IRS revokes a charity after repeated promises to provide records went unfulfilled

Plain-English summary

The IRS revoked an organization's Section 501(c)(3) status because it did not provide records needed to examine its activities, receipts, and expenditures. The organization had obtained exemption through Form 1023-EZ and was selected for an audit of a Form 990-N year. It also had not filed a Form 990-series return for the following year. The IRS sent multiple letters, including certified notices that were signed for, and repeatedly spoke with the treasurer. Although the treasurer said several times that the information would be mailed or faxed, the IRS never received it. Without the records required by Sections 6001 and 6033, the organization did not establish that it remained operated exclusively for exempt purposes. The IRS revoked exemption, ended contribution deductibility under Section 170, and required Form 1120 filings afterward.

Ruling snapshot

• Question: Could the organization retain § 501(c)(3) status after repeatedly failing to provide records needed to verify its activities and finances?
• Outcome: Revocation of exempt status
• Key authorities: IRC §§ 170, 501(c)(3), 511, 6001, 6033, and 7428; Treas. Reg. §§ 1.501(c)(3)-1, 1.6001-1, and 1.6033-1(h)(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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

Date: December 10, 2019

EIN:
Number: 202052039
Release Date: 12/24/2020 Person to Contact:
UIL: 501.03-00 Identification Number:

Telephone Number:

Fax Number:

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 section 501(a) of the Internal Revenue Code (the “Code”) as an organization described
in section 501(c)(3), effective January 1, 20XX. Your determination letter dated August 4,
20XX is revoked.

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

You failed to respond to repeated reasonable requests to allow the Internal Revenue
Service to examine your records regarding your receipts, expenditures,
and activities as required by sections 6001 and 6033(a)(1) of the Code and Rev.
Rul. 59-95. 1959-1 C.B. 627. You also did not respond to questions about the
nature of your activities.

Accordingly, you failed to meet the requirements of section 501(c)(3) of the
Code and Treasury Regulation section 1.501(c)(3)-1(a), in that you have not
established 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.

Organizations that are not exempt under section 501 of the Code 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.

1

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

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 by referring to the enclosed Publication 892. You may write to the courts
at the following addresses:

United States Tax Court
400 Second Street, NW
Washington, DC 20217

U.S. 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 Code.

We'll notify the appropriate state officials (as permitted by law) of our determination that you
aren't an organization described in section 501(c)(3) of the 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.

Taxpayer Advocate assistance can’t be used as substitute for established IRS procedures,
formal appeals processes, etc. The Taxpayer Advocate is not able to reverse legal or
technically correct tax determination, nor extend the time fixed by law that you have to file a
petition in Court. The Taxpayer Advocate can, however, see that a tax matter that may not
have been resolved through normal channels gets prompt and proper handling.

You can get any of the forms or publications mentioned in this letter by calling 800-TAX-
FORM (800-829-3676) or visiting our website at www.irs.gov/forms-pubs.

If you have questions, you can contact the person listed at the top of this letter.

Enclosures: Sincerely,

Publication 892

[illegible signature]
Maria D. Hooke
Director, EO Examinations

Department of the Treasury
Internal Revenue Service

Date:
July 1, 2019
Taxpayer Identification Number:

Form:
Tax year(s) ended:

Person to contact/ ID number:
/

Contact numbers:

Toll Free

Long Distance

Fax:

Manager's name/ ID number:
/

Manager's contact number:

Response due date:

Certified Mail - Return Receipt Requested
Dear

Why you are receiving this letter
We propose to revoke your status as an organization described in section 501(c)(3) of the Internal
Revenue Code (Code). Enclosed is our report of examination explaining the proposed action.

What you need to do if you agree

If you agree with our proposal, please sign the enclosed Form 6018, Consent to Proposed Action —
Section 7428, and return it to the contact person at the address listed above (unless you have already
provided us a signed Form 6018). We'll issue a final revocation letter determining that you aren't an
organization described in section 501(c)(3).

After we issue the final revocation letter, we'll announce that your organization is no longer eligible for
contributions deductible under section 170 of the Code.

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 revocation letter. Failing to respond to this proposal will adversely impact your legal standing to
seek a declaratory judgment because you failed to exhaust your administrative remedies.

Effect of revocation status
If you receive a final revocation letter, you'll be required to file federal income tax returns for the tax
year(s) shown above as well as for subsequent tax years.

What you need to do if you disagree with the proposed revocation

If you disagree with our proposed revocation, you may request a meeting or telephone conference
with the supervisor of the IRS contact identified in the heading of this letter. You may also file a
protest with the IRS Appeals office by submitting a written request to the contact person at the
address listed above within 30 calendar days from the date of this letter. The Appeals office is
independent of the Exempt Organizations division and resolves most disputes informally.

