Veterans charity revoked for repeated excess-benefit transactions

Plain-English summary

A veterans charity operated rooming houses and provided transportation to medical appointments, but its president and another officer were domestic partners who controlled its bank accounts without an independent board, employment contracts, or a conflict-of-interest policy. The IRS examination found that the charity relied heavily on cash solicitations, made disproportionately low and infrequent deposits, and did not report extensive gambling transactions and cash withdrawals benefiting the two officers. The IRS treated those amounts as repeated automatic excess-benefit transactions under section 4958 and found no repayment, correction, adequate recordkeeping, or effective safeguards. Although the charity conducted some exempt activities for veterans, the IRS concluded that the size and scope of the private benefit and inurement outweighed those activities. It revoked the organization's section 501(c)(3) status effective on the redacted January 1 date and required Form 1120 filings.

Ruling snapshot

• Question: Did repeated, uncorrected excess-benefit transactions prevent the veterans charity from operating exclusively for exempt purposes?
• Outcome: revocation, effective January 1 of the redacted year
• Key authorities: IRC §§ 501(a), 501(c)(3), and 4958; Treas. Reg. §§ 1.501(c)(3)-1(c), 1.501(c)(3)-1(f), 53.4958-4, and 53.4958-7

Full text (IRS public release)

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

Date: AUG 01 2019

EIN:

Number: 202001023 Person to Contact:

Release Date: 1/3/2020
Identification Number:

Telephone Number:

UIL: 501.03-00

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

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 December 20,
20XX is revoked.

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

Organizations described in section 501(c)(3) of the Internal Revenue Code and
exempt from tax under section 501(a) must be both organized and operated
exclusively for exempt purposes. You have failed to produce documents or
otherwise establish that you are operated exclusively for exempt purposes and
that no part of your net earnings inures to the benefit of private shareholders or
individuals. As such, you failed to meet the requirements of I.R.C. Section
501(c)(3) and Treasury Regulation Section 1.501(c)(3)-1(d)(1)(ii) in that you have
not demonstrated that you are operated exclusively for exempt purposes within
the meaning of Internal Revenue Code section 501(c)(3).

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,

Enclosures: Maria Hooke
Publication 892 Director, EO Examinations

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

Date: June 28, 2019
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
intend 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 to the contact person shown at the top of
this letter.

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

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

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 D. Hooke
Director, Exempt Organizations
Examinations

Enclosures:
Form 886-A
Form 6018

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


Form 886-A Department of the ‘Treasury - Internal Revenue Service Schedule No. or
Explanation of Items Exhibit A

Name of Taxpayer Year/Period Ended
December 31, 20XX

We intend to revoke your organization’s exempt status based on “inurement” issues
revealed during our examination. Treas. Reg. § 1.501(c)(3)-1(c)(2) explains the prohibition
against private inurement as follows - “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
individuals.” Any transaction between an organization and a private individual in which the
individual appears to receive a disproportionate share of the benefits of the exchange,
relative to the charity served, constitutes an inurement issue. Our examination revealed that
the organization’s President, , and “Director”, consistently
engaged in Excess Benefit Transactions with the exempt organization.

An Excess Benefit Transaction occurs when a “disqualified person” (a person in a position to
exercise substantial influence over the affairs of the organization) receives an economic
benefit from a tax-exempt organization that exceeds the value received by the organization.
The term “Automatic Excess Benefit Transaction” refers to a transaction in which a
“disqualified person” provides services to an organization and receives economic benefits
from the organization that are not substantiated, contemporaneously and in writing, as
compensation within the meaning of Treas. Reg. § 53.4958-4(c).

(aka ) was granted exemption under
the name in 20XX, and subsequently changed its name to
in 20XX. The Internal Revenue Service did not become aware of the name change until the
organization was selected for examination. The organization’s bank accounts are held under
the name According to its Articles of Incorporation, the primary
purpose of the organization is:

To provide housing for veterans in sober, independent living homes

To offer employment to veterans within the organization

To provide donations to individual veterans for basic necessities

To donate funds to other veterans’ organizations that assist veterans in need

To donate funds to veteran’s organizations, and individuals that send care packages
to active troops

• To have the normal function of a non-profit organization founded to assist veterans in
providing basic necessities

The organization appears to operate two rooming houses for veterans in and
appears to provide free transportation for veterans to medical appointments. On the day of
the examination appointment, the Agent and Manager toured one of the rooming houses.
The second location became unavailable for viewing just prior to the time the tour was to
occur. All of the organization’s vehicles were not present on the property as stated
they were in use providing transportation to the veterans served.

