Housing assistance organization denied charitable exemption for defective articles

Plain-English summary

A nonprofit planned to renovate foreclosed homes and provide them rent-free to families while offering financial education and other support. Its original articles did not limit its purposes to charitable purposes or dedicate its assets to exempt purposes upon dissolution. Although the organization submitted amended articles with suitable clauses, it did not prove that the amendments had been filed with the state despite repeated IRS requests. The IRS denied exemption under section 501(c)(3) because the administrative record did not establish that the organization met the organizational test.

Ruling snapshot

• Question: Does the organization qualify for exemption under section 501(c)(3)?
• Outcome: denied, because it did not prove that articles containing the required charitable-purpose and dissolution clauses were filed with the state
• Key authorities: IRC § 501(c)(3); Treas. Reg. § 1.501(c)(3)-1(a)(1), (b)(1)(i), and (b)(4); Rev. Proc. 2019-5; Universal Life Church; New Dynamics Foundation

Full text (IRS public release)

Department of the Treasury
Internal Revenue Service

P.O. Box 2508
IRS Cincinnati, OH 45201

Date: July 10, 2019

Release Number: 201940010 Employer ID number:
Release Date: 10/4/2019

Contact person/ID number:
UIL Code: 501.00-00

501.03-05 Contact telephone number:
501.03-30
501.29-00 Form you must file:

Tax years: All

Dear

This letter is our final determination that you don’t qualify for tax-exempt status under Section 501(c)(3) of the
Internal Revenue Code (the Code). Recently, we sent you a proposed adverse determination in response to your
application. The proposed adverse determination explained the facts, law, and basis for our conclusion, and it
gave you 30 days to file a protest. Because we didn’t receive a protest within the required 30 days, the proposed
determination is now final.

Because you don’t qualify as a tax-exempt organization under Section 501(c)(3) of the Code, donors can’t
deduct contributions to you under Section 170 of the Code. You must file federal income tax returns for the tax
years listed at the top of this letter using the required form (also listed at the top of this letter) within 30 days of
this letter unless you request an extension of time to file.

We’ll make this final adverse determination letter and the proposed adverse determination letter available for
public inspection (as required under Section 6110 of the Code) after deleting certain identifying information.
Please read the enclosed Notice 437, Notice of Intention to Disclose, and review the two attached letters that
show our proposed deletions. If you disagree with our proposed deletions, follow the instructions in the Notice
437 on how to notify us. If you agree with our deletions, you don’t need to take any further action.

We'll also notify the appropriate state officials of our determination by sending them a copy of this final letter
and the proposed determination letter (under Section 6104(c) of the Code). You should contact your state
officials if you have questions about how this determination will affect your state responsibilities and
requirements.

Letter 4038 (Rev. 7-2014)
Catalog Number 47632S

If you have questions about this letter, you can contact the person listed at the top of this letter. If you have
questions about your federal income tax status and responsibilities, call our customer service number at
1-800-829-1040 (TTY 1-800-829-4933 for deaf or hard of hearing) or customer service for businesses at
1-800-829-4933.

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

Enclosures:

Notice 437

Redacted Letter 4036, Proposed Adverse Determination Under IRC Section 501(c)(3)
Redacted Letter 4038, Final Adverse Determination Under IRC Section 501(c)(3) - No Protest

Letter 4038 (Rev. 7-2014)
Catalog Number 47632S

Department of the Treasury
Internal Revenue Service

Cincinnati, OH 45201

Date: April 29, 2019

Employer ID number:

Contact person/ID number:

Contact telephone number:

Contact fax number:

Legend UIL:

B = Date 501.00-00

C = State 501.03-05

D = Date 501.03-30
501.29-00

Dear

We considered your application for recognition of exemption from federal income tax under Internal Revenue
Code (IRC) Section 501(a). We determined that you don’t qualify for exemption under IRC Section 501(c)(3).
This letter explains the reasons for our conclusion. Please keep it for your records.

Issues
Do you qualify for exemption under Section 501(c)(3) of the Code? No, for the reasons stated below.

Facts

You formed as a nonstock corporation on B in the state of C. Your original Articles of Incorporation submitted
with your Form 1023 are silent regarding your purpose and how your assets will be distributed upon your
dissolution. You also submitted Articles of Amendment signed on D with your Form 1023 which include
adequate purpose and dissolution clauses that meet Section 501(c)(3) of the Code but there was no indication
that the Articles of Amendment were filed with C.

