IRS revokes 501(c)(3) status of an inactive Type III supporting organization

Plain-English summary

The IRS revoked a nonprofit's tax-exempt status. The organization had been
recognized as a Section 509(a)(3) supporting organization, a public charity
that exists to support another named charity. On examination the IRS found it
was doing essentially nothing: no meetings of the governing body, no
publications or activities, no revenue, and no annual distribution to the
organization it was supposed to support. Because a supporting organization
must actually be operated to support its charity, and this one was inactive, it
failed the operational test under IRC Section 501(c)(3) and the Section
509(a)(3) regulations. The IRS issued a final adverse determination revoking
its exemption, which also ends the deductibility of contributions under Section

170. The organization can contest the revocation in Tax Court, the Court of
     Federal Claims, or the U.S. District Court for the District of Columbia under
     Section 7428. This is a routine consequence for a charity that stops operating
     but keeps its ruling on the books.

Ruling snapshot

• Question: Does an inactive Type III supporting organization that made no distributions and held no board meetings still qualify for exemption under 501(c)(3)?
• Outcome: Revocation of exempt status
• Key authorities: IRC § 501(c)(3); IRC § 501(a); IRC § 509(a)(3); Treas. Reg. § 1.501(c)(3)-1(a); Treas. Reg. § 1.509(a)-4; IRC § 170; IRC § 7428

Full text (IRS public release)

Department of the Treasury                          Date:
Internal Revenue Service                            May 24, 2024

Tax Exempt and Government Entities                  Taxpayer ID number (last 4 digits):
IRS Exempt Organizations Examinations
                                                    Form:
Release Number: 202425014                           Tax periods ended:
Release Date: 6/21/2024
UIL Code: 501.03-00                                 Person to contact:
                                                      Name:
                                                      ID number:
                                                      Telephone:
                                                      Fax:

                                                    Last day to file petition with United States
                                                    Tax Court: August 22, 2024

CERTIFIED MAIL - Return Receipt Requested

Dear             :

Why we are sending you this letter
This is a final determination that you don't qualify for exemption from federal income tax under Internal
Revenue Code (IRC) Section 501(a) as an organization described in IRC Section 501(c)(3), effective
         . Your determination letter dated          is revoked.

Our adverse determination as to your exempt status was made for the following reasons: Organizations
described in IRC Section 501(c)(3) and exempt from tax under Section 501(a) must be both organized and
operated exclusively for exempt purposes and no part of the net earnings may inure to the benefit of any private
shareholder or individual. An organization will not be so regarded if more than an insubstantial part of its
activities is not in furtherance of an exempt purpose.

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 Treasury Regulations Section 1.501(c)(3)-1(a).

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.

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. 3-2024)
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).

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 if 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. Visit TaxpayerAdvocate.IRS.gov/contact-us or call 877-777-4778 (TTY/TDD 800-829-4059)
to find the location and phone number of your local advocate. Learn more about TAS and your rights under the
Taxpayer Bill of Rights at TaxpayerAdvocate.IRS.gov. Do not send your Tax Court petition to TAS. Use the
Tax Court address provided earlier in the letter. Contacting TAS does not extend the time to file a petition.

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.

Letter 6337 (Rev. 3-2024)
Catalog Number 74808E

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]

Lynn A. Brinkley
Director, Exempt Organizations Examinations

Enclosures:
Publication 1
Publication 594
Publication 892

cc:

Letter 6337 (Rev. 3-2024)
Catalog Number 74808E

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Department of the Treasury                          Date:
Internal Revenue Service                            11/15/2023

Tax Exempt and Government Entities                  Taxpayer ID number:
                                                    Form:
                                                    Tax periods ended:
                                                    Person to contact:
                                                      Name:
                                                      ID number:
                                                      Telephone:
                                                      Fax:
                                                      Address:

CERTIFIED MAIL — Return Receipt Requested

Manager's contact information:
  Name:
  ID number:
  Telephone:

Response due date:
December 14, 2023

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.

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

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

If you're considering requesting technical advice, contact the person shown at the top of this letter. If you
disagree with the technical advice decision, you will be able to appeal to the IRS Appeals Office, as
explained above. A decision made in a technical advice memorandum, however, generally is final and
binding on Appeals.

If we don't hear from you
If you don't respond to this proposal within 30 calendar days from the date of this letter, we'll issue a final
adverse determination letter.

Revenue Procedure 80-27 requires that, in the event your tax-exempt status is revoked, your group exemption will
also be revoked. If that occurs, none of your subordinates will be able to rely on the group ruling for tax-exempt
status. You should notify each subordinate of this proposed action.