Form 886-A (Rev.4-68) Department of the Treasury - Internal Revenue Service
Page: -1-


Form 886-A Department of the Treasury - Internal Revenue Service Schedule No. or
Explanation of Items Exhibit A

Name of Taxpayer Year/Period Ended
December 31, 20XX

The organization’s primary officers are and , who are domestic
partners. and are both authorized signers on the organization’s bank
accounts. Generally, a governing board that consists primarily of family members or of
members who share a domestic life, does not constitute an independent body, and has an
inherent conflict of interest when placed in a position to approve financial transactions
involving other members of the family unit. The organization lacked records, and the
organization dealt in cash. Operating under the control of a small related group in this way
suggests that the organization operated primarily for non-exempt private purposes, rather
than exclusively for public purposes, which is the basis for exemption of any 501(c)(3)

organization. According to the Form 990, received a salary of $0, and the other
officers were unpaid. There was no mention of on the Form 990 with respect to
salary. Neither nor have an employment contract with the

organization, and neither are otherwise employed. The organization does not have a conflict
of interest policy.

In August of 20XX, a judge barred the organization from soliciting in following
a lawsuit filed by the Attorney General’s Office. The lawsuit alleged that the
organization had used deceptive practices while soliciting funds in . The
complaint included allegations that the organization had misled potential donors by falsely
representing that their donations would be used to assist veterans, when in
fact, the organization — a - based charity - helped veterans only.
The organization raises funds by soliciting “bucket contributions” outside of various retail
establishments such as ; , , and others. At the
examination appointment, stated that the organization “hired” veterans to solicit

funds for the organization and allowed them to keep 0% of the cash they collected as
payment for their services. No W-2s or 1099s were issued to reflect these “salary”
payments, and no payments were made for employment tax purposes. In the year under
review (20XX), cash solicitation events occurred at multiple locations, on most days of the
year, yet cash deposits were disproportionately low, and infrequent over the same time-
period.

Fig. 1 Itemization of Automatic Excess Benefit Transactions - The following graphic
provides an itemization of the automatic excess benefit transactions (ABTs) in which the

Officers engaged with (aka ) in tax year
20XX. The detail provided on the next few pages, evidences the size and scope of the
excess benefit transactions at issue, and indicates that (aka

) primarily served the interests of and rather than

the public interest in the year under review.

Form 886-A (Rev.4-68) Department of the Treasury - Internal Revenue Service
Page: -2-


Form 886-A Department of the Treasury - Internal Revenue Service Schedule No. or
Explanation of Items Exhibit A
Name of Taxpayer Year/Period Ended
December 31, 20XX
TRANSACTION DETAIL —
Time Theo.
Date Played Coin In $$  Pulls/Min. Coin Out $$ WL
1/1/20XX $0 0 $0 0
1/6/20XX $0 0 $0 0
1/11/20XX $0 0 $0 0
1/19/20XX $0 0 $0 0
1/23/20XX $0 0 $0 0
1/26/20XX $0 0 $0 0
1/27/20XX $0 0 $0 0
1/29/20XX $0 0 $0 0
2/1/20XX $0 0 $0 0
2/2/20XX $0 0 $0 0
2/6/20XX $0 0 $0 0
2/9/20XX $0 0 $0 0
2/10/20XX $0 0 $0 0
2/11/20XX $0 0 $0 0
2/12/20XX $0 0 $0 0
2/13/20XX $0 0 $0 0
2/14/20XX $0 0 $0 0
2/19/20XX $0 0 $0 0
2/22/20XX $0 0 $0 0
2/24/20XX $0 0 $0 0
2/26/20XX $0 0 $0 0
3/1/20XX $0 0 $0 0
3/15/20XX $0 0 $0 0
3/18/20XX $0 0 $0 0
3/23/20XX $0 0 $0 0
3/24/20XX $0 0 $0 0
3/28/20XX $0 0 $0 0
3/31/20XX $0 0 $0 0
4/5/20XX $0 0 $0 0
4/6/20XX $0 0 $0 0
4/7/20XX $0 0 $0 0
4/11/20XX $0 0 $0 0
4/14/20XX $0 0 $0 0
4/19/20XX $0 0 $0 0
4/21/20XX $0 0 $0 0
4/26/20XX $0 0 $0 0

