Letter 6337 (202501014): Revocation of 501(c)(3) status for a dormant church that could not substantiate loan withdrawals, triggering excess-benefit tax

Plain-English summary

This is a final IRS letter revoking a small organization's 501(c)(3) tax exemption. To keep the exemption, a charity must be both organized and operated exclusively for exempt purposes and must keep records substantiating how it spends its money. Here the organization was set up as a public church but, on its own returns, reported that it was dormant and had never started operating. During the audit the IRS learned the organization had taken out a COVID-19 Economic Injury Disaster Loan (an SBA loan) in its name, deposited the money in its bank account, and then made a series of withdrawals and payments. Over many months the IRS repeatedly asked the organization (and later its power of attorney) to produce invoices, receipts, canceled checks, or contracts showing the money was spent on exempt purposes. The organization never provided them. Because the withdrawals were not substantiated, the IRS treated them as an "automatic" excess benefit transaction under Section 4958 flowing to the president, the only officer and member, who is a disqualified person. Applying the five-factor test in the regulations, the IRS found the inurement and lack of any exempt activity warranted revocation. Losing the exemption means contributions are no longer deductible under Section 170 and the organization may have to file corporate income tax returns. The release bundles the final Letter 6337, the earlier proposed-revocation Letter 3648, and the audit report (Form 886-A).

Ruling snapshot

• Question: Should the organization's 501(c)(3) exemption be revoked where it conducted no exempt activities and could not substantiate that loan-funded withdrawals served an exempt purpose?
• Outcome: revocation
• Key authorities: IRC § 501(c)(3); IRC § 4958; IRC §§ 6001, 6033; Treas. Reg. §§ 1.501(c)(3)-1, 53.4958-1 through -4, 1.6033-2; Rev. Ruls. 56-304, 59-95, 68-489; International Postgraduate Medical Foundation v. Commissioner; Better Business Bureau of Washington, D.C. v. United States; Church in Boston v. Commissioner

Full text (IRS public release)

Scanned document; transcribed under the runbook proofreading rule. Obvious OCR misreads are corrected; the many identifying details redacted by the IRS appear as blanks or unreadable fragments and are marked [illegible].

Department of the Treasury                        Date:
Internal Revenue Service                          October 8, 2024

IRS   Tax Exempt and Government Entities          Taxpayer ID number (last 4 digits):
                                                  [illegible]
                                                  Form:

Release Number: 202501014

Release Date: 1/3/2025                            Tax periods ended:

                                                  Person to contact:
                                                  Name:
                                                  ID number:
UIL Code: 501.03-00                               Telephone:

                                                  Last day to file petition with United States
                                                  Tax Court:
                                                  January 6, 2025

CERTIFIED MAIL - Return Receipt Requested

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
[illegible]. Your determination letter dated [illegible] 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 under IRC Section 509(a)(3) must be both organized and operated
exclusively for exempt purposes. Your organization has not operated in furtherance of its exempt purpose for
multiple years. Thus, you have not demonstrated that you are organized 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.

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

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.

                                                  Letter 6337 (Rev. 3-2024)
                                                  Catalog Number 74806E

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.

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 74806E

Keep the original letter for your records.

Sincerely,

[illegible]
[illegible] Brinkley
Director, Exempt Organizations Examinations

Enclosures:
Publication 1
Publication 594
Publication 892

                                                  Letter 6337 (Rev. 3-2024)
                                                  Catalog Number 74806E

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Department of the Treasury
Internal Revenue Service

IRS   Tax Exempt and Government Entities

CERTIFIED MAIL — Return Receipt Requested

Why you're receiving this letter

Date:
07/12/2023

Taxpayer ID number:
Form:
Tax periods ended:
Person to contact:
Name:
ID number:
Telephone:

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

Response due date:
08/11/2023

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.

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 3648 (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.

Contacting the Taxpayer Advocate Office is a taxpayer right
The Taxpayer Advocate Service (TAS) is an independent organization within the IRS that can help protect your
taxpayer rights. TAS can offer you help if your tax problem is causing a hardship, or you've tried but haven't
been able to resolve your problem with the IRS. If you qualify for TAS assistance, which is always free, TAS
will do everything possible to help you. Visit www.taxpayeradvocate.irs.gov or call 877-777-4778.

