Charity loses exemption over property donation transactions

Plain-English summary

The IRS revoked an organization's section 501(c)(3) status effective January 1, 2009. The organization performed charitable work for schoolchildren, but it also accepted donated real estate at high stated appraisal values and quickly resold the properties to private buyers for less than one percent of those values without obtaining independent appraisals. The IRS concluded that these repeated transactions provided substantial private benefits to donors and buyers and showed that the organization operated for a substantial nonexempt purpose. Contributions were no longer deductible, and the organization was required to file federal income tax returns.

Ruling snapshot

• Question: Did the organization continue to satisfy the section 501(c)(3) operational test despite its real estate donation and resale activities?
• Outcome: Revocation effective January 1, 2009.
• Key authorities: IRC §§ 170, 501(c)(3), 507, and 7428; Treas. Reg. § 1.501(c)(3)-1

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Appeals Office
Employer Identification Number:

DEC 10 2015 Person to Contact:
Employee ID Number:
Number: 201610026
Release Date: 3/4/2016
UIL: 501.03-30

ORG

Certified Mail

Dear

This is a final adverse determination regarding your exempt status under section 501(c)(3) of the Internal
Revenue Code (the “Code”). It is determined that you do not qualify as exempt from Federal income tax
under section 501(c)(3) of the Code: effective January 1, 2009.

Our revocation was made for the following reasons:

You have not operated exclusively for one or more exempt purposes as required to be an
organization described in section 501(c)(3) of the Code. You operated in substantial part to provide
tax benefits and assistance to private individuals by accepting donations of real estate with high
stated appraised values. You re-sold the properties for less than one percent of the stated
appraised value to other private individuals, without obtaining any independent appraisals of the
property. While you have conducted activities that clearly further charitable purposes, your
repeated conduct of the real estate sales activities impermissibly accommodating private
interests described above warrants the conclusion that you operated for a substantial purpose of
benefitting private interests in contravention of the requirements for an organization to be
described in section 501(c)(3), as set forth in Treas. Reg. § 1.501(c)(3)-1(d)(1)(ii).

Contributions to your organization are not deductible under section 170 of the Code.

You are required to file Federal income tax returns on Forms 1120. File your return with the appropriate
Internal Revenue Service Center per the instructions of the return. For further instructions, forms, and
information please visit www.irs.gov.

If you were a private foundation as of the effective date of the adverse determination, you are considered
to be taxable private foundation until you terminate your private foundation status under section 507 of
the Code. In addition to your income tax return, you must also continue to file Form 990-PF by the 15th
Day of the fifth month after the end of your annual accounting period.

Processing of income tax returns and assessments of any taxes due will not be delayed should a petition
for declaratory judgment be filed under section 7428 of the Code.

We will make this letter and the proposed adverse determination letter available for public inspection
under Code section 6110 after deleting certain identifying information. We have provided to you, in a
separate mailing, Notice 437, Notice of Intention to Disclose. Please review the Notice 437 and the
documents attached that show our proposed deletions. If you disagree with our proposed deletions, follow
the instructions in Notice 437.

If you decide to contest this determination, you may file an action for declaratory judgment under the
provisions of section 7428 of the Code in one of the following three venues: 1) United States Tax Court,


2) the United States Court of Federal Claims, or 3) the United States District Court for the District of
Columbia. A petition or complaint in one of these three courts must be filed within 90 days from the date
this determination letter was mailed to you. Please contact the clerk of the appropriate court for rules for
filing petitions for declaratory judgment. To secure a petition form from the United States Tax Court, write
to the United States Tax Court, 400 Second Street, N.W., Washington, D.C. 20217. See also Publication

892. ;

You also have the right to contact the office of the Taxpayer Advocate. Taxpayer Advocate assistance is
not a substitute for established IRS procedures, such as the formal appeals process. The Taxpayer
Advocate cannot reverse a legally correct tax determination, or extend the time fixed by law that you have
to file a petition in a United States Court. The Taxpayer Advocate can however, see that a tax matters
that may not have been resolved through normal channels get prompt and proper handling. If you want
Taxpayer Advocate assistance, please contact the Taxpayer Advocate for the IRS office that issued this
letter. You may call toll-free, 1-877-777-4778, for the Taxpayer Advocate or visit www.irs.gov/advocate
for more information.