Your primary mission is to improve the social well-being of families within the United States as well as to
improve the housing market. You will buy foreclosed homes to renovate and give to families who are homeless
or in need of a safe home. Families who receive a home must sign a contract containing requirements that must
be met in order for that family to obtain the deed at the end of the year. While the family lives in the
home it will be mortgage/rent free, with the requirement that the family is responsible for all taxes and
insurance of the property. The requirements include maintaining a job, volunteering at an approved nonprofit,
meeting regularly with one of your case officers, and completing a budget once a year with your finance team.
In addition, you will provide various types of support to help families satisfy these requirements and maintain a
record of each family’s progress.

Your goals also include giving families short term assistance and guiding them to long term financial freedom
and success. To accomplish these goals, you will conduct financial and budget classes, life coaching, resume
and job opportunity assistance, and family assistance. You are governed by a volunteer board.

We wrote a letter asking for details about your activities as well as for proof of filing for the Articles of
Amendment. Your response provided explanations and examples of your activities.

However, the response did not include proof that you have filed the Articles of Amendment. We wrote another
letter requesting proof that you filed the Articles of Amendment. We also attempted to contact you by phone
multiple times. However, you never submitted the Articles of Amendment showing proof they were filed with
your state.

Law

Section 501(c)(3) of the Code provides for the recognition of exemption of organizations that are organized and
operated exclusively for religious, charitable or other purposes as specified in the statute. No part of the net
earnings may inure to the benefit of any private shareholder or individual.

Treasury Regulation Section 1.501(c)(3)-1(a)(1) states that, in order to be exempt as an organization described
in Section 501(c)(3) of the Code, 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. Reg. Section 1.501(c)(3)-1(b)(1)(i) provides that an organization is organized exclusively for one or
more exempt purposes only if its articles of organization:

(a) Limit the purposes of such organization to one or more exempt purposes; and
(b) Do not expressly empower the organization engage, otherwise than as an insubstantial part of its
activities, in activities that in themselves are not in furtherance of one or more exempt purposes.

Treas. Reg. Section 1.501(c)(3)-1(b)(4) holds that an organization is not organized exclusively for one or more
exempt purposes unless its assets are dedicated to an exempt purpose. An organization’s assets will be
considered dedicated to an exempt purpose, for example, if, upon dissolution, such assets would, by reason of a
provision in the organization’s articles or operation of law, be distributed for one or more exempt purposes.

Revenue Procedure 2019-5, 2019-1 I.R.B. 233, Section 3 states that a determination letter or ruling on exempt
status is issued based solely upon the facts and representations contained in the administrative record. The
applicant is responsible for the accuracy of any factual representations contained in the application. Section 6
(and its predecessors) provides that a favorable determination letter or ruling will be issued to an organization
only if its application and supporting documents establish that it meets the particular requirements of the section
under which exemption from federal income tax is claimed.

In Universal Life Church v. United States, 372 F. Supp. 770 (E.D. Cal. 1974), the court concluded that “one
seeking a tax exemption has the burden of establishing his right to a tax-exempt status.”

New Dynamics Foundation v. United States, 70 Fed. Cl. 782 (2006), was an action for declaratory judgment
that the petitioner brought to challenge the denial of his application for exempt status. The court, in finding that
the actual purposes displayed in the administrative record supported the Service’s denial, stated “It is well-
accepted that, in initial qualification cases such as this, gaps in the administrative record are resolved against the
applicant.” The court noted that if the petitioner had evidence that contradicted these findings, it should have

Letter 4034 (Rev. 11-2018)
Catalog Number 47628K

submitted it as part of the administrative process. The court also highlighted the principle that exemptions from
income tax are matters of legislative grace.

Application of law

A ruling on exempt status is based solely on facts and representations in the administrative file. You have not
provided supporting documentation to establish you meet the requirements of Section 501(c)(3) of the Code.
Section 501(c)(3) sets forth two main tests for qualification for exempt status. As stated in Treas. Reg.
1.501(c)(3)-1(a)(1), an organization must be both organized and operated exclusively for purposes described in
Section 501(c)(3). You have not established that you are organized for purposes described in Section 501(c)(3)
of the Code.

