501(c)(3) exemption revoked for not keeping records or responding to the IRS

Plain-English summary

A tax-exempt § 501(c)(3) organization has to keep adequate books and records
(Internal Revenue Code § 6001), file annual information returns (§ 6033), and
let the IRS examine its activities. Here the IRS opened an examination and
repeatedly asked the organization for documents about its activities, finances,
and overseas grant-making. The organization (through a CPA) asked for
extensions but then never produced the requested records or a usable power of
attorney, and stopped responding altogether. Because it failed to substantiate
that it was operated exclusively for exempt purposes and failed the
recordkeeping and examination requirements of §§ 6001 and 6033, and because it
did not use available administrative remedies, the IRS issued a final adverse
determination revoking its exempt status retroactively. Contributions are no
longer deductible under § 170, the organization must file Form 1120 corporate
returns, and the IRS will notify state officials under § 6104(c). The
organization may contest the revocation through a § 7428 declaratory judgment
action.

Ruling snapshot

• Question: Should the organization's § 501(c)(3) exemption be revoked for
  failing to keep records and respond to the IRS examination?
• Outcome: Revocation (exemption revoked retroactively)
• Key authorities: IRC §§ 501(c)(3), 6001, 6033; Treas. Reg.
  §§ 1.6001-1, 1.6033-1; Rev. Rul. 59-95; IRC §§ 170, 6104(c), 7428

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
Internal Revenue Service
TE/GE EO Examinations
1100 Commerce Street MC 4920 DAL
Dailas, TX 75242

TAX EXEMPT AND
GOVERNMENT ENTITIES Date: NOV 06 2018
DIVISION

Release Number: 201908023
Release Date: 2/22/2019
UIL Code: 501.03-00 Identification Number:

Telephone Number:

In Reply Refer to: TE/GE Review Staff

Last Date to Petition Tax Court:

FEB 04 2019

Person to Contact:

CERTIFIED MAIL - Return Receipt Requested

Dear

This is a final adverse determination regarding your exempt status under section 501(c)(3) of
the Internal Revenue Code (IRC). Our favorable determination letter to you dated November
10, 20XX, is hereby revoked and you are no longer exempt under section 501(a), as an
organization described in section 501(c)(3) of the IRC, effective January 1, 20XX.

Our adverse determination was made for the following reasons:

You have not established that you are operated exclusively for an exempt
purpose or that you have been engaged primarily in activities that accomplish
one or more exempt purposes as required by Treas. Reg. section 1.501(c)(3)-
1(c)(1), and that no part of your net earnings inure to the benefit of private
shareholders or individuals.

You failed to provide information and documents to repeated reasonable
requests to allow the Internal Revenue Service to examine your receipts,
expenditures, or activities as required by the Code sections 6001 and
6033(a)(1). As such, you failed to meet the operational requirements for
continued exemption under section 501(c)(3) of the Code and Treas. Reg.
section 1.501(c)(3)-1(a)(1). In addition, after being issued notice, you have
failed to use and exhaust available administrative remedies.

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

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 December 31, 20XX and for all
years thereafter.

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 Court of Federal Claims or the
District Court of the United States for the District of Columbia before the 91" 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. 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 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.

We will notify the appropriate State Officials of this action, as required by section 6104(c) of
the Internal Revenue Code.

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

Sincerely yours)
ane Neoke

Maria Hooke
Director, Exempt Organizations Examinations
Enclosures:
Publication 892

Ai) Department of the Treasury Pay 8. 2018

Internal Revenue Service
Tax Exempt and Government Entities
IRS Exempt Organizations Examinations

Taxpayer Identification Number:

Form:
990-N
Tax Year(s) Ended:
December 37, 20
Person to Contact:

Employee ID:
Telephone:
Fax:
Manager’s Contact Information:

Employee iD:

Telephone:
Response Due Date:

June 8, 2018

CERTIFIED MAIL — Return Receipt Requested
Dear

Why you're receiving this letter

We enclosed a copy of our audit report, Form 886-A, Explanation of Items, explaining that we
propose to revoke your tax-exempt status as an organization described in Internal Revenue
Code (IRC) Section 501(c)(3).

If you agree

If you haven't already, please sign the enclosed Form 6018, Consent to Proposed Action, and
return it to the contact person shown at the top of this letter. We'll issue a final adverse letter

determining that you aren't an organization described in IRC Section 501(c)(3) for the periods
above.

After we issue the final adverse determination letter, we'll announce that your organization is no
longer eligible to receive tax deductible contributions under IRC Section 170.

If you disagree

1. Request a meeting or telephone conference with the manager shown at the top of this

ietter.

