Exempt status revoked for failure to provide examination records

Plain-English summary

The IRS repeatedly asked an exempt organization for financial, operational, and recordkeeping information needed to examine its Form 990-N filing period. Letters were sent to the organization and its treasurer, and the IRS also attempted to locate working telephone numbers, but the organization did not respond. Without the requested records, the organization could not establish that it remained organized and operated exclusively for IRC § 501(c)(3) purposes or satisfied the reporting duties in §§ 6001 and 6033. The IRS revoked its exemption effective January 1 of the redacted year. Contributions were no longer deductible, and the organization was required to file Form 1120 for the affected and later years.

Ruling snapshot

• Question: Does the organization retain IRC § 501(c)(3) status after failing to provide records and information requested during examination?
• Outcome: Revocation
• Key authorities: IRC §§ 501(c)(3), 6001, and 6033; Rev. Rul. 59-95

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
Internal Revenue Service
TE/GE EO Examinations
1100 Commerce Street M/C 4920 DAL
Dallas, TX 75242

TAX EXEMPT AND
GOVERNMENT ENTITIES Date: JAN 13 2016
DIVISION
Number: 201618013 Person to Contact:

Identification Number:
Telephone Number:
In Reply Refer to:

Release Date: 4/29/2016

LAST DATE FOR FILING A PETITION
WITH THE TAX COURT:
UIL: 501.03-00

CERTIFIED MAIL-Return Receipt Requested

Dear

This is a final adverse determination that your exempt status under section 501(c)(3) of the
Internal Revenue Code is revoked. Recognition of your exemption under Internal Revenue
Code section 501(c)(3) is revoked effective January 1, 20XX for the following reason(s):

You did not respond to our request for information about your finances and
activities necessary to complete the examination. You have not demonstrated
that you are operated exclusively for exempt purposes within the meaning of
Internal Revenue Code section 501(c)(3).

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

You are required to file Federal income tax returns on Form 1120. These returns should be
filed with the appropriate Service Center for the year ending December 31, 20XX and for all
years thereafter.

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

Code.

If you decide to contest this determination in court, you must initiate a suit for declaratory
judgment in the United States Tax Court, the United States Claim Court or the District
Court of the United States for the District of Columbia before the 91st day after the date this
determination was mailed to you. Contact the clerk of the appropriate court for the rules for
initiating suits for declaratory judgment.

The Taxpayer Advocate Service (TAS) is an independent organization within the IRS that can
help protect your taxpayer rights. We 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 our assistance, which is always free, we will do everything possible to help you.
Visit taxpayeradvocate.irs.gov or call 1-877-777-4778.

We will notify the appropriate State Officials of this action, as required by section 6104(c) of
the Internal Revenue Code.

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

Sincerely yours,

John A. Koskinen
Commissioner
By

Paul A. Marmolejo

Acting Director, EO Examinations
Enclosure(s):
Publication 892

Department of the Treasury
Internal Revenue Service
Mail Stop 1112, PO Box 12307
IRS Ogden, UT 84412

Date:
April 23, 2015
Person to Contact/ID Number:

Contact Numbers:
Telephone:

Fax:

Taxpayer Identification Number:
Form:
Tax Year(s) Ended:

Certified Mail - Return Receipt Requested
Dear

We have enclosed a copy of our report of examination explaining why we believe revocation of
your exempt status under section 501(c)(3) of the Internal Revenue Code (IRC) is necessary.

If you accept our findings, take no further action. We will issue a final revocation letter.

If you do not agree with our proposed revocation, you must submit to us a written request for
Appeals Office consideration within 30 days from the date of this letter to protest our decision.
Your protest should include a statement of the facts, the applicable law, and arguments in
support of your position.

An appeals officer will review your case. The Appeals Office is independent of the Director,
EO Examinations. The Appeals Office resolves most disputes informally and promptly. The
enclosed Publication 3498-A, The Examination Process, and Publication 892, Exempt
Organizations Appeal Procedures for Unagreed Issues, explain how to appeal an Internal
Revenue Service (IRS) decision. Publication 3498-A also includes information on your rights
as a taxpayer and the IRS collection process.

