Foster-care agency loses exemption for private inurement

Plain-English summary

The IRS revoked a foster-family agency's section 501(c)(3) exemption after finding that it no longer operated exclusively for exempt purposes and allowed earnings to benefit insiders. The chief executive received compensation above the amounts reflected in the organization's application and board resolution, while the organization accumulated unpaid employment taxes tied to her income-tax withholding, Social Security, and Medicare. The IRS also found that mileage reimbursements lacked reliable logs and supporting home-visit records, and that payments to the chief financial officer, who was the chief executive's father, were not adequately documented as loans, reimbursements, or compensation. The organization had stopped actively recruiting foster parents and planned to discontinue after its remaining children completed the adoption process. Its officers and representative indicated agreement with the government's position, and revocation was effective January 1 of a redacted year.

Ruling snapshot

• Question: Did the foster-family agency continue to meet the section 501(c)(3) operational test without prohibited private inurement?
• Outcome: Revoked effective January 1 of a redacted year.
• Key authorities: IRC §§ 274(d), 501(c)(3), and 6001; Treas. Reg. §§ 1.274-5T and 1.501(c)(3)-1; Rev. Proc. 2002-26

Full text (IRS public release)

Scanned document; transcription proofread from IRS OCR. Obvious scan misreads were corrected. One unreadable handwritten signature is marked as illegible; wording is otherwise verbatim.

Release Date: 5/31/2019
UIL Code: 501.03-00

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 Date: January 30, 2019
DIVISION
Release Number: 201922036 Person to Contact:

Identification Number:
Telephone Number:
In Reply Refer to:

LAST DATE FOR FILING A PETITION
WITH THE TAX COURT:

CERTIFIED MAIL — Return Receipt Requested

Dear

This is a Final Adverse Determination Letter regarding your exempt status under section
501(c)(3) of the Internal Revenue Code (IRC). Our favorable determination letter to you
dated July 29, 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 reason(s):

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 within the meaning of IRC section 501(c)(3).

You have not established that no part of your net earnings inure to the benefit
of any private shareholder or individual.

Contributions to your organization are not deductible under section 170 of the Internal
Revenue 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 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.

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,

[illegible signature]
Maria Hooke
Director, Exempt Organizations Examinations

Enclosure:
Publication 892

Department of the Treasury                                      Date:
Internal Revenue Service                                      August 9, 2018
Tax Exempt and Government Entities                            Taxpayer Identification Number:
Exempt Organizations Examinations
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)(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
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.

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

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
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,

For Maria Hooke
Director, Exempt Organizations
Examinations

Enclosures:
Form 886-A
Form 6018

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

Form 886-A Schedule number or
(Rev. January 1994) EXPLANATIONS OF ITEMS exhibit
Name of taxpayer EIN: Periods Ending:

December 31, 20XX
December 31, 20XX

Issue

Whether the (Organization) meets the
operational test of Treasury Regulations Section 1.501(c)(3)-1 and should retain its tax-exempt
status under Internal Revenue Code (IRC) Section (Sec.) 501(c)(3)?

Facts
Background

The Internal Revenue Service received the Organization’s From 1023, Application for
Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code, on January
21, 20XX. The Form 1023 was signed by (CEO) as chief executive
officer. The Organization received its determination letter from the Internal Revenue Service
granting it exempt status under IRC Sec. 501(c)(3), effective January 15, 20XX.

The CEO had previous operated a foster family agency in . This organization was
called the . The CEO filed a certificate of dissolution with the State of
on October 31, 20XX for this foster family agency.

The Organization’s Articles of Incorporation and Bylaws state the Organization’s purpose is:

“recruit and certify foster parents in the area, place foster children in the
certified foster homes, and provide case management services to the children”

On November 30, 20XX the CEO was asked how she recruits foster parents, she stated, “by
posting flyers in to recruit foster parents and the Organization’s website.”

The Organization as a foster family agency receives most of its revenue from

( ), and must undergo periodic financial audits. The last financial audit conducted
was for period ending December 31, 20XX. The financial auditor stated the following about the
Organization's ability to continue as a going concern,

“As shown in the accompanying financial statements, the Organization has incurred a
loss in 20XX, has negative net assets, and has deficiencies related to cash
management, resulting in an inconsistent ability to maintain cash and cash equivalents
sufficient to appropriately support operations. "These factors raise substantial doubt
about the Organization’s ability to continue as a going concern. The accompanying
financial statements do not include any adjustments that might be necessary if the
Organization is unable to continue as a going concern.”