Additional information
You can get any of the forms and publications mentioned in this letter by visiting our website at
www.irs.gov/forms-pubs or by calling 800-TAX-FORM (800-829-3676).
If you have questions, you can contact the person shown at the top of this letter.

Sincerely,

[illegible] Brinkley
Director, Exempt Organizations Examinations

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

                                                  Letter 3648 (Rev. 8-2019)
                                                  Catalog Number 34809F

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

ISSUE:
Whether [illegible] (Organization) exempt status under Internal Revenue Code (IRC) § [illegible] should be
revoked for failing to fully respond and produce records to demonstrate it operates primarily for an exempt
purpose and that no part of its net earnings inures to the benefit of an individual.

FACTS:
The Organization's History
Articles of Incorporation state the Organization was incorporated on [illegible] in [illegible] State [illegible]
with the legal name of the corporation [illegible]. The Organization was recognized as an organization
exempt under IRC § 501(c)(3) and classified as a public charity described in IRC § 509(a)(2) on [illegible]
with an effective date of [illegible].

The Organization's Articles of Incorporation state they are a nonprofit public benefit corporation and not
organized for the private gain of any person. The articles of incorporation state that they are organized
and operated exclusively for the purpose of a public church within the meaning of IRC § 501(c)(3).

The purpose listed in the articles of incorporation does not match the purpose the Organization lists on
the Form 1023-EZ, Streamlined Application for Recognition of Exemption Under Section 501(c)(3) of
the Internal Revenue Code, and does not match the purpose the Organization lists in a statement
received on [illegible], in response to Form 4564, Information Document Request (IDR) that
was mailed to the Organization on [illegible].

[illegible] applied for tax exempt status by filing Form 1023-EZ, Application for Recognition of
Exemption Under Section 501(c)(3) of the Internal Revenue Code, on [illegible]. The
Organization marked no, in answer to the question, Are you applying for recognition as a church,
school, or hospital (described in section 170(b)(1)(A)(i), (ii), or (iii) of the Internal Revenue Code)?

They indicated they are organized and operated exclusively to further charitable purposes and
described their mission/activities as: [illegible]

[illegible] is the only officer listed and signed the Form 1023-EZ in the capacity of the President.

Letter 6031, Initial Exam Appointment, along with an IDR, was mailed to [illegible]. In a response received
[illegible]

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

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

The Organization's Activities
In response to the initial IDR, received [illegible], the Organization included this statement, [illegible]

The Organization's response to the question asking for a detailed description of activities conducted
during the year under examination was, [illegible].

[illegible] filed a Form 990-EZ, Return of Organization Exempt from Income Tax, for the tax year
[illegible]. On [illegible] Statement of Program Service Accomplishments, the Organization included the
comment, "At present the Non-profit is dormant" on all three years of Form 990-EZ.

The Organization's Financial Records
[illegible] filed a Form 990-EZ, Return of Organization Exempt from Income Tax, for the tax year
ending [illegible] and [illegible]. The Organization reported both revenue and expenses as [illegible] on
[illegible] years of Form 990-EZ.

In the initial interview, [illegible] stated that [illegible] took out a small business loan and subsequently
provided a loan agreement to [illegible] which verified the loan was [illegible] (COVID-19 Economic Injury
Disaster Loan) between [illegible] and the Small Business Administration (SBA). [illegible] was
asked to provide a copy of the loan application, [illegible] stated that [illegible] did not keep a copy and that
[illegible] tried to retrieve a copy of the loan application online, but it was no longer available to download from
the site, so [illegible] was unable to provide us with a copy. The Tax Compliance Officer (TCO) subsequently
requested a copy of the loan application from SBA and received a copy of the loan application for the
case file.

The initial IDR issued to the [illegible] for the examination asked the Organization to describe
their internal controls. [illegible] provided the following written response, "Since we haven't been able
to move forward with operations due to COVID there's been no payment or financial account created to
collect finances. There have not been any donations of any kind to this Organization".