Form 886-A (Rev.4-68)

Department of the Treasury - Internal Revenue Service

Page: -3-


Form 886-A Department of the Treasury - Internal Revenue Service Schedule No. or
Explanation of Items Exhibit A
Name of Taxpayer Year/Period Ended

December 31, 20XX

4/30/20XX $0 0 $0 0
5/3/20XX $0 0 $0 0
5/10/20XX $0 0 $0 0
5/11/20XX $0 0 $0 0
5/14/20XX $0 0 $0 0
5/17/20XX $0 0 $0 0
5/18/20XX $0 0 $0 0
5/21/20XX $0 0 $0 0
5/23/20XX $0 0 $0 0
5/26/20XX $0 0 $0 0
5/27/20XX $0 0 $0 0
5/29/20XX $0 0 $0 0
5/30/20XX $0 0 $0 0
6/1/20XX $0 0 $0 0
6/2/20XX $0 0 $0 0
6/5/20XX $0 0 $0 0
6/6/20XX $0 0 $0 0
6/7/20XX $0 0 $0 0
6/8/20XX $0 0 $0 0
6/11/20XX $0 0 $0 0
6/13/20XX $0 0 $0 0
6/15/20XX $0 0 $0 0
6/16/20XX $0 0 $0 0
6/20/20XX $0 0 $0 0
6/21/20XX $0 0 $0 0
6/25/20XX $0 0 $0 0
6/28/20XX $0 0 $0 0
7/1/20XX $0 0 $0 0
7/2/20XX $0 0 $0 0
7/3/20XX $0 0 $0 0
7/4/20XX $0 0 $0 0
7/5/20XX $0 0 $0 0
7/6/20XX $0 0 $0 0
7/7/20XX $0 0 $0 0
7/8/20XX $0 0 $0 0
7/9/20XX $0 0 $0 0
7/10/20XX $0 0 $0 0
7/12/20XX $0 0 $0 0
7/14/20XX $0 0 $0 0


Form 886-A (Rev.4-68)

Department of the Treasury - Internal Revenue Service

Page: -4-


Form 886-A Department of the Treasury - Internal Revenue Service Schedule No. or
Explanation of Items Exhibit A
Name of Taxpayer Year/Period Ended
December 31, 20XX
7/16/20XX $0 0 $0 0
7/17/20XX $0 0 $0 0
7/18/20XX $0 0 $0 0
7/19/20XX $0 0 $0 0
7/20/20XX $0 0 $0 0
7/21/20XX $0 0 $0 0
7/24/20XX $0 0 $0 0
7/25/20XX $0 0 $0 0
7/26/20XX $0 0 $0 0
7/28/20XX $0 0 $0 0
7/31/20XX $0 0 $0 0
8/1/20XX $0 0 $0 0
8/2/20XX $0 0 $0 0
8/3/20XX $0 0 $0 0
8/4/20XX $0 0 $0 0
8/5/20XX $0 0 $0 0
8/6/20XX $0 0 $0 0
8/7/20XX $0 0 $0 0
8/8/20XX $0 0 $0 0
8/9/20XX $0 0 $0 0
8/11/20XX $0 0 $0 0
8/12/20XX $0 0 $0 0
8/13/20XX $0 0 $0 0
8/16/20XX $0 0 $0 0
8/18/20XX $0 0 $0 0
8/20/20XX $0 0 $0 0
8/23/20XX $0 0 $0 0
8/24/20XX $0 0 $0 0
8/25/20XX $0 0 $0 0
8/26/20XX $0 0 $0 0
8/27/20XX $0 0 $0 0
8/31/20XX $0 0 $0 0
9/2/20XX $0 0 $0 0
9/5/20XX $0 0 $0 0
9/6/20XX $0 0 $0 0
9/7/20XX $0 0 $0 0
9/9/20XX $0 0 $0 0
9/11/20XX $0 0 $0 0
9/15/20XX $0 0 $0 0
Form 886-A (Rev.4-68) Department of the Treasury - Internal Revenue Service
Page: -5-


