Private foundation loses exemption for inactivity and insider-controlled assets

Plain-English summary

The IRS revoked a private foundation's 501(c)(3) status after finding that its purpose and operations had shifted away from the charitable program described in its exemption application. The foundation made few historical charitable contributions and none during the examined years, conducted only limited public activities, and did not make the minimum distributions expected of a non-operating private foundation. It transferred substantial funds through poorly protected insider loans, invested in an insider-owned business that became a total loss, and used foundation money for transactions that did not further exempt purposes. Donated objects remained in locations controlled by an insider, with little or no public access, so the IRS found that the assets continued to benefit private interests. The foundation also failed to provide complete records and did not establish that it qualified as a private operating foundation under the income, assets, endowment, or support tests. The IRS concluded that the foundation failed the operational test, allowed inurement, and became a taxable private foundation required to file both Form 1120 and Form 990-PF.

Ruling snapshot

• Question: Did a private foundation with minimal charitable activity, insider loans and investments, and privately controlled donated assets remain exempt under IRC § 501(c)(3)?
• Outcome: revocation
• Key authorities: IRC §§ 501(c)(3), 507, 509(a), 4941, 4942, 6001, 6033; Treas. Reg. §§ 1.501(c)(3)-1, 53.4942(b)-1, 53.4942(b)-2

Full text (IRS public release)

Department of the Treasury
Internal Revenue Service
IRS Tax Exempt and Government Entities

Date:
05/31/2024

Taxpayer ID number (last 4 digits):

Form:

Tax periods ended:

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

Release Number: 202443024
Release Date: 10/25/2024
UIL Code: 501.03-00

Last day to file petition with United States
Tax Court: 08/29/2024

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: 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).

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.

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 filliable 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.

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.

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.

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

Keep the original letter for your records.

Sincerely,

Lynn A. Brinkley
Director, Exempt Organizations Examinations

Enclosures:
Publication 1
Publication 594
Publication 892

cc:

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

Department of the Treasury
Internal Revenue Service
IRS Tax Exempt and Government Entities

Date:
August 29, 2023

Taxpayer ID number:

Form:

Tax periods ended:

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

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

Response due date:
September 28, 2023

CERTIFIED MAIL - Return Receipt Requested

Dear

Why you're receiving this letter
We enclosed a copy of our audit report, Form 886-A, Explanation of Items, explaining that we
propose to revoke your tax-exempt status as an organization described in Internal Revenue Code
(IRC) Section 501(c)(3).

If you agree
If you haven't already, please sign the enclosed Form 6018, Consent to Proposed Action, and
return it to the contact person shown at the top of this letter. We'll issue a final adverse letter
determining that you aren't an organization described in IRC Section 501(c)(3) for the periods
above.

After we issue the final adverse determination letter, we'll announce that your organization is no
longer eligible to receive tax deductible contributions under IRC Section 170.

If you disagree

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

2. Send any information you want us to consider.

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

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

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.

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.

For 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,

Vanessa Richards Rather
For Lynn A. Brinkley
Director, Exempt Organizations Examinations

Enclosures:
Form 886-A
Exhibits A-P
Form 6018
Form 4621-A
Publication 892
Publication 3498

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

Form 886-A Department of the Treasury — Internal Revenue Service Schedule number
. or exh
(May 2017) Explanations of Items
Name of taxpayer Tax Identification Number (last 4 digits) | Year/Period ended
ISSUE:
Whether tax-exempt status should be revoked

because it does not meet the requirements for exemption under section 501(c)(3) of the Internal
Revenue Code.

FACTS:
An examination was conducted of (“ ”) which
included a review of the organizing documents; Form 1023 Application; historical Forms ~ 3a

review of the financial records submitted, and a review of information secured from sources other
than the

Background
Organizational and Exemption History

(" ”) was incorporated as a not-for-profit
organization in the State of on , . The Articles of Incorporation included
the purpose in Article ; the authority of , the in Article ; and

the distributions in Article
The Articles included the following purpose:
The corporation was formed “for the following purposes from Article
a) “To promote the interests of organizations devoted to scientific, educational, charitable,

societal or public purposes which fall within the category of 501(c)(3) of the Internal
Revenue Code of 1954, as amended, including the ; '

: and ; , , ;
and other ; or interest
or value, { ) as part of the , , Or of the State
of , or the ;( ) as a site of a significant ;{ )as
identified with a person or persons who significantly contributed to the
of the , or the 7. )an of the
; : , or of the , or the
;( )as a of an type or
; ( ) as identified as the work of an or whose

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

A Department of the Treasury — Internal Revenue Service Schedule number
Form 886- . or ex™ bit
(May 2017) Explanations of Items
Name of taxpayer Tax Identification Number (last 4 digits) | Year/Period ended
has influenced the of -and( )as of
; : or which represent a significant
b) To and and ; , personal, tangible, or intangible,

or any undivided interest therein, without limitation as to amount or value, by gift, grant,
purchase, lease or otherwise, either absolutely or jointly with any other person, persons
or corporation. for any and all of the organizations described in subsection (a: of this
section from its members, from the public and from all other sources available; to
receive and maintain such funds and property and to expend the principal and income
therefrom in furtherance of these purposes;

c) To ; , or otherwise deal with all , and , to be used in
furtherance of these purposes;

d) To wich other organizations, for profit and not for profit with individuals, and
with governmental agencies in furtherance of these purposes;

e) To otherwise operate exclusively for charitable, scientific, educational, societal, or public
purposes within the meaning of 501(c)(3) of the Internal Revenue Code of 1954, as
amended in the course of which operation:

i. No part of the net earnings of the corporation shall inure to the benefit of, or be
distributable to, its members, directors, officers, or other persons, except that the
corporation shall be authorized and empowered to pay reasonable compensation
for services rendered and to make payments and distributions in furtherance of
the purposes set forth herein;

ii. | No substantial part of the activities cf the corporation shall be the carrying on of
propaganda, or otherwise attempting to influence legislation, and the corporation
shall not participate in, or intervene in (including the publishing or distribution of
statements) any political campaign on behalf of any candidate for public office
except as authorized under the Internal Revenue Code;

iii. | Notwithstanding any other provisions of these articles, the corporation shall not
carry or any other activities not permitted to be carried on (a) by a corporation
exempt from federal income tax under 501(c)(3) of the Internal Revenue code of
1954 (or the corresponding provision of any future United States Internal
Revenue Law) or (b) by a corporation, contributions to which are deductible
under 170(c)(2) of the Internal Revenue Code of 1954 (or the corresponding
provision of any future United States Internal Revenue Law). *

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

Schedule number

Department of the Treasury — Internal Revenue Service
Form 886-A . or exmbit
(May 2017) Explanations of Items
Name of taxpayer Tax Identification Number (lest 4 digits) | Year/Period ended
The powers vested in , the 's initial member from Article:

a) “Appoint all the directors of the corporation;

b) Nominate to the corporation’s board of directors all candidates for selection as the
corporation’s president;

c) Approve expressly all amendments to the corporation’s articles of incorporation and by-
laws before they become effective;

d) Approve the admission of additional members and the establishment of additional
classes of members;

e) Approve the incurrence of debt by the corporation in excess of

($ );
f) Approve the annual budget of the corporation
g) Approve operating policies established by the corporation; and

h) Approve transfers of the corporation’s assets, in excess of $ to transferees.’