In the same reply, the Organization provided bank statements, ending in [illegible] in the name
of [illegible] for [illegible] through [illegible]. The bank statements reflect [illegible]
and withdrawals/debits totaling [illegible] for [illegible]. Withdrawals/debits [illegible]
payments for [illegible], [illegible] cash withdrawals with a total of [illegible] and misc items [illegible].

The table on page [illegible] lists all [illegible] and withdrawals/debits that were included in the
bank statements from [illegible] through [illegible].

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

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

[Table of deposits and withdrawals redacted in the released document.]

Catalog Number 20810W          Form 886-A (Rev. 5-2017)

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

Follow-up Letter's/IDR's, correspondence

[illegible] Letter 5464, Information Document Request Cover letter-Exempt Organization, and [illegible]
was mailed to [illegible] with a due date of [illegible], requesting explanations and
supporting documents (invoices, receipts, canceled checks, contracts, etc.) to substantiate the
Organization's loan, bank deposits, withdrawals, and purposes for each, as well as a request to review
the initial interview transcript and provide feedback if any portion was incorrect. There was a notation
included in the IDR stating if the Organization is unable to provide any of the items requested or if a
particular item was not applicable to the Organization, explain in detail why they were not available or
did not apply. A table listing the specific bank deposits and withdrawals for substantiation was included.
The table included all deposits and withdrawals of [illegible] or more from the Organization's [illegible] bank
statements. A response from [illegible] was not received.

- Letter 3844-A, Follow-Up — Exempt Organizations Compliance Area, with a copy of [illegible]
  was mailed to [illegible] with a due date of [illegible]. The Organization stated they did not
  receive the letter. The Internal Revenue Service (IRS) [illegible] did not receive this letter back from the [illegible]

- Letter 3844-A, Follow-Up — Exempt Organizations Compliance Area, with a copy of [illegible]
  was mailed certified to [illegible] with a due date of [illegible]. Tracking shows the
  certified letter was delivered, left with an individual at address on [illegible]. A response
  from [illegible] was not received.

- Letter 5798, TE/GE Information Document Request Extension Notice, with a copy of [illegible]
  was mailed to [illegible] with a 15-business day extension from the due date of letter 3844-A
  due date, [illegible]. A response from [illegible] was not received.

- Letter 5077-B, TE/GE IDR Delinquency Notice, with a copy of [illegible] was mailed
  [illegible] with a due date [illegible]. Tracking shows notice was left [illegible]
  available for pick-up, unclaimed/being returned to sender [illegible]. The letter was received back to
  IRS as unclaimed on [illegible].

- [illegible] After follow-up calls to the Organization, a response was received which included a
  copy of an Economic Injury Disaster Loan agreement [illegible] and the Small
  Business Administration for [illegible]. The response did not include an explanation for, or any
  supporting documents to substantiate any of the Organization's other bank deposits, withdrawals, or
  purposes.

- [illegible] Letter 3844-A, Follow-Up — Exempt Organizations Compliance Area, an IDR listing 5
  items previously requested from the Organization, but not yet received, and a copy of the previous [illegible]
  was mailed, both certified and regular mail, to [illegible] with a due date [illegible].
  Tracking shows the certified letter was delivered to an individual at the address on [illegible].
  A response from [illegible] was not received.

- [illegible] Letter 5077-B, TE/GE IDR Delinquency Notice, and with copies of the
  Organization's Form 1023-EZ, Letter [illegible], Form 990-EZ, a request to provide
  documents to substantiate ALL deposits/credits, withdrawals/debits from the bank statements for [illegible]

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

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

or provide an explanation as to why they are not applicable or don't apply, and a request to review the
initial interview transcript and indicate any errors was mailed both certified and regular mail to [illegible]
with a due date of [illegible]. Tracking shows the certified letter was delivered to
an individual at address on [illegible]. A response from [illegible] was not received.

- [illegible] Form 2848, Power of Attorney and Declaration of Representative, was received from
  [illegible] the Organization. The form was missing the POA's signature and was therefore, invalid.

- [illegible] Form 2848, Power of Attorney and Declaration of Representative, was received from
  [illegible] the Organization. The form was complete, the Organization opted to have a Power of Attorney
  represent them from this point forward.