Letter 3618 (06-2012)
Catalog Number 34809F

For your protest to be valid, it must contain certain specific information including a statement of the
facts, the applicable law, and arguments in support of your position. For specific information needed
for a valid protest, please refer to page one of the enclosed Publication 892, How to Appeal an IRS
Decision on Tax-Exempt Status, and page six of the enclosed Publication 3498, The Examination
Process. Publication 3498 also includes information on your rights as a taxpayer and the IRS
collection process. Please note that Fast Track Mediation referred to in Publication 3498 generally
doesn’t apply after we issue this letter.

You also may request that we refer this matter for technical advice as explained in Publication 892.
Please contact the individual identified on the first page of this letter if you are considering requesting
technical advice. If we issue a determination letter to you based on a technical advice memorandum
issued by the Exempt Organizations Rulings and Agreements office, no further IRS administrative
appeal will be available to you.

Contacting the Taxpayer Advocate Office is a taxpayer right

You have the right to contact the office of the Taxpayer Advocate. Their assistance isn't a substitute
for established IRS procedures, such as the formal appeals process. The Taxpayer Advocate can't
reverse a legally correct tax determination or extend the time you have (fixed by law) to file a petition
in a United States court. They can, however, see that a tax matter that hasn’t been resolved through
normal channels gets prompt and proper handling. You may call toll free 1-877-777-4778 and ask for
Taxpayer Advocate assistance. If you prefer, you may contact your local Taxpayer Advocate at:

For additional information

If you have any questions, please call the contact person at the telephone number shown in the
heading of this letter. If you write, please provide a telephone number and the most convenient time
to call if we need to contact you.

Thank you for your cooperation.

Sincerely,
[illegible signature]
For Maria Hooke
Director, Exempt Organizations Examinations

Enclosures:

Report of Examination
Form 6018

Form 886-A

Copy of State Website
Publication 892
Publication 3498-A

Letter 3618 (06-2012)
Catalog Number 34809F

Form 886A Department of the Treasury - Internal Revenue Service Schedule No. or
Explanation of Items Exhibit
Name of Taxpayer Year/Period Ended
20XX

Date of Notice: July 1, 20XX

Issues:

Whether (the organization), which qualified for exemption from Federal
income tax under Section 501(c)(3) of the Internal Revenue Code, should be revoked due
to its failure to respond and produce records to verify that they are organized and operated
exclusively for one or more of the purposes specified in IRC Section 501(c)(3)?

Facts:

applied for tax-exempt status by filing the Form 1023-EZ, Streamlined
Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue
Code, on and was granted tax-exempt status as a 501(c)(3) on
with an effective date of

An organization exempt under 501(c)(3) needs to be organized and operated exclusively
for religious, charitable, scientific, testing for public safety, literary or educational purposes
and to foster national and amateur sports competition.

The organization was selected for audit to ensure that the activities and operations align
with their approved exempt status.

The organization failed to respond to the Internal Revenue Service attempts to obtain
information to perform an audit of Form 990-N for the tax year December 31, 20XX.

The organization has not filed a Form 990 series return for the tax year December 31,
20XX.

The Form 1023-EZ application list the phone number of 772-462-1071 for the contact
person and director/treasurer.

Per the State of web-site, it lists the organization as in good standing, copy
attached from state web-site.

• Correspondence for the audit was as follows:

• Letter 3606 (Rev. 6-2012) with attachments, was mailed to the organization
  on November 19, 20XX, with a response date of December 19, 20XX. This
  letter was not return by the post office as being undeliverable.

• Letter 3606 (Rev. 6-2012) with attachments, was mailed certified to the
  organization again with a more complete address including the room number
  on February 1, 20XX, with a response date of March 4, 20XX, Article Number
  .

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

Form 886A Department of the Treasury - Internal Revenue Service Schedule No. or
Explanation of Items Exhibit
Name of Taxpayer Year/Period Ended
20XX

. Per the United States Postal Service (USPS)
tracking, this was received and signed for on February 11, 20XX at 11:23 am.

• Letter 5798 (10-2016), granting 1st extension, was mailed to the organization,
  on April 2, 20XX, with a respond date of April 16, 20XX. This letter was not
  return by the post office as being undeliverable

• Letter 5077-B (1-2017), TE/GE IDR Delinquency Notice, was mailed certified
  to the organization, on May 22, 20XX, with a respond date of June 12, 20XX,
  Article Number . This letter was signed for on May
  28, 20XX and a return receipt was received on June 4, 20XX.