If you have any questions, please contact the person whose name and telephone number are shown in
the heading of this letter.

Sincerely Yours,

Appeals Team Manager

cc

Enclosure: Publication 892


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

Exempt Organizations: Examinations

1100 Commerce Street, MC 4980 DAL

Dallas, TX 75242

Date:
June 19, 2014
Taxpayer Identification Number:

Form:

Tax Year(s) Ended:

ORG
Person to Contact/ID Number:

Contact Numbers:
Telephone:
Fax:

Manager’s name/ID number:

Manager’s contact number:

Response due date:

Certified Mail — Return Receipt Requested
Dear '

Why you are receiving this letter

We propose to revoke your status as an organization described in section 501(c)(3) of the
Internal Revenue Code (Code). Enclosed is our report of examination explaining the proposed
action.

What you need to do if you agree

If you agree with our proposal, please sign the enclosed Form 6018, Consent to Proposed
Action — Section 7428, and return it to the contact person at the address listed above (unless
you have already provided us a signed Form 6018). We'll issue a final revocation letter
determining that you aren’t an organization described in section 501(c)(3).

After we issue the final revocation letter, we’ll announce that your organization is no longer
eligible for contributions deductible under section 170 of the Code.

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 revocation letter. Failing to respond to this proposal will adversely impact your legal
standing to seek a declaratory judgment because you failed to exhaust your administrative
remedies.

Letter 3618 (Rev. 6-2012)
Catalog Number 34809F


Effect of revocation status
If you receive a final revocation letter, you'll be required to file federal income tax returns for the
tax year(s) shown above as well as for subsequent tax years.

What you need to do if you disagree with the proposed revocation

If you disagree with our proposed revocation, you may request a meeting or telephone
conference with the supervisor of the IRS contact identified in the heading of this letter. You also
may file a protest with the IRS Appeals office by submitting a written request to the contact
person at the address listed above within 30 calendar days from the date of this letter.

The Appeals office is independent of the Exempt Organizations division and resolves most
disputes informally.

For your protest to be valid, it must contain certain specific information including a statement of
the facts, the applicable law, and arguments in support of your position. For specific information
needed for a valid protest, please refer to page one of the enclosed Publication 892, How to
Appeal an IRS Decision on Tax-Exempt Status, and page six of the enclosed Publication 3498,
The Examination Process. Publication 3498 also includes information on your rights as a
taxpayer and the IRS collection process. Please note that Fast Track Mediation referred to in
Publication 3498 generally doesn’t apply after we issue this letter.

You also may request that we refer this matter for technical advice as explained in Publication

892. Please contact the individual identified on the first page of this letter if you are considering
requesting technical advice. If we issue a determination letter to you based on a technical

advice memorandum issued by the Exempt Organizations Rulings and Agreements office,no
further IRS administrative appeal will be available to you.

Contacting the Taxpayer Advocate Office is a taxpayer right

You have the right to contact the office of the Taxpayer Advocate. Their assistance isn’t a
substitute for established IRS procedures, such as the formal appeals process. The Taxpayer
Advocate can't reverse a legally correct tax determination or extend the time you have (fixed by
law) to file a petition in a United States court. They can, however, see that a tax matter that
hasn't been resolved through normal channels gets prompt and proper handling. You may call
toll-free 1-877-777-4778 and ask for Taxpayer Advocate assistance. If you prefer, you may
contact your local Taxpayer Advocate at:

Internal Revenue Service
Office of the Taxpayer Advocate

For additional information

If you have any questions, please call the contact person at the telephone number shown in the
heading of this letter. If you write, please provide a telephone number and the most convenient
time to call if we need to contact you.

2 Letter 3618 (Rev. 6-2012)
Catalog Number 34809F


Thank you for your cooperation.

Sincerely,

For Mary A. Epps
Acting Director, EO Examinations

Enclosures:

Report of Examination
Form 6018
Publication 892
Publication 3498

3 Letter 3618 (Rev. 6-2012)
Catalog Number 34809F


FILE COPY

Form 886-A

(Rev. January 1994) EXPLANATIONS OF ITEMS

Name of taxpayer Tax Ideniitcation Number VeaiPoriod ended
ISSUE

Is operating exclusively for charitable and educational purposes under Section 501(c)(3) of

the Internal Revenue Code (IRC)?