A statement that the Foundation would make qualifying distributions was included in

“Not later than the ( ") day of the ( ") month after the close of the
corporation’s taxable year in which the corporation receives contributions, the corporation
will make qualifying distributions, as defined in Section 4942(g) of the Internal Revenue
Code of 1954, as amended, without regard to paragraph ( ) thereof which are treated after
the application of Section 4942(g){3) of the Internal Revenue Code of 1954, as amended,
as distributions out of corpus (in accordance with Section 4942(h) of the Internal Revenue
Code of 1954, as amended, in an amount equal to one hundred percent (100%) of such
contributions. The corporation shall maintain adequate records or other sufficient evidence
showing that the qualifying distributions were appropriately made ”

Form 1023 Application

On : , the Internal Revenue Service (“IRS”) received Form 1023- Application for
Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code (Rev. April

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

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

(May 2017) Explanations of Items

Name of taxpayer Tax Ident fication Numer (last 4 digits) Year/Period ended
1984). The application was signed by the on '
According to Part - and information, there would be no and the

would be by the ( ). The narrative
description of the activities was “to from the and to
provide and to ' . , and ;
; , and . The made a contribution of stained-
by , which the then contributed to the
Per , Statement as to , line , the box was checked“ =”
that the was a
Exemption Letter
The was issued an exemption letter on , granting exemption as a
within the meaning of Section 509(a) of the Code as of the date the Form
application was filed on ; . In the letter, the IRS determined that the was
an as defined in Section 4942(j)(3). (see Exhibit )
The was subsequently issued Letter -
asa on ; . Attached to the letter was a
which granted an extension to the -month filing period. The
stated the was recognized as exempt under section 501(c)(3} of the
code from , , the date it was incorporated.
Historical Forms

The historical Forms filed for the previous years were reviewed. It was determined that
a Form was not filed for the tax years ended , , and . . the
Forms from : to , were inspected. A spreadsheet of the

income, expenses and balance sheet was prepared from these documents and the following was
determined:

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
» r
(May 2017) Explanations of Items oe
Name of taxpayer Tax Iderification Numee: (last 4 digits) | Year/Period ended
INCOME
Sources of Funds
From the fiscal years , through ; , the derived income and
net gain loss from sources it reported as ; and ; and net loss ‘rom
of . All the were by . (see Exhibit for detail
for each year)
Contributions- cash
The reported a total of $ in income on their Forms .
made a in each of the fiscal years and a return was filed for a total of
$
Contributions- non-cash
A total of $ in non-cash contributions was donated to . During the fiscal
year ended ; a valued at $ and a
valued at $ was donated to . he internet was researched,
and was determined to be an and
was a from the . (see Exhibit ) During che fiscal year ended
, the received a contribution of valued at S
Dividends and interest
Dividend and interest income reported on Forms from fiscal years ended
and : was derived from held at
. The total interest income was $
Net gain (loss) from sale of assets
Total losses of $( ) were reported on the . During the fiscal year ended
, the reported a of $( ). Part of the Form
identified the item sold was a that was purchasec on and sold on
. The loss was computed using the sales price of S less the cost of
$ . During the year ended , the reported a loss of $( ).
Part ofthe Form reported the loss on an .
EXPENSES
From the fiscal years through , the reported expenses for

fees; other expenses and contributions. (see Exhikit for detail 7or each

?

year)

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

Form 886-A Department of the Treasury — ~:erna Revenue Serwice Sched_le number

(May 2017) Explanations of Items or ext

Name of taxpayer Tax Identfication Numer (lasz 4 digits! Year/Period ended

Use of Funds

The reported a total of $ in expenses on their Forms . A total of
$ in fees; $ in fees; 5 in other expenses and $

in contributions. Contributions were made by the in ofthe years. Part,
section of the Form reported the following recipients of ccntributions from the

Foundation {see Exhibit ):

° contributions to for a total of $
o contributions to for a total of $
e contribution to fe” $
° contributions to for a total cf $
e contributions to for a total of $
e contribution to for $
BALANCE SHEET
From the fiscal years through , the reported assets that

included cash, receivable from officers, directors, trustees etc, and cther assets. (see Exhibit for
detail for each year)

Receivables from officers, directors trustees etc.

During the fiscal year , the -eported receivables from officers. directors,
trustees on the Form in the amount of $
During the fiscal year , the Form reported an asset of $ labeled as
. Bank records submitted during the examination revealed that -here was a
out of the on , to in the
amount of $ . Bank records also showed a deposit of $ into the
account on . workpaper submitted during the examinatior

described the payment as receipt of

The Form instructions for Line -receivables due from officers, directors, trustees, and
other disqualified persons loans requests additional information in an attached schedule for each
loan that included the following:

1. ;

2. ;

3. '

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

Form 886-A Department of the Treasury — iInternal Revenue Service Scheele namber
. or exn |

(May 2017) Explanations of Items

Name of taxpayer Tax Identification Number (last 4 digits) | YeartHerioc ended
4 ¥
5 ,

6. :
7. ,
8
9. , and
10. Description and fair market value of the consideration furnished >y the lender
A schedule that included the above information about with was not submitted
with Forms filed for and
Other assets
The other assets consisted of

; ; > and
The has been reported on the Form since . The
was valued on the Form as $ on al Forms filed.
The and were donated during
and have been valued at $ and $ respectively on the subsequent Forms
The was fcurchased during the fiscal year endec and sold ata
loss the subsequent fiscal year ended
The Form for the year ended reported an investment in
valued at $ . Bank records submitted during the examination revealed the
wrote check # on to for . The workpapers for the
year ended reported the amount as an . he entire investment of
$ was written off es a loss during the year ended . Agoogle search for
was conducted and no information could be found. An
Search was conducted, and it was determined that was a domestic
that involuntarily dissolved . The agent and manager listed was

. (see Exhibit )

For more information on Bank Refund Due see above section- Rece‘vables frorn officers, directors
trustees etc.

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

Department of the Treasury — merna Revenue Se-vice Schedule number
(May 2017) Explanations of Items
Name of taxpayer Tax Identification Number fast 4 digits; | Year/Period ended
The were donated during and valuec at $ . The

subsequent year the value dropped to $

No Liabilities were reported on the Forms

Forms under Examination

An examination of the Forms filed by the for the
fiscal years ended ; and was initiated. The following
information was secured from a review of the filed Forms
In response to Part ,Line , the following statement
was included on the Forms about the purpose:

“The purpose is to . and the

in its for the and of . The

entire cash balance is being held for future and of the

and to pay the expenses.”

INCOME

Sources of Funds

The reported a total of $ in income “or the fiscal year erded . The
income was donated and $ in interest.
There was no income for the fiscal year ended and nc income for the fiscal year
ended

if if / TO-AL

Contributions-cash - - - :

Contributions-
Noncash

Interest ; . - -

TOTAL 1. - - '

Catalog Number 20810W Page 8 www.irs.gov Form 886-A (Rev. 5-2017)

—-.

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

Use of Funds

The reported a total of $ in expenses for the fiscal year ended ;no

expenses for the fiscal year ended and $ in expenses for the fisca: year

ended . The expenses were $ in >$ in fees and$ in
fees. There were made in any 2f the years.

if id ii TOTAL

EXPENSES

Accounting fees -

Other expenses
State fees - “
Bank fees - -

Contributions - - - -

TOTAL

BALANCE SHEET

The Balance Sheet reported assets that included , from ,
, other notes receivable and other assets. The other assets consisted of

and . No were reported on the Forms

Receivables from officers, directors trustees etc.