- [illegible] Letter 937-A, Transmittal of Information to Power of Attorney, Notice 1155, Disaster
  [illegible] Relief, from the IRS, and copies of L5077-B and IDR#4 with all attachments that were mailed to
  [illegible] on [illegible] were faxed to the POA. With an agreement that he would have a reply to
  [illegible] within two weeks. A response from POA was not received.

- After follow-up calls to POA, a reply was received from POA dated [illegible], but [illegible].
  In the reply the POA states that "...he has intimated that her [illegible] as been set up it has given away toys,
  fed the homeless, given [illegible] dinners and assisted [illegible] back-to-
  school books, school supplies and miscellaneous items". The POA also states
  that "...[illegible] represents that [illegible] has obtained a loan [illegible] and the monies were
  deposited in the bank account and monies were then expended for the various [illegible]
  activities mentioned above and that as of the date of the memo the [illegible] was still looking for the
  documentation verifying how the monies were spent and that the loan obtained [illegible] or is
  being repaid from personal funds of [illegible] as [illegible] has been unsuccessful and disappointed in the
  money raising process".

- This is the [illegible] during the examination that [illegible] is stating that their Organization
  conducted any activities during the examination year. All previous written correspondence, verbal
  conversations and information submitted on Form 990-EZ returns have stated that [illegible]
  was dormant and has not yet begun to conduct activities. This is also the [illegible] mention of the
  Organization having [illegible] Loan.

Over the course of the [illegible] months, through the mailing of several follow-up letters, several
follow-up phone calls [illegible] of multiple extensions, the Internal Revenue Service has
repeatedly requested that [illegible] provide explanations and supporting documents (invoices,
receipts, canceled checks, contracts, etc.) to substantiate that the withdrawals/debits from the
[illegible] bank statements were expensed in furtherance of the Organizations exempt purpose. The
Organization was advised if they were unable to provide any of the items requested, or if they felt a
particular item was not applicable, to please provide an explanation of why they were unable to provide
the requested item, or why it did not apply.

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

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

As of the date this letter was mailed to the Organization, the IRS has not received any of the requested
items to substantiate the withdrawals/debits from [illegible] account, ending in [illegible] bank
statements.

LAW:
Internal Revenue Code (IRC)

IRC Sec. 501(c)(3) provides for exemption from Income Tax for corporations, and any community chest,
fund, or foundation, organized and operated exclusively for religious, charitable, scientific, testing for
public safety, literary, or educational purposes, or to foster national or international amateur sports
competition (but only if no part of its activities involve the provision of athletic facilities or equipment), or
for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the
benefit of any private shareholder or individual, no substantial part of the activities of which is carrying
on propaganda, or otherwise attempting, to influence legislation (except as otherwise provided in
subsection (h)), and which does not participate in, or intervene in (including the publishing or distributing
of statements), any political campaign on behalf of (or in opposition to) any candidate for public office.

IRC Sec. 4958(c) defines the term "excess benefit transaction" as any transaction in which an economic
benefit is provided by an applicable tax-exempt Organization directly or indirectly to or for the use of any
disqualified person if the value of the economic benefit provided exceeds the value of the consideration
(including the performance of services) received for providing such benefit. For purposes of the
preceding sentence, an economic benefit shall not be treated as consideration for performance of
services unless such Organization clearly indicated its intent to so treat such benefit.

IRC Sec. 4958(e) defines "applicable tax-exempt Organization" as an Organization described in either
IRC Sec. 501(c)(3) or IRC Sec. 501(c)(4) or an Organization which was so described at any time during
the five-year period ending on the date of the excess benefit transaction.

IRC Sec. 4958(f)(1) defines a "disqualified person" as (A) any person who was, at any time during the
five-year period ending on the date of such transaction, in a position to exercise substantial influence
over the affairs of the Organization, (B) a member of the family of a disqualified person, and (C) a 35%
controlled entity.

IRC Section 6001 of the Code provides that every person liable for any tax imposed by this title, or for
the collection thereof, shall keep such records, render such statements, make such returns, and comply
with such rules and regulations as the Secretary may from time to time prescribe. Whenever in the
judgment of the Secretary it is necessary, he may require any person, by notice served upon such
person or by regulations, to make such returns, render such statements, or keep such records, as the
Secretary deems sufficient to show whether or not such person is liable for tax under this title.