FACTS
EF 02

filed Form 1023, Application for Recognition of Exemption, on March 29,20! . Based
upon this filing, Internal Revenue Service granted exempt status under IRC section 501(c)(3) to

on May 6, 20
Part IV of the Form 1023 provided narrative a description of activities as follows:
“The mission of the is to assist underprivileged school children to realize their

educational goals through the direct donation of essential materials such as pencils. The activities
will be conducted by uncompensated volunteers, at least annually. The primary focus of these
activities will be the rural areas of . This activity is in furtherance of the charitable
support of education; it will occupy % of the time. The will seek broad-based
public support from individuals in its home base of .”
Part VIII of the Form 1023 stated that would solicit funds from individuals and foundation
grants. .
Trust . .
The . A Charitable Trust, was signed on December 12,20 . General charitable

operational procedures were provided in the Trust, and no specific charitable purpose of
was provided in the Trust,

Current Activities
During the examination of , it was disclosed that the following activities were conducted

during the exam year.

o Shipping school supplies to

delivered uniforms, shoes, school supplies, and tuition to school children in
‘during the years of examination. For the year examined, total value of delivered goods was $$$.

o Facilitation of property donations and transfers.

Form 886-A (1-1994) Catalog Number 20810W Pape 1 publish.nors.gov Department of the Tressury-internal Revenue Service


Schedule number or exhibit

Form BUG A 504) EXPLANATIONS OF ITEMS
Name of taxpayer Tax (deriffication Number YauriPerod ended

The examination identified properties that were transferred between individuals and

during the years of examination.
The properties were located in different counties of and are listed below by property tax
parcel number.
° Gounty, — Parcel #
. County, — Parcel #
° County, : — Parcel #

Quitclaim Deeds and Forms 8283 for the properties are summarized below:

Quitclaim Deeds provided by the organization revealed:

* Quitclaim Deed executed on December 22, 20 by (Grantor) to (Grantee).

* Form 8283, signed on December 28, 20 _ by an officer of , listing a property
appraised value of $

* Quitclaim Deed executed on December 28,20 by (Grantor) to

| (Grantee). .

* Form 8283, signed on December 28, 20 by an officer of , listing a property
appraised value of $ .

* Quitclaim Deed executed on December 29.20 by (Grantor) to (Grantee).
The Deed also provided that received $ —_, paid by , as the consideration.

¢ Quitclaint Deed-executed on December 30,20 by (Grantor) to (Grantee).

¢ Form 8283, signed on December 30,20 by an officer of , listing a property
appraised value of $ ,

¢ Quitclaim Deed executed on February 15,20 * by (Grantor) to (Grantee).
The Deed also provided that received$ paid by , 88 the consideration.

' The information was obtained from related IRS audit.
? The Quitclaim Deeds were voluntarily provided to IRS during the examination.

Form 886-A (1-1994) Catalog Number 20810W —Page_2 publish.no.kegov Department of tha Treasury-Internal Revenue Service


Schedule number or exhiba

Form 886-A
(Rev. January 1994) EXPLANATIONS OF ITEMS
Name of taxpeyer Tax Wendication Number VearPertod ended

The flowchart below is based on the Quitclaim Deeds, Forms 8283, IRS internal records, and

county property records.

Quitclaim Deeds provided by the organization revealed:

° Quitclaim Deed executed on May 26,20 * by (Grantor) to
(Grantee).

¢ Form 8283, signed on May 26, 20° * by an officer of , listing a property appraised
value of $ .

* Quitclaim Deed executed on December 10, 20° by (Grantor) to
(Grantee). The Deed also provided that the Grantor received $ paid by. for the
consideration.

The flowchart below is based on the Quitclaim Deeds, Forms 8283, IRS internal records, and
county property records.

* The Form 8283 was voluntarily provided to IRS during the examination.