Form 886-A Department of the Treasury - Internal Revenue Service Schedule No. or
Explanation of Items Exhibit A
Name of Taxpayer Year/Period Ended
December 31, 20XX
9/18/20XX $0 0 $0 0
9/19/20XX $0 0 $0 0
9/20/20XX $0 0 $0 0
9/24/20XX $0 0 $0 0
9/25/20XX $0 0 $0 0
9/26/20XX $0 0 $0 0
9/28/20XX $0 0 $0 0
9/29/20XX $0 0 $0 0
9/30/20XX $0 0 $0 0
10/1/20XX $0 0 $0 0
10/2/20XX $0 0 $0 0
10/3/20XX $0 0 $0 0
10/5/20XX $0 0 $0 0
10/6/20XX $0 0 $0 0
10/7/20XX $0 0 $0 0
10/10/20XX $0 0 $0 0
10/12/20XX $0 0 $0 0
10/14/20XX $0 0 $0 0
10/15/20XX $0 0 $0 0
10/16/20XX $0 0 $0 0
10/17/20XX $0 0 $0 0
10/19/20XX $0 0 $0 0
10/22/20XX $0 0 $0 0
10/24/20XX $0 0 $0 0
10/25/20XX $0 0 $0 0
10/26/20XX $0 0 $0 0
10/29/20XX $0 0 $0 0
11/6/20XX $0 0 $0 0
11/8/20XX $0 0 $0 0
11/10/20XX $0 0 $0 0
11/13/20XX $0 0 $0 0
11/14/20XX $0 0 $0 0
11/15/20XX $0 0 $0 0
11/16/20XX $0 0 $0 0
11/19/20XX $0 0 $0 0
11/20/20XX $0 0 $0 0
11/23/20XX $0 0 $0 0
11/25/20XX $0 0 $0 0
11/26/20XX $0 0 $0 0
Form 886-A (Rev.4-68) Department of the Treasury - Internal Revenue Service
Page: -6-


Form 886-A Department of the Treasury - Internal Revenue Service Schedule No. or
Explanation of Items Exhibit A
Name of Taxpayer Year/Period Ended
December 31, 20XX
11/27/20XX $0 0 $0 0
11/29/20XX $0 0 $0 0
11/30/20XX $0 0 $0 0
12/5/20XX $0 0 $0 0
12/6/20XX $0 0 $0 0
12/7/20XX $0 0 $0 0
12/11/20XX $0 0 $0 0
12/12/20XX $0 0 $0 0
12/13/20XX $0 0 $0 0
12/15/20XX $0 0 $0 0
12/19/20XX $0 0 $0 0
12/20/20XX $0 0 $0 0
12/22/20XX $0 0 $0 0
12/27/20XX $0 0 $0 0
$0 $0
COIN IN $0
COIN OUT ($0)
COIN RETAINED BY $0
We calculated the Automatic Excess Benefit Transactions attributable to using
Win/Loss Statements provided by the . We based the calculation on
the total “coin-in” and “coin-out” amounts with “Coin-in” representing the total cash inserted
into the slot machines, and “coin-out” representing ’s total winnings both recycled
and actual. After subtracting the total “coin-in” from the total “coin-out” amounts, the
Win/Loss Statement shows that at the end of tax year 20XX, had incurred $0 in
slot machine expenditures at the . We calculated total Automatic

Excess Benefit Transactions (ABTs) by taking all other income and expenditures into
consideration, resulting in total ABTs of $0 of

TRANSACTION DETAIL —
Time Coin In Coin Out Theo.
Date Played $$ Pulls/Min. $$ WL
1/1/20XX $0 0 $0 0
1/6/20XX $0 0 $0 0
1/19/20XX $0 0 $0 0
1/23/20XX $0 0 $0 0
1/26/20XX . $0 0 $0 0
1/27/20XX $0 0 $0 0
1/29/20XX $0 0 $0 0
2/1/20XX $0 0 $0 0
Form 886-A crev.4-68) Department of the Treasury - Internal Revenue Service

Page: -7-

Form 886-A Department of the Treasury - Internal Revenue Service Schedule No. or
Explanation of Items Exhibit A
Name of Taxpayer Year/Period Ended