During the fiscal year , the veported rece'vables from officers. directors,
trustees on the Form in the amount of $
The Form instructions for Line -receivables due “rom officers, directors, trustees, and

other disqualified persons loans requests additional information in an attached schedule for each
loan that included the following:

1. :

2. ;

Catalog Number 20810W Page 9 www.irs.gov Form 886-A (Rev. 5-2017)

Form 886-A Department of the Treasury — tiernal Revenue Se-~vice serene M number
(May 2017) Explanations of Items
Name cf taxpayer Tax Identification Number (last 4 digits) © Year/Period ended
3 ;
4

5. ,
6. ,
7 ?
8
9. , and
10. Description and of the consideration furnished sy the

A schedule that included the above information about receivables with officers was not submitted
with Farms filed for ; and

Other notes and loans receivable
During the fiscal year , the reported other 1otes and loans receivable in

the amount of $

Ofher assets
The other assets of ; ; ;
are reported on all years at the sane value in the historical Forms

In addizion to the that were donated during ; an additional conation of
were donated during . T1e value of the soins rose from $ in
,to$ in to $ in

The balance sheet for the reported fixtures valued ar &

if if /
ASSETS

Cash 1on-interest

Receivables from officers,
directors, trustees

Other notes and loans
receivable -

Other assets

Catalog Number 20810W Page 10 www.irs.gov Form 886-A (Rev. 5-2017)

- ice Schedule number
Form 886-A Department of the Treasury iInternal Revenue Service or exhinit
(May 2017) Explanations of Items
Name of taxpayer Tax Identification Number Cast 4 digits: | Year/Period ended
TOTAL
A further review revealed that significant sections of the returns were either incompleie,
had or was . This included:

e Part V Qualification under Section 4940(e) for Reduced Tax on Net Investment Income.
Column (c) and (d) had
e Part VI Excise Tax Based on Investment Income. Fields hac .
Part IX-A Summary of Direct Charitable Activities section contained
Part IX-B Summary of Program Related Investments contained
e Part X Minimum Investment Return section- Cash deemed herd for charizable use assets
was the fair market value of total assets. Minimum investment retu-n was
Part XI Distributable Amount section was

e Part XII Qualifying Distributions section. Fields had

e Part XIll Undistributed Income section was

« Part XIV Private Operating Foundations section. The box for private operating foundation
under section 4942(j)(3) was . The adi-sted net inceme was for the current
and prior years. The % ofthe adjusted net income was for the current and _ prior
years. The value of assets and the value of assets qualifying urder section 4942(j)(3){B)(i)
was

« Part XV Supplementary Iinformation Grants and Contributions Paid during the Year or
Approved for Future Payment. This section conzained ;
e Part XVI-A Analysis of Income Producing Activities section included interest income cf

$ in and was for and ; and

e Part XVI-B Relationsh p of Activities to the Acccmplishment of Exenpt Purpose section
stated interest was used to pay expenses of foundation for ‘was for
and

Catalog Number 20810W Page 11 www.irs.gov Form 886-A (Rev. 5-2017)

Form 886-A Department of the Treasury — mternal Revenue Sevice Sched e number

. hinit
(May 2017) Explanations of Items sree
Name of taxpayer Tax Identification Number (last 4 digits) Year/Period ended
Forms Filed
A Form was submitted by the for the fiscal year
ended and received by the Internal Revenue Service on . The return
reported _acts of with
ACT NO. DATE OF ACT DESCRIPTION AMOUNT INVOLVED
1 if
2 if
3 if
4 if
5 ff
6 if
TOTAL

The following statement regarding the transactions was included on the =orm

“The toa during the tax year. These transactions
are activities - and the dates they occurred are listed in Schedule . The funcs were borrcwed
for a business activity operated by the . It is the intention
to repay the amount , including , aS soon as the funds are available. At the time
the return was filed the did not have the funds availab e to

However, is scheduled to be repaid in “

Examination

Correspondence and responses to IDR’s

An examination of the Foundation Forms for the fiscal years ended
, and was initiated when Appointment Letter 3611, Iinformation Cocument
Request No 01 (“IDR-01”) and Publication 1 that was mailed out on . IDR-C1

requested such information as: organizing documents. an interview: tour of residence and assets;
documents and financial records (see Exhibit ).

Catalog Number 20810W Page 12 www.irs.gov Form 886-A (Rev. 5-2017)

Form 886-A Department of the Treasury — imternal Revenue Service Schec sle number

(May 2017) Explanations of Items or exh

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

There was no response to Appointment Letter 3611, so on the phone number from
Part VII-A the books are in care was called and there was a messace that the
mailbox was full and cannot accept messages at zhis time. Then the shane number from Par B-
Telephone number was called and there was a message that the number had been disconnected.

On , a cover letter with a copy of Lette" 3611, IDR-0°, and Publication 1 was mailed

to by . The response due date was On ;
the status of the was checked on ire

Attempted delivery of the letter was and a notice was left.---- /f this ifem is

unclaimed by then it will be returned to sender. The was

subsequently returned to the Internal Revenue Service.

The preparer of the return, , was contacted on in order to
secure contact information for the Cn ,
a Form 2848- Power of Attorney was submitted. On a copy of the initial aucit

letter cf Letter 3611, IDR-01, and Publication 1 was faxed under the cove’ of Letter 35¢7 to

'

On , the following documents were recewved by fax from , with
pages:

A fax cover sheet dated

e A letter from with a list of items requestec in the order shown in the IDR
and a note as to if they exist, are in the process of obtaining cr are attached. The response
to the request for minutes was none. (see Exhibit )
A copy of Letter 3611 and IDR-01 dated

e L Bank checking account statements and cancelled checks for through
Bank -day CD account statements for through
e Bank -month CD account stateme ts for through
e workpapers of trial balance, journal entries and cash analysis for tax years
; + and .
e Form 8283 Noncash Charitable Contributions for for

- - ; of - FMV- $
e Invoice from & , caied - - for =he
preparation of exempt organization tax return in the amount of $
e Cashier's check paid to the order of & dated - - for $
e Invoice from & ' cmed - - for “he
preparation of the Forms , ard Annual Report for the

Catalog Number 20810W Page 13 www. its.gov For 886-A (Rev. 5-2017)

Form 886-A Department of the Treasury — Irernal Revenue Senvice Schea.to number
“ Or ex
(May 2017) Explanations of Items m
Name of taxpayer Tax denti‘ication Nummer (last 4 digits, | Year/Period eided

- and for research of self-dealing and preparation of Forms for
in the amount of $
e Email from to cc ~ Re: -- sated - - ;
was thanked for the of ($ face value
denomination) w th a value of $ to the . Signed by

The response to |DR-01 was reviewed and determined to be incompete.

The bank statements submitted were reviewed and -ha following transactions were noted for the
during the fiscal year to There was a total of $ transferred
out the bank accounts. An invoice was submitted from & for the payment of

$,  . for preparation of the return. No documentation was submitted jor the transfers to

Date Transaction Arrcunt

ieee Dineen l ie
ee ee ee aoe

TOTAL ( )

The bank statements were reviewed and there was nc financial activity noted curing
through

The bank statements submitted were reviewed and the following transactions were noted for the

during the fiscal year to . rere was a total of $ transferred
out the bank accounts. An invoice was submitted from & for the payment of

$, . for services ¢rovided. No documentation was submitted fcr the transfer to

; but the workpapers for the fiscal year ended , dentified
the $ asa . Also, no documentation was submitted for check #

to ; and for check # to . The Secretary of State

Catalog Number 208 10W Page 14 www.irs.gov Form 886-A, (Rev. 5-2017}

Form 886-A Department of the Treasury — ircernal Revenue Service Scheme number

* r
(May 2017) Explanations of Items om
Name of taxpayer Tax Identification Number (last 4 digits) | Year/Period ended
website was reviewec, and was determined to be a
(“ ”). The state records also identified as the '
member and registered agent. The bank statements also showed a2 wire transfer into the checking
account by on in the amount of $
Date Transaction Amount
i] ( }
if
if ( )
if ( )
iif ( )
if ( )
if ( )
if ( )
TOTAL
On ,a was held with , . It was discussed that
was out of town and the difficulties with getting documentation. Discussed the fac: that
the amount was not reported on the Form . stated that
; researched the issue and found some exclusion to making if you had no

. was informed that follow-up Iinformation Documen: Requests wil be faxed
to the next day.

In a follow-up to the incomplete response to IDR-01, Cover letter 5464 with Iinformation Docsanent
Requests 02-Follow us to IDR-01 and 02 Amount were ‘axed to
on (see Exhibit ). The response due date was . Attached to the cover

letter was the following:

¢ Iinformation Document Request 02- Follow up to IDR-01. Section A- items missing from
IDR-01 and Section B- additional documents basec on the review of the documents

submitted.

