501(c)(6) business league loses exemption for not producing records or filing returns

Plain-English summary

A business league recognized as tax-exempt under section 501(c)(6) lost that status because it stopped cooperating with the IRS. Exempt organizations must keep adequate books and records under section 6001 and file annual information returns (here, Form 990-EZ) under section 6033, and they must let the IRS examine their records on request. This organization did not file the required return for the year in issue and repeatedly failed to respond to IRS requests to review its receipts, expenditures, and activities. Because it never produced records to show it was operated exclusively for exempt purposes (and that no earnings inured to private individuals), the IRS could not verify its exempt status. Citing Revenue Ruling 59-95, which allows termination of exemption when an organization fails to comply with the recordkeeping and reporting rules, the IRS revoked the exemption effective May 1 of the year in issue. The organization must now file corporate income tax returns on Form 1120. The document bundles the final revocation letter, the proposed-revocation letter (Letter 3618), and the Form 886-A audit report. It is a straightforward example that ignoring IRS information requests is, by itself, grounds to lose tax-exempt status.

Ruling snapshot

• Question: May the IRS revoke a section 501(c)(6) organization's exemption when it fails to file required returns and does not produce records for examination under sections 6001 and 6033?
• Outcome: revocation (exemption revoked effective May 1 of the year in issue; Form 1120 required going forward)
• Key authorities: IRC §§ 501(c)(6), 6001, 6033(a)(1); Treas. Reg. §§ 1.6001-1, 1.6033-1(h)(2); Rev. Rul. 59-95

Full text (IRS public release)

Scanned document; transcription proofread from IRS OCR. Obvious scan misreads were corrected (for example, "50l(c)(6)" restored to "501(c)(6)" and "declaratoly" to "declaratory"); wording is otherwise verbatim, and redacted identifiers appear as the IRS released them.

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION
Date: Nov 14, 2018
Number: 201909013 Person to Contact:

Release Date: 3/1/2019
Identification Number:

UIL: 501.03-00 Contact Telephone Number:

In Reply Refer to:
EIN:

CERTIFIED MAIL - Return Receipt Requested
Dear

This is a final revocation letter as to your exempt status under section 501(c)(6) of the
Internal Revenue Code. The Internal Revenue Service's recognition of your organization as
an organization described in section 501(c)(6) is hereby revoked effective May 1, 20XX.

We have made this determination for the following reasons:

You have failed to produce documents to establish that you are operated
exclusively for exempt purposes within the meaning of Internal Revenue Code
section 501(c)(6), 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 Revenue Ruling 59-95.

As such, you failed to meet the requirements of I.R.C. section 501(c)(6), in that you
failed to establish that you are operated exclusively for an exempt purpose.

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 April 30, 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 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

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, please contact the person whose name and telephone number
are shown in the heading of this letter.

Sincerely yours,
Maria Hooke

Director, EO Examinations

Enclosure:
Publication 892


¥79) Department of the Treasury May 21, 2018

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

Taxpayer Identification Number:
Form:

Tax Year(s) Ended:

Person to Contact:

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

Employee ID:
Telephone:
Response Due Date:

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)(6).

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)(6) 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
letter.

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 34809F


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.

If 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 letter, 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 help 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 letter.

Sincerely,

Maria Hooke
Director, Exempt Organizations
Examinations

Enclosures:
Form 886-A
Form 6018

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


Schedule number

Form 886-A Department of the Treasury — Internal Revenue Service or exhibit
(May 2017) Explanations of Items A
Name of taxpayer Tax Identification Number (last 4 digits) | Year/Period ended
20XX

Issue:
Whether hereafter known as qualifies for exemption under Section
501(c)(6) of the Internal Revenue Code?
Facts:
Exhibit A provides copies of the Internal Revenue Service correspondence requesting that file the Form
990EZ for the tax period ending April 30, 20XX. failed to respond to the Internal Revenue Service
correspondence to provide information to allow the Internal Revenue Service to conduct a correspondence audit of
the or to file the Form 990EZ for the tax period ending April 30, 20XX.
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 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.

Government’s Position:

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

Catalog Number 20810W Page 1 www.irs.gov Form 886-A (Rev. 5-2017)


i Schedule number

- Ss
Form 886- A Department of the Treasury Internal Revenue Service or exhibit
(May 2017) Explanations of Items A
Name of taxpayer Tax Identification Number (last 4 digits) | Year/Period ended
20XX

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.

The Organization has failed repeatedly to respond to the Service's request for information in contrast to section
1.6033-1(h)(2) of the regulations which require an organization to provide such information as requested to allow
the Service to make a determination of that organization's exempt status.

It is the Service's position that the organization failed to meet the reporting requirements under IRC §§ 6001 and

6033 to be recognized as exempt from federal income tax under IRC § 501(c)(6). Accordingly, it is proposed that
the organization's exempt status be revoked effective May 1, 20XX.

Taxpayer’s Position:
Taxpayer's position is unknown at this time.
Conclusion:

It is the Services position that the Organization does not qualify for exemption from federal income tax under IRC
§501(c)6). The proposed date of the revocation is May 1, 20XX.

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