December 31, 20XX

2/6/20XX $0 0 $0 0
2/9/20XX $0 0 $0 0
2/10/20XX $0 0 $0 0
2/12/20XX $0 0 $0 0
2/13/20XX $0 0 $0 0
2/14/20XX $0 0 $0 0
2/19/20XX $0 0 $0 0
2/22/20XX $0 0 $0 0
2/26/20XX $0 0 $0 0
3/1/20XX $0 0 $0 0
3/15/20XX $0 0 $0 0
3/18/20XX $0 0 $0 0
3/23/20XX $0 0 $0 0
3/24/20XX $0 0 $0 0
3/28/20XX $0 0 $0 0
3/31/20XX $0 0 $0 0
4/5/20XX $0 0 $0 0
4/6/20XX $0 0 $0 0
4/7/20XX $0 0 $0 0
4/11/20XX $0 0 $0 0
4/19/20XX $0 0 $0 0
4/21/20XX $0 0 $0 0
4/26/20XX $0 0 $0 0
4/30/20XX $0 0 $0 0
5/3/20XX $0 0 $0 0
5/10/20XX $0 0 $0 0
5/11/20XX $0 0 $0 0
5/14/20XX $0 0 $0 0
5/17/20XX $0 0 $0 0
5/21/20XX $0 0 $0 0
5/24/20XX $0 0 $0 0
5/26/20XX $0 0 $0 0
5/27/20XX $0 0 $0 0
5/29/20XX $0 0 $0 0
5/30/20XX $0 0 $0 0
6/1/20XX $0 0 $0 0
6/5/20XX $0 0 $0 0
6/6/20XX $0 0 $0 0
6/7/20XX $0 0 $0 0


Form 886-A (Rev.4-68)

Department of the Treasury - Internal Revenue Service

Page: -8-


Form 886-A Department of the Treasury - Internal Revenue Service Schedule No. or
Explanation of Items Exhibit A
Name of Taxpayer Year/Period Ended
December 31, 20XX
6/8/20XX $0 0 $0 0
6/11/20XX $0 0 $0 0
6/13/20XX $0 0 $0 0
6/15/20XX $0 0 $0 0
6/20/20XX $0 0 $0 0
6/21/20XX $0 0 $0 0
6/25/20XX $0 0 $0 0
6/28/20XX $0 0 $0 0
7/1/20XX $0 0 $0 0
7/2/20XX $0 0 $0 0
7/4/20XX $0 0 $0 0
7/5/20XX $0 0 $0 0
7/6/20XX $0 0 $0 0
7/7/20XX $0 0 $0 0
7/8/20XX $0 0 $0 0
7/9/20XX $0 0 $0 0
7/10/20XX $0 0 $0 0
7/12/20XX $0 0 $0 0
7/14/20XX $0 0 $0 0
7/16/20XX $0 0 $0 0
7/18/20XX $0 0 $0 0
7/19/20XX $0 0 $0 0
7/20/20XX $0 0 $0 0
7/21/20XX $0 0 $0 0
7/25/20XX $0 0 $0 0
7/26/20XX $0 0 $0 0
7/28/20XX $0 0 $0 0
7/31/20XX $0 0 $0 0
8/2/20XX $0 0 $0 0
8/3/20XX $0 0 $0 0
8/4/20XX $0 0 $0 0
8/5/20XX $0 0 $0 0
8/6/20XX $0 0 $0 0
8/7/20XX $0 0 $0 0
8/8/20XX $0 0 $0 0
8/9/20XX $0 0 $0 0
8/11/20XX $0 0 $0 0
8/12/20XX $0 0 $0 0
8/13/20XX $0 0 $0 0
Form 886-A (Rev.4-68) Department of the Treasury - Internal Revenue Service

Page: -9-


Form 886-A Department of the Treasury - Internal Revenue Service Schedule No. or
Explanation of Items Exhibit A
Name of Taxpayer Year/Period Ended
December 31, 20XX
8/16/20XX $0 0 $0 0
8/18/20XX $0 0 $0 0
8/20/20XX $0 0 $0 0
8/23/20XX $0 0 $0 0
8/24/20XX $0 0 $0 0
8/25/20XX $0 0 $0 0
8/27/20XX $0 0 $0 0
8/31/20XX $0 0 $0 0
9/2/20XX $0 0 $0 0
9/5/20XX $0 0 $0 0
9/6/20XX $0 0 $0 0
9/7/20XX $0 0 $0 0
9/9/20XX $0 0 $0 0
9/11/20XX $0 0 $0 0
9/15/20XX $0 0 $0 0
9/18/20XX $0 0 $0 0
9/19/20XX $0 0 $0 0
9/20/20XX $0 0 $0 0
9/24/20XX $0 0 $0 0
9/25/20XX $0 0 $0 0
9/26/20XX $0 0 $0 0
9/28/20XX $0 0 $0 0
9/29/20XX $0 0 $0 0
9/30/20XX $0 0 $0 0
10/1/20XX $0 0 $0 0
10/2/20XX $0 0 $0 0
10/3/20XX $0 0 $0 0
10/5/20XX $0 0 $0 0
10/6/20XX $0 0 $0 0
10/7/20XX $0 0 $0 0
10/10/20XX $0 0 $0 0
10/12/20XX $0 0 $0 0
10/14/20XX $0 0 $0 0
10/15/20XX $0 0 $0 0
10/16/20XX $0 0 $0 0
10/17/20XX $0 0 $0 0
10/19/20XX $0 0 $0 0
10/22/20XX $0 0 $0 0
10/24/20XX $0 0 $0 0