Catalog Number 20810W Page 15 Wwww.irs.gov Form 886-A, (Rev. 5-2017)

Form 886-A Department of the Treasury — iernal Revenue Service Schedule number
(May 2017) Explanations of Items co
Name of taxpayer Tax identification Nummer (last 4 digits, | Year/Period ended
e Iinformation Document Request- 02 Amount. Stated was not
an and was required to make . Section A- bank
statements and cancelled checks; and appraisals and other valuations o* the property for
fiscal years ended , ; ; and
. Section B- Documentation of what was relied upon in the determination that the
foundation qualified for an exception to the requiremen:.
On , faxes were received from ,

One of pages with the following documents in -esponse to IDF-02- Follow up to iDR-01:
A fax cover sheet dated

@ .

e A letter from dated

e Only for

e Acopy of Fax Transmission Cover Sheet from IRS to dated

° workpapers for computation of Line 1c- of all other assets from Part
Return.

Copy of Letter 3597, Letter 5464, IDR-02 and DR-93 dated

A second fax of pages with the following documents in response to IDR-02- Follow-up to ICR-
01:
e A fax cover sheet dated
e Facsimile cover sheet dated
e Copy of the front end back of Check # to
Copy of the front and back of Check # to

The response to 02-Follow up to IDR-01 and 02 Distrioutable Amount was reviewed and
determined to be incomplete.

The following subsequent correspondence was between tne IRS, and the

Date Mailed Correspondence Mailed to: Due date

Letter 5464, IDR -02 and IDR -03(corrected
if number) N/A

Letter 3597, Letter 5464, IDR -02 and IDR -
i] 03(corrected number) N/A

Catalog Number 20810W Page 16 www.irs.gov Form 886-A, (Rev. 5-2017)

Schedule number

886-A Department of the Treasury — ternal Revenue Sev ce ;

Form “ . or exhiit

(May 2017) Explanations of Items

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

Letter 3609 Corsent Request, Form 872 Fer
Income and Excise tax IRC 4940 (3 copies),
Form 872 for Excise taxes IRC 4942, 4944 and
4945 (3 ccpies) and Publication 1035 to request
if extension of the statute of limitations.

Letter 3597, Let-er 3600 Consent Request,
Form 872 =or Income and Excise tax IRC 4940
(3 copies}, Form 872 for Excise taxes IRC 4942,
4944 and 4945 (3 copies) and Publication 1035
if to reques: extension of the statute of limitations.

Letter 3600 Consent Request, Form 872
(updated revision) For Income and Excise tax
IRC 4940 (3 copies), Form 872 (updated
revision) for Excise taxes IRC 4942, 4944 and
4945 (3 copies) and Publication 1035 to request
i] extension of the statute of limitations.

Letter 3597, Letter 3600 Consent Request,
Form 872 (updated revision) For Income and
Excise tax IRC £940 (3 copies), Form 872
(updated -evision) for Excise taxes IRC 4942
4944 and 4945 (3 copies) and Publication 1035

if to request extension of the statute of limitatiors.
Letter 35E9 Consent Follow up, Publication

ii 1035
Letter 3569 Consent Follow up, Publication

if 1035
Signed Forms 872; workpapers of trial
balance, journal entries, and cash analysis for

if and

Letter 5077-D IDR Delinquency Notice, IDR-C2
i] and IDR-C3.- Certified Mail

Letter 3597, Letter 5077-D IDR Delinquency
ff Notice, IDR-02 and IDR-03.- Certified Mail

Letter 5077-A Pre-Summons Notice and IDR-22
if and IDR-03-Certified Mail.

Letter 3597, Letter 5077-A Pre-Summons Notice
if and IDR-02 and IDR-03-Certified Mail.

Catalog Number 20810W Page 17

www.irs.gov

Form 886-A (Rev. 5-2017)

Sury — ie i Schedule number
Form 886-A Department of the Treasury — iInternal Revenue Service

. or exnimit
(May 2017) Explanations of Items
Name of taxpayer Tax identificaticn Number ‘/asi 4 digits, | Year/Period ended

Letter 3598 Transmittal of Signed consent,
Signed Form 872 For Income and Excise tax
IRC 4940, Signed Form 872 for Excise taxes
if IRC 4942, 4944 and 4945

Letter 3597, Letter 3598 Transmittal of Signec
consent, Signed Form 872 For Income and
Excise tax IRC 4940, Signed Form 872 “or
if Excise taxes IRC 4942, 4944 and 4945

workpapers of trial balance, journa entries,
and cash analysis for ,
\ ; and

/f Letter 3164- Third Party Contact

Letter 3587 and Letter 3164- Third Party
fl Contact

Bank statements for ,

4 1

and

As of the last information submitted, the response to ‘DR-92 and IDR-03 was still incomplete and
did not submit to an interview about the activities of

1

Activities
The internet was searched for activities and there was 1¢ record a website
or any mention of activities conducted by . The referred to
in purpose or the Form was researched. The is the
designed by in (see Exhibit ). According to the
property tax information for ; was the owner of the
. (see Exhibit ) The was researched on the
website and under accessibility was identified as ‘see Exhibit }. The
wehsite included a list of , and the was

not included on the list (see Exhibit).

Catalog Number 20810W Page 18 www.irs.gov Form 886-A (Rev. 5-2017)

Form 886-A Depariment of the Treasury — ternal Revenue Service Schedule number
. or exhipi
(May 2017) Explanations of Items
Name of taxpayer Tax Identification Number (last 4 digits) | Year/Period ended
On , an Init al examination report was issued was issued that proposed the
revocation of exempt status under IRC 501(c)(3). No written position was

submitted that addressed the proposed revocation.

Subsequently, the examination continued, and additional Iinformation Document Requests were
issued.

Iinformation provided after ini-ial examination report

On , Iinformation Document Request No 4 (“IDR-34”)- Activities and Cperations
was issued to request documentation of the activities and operations of Also,
Iinformation Document Request No 5 (“IDR-05”)- Balance Sheet was issued to request
documentation of the Balance Sheet assets of and purchased by

The response due date was

On , the following documents dated - were “eceived in response to ICR-
04:

e Newspaper/Book articles and of the

Handwritten proposal pages for

e Partial brochure for

e Handwritten mission statement ana statemem of purpose
Bylaws of
e Correspondence- requests to view : thank you letters: requests to the

* and in books.
Also received on , were documents in response to DR-05 were:
° loan agreements that outlined the terms of the agreements between and
for loans that totaled $ . The documents submitted indicated

Catalog Number 20810W Page 19 www.irs.gov “orm 886-A (Rev. 5-2017)

Form 886-A

(May 2017)

Department of the Treasury — mternal Revenue Sewice

Explanations of Items

Schedule number
or extbit

Name of taxpayer

Tax Identification Number (last 4 digits)

YearPerioc ended

that the purpose of the to were for “ ”
signed the agreements as both the and
DATE il if iu if if i
BORROWER
AMOUNT
DELIVERY
METHOD
montis % interest, % per % yrinterest, | % int yearly, | % interest
maximum, % | Balloon annum, Balloon Balloon yearly
interest payment Balloon payment payme: cr Ealloon
payment Principa: + payment of
interes: both Principal
TERMS and Interest
by month No léter than | No later than -year note, upto ears,
, Or maximum ~ ~ no if
earlier prepaynett
PAYOFF DATE penalty
Funding Funding Funding Funding Funding Negative
negative cash | negative cash | negative ce@sh | negative cash | negative cash flow
from from from from cash from from
projects-
and , and
PURPOSE
Catalog Number 20810W Page 20 Ww. irs.gov Form 886-A (Rey 5-2017)


Form 886-A Department of the Treasury — In:ernal Revenue Service Scheoule number
. or exhni
(May 2017) Explanations of Items

