IRS revokes a public charity's § 501(c)(3) status after it ignored an audit into suspected inurement and improper fundraising

Plain-English summary

A public charity recognized as tax-exempt under Section 501(c)(3) (it had been approved as a 509(a)(1)/170(b)(1)(A)(vi) public charity through a streamlined Form 1023-EZ application) was selected for audit after the IRS received information suggesting improper fundraising, possible inurement, and possible illegal activity. The IRS repeatedly asked for the organization's financial records, meeting minutes, and other documents through information document requests and certified letters to the organization and each of its directors. The organization never responded; its phone numbers were out of service. Because it failed to keep and produce the records required by Sections 6001 and 6033 and did not establish that it was operated exclusively for exempt purposes (the operational test), the IRS revoked its exemption effective January 1 of the redacted year, following Rev. Rul. 59-95. The organization must now file corporate income tax returns (Form 1120), and contributions to it are no longer deductible under Section 170. It can contest the revocation in court under Section 7428 within 90 days.

Ruling snapshot

• Question: Should a public charity lose its exemption for failing to respond to an audit into suspected inurement and improper fundraising?
• Outcome: revocation (final adverse determination; exemption revoked)
• Key authorities: IRC §§ 501(c)(3), 6001, 6033(a)(1), 170; Treas. Reg. §§ 1.501(c)(3)-1, 1.6001-1, 1.6033-1; Rev. Rul. 59-95

Full text (IRS public release)

Transcription note: This is a scanned document, made up of the final adverse
determination (Letter 6337), the enclosed proposed adverse determination (Letter 3618),
and the Form 886-A "Explanations of Items" audit report. Per the runbook's OCR
proofreading duty, obvious scanning misreads (including a garbled quotation of the
Section 501(c)(3) statutory language and of Rev. Rul. 59-95) have been corrected, and the
repeating Form 886-A page furniture has been replaced with [Page N] markers; genuinely
unreadable spots are marked [illegible]; blanks where the IRS redacted identifying details
are left as gaps. Wording is otherwise reproduced verbatim.

Department of the Treasury Date: April 14, 2021
Internal Revenue Service
Tax Exempt and Government Entities

Taxpayer ID number:
IRS 1100 Commerce Street
MC 4920DAL
Dallas, TX 75242

Form:

Tax periods ended:

Number: 202216019
Release Date: 4/22/2022

Person to contact

UIL: 501.03-00

CERTIFIED MAIL - RETURN RECEIPT REQUESTED

Dear

Why we are sending you this letter

This is a final determination that you don’t qualify for exemption from federal income tax under Internal
Revenue Code (IRC) Section 501 (a) as an organization described in IRC Section 501 (c)(3), effective
January 1,2 . Your determination letter dated May 19,20  , is revoked.

Our adverse determination as to your exempt status was made for the following reasons: Organizations
described in IRC Section 501(c)(3) and exempt under IRC Section 501(a) must be both organized and operated
exclusively for exempt purposes. You have failed to produce documents to 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. You failed to respond to repeated reasonable requests to allow the Internal
Revenue Service to examine your records regarding your receipts, expenditures, or activities as required by IRC
Sections 6001 and 6033{a)(1) and Rev. Rul. 59-95, 1959-1 C.B. 627.

Organizations that are not exempt under IRC 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.

Contributions to your organization are no longer deductible under IRC Section 170.

What you must do if you disagree with this determination a
If you want to contest our final determination, you have 90 days from the date this determination letter was

mailed to you to file a petition or complaint in one of the three federal courts listed below.

How to file your action for declaratory judgment
If you decide to contest this determination, you may file an action for declaratory judgment under the provisions

of IRC Section 7428 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.

Please contact the clerk of the appropriate court for rules and the appropriate forms for filing an action for
declaratory judgment by referring to the enclosed Publication 892, How to Appeal an IRS Determination on
Tax-Exempt Status. You may write to the courts at the following addresses:

United States Tax Court US. Court of Federal Claims US. District Court for the District of Columbia
400 Second Street, NW 717 Madison Place, NW 333 Constitution Ave., N.W.
Washington, DC 20217 Washington, DC 20439 Washington, DC 20001

Letter 6337 (12-2020)

Catalog Number 74808E

Processing of income tax returns and assessments of any taxes due will not be delayed if you file a petition for
declaratory judgment under IRC Section 7428.