Form 886-A (Rev.4-68)

Department of the Treasury - Internal Revenue Service

Page: -10-


Form 886-A Department of the Treasury - Internal Revenue Service Schedule No. or
Explanation of Items Exhibit A
Name of Taxpayer Year/Period Ended
December 31, 20XX
10/25/20XX $0 0 $0 0
10/26/20XX $0 0 $0 0
10/29/20XX $0 0 $0 0
11/6/20XX $0 0 $0 0
11/8/20XX $0 0 $0 0
11/10/20XX $0 0 $0 0
11/13/20XX $0 0 $0 0
11/14/20XX $0 0 $0 0
11/15/20XX $0 0 $0 0
11/16/20XX $0 0 $0 0
11/19/20XX $0 0 $0 0
11/20/20XX $0 0 $0 0
11/23/20XX $0 0 $0 0
11/25/20XX $0 0 $0 0
11/26/20XX $0 0 $0 0
11/27/20XX $0 0 $0 0
11/29/20XX $0 0 $0 0
11/30/20XX $0 0 $0 0
12/5/20XX $0 0 $0 0
12/6/20XX $0 0 $0 0
12/11/20XX $0 0 $0 0
12/13/20XX $0 0 $0 0
12/15/20XX $0 0 $0 0
12/19/20XX $0 0 $0 0
12/20/20XX $0 0 $0 0
12/27/20XX $0 0 $0 0
$0 $0
COIN IN $0
COIN OUT $0
COIN RETAINED BY $0

- CASH WITHDRAWALS
Date Transaction Amount
1/3/20XX | Cash withdrawal from A/C #0 $0
1/13/20XX | Cash withdrawal from A/C #0 $0
1/21/20XX | Cash withdrawal from A/C #0 $0
1/27/20XX | Cash withdrawal from A/C # 0 $0
2/3/20XX | Cash withdrawal from A/C #0 $0
Form 886-A (Rev.4-68) Department of the Treasury - Internal Revenue Service
Page: -11-


Form 886-A Department of the Treasury - Internal Revenue Service Schedule No. or
Explanation of Items Exhibit A
Name of Taxpayer Year/Period Ended
December 31, 20XX
2/10/20XX | Cash withdrawal from A/C #0 $0
2/24/20XX | Cash withdrawal from A/C # 0 $0
3/3/20XX | Cash withdrawal from A/C # 0 $0
3/17/20XX | Cash withdrawal from A/C # 0 $0
3/24/20XX | Cash withdrawal from A/C #0 $0
4/7/20XX | Cash withdrawal from A/C # 0 $0
4/21/20XX | Cash withdrawal from A/C #0 $0
4/28/20XX | Cash withdrawal from A/C #0 $0
5/2/20XX | Cash withdrawal from A/C #0 $0
5/12/20XX | Cash withdrawal from A/C #0 $0
5/19/20XX | Cash withdrawal from A/C #0 $0
5/27/20XX | Cash withdrawal from A/C #0 $0
6/2/20XX | Cash withdrawal from A/C #0 $0
6/6/20XX | Cash withdrawal from A/C #0 $0
6/16/20XX | Cash withdrawal from A/C #0 $0
6/23/20XX | Cash withdrawal from A/C #0 $0
6/30/20XX | Cash withdrawal from A/C #0 $0
7/7/20XX | Cash withdrawal from A/C #0 $0
7/14/20XX | Cash withdrawal from A/C #0 $0
7/21/20XX | Cash withdrawal from A/C #0 $0
7/28/20XX | Cash withdrawal from A/C #0 $0
7/28/20XX | Cash withdrawal from A/C #0 $0
8/4/20XX | Cash withdrawal from A/C # 0 $0
8/11/20XX | Cash withdrawal from A/C #0 $0
8/18/20XX | Cash withdrawal from A/C #0 $0
8/25/20XX | Cash withdrawal from A/C #0 $0
9/2/20XX | Cash withdrawal from A/C #0 $0
9/8/20XX | Cash withdrawal from A/C #0 $0
9/16/20XX | Cash withdrawal from A/C #0 $0
9/22/20XX | Cash withdrawal from A/C #0 $0
9/29/20XX | Cash withdrawal from A/C #0 $0
10/6/20XX | Cash withdrawal from A/C #0 $0
10/14/20XX | Cash withdrawal from A/C #0 $0
10/20/20XX | Cash withdrawal from A/C #0 $0
11/3/20XX | Cash withdrawal from A/C #0 $0
11/7/20XX | Cash withdrawal from A/C #0 $0
11/17/20XX | Cash withdrawal from A/C #0 $0