Form 886-A (1-1904) Catalog Number 20810W Page_3 —pubish.no.re.gov Department of the Treasury-internal Revenue Service

oe


886- Schedule cumber or exhibit
Form A
(Rev. January 1994) EXPLANATIONS OF ITEMS
Name of taxpayer * Tex Wenlificetion Number YeartPeriod ended

* ._County Property Parcel:
Quitclaim Deeds provided by the organization revealed:
* Quitclaim Deed executed on December 27,20 by (Grantor) to
(Grantee).
Form 8283, signed on December 27,20 by an officer of , listing a property
appraised value of $ .
Quitclaim Deed executed on December 29,20 by (Grantor) to
(Grantee). The Deed also provided that the Grantor received $ —_, paid by for the
consideration.
Quitclaim Deed executed on December 30,20 by (Grantee) to
(Grantee).
Form 8283, signed on December 30,20 _ by an officer of I , listing a property
appraised value of $ ;
Quitclaim Deed executed on February 15,20 by (Grantor) to (Grantee).
, for the consideration.

The Deed also provided that the Grantor received $ _, paid by

The flowchart below is based on the Quitclaim Deeds, Forms 8283, IRS Internal records, and
county property records

Fonn 888-A (1-1994) Catalog Number 20810W Page_4  —publish.no.trs.gov

Department of the Treasury-intemal Revenue Service


Schedule number or exhibh

Form 886-A
(Rev. January 1994) EXPLANATIONS OF ITEMS
‘Rame of taxpayer Tax Wdenilication Number YeurPertod onded

County Property Parce!:

Quitclaim Deeds provided by the organization revealed:

Quitclaim Deed executed on July 1, 20° by (Grantor) to (Grantee).
Form 8283, signed on July 1, 20° by an officer of , listing a property appraised
value of $
Quitclaim Deed executed on October 27, 20° by (Grantor) to (Grantee).

, for the consideration.

The Deed also provided that the Grantor received$ _, paid by

County Assessor website provided information indicated that the property was sold from
to for$  onNovember 16,20 .

Quitclaim Deed executed on December 9,20 * by (Grantor) to

(Grantee).

Form 8283, signed on December 9,20 * by an officer of , listing a property
appraised value of $ .

The flowchart below is based on the Quitclaim Deeds, Forms 8283, IRS Internal records, and
county property records

Form 8B6-A (1-1994) Catalog Number 20810W = Page_§ publish.noin.gov Department of the Treasury-intornal Roveruie Service


‘Schedule menber or exhibit
Form 886-A
(Rev. January 1994) EXPLANATIONS OF ITEMS
Namie of taxpayer Tax Kiendificason Number YaariPatiod ended
Quitclaim Deeds provided by the organization revealed:

* Quitclaim Deed executed on June 25,20 by (Grantor) to (Grantee).
¢ Form 8283, staned on June 25,20 _ by an officer of listing a properly appraised
value of $
* Quitclaim Deed executed on July 13,20 by (Grantor) to
(Grantor). The Deed also provided that the Grantor received$ —_, paid by . for the
consideration. ‘
e Quitclaim Deed executed on August 30,20 ”by (Grantor) to
(Grantee).

Treaswuy-tinternal
Form 886-A (1-1994) Catalog Number 20810W Paye_§ —publish.noirs.gov Department of the Reventie Service


Schodula number or exhibk

Chew Joncany 1994) EXPLANATIONS OF ITEMS

Name of taxpayer Tax Kenfiicaiion Number YearPertod ended

* Form 8283, signed on August 30,20 * by an officer of . listing a property
appraised value of $. .

e Quitclaim Deed executed on December 10,20 ” by (Grantor) to
(Grantee). The Deed also provided that the Grantor received$ _—_, paid by . for the
consideration.

The flowchart below is based on the Quitclaim Deeds, Forms 8283, IRS Internal records, and
county property records

————County Property Parcel,
Quitclaim Deeds provided by the organization revealed:

¢ Quitclaim Deed executed on May 26,20 *by. (Grantor) to
(Grantee).

¢ Quitelalm Deed executed on December 10,20 * by (Grantor) to
(Grantee). The Deed also provided that the Grantor received $_—. paid by for the

consideration. .