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

COLLATERAL

SIGNATURE OF
BORROWER

SIGNATURE
FOR President President President President Presiden: President

INTEREST - - - - - -
PAYMENTS
PAYOFF DATE i] ff ff if None None

PAYOFF
AMOUNT

tos oo. , oo , oo. None None

e One that outlined the terms of ne agreement setween and the
fora thattotaled$ , . The document submitted indicated that
the purpose of the to was to fund a more to ;

DATE |

BORROWER or

AMOUNT ;

Wire to Properw Owner-
DELIVERY METHOD

Catalog Number 20810W Page 24 www.irs.gov Form 886-A (Rev. 5-2017)

Form 886-A Department of the Treasury — Ir vernal Revenue Service Schedule number

(May 2017) Explanations of Items orexhol

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

% per annum, until

receives payment of adprox

$$, which has been
TERMS awarded. Interest yearly.

year note- extension possibie;
PAYOFF DATE / if Ne prepayment penalty
wishes to more to
, as soon as

guaranteed full is
PURPOSE paid in full.
COLLATERAL None
SIGNATURE OF BORROWER
SIGNATURE FOR LENDER _ President

Interest payments- , -

$ ’ ‘ ; ’ a
INTEREST PAYMENTS a. .
PAYOFF DATE None
PAYOFF AMOUNT None

e Documentation of Check # to fore , dated ; ;
and Check # to for$ , dated , .

documents for the purchase of the fixture signed by

The ' , document stated the following:
“To record the payment of f to for the purchase
Of:
Purchased on Behalf of the by
Individually.

Catalog Number 20810W Page 22 www.irs.gov Form 886-A (Rev. 5-2017)

- : i Scheaul
Form 886-A Department of the Treasury Interna: Revenue Service eh : number
(May 2017) Explanations of Items
Name of taxpayer Tex Identification Number j/ast 4 digits, | Year/Period ended
Paymentof$ , . to of$ , . on Today’s date.
Balance of$ _  . to be paid as payment in full.

to be securely stored in the

The ; , document stated the following:

“On this date, we make a final Payment for of
fo

n

This final Paymentis$ ,  .  , payable from Check #

e Additional documentation submitted was information about the
from the in ; ; and a description from

the . Also submitted was a letter dated ; ,
from that certified the was purchased py on
; forS ,

On : , Iinformation Document Request Ne 6 (“IDR-06")- Activities and Operations
follow up was issued to request documentation of activities conducted by during the
years under examination from , , to , . Also information Document
Request No 7 (“IDR-07”}- Balance Sheet follow up was issued to request additional information
regarding questions about the , documentation of the of the and zayment of
the . The response due date was ,

On ; the following documents were received in response to IDR-C6 (see Exhibit):

° for
e Emails regarding - in , one in and one in

Also received on : , were the following statements that provided clarification on the
listed in the terms of the with and ‘see
Exhibit}.

° - “The identified in these were not intended to be
. They were identified only to show to repay the . The assets
shown in these notes were for the expressed purpose of showing sufficiency of assets to

Catalog Number 20810W Page 23 Wwww.irs.gov Form 886-A (Rev. 5-2017)

Form 886-A PRepariment of the Treasury — iInternal Revenue Service Schedule number
. 0
(May 2017) Explanations of Items rem
Name of taxpayer Tax Identification Number (last 4 digifs! | Year/Period ended
. The intent was to show the had the ability 10 . The financial
condition of was not impaired as the nas been »
° - “The payment was noted to show ability to the
The financial condition of was not impaired as the has been
.” No documentation of the was provided. No documentation was
provided of ary actions taken when the was not paid in and

In add tion, in response to IDR-07 the following documentation was submitted of payments made
on made by

e® On ; ' submitted bank statements through ; that

that reported the of and made to enecking account
by by and deposit. No documenzation that
was submitted. A statement was provided that *

management has determined the outstanding is$ . . . The will be
paid in days.” The bank statements also reported repayments of and
made to by

e« On ' , bank statements were submitted that showed the payment
by and the final payment for made in to

checking account

° submitted a bank statement on ; , that showed a deposit of
the made by to checking account key
on ;
Purpose of

Date Description Amount Principal | Interest payment

if Deposit :

if Deposit

fd Deposit L: 1

id

il

Catalog Number 20810W Page 24 www.irs.gov Form 886-A (Rev 5-2017)

Form 886-A Department of the Treasury — mernal Revenue Service Schec-Ne number
. or exhini

(May 2017) Explanations of Items

Name of taxpayer Tex identification Number j/asf 4 digits) | Year/Period ended

Deposit Transfer from
if
ff Deposit : .
ff : :
TOTAL , ,
Tour
On ; ,a of the was providec to Revenue Agen:
by ,an who assisted ir the .
According to it was one of the greatest and the
style. both the and A was conducted
of the such as the in the / and
suchasa - - replica from

also was asked to show
shown to the Revenue Agent:

listed on the balance sheet. The following was

. - by
; and

of were stored against the
° -was a in the
° - located under the
e - stored in at the bank
e - The stored in bex with in

the
Catalog Number 20810W Page 25 www.irs.gov Form 886-A, (Rev. 5-2017)

sury — ‘ Schea #e nunber
Form 886-A Department of the Treasury — infernal Revenue Service

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

LAW:

Internal Revenue Code section 501(c)(3) exempts from federal income tax corporations, and
any community chest, fund, or foundation, organized and operated exclusively for religious,
charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national
or international amateur sports competition (but only # no part of its activities involve the provision
of athletic facilities or equipment), or for the prevention of cruelty to cnildren or animals, no part of
the net earnings of which inures to the benefit of any srivate sharehaider or individual, no
substantial part of the activities of which is carrying on propaganda. cr otherwise attempting to
influence legislation (except as otherwise provided in subsection (h)*. and which does net
participate in, or intervene in (including the publishing or distributing of statements), any political
campaign on behalf of (or in opposition to) any candicate for public office.

Internal Revenue Code section 6001 Every person iable for any tax imposed dy 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, cy notice
served upon such person or by regulations, to make such returns, render such statements, or
keep such records, as tue Secretary deems sufficient to show whether or not such person is i‘able
for tax under this title.

Internal Revenue Code section 6033 (a)(1) Organizations required to file- In ceneral. Except
as provided in paragraph (3), every organization exempt from taxation under section 50” (a) shall
file an annual return, stating specifically the items of g-oss income, receipts, and disbursements,
and such other information for the purpose of carrying out the internal revenue laws as che
Secretary may by forms or regulations prescribe, and shall keep such records, rerder under oath
such statements, make such other returns, and comp-y with such rules and regulations as the
Secretary may from time to tine prescribe.

Treasury Regulations section 1.501(c)(3)-1(a)(1) Organizationai and operational tests. In
order to be exempt as an organization described in section 501(c)(3) an organization musi 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 's

not exempt.

Treasury Regulations section 1.501(c)(3)-1(b)(1)(i) Organizational test—In general. An
organization is organized exclusively for one or more exempt purposes only if its articles of
organization (referred to in this section as its articles) as defined in subparagrapn (2) of this
paragraph:

(a) Limit the purposes of such organization to one or more exempt purposes; and

Catalog Number 20810W Page 26 Www. irs.gov Form 886-A (Rev, 5-2017)

Depart t of the Treasury ~ Imarnal Reve Servi Schedule number
Form 886-A partment o ly nue Service

(May 2017) Explanations of Items or exh

Name of taxpayer Tax Identification Numpe- (last 4 digits’ | Year/Period ended

(b) Do not expressly empower the organization to engage, otherwise than as an
insubstantial part of its activities, in activities wnich in themselves are not in furtherance of

one or more exempt purposes.

Treasury Regulations section 1.501(c}({3)-1(b)(1){iii} An organization is not organized
exclusively for one or more exempt purposes if its articles expressly empower it to carry on,
otherwise than as an insubstantial part of its activities. activities which are not ir furtherance of
one or more exempt purposes, even though such organization is, by the terms of such articles,
created for a purpose that is no broader than the purposes specified in section 501(c)(3). Thus, an
organization that is empowered by its articles to engage in a manufacturing business, or to
engage in the operation of a social club does not meex the organizational test regardless of the
fact that its articles may state that such organization is created for charitable purposes within the
meaning of section 501(c)(3) of the Code.

