets would, by reason of a
provision in the organization's articles or by operation of law, be distributed for one or
more exempt purposes, or to the Federal government, or to a State or local
government, for a public purpose, or would be distributed by a court to another
organization to be used in such manner as in the judgment of the court will best
accomplish the general purposes for which the dissolved organization was organized.
However, an organization does not meet the organizational test if its articles or the law

Form 886-A (Rev. 4-68) Department of the Treasury - Internal Revenue Service
Page: 14 of 19


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

Name of Taxpayer: Year/Period Ended:

of the State in which it was created provide that its assets would, upon dissolution, be
distributed to its members or shareholders.

Regulations section 1.501(c)(3)-1(c)(1) provides that an organization will not be
regarded as operated exclusively for exempt purposes if more than an insubstantial part
of its activities is not in furtherance of exempt purposes.

United States Code (USC), Title 21, Section 802(16) defines marijuana as "all parts of
the plant Cannabis sativa L. whether growing or not; the seeds thereof; the resin
extracted from any part of such plant; and every compound, manufacture, salt,
derivative, mixture, or preparation of such plant, its seeds or resin."

USC Title 21, Section 821(c), Sch. I(c)(10) lists marijuana as a hallucinogenic
substance and includes it on schedule I of the Schedules of Controlled Substances. A
schedule I substance is a substance that (1) has a high potential for abuse; (2) has no
currently accepted medical use in treatment in the United States; and (3) there is a lack
of accepted safety for use of the drug under medical supervision.

USC Title 21, Section 841(a), known as The Controlled Substances Act, states that it is
illegal for anyone to knowingly or intentionally manufacture, distribute, or dispense, or
possess with intent to manufacture, distribute, or dispense a controlled substance.

Revenue Ruling 75-384, 1975-2 C.B. 204, holds that a nonprofit organization, whose
purpose was to promote world peace, disarmament, and nonviolent direct action, did
not qualify for exemption under IRC Section 501(c)(3) or (c)(4). The organization's
primary activity was to sponsor antiwar protest demonstrations in which demonstrators
were urged to violate local ordinances and commit acts of civil disobedience. Citing the
law of trusts, the ruling stated that all charitable organizations are subject to the
requirement that their purposes cannot be illegal or contrary to public policy.

In Ould v. Washington Hospital for Foundlings, 95 U.S. 303, 311, 24 L. Ed. 450 (1877),
the Court noted that "[a] charitable use, where neither law nor public policy forbids, may
be applied to almost anything that tends to promote the well-doing and well-being of
social man."

In Better Business Bureau of Washington, D.C., Inc. v. United States, 326 U.S. 279, 283,
66 S. Ct. 112, 90 L. Ed. 67, 1945 C.B. 375 (1945), the Supreme Court held that the
"presence of a single . . [nonexempt] purpose, if substantial in nature, will destroy the
exemption regardless of the number or importance of truly . . . [exempt] purposes."

In Harding Hospital, Inc. v. United States, 505 F.2d 1068, 1071 (6th Cir. 1974), the court
held that an organization has the burden of proving that it satisfies the requirements of

Form 886-A (Rev. 4-68) Department of the Treasury - Internal Revenue Service
Page: 15 of 19


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

Name of Taxpayer: Year/Period Ended:

the particular exemption statute. The court noted that whether an organization has
satisfied the operational test is a question of fact.

In Mysteryboy Inc. v. Commissioner, T.C. Memo 2010-13 (2010), the Tax Court held
that the organization failed the operational test partly because the organization
proposed to promote illegal activities.

Taxpayer's Position:
did not respond to any of the IRS correspondence and as such
position to either issue is not known.

Government's Position:

Issue 1 — should not be recognized as an organization described in IRC
section 501(c)(3) because it failed to demonstrate that it qualified for such recognition,
the information uncovered by the IRS shows distributes cannabis, and
members consume cannabis.

Based on the above facts, has not demonstrated that it is organized and
operated exclusively for religious purposes or more of the purposes specified in IRC
section 501(c)(3). If an organization fails to meet either the organizational test or the
operational test, it is not exempt.

Based on the information we have uncovered, we determined that is not
organized and operated exclusively for exempt purposes under IRC section 501(c)(3).
An organization can be recognized as exempt under IRC section 501(c)(3) only if it
shows that it is both organized and operated exclusively for charitable, educational, or
other exempt purposes. If an organization fails to meet either the organizational test or
the operational test, it is not exempt.

Federal law classifies cannabis as a controlled substance, as detailed in USC Title 21,
Sections 802 and 821(c), Schedule I(c)(10). Federal law, under USC Title 21, Section
841, prohibits the manufacture, distribution, possession, or dispensing of a controlled
substance. The consumption of cannabis is a substantial part of activity and
. The consumption and distribution of cannabis is an illegal activity -
current federal law prohibits the use of cannabis. Because engages in
activities that contravene federal law, does not serve a substantial exempt
purpose.

does not satisfy the operational test of Regulations section 1.501(c)(3)-
1(c)(1). Whether an organization operates exclusively in furtherance of an exempt
purpose is a question of fact. An organization seeking tax-exempt status under IRC

Form 886-A (Rev. 4-68) Department of the Treasury - Internal Revenue Service
Page: 16 of 19


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

Name of Taxpayer: Year/Period Ended:

section 501(c)(3) carries the burden of proving that it satisfies the requirements of the
statute, see Harding Hospital, 505 F.2d at 1071. Only an insubstantial portion of the
activity of an exempt organization may further a nonexempt purpose. Because
is engaged in activities that contravene federal law, serves a
substantial nonexempt purpose. As the Supreme Court held in Better Business Bureau
of Washington, D.C., Inc. v. United States, the presence of a single nonexempt
purpose, if substantial in nature, will destroy the exemption regardless of the number or
importance of truly exempt purposes.