The flowchart below is based on the Quitclaim Deeds, IRS Internal records, and county
property records

Form 8B6-A (1-1994) Catalog Number 20810W Page_7 publish.no.ks.g0v Department of the Troasuty-internal Revenue Service


Schediie number or exhibh
886-A
GRev, daruiary 1994) EXPLANATIONS OF ITEMS
Name of texpayer ‘Tax Wentiicaton Number YeadPeriod ended
County Property Parcel:
Quitclaim Deeds provided by the organization revealed:

* Quitclaim Deed executed on December 27,20 by (Grantor) to
(Grantee).
e Form 8283, signed on December 27,20 * by an officer of _ listing a property
appraised value of $
¢ Quitclaim Deed executed on May 10,20 by (Grantor) to
(Grantor). The Deed also provided that the Grantor received $ = paid by. , for
the consideration.
* Quitclaim Deed executed on May 26,20 * by (Grantor) to
(Grantee),
e Quitclaim Deed executed on December 10,20 * by (Grantor) to ‘or the

(Grantee). The Deed also provided that the Grantor received $ _, paid by

Form 886-A (1-1994) Catalog Number 20810W Page_8 publish.no.irs.gov

Department of the Treasury-intemal Revenue Service


Schedule number or exhibit
Form 886-A
FReow danuary 1094) EXPLANATIONS OF ITEMS
Name of taxpayer Tax Identification Number YeatPerlod ended
Property Parcel:
Quitclalm Deeds provided by the organization revealed:
e Quitclaim Deed executed on Decamber 28,20 by (Grantor) to (Grantee).
¢ Form 8283, signed on December 28, 20 by an officer of . isting a property appraised
value of $ .
e Quitclaim Deed executed on December 29, 20 by. (Grantor) to
(Grantee). The Deed also provided-that the Grantor received $ _, paid by _ for the
consideration. -
« Quitclaim Deed executed on December 30,20 by (Grantee) to
(Grantes).
e Form 8283, signed on December 30,20 by an officer of . isting-a property appraised
value of .
¢ Quifclaim Deed executed on February 15, by (Grantor) to (Grantee).
The Deed also provided that the Grantor received $. —_, paid by , for the consideration.

Form 888-A (1-1994) Catalog Number 20810W  Page_9 publish nalrs.gov Department of the Treasury-tntomal Revenue Service


Schedule number ov exhibit

er ae 1908 EXPLANATIONS OF ITEMS
Name of taxpayer Tex Kientilicaiion Number YeadPertod ended

The flowchart below is based on the Quitclaim Deeds, Forms 8283, IRS Internal records and
county property records

————-County Property Parcel;
Quitclaim Deeds provided by the organization revealed:

* Quitclaim Deed executed on December 28,20 by (Grantor) to (Grantee).

» Form 8283, sianed on December 28, by an officer of listing a property appraised
value of $

¢ Quitclaim Deed executed on May 10,20 by (Grantor) to (Grantee). The
Deed also provided that the Grantor received$ __ paid by for the consideration.

The flowchart below is based on the Quitclaim Deeds, Forms 8283, IRS Internal records and
County property récords —

Form 886A (1-1994) Catalog Number 20810W Page_10 _publish.nolre.gov Department of the Trensury-internal Revenue Service


Schedule number of axhibt

Form 886-A
(Rev. January 1994) EXPLANATIONS OF ITEMS
Haart: OF texesnmee Vax Wdanélicallon Nuaiber VoadPortod ended

Quitclaim Deeds provided by the organization reveated:

°

Quitclaim Deed executed on December 27,20 by (Grantor) to (Grantee).
Form 8283, signed on December 27,20 _ by an officer of . fisting a property appraised
value of $ .
Quitclaim Deed executed on May 10,20 by (Grantor) to (Grantor).
The Deed also provided that the Grantor received $ _, paid by , for the
consideration.
Quitclaim Deed executed on May 26,20 * by (Grantor) to (Grantee).
Form 8283, signed on May 26,20 * by an officer of listing a property appraised value
of $ .
Quitclaim Deed executed on December 10,20 * by (Grantor)to = (Grantee).

, for the consideration.