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

892. If we issue a determination letter to you based on technical advice, no further
administrative appeal is available to you within the IRS regarding the issue that was the
subject of the technical advice.

Letter 3618 (11-2003)
Catalog Number 34809ZF

If we do not hear from you within 30 days from the date of this letter, we will process your case
based on the recommendations shown in the report of examination. If you do not protest this
proposed determination within 30 days from the date of this letter, the IRS will consider it to be
a failure to exhaust your available administrative remedies. Section 7428(b)(2) of the IRC
provides, in part “A declaratory judgment or decree under this section shall not be issued in
any proceeding unless the Tax Court, the Claims Court, or the District Court of the United
States for the District of Columbia determines that the organization involved has exhausted its
administrative remedies within the Internal Revenue Service.” We will then issue a final
revocation letter. We will also notify the appropriate state officials of the revocation in
accordance with section 6104(c) of the Code.

You 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 matter that may not have 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

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.

Thank you for your cooperation.

Sincerely,

Margaret Von Lienen
Director, Exempt Organizations Examinations

Enclosures:
Publication 892
Publication 3498-A
Report of Examination

Letter 3618 (11-2003)
Catalog Number 34809ZF

Form 886-A Department of the Treasury - Internal Revenue Service Schedule No. or
Explanation of Items Exhibit
Name of Taxpayer Year/Period Ended
December 31,
20XX
Date of Notice: April 21, 20XX
Issues:

Whether the organization continues to qualify for exemption from Federal income tax under
Section 501(c)(3) of the Internal Revenue Code.

Facts:

The organization filed Form 1023 for exemption on April 22, 20XX and was granted
exemption as a 501(c)(3) on June 26, 20XX with an effective date of exemption of October
28, 20XX.

An organization exempt under 501(c)(3) needs to be organized and operated exclusively for
religious, charitable, scientific, testing for public safety, literary or educational purposes and to
foster national and amateur sports competition.

The organization was selected for audit to ensure that the examined organization’s activities
and operations align with its approved exempt status.

The organization failed to respond to the Internal Revenue Service attempts to obtain
information to perform an audit of Form 990-N for the above mentioned tax period.

• Correspondence for the audit was as follows:

◦ Letter 3606 (Rev. 6-2012) with attachments was mailed to the organization on
October 21, 20XX, with a response date of November 21, 20XX.

◦ EOCA Letter 0000 was mailed certified to the organization on January 05, 20XX;
with a respond date of February 05, 20XX. Article Number . This was
signed for on January 08, 20XX by

◦ EOCA Letter 0000 was mailed certified to the Treasurer on March 3, 20XX; with a
respond date of March 16, 20XX. Article Number . This was signed
for on April 02, 20XX, by , the Treasurer. Waited nineteen days
for a reply, due to the Treasurer not receiving the letter until April 02, 20XX.

• Telephone contact for the audit was as follows:

◦ October 21, 20XX, I located the telephone number provided in the Form 1023
application of , this is not a complete telephone number. I
performed 411 and google research to locate a good number for the organization.
I was not able to locate a telephone number.

◦ October 21, 20XX, I performed Accurint research and located the telephone
number for the President . I called the

Form 886-A (Rev. 4-68) Department of the Treasury - Internal Revenue Service
Page: -1-

Form 886-A Department of the ‘Treasury - Internal Revenue Service Schedule No. or
Explanation of Items Exhibit
Name of Taxpayer Year/Period Ended
December 31,
20XX

telephone number and received VMS. I left a message for an officer to return my
telephone call.

◦ January 05, 20XX, I called again. The person who
answered the telephone said this was the telephone number for the post office
(Pack ‘N’ Mail). I continued to research google to locate a good telephone
number for the organization. I was not able to locate a good telephone number.

