IRS revokes group-home charity that never began operations or answered examination requests

Plain-English summary

A charity was formed to operate a group home offering life-skills training to teenage girls. It reported no income and no operations for several years, did not file one required Form 990, and did not provide a timeline for beginning its planned activities. The organization also failed to answer repeated IRS requests and calls seeking records about its receipts, expenditures, and activities. The IRS concluded that the organization had not established that it met the operational test under IRC Section 501(c)(3) or that its earnings did not benefit private parties. It revoked the organization's exemption effective at the beginning of the specified year.

Ruling snapshot

• Question: Could an organization that never began its proposed group-home activities and did not cooperate with examination remain exempt?
• Outcome: revocation
• Key authorities: IRC §§ 501(a), 501(c)(3), 6001, 6033(a)(1), 7428; Treas. Reg. § 1.501(c)(3)-1(a)(1)

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
TEGE EO Examinations Mail Stop 4920 DAL
1100 Commerce St.
Dallas, Texas 75242

Date: October 3, 2017

Number: 201809009
Release Date: 3/2/2018

Tax Year Ending:

Taxpayer Identification Number:
Person to Contact:

Employee Identification Number:

Employee Telephone Number:

UIL Code: 501.03-00

CERTIFIED MAIL — RETURN RECEIPT
Dear

This is a final determination that you do not qualify for exemption from Federal income tax under
Internal Revenue Code (the “Code”) section 501(a) as an organization described in Code section
501(c)(3) effective January 1, 20xx. Your determination letter dated March 11, 20xx is revoked.

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

Organizations described in section 501(c)(3) of the Internal Revenue Code and exempt from tax
under section 501(a) must be both organized and operated exclusively for exempt purposes. You
have failed to produce documents or otherwise establish that you are operated exclusively for
exempt purposes 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 sections 6001 and 6033(a)(1) and the regulations thereunder.

Contributions to your organization are no longer deductible under IRC §170.
Organizations that are not exempt under section 501 generally are required to file federal income

tax returns and pay tax, where applicable. For further instructions, forms, and information, please
visit www.irs.gov.

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 and the appropriate forms for filing petitions for declaratory judgment
by referring to the enclosed Publication 892. You may write to the courts at the following
addresses:

United States Tax Court
400 Second Street, N.W.
Washington, D.C. 20217

U.S. Court of Federal Claims
717 Madison Place, N.W.
Washington, D.C. 20439

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

Processing of income tax returns and assessments of any taxes due will not be delayed if you file
a petition for declaratory judgment under section 7428 of the Internal Revenue Code.

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

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

Sincerely,

Maria Hooke
Director, EO Examinations

Enclosure:
Publication 892

Department of the Treasury
Internal Revenue Service
IRS Tax Exempt and Government Entities
Date: April 11, 2017
Taxpayer Identification Number:

Exempt Organizations Examinations
Form:

Tax Year(s) Ended:
Person to Contact / ID Number:

Employee ID:
Contact numbers:
Telephone:
Fax:
Manager's Name / ID Number:

Employee ID:
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:

Internal Revenue Service
Office of the Taxpayer Advocate

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,

Maria Hooke
Director, EO Examinations

Enclosures:

Report of Examination
Form 6018
Publication 892
Publication 3498

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

Schedule number or exhibit

Form 886-A
(Rev. January 1994) EXPLANATIONS OF ITEMS

Name of taxpayer Tax Identification Number Year/Period ended
20xx/12
Issue:

1. Does meet the operational requirements that are

mandatory for all organizations exempt from taxation under Section 501(c)(3) of the Internal
Revenue Code (IRC)?

2. If it does not meet the operational requirements, does it remain exempt from taxation under
   Section 501(c)(3) of the IRC?

Facts:

The organization was granted exempt status on March 11, 20xx as a public charity exempt from
taxation under Section 501(c)(3) of the IRC. The organizations Form 1023, Application for Exempt
Status states that its exempt purpose is to provide a group home for teenage girls that offers life
skill training (See attached Form 1023). The organization incorporated on March 19, 20xx as a for
profit. The organization amended their articles of incorporation as a not for profit entity on
February 25, 20xx. The purpose clause states it provides a group home for teen girls. The
organization stated in their Form 1023 that they were in the process of beginning operations. The
organization filed Form 990 in 20xx, 20xx, and 20xx as having no income and no operations. The
organization has not filed their 990 for 20xx. The Revenue Agent (RA) requested a time line for
when they were to begin their proposed activities on December 27, 20xx and January 27, 20xx.
The organization did not respond to either request. The RA sent the January 27, 20xx certified
mail. The post office returned the certified mail unclaimed. The RA called the organization on
March 3, 20xx; March 9, 20xx; and March 16, 20xx; but was unable to leave a message because
the voice mailbox was full.

Law:

Section 501(a) of the Code provides, in part, that an organization described in section 501(c) are
exempt from federal income tax.

Section 501(c)(3) of the Code provides, in part, for the exemption from Federal income tax of
organizations organized and operated exclusively for charitable, religious or educational purposes,
no part of the net earnings of which inures to the benefit of any private shareholder or individual.

Section 1.501(c)(3)-1(a)(1) of the Income Tax Regulations states that in order to qualify under
Section 501(c)(3) of the Code, an organization must be both organized and operated exclusively
for one or more purposes specified in such section. If an organization fails to meet either the
organizational or operational test, it is not exempt.

Tax Payers Position:

Unknown- has not responded to the Revenue Agent's inquiry
about their operational activities.

Form 886-A (1-1994) Catalog Number 20810W Page 1 publish.no.irs.gov Department of the Treasury-Internal Revenue Service

Schedule number or exhibit

Form 886-A
(Rev. January 1994) EXPLANATIONS OF ITEMS

Name of taxpayer Tax Identification Number Year/Period ended

20xx/12

Governments Position:

All organizations exempt from taxation under Section 501(c)(3) of the IRC are required to pass an
organizational and operational test. has had almost years
to begin activities and has not done so. was also unable to
provide a time line for when they proposed to begin operations. They do not meet the operational
requirement that is mandatory per Treasury Regulations 1.501(c)(3)-1(a)(1).

Conclusion:

Even though meets the organizational test, it fails the operational
test. The organization had retroactive exempt status from 20xx and has not begun their
operations as of the present. The organization did not provide a time line indicating they were
ever going to begin their activities. The Service has no choice but to propose revocation of their
exempt status for not meeting the operational requirement per Treasury Regulation 1.501(c)(3)-
1(a)(1). As of January 1, 20xx, the organization is required to report all earnings and expenditures
on a Form 1120.

Form 886-A (1-1994) Catalog Number 20810W Page 2 publish.no.irs.gov Department of the Treasury-Internal Revenue Service