The Deed also provided that the Grantor received $ —_, paid by

The flowchart below is based on the Quitclaim Deeds, Forms 8283, IRS Internal records and
county property records

Form B&6-A (1-1994) Catalog Number 20810 Page_11 _pubbilsh.no.fre.gov Department of the Treasury-intemal Revenue Service


826 Schedule camber or exhittt
<A
(Rev. January 1994) EXPLANATIONS OF ITEMS

Name of taxpayer Tax identification Number YeardPatiod ended
__MeetingMinutes ee

An interview with , & trustes of , secretary of

and , a trustee of , was conducted on April 29, 20° by Agent .

indicated that , @ former trustee of , was the one that used to take the

minutes. He mentioned that was his companion and was very involved with the organization. She
has passed away.

The meeting information that provided to IRS was agendas, and not the minutes.

The agendas that were provided to IRS listed shipping supplies, storage, fundraising, websites, and other
tems of meeting discussion.

No property transfer transactions of were listed as an item of discussion in the meeting
agendas for the years under examination.

Forms 990
submitted an electronic registration Form 990N (ePost) card for the years 20 and 20
No Form 990 was filed by .

Financial Information

had one bank account (acct # xxxxx4445) in a Bank in the years under

examination.

Form 886-A (1-1984) Catalog Number 20810W Page 12 _ publish.no.ke.gov Department of the Treasury-internal Revenue Service


Schedule rasnber or exhibtt

Form 886-A
(Rev. January 1994) EXPLANATIONS OF ITEMS
Name of taxpayer Tax Weniiicalion Namber eurPertod ended

provided copies of bank statements. The deposits and expenses are summarized below:

20 20.
Beginning Balance
Total Deposits ad
Total Withdrawals & Expenses _
Ending Balance
The financial information provided that received the proceeds from property sales were

$ and $ inthe year20 and20  , respectively.

o April29,20 Interview
The interview was conducted by IRS agents with the following individuals:

a , Executive Director
° . Director
° . Secretary
° , Trustee -
e Power of Attorney

A question regarding the selling price of the properties and the appraisal value was asked.

answered, “We knew about the appraisal value, but did not think much of it They were
just pleased that they were receiving $ _. For the organization, $ _ Is a significant amount that
would help them support their exempt purpose. They stopped doing these transactions once they
were questioned by the IRS."

was asked the question, “Explain the consequences when the organization sells the
property extremely below the FMV. The contributor of the property gets a substantial charitable
contribution for the donation, and the buyer will benefit of purchasing the land extremely below
appraisal value which bring the value of the property lower than it really is”.
that,"$ is a very substantial amount for their budget, therefore they were motivated to be part of

these transactions since they were under the impression there was nothing wrong about them. He
explained that the Promoter approached them with a donor, which donated the properties, and —
provided a buyer that would buy them for roughly $ . He stated that the money went for charitable

purpose. *

A question asked to regarding the receipts for the property transactions that were given
to the buyers and donors. responded that, "No receipts were given; only the thank-you
note, where it stated the contribution amount and the selling price. Moneys from the sale of the
properties can be traced to their Account.”

Form 886-A (1-1994) Catalog Number 20610W Page_13 —_ publish.no.Irs.gov Department of the Treasuty-Iinfernal Revenue Service


Schedsde number of exhib

Fev, Janeary 1004) EXPLANATIONS OF ITEMS
Name of taxpayer Tex iden éficalion Number YearPeriod ended

was asked, "Was the board aware they had signed form 8283 that stated the appraisal
value of the properties that were donated, and that amount it was sold for? “ replied
that, “He was told that the properties were worthless and that he felt that the real worth of the

property is the amount the market is willing to pay.” also indicated that he
acknowledged that the transaction might appear questionable, but at the time he felt that there was

nothing wrong with them.
A question regarding the sale value vs. an appraisal value on the Form 8282 and Form 8283 was
asked to replied that she was not aware of the appraisal value, and was

given all the forms already pre-filled by _ All she did is sign them. She explained further that
we were given the filled out Quitclaim-deeds, and we took the Quitclaim-deeds to get them notarized
at the bank. also added that prepared all the paper work and Quitclaim-deeds

for all the transactions. All we did was sign them and/or get them notarized. We were not involved in
the process of the seller-buyer negotiation.

e October 24,20 Interview
An interview was conducted with , a board member of

Q: Did the | have a letter aareement with that basically says that the
would accept properties If could assure to find the buyers for the properties. And
if could not find the buyers, then would have to buy It back from the

?
A: (do not recall anything like that.
Q: Did the board ever contact the donors before or after the donation? If no, why?