Compensation

At the time of this writing the Organization has unpaid employment taxes, penalties and interest
totaling $0.

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

Form 886-A Schedule number or
(Rev. January 1994) EXPLANATIONS OF ITEMS exhibit
Name of taxpayer EIN: Periods Ending:

December 31, 20XX
December 31, 20XX

On page 4, part V of the 20XX Form 1023 it asks how the Organization would ensure
there would be no conflict of interest when determining their own compensation, there is a
hand- written response which states, “use of outside experts”.

Form 1023, Page 3, Part V, Line 1b; it states: “List the names, titles, and mailing addresses of

each of your five highest compensated employees who receive or will receive compensation of
more than $0 per year. Hand written in the margin it states, “N/A — none will receive that much

compensation.”

Form 1023, Page two, Part V, Line 1a it states: “List the names, titles, and mailing address of all
your officers, directors, and trustees. For each person listed, state their total annual

compensation, or proposed compensation, for all services to the organization, whether as an
officer, employee of other position.” The hand-written response for “
signature date on this form is January 18, 20XX.

$0/mo.” “

”

is “est =

A Board resolution dated May 11, 20XX that states, “Whereas, the initial position with

will be fulfilled by
$0/month as Administrator and Foster Care Social Worker’.

The Agent asked why the Form 1023 estimates
(less than $0) per year, the Board Resolution states her compensation at $0 per year, and
why her compensation for the audit years is over $0 per year? The CEO explained she just

could not live on $0 a year.

to serve as a paid employee at the rate of

compensation as $0

The table that follows show that in 20XX and 20XX total employment tax due was $0 per
year. In 20XX, the CEO paid $0 of employment taxes and $0 of employment taxes in 20XX.
The table reflects payments made through January 31, 20XX.

Employment Tax Analysis as of January 31, 20XX

Employment Total due per
Tax Period EO's SSA/Med CEO's-FIT |CEO's-SSA/Med | CEO's Total quarter Payments | Underpayment
20XX QL 0 0 0 0 0 0 0
20XX Q2 0 0 0 0 0 0 0
20XX Q3 0 0 0 0 0 0 (0)
20XX Q4 0 0 0 0 0 0 0
Total 0 0 0 0 0 0 0

Employment Total due per
Tax Period EO's SSA/Med CEO's -FIT | CEO's-SSA/Med | CEO's Total quarter Payments | Underpayment
20XX Q1 0 0 0 0 0 0 0
20XX Q2 0 0 0 0 0 0
20XX Q3 0 0 0 0 0 0
20XX Q4 0 0 0 0 0 0
Total 0 0 0 0 0 0 0

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


Form 886-A Schedule number or
(Rev. January 1994) EXPLANATIONS OF ITEMS exhibit
Name of taxpayer EIN: Periods Ending:

December 31, 20XX
December 31, 20XX

The CEO reported on her 20XX and 20XX Forms 1040, U.S. Individual Income Tax Return,
that she had $0 of Federal Income Tax withholding and $0 of Federal Income Tax withholding
in 20XX. Both these withholding amounts reduced her income tax in 20XX and 20XX.

Executive Directors Reimbursements

The 20XX and 20XX Forms 990 show an expense “Reimburse Exec Director”. For 20XX the
total is $0 and 20XX the amount is $0. The largest reimbursement is for vehicle mileage.

The Agent asked for the mileage log the CEO used to keep track of mileage. The CEO said she
did not keep a mileage log. The Agent asked how she keeps track of her mileage. The CEO
said she uses her calendar.

The Agent reviewed the calendar and found on most days there was a number circled, the CEO
said these were the miles she drove that day and at the end of the week, there is a total for the
miles. The CEO explained the mileage was for home visits she was required to do by

To verify these home visits the Agent requested the “Home Visit Forms” these forms are the
reports the CEO completes at each home visit. The CEO did not provide the “Home Visit
Forms’, but provided a quarterly report that summarizes her home visits. This quarterly report
appears to match her calendar. The Agent asked where the home visit forms were, these forms
are created each time there is visit a home. The CEO said there is no such form, and

only requires a quarterly report. The Agent requested contact information (name and direct
phone number) for someone in who could verify this statement.