IRC Section 6033(a)(1) of the Code provides, except as provided in section 6033(a)(2), every
Organization exempt from tax under section 501(a) shall file an annual return, stating specifically the
items of gross income, receipts and disbursements, and such other information for the purposes of
carrying out the internal revenue laws as the Secretary may by forms or regulations prescribe, and keep

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

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

such records, render under oath such statements, make such other returns, and comply with such rules
and regulations as the Secretary may from time to time prescribe.

Treasury Regulations (Treas. Reg.)

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

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

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

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

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

C. Whether the Organization has been involved in multiple excess benefit transactions with one
   or more persons;

D. Whether the Organization has implemented safeguards that are reasonably calculated to
   prevent excess benefit transactions; and

E. Whether the excess benefit transaction has been corrected (within the meaning of IRC Sec.
   [illegible] and Treas. Reg. 53.4958-7), or the Organization has made good faith efforts to seek
   correction from the disqualified person(s) who benefited from the excess benefit transaction.

Treas. Reg. 53.4958-1(b) defines excess benefit as the amount by which the value of the economic
benefit provided by an applicable tax-exempt Organization directly or indirectly to or for the use of any
disqualified person exceeds the value of the consideration (including the performance of services)
received for providing such benefit.

Treas. Reg. 53.4958-1(c) states that if more than one disqualified person is liable for the tax imposed by
IRC Section 4958, all such persons are jointly and severally liable for that tax.

Treas. Regs. 53.4958-3(c), (b), (d), & (e) provide that family members, 35% controlled entities, voting
members of the governing body, presidents, chief executive officers, chief operating officers, or the
person who founded the Organization are among persons who are in a position to exercise substantial
influence over the affairs of the Organization.

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

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

Treas. Reg. 53.4958-4(a)(1) provides that to determine whether an excess benefit transaction has
occurred, all consideration and benefits exchanged between a disqualified person and the applicable
tax-exempt Organization and all entities it controls are taken into account.

Treas. Reg. 53.4958-4(a)(2)(iii) provides that an applicable tax-exempt Organization may provide an
excess benefit indirectly through an intermediary. An intermediary is any person who participates in a
transaction with one or more disqualified persons of an applicable tax-exempt Organization.

Regulation 1.6001-1(c) of the Code provides that 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 Organizations, every Organization exempt from tax under section 501(a) shall
keep such permanent books of account or records, including inventories, as are sufficient to show
specifically the items of gross income, receipts and disbursements. Such Organizations shall also keep
such books and records as are required to substantiate the information required by section 6033. See
section 6033 and §§ 1.6033-1 through 1.6033-3.

Regulation 1.6001-1(e) of the Code provides that the books or records required by this section shall be
kept at all time available for inspection by authorized internal revenue officers or employees, and shall
be retained as long as the contents thereof may be material in the administration of any internal revenue
law.

Regulation 1.6033-1(h)(2) of the regulations provides that every Organization which has established its
right to exemption from tax, whether or not it is required to file an annual return of information, shall
submit such additional information as may be required by the district director for the purpose of enabling
him to inquire further into its exempt status and to administer the provisions of subchapter F (section 501
and the following), chapter 1 of the Code and section 6033.

Regulation 1.6033-2(a)(1) of the Regulations provides, in part, that, except for certain exceptions not
here applicable, every Organization exempt from taxation under section 501(a) shall file an annual
information return specifically setting forth its items of gross income, gross receipts and disbursements,
and such other information as may be prescribed in the instructions issued with respect to the return.

Regulation 1.6033-2(i)(2) of the Regulations provides, in part, that 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, chapter 1 of subtitle A of the Code,
section 6033, and chapter 42 of subtitle D of the Code.