A: No. said not to worry about thanking the Donors, just thank me. | never talked to them
or e-malied them, it was just between and myself.

Q: Did the board ever try to contact the buyer to negotiate the sale price? If yes, explain. If no,
why?

A: No. That is part of the oral agreement with
organization does not have fo do it. :

that he would try to find a buyer, so the

Q: Use the property (Parcel ID: } as an example. The Form 8283 signed by your
organization indicated that you knew the appraisal value of the property was $ . Please
explain why the board agreed to exchange a property worth of $ for$

A: Because that was the agreement with
Q: Did the ever try to sell the property on the market? If yes, explain. If no, why?

Department of the Treasury-intornal Revenue Service

Form 886~A (1-1994) Catalog Number 20810 Page 14 _ publish.no.lre.gov


Schedule number or exhibit

Form 886-A
Name of taxpayer Tax Wentncaton Number YearPeriod ended

A: No. That is part of the oral agreement with that he would try to find a buyer, so the

organization does not have fo do it.

Interview with a third party
An interview was conducted with by the examiner on October 23, 20
The following are the questions asked to and answers provided by

Q: How do you know The ?

A: My friend he spoke of the for years.

Q: What is the relationship between you and The ?

A: No specific relationship. I just help friends and family that owned properties that do not want to own

the properties anymore. So, they decided to make the charitable donation.

Had you owned these properties prior to 20? if yes, how and. when did you acquire these
properties?

A: Yes. | owned all of those properties and | need to check my records for exact day. | acquired
through tax sales.

Q:; Did you market those properties to the buyers? {f yes, how?

A: I tried to sale them, but | could not. | could not keep them because | could not afford the real estate
taxes. So, | offer deals to my friends that | would convey the property to the buyer and the buyer
paid the property taxes. If the property sold, then the buyer would get half of the proceeds after

they first got their property taxes and fees back.

Q: Did you have any agreements between you and The
transfers? If yes, please explain.

A: Yes. We have a letter agreement. The agreement basically says that the would
accept properties if | could assure to find the buyers. And if | could not find the buyer, then | have
to take it back for a small amount. So, the charity ends up with some cash amounts.

Q: Who was the appraiser of these properties that were deeded in and out of The

paid the appraiser?
was the appraiser, / paid for the appraisal fees and the property owners ~
reimbursed the appraisal fees back. The appraisal fees were arranged from$ -$ .

2D

regarding the property

? Who

Form 886-A (1-1994) Catalog Number 20810W Page_15 ~ publish.no.irs.gov “Department of the Treasury-internal Revenue Service


Schedule nunber or exhib

Fom BOG sot EXPLANATIONS OF ITEMS
Name of texpayer "Tax Wdendlicalion Number YearParlod ended

Q: What documents did you prepare for each of the transactions? Quitclaim Deed, Form 8282, Form
8283?

A: | prepared the quitclaim deed. | partially prepared Forms 8283, and | prepared the Forms 8282.

Q: The properties were sold at a much lower amount than the appraised fair market value, according
to the Forms 8283 that were prepared and filed with IRS. Can you tefl why?

A: The market is depressed.

LAW

IRC §501(a) provides, in part, that organizations described In IRC §501(c) are exempt from federal
income tax. Section 501(c)(3) of the Code describes, in part, an organization that Is organized and
operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational
purposes, no part of the net earnings of which inures to the benefit of any private shareholder or

individual.

Treasury Regulations §1.501(c)(3)-1(a)(1) states that in order to be exempt as an organization described

in section 501(c)(3), an organization must be both organized and operated exclusively for one or more of
the purposes specified In such section. If an organization falls to meet elther the organizational test or

the operational test, it is not exempt.

Treasury Regulations §1.501(c)(3)-1(c)(1) states that an organization will be regarded as “operated
exclusively” for one or more exempt purposes only if It engages primarily In activities which accomplish
one or more of such exempt purposes specified in section 501(c)(3). An organization will not be so
regarded If more than an insubstantial part of its activities is not in furtherance of an exempt purpose.