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

Information about the IRS Taxpayer Advocate Service

The IRS office whose phone number appears at the top of the notice can best address and access your tax
information and help get you answers. However, you may be eligible for free help from the Taxpayer Advocate
Service (TAS) if you can't resolve your tax problem with the IRS, or you believe an IRS procedure just isn't
working as it should. TAS is an independent organization within the IRS that helps taxpayers and protects
taxpayer rights. Contact your local Taxpayer Advocate Office at:

Internal Revenue Service
Taxpayer Advocate Office

Or call TAS at 877-777-4778. For more information about TAS and your rights under the Taxpayer Bill of Rights,
go to taxpayeradvocate.irs.gov. Do not send your federal court pleading to the TAS address listed above. Use
the applicable federal court address provided earlier in the letter. Contacting TAS does not extend the time to
file an action for declaratory judgment.

Where you can find more information
Enclosed are Publication 1, Your Rights as a Taxpayer, and Publication 594, The IRS Collection Process, for
more comprehensive information.

Find tax forms or publications by visiting www.irs.gov/forms or calling 800-TAX-FORM (800-829-3676).
If you have questions, you can call the person shown at the top of this letter.

If you prefer to write, use the address shown at the top of this letter. Include your telephone number, the best
time to call, and a copy of this letter.

Keep the original letter for your records.

Sincercly, 1
whi tine a ae Jéy

Sean E. O'Reilly (
Director, Exempt Organizations Examinations

Enclosures:
Publication |
Publication 594
Publication 892

Letter 6337 (12-2020)
Catalog Number 74808E

gx Department of the Treasury Date: February 26, 2020
¥ Internal Revenue Service T ID ber:
I RS Tax Exempt and Government Entities axpayer number:

Form:
Tax periods ended:

Person to contact:
Name:
ID number:
Telephone:
Fax:
Address:

Manager's contact information:
Name:
ID number:
Telephone:

Response due date:

CERTIFIED MAIL — Return Receipt Requested
Dear

Why you're receiving this letter
We enclosed a copy of our audit report, Form 886-A, Explanation of Items, explaining that we

propose to revoke your tax-exempt status as an organization described in Internal Revenue
Code (IRC) Section 501 (c)(3).

If you agree
if you haven't already, please sign the enclosed Form 6018, Consent to Proposed Action, and
return it to the contact person shown at the top of this letter. We'll issue a final adverse letter

determining that you aren't an organization described in IRC Section 501(c)(3) for the periods
above.

After we issue the final adverse determination letter, we'll announce that your organization is no
longer eligible to receive tax deductible contributions under IRC Section 170.

If you disagree

1. Request a meeting or telephone conference with the manager shown at the top of this
letter.

2. Send any information you want us to consider.
3. File a protest with the IRS Appeals Office. If you request a meeting with the manager or

send additional information as stated in 1 and 2, above, you'll still be able to file a protest
with IRS Appeals Office after the meeting or after we consider the information.

Letter 4102 (Rev. 8-2017)
Catalog Number 48373U

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,

Maria Hooke
Director, Exempt Organizations
Examinations

Enclosures:
Form 886-A
Form 6018
Pub 3498
Pub 892

2 Letter 3618 (Rev. 8-2019)
Catalog Number 34809F

ISSUE
Whether ., continues to qualify for exemption as an
organization described in the Internal Revenue Code (IRC) Section 501(c)(3).
FACTS

{ ) submitted a completed copy of Form 1023-EZ, Streamlined Application for Recognition of Exemption, on May 10,20 ~~ seeking recognition of
tax exemption under Internal Revenue Code Section 501(¢)(3) received tax

exemption under IRC Section 501(c)(3) as a public charity with a foundation classification of
509(a)(1) and 170(b)(1(A)(vi) on May 19, 20

On its application for exemption, the organization attested that it is organized and operated
exclusively to further charitable purposes. In addition, the organization attested to the following:

- Itwas incorporated under the state of on January 17, 20

- Its organizing document limits the organization’s purposes to one or more exempt
purposes within section 501(c)(3)

- Its organizing document does not expressly empower the organization to 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.

- Its organizing document contains the dissolution provision required under section

501(c){3)
The application for exemption filed by the organization lists 3 directors: ,
and . is listed as the main contact.
We selected the for an audit for the tax period of December 31,20 to ensure

compliance with federal tax requirements. The IRS obtained information that suggests that the

is engaged in improper fundraising, possible inurement and illegal activity.
We mailed an appointment letter 3611 and request for information on form 4564 (Information
Document Request, or IDR) on the following dates: October 7,20 = November 7", 20
November 15,20 and December 23%, 20 The request was for financial and organization
information for the year under examination. Each of our letters requested acknowledgment within
10 business days with the requested information to be provided within 30 days. To date, we have
not received any financials, organization information, meeting minutes, accounting of all
fundraising activities, employment tax returns and employment register and other documents on
our IDR. Phone calls to the numbers listed for the organization are met with a busy signal and an
out of service message.