Court Cases

In International Postgraduate Medical Foundation v. Commissioner, 56 T.C.M. 1140 (1989), the court
ruled as non-exempt under section 501(c)(3) of the Code an Organization formed to sponsor medical
seminars and symposia that was founded and run by an individual who was a shareholder and officer in
a for-profit travel agency that provided travel arrangement services to the nonprofit. Finding that the
nonprofit was formed to obtain customers for the for-profit's business, the court concluded that the
nonprofit had, as a substantial purpose, increasing the for-profit's income. When a for-profit Organization

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

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

benefits substantially from the manner in which the activities of a related nonprofit Organization are
carried on, the court reasoned, the nonprofit Organization is not operated exclusively for exempt
purposes within the meaning of section 501(c)(3), even if the nonprofit furthers other exempt purposes.

In Better Business Bureau of Washington, D.C., Inc. v. United States, 326 U.S. 279 (1945), the Court
held that the presence of a single non-exempt purpose, if substantial in nature, will destroy an
Organization's tax-exempt status regardless of the Organization's other charitable purposes or activities.

In Church in Boston v. Commissioner, 71 T.C. 102 (1978), the Court upheld the denial of exemption on
an Organization that made grants to individuals. The Organization asserted that its grants were made in
furtherance of a charitable purpose: to assist the poor. The Organization was unable to furnish any
documented criteria which would demonstrate the selection process of a deserving recipient, the reason
for specific amounts given, or the purpose of the grant. The only documentation contained in the
administrative record was a list of grants made during one of the three years in question which included
the name of the recipient, the amount of the grant, and the "reason" for the grant. The court held that this
information was insufficient in determining whether the grants were made in furtherance of an exempt
purpose.

Revenue Rulings (Rev. Rul.)

Rev. Rul. 56-304, 1956-2 C.B. 306 states that an Organization which otherwise meets the requirements
for exemption from Federal income tax are not precluded from making distributions of their funds to
individuals, provided such distributions are made on a true charitable basis in furtherance of the
purposes for which they are organized. However, Organizations of this character which make such
distributions should maintain adequate records and case histories to show the name and address of
each recipient of aid; the amount distributed to each; the purpose for which the aid was given; the
manner in which the recipient was selected and the relationship, if any, between the recipient and (1)
members, officers, or trustees of the Organization, (2) a grantor or substantial contributor to the
Organization or a member of the family of either, and (3) a corporation controlled by a grantor or
substantial contributor, in order that any or all distributions made to individuals can be substantiated
upon request by the Internal Revenue Service.

Rev. Rul. 59-95, 1959-1 C.B. 627, concerns an exempt Organization that was requested to produce a
financial statement and statement of its operations for a certain year. However, its records were so
incomplete that the Organization was unable to furnish 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, may 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.

Rev. Rul. 68-489, 1968-2 C.B. 210 holds that an Organization will not jeopardize its exemption under IRC
Sec. 501(c)(3), even though it distributes funds to nonexempt Organizations, provided it retains control
and discretion over use of the funds for IRC Sec. 501(c)(3) purposes. In this ruling, an Organization
exempt from Federal income tax under IRC Sec. 501(c)(3) distributed part of its funds to Organizations
not themselves exempt under IRC Sec. 501(c)(3). The exempt Organization ensures use of the funds for
IRC Sec. 501(c)(3) purposes by limiting distributions to specific projects that are in furtherance of its own

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

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

exempt purposes. It retains control and discretion as to the use of the funds and maintains records
establishing that the funds were used for IRC Sec. 501(c)(3) purposes.

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

GOVERNMENT'S POSITION:
Based on the above facts, the Organization did not fully respond to verify that they are operated
exclusively for one or more of the purposes specified in IRC Section 501(c)(3). It is the Government's
position that the Organization does not qualify as an Organization described in IRC Section 501(c)(3)
because it is not operated exclusively for an exempt purpose. In addition, the limited records provided
did not substantiate that its net earnings did not inure to the benefit of private shareholders and
individuals.

Here, the Organization has not started operations. There are no activities. The Organization has taken
out a loan in the Organization's name and deposited the funds in a bank account also in the
Organization's name. There have been multiple deposits to this account. There have been
withdrawals including a cashed check, several withdrawals, [illegible] payments to [illegible] and a
large payment to [illegible].