You have not provided documentation that your Articles of Amendment were filed with your state that show
that you limit your purposes to those described in Section 501(c)(3) of the Code or that dedicate your assets to
an exempt purpose upon your dissolution. As a result, you have not satisfied the organizational test described in
Treas. Reg. Sections 1.501(c)(3)-1(b)(1)(i) and 1.501(c)(3)-1(b)(4).

As explained in Rev. Proc. 2019-5, a ruling on exempt status is issued based solely upon the facts and
representations contained in the administrative record. Despite our multiple requests, you failed to provide proof
of filing for your Articles of Amendment which include the provisions required under Section 501(c)(3) of the
Code regarding your purpose and the disposition of your assets upon your dissolution. As in Universal Life
Church, you have the burden of establishing that you qualify for tax exemption.

As indicated in New Dynamics Foundation, an organization must establish, through its administrative record,
that it meets the requirements for exemption. Because you failed to provide documentation showing your
Articles of Amendment with the necessary provisions to qualify under Section 501(c)(3) of the Code were filed
with your state, you have failed to establish that you meet the statutory and regulatory requirements for
exemption for Section 501(c)(3) of the Code and consequently have not established that you meet the
requirements for exemption under Section 501(c)(3) of the Code. As provided in New Dynamics Foundation,
any gaps in the administrative record will be resolved against the particular applicant. You did not provide
supplemental information despite multiple requests; therefore, we are unable to determine whether you qualify
for exemption.

Conclusion

Based on the information submitted, you have failed to establish that you are organized for exempt purposes
within the meaning of Section 501(c)(3) of the Code and the related income tax regulations. Therefore, based
on the administrative record, you fail to qualify for exemption under Section 501(c)(3) of the Code.

If you agree

If you agree with our proposed adverse determination, you don’t need to do anything. If we don’t hear from
you within 30 days, we’ll issue a final adverse determination letter. That letter will provide information on
your income tax filing requirements.

If you don't agree
You have a right to protest if you don’t agree with our proposed adverse determination. To do so, send us a
protest within 30 days of the date of this letter. You must include:

Letter 4034 (Rev. 11-2018)
Catalog Number 47628K

4

• Your name, address, employer identification number (EIN), and a daytime phone number
• A statement of the facts, law, and arguments supporting your position
• A statement indicating whether you are requesting an Appeals Office conference

• The signature of an officer, director, trustee, or other official who is authorized to sign for the
organization or your authorized representative

• The following declaration:

For an officer, director, trustee, or other official who is authorized to sign for the organization:
Under penalties of perjury, I declare that I have examined this request, or this modification to the
request, including accompanying documents, and to the best of my knowledge and belief, the request
or the modification contains all relevant facts relating to the request, and such facts are true, correct,
and complete.

Your representative (attorney, certified public accountant, or other individual enrolled to practice before the
IRS) must file a Form 2848, Power of Attorney and Declaration of Representative, with us if they haven’t
already done so. You can find more information about representation in Publication 947, Practice Before the
IRS and Power of Attorney.

We’ll review your protest statement and decide if you gave us a basis to reconsider our determination. If so,
we’ll continue to process your case considering the information you provided. If you haven’t given us a basis
for reconsideration, we’ll send your case to the Appeals Office and notify you. You can find more information
in Publication 892, How to Appeal an IRS Decision on Tax-Exempt Status.

If you don’t file a protest within 30 days, you can’t seek a declaratory judgment in court later because the
law requires that you use the IRC administrative process first (IRC Section 7428(b)(2).

Where to send your protest
Send your protest, Form 2848, if applicable, and any supporting documents to the applicable address:

U.S. mail: Street address for delivery service:

Internal Revenue Service Internal Revenue Service
EO Determinations Quality Assurance EO Determinations Quality Assurance
Mail Stop 6403 550 Main Street, Mail Stop 6403

P.O. Box 2508 Cincinnati, OH 45202

Cincinnati, OH 45201

You can also fax your protest and supporting documents to the fax number listed at the top of this letter. If you
fax your statement, please contact the person listed at the top of this letter to confirm that they received it.

Letter 4034 (Rev. 11-2018)
Catalog Number 47628K

5

You can get 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 listed at
the top of this letter.

Contacting the Taxpayer Advocate Service

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 if 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.

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

Letter 4034 (Rev. 11-2018)
Catalog Number 47628K