Form 886-A (Rev.4-68)

Department of the Treasury - Internal Revenue Service

Page: -12-

Form 886-A Department of the Treasury - Internal Revenue Service Schedule No. or
Explanation of Items Exhibit A

Name of Taxpayer Year/Period Ended
December 31, 20XX

11/24/20XX | Cash withdrawal from A/C #0 $0

12/8/20XX | Cash withdrawal from A/C #0 $0

12/22/20XX | Cash withdrawal from A/C # 0 $0

B. ) TOTAL CASH WITHDRAWALS $0

We calculated the Automatic Excess Benefit Transactions (ABTs) attributable to ,

using Win/Loss Statements provided by the . We based the
calculation on the total “coin-in” and “coin-out” amounts with “coin-in” representing the total
cash inserted into the slot machines by , and “coin-out” representing 's

total winnings both recycled and actual. After subtracting the total “coin-in” from the total
“coin-out” amounts, the Win/Loss Statement shows that at the end of tax year 20XX,

had incurred $0 in slot machine expenditures at the . Bank records showed
that also made a series of cash withdrawals from the organization’s bank accounts
totaling $0

total Automatic Excess Benefit Transactions totaled $0 ($0 + $0 = $0).

The Total Automatic Excess Benefit Transactions (ABTs) attributed to and
combined, totaled $0 ($0 + $0 = $0). The total combined (ABT) amount was not reported on
the Form 990, did not appear on the financial statements prepared by the Enrolled Agent,
and was not reflected in the books and records because the source of funds was cash
“skimmed” from cash contributions solicited by the organization. “Charitable” solicitation
events appear to be the source of income used to fund the gambling related transactions.
According to the organization’s calendar, charitable solicitations occurred at multiple
locations on numerous days of the year under review. Cash deposits were disproportionately
low, and infrequent considering these activities. The size and scope of the excess benefit
transactions were significant in relation to the size and scope of the organization’s regular
and ongoing activities that further exempt purposes.

Fig. 2 Analysis of Automatic Excess Benefit Transactions Relative to the
Organization’s Total Revenues - The following graphic is intended to show the automatic
excess benefit transactions (ABTs) at issue as a percentage of

(aka ) total revenues. It appears that none of the total Automatic
Excess Benefit Transaction (ABT) amount was included in the organization's income on the
Form 990. It also appears that none was included on the organization's financial statements
prepared by the Enrolled Agent, and none was reported in the organization's books and
records. It appears the cash was “skimmed” off the top of the organization’s “bucket
contributions”. Skimming is the illegal practice of taking cash "off the top" of the daily
receipts of a business or “charitable” organization for personal use, and officially reporting a
lower total, i.e. the remaining amount.

Form 886-A (Rev.4-68) Department of the Treasury - Internal Revenue Service
Page: -13-


Form 886-A Department of the Treasury - Internal Revenue Service Schedule No. or
Explanation of Items Exhibit A
Name of Taxpayer Year/Period Ended

December 31, 20XX

INCOME | INCOME | ‘ADJUSTED | VARIANCE
INCOME
SOURCES OF INCOME PER PER TO TO
990 P&L INCLUDE 990
ABTs
CONTRIBUTIONS $0 $0 $0 ($0)
Individual & Business Contributions $0 $0 $0 $0
Interest $0 $0 $0 $0
Automatic Excess Benefit Transactions
(ABTs) $0 $0 $0 ($0)
EXPENSES $0 $0 $0 ($0)
Contract expenses $0 $0 ($0)
Donated vehicles $0 $0 ($0)
Donations $0 $0 $0 $0
Dues and subscriptions $0 $0 ($0)
Facilities and equipment $0 $0 ($0)
Fundraising supplies $0 $0 ($0)
Operations (including fundraising) $0 $0 ($0)
Other expenses $0 $0 $0 $0
Payroll expense $0 $0 $0 $0
Payroll taxes $0 $0 ($0)
Penalties and fines $0 $0 ($0 )
Scholarships $0 $0 ($0)
IRC § 4958 ABTs - $0 $0 $0 ($0)
IRC § 4958 ABTs - $0 $0 $0 ($0)
NET INCOME (Contributions - Expenses) $0 $0 $0 ($_)