Treasury Regulations section 1.501(c)(3)- 1(b)(4) Distribution of assets on dissolution. 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 co an
exempt purpose, for example, if, upon dissolution, sucn assets woulc, sy 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 puvpose, 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 wnich the dissolved organization was
organized. However, an organization does not meet the organizational test if its articles or the law
of the State in which it was created provide thai its assets would, upon d ssolution, be distributed
to its members or shareholders.

Treasury Regulations section 1.501(c)(3)- 1(c)(1) Operational test—Primary activities. An
organization will be regarded as operated exclusively for one or more exempt purposes only if it
engages primarily in activities which accomplish one o” more of suck exempt purposes specified
in section 501(c)(3). An organization will not be so regarded if more than an insubstantial pavt of
its activities is not in furtherance of an exempt purpose.

Treasury Regulations section 1.501(c)(3)-1(d)(1)(i) Exempt purposes- In general. An
organization may be exempt as an organization desc-ived in section 501(c)(3) if it is organized
and operated exclusively for one or more of the following purposes:

(a) Religious,

(b) Charitable,

(c) Scientific,

(d) Testing for public safety,
(e) Literary,

Catalog Number 20810W Page 27 www.irs.gov Form 886-A (Rev. 5-2017}

Form 886-A Depariment of the Treasury — Internal Revenue Service Schedule number

(May 2017) Explanations of Items orexhot

Name of taxpayer Tax dentiiication Nummer (/ast 4 digits! | Year/Period ended

(f) Educational, or
(g) Prevention of cruelty to children or animals.

Treasury Regulations section 1.501(c)(3)- 1{d)}(1)(ii) An organization is not organized or
operated exclusively for one or more of the purposes specified in subdivision (i) of this
subparagraph unless it serves a public rather than a private interest. Thus, to meet the
requirement of this subdivision, it is necessary for an organization to establish rat it is ot
organized or operated for the benefit of private interests such as designated individuals, the
creator or his family, shareholders of the organization. or persons controlled, directly or indirectly,
by suc’ private interests.

Private foundations are generally divided into two types: private operating foundations ‘as defined
in internal Revenue Code section 4942(j)(3)) ane private non-operating foundations. Amore
other things, Internal Revenue Code sections 4942(a)(1) and 4942/r) provide that operating
foundations are not subject to the initial and additional taxes under nternal Revenue Code section
4942 for failure to distribute income.

Treasury Regulations sections 53.4942(b)}(1) and (Z) provide that, in order to qualify as an
operating foundation, a private foundation must satisfy an income test and one of the following
tests: the assets test, the endowment test, or the support test.

Treasury Regulations section 1.6001-1(a) In genera . Except as provided in paragraph (b} of
this section, any person subject to tax under Subtitle A of the Code (including 4 qualified State
individual income tax which is treated pursuant to section 6361 (a) as if it were imposed by chapter
1 of Subtitle A), or any person required to file a return of information with respect to inccme, shall
keep such permanent books of account or records, including inventories. as are sufficient to
establish the amount of gross income, deductions, credits. or other matters required to se shown
by such person in any return of such tax or information.

Treasury Regulations section 1.6001-1(c) Exempt organizations. In addition to such
permanent books and records as are required by paragraph (a) of this section with respect to the
tax imposed by section 511 on unrelated business income of certain exempt orcanizations, every
organization exempt from tax under section 501(a) shall Keep such permanentt books o* account
or records, including inventories, as are sufficient fo show specificaily the items of gross income,
receipts and disbursements. Such organizations shall also keep such books and records as are
required to substantiate the information required by section 6033.

Treasury Regulations section 1.6001-1(e) Retention of records. The books or recoras required
by this section shall be kept at all times available for inspection by authorized imernal revenue
officers or employees, and stall be retained so Iong as the contents thereof may become material
in the administration of any internal revenue law.

Catalog Number 20810W Page 28 www.irs.gov Form 886-A, (Rev. 5-2017)

Ferm 886- A Department of the Treasury — iInternal Revenue Service Scheowe number
(May 2017) Explanations of Items orexnm!

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

Treasury Regulations section 1.6033-2(i)(2) Every organization which is exempt from tax,
whether or not it is required to file an annual information return, shall submit such additional
information as may be required by the Internal Revenue Service for the purpose of inquiring into
its exempt status and administering the provisions of subchapter F (section 501 and following),
chapter 1 of subtitle A of the Code, section 6033, and chapter 42 cf subtitle D of the Code. See
section 6001 and § 1.6001-1 with respect to the authcrity of the district directors or directors of
service centers to require such additional information and with respect to the books of account or
records to be kept by such organizations.

In Rev. Rul. 58-617, 1958-2 CB 260, (Jan. 01, 1958) Rulings and determinations letters granting
exemption from federal income tax to an organization described in section 501 (a) of the Internal
Revenue Code of 1954. to wrich contributions are decuctible by donors in computing their taxable
income in the manner and to the extent provided by section 170 of the Code, are effective only so
long as there are no material changes in the character of the organization, the purposes for which
it was organized, or its methods of operation. Failure to comply with this requirement may result in
serious consequences to the organization for the reason that the ruling cr determination letter
holding the organization exempt may be revoked retroactively to the date of the changes affecting
its exempt status, depending upon the circumstances involved, and subject to the limitations on
retroactivity of revocation found in section 7805(b) of the Code.

In Rev. Rul. 59-95, 1959-1 C.B. 627, an exempt organization was rezuested to aroduce a financial
statement and statement of its operations for a certain year. However, its records were so
incomplete that the organization was unable to furnis1 such statements. The Service held that the
failure or inability to file the required information return or otherwise to comply with the provisions
of section 6033 of the Code and the regulations which implement it. nay result in the termination
of the exempt status of an organization previously held exempt, on the grounds that the
organization has not established that it is observing the conditions required for the continuation of
exempt status.

In Rev. Rul. 67-5, 1967-1 C.B. 123, a foundation controlled by the creator's family is operated to
enable the creator and his family to engage in financia activities wiich are beneficial to -hem, but
detrimental to the foundation. This has resulted in the foundation's ownership cf non-income-
producing assets which prevent its carrying on a charttable program commensurate in scope with
its financial resources. Held, the foundation is operated for a substantial non-exempt purpose and
serves the private interests o* the creator and his family, and there‘ore is not entitled to exemption
from Federal income tax under section 501(c){3) of the Internal Revenue Code of 1954

In Rev. Rul. 74-600, 1974-2 C.B. 385, the placing of paintings owned Ly a private foundation in
the residence of a substantia contributor, a disqualified person, conszitutes an act of seif-dealing
under section 4941 (d)(1)(E) of the Code.

Catalog Number 20810W Page 29 Wwww.irs.gov Form 886-A (Rev. 5-2017)

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

In Better Bus. Bureau v. United States, 326 U.S. 279 1945), the United States Supreme Cour:
held that for an organization to qualify for tax exempt status, the organization must be exclusively
devoted to an exempt purpose and the presence of a single nonexempt purpose, if substantial in
nature, will destroy the exemption regardless of the number or imporiance of truly exempt
purposes.

in Community Education Foundation v. Commissioner, T.C. Memo 2016-223, the Tax Court
held that Community Education Foundation, no longer qualified for exemption “rom Federal
income tax under section 501 (a) because it did not meet the operational test requirements
for a section 501(c)(3) organization. Specifically, the o-ganization over time did not
meaningfully organize or allocate resources to any of ts activities mentioned in its
application for exemption.

In Salvation Navy v. Commissioner, T.C. Memo 2002-275 (2002), the court found that one
of the reasons why the organization did not qualify for exemption from federal income tax
was because it could not prove that its net earnings would not inure to the benefit of a
private individual which was its founder.

