Charity lost its exemption after refusing to provide examination records

Plain-English summary

A section 501(c)(3) organization repeatedly refused to provide financial and activity information requested during an IRS examination. Its chief executive first said the initial request had not arrived, but later confirmed receiving another request and declined to cooperate because he did not believe the agent represented the IRS. The organization also did not cooperate with efforts to schedule an onsite examination. The IRS concluded that the missing information prevented it from confirming that the organization continued to operate for exempt purposes and without private inurement. It revoked the organization's exemption under section 501(c)(3), effective as of the redacted date, and stated that contributions were no longer deductible under section 170.

Ruling snapshot

• Question: Should the organization's section 501(c)(3) status be revoked because it refused to provide information needed to examine its continued qualification?
• Outcome: revocation, because the organization did not establish that it continued to satisfy the requirements for exemption
• Key authorities: IRC §§ 501(c)(3), 6033; Treas. Reg. § 1.6033-2(i)(2); Rev. Rul. 59-95

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
1100 Commerce Street, MC 4920DAL
Dallas, TX 75242

Release Number: 201944013

Release Date: 11/1/2019
EIN:

Date: June 5, 2019
UIL Code: 501.03-00 Person to Contact:

Identification Number:
Telephone Number:

Fax:

CERTIFIED MAIL - Return Receipt Requested
LAST DAY FOR FILING A PETITION WITH THE TAX COURT:

September 3, 2019

Dear                         :
This is a final determination that you do not qualify for exemption from Federal income tax under
Internal Revenue Code (the “Code”) section 501(a) as an organization described in Code
section 501(c)(3), effective January 1, 20XX. Your determination letter dated October, 20XX is
revoked.

Our adverse determination as to your exempt status was made for the following reasons:

    You did not respond to our requests for information about your finances and
    activities necessary to complete the examination. You have not demonstrated that
    you are organized and operated exclusively for exempt purposes within the meaning
    of Internal Revenue Code section 501(c)(3).

As such, you failed to meet the requirements of I.R.C. § 501(c)(3) and Treasury Regulation
§1.501(c)(3)-1(a), in that you have not established that you were organized and operated
exclusively for exempt purposes and that no part of your earnings inured to the benefit of private
shareholders or individuals.

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

Organizations that are not exempt under section 501 generally are required to file federal
income tax returns and pay tax, where applicable. For further instructions, forms, and
information please visit www.irs.gov.

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: 1) United
States Tax Court, 2) the United States Court of Federal Claims, or 3) the United States District
Court for the District of Columbia. A petition or complaint in one of these three courts must be
filed within 90 days from the date this determination was mailed to you. Please contact the clerk
of the appropriate court for rules and the appropriate forms for filing petitions for declaratory
judgment. Refer to the enclosed Publication 892 for additional information. 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

Processing of income tax returns and assessments of any taxes due will not be delayed if you
file a petition for declaratory judgment under section 7428 of the Internal Revenue Code.

You may be eligible for help from the Taxpayer Advocate Service (TAS). 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 about this letter, 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

Date: October 16, 2018

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

Taxpayer Identification Number:

Form:
990-N
Tax Year(s) Ended:
December 31, 20XX
Person to Contact:

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

Employee ID:
Telephone:
Response Due Date:
30 days from the above 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.

   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,

Michelle Henson FOR
Maria Hooke
Director, Exempt Organizations
Examinations

Enclosures:
Form 886-A
Form 6018

Form 886-A
(May 2017)
Department of the Treasury - Internal Revenue Service
Explanations of Items

Name of taxpayer Tax Identification Number (last 4 digits) Year/Period ended
12/31/20XX

ISSUE:

Should the tax-exempt status of                    organization be revoked for knowingly failing to
provide information necessary for the Internal Revenue Service to confirm the organization’s tax-
exempt status?

FACTS:

                    organization is incorporated in                    ,                    . They are incorporated under a
Nonprofit Public Benefit Corporation. There was no Group exemption number issued to the
exempt organization. The organization was Incorporated by the State of                    on December
2, 20XX. There is no record filed of a dissolution or termination of the organization on file with the
state of                    . The exempt organization (EO) is current with the State of
Incorporation filing requirements.

The first attempt to contact the organization was made on December 28, 20XX using letter 3606.
An information document request was included in the package mailed to the organization as well
as a Publication 1. The agent did not receive a response to this letter.