◦ March 2, 20XX, I research internal source to locate a telephone number for the
president or Vice President. I was not able to locate a telephone number. I
performed Accurint research for the Vice-President and located

, this telephone number has been disconnected.

Law:

Internal Revenue Code (IRC) §1.61-1 of the regulations provides that Gross income means all
income from whatever source derived, unless excluded by law. Gross income includes income
realized in any form, whether in money, property, or services. Income may be realized,
therefore, in the form of services, meals, accommodations, stock, or other property, as well as
in cash.

IRC §501(c)(3) of the Code provides that an organization organized and operated exclusively
for charitable or educational purposes is exempt from Federal income tax, provided no part of
its net earnings inures to the benefit of any private shareholder or individual.

IRC §511 of the Internal Revenue Code imposes a tax at corporate rates under section 11 on
the unrelated business taxable income of certain tax-exempt organizations, including those
described in section 501(c)(3).

IRC §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 §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.

IRC §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.

Form 886-A (Rev. 4-68) . Department of the Treasury - Internal Revenue Service
Page: -2-

Form 886-A Department of the ‘Treasury - Internal Revenue Service Schedule No. or
Explanation of Items Exhibit
Name of Taxpayer Year/Period Ended
December 31,
20XX

IRC §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 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.

Federal Tax Regulations (FTR) §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.

Section 1.501(c)(3)-1(a) In order to be exempt under §501(c)(3) the organization must be both
organized and operated exclusively for one or more of the purposes specified in the section.
(religious, charitable, scientific, testing for public safety, literary or educational).

FTR §1.501(c)(3)-1(a)(1) of the regulations 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 fails to
meet either the organizational test or the operational test, it is not exempt.

Section 1.501(c)(3)-1(c)(1) of the regulations provides that an organization will not be regarded
as “operated exclusively" for one or more exempt purposes described in section 501(c)(3) of
the Code if more than an insubstantial part of its activities is not in furtherance of a 501(c)(3)
purpose. Accordingly, the organization does not qualify for exemption under section 501(c)(3)
of the Code.

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.

Organizations Position

The organization has failed to respond at all attempts to contact them.

Form 886-A (Rev. 4-68) Department of the Treasury - Internal Revenue Service
Page: -3-

Form 886-A Department of the ‘Treasury - Internal Revenue Service Schedule No. or
Explanation of Items Exhibit
Name of Taxpayer Year/Period Ended
December 31,
20XX

Governments Position

Based on the above facts, the organization did not respond to verify that they are organized
and operated exclusively for one or more of the purposes specified in IRC Section 501(c)(3).
If an organization fails to meet either the organizational test or the operational test, it is not
exempt.

In accordance with the above-cited provisions of the Code and regulations under sections
6001 and 6033, organizations recognized as exempt from federal income tax must meet
certain reporting requirements. These requirements relate to the filing of a complete and
accurate annual information (and other required federal tax forms) and the retention of
records sufficient to determine whether such entity is operated for the purposes for which it
was granted tax-exempt status and to determine its liability for any unrelated business
income tax.

Section 1.6033-1(h)(2) of the regulations specifically state that exempt organizations shall
submit additional information for the purpose on enabling the Internal Revenue Service to
inquire further into its exempt status.

Using the rationale that was developed in Revenue Ruling 59-95, the Organization’s failure
to provide requested information should result in the termination of exempt status.

Conclusion:

Based on the foregoing reasons, the organization does not qualify for exemption
under section 501(c)(3) and its tax exempt status should be revoked.

It is the IRS's position that the organization failed to meet the reporting requirements under
sections 6001 and 6033 to be recognized as exempt from federal income tax under
501(c)(3) of the Internal Revenue Code. Accordingly, the organization's exempt status is
revoked effective January 1, 20XX.

Form 1120 returns should be filed for the tax periods after January 1, 20XX.

Form 886-A (Rev. 4-68) Department of the Treasury - Internal Revenue Service
Page: -4-