In Greg R. Vinikoor v. Commissioner, T.C. Memo. 1998-152, the Tax Court hele that
whether a financial transaction constitutes a loan depends on all the facts and
circumstances, including whether (1) there was a promissory note or other evidence of
indebtedness; (2) interest was charged; (3) there was security or collateral; (4) there was a
fixed maturity date; (5) a demand for repayment was made; (6) any actual repayment was
made; (7) the transferee had the ability to repay; (8) any records maintained by the
transferor and/or the transferee reflected the transaction as a loan; and (9) the manner n
which the transaction was reported for Federal tax purposes.

In Old Dominion Box Co., Inc. v. United States, 477 F.2d 340 (4th Cir. 1973) the Court said
operating for the benefit of private parties who are not members of a charitable class
constitutes such a substantial nonexempt purpose.

In Leon A, Beeghly v_ Commissioner, 35 T.C. 490 (1960}, provided that where an exempt
organization engages in a transaction with a related interest and there is a purpose to
benefit the private interest rather than the organization, exemption may be lost even though
the transaction ultimately proves profitable for the exempt organization.

TAXPAYER’S POSITION

No formal written position has been provided to the initial report issued

Catalog Number 20810W Page 30 www.irs.gov Form 886-A, (Rev. 5-2017)

Department of the Treasury — nternal Revenue Sense Schedule number
Form 886-A = or exubit
‘May 2017) Explanations of Items
Name of taxpayer Tax Identification Number (last 4 digits) | Year/Period ended
Activities

In response to IDR-06 and the request for documentation of activities during the years
under examination the following statements were provided in writing (see Exhibit):

3. Documentation of such as of che and the use of the
for . This includes but is noz limited to , ,
; , etc.
“During the period under audit there were of the . We have
enclosed and related to the
at the decreased materially after the of
in oF which took place in the . We have attached
the newspaper articles related . There was also ccverage of
the on the at the time. Because of the of
the the was not suitable for as it was prior to
At this time the of ceased to provide fo the
and cf the were removed from the website. Due to
these various factors management determined é@ cooling off period

would be in the best interest of all involved.”

4. Documentation of any other activities conducted by

“ are scheduled in and another in the near future. See attached.”

5. According to Revenue Ruling - — , - , the placing cf owned by a
in the ofa ,a
constitutes an of - under section (d)(1)(E) of the Code.
owns ( , 4 ,and ) which are maintainec in tne
of 1a . Explain how eac  o7 these of the

Catalog Number 20810W Page 31 www.irs.gov Farm 886-A (Rev. 5-2017)

D -; Si Schedule number
Form 886-A lepariment of the Treasury — 7ternal Revenue Sevice

(May 2017) Explanations of Items orexaibtt

Name of taxpayer Tax Identification Number (las? 4 digits, | Year/Period ended

further an exempt purpose under IRC 501(c){3) taking into consideration Revenue

Ruling -
“Revenue Ruling - describes a situation where are on resulting in
the receiving a from the
After placing of its on in various for a of ;
the placed them in the ofa ,a
within fhe meaning of section fal{T)(A) of the Code The
are with the

ina of the devoted to and other works cf."
The in question are only stored in the . would incur
additional expense if they additional
We would also note. did not in the ; to ,

(the period uncer audit). Therefore, unlike the situation referred to in Revenue
Ruling - . . received no benefit from these being at

n

GOVERNMENT’S POSITION

It is the government's position that you are a and that your exemption
under section 501(c)(3) should be revoked effective '

Type of Private Foundation

On your Forms you represent as an under IRC
§ (j){3); however, tne facts show that you are a . , in the
exemption letter issued by the IRS dated ; , Which was based on
representations you made in an application for recognition of exemption, the IRS concluded
that was , you have not shown that
during the years at issue that you asa because you do

not meet the income test or any of the three alternative tests. To meet the income test, a
must spend at least 85 percent of its adjusted net income or its minimum

investment return, whichever is less, directly for the active conduct of its exempt activities.

Treas. Reg. § 53.4942(b)-1(a)(1}. Here, you do not make to

Catalog Number 20810W Page 32 www.irs.gov Form 886-A (Rev. 5-2017)

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

accomplish an exempt purpcse. You also do not satisfy any of the alternative tests. The
first alternative test is the asset test. To meet the asset test, substantially more than half of
the fair market value of a foundation’s assets must be devoted substantially to the active
conduct of exempt activities. Treas. Reg. § 53.4942(b)-2(a)(1). On ?art XIV of the Form
it is reported that % of the are used directly for the direct conduct of the
exempt activities. However, substantialiy more than half of your were
directly to the active conduct of exempt activities. essentially have no
exempt activities. Most of the were out to .. and
. The were for the purposes of and
and not for any exempt activities. The alternative test is the endowment
test. Generally, to meet the endowment test, a foundation must make qualifying
distributions directly for exempt purposes of at least 2/3 of the minimum investment return.
Treas. Reg. § 53.4942(9)-2(b)(1). Here, you rrake qualifying distributions directly
for exempt purposes that were at least 2/3 of its minimum investment return. The third
alternative test is the support test. There are three requirements to meet the support test:

1. Atleast 85 percent of its support (other than gross investment income) is normally
received from the general public and 5 or more unrelated exempt organizations,
2. Not more than 25 percent of its support {other than gross investment income) is
normally received from any one exempt organization, and
3. Not more than 50 percent of its support is normally received from gross investment
income.
Treas. Reg. § 53.4942(b)-2(c)(1).

Here, you had from the general public, no support from exempt organizations
and$ , of gross in with no ir
and . does not meet the support test.

You do not meet the income test or any of the three alternative tests. You are not a
, but a private exempt under IRC § 509(a)

Exemption as a Private Non-Operating Foundation

The organization does not qualify for exemption under IRC § 501(c)(3) for the follcwing
reasons:

1. The purpose to ; , , and for the upkeep
of is no: an exempt purpose.

2. The ’s activities do not meet the operational test uncer IRC §
501(c)(3).

Catalog Number 20810W Page 33 Wwww.irs.gov Horr 886A (Rev. 5-2017)

_ Department of the Treasury — rterne] Revenue Se~vice Schedule number
Form 886-A . or ex'iibit
(May 2017) Explanations of Items
Name of taxpayer Tax deniification Number (last 4 digi's) | Year/Period ended

3. The assets inured to the benefit of the

Exempt Purpose

Pursuant to your Form 1023 application the was formed to:

“To receive contributions from the Initial member and to prov de programs and

activities to ; , and :
: end ”
Pursuant to you Form 990-PF, the was formed to:
“to ; and maintain the in its for the
benefit and enjoyment of .11e entire cash balance is being
held for future improvement’s and of the and to pay the

The purpose per the Form 990-PF is different than the frem the Farri 1023 application

Sometime after the IRS granted exemption to the , Its purpose changed from the
of : and to the of
, specifically the of which
isa . The purpose to , ; , and
for the upkeep of ° is not an exerpt purpose

described in Treas. Reg. § 1.501({c){3)- 1(d)(1)(i).

Operational test

In order to meet the operational test, an organization nust show that they engaged
primarily in activities which accomplish one or more cf such exempt Durposes specifiec in
section 501(c)(3) of the Internal Revenue Code (Treasury Regs. § 1.501 (¢}(3)- 1(¢)(1)).