2. Send any information you want us to consider.

3. File a protest with the IRS Appeals Office. If you request a meeting with the manager or
send additional information as stated in 1 and 2, above, you'll still be able to file a protest
with IRS Appeals Office after the meeting or after we consider the information.

The IRS Appeals Office is independent of the Exempt Organizations division and
resolves most disputes informally. if you file a protest. the auditing agent may ask you to
sign a consent to extend the period of limitations for assessing tax. This is to allow the

Letter 3618 (Rev. 9-2017)
Catalog Number 24809F

IRS Appeals Office enough time to consider your case. For your protest to be valid, it
must contain certain specific information, including a statement of the facts, applicable
law, and arguments in support of your position. For specific information needed for a
valid protest, refer to Publication 892, How to Appeal an IRS Determination on Tax-
Exempt Status.

Fast Track Mediation (FTM) referred to in Publication 3498, The Examination Process,
generally doesn’t apply now that we’ve issued this letter.

4. Request technical advice from the Office of Associate Chief Counsel (Tax Exempt
Government Entities) if you feel the issue hasn't been addressed in published precedent

or has been treated inconsistently by the IRS.

lf you’re considering requesting technical advice, contact the person shown at the top of
this letter. If you disagree with the technical advice decision, you will be able to appeal
to the IRS Appeals Office, as explained above. A decision made in a technical advice
memorandum, however, generally is final and binding on Appeals.

if we don't hear from you
If you don't respond to this proposal within 30 calendar days from the date of this fetter, we'll

issue a final adverse determination letter.

Contacting the Taxpayer Advocate Office is a taxpayer right

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 heip you.
Visit www.taxpayeradvocate.irs.gov or call 877-777-4778.

For additional information
You can get any of the forms and publications mentioned in this letter by visiting our website at
www.irs.gov/forms-pubs or by calling 800-TAX-FORM (800-829-3676).

If you have questions, you can contact the person shown at the top of this fetter.

Sincerely,
Mase. Leff

For. Maria Hooke
Director, Exempt Organizations
Examinations

Enclosures:

Form 886-A

Form 6018

Copies of correspondence between and the Internal Revenue
Service

Copy of Form 1023, Application for Exempt Status, and all

Attachments
Copy of Letter 947, Determination of Exempt Status

2 Letter 3618 (Rev. 9-2017)
Catalog Number 34809F

Form886-A Department of the Treasury - Internal Revenue Service Scheaile number
. or exhibi
(May 2017) Explanations of Items
Name of taxpayer Tax Identification Number (last 4 digits) | Year/Period ended
20XX

Issue:

Whether ualifies for exemption under Section 501(c)(3) of the

q

Internal Revenue Code (IRC).

Facts:

1. Exhibit A provides copies of the Internal Revenue Service correspondence requesting
that submit documentation to provide a description of
their activities, financial statements, minutes, publications and information about their
overseas grant making process.

2. On December 29, 20XX, the RA received a phone call from , CPA, that
she was representing and needed an extension of time. A
form 2848 would be provided at a later date. The RA did not hear from the organization
or CPA again and issued a delinquency notice on February 16, 20XX. On March 2,

requested an extension of time and submitted a Form 2848, Power of Attorney
Form. This was not the most recent form 2848 and could not be processed. On March
2, the Revenue Agent called and requested the most current Form 2848.
The Revenue Agent granted the request for an extension. The Revenue Agent did not
hear from the organization and did not receive the most recent version of Form 2848. On
April 6, 20XX, the Revenue Agent sent a delinquency notice to the Organization. As of
April 27, 20XX, the organization has not responded to the initial information document

request.

3. Exhibit B provides a copy of Form 1023., Application
for Exempt Status and all attachments.

4. Exhibit C provides a copy of West Letter 947,

Determination of Exempt Status.

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

Catalog Number 20810W Page _1_ www.Irs.gov Form 886-A (Rev. 5-2017)


Form886-A Department of the Treasury - Internal Revenue Service apaneren number
. xhibi
(May 2017) Explanations of Items
Name of taxpayer Tax Identification Number (last 4 digits) | Year/Period ended
20XX

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
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 failed to meet the
inspection requirements under IRC §§ 6001 and 6033 to be recognized as exempt from federal

Catalog Number 20810W Page 2 www.irs.gov Form 886-A (Rev. 5-2017)


Schedule number

886-A Department of the Treasury - Internal Revenue Service
Form . . or exhibit
(May 2017) Explanations of Items
Tax Identification Number (/ast 4 digifs) | Year/Period ended

Name of taxpayer

20XX

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.

www.1rs.gov Form 886-A (Rev. 5-2017)

Catalog Number 20810W Page 3-