Inactive and dissolved organization loses exemption

Plain-English summary

A public charity reported that it had never become operational and had conducted no activities since receiving exemption. State records also showed that its corporate status had been dissolved. The IRS concluded that the organization failed the operational test because it had no exempt operations or planned regular financial activity. It also failed the organizational test because, after dissolution, it was no longer a corporation, community chest, fund, or foundation. The IRS revoked its section 501(c)(3) status effective July 1 of the redacted year, and contributions were no longer deductible after that date.

Ruling snapshot

• Question: Did an organization that never operated and whose corporate status was dissolved continue to qualify under section 501(c)(3)?
• Outcome: revocation, effective July 1 of the redacted year
• Key authorities: IRC §§ 170, 501(a), and 501(c)(3); Treas. Reg. § 1.501(c)(3)-1

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
TE/GE: EO Examinations
1100 Commerce Street, MC 4920 DAL
Dallas, TX 75242

TAX EXEMPT AND
GOVERNMENT ENTITIES

DIVISION August 30, 2016

Number: 201648018 Taxpayer Identification Number:

Release Date: 11/25/2016
Person to Contact:

Identification Number:

UIL: 501.03-00 Contact Telephone Number:

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). Our favorable determination letter
to you dated August 15, 20XX is hereby revoked and you are no longer exempt under
section 501(a) of the Code effective July 1, 20XX.

The revocation of your exempt status was made for the following reason(s):

As a result of our examination for the tax year ended June 30, 20XX, it was determined
that your organization became inactive since June 20XX and that there have been no
operations or regular financial activities conducted or planned. As such, you failed to
meet the operational requirements for continued exemption under I.R.C. section
501(c)(3). Moreover, you failed the organizational test for exemption because your
corporate status has been dissolved; therefore, you are not a corporation, community
chest, fund, or foundation as required by I.R.C. section 501(c)(3).

Contributions to your organization are no longer deductible under IRC §170 after July 1,
20XX.

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 Internal
Revenue Code.

If you decide to contest this determination under the declaratory judgment provisions of
section 7428 of the Code, a petition to the United States Tax Court, the United States


Claims Court, or the district court of the United States for the District of Columbia must
be filed before the 91st Day after the date this determination was mailed to you. Please
contact the clerk of the appropriate court for rules regarding filing petitions for
declaratory judgments by referring to the enclosed Publication 892. You may write to
these courts at the following addresses:

United States Tax Court United States Court of Federal Claims
400 Second Street, NW 717 Madison Place, NW
Washington, D.C. 20217 Washington, D.C. 20005

United States District Court for the District of Columbia
333 Constitution Avenue, NW
Washington, D.C. 20001

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 taxpayeradvocate.irs.gov
or call 1-877-777-4778.

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

Sincerely,
Margaret Von Lienen
Director, EO Examinations

Enclosure:
Publication 892


Department of the Treasury
Internal Revenue Service

IRS Tax Exempt and Government Entities Division
31 Hopkins Plaza Rm 920

Baltimore, MD 21201

Date:

June 14, 2016
Taxpayer Identification Number:

Form:
Tax year(s) ended:
Person to contact/ ID number:

Contact numbers:
Phone Number:

Fax Number:
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 (06-2012)
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
may also 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.

Letter 3618 (06-2012)
Catalog Number 34809F


Thank you for your cooperation.

Sincerely,

Margaret Von Lienen
Director, Exempt Organizations Examinations

Enclosures:

Report of Examination
Form 6018
Publication 892
Publication 3498

Letter 3618 (06-2012)
Catalog Number 34809F


Form 886 A Department of the Treasury - Internal Revenue Service Schedule No. or
Explanation of Items Exhibit 1
Name of Taxpayer Year/Period Ended
20XX06

Date of Notice: June 14, 20XX
Issues:

Does the organization continue to qualify as an organization exempt from Federal income tax
under Section 501(c)(3) of the Internal Revenue Code (IRC)?

Facts:

The organization filed Form 1023 for exemption on July 1, 20XX and was granted exemption
within the meaning of Section 501(c)(3) on August 15, 20XX with an effective date of
exemption of June 26, 20XX.

The organization was classified as a public charity within the meaning of Sections 509(a)(1)
and 170(b)(1)(A)(ii).

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 was sent Letter 3606 on March 14, 20XX with a response due date of April
14, 20XX. A second letter was mailed Certified on May 10, 20XX. Organization provided a
response by fax on May 25, 20XX.

The response dated May 25, 20XX contained a statement under the signature of
that the entity never was operational, and a copy of the Secretary of State website indicating
that the corporation has been dissolved as of June 24, 20XX.

Law:

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.

Treasury Regulation 1.501(c)(3)-1(a)(1) provides “In order to be exempt as an organization
described §501(c)(3) of the Code, the organization must be one that is both organized and
operated exclusively for one or more of the purposes specified in that section.”

Treasury Regulation §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 exempt purposes specified in Section 501(c)(3). An
organization will not be so regarded if more than in insubstantial part of its activities is not in
furtherance of an exempt purpose.

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 1
Name of Taxpayer Year/Period Ended
20XX06

Organizations Position

The organization has not conducted any activities since exemption was granted.

Governments Position

It is the government’s position that the organization should be revoked as it is not organized or
operated for exclusively charitable, educational or religious purposes within the meaning of

Section 501(c)(3).

Conclusion:

Based on the foregoing reasons, the organization does not qualify for exemption under
Section 501(c)(3) and should be revoked.

Form 886-A (Rev.4-68)

Department of the Treasury - Internal Revenue Service

Page: -2-