The activities of a exempt under IRC § 509(a) are to make
charitable contributions. Historically the only made charitable contriputions of
$ from fiscal years : to : . During the uncer
examination the made no charitable contributions. The response to Part XV

Supplementary Iinformation, Grants and contributions paid during the year was

Catalog Number 20810W Page 34 www.irs.gov Form 886-A (Rev. 5-2017)

Form 886-A Department of the T-easury — nternal Revenue Sevvise Schedule number

(May 2017) Explanations of Items or evap

Name of taxpayer Tax dercification Number (lest 4 digs) | Year/Period ended

Per the filed Forms 990-PF, Part IX-A (Summary of Cirect Charitable Activities}, the
did not report any charitable activities during the . The
only response was . No documentation has been drovided tha: shows the
has made the available for . In fact,
that are exempt under IRC § 501(c)(3) identify the as to
the

Asa , the was requirec to make minimum distributions of the

assets that it holds. The did not make the of its in
during the : to : . During the examination,

the made the statement there was some exclusion to making

distributions if you had no . Iinformation that was relied on to support this

position was requested in IDR-03 and nothing was submitted in respo1se. The

should have made distributions from all , hot only the . Investing in non-

does not relieve a from the distribution requirement.

Iinformation document requests No 04 and 06 were issued to request documentation of any

other activities conducted by the . In response to IDR-04, the
submitted correspondence and documentation of
from - . This documentation consisted of requesis <0 :
; requests to ; and . In response fo :DR-
06, it was stated that the was in a“ ” que to the
and from the . The

submitted of organized by the , with in and in

. Also submitted was ar email for . This showed the
exthemely limited . The has no regular established
programs to or

As demonstrated in Rev. Rul. 58-617, an organization’s exempt status will remain in effect
only so long as there are no material changes in the snaracter of the organization, the
purposes for which it was organized, or its methods cf operation. In the court case
Community Education Foundation v. Commissioner, T.C. Memo. 2016-223, the court
concluded that the organization over time did not meaningfully organize or allocate

resources to any of its activities no longer qualified for exemption. ~1e has not
established that it conducted regular and ongoing exempt activities. The made
charitable contributions that totaled $ over ihe previous . The

has not made any meaningful in the previous and no

charitable contributions at ali during the

Due to its over a period of , the has failed to meet
the operational requirements to continue exemption under IRC § 501(c)(3).

Catalog Number 20810W Page 35 www.irs.gov Form 886-A (Rev. 5-2017)

Form 886-A Depariment of the Treasury — Internal Revenue Service Schedule number

(May 2017) Explanations of Items or exmibt

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

Use of Funds/Assets

Treasury Regulations § 1.501(c){3)- 1(d)(1)(ii) states an organization is rot organized or
operated exclusively for one or more of the purposes specified in subdivision (i) of this
subparagraph unless it serves a public rather than a private interes:. Thus, to meet the
requirement of this subdivision, it is necessary for an organization to eszablish chat it is 10t
organized or operated for the benefit of private interests such as designated individuals, the
creator or his family, shareholders of the organization, or persons zcntro led, directly or
indirectly, by such private inzerests.

It has not been established that the of the have been used for anything
other than the of and for the
of
The of the have been used to benefit ,
, and

Transfers of Funds

used the bank accounts for and on several occasions
from the to In he $ and in
he $ . During the in
and made of funds for a total of $ . In response to IDR-0&,
were received on ; . According to the
the purpose of the was for “ No was
provided to the . According to the was listed
on the to had to ihe . You hav2 not
shown that any of were for exempt purposes. In adcition, the transfer of
$ , which constituzed more than of all of he

constitutes significant inurement to a

In addition, during ,& in the amount of $ was sen: from the
to ' . According to the

accountant’s workpaper the expenditure was a .
appears to be . The transaction was reporned on the Form 990-PF
balance sheet on Line 7- other notes and loans recevable. In response to IDR-05, a

with was received on , . The purpose of the to

was to ' Ne was Drovided to the

for the . According to the of disability twas

listed on the to show had the ability to , but no

Catalog Number 20810W Page 36 veww.irs.gov Form 886-A (Rev. 5-2017)

- 2 Scheauie rumber
Form 886-A Department of the Treasury — nternal Revenue Serv se

‘May 2017) Explanations of Items orexc bi

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

documentation was submitted that was due a$ disability

Also, the terms of the were that would be , yet there was no
in and , and no documer:-ation that any action was taken wnen

the were not made.

These provided no protections for the in case of default,
, or any other change in No bank woule make a__ percent
. and if they did the would generally be at a
due to the risk associated with an .

There are no minutes of approval of . According to Article 6 of the Articles
of Incorporation, has the power to approve the transier of the corporation s

in excess of $ , by as . The bylaws gave the
right to determine how the would be used. The to
constitutes a significant portion of the which weve used for non-exempi
purposes.

After the of $ was made to , the made of
$ to both , and that is a member; and to
. The payments were not grants for a charitable purzose. The paymen:s
Accorcing to the ; , Statement, Check # was a paymeni of $ to
for the of to the
Accorcing to the ; , statement, Check # was a payment to
for the of to ne . It is the
position that were a reimbursement ic” the cost of the
No contemporaneous documentation was provided from of the intention sf
to purchase for the and receive . The only
documentation provided was created almost later in at the time the
payments were made to and to . In , the
filed Form io report the made to with
funds as acts of . So, after the reported
acts of , engaged in additional transactions with the
, this shows that the bv IRC are ot an effective
deterrent to stop from engaging in financial transactior: with

Investments

During the fiscal year ' , instead of , in “traditional
or normal” such as ' ; ; etc., the
invested $ a business “ownec” dy . By

Catalog Number 20810W Page 37 www.irs.gov Form 886-A (Rev. 5-2017)

Form 886-A Department of the Treasury — nterral Revenue Service Schedule number
(May 2017) Explanations of Items or exrubit
Name of taxpayer ) Tax Identification Number (last 4 digits) | Year/Period ended
the end of the fiscal year : , the entire was a loss and zhe
had$_ less in funds that could have been usec for exempt purposes.
Thus, the served as a vehicle to

Noncash Assets

The cther of the were previously by before he
them to the . The other than the are located in the
. The other of the include:

- located ; settie-located in the
: - located ; : and
- located in a . re

are located in

Essentially there has not been a change | in ownership of these items. The did not

change location once they were “ did not re inquish control of the
was able to receive a charitable deduction and still retain control over

the . The 1 4 ; , and do nct benefit the

but are items that can pe enjoyed in . These do

nothing to advance an exempt purpose.

The assets are and frorr the . Access is limited to
only or approval by the of the . ~here is no
advertisement from the to inform the that these are
It is the position of the that having these items in is neta
problem since —_ was not in from ' through , . However,
this also means that was also . This situation is similar to Rev. Rul. 74-
. The placement of the in the of the results ir
inurement.
In summary, your organization is similar to Rev. Rul 37- where the has been
used as a to engage in fina cial activities that were beneficial 1 1o
had control over the , , and
made use of the funds for . The of the inured to
the benefit of . These were donated inname onl since _ still
maintained control over ther. used the of the 10 make
and for the of . These noncharitable activities
have destroyed the exemption of the . (Better Bus. Bureau v. United States, 32€

U.S. 279 (1945)).

Catalog Number 20810W Page 38 www.irs.gov Form 886-A (Rev. 5-2017)

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

(May 2017) Explanations of Items

Name cf taxpayer Tax identification Numpex (last 4 digits) | Year/Feriod ended
CONCLUSION:
Though the has significance, the is not owned by
the but is the of . There were no significant
activities to or | purposes either through or
through established programs. In fact, during this period the has been
during the “ .
The of the inure to the benefit of . The cash
assets of the were used as a ready source of funds for .
previously in used to in of . During tne

; used the to make to and
to ( .) In the case of , the funds were used when shad
; and for the funds were ssed as an of funds
instead of waiting for funds to be paid.
The highest fiduciary standrds should be maintained by the . and this does not
include intermingling of with the ; in ownad by ‘he
; and to the and

Accordingly, status as an organization describec
under section 501(c){(3) should be revoked, effective , , because it was not operated for
an exempt purpose and the assets were not used for exclusively charitable purposes.
The becomes a taxable and is “equired to file both Form 1120 U.S.
Corporate Income Tax Return and Form 990-PF Return of . Contributions are

no longer deductible by donors under section 170(c)(2).

Catalog Number 20810W Page 39 www.irs.gov Form 886-A, (Rev. 5-2017)