On May 2, 20XX, during a conference call with the CEO at the POA’s office the CEO said
she had the home visitation reports, but still needed two more weeks to get them. The CEO
provided some home visit forms.

The Agent’s review of the Home Visit Forms shows the following:

1. They are hand written and extremely difficult to read
2. None of the forms state which foster home the CEO went to.
3. None of the forms state who completed the form.
4. Many form did not state who else was present.
5. The CEO provided 111 pages of home visit forms, only 26 had completed dates.
Some of the home visit forms:
a. have no dates
b. some have incomplete dates
c. some have dates from a year not requested

Form 886-A (1-1994) Catalog Number 20810W Page 3 publish.no.irs.gov Department of the Treasury-Internal Revenue Service

Form 886-A Schedule number or
(Rev. January 1994) EXPLANATIONS OF ITEMS exhibit
Name of taxpayer EIN: Periods Ending:

December 31, 20XX
December 31, 20XX

d. some have dates that appear to be from a non-audit year but made to look
like they are from an audit year.

6. There were at least 3 duplicate reports.

7. There were five blank pages.

8. The CEO provided 111 pages of documents related to the home visitations. If the 3
duplicates are removed, and the 5 blank pages are removed this brings total home
visit forms to 103 for 20XX and 20XX, for the months of January, November and
December. The CEO’s calendar for 20XX shows 0 home visits for January,
November and December. In 20XX the CEO’s reimbursements on the Form 990
increased from 0 to 0 in 20XX, thus meaning the CEO should have at least as
many Home Visit Forms for 20XX as 20XX, if not more. There should be an
approximate total of 0 home visit forms. The CEO provided 0 in the condition
explained in item five.

Payments to the CFO

(CFO and the CEO’s Father) received payments in 20XX totaling $0 and in
20XX $0. Numerous explanations have been provided for these payments. They have been
explained as director's fees on the 20XX Form 990, loans made by the CFO to the Organization,
reimbursements to the CFO on May 2, 20XX during meeting with the Agent, and compensation
for work completed in the office. Substantiation was requested but it was not adequate to verify
the Organization statements.

Article III, paragraph 1 of the Organization’s bylaws state,” Membership in this organization shall
be open to the Board of Directors, who shall serve without pay and consist of at least
members.”

In 20XX, the Organization had a financial audit conducted. The financial statements show a
loan payable to of $0 and one for $0 payable to , an immediate
family member. Note five in Organization’s Independent Auditor’s Report and Financial
Statements states, “Both stated loans payable balances lack supporting documentation, and
are unaudited.” The Agent asked for documentation showing these funds were received by the
Organization. However, adequate documentation was not provided. The CFO says he has no
documentation prior to 20XX.

Law:
Internal Revenue Code (IRC)

IRC Sec. 274(d)(4) provides that no deduction or credit shall be allowed for any expenses
relating to travel, gifts or listed property unless the taxpayer substantiates by adequate records
or by sufficient evidence corroborating the taxpayer's own statement (A) the amount of such
expense or other item, (B) the time and place of the travel or the date and description of the gift,
(C) the business purpose of the expense or other item, and (D) the business relationship to the
taxpayer of the person receiving the benefit.

Form 886-A (1-1994) Catalog Number 20810W Page 4  publish.no.irs.gov Department of the Treasury-Internal Revenue Service

Form 886-A Schedule number or
(Rev. January 1994) EXPLANATIONS OF ITEMS exhibit
Name of taxpayer EIN: Periods Ending:

December 31, 20XX
December 31, 20XX

IRC Sec. 501(c)(3) provides for exemption from income tax for corporations, and any
community chest, fund, or foundation, organized and operated exclusively for religious,
charitable, scientific, testing for public safety, literary, or educational purposes, or to foster
national or international amateur sports competition (but only if no part of its activities involve
the provision of athletic facilities or equipment), or for the prevention of cruelty to children or
animals, no part of the net earnings of which inures to the benefit of any private shareholder or
individual, no substantial part of the activities of which is carrying on propaganda, or otherwise
attempting, to influence legislation (except as otherwise provided in subsection (h)), and which
does not participate in, or intervene in (including the publishing or distributing of statements),
any political campaign on behalf of (or in opposition to) any candidate for public office.

IRC Sec. 6001 provides 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.