• Telephone contact for the audit was as follows:

• December 4, 20XX, Tax Compliance Officer (TCO) called the phone number
  listed on the Form 1023-EZ application for the Director/Treasurer of the
  organization of 772-462-1071 and received VMS. Left a message for an
  officer of the organization to return my phone call.

• Government shutdown from December 21, 20XX through January 25, 20XX.

• January 30, 20XX, Tax Compliance Officer attempted to contact
  Director/Treasurer again with phone number given on the form 1023-EZ.
  That number is no longer a working number. Through external research
  located a few different phone numbers for different officers, including the
  Director/President, , another Director/President,
  and the Director/Secretary, . I had to leave a voice message
  with each phone number.

• January 31, 20XX, TCO received a phone message from a
  who indicated she is the current Treasurer of the organization. She indicated
  the organization did not receive the initial letter 3606 letter with attachments.
  She asked to add the room number to the address and they should get the
  letter. I explained we would reissue the initial letter for their response.

• February 21, 20XX, TCO had not received any call back indicating the
  treasurer receive our letter. I left a voice message on the treasurer's phone
  number .

• March 6, 20XX, TCO still had not received a call back from the treasurer of
  the organization. TCO called the phone number for the treasurer again,

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

Form 886A Department of the Treasury - Internal Revenue Service Schedule No. or
Explanation of Items Exhibit
Name of Taxpayer Year/Period Ended
20XX

and was able to reach the secretary. She indicated she had
received the letter 3606 (Rev. 6-2012) and had not had time to respond to all
that we had requested. She thought by the next week she would have an
idea when she would have it completed.

• March 18, 20XX, TCO still had not received response nor call back from the
  treasurer of the organization indicating when they would/did respond. TCO
  left another voice message with the treasurer, asking for the
  status of the organization’s reply.

• March 27, 20XX, still no reply from the secretary or organization in response
  to the letter sent out or several phone messages left. Located work number
  for the treasurer and left a voice message there as well to have secretary call.

• April 2, 20XX, TCO was able to reach the treasurer of the organization. She
  said she had been too busy to respond to our request. I gave her a 10-work
  day time to respond and she said she would get it done and fax me the
  information.

• April 19, 20XX, the treasurer of the organization called to get our address to
  mail us the information since it was too large to fax. She indicated she would
  put information in the mail later today or no later than Monday, April 22, 20XX.

• May 1, 20XX, still no reply in the mail. TCO called and reached the treasurer
  of the organization again. She wanted to go over all the information once
  again to see what we needed, which makes the appearance the organization
  has yet to put together the information we have requested for so long. Once
  again, the secretary said she would fax the information to the TCO within the
  next day or two.

• May 9, 20XX, with the information from the organization being past due the
  TCO called the treasurer once more and had to leave a voice message.

• May 14, 20XX, after leaving another message on the treasurer’s phone she
  called back indicating she faxed the information to us on
  . After checking the E-faxes, the TCO told the treasurer that no such fax
  was received. The treasurer had a meeting to attend and would re-fax the
  information to us after the meeting.

• May 17, 20XX, no E-fax was received by the TCO for this organization's
  response to our audit. The TCO called and left a message to contact him as
  soon a possible or procedures for revocation would be started.

Form 886-A (Rev.4-68) Department of the Treasury - Internal Revenue Service
Page: -3-

Form 886A Department of the Treasury - Internal Revenue Service Schedule No. or
Explanation of Items Exhibit
Name of Taxpayer Year/Period Ended
20XX

• June 6, 20XX, the TCO made one last attempt to contact the treasurer before
  sending the Letter 3618 (6-2012) 30-day proposed revocation. TCO left a
  voice message that has not had a response.

Law:

Internal Revenue Code (IRC) §501(c)(3) of the Code provides that an organization
organized and operated exclusively for charitable or educational purposes is exempt from
Federal income tax, provided no part of its net earnings inures to the benefit of any private
shareholder or individual.

IRC §511 of the Internal Revenue Code imposes a tax at corporate rates under section 11
on the unrelated business taxable income of certain tax-exempt organizations.

IRC §6001 of the Code provides that 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.

IRC §6033(a)(1) of the Code provides, except as provided in section 6033(a)(2), every
organization exempt from tax under section 501(a) shall file an annual return, stating
specifically the items of gross income, receipts and disbursements, and such other
information for the purposes of carrying out the internal revenue laws as the Secretary may
by forms or regulations prescribe, and keep such records, render under oath such
statements, make such other returns, and comply with such rules and regulations as the
Secretary may from time to time prescribe.