We also attempted to contact each of the directors using all addresses that we have on record.
Our first attempt was on October 7,20 via regular US Postal Service. All subsequent attempts
were made by certified mail, return receipt requested. Certified letters sent to

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and were successfully delivered by the United States Postal Service with signed

Return Receipt acknowledgement. There has not be any response to any of these attempts from
the or any of its Directors.

LAW

IRC § 501(c)(3) exempts from Federal income tax corporations, and any community chest, fund,
or foundation, organized and operated exclusively for religious, charitable, scientific, testing for
public safety, literary, or educational purposes, or 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 and which does not participate in, or intervene in (including the

publishing or distributing of statements), any political campaign on behalf of any candidate for
public office.

Treasury Regulations § 1.501(c)(3)-1(c)(1) of the regulations provides that an organization will
be regarded as “operated exclusively” for one or more exempt purposes only if it engages
primarily in activities which accomplish one or more of such exempt purposes specified in
section 501(c)(3)

Treasury Regulations § 1.501(c)(3)-1(d){i) states that an organization may be exempt as an
organization described in 501(c)(3) if it is organized and operated exclusively for one or more of
the following purposes: religious, charitable, scientific, testing for public safety, literary,
educational, or prevention of cruelty to children or animals.

IRC § 6001 provides that every person liable for any tax imposed by the IRC, or for the collection
thereof, shall keep adequate records as the Secretary of the Treasury or his delegate may from
time to time prescribe.

IRC § 6033(a)(1) provides, except as provided in IRC § 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 § 1.6001-1{a) in conjunction with Treasury Regulations § 1.6001-1(c)
provides that every organization exempt from tax under IRC § 501(a) and subject to the tax
imposed by IRC § 511 on its unrelated business income must keep such permanent books or
accounts or records, including inventories, as are sufficient to establish the amount of gross
income, deduction, credits, or other matters required to be shown by such person in any return of

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D f _ i Schedule number

such tax. Such organization shall also keep such books and records as are required to
substantiate the information required by IRC § 6033.

Treasury Regulations § 1.6001-1(e) states that the books or records required by this section shall
be kept at all times 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.

Treasury Regulations § 1.6033-1(h)(2) 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 IRC § 6033.

Revenue Ruling 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 IRC § 6033 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.

GOVERNMENT'S POSITION

In accordance with the above cited provisions of the Code and regulations under IRC §§ 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.

The has failed repeatedly to respond to the Service’s request for information in
contrast to section 1.6033-1(h)(2) of the regulations which require an organization to provide
such information as requested to allow the Service to make a determination of that
organization’s exempt status.

Information obtained by the Service suggests that the is engaged in improper
fundraising, possible inurement and that directors and representatives of the organization are
engaged in possible illegal activity. Since the has been unresponsive, we have not

been able to corroborate nor refute this information.

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_ Schedule number

The has failed to show us that they meet the operational test for a § 501(c)(3)
organization for the year under examination. In order to meet the operational test,

must show that they engage primarily in activities which accomplish one or more of such exempt
purposes specified in section § 501 (c)(3). We will not regard an organization as having met this
test if more than an insubstantial part of its activities is not in furtherance of an exempt purpose.

It is the Service's position that the organization failed to meet the reporting requirements under
IRC §§ 6001 and 6033 to be recognized as exempt from federal income tax under

IRC § 501(c)(3). Accordingly, it is proposed that the organization's exempt status be revoked
effective January 1, 20

TAXPAYER'S POSITION

The taxpayer's position is unknown at this time.
CONCLUSION

We have determined that is not operating for exempt
purposes as a §501(c)(3) organization. By not complying with the Code and Regulations, the

has jeopardized its exempt status. They have failed to provide required
documentation, thereby failing to be compliant with the Code, and failing to show any evidence
of their exempt activities. We have no reason to believe that the is operating for
exempt purposes under IRC 501(c)(3).

Accordingly, since the organization failed to establish that it is operated primarily for exempt
purposes as an IRC 501(c)(3) organization, we are proposing revocation of their tax-exempt
status, effective January 1, 20

Form 1120, U.S. Corporation Income Tax Return should be filed beginning tax year ending
December 31,20 and thereafter.

lf you agree to this conclusion, please sign the attached Forms.

If you disagree please submit a statement of your position.

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