Exemption revoked after nonresponse and corporate dissolution

Plain-English summary

A section 501(c)(3) organization did not provide records requested during an IRS examination and had not filed required Form 990-series returns for several years. Its state corporate status had also been dissolved, and its president told the examiner that the organization had not gotten off the ground and was seeking dissolution. The IRS concluded that it could not verify either the organizational or operational test or compliance with sections 6001 and 6033. It revoked the organization's exemption effective at the start of the stated year and required Form 1120 returns for later periods.

Ruling snapshot

• Question: Did the organization continue to qualify for exemption under section 501(c)(3)?
• Outcome: revocation
• Key authorities: IRC §§ 501(c)(3), 6001, and 6033; Treas. Reg. §§ 1.501(c)(3)-1, 1.6001-1, and 1.6033-1; Rev. Rul. 59-95

Full text (IRS public release)

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

November 10, 2016
Release Number: 201706023 Taxpayer Identification Number:
Release Date: 2/10/2017
UIL Code: 501.03-00 Person to Contact:

Identification Number:

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 May 23, 20XX is hereby revoked and you are no longer exempt under
section 501(a) of the Code effective January 1, 20XX.

You have failed to establish that you are operated exclusively for exempt purposes
within the meaning of Internal Revenue Code section 501(c)(3), and that no part of your
net earnings inure to the benefit of private shareholders or individuals. You failed to
respond to repeated reasonable requests to allow the Internal Revenue Service to
examine your records regarding your receipts, expenditures, or activities as required by
I.R.C. sections 6001, 6033(a)(1), Treasury Regulation 1.6033-2(i)(2) and Rev. Rul. 59-
95, 1959-1 C.B. 627. 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.
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
Exempt Organizations Examinations
324 25th St Rm 6025 Mail Stop 1112
Ogden, UT 84401

Date:
July 11, 2016

Taxpayer Identification Number:

Form:

Tax year(s) ended:
December 31, 20XX
Person to contact/ ID number:

/

Contact numbers:

Toll Free

Long Distance

Fax:

Manager's name/ ID number:
/

Manager’s contact number:

Response due date:
August 11, 20XX

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.

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.

Letter 3618 (06-2012)
Catalog Number 34809F

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

Phone Number:

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.

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 886A 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: July 11, 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:

applied for tax-exempt status by filing the Form
1023 on October 04, 20XX, and was granted tax-exempt status as a 501(c)(3) on May
23, 20XX, with an effective date of August 03, 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.

was selected for audit to ensure that the activities and operations align with their
approved tax-exempt status.

failed to respond to the Internal Revenue Service attempts to obtain information to
perform an audit of Form 990 for the tax year December 31, 20XX.

The organization has not filed a Form 990 series return for the tax years December 31,
20XX thru December 31, 20XX.

Tax Compliance Officer (TCO) was not able to locate a phone number for an officer of
the organization to notify the organization they were under audit. The phone number
listed on the Form 1023 application of for was for
the Power of Attorney (POA) for the Form 1023 application. The POA does not have
authority for the Form 990.

Per the , Current Entity Status:
Inactive — Dissolution by Proclamation / Annulment of Authority (Oct 27, 20XX), copy
attached from state web-site.

e Correspondence for the audit was as follows:

o Letter 3606 (Rev. 6-2012) with attachments, was mailed to the organization
on January 07, 20XX, with a response date of February 08, 20XX.

o Letter 3844-A (12-2015) with attachments, was mailed certified to the
organization on February 22, 20XX, with a response date of March 16, 20XX,

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

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

Service (USPS) tracking, this was delivered, individual picked up at post
office on March 01, 20XX;_ ~— pm. _This item was picked up by

o Letter 3844-A (12-2015), with attachments, was mailed certified to the
President ( ), per Form 1023 application, on March 24, 20XX,
with a respond date of April 21, 20XX. Article Number
. Per USPS tracking this was unclaimed and returned to the Internal Revenue
Service (IRS) on April 16, 20XX.

o Letter 3844-A (12-2015), with attachments, was mailed certified to the
Secretary ( ), per Form 1023 application, on March 24,
20XX, with a respond date of April 21, 20XX. Article Number
. Per USPS tracking this was delivered on March 28, 20XX, — pm.

e Telephone contact for the audit was as follows:

o March 23, 20XX, the Form 1023 application list a web-site for the
organization of . The web-site listed a phone
number for the organization of . When calling this phone
number the gentleman that answered the phone stated this was not the
phone number for the organization. He said that this phone number is for an
account on

o April 14, 20XX, I received a phone call from the President,

« The President said the officers that helped set up the organization are
no longer involved.

= The President has not been able to get the organization off the
ground.

» The President said the organization received very little income.

« The President said he has made contact with the State of on
how to dissolve the organization.

«= Tax Compliance Officer (TCO), let the President know he could go to
IRS.gov and locate Publication 4779 on how to dissolve the
organization with the Internal Revenue Service.

= TCO reviewed the Form 4564, Information Document Request, as well
as Publication 1 that was mailed to the organization on January 07,

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

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

20XX.

= TCO verified the mailing address for the organization, the President
stated the mailing address in at _ is still
a good address for the president. An extension was granted to the
President of May 30, 20XX to provide the required information for the
audit.

« The President let the TCO know that he was calling from
and did not provide a phone number the TCO could make contact with
the President in

Law:

Internal Revenue Code (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.

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 §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.

Treasury Regulations (Regulation) 1.501(c)(3)-1 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).

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

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

Regulation §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.

Regulation 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.

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 §1.61-1 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.

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

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


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

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 phone conversation between the TCO and , President of ,on
April 14, 20XX; wishes to dissolve the organization.

Governments Position

The organization did not respond to multiple inquiries, both by phone and
correspondence to verify that they are organized and operated exclusively for one or
more of the purposes specified in IRC Section 501(c)(3). Since the organization failed
to respond to our inquiries, we could not verify that meets either the organizational
or the operational test.

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.

Based on 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 886-A(Rev.4-68) Department of the Treasury - Internal Revenue Service

Page: -5-

Form 886A Department of the Treasury - Internal Revenue Service Schedule No. or
Explanation of Items Exhibit
Name of Taxpayer Year/Period Ended
December 31,
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: -6-