Organization lost exemption for serving founder's private interests

Plain-English summary

An organization had once operated as a church but reported little or no activity after those operations ceased. Its representatives told the IRS that the organization's bank account had been used as a catch-all for transactions relating to its founder rather than its exempt activities. Bank records included personal financial transactions such as mortgage payments, airline travel, rental-management payments, and deposits, while requested books and records were not provided. The IRS concluded that the organization served the founder's private financial interests, failed the operational test, and had not shown that its net earnings did not inure to a private individual. It revoked the organization's section 501(c)(3) status effective on a redacted date.

Ruling snapshot

• Question: Did the organization continue to operate exclusively for exempt purposes under section 501(c)(3)?
• Outcome: Revocation effective on a redacted date
• Key authorities: IRC § 501(c)(3); Treas. Reg. § 1.501(c)(3)-1; Basic Bible Church v. Commissioner; Better Business Bureau v. United States

Full text (IRS public release)

Department of the Treasury Internal Date:
Revenue Service February 4, 2025
Tax Exempt and Government Entities Taxpayer ID number (last 4 digits):
550 Main Street, Room 6-403 Ld
Form:

Cincinnati, OH 45202-5204

Tax periods ended:

ID number:

Telephone:
Release Number: 202518017
Release Date: 5/2/2025 Last day to file petition with United States
UIL Code: 501.03-00 Tax Court:

May 5, 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

Your determination letter dated [redacted] is revoked.

Our adverse determination as to your exempt status was made for the following reasons: You have not
demonstrated that you are organized and operated exclusively for exempt purposes as required under Internal
Revenue Code Section 501(c)(3). Treasury Regulation Section 1.501(c)(3)-1(d)(1)(ii) provides that an
organization is only operated for exempt purposes if it serves public rather than private interests. Your
organization has operated for the substantial non-exempt purpose of serving the private financial interests of the
founder and therefore is not operated exclusively for exempt purposes. Further, you have not shown that no part
of your net earnings inured to the benefit of a private individual.

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 m either:

• The United States Tax Court,
• The United States Court of Federal Claims. or
• The United States District Court for the District of Columbia

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

You must file a petition or complaint in one of these three courts within 90 days from the date we mailed this
determination letter to you. You can download a fillable petition or complaint form and get information about
filing at each respective court's website listed below or by contacting the Office of the Clerk of the Court at one
of the addresses below. Be sure to include a copy of this letter and any attachments and the applicable filing fee
with the petition or complaint.

You can eFile your completed U.S. Tax Court petition by following the instructions and user guides available
on the Tax Court website at ustaxcourt.gov/dawson.html. You will need to register for a DAWSON account to
do so. You may also file your petition at the address below:

United States Tax Court
400 Second Street, NW
Washington, DC 20217
ustaxcourt.gov

The websites of the U.S. Court of Federal Claims and the U.S. District Court for the District of Columbia contain
instructions about how to file your completed complaint electronically. You may also file your complaint at one of
the addresses below:

US Court of Federal Claims

717 Madison Place, NW

Washington, DC 20439

uscfc.uscourts.gov

US District Court for the District of Columbia
333 Constitution Avenue, NW

Washington, DC 20001

dcd.uscourts.gov

Processing of income tax returns and assessments of any taxes due will not be delayed if you file a petition for
declaratory judgment under IRC Section 7428.

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.

Enclosures:
Publication 1
Publication 594
Publication 892

Sincerely,
Digitally signed by Lynn A.

Lynn A. Brinkley Brinkley

Date: 2025.01 30 12:53:40 -05°00"

Lynn A. Brinkley
Director, Exempt Organizations Examinations

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

Department of the Treasury Date: September 22, 2023
Internal Revenue Service Taxpayer ID number:
IRS Tax Exempt and Government Entities -
Form:

Tax periods ended:

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

Manager's contact information:
Name:
ID number:

Telephone:
Response due date:
October 23, 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).

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

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

Sincerely,

—

Adam Standen, Acting Group Manager,
for

Lynn A. Brinkley

Director, Exempt Organizations
Examinations

Enclosures:
Form 886-A
Form 6018
Publication 892

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

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
Is (hereinafter referred to as “the organization”) exempt from federal income tax
under section 501(c)(3) of the Internal Revenue Code (“IRC”)?
FACTS
History and current activities
The organization was originally granted exemption under IRC section 501(c)(3) in . The
organization’s exemption was revoked in for failure to file Forms 990-N. It applied for and

was granted retroactive reinstatement in

The organization stated to exam agent during initial exam interview that they previously operated
as a church, until when church operations ceased. The exemption granted was not for
church operations.

Forms 990-N have been consistently filed since the reinstatement of exemption.

In an interview with Power of Attorney ( ) and Treasurer { ) conducted
on they indicated that there were no current activities taking place with the
organization, and that there had been minimal activities since ceasing church operations. They
further indicated that the bank account of the organization had been used as a “catch all” for
activity that was not directly related to , but rather to (founder and
president of the organization).