Treasury (Treas.) Regulations (Regs.)

Treas. Regs. Sec. 1.274-5T(b)(6) Listed property. The elements to be proved with respect to
any listed property are -
(i)Amount -

(A) Expenditures. The amount of each separate expenditure with respect to an
item of listed property, such as the cost of acquisition, the cost of capital
improvements, lease payments, the cost of maintenance and repairs, or other
expenditures, and

(B) Uses. The amount of each business/investment use (as defined in § 1.280F-
6T (d)(3) and (e)), based on the appropriate measure (i.e., mileage for
automobiles and other means of transportation and time for other listed
property, unless the Commissioner approves an alternative method), and the
total use of the listed property for the taxable period.

(ii) Time. Date of the expenditure or use with respect to listed property, and

(iii) Business or investment purpose. The business purpose for an expenditure or use
with respect to any listed property (see § 1.274-5T(c)(6)(i) (B) and (C) for special rules
for the aggregation of expenditures and business use and § 1.280F-6T(d)(2) for the
distinction between qualified business use and business/investment use).

Treas. Regs. Sec. 1.501(c)(3)-1(a)(1) provides that, in order to be exempt as an
organization described in § 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.

Treas. Regs. Sec. 1.501(c)(3)-1(c)(2) provides that an organization is not operated exclusively
for one or more exempt purposes if its net earnings inure in whole or in part to the benefit of
private shareholders or individuals.

Form 886-A (1-1994) Catalog Number 20810W Page 5  publish.no.irs.gov Department of the Treasury-Internal Revenue Service

Form 886-A Schedule number or
(Rev. January 1994) EXPLANATIONS OF ITEMS exhibit
Name of taxpayer EIN: Periods Ending:

December 31, 20XX
December 31, 20XX

Treas. Regs. Sec. 1.501(a)-1(c) defines the words private shareholder or individual in section
501 as persons having a personal and private interest in the activities of the organization.

Treas. Regs. Sec. 1.501(c)(3)-1(f)(2)(i) states that, regardless of whether a particular
transaction is subject to excise taxes under § 4958, the substantive requirements for tax
exemption under § 501(c)(3) still apply to an applicable tax-exempt organization described in §
501(c)(3) whose disqualified persons or organization managers are subject to excise taxes
under § 4958. Accordingly, an organization will no longer meet the requirements for tax-exempt
status under § 501(c)(3) if it fails to satisfy the requirements of paragraph (b), (c) or (d) of this
section.

Revenue Procedure (Rev. Proc.)

Rev. Proc. 2002-26 - If additional taxes, penalty, and interest for one or more taxable periods
have been assessed against a taxpayer (or have been mutually agreed to as to the amount and
liability but are unassessed) at the time the taxpayer voluntarily tenders a partial payment that is
accepted by the Service and the taxpayer does not provide specific written directions as to the
application of payment, the Service will apply the payment to periods in the order of priority that
the Service determines will serve its best interest.

The Revenue Procedure further states the Service will apply the payments to periods in order of
priority that will serve its best interest.

Organization’s Position

The Chief Financial Officer, Chief Executive Officer, and the Organization’s Representative
have indicted agreement with the Government’s position.

Government’s Position

It is the Government’s Position the
(Organization) should not retain its tax-exempt status under Internal Revenue Code (IRC)
Section (Sec.) 501(c)(3)?

Organizational Documents

According to the Articles of Incorporation and Bylaws of the Organization the purpose of the
Organization is, “recruit and certify foster parents in the area, place foster
children in the certified foster homes, and provide case management services to the children”

Currently the Organization has children it is providing services for and the CEO has stated
three are in the adoption process. Upon completion of the adoption process for the
children she plans to discontinue the Organization.

The CEO stated her primary method of recruiting foster parents was, “by posting flyers in
to recruit foster parents and the Organization’s website.” Currently the CEO is employed as
full-time school social worker/counselor, and is not actively looking for new foster parents.

Form 886-A (1-1994) Catalog Number 20810W Page 6 publish.no.irs.gov Department of the Treasury-Internal Revenue Service

Form 886-A Schedule number or
(Rev. January 1994) EXPLANATIONS OF ITEMS exhibit
Name of taxpayer EIN: Periods Ending:

December 31, 20XX
December 31, 20XX

Inurement

Treas. Regs. Sec. 1.501(c)(3)-1(a)(1) provides that, in order to be exempt as an
organization described in § 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.