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,

[signature]

Lynn A. Matias, Supervisory, Internal Revenue Agent for
Lynn A. Brinkley
Director, Exempt Organizations Examinations

Enclosures:
Form 886-A
Form 6018

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

---

Form 886-A          Department of the Treasury — Internal Revenue Service          Schedule number
(May 2017)          Explanations of Items                                          or exhibit
Name of taxpayer                          Tax Identification Number (last 4 digits) | Year/Period ended

ISSUE
Whether            qualifies for exemption under
Sections 501(c)(3) and public charity status under Section 509(a)(3) of the Internal Revenue Code
as a Type III non-functionally integrated?

Whether the organization meets the requirements for operational test under Section 501(c)(3) of
the Internal Revenue Code?

FACTS
          was formed in         .          is recognized as an IRC 509(a)(3) tax-exempt
supporting organization with an effective date of          .

The bylaws dated          , state the purpose of the organization.
"The object of the          shall be to foster interest among its members in the work of
[illegible]"

The Form 990-EZ for Part I shows that the Revenue, Expenses, Net Assets and the
organization has no exempt activity nor generate any revenue. Part II Balance Sheets shows the
cash on hand at the beginning of the year of $        and end of year remain same amount. Part III
Statement of Program Service Accomplishments show that the organization primary exempt
purpose and line 28 through 32 shows no expense incurred during the year. Part V line 41 books
and record of supporting organization is kept at          address. The
Form 990-EZ show that the electronic signature of officer as the Chairman that
signed for the tax year and Chairman also a Board of Directors and Foundation Board of
Trustee of          .

The Schedule A attached to 990-EZ, Section D the organization answered question 1 "Yes" that
the EO provided written notice to supported organization describing the type or amount of support
provided during the prior tax year. Part V has sections A through E, section was not complete are
C, D and E.

The response to IDR #1 dated          , a Fax was received on          from
          for the supporting organization. See correspondence below from POA.

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
(May 2017)          Explanations of Items                                          or exhibit
Name of taxpayer                          Tax Identification Number (last 4 digits) | Year/Period ended

Please see below responses to the information document request received.
Item 1 Operational Requirements
a. The organization was inactive during the fiscal year under tax examination. This
   organization is primarily run by volunteers, and it has had challenges in having
   board participation. The organization did not hold any meetings with the governing
   body during the fiscal year. The organization in the process of recruiting individuals
   to sit on the board that will commit to the operational requirements of the
   organization.
b. The organization does not have any policy manuals, officer manuals, or
   employee handbooks.
c. The organization did not disburse any funds to
   during the tax year under examination. The tax preparation was done internally and the
   individuals were unaware of the required distribution for a non-functionally integrated
   supporting organization. The failure to distribute funds was not out of willful neglect
   but due to lack of knowledge and participation of the governing board. As their new
   CPA firm have made the organization aware of this requirement and have fulfilled the
   distribution requirement for fiscal year and will do so going forward.

Item 2 Understand the activities
a. The organization did not have any publications, newsletters, brochures, or
   other literature distributed during the tax year under examination.
b. There was no correspondence or records between the organization and
   officers, members, volunteers during the tax year under examination

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

Form 886-A          Department of the Treasury — Internal Revenue Service          Schedule number
(May 2017)          Explanations of Items                                          or exhibit
Name of taxpayer                          Tax Identification Number (last 4 digits) | Year/Period ended

LAW
Section 1.501(c)(3)-1(a)(1) 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.

Section 1.509(a)-4(b)(1) Under subparagraph (A) of section 509(a)(3), in order to qualify as a
supporting organization, an organization must be both organized and operated exclusively for the
benefit of, to perform the functions of, or to carry out the purposes of (hereinafter referred to in this
section as being organized and operated to support or benefit) one or more specified publicly
supported organizations. If an organization fails to meet either the organizational or the
operational test, it cannot qualify as a supporting organization.

Section 1.509(a)-4(e) Operational test—(1) Permissible beneficiaries. A supporting organization will
be regarded as operated exclusively to support one or more specified publicly supported
organizations (hereinafter referred to as the operational test) only if it engages solely in activities
which support or benefit the specified publicly supported organizations. Such activities may
include making payments to or for the use of, or providing services or facilities for, individual
members of the charitable class benefited by the specified publicly supported organization.

GOVERNMENT'S POSITION
Section 1.509(a)-4(e)          failed the operational
test. In          the organization did not engage in fundraising or unrelated trade that would generate
funds that support          nor have active governing body. The
supporting organization did not make an annual distribution to benefit the supported. Based on all
the facts and circumstances the supporting organization did not meet the operational test and
exempt organization does not qualify for Section 509(a)(3)(A).

TAXPAYER'S POSITION
The taxpayer's position is unknown at this time.

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

Form 886-A          Department of the Treasury — Internal Revenue Service          Schedule number
(May 2017)          Explanations of Items                                          or exhibit
Name of taxpayer                          Tax Identification Number (last 4 digits) | Year/Period ended

Conclusion:
Exempt organization is not operated exclusively for exempt purpose due to no activities nor the
governing body was inactive during tax year          . It is recommended that
Section 501(c)(3) tax-exempt status be revoked effective          .

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