In summary, the relevant facts and circumstances with respect to the proposed
revocation are as follows:

§1.501(c)(3)-1(f)(2)(ii)(A), “the size and scope of the organization's regular and ongoing
activities that further exempt purposes before and after the excess benefit transactions
occurred”. Our Examination revealed that the President and “Director” of
(aka ), engaged in multiple excess benefit transactions
consistently throughout the period under review. The officers engaged in excess benefit
transactions on such a consistent basis that it is impossible to distinguish periods where
such transactions did not occur.

§1.501(c)(3)-1(f)(2)(ii)(B), “the size and scope of the excess benefit transactions _in
relation to the size and scope of the organization’s regular and ongoing activities that
further exempt purposes”. The size and scope of these transactions appears to
overshadow whatever exempt accomplishments a reasonable person might expect to
gain from a small organization operated by a domestic partnership (See Fig. 2). Due to

Form 886-A (Rev.4-68)

Department of the Treasury - Internal Revenue Service

Page: -14-


Form 886-A Department of the Treasury - Internal Revenue Service Schedule No. or
Explanation of Items Exhibit A

Name of Taxpayer Year/Period Ended
December 31, 20XX

a complete lack of legitimate financial oversight (See Fig. 1), the cost of furthering this
organization’s exempt purpose appears to outweigh the benefits received.

§1.501(c)(3)-1(f)(2)(ii)(C), as to “whether the organization has been involved in multiple
excess benefit transactions with one or more persons”.
(aka ) is operated by and , and all
the transactions at issue benefited them.

§1.501(c)(3)-1(f)(2)(ii)(D), as to “whether the organization has implemented safeguards
that are reasonably calculated to prevent excess benefit transactions”. The
organization has been dealing in cash and continues to do so. We are aware that
taxpayer alleges to have placed an additional person or persons on the organization’s
board to improve oversight. However, we do not believe that the addition of these
individuals will provide effective oversight without any additional changes. Other than
this change allegedly put in place, no other safeguards, to our knowledge, have been
implemented to date that would prevent further excess benefit transactions, such as
correction/repayment, proper record keeping, and new limits/restrictions on bank
account access.

§1.501(c)(3)-1(f)(2)(ii)(E), as to “whether the excess benefit transaction has been
corrected (within the meaning of 4958(f)(6) and § 53.4958-7), or the organization has

made good faith efforts to seek correction from the disqualified person who benefited
from the excess benefit transactions’. There has been no correction of the excess
benefit transactions, within the meaning of I.R.C. § 4958(f)(6) or Treas. Reg. § 53.4958-
7, and the organization has not made good faith efforts to seek correction from its two
officers who benefited from these transactions because the same two officers run the
organization.

Given the facts and circumstances described above, and in particular, the size and scope of
the inurement involved, (aka ) is not
operated exclusively for exempt purposes, and does not qualify for exemption under IRC §
501(c)(3).

CONCLUSION:

It is the Government's position that the organization has engaged in multiple and repeated
private benefit and inurement transactions, for which there has been no correction, with
the organization's President, a Disqualified Person, and the organization’s “Director”, a
Disqualified Person, under IRC § 4958. As a result, the organization is no longer eligible
for exemption from federal income tax under IRC § 501(a) and 501(c)(3).

Form 886-A (Rev.4-68) Department of the Treasury - Internal Revenue Service
Page: -15-


Form 886-A Department of the Treasury - Internal Revenue Service Schedule No. or
Explanation of Items Exhibit A
Name of Taxpayer Year/Period Ended

December 31, 20XX

While the organization does conduct some exempt activities for purposes of providing
assistance to veterans, the size and scope of the excess benefit transactions at issue far
outweighs the benefits provided by these activities.

Accordingly, the organization's exempt status is revoked effective January 1, 20XX.

Form 1120 returns should be filed for tax periods ending on or after December 31, 20XX.

Form 886-A (Rev.4-68)

Department of the Treasury - Internal Revenue Service

Page: -16-