Exemption revoked after organization failed to provide records

Plain-English summary

The IRS repeatedly asked an exempt organization for documents concerning its receipts, expenditures, activities, governing purpose, financial statements, and minutes. The organization received at least one request by certified mail but did not respond. Without the records, the organization did not establish that it operated exclusively for exempt purposes, avoided private inurement, or complied with the recordkeeping and reporting duties in Sections 6001 and 6033. The IRS revoked its Section 501(c)(3) exemption effective on a redacted January 1 date. Contributions were no longer deductible, and the organization was required to file Form 1120 for the affected and later years.

Ruling snapshot

• Question: Could the organization retain Section 501(c)(3) status without producing requested records and information?
• Outcome: Revocation.
• Key authorities: IRC §§ 501(a), 501(c)(3), 6001, and 6033; Treas. Reg. §§ 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
TE/GE EO Examinations
1100 Commerce Street
Dallas, TX 75242

TAX EXEMPT AND
GOVERNMENT ENTITIES Date: April 14, 2017
DIVISION

Taxpayer Identification Number:
Number: 201817019
Release Date: 4/27/2018 Person to Contact:

Employee Identification Number:
Employee Telephone Number:
UIL: 501.03-00

CERTIFIED MAIL — Return Receipt Requested
Dear

This is a Final Adverse Determination Letter as to your exempt status under section
501(c)(3) of the Internal Revenue Code. Your exemption from Federal income tax under
section 501(c)(3) of the code is hereby revoked effective January 1, 20xx.

Our adverse determination was made for the following reasons:

Organizations described in I.R.C. § 501(c)(3) and exempt 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
inures 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. § 6001, 6033(a)(1) and Rev. Rul. 59-95, 1959-1 C.B. 627.

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

You are required to file Federal income tax returns on Form 1120. If you have not
already filed these returns and the agent has not provided you instructions for converting
your previously filed Form 990 to Form 1120, you should file these income tax returns
with the appropriate Service Center for the tax year ending December 31, 20xx and for all
tax years thereafter in accordance with the instructions of the return.

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, you may file an action for declaratory
judgment under the provisions of section 7428 of the Code in one of the following three
venues: United States Tax Court, the United States Court of Federal Claims, or the
United States District Court for the District of Columbia. A petition or complaint in one
of these three courts must be filed before the 91st day after the date this determination
was mailed to you if you wish to seek review of our determination. 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

The Taxpayer Advocate Service (TAS) is an independent organization within the IRS
that can help protect you 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,

Maria Hooke
Director, EO Examinations

Enclosures:
Publication 892

Department of the Treasury
Internal Revenue Service
Tax Exempt and Government Entities
Exempt Organizations Examinations

Date:
July 29, 2016

Taxpayer Identification Number:

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.

What you need to do if you disagree with the proposed revocation

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

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,

Margaret Von Lienen
Director, EO Examinations

Enclosures:

Report of Examination

Form 6018

Publication 892

Publication 3498

Public Administrative Record

Select Check for verification of December 31, 20xx 990N

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
12/31/20xx
Issue:
Whether qualifies for exemption under Section 501(c)(3) of the
Internal Revenue Code (IRC).
Facts:

1. Exhibit A provides copies of the Internal Revenue Service correspondence requesting
   that submit documentation to amend their Articles of

Incorporation purpose clause, provide financial statements, and minutes.

2. The Revenue Agent sent the March 30, 20xx request via certified mail. The organization
   signed for the letter on April 7, 20xx (See Exhibit B)

3. failed to respond to the Internal Revenue Service.

Law:

IRC § 6001 provides that every person liable for any tax imposed by the IRC, or for the collection
thereof, shall keep adequate records as the Secretary of the Treasury or his delegate may from
time to time prescribe.

IRC § 6033(a)(1) provides, except as provided in IRC § 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.

Treas. Reg. § 1.6001-1(a) in conjunction with Treas. Reg. § 1.6001-1(c) provides that every
organization exempt from tax under IRC § 501(a) and subject to the tax imposed by IRC § 511 on
its unrelated business income must keep such permanent books or accounts or records, including
inventories, as are sufficient to establish the amount of gross income, deduction, credits, or other
matters required to be shown by such person in any return of such tax. Such organization shall
also keep such books and records as are required to substantiate the information required by
IRC § 6033.

Treas. Reg. § 1.6001-1(e) states that the books or records required by this section shall be kept at
all times 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.

Treas. Reg § 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

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

12/31/20xx

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 IRC § 6033.

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 IRC § 6033 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.

In accordance with the above cited provisions of the Code and regulations under IRC §§ 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.

Tax Payers Position:

Unknown- The taxpayer has not responded to the Service’s request for documentation regarding their
exempt status, and correcting their purpose clause, despite numerous attempts made by the Service.

Governments Position:
It is the Internal Revenue Service's position that failed to meet the
inspection requirements under IRC §§ 6001 and 6033 to be recognized as exempt from federal

income tax under IRC § 501(c)(3). Accordingly, the organization's exempt status is revoked
effective January 1, 20xx

Conclusion:

must file Form 1120 for the tax periods ending on or after
December 31, 20xx.

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