The common law of trusts specifies that a charitable trust cannot be created for an
illegal purpose. See Restatement (Second) of Trusts, Section 377. Similarly, the
Supreme Court noted in Ould v. Washington Hospital for Foundlings, that "[a] charitable
use, where neither law nor public policy forbids, may be applied to almost anything that
tends to promote the well-doing and well-being of social man." Like a trust, an IRC
Section 501(c)(3) organization cannot be created for a purpose that is illegal. The
literature uncovered by the IRS and response to the complaint show
specific purposes is the consumption and distribution of cannabis
supposedly during and after religious services. Because engages in activities
that contravene federal law, serves a substantial nonexempt purpose. See
Rev. Rul. 75-384, supra; Mysteryboy, Inc. v. Comm'r.

is not described in Regulations section 1.501(c)(3)-1(d)(2) which provides
that the term "charitable" as used in IRC section 501(c)(3) in its generally accepted legal
sense. Advancement of religion has long been recognized as a charitable purpose.
However, a trust is invalid if its purpose is illegal. The common law of trusts specifies
that a charitable trust cannot be created for an illegal purpose. Because
engages in activities that contravene federal law, serves a substantial
nonexempt purpose.

Issue 2 — Based on the information in the fact section, funds inured to the
benefit of and . Both individuals have authority over
finances and both have a personal and private interests in
activities.

The , , and expenditures indicate a
personal use by and and did not establish
the purchases furthered an exempt purpose.

is owned and operated by and and as such
any payments to are indistinguishable from payment to and
. Any payments to that are not substantiated to further

Form 886-A (Rev. 4-68) Department of the Treasury - Internal Revenue Service
Page: 17 of 19


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

Name of Taxpayer: Year/Period Ended:

charitable purposes constitute inurement and in this case did not establish
the payments furthered an exempt purpose.

The incorporating document dated (Attachment 12) shows
and are two of the directors. The agreement dated
(Attachment 12) shows as one of the founders. Any payments
to that are not substantiated to further a charitable purposes
constitute inurement because the payments are in effect being made to
and in this case did not establish the payments furthered an exempt purpose.

The debits purchases and withdraws total $ for both years
under examination, most indicate a personal benefit, did not provide any
support to show the purchases further a charitable purpose, and thus the debit
purchases constitute inurement to and

check payments total $ for both years under examination,
the payee's name does not indicate the payment further a charitable purpose,
did not provide any support to show the payments purpose, and thus the
check payments constitute inurement to and
The existence of inurement is exemplified by the $ payment to
because they ordered a pest inspection of the property,
clearly indicating they were doing work on the property; the property was purchased
with funds but lists as the owner, which is controlled by
and

The debits purchases total $ for both years under examination,
most indicate a personal benefit, did not provide any support to show the
purchases serve a charitable purpose, and thus the debit purchase constitute inurement
to

The withdrawals totaling $ were made by the account holder,
did not serve a charitable purpose, and did not establish that the funds
furthered a charitable purpose.

The two checks paid to totaling $ and the two
check paid to totaling $ are examples of assets
inuring to the benefit of and because no support was
provided to show the payments furthered a charitable purpose. The seven checks paid
to totaling $ are examples of assets inuring to the
benefit of and because and
are the only partners in and because no support was provided to

Form 886-A (Rev. 4-68) Department of the Treasury - Internal Revenue Service
Page: 18 of 19


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

Name of Taxpayer: Year/Period Ended:

show the payments furthered a charitable purpose. The five checks paid to
totaling $ is another example of assets inuring to the
benefit of and because provided
service to the , which is owned by the , which is controlled
by and

The $ payment to were used to purchase the
by , which is operated by and
constitutes prohibited inurement because no support was provided to show the
purchase furthered a charitable purpose. The RA identified $ payments to
for the purchase of the property owned by
. The memo section of the checks shows , which is the loan number
referenced in the Final Buyer's Statement obtained from . The statement
further identifies as the buyer of the property and as
the lender.

The debits purchases and withdraws total $ for the
year, none indicate a charitable purpose, did not provide any support to show
the purchases serve a charitable purpose, and thus the expenditures constitute
inurement.

Conclusion:
Issue 1 — should not be recognized as a tax exempt organizations as
described in IRC section 501(c)(3). An organization claiming to be a is not
required to submit a recognition request and is considered to be exempt under IRC
501(c)(3) based on their assertion. Therefore the effective date of revocation is

Issue 2 — Inurement exists because did not demonstrate that any of its
expenditures totaling $ furthered a charitable purpose.

Form 886-A (Rev. 4-68) Department of the Treasury - Internal Revenue Service
Page: 19 of 19