Treasury Regulations §1.501(c)(3)-1(c)(2) states that'an organization Is not operated exclusively for one
or more exempt purposes if its net earnings inure in whole or in part fo the benefit of private shareholders

or individuals.

" Treasury Regulations §1.501(a)-1 defines “private shareholder or individual” as a person “having a
personal and private interest in the activities of the organization.

Treasury Regulations §1.501(c)(3)-1(d)(1)(ii) states that an organization is not organized or operated
exclusively for one or more of the purposes specified In subdivision (1) 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 that it is not organized or operated for the benefit of private
interests such as designated individuals, the creator or his family, sharehoiders of the organization, or

persons controlled, directly or Indirectly, by such private interests.

Form 886-A (1-1894) Catalog Number 20810W Page 16 _ putblish.no.irs.gov

Department of the Treasury-intomal Revenue Service

Schedule number or extolt
Form 886-A 5
(Rev. January 1894) - EXPLANATIONS OF ITEM __
Name of taxpayer Tax Wdenikoston Number 7 onded
GOVERNMENT'S POSITION

It is the Government's position that the organization has failed to meet the operational test described in
Treasury Regulation Section 1.501(c)(3)-1(c)(1). In order to continue tax-exempt status an organization
must prove that it is operated exclusively for tax-exempt purposes and that no part of its net earnings
inured to the benefit of any private individuals.

The government does not contest that delivered uniforms, shoes, school supplies, and
tuition valued at $XXXXX to school children in during the years of examination.

However, was also providing a significant private benefit to donors by participating in and
facilitating an abusive property donation scheme that was promoted by in the years under
examination. The property donation scheme involves properties owned by , and or more
participants.

In this scheme, sold a piece of real property to a donor for a very small price; the donor held the
property for a year and then donated the property to the . As soon as the property was
donated to the , the sold the property for a small dollar amount, while
contemporaneously executing documents showing a high appraised value of the donation. Although the
exempt organization received a small amount from these transactions, it is clear that the primary purpose
of the transactions was to provide inflated charitable contributions to donors. Most properties were
transferred to the exempt organization, then sold within days. Properties were then either donated to the
organization again, by another donor, or sold back to for the same low price. The donors who
made the real property donation(s) to then claimed non-cash deductions on their Forms
1040.

All transactions were created on a QUITCLAIM DEED. All transactions started with and
eventually ended with receiving the same property back into his ownership. All properties found
are located in . All sales or transfers occur in or another state, i.e. all transactions
cross state lines. All properties were sold for $ or less, usually for $ . All participants who
made the real property donation(s) took appraisal value reported on form 8283 as deduction(s) on their
Form 1040, Schedule A under Non Cash Donations for the years under examination. The participants,
identified at this time, usually partake in this property donation scheme more than once.

has failed to show that is “operated exclusively” for one or more exempt purposes
because:

° is not organized and operated exclusively for religious, charitable, educational or any
other §501(c)(3) purpose.

° is not organized and operated exclusively for public purposes.

° is operated for the benefit of private individuals.

participated in and facilitated an abusive property donation scheme. The fact that
engaged in some charitable work was not enough to receive continued recognition as an exempt
organization under Section 501(c)(3) of the Internal Revenue Code.

Form 686-A (1-194) Catalog Number 20610W Page 17 publish.nolragov Department of the Treasury-Internal Revenue Service


Schedule number or exhink -
Form 886-A
(Rev. January 1994) EXPLANATIONS OF ITEMS ;
Name of taxpayer "Tax Wendiicaton Number VYoadPertod ended
CONCLUSION
The tax exempt status of under Section 501(c)(3) of the Internal Revenue Code should be

revoked because the organization has not established that it is observing the conditions required for the
continuation of its exempt status as operating exclusively for 501(c)(3) purpose.

The effective date of proposed revocation is January 1,20 _, the first day of the tax year under
examination.

mal Reve
Form 886-A (1-1994) Catalog Number 20810W Pape_18 —_publish.no.trs.gov Department of the Treasury-inte nue Service