Treas. Regs. Sec. 1.501(c)(3)-1(c)(2) provides that an organization is not operated exclusively
for one or more exempt purposes if its net earnings inure in whole or in part to the benefit of
private shareholders or individuals.

Here the concerns with inurement are related to the CEO’s Compensation, the CEO’s
reimbursements, and payments made to the CFO.

Compensation

The CEO has taken more than the approved amount compensation. There are various
amounts ($0 or $0) of compensations reflected in the Organization’s documents however in
20XX and 20XX the CEO received $0 in compensation. This is $0 in excess of the approved by
the board, and there was no “use of outside experts” as stated there would be on the Form
1023.

Because of the CEO’s compensation (she was the sole employee and administrator) the
Organization has an employment tax debt (currently $0). In 20XX, the Organization,
operated by the CEO did not pay $0 of employment taxes.

Revenue Procedure 2002-26 allows the Internal Revenue Service to apply partial payments in
its best interest. This being the case, for 20XX, the unpaid $0 can be allocated to the CEO
20XX Federal Income Tax withholding. In 20XX, the CEO deducted $0 from her individual
income tax debt, of which $0 was not paid.

This applies to 20XX as well. The Organization, run by the CEO did not pay $0 of Employment
Taxes. From the table above, no payments were made for the last three quarters of 20XX. The
last three quarters of Federal Income Tax withholding totals $0. This unpaid amount is
included in the CEO 20XX Federal Income Tax withholding deduction of

$0, on her 20XX Form 1040, U.S. Individual Income Tax Return.

Moreover, in 20XX there are three unpaid quarters of the CEO’s Social Security and
Medicare which will benefit the CEO during her retirement of if she becomes disabled. This
unpaid amount totals $0

Here, the CEO compensation exceeds the approved amount of $0 per year and the
Employment Tax debt incurred by the Organization to pay the CEO’s income tax, Social
Security and Medicare are inurement.

Form 886-A (1-1994) Catalog Number 20810W Page 7  publish.no.irs.gov Department of the Treasury-Internal Revenue Service

Form 886-A Schedule number or
(Rev. January 1994) EXPLANATIONS OF ITEMS exhibit
Name of taxpayer EIN: Periods Ending:

December 31, 20XX
December 31, 20XX

CEO’s Reimbursements

Here, the CEO was paid for reimbursements in 20XX ($0) and 20XX ($0) for mileage and
entertainment (i.e. meals). In 20XX, the CEO’s submitted expenses reimbursements for mileage
totaling 0 miles. The CEO was reimbursed at 59 cents (standard mileage rate for 20XX was
57.5 cents). The total reimbursement form mileage was $0.

Under Treas. Reg.1.274-5T(b)(6) The elements that must be substantiated to deduct the
business use of an automobile are: (i) the amount of the expenditure; (ii) the mileage for each
business use of the automobile and the total mileage for all uses of the automobile during the
taxable period; (iii) the date of the business use; and (iv) the business purpose of the use of the
automobile.

For 20XX the CEO provided a Quarterly report and a Calendar, which when compared to her
contemporaneous home visitation reports, would not reconcile. The total mileage for all uses of
the vehicle was not provided, and the dates of the business use on the home visit reports were
only completed 0 time, and none of the home visit forms said where the visit was conducted.
Further the required number of home visitation reports that should have been provided for both
20XX and 20XX is approximately 0 and only 0 partially completed, illegible reports were
provided.

Because the CEO could not verify she drove the mileage she was reimbursed for in 20XX
and 20XX this is inurement.

Payments to the CFO

(CFO and the CEO’s Father) received payments in 20XX totaling $0 and in 20XX
$0. However, the required verification showing these are loan repayments, reimbursements, or
compensation has not been provided during this audit or during the financial audit. Thus, these
payments are inurement.

Conclusion

It is the Government's position; the does not
meet the operational test of Treasury Regulations Section 1.501(c)(3)-1 and should not retain its
tax-exempt status under Internal Revenue Code Section 501(c)(3), and the revocation of the
exempt status should be effective January 1, 20XX.

Form 886-A (1-1994) Catalog Number 20810W Page 8 publish.no.irs.gov Department of the Treasury-Internal Revenue Service