On February 2, 20XX agent reviewed the organization information per internet research and
obtained the organizations contact information. The agent called the organization and spoke with
the CEO (                    ). The CEO stated that he did not receive the 1st initial contact letter
and information request. The Revenue Agent (RA) explained the examination process and what
information was required to complete the examination. The RA provided his contact information
and mailing address to the CEO, and the CEO stated that he would forward the information within
2 weeks. The RA mailed the 2nd Initial Contact Information, which consisted of the 3606 Letter,
Information Document Request and Publication 1.

On April 10, 20XX the agent telephoned the CEO to confirm receipt of the 2nd letter that was
mailed on February 2, 20XX. The CEO confirmed receipt of the Initial Contact Information.
However, the official did not believe the agent represented the IRS and refused to send the
requested information. The RA explained that if he didn’t comply with the letter and send the
requested information that the exempt status of the organization would be in jeopardy and can be
revoked. The CEO still refused to adhere to the information request. The RA mailed a 3rd letter
via certified mail, which included letter 3606, Information Document Request and Publication 1.

On June 5, 20XX the agent received the returned certified Letter that was mailed to the
organization’s official. The official did not sign for the certified Letter.

After receiving approval to conduct a field examination on October 2, 20XX, the RA telephoned
the organization’s official on October 11, 20XX to inform him that an onsite examination of his
records will be conducted at his location. Due to the lack of cooperation from the organization’s
official to schedule a face to face examination, and the inability for the RA to verify the
organization’s exempt purpose, the RA is proposing revocation.

LAW:

Section 501 (c) (3) of the Internal Revenue Code exempts from Federal income tax corporations
and any community chest, fund, or organization, 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.

Section 6033 of the Internal Revenue code provides, in part, every organization exempt from
taxation 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 purpose of carrying out
the internal revenue laws as the Secretary may by forms or regulations prescribe, and shall 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

Section 1.6033-2(i) (2) of the Income Tax Regulations provides, in part, that every organization
which is exempt from tax shall submit such additional information as may be required by the
Internal Revenue Service for the purposes of inquiring into its exempt status.

Revenue Ruling 59-95, 1959-1 CB 627 provides that a failure to file required information return or
comply with the provision of section 6033 of the Code and the regulations which implement it, may
result in the termination of the exempt status of an organization previously held exempt, because
the organization has not established that it is observing the conditions required for the continuation
of an exempt status.

TAXPAYERS’S POSITION:

Taxpayer will not respond to the information requests. Therefore, the taxpayer position is not
known at this time.

GOVERNMENT POSITION:

Treasury Regulation Section 1.6033-2(i) (2) provides, in part, that every organization which is
exempt from tax, whether or not is required to file an annual information return, must submit
additional information upon request by the Internal Revenue Service for the purpose of inquiring in
its exempt status and administering the provisions of subchapter F, Chapter 1 or subtitle A or the
Code, IRC section 6033, and Chapter 42 of subtitle D of the Code.

The information that the service requested is material to establish the organizations right to
maintain its exempt status. An organization, to be qualified as an entity described in section 501
(c) (3) of the Internal Revenue Code or in certain other categories of tax-exempt organization,
must be organized and operated so that no part of its net earning inures to the benefit of any
private shareholder or individual. The essence of the concept is to ensure that a tax-exempt
charitable organization is serving a public interest and not a private interest.

Section 1.6033-2 (i) (2) of the Regulation and Revenue Ruling 59-95, 1959-CB 627 requires every
organization which is exempt from tax to submit additional information upon request by the
Internal Revenue Service. The Service has requested the organization to provide information for
the purposes of inquiring into its exempt status. The requested information was material in
determining whether the organization continues to qualify for Federal tax-exempt status under IRC
section 501 (c) (3).

The Service has given the organization adequate opportunities to provide the requested
information and has advised the organization of the consequences for failing to provide the
information. The organization failed to respond to the Service’s request for information knowing
that such refusals to provide the requested information may result in the loss of its tax-exempt
status. By not providing the requested information, the organization has failed to demonstrate that
it is observing the conditions for continued exemption. Therefore, the organization’s Federal Tax-
Exempt status under IRC section 501 (c) (3) should be revoked effective January 1, 20XX.

CONCLUSION:

                    has not responded to repeated requests for financial information and information
about the organization’s activities. By not providing the requested information, the organization
has failed to establish that it is observing the conditions for continued exemption. Therefore, the
organizations Federal tax-exempt status under IRC section 501 (c) (3) should be revoked effective
January 1, 20XX.