Over the course of the [illegible] through the mailing of letters, [illegible]
phone calls and the granting of extensions, the Internal Revenue Service has
repeatedly requested that the Organization provide explanations and supporting documents (invoices,
receipts, canceled checks, contracts, etc.) to substantiate that the withdrawals/debits from the
[illegible] bank statements were expensed in furtherance of the Organizations exempt purpose, and the
Organization was advised that if they were unable to provide any of the items requested, or if they felt a
particular item was not applicable, to please provide an explanation of why they were unable to provide
the requested item, or why it did not apply.

To date, the Organization has not provided any substantiating documents to the IRS and has not
demonstrated it has done anything charitable or in furtherance of the Organization's exempt purpose
with the funds.

Therefore, it is the Government's position that the Organization is not operated exclusively for charitable,
religious, or educational purposes, and its net earnings inure to the benefit of private shareholders and
individuals. The Organization does not qualify for exemption under IRC Sec. 501(c)(3).

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

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

Interaction with IRC Sec. 4958, Excess Benefit Transactions

Applicable Tax-Exempt Organization
In order for an excess benefit transaction to have occurred, the Organization involved must be an
"applicable tax-exempt Organization".

IRC Sec. 4958(e) defines an applicable tax-exempt Organization as any IRC Sec. 501(c)(3) public
charity or any Organization exempt under IRC Sec. 501(c)(4) or 501(c)(29), and any Organization
which was described under the above listed subsections at any time during the 5-year period ending on
the date of the transaction.

Here, the Organization was granted exemption under IRC § 501(c)(3) and has been exempt under IRC
Sec. 501(c)(3) continuously from the period of receiving their exemption until the transactions in
question. Therefore, the Organization is an applicable tax-exempt Organization under IRC Sec. 4958(e).

Disqualified Persons
IRC Sec. 4958(f)(1) defines "disqualified person" as including any person who was, at any time during
the five-year period ending on the date of a transaction, in a position to exercise substantial influence
over the affairs of the Organization.

Treas. Reg. § 53.4958-3(c)(2) provides that presidents, chief executive officers, or chief operating
officers are in a position to exercise substantial influence over the affairs of the Organization.

Treas. Reg. § 53.4958-3(e)(2)(iv) provides that the person who has or shares authority to control or
determine a substantial portion of the Organization's capital expenditures, operating budget, or
compensation for employees tends to have substantial influence.

Here, [illegible] one person was the Organization's President, [illegible] is the founder, President,
and the officer of the Organization from the Organization's date of exemption through the date of
the excess benefit transaction.

As the Organization's President, officer, and member, [illegible] oversees the
Organization's finance, budgeting, development, administration, legal and business affairs, policy and
planning, and communications. Ultimately, [illegible] is responsible for [illegible] business and financial
affairs for [illegible].

Pursuant to Treas. Reg. § 53.4958(f)(1), § 53.4958-3(c)(2), and § 53.4958-3(e)(2)(iv), [illegible] is a
disqualified person with respect to the Organization.

The Organization filed Form 990-EZ for tax period ending [illegible]. [illegible], the Organization lists on
[illegible] three years of the Form [illegible].

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

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

IRC Sec. 4958 Excise Tax

The excise taxes imposed by IRC Sec. 4958 apply to each excess benefit transaction between a
disqualified person and an applicable tax-exempt Organization. An excess benefit is defined as the
amount by which the value of the economic benefit provided by an applicable tax-exempt Organization,
directly or indirectly, to or for the use of any disqualified person exceeds the value of the consideration
(including the performance of services) received for providing such benefits. See Treas. Regs. 53.4958-
1(b) and 53.4958-4(a)(1).

Here, the Organization's President made unsubstantiated withdrawals/debits from the Organization's
[illegible] during [illegible] for [illegible]. These withdrawals/debits [illegible]
payments for [illegible]; [illegible] cash withdrawals with a total of [illegible].
The Internal Revenue Service repeatedly requested that the Organization provide explanations and
supporting documents (invoices, receipts, canceled checks, contracts, etc.) to substantiate that the
withdrawals/debits from the bank statements were expensed in furtherance of the Organizations
exempt purpose. To date, the Organization has not provided any of the requested items to substantiate
the withdrawals/debits from [illegible] bank account, ending in [illegible].

