Organization that never operated loses its exemption

Plain-English summary

A section 501(c)(3) organization did not respond to repeated letters and telephone messages seeking information for an examination. An officer eventually confirmed that the organization was inactive, had never operated, and would not operate in the future. The officer said articles of dissolution would be filed, but the examiner later found that no dissolution had been filed and further calls went unanswered. The organization therefore did not establish that it operated exclusively for exempt purposes or meet the recordkeeping and reporting requirements of sections 6001 and 6033. The IRS revoked its exemption effective January 1 of the redacted year.

Ruling snapshot

• Question: Does an organization that never operated and did not provide requested examination information remain exempt under section 501(c)(3)?
• Outcome: revocation
• Key authorities: IRC §§ 501(c)(3), 6001, and 6033(a)(1); Treas. Reg. §§ 1.501(c)(3)-1, 1.6001-1, and 1.6033-1(h)(2); Rev. Rul. 59-95

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE

TAX EXEMPT AND

GOVERNMENT ENTITIES

DIVISION
Date: June 21, 2017

Number: 201751019 Person to Contact:
Release Date: 12/22/2017

Identification Number:

Contact Telephone Number:
Telephone:
Fax:

UIL: 501.03-00 EIN:

CERTIFIED MAIL - Return Receipt Requested

Dear

This is a final 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 for the following reason(s):

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

As such, you failed to meet the requirements of Internal Revenue Code section 501(c)(3) and Treasury
Regulation Section 1.501(c)(3)-1 (d), in that you failed to establish that you were operated exclusively for
an exempt purpose.

Contributions to your organization are no longer deductible under section 170 of the Internal Revenue
Code effective

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 , and for all subsequent years.


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. Please contact the clerk of the respective court for rules and the appropriate forms
regarding filing petitions for declaratory judgment by referring to the enclosed Publication 892.
Please note that the United States Tax Court is the only one of these courts where a declaratory
judgment action can be pursued without the services of a lawyer. You may write to the courts at the
following addresses:

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

US Court of Federal Claims
717 Madison Place, NW
Washington, DC 20005

U. S. District Court for the District of Columbia
333 Constitution Ave., N.W.
Washington, DC 20001

You may call the IRS telephone number listed in your local directory. An IRS employee there may be
able to help you, but the contact person at the address shown on this letter is most familiar with your
case. You may also call the Internal Revenue Service Taxpayer Advocate.

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.

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

Sincerely yours,

Enclosures:
Publication 892 Director, EO Examinations


Department of the Treasury Date: August 25, 2016

Internal Revenue Service ‘fication Number:
IRS Tax Exempt and Government Entities Taxpayer Identification Number:

Exempt Organizations Examinations
Form:

Tax Year(s) Ended:

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.

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.

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


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:

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


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,

Director, EO Examinations

Enclosures:

Report of Examination
Form 6018
Publication 892
Publication 3498

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


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

Whether the Organization continues to qualify for exemption from Federal income tax under
Section 501(c)(3) of the IRC.

Facts:

The Organization filed Form 1023 for exemption on August 15, 20xx and was granted .
exemption under IRC Sec. 501(c)(3) on June 10, 20xx with an effective date of exemption of

An organization exempt under IRC Sec. 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 for the above mentioned tax period.

e Correspondence for the audit was as follows:

o Letter 3606 (Rev. 6-2012) with attachments were mailed to the organization on
November 20, 20xx, with a response date of December 20, 20xx.

o Letter 3606 (Rev. 6-2012) returned to IRS as undeliverable/unable to forward.

o EOCA Letter 0000 and Letter 3844-A was mailed to the
on June 22, with a response date of July 21, 20xx.

e Revenue agent also mailed Letter 3844-A (Rev. 12-2015) with copy of original Letter
3606 with attachments certified to the organization’s alternative address, ,
on June 22, with a response date of July 21, 20xx. Article Number This

was signed for on June 26, 20xx by , and the receipt of the letter was
verified by the July 29, 20xx telephone call with the organization’s officer,

e Telephone contact for the audit was as follows:
o December 21, 20xx, Revenue Agent (RA) called the phone
number listed on the Form 1023 application due to return of Letter 3606. RA
received voice mail and left a message for an officer to return the phone call.

o January 29, 20xx, RA called the due to no response.
RA received voice mail and left a message for an officer to return the phone call.

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
o March 14, 20xx, RA called the due to no response. RA received voice mail
p

and left a message for an officer to return the phone call.

o May 10, 20xx, RA called the due to no response. RA received voice mail
and left a message for an officer to return the phone call.

o June 21, 2016, RA called with new phone number based on the research,
. The voice mail states name , which matches with the officer of the

.? RA left the message to return the phone call.

o July 28, 20xx, RA called the due to no response. RA received voice mail
and left a message for an officer to return the phone call.

o July 29, 20xx, RA called and talk to , officer of the organization.
He confirmed the receipt of our letter. He stated that the organization is inactive.
He further stated that the organization was never operated, and would not in the
future. Advised him of dissolution process requirements including need to file
Articles of Dissolution with the state. He stated that he will file the Articles of
Dissolution next week. Verified the new address, and requested that needs
to submit the change of address request to the IRS.

o August 4, 20xx, RA called the due to no response. RA received voice mail
and left a message for an officer to return the phone call.

o August 16, 20xx, RA called the , but the phone number, ;
appears no longer belong to . Used the second phone number
from the research, . The voice mail states name '
which matches with the officer of the . RA left the message that the
case is transfer to new Revenue Agent.

o August 23, 20xx, case was transferred to , Revenue Agent
from _. RA reviewed the state of the website to see
whether the EO filed the Articles of Dissolution as stated by the officer
on July 29, 20xx phone call. No dissolution was filed as of August 23, 20xx.
Called the ; . RA left the message to return the phone call.

Law:
Internal Revenue Code (IRC) §501(c)(3) 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 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).

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
Year/Period Ended

Name of Taxpayer

IRC §6001 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) 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 Regulation §1.501(c)(3)-1(a) states 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).

Treasury Regulation §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 fails to
meet either the organizational test or the operational test, it is not exempt.

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

Treasury Regulation (Regulation) §1.61-1 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.

Treasury Regulation §1.6001-1(c) 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 IRC Section 6033. See IRC Section 6033 and
Regulation §1.6033-1 through 1.6033-3.

Treasury Regulation §1.6001-1(e) 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

Form 886-A crev.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

employees, and shall be retained as long as the contents thereof may be material in the
administration of any internal revenue law.

Treasury Regulation §6033(a)(1) 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 Regulation §1.6033-1(h)(2) 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.

Revenue Ruling 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.

Organization’s Position
The Organization has failed to respond to all attempts to contact them.
Government’s Position

Based on the above facts, the Organization failed to respond and/or verify that it is 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 IRC
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.

Treasury Regulations Section 1.6033-1(h)(2) specifically states that exempt organizations

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

Form 886 A Department of the Treasury - Internal Revenue Service Schedule No. or

Explanation of Items Exhibit
Year/Period Ended

Name of Taxpayer

shall submit additional information for the purpose of 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 IRC Sec. 501(c)(3) and its tax-exempt status should be revoked.

It is the Service's position that the organization failed to meet the reporting requirements
under IRC 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

Form 886-A rev.4-68) Department of the Treasury - Internal Revenue Service

Page: -5-