The initial Information Document Request (“IDR”) requested a written description of the exempt
purpose(s) and current activities. The response stated: “

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

886-A Department of the Treasury — Internal Revenue Service Schedule number
Form - ; or exhibit
(May 2017) Explanations of Items

Name of taxpayer Tax Identification Number (last 4 digits} | Year/Period ended
Finances
The initial IDR requested of gross receipts and the average. The

organization provided the following in response:

Payroll data reported on Forms 941, Employers Quarterly Federal Tax Return indicate the
following wages were paid by the organization:

Form Form Form
941 wages 941 wages 941 wages
paid paid paid
$ $ $

The organization was issued the following Forms 1099:

Year Year Year
Type issued

Rent/Royalties

Non Emp

Comp

Other Income

GAMC&TIN

Total
Bank statements for a account in the name of , account number
ending in were provided for and . Gross deposits in calendar year totaled
$ . Gross deposits in calendar year totaled $
Deposits made into the account come from various sources including payments,
payments from churches, , , and unknown sources as regular deposits.

Expenditures from the account include checks written, , ,
, , and payments.

The initial IDR requested general ledger/transaction register, and data, neither were
provided. The organization stated that there were none to provide. The bank account transactions

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

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

: hibit
(May 2017) Explanations of Items re

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

could not be reconciled with books and records as all requested books and records were not
provided.

LAW AND ANALYSIS
Private Interest

An organization is not operated exclusively for one or more exempt purposes unless it serves a
public rather than a private interest. Sec. 1.501(c)(3)-1(d)(1)(ii), Income Tax Regs. See Baltimore
Health and Welfare Fund v. Commissioner, 69 T.C. 554 (1978); Callaway Family Association v.
Commissioner, 71 T.C. 340 (1978). Therefore, an organization must establish that it is not
operated for the benefit of private interests such as the creator or his family. Sec. 1.501 (c)(3)-
1(d)(1)(ii), Income Tax Regs.

The organization stated during the initial interview that the bank account of the organization serves
as a “catch all’ for transactions for the founder, which are not related to activities for

Bank statements indicate transactions that are personal in nature, such as mortgage payments,
airline flights, payments to rental management companies, and deposits.

The organization serves primarily as a vehicle for handling the founder's personal financial
transactions in the name of . Thus, the organization operates to serve the private
interests of a designated individual rather than a public interest.

See Basic Bible Church v. Commissioner, 74 T.C. 846 (1980); The Southern-Church of Universal
Brotherhood Assembled, Inc. v. Commissioner, 74 T.C. 1223 (1980); Rev. Rul. 69-266, 1969-1
C.B. 151. See also Manson v. Commissioner, T.C.M. 1980-315; Lynch v. Commissioner, T.C.M.
1980-464; Pusch v. Commissioner, T.C.M. 1980-4, affd, 628 F.2d 1353 (5th Cir. 1980); Abney v.
Commissioner, T.C.M. 1980-27, appeal docketed (9th Cir., Oct. 14, 1980).

Operational Test

In order to be exempt under section 501(c)(3), an organization must qualify under both the
organizational and the operational tests. Sec. 1.501(c)(3)-1(a)(1), Income Tax Regs.

The operational test requires that an organization's activities be primarily those which accomplish
one or more exempt purposes as specified in section 501(c)(3), and not, except to an insubstantial
part, those which do not further an exempt purpose. Sec. 1.501(c)(3)-1(c)(1), Income Tax Regs.
The existence of a substantial nonexempt purpose, regardless of the coexistence of an exempt
purpose or purposes, precludes an organization from qualifying under section 501(c)(3). Better

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

Form 886-A Department of the Treasury — Internal Revenue Service Schedule number
» or exhibi
(May 2017) Explanations of Items

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

Business Bureau v. United States, 326 U.S. 279 (1945); First Libertarian Church v. Commissioner,
74 T.C. 396 (1980).

Section 501(c)(3) of the Code provides for the exemption from federal income tax of organizations
organized and operated exclusively for religious or charitable purposes, no part of the net earnings
of which inure to the benefit of any private shareholder or individual.

Section 1.501(c){3)-1(d)(1)(ii) of the Income Tax Regulations provides that an organization is not
organized or operated exclusively for any of the purposes specified in section 501(c){3) of the
Code unless it serves a public rather than a private interest. Thus, to qualify under section
501(c)(3), an organization must establish that it is not organized or operated for the benefit of
private interests such as designated individuals, the creator or the creator's family, shareholders of
the organization, or persons controlled, directly or indirectly, by such private interests.

The organization stated during the initial interview that there were {ittle to no activities taking place
since the organization ceased operations as a church in

The volume and nature of the transactions in the bank account do not correlate with the current
activities stated of the organization. Gross deposits in calendar year totaled $ while
the organization states to have had $ in gross receipts for the year.

The organization does not satisfy the operational test. It operates to serve the private interests of a
designated individual (founder) and thus is not operated exclusively for religious or charitable
purposes. Therefore, it does not qualify for exemption from federal income tax under IRC section
501(c)(3) of the Code.

TAXPAYER’S POSITION

The taxpayer's position is unknown at this time.

CONCLUSION

This report proposes revocation of IRC section 501(c)(3) tax exempt status as of

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