Treasury Regulations (Regulation) 1.501(c)(3)-1 In order to be exempt under
§501(c)(3) the organization must be both organized and operated exclusively for one or
more of the purposes specified in the section. (religious, charitable, scientific, testing for
public safety, literary or educational).

Regulation §1.501(c)(3)-1(a)(1) of the regulations states that in order to be exempt as an
organization described in section 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.

Regulation 1.501(c)(3)-1(c)(1) of the regulations provides that an organization will not be
regarded as "operated exclusively" for one or more exempt purposes described in section
501(c)(3) of the Code if more than an insubstantial part of its activities is not in furtherance

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

Form 886A Department of the Treasury - Internal Revenue Service Schedule No. or
Explanation of Items Exhibit
Name of Taxpayer Year/Period Ended
20XX

of a 501(c)(3) purpose. Accordingly, the organization does not qualify for exemption under
section 501(c)(3) of the Code.

Regulation §1.6001-1(c) of the Code provides that such permanent books and records as
are required by paragraph (a) of this section with respect to the tax imposed by section
511 on unrelated business income of certain exempt organizations, every organization
exempt from tax under section 501(a) shall keep such permanent books of account or
records, including inventories, as are sufficient to show specifically the items of gross
income, receipts and disbursements. Such organizations shall also keep such books and
records as are required to substantiate the information required by section 6033. See
section 6033 and §§ 1.6033-1 through 1.6033-3.

Regulation §1.6001-1(e) of the Code provides that the books or records required by this
section shall be kept at all time available for inspection by authorized internal revenue
officers or employees, and shall be retained as long as the contents thereof may be
material in the administration of any internal revenue law.

Regulation §1.6033-1(h)(2) of the regulations provides that every organization which has
established its right to exemption from tax, whether or not it is required to file an annual
return of information, shall submit such additional information as may be required by the
district director for the purpose of enabling him to inquire further into its exempt status and
to administer the provisions of subchapter F (section 501 and the following), chapter 1 of
the Code and section 6033.

Regulation §1.61-1 of the regulations provides that Gross income means all income from
whatever source derived, unless excluded by law. Gross income includes income realized
in any form, whether in money, property, or services. Income may be realized, therefore, in
the form of services, meals, accommodations, stock, or other property, as well as in cash.

Rev. Rul. 59-95, 1959-1 C.B. 627, concerns an exempt organization that was requested to
produce a financial statement and statement of its operations for a certain year. However,
its records were so incomplete that the organization was unable to furnish such
statements. The Service held that the failure or inability to file the required information
return or otherwise to comply with the provisions of 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, on the grounds that the organization has not
established that it is observing the conditions required for the continuation of exempt
status.

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

Government’s Position

Form 886-A (Rev.4-68) Department of the Treasury - Internal Revenue Service
Page: -5-

Form 886A Department of the Treasury - Internal Revenue Service Schedule No. or
Explanation of Items Exhibit
Name of Taxpayer Year/Period Ended
20XX

Based on the above facts, the organization did not respond to verify that they are
organized and operated exclusively for one or more of the purposes specified in IRC
Section 501(c)(3). If an organization fails to meet either the organizational test or the
operational test, it is not exempt.

In accordance with the above-cited provisions of the Code and regulations under
sections 6001 and 6033, organizations recognized as exempt from federal income tax
must meet certain reporting requirements. These requirements relate to the filing of a
complete and accurate annual information (and other required federal tax forms) and
the retention of records sufficient to determine whether such entity is operated for the
purposes for which it was granted tax-exempt status and to determine its liability for any
unrelated business income tax.

Section 1.6033-1(h)(2) of the regulations specifically state that exempt organizations
shall submit additional information for the purpose on enabling the Internal Revenue
Service to inquire further into its exempt status.

Using the rationale that was developed in Revenue Ruling 59-95, the Organization's
failure to provide requested information should result in the termination of exempt
status.

Conclusion:

Based on the foregoing reasons, the organization does not qualify for exemption under
section 501(c)(3) and its tax-exempt status should be revoked.

It is the IRS's position that the organization failed to establish that it meets the reporting
requirements under IRC §§ 6001 and 6033 to be recognized as exempt from federal
income tax under IRC § 501(c)(3). Furthermore, the organization has not established
that it is observing the conditions required for the continuation of its exempt status or
that it is organized and operated exclusively for an exempt purpose. Accordingly, the
organization's exempt status is revoked effective January 1, 20XX

Form 1120, U.S. Corporation Income Tax Return, should be filed for the tax periods
after January 1, 20XX.

Form 886-A (Rev.4-68) Department of the Treasury - Internal Revenue Service
Page: -6-