The Organization did not satisfy the contemporaneous substantiation requirements under Treas. Reg.
section 53.4958-4(c)(3), by substantiating the [illegible] in withdrawals/debits were used for the tax-
exempt purposes therefore it constitutes an automatic excess benefit transaction.

The taxes imposed under IRC Sec. 4958 are payable by any disqualified person who received an
excess benefit from a particular excess benefit transaction. In addition, with respect to any excess
benefit transaction, if more than one disqualified person is liable for any of the section 4958 excise
taxes, all such persons are jointly and severally liable for that tax. See Treas. Reg. 53.4958-1(c).

Initial Taxes:
IRC Sec.        Rate      Imposed on...            For...                    Amount    Excise Tax
4958(a)(1)      [illegible]%   1. [illegible]           Engaging in excess       [illegible]
                              2. Disqualified Person   benefit transaction

Additional Tax:
IRC Sec.        Rate      Imposed on...            For...                    Amount    Excise Tax
4958(b)         [illegible]%   1. [illegible]           If not corrected         [illegible]
                              2. Disqualified Person   within the taxable
                                                       period

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

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

Application of the 5 Factors from Treas. Reg. 1.501(c)(3)-1(f)(2)(ii)

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

1. The size and scope of the Organization's regular and ongoing activities that further exempt
   purposes before and after the excess benefit transaction(s) occurred.

   Here, the Organization has not started operations. There are no activities.
   Therefore, the Organization has no regular and ongoing activities that further exempt purposes.

2. The size and scope of the excess benefit transaction or transactions in relation to the size and
   scope of the Organization's regular and ongoing activities that further exempt purposes.

   Here, substantially more than half of the Organization's expenditures during [illegible] were excess
   benefit transactions at [illegible]% of total expenditures.

3. Whether the Organization has been involved in multiple excess benefit transactions with one or
   more persons.

   Here, there were [illegible] excess benefit transactions with [illegible] disqualified person. The excess
   benefit transactions were ongoing during the period under examination.

4. Whether the Organization has implemented safeguards that are reasonably calculated to prevent
   excess benefit transactions.

   There is no indication that safeguards have been implemented that would prevent further excess
   benefit transactions.
   Currently, President [illegible] still controls the financial transactions of the
   Organization, is still the only officer and only member of the Organization.

5. Whether the excess benefit transaction has been corrected, or the Organization has made good
   faith efforts to seek correction from the disqualified person(s) who benefited from the excess
   benefit transaction.

   No corrections have been made. There is no indication that the Organization has made efforts to
   seek correction from the disqualified persons who benefited from the transactions.

Based on the 5-factor analysis from Treas. Reg. 1.501(c)(3)-1(f)(2)(ii) above, the size and scope of the
inurement issues revealed by the examination show the Organization is not operated exclusively for
exempt purposes and, therefore, revocation of the Organization's tax-exempt status is warranted.

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

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

CONCLUSION:
Based on the foregoing reasons, the Organization does not qualify as an Organization described under
IRC Sec. 501(c)(3) and its tax-exempt status should be revoked.

It is the IRS's position that the Organization failed to establish that it meets the reporting requirements
under IRC §§ 6001 and 6033 to be recognized as exempt from federal income tax under
IRC § 501(c)(3). Furthermore, the Organization has not established that it is organized and operated
exclusively for an exempt purpose, the Organization substantially benefits private interests, and its net
earnings inure to the benefit of private shareholders and individuals.

Application of the 5-factor analysis provided by Treas. Reg. 1.501(c)(3)-1(f)(2)(ii), to determine whether
to continue to recognize the tax-exempt status of a tax-exempt Organization that has engaged in one or
more excess benefit transactions, weighed heavily in favor of revocation.

The Organization no longer meets the requirements to qualify as exempt from federal income tax under
IRC Sec. [illegible]. Therefore, its exempt status under IRC Sec. 501(c)(3) will be revoked effective
[illegible].

Form 1120, U.S. Corporation Income Tax Return, should be filed for the tax periods after [illegible].

Catalog Number 20810W          Page 14          www.irs.gov          Form 886-A (Rev. 5-2017)