IRS revokes a nonprofit's 501(c)(3) status after it failed to produce records for an audit

Plain-English summary

The IRS revoked a nonprofit's recognition as a tax-exempt charity under section 501(c)(3) because it did not cooperate with an examination. The organization had been recognized as a charity after filing Form 1023, but when the IRS audited its Form 990-EZ, it could not obtain the records needed to confirm the group was still operating for exempt purposes. Over many months the examiner sent a series of letters and left repeated voicemails for the executive director; the organization was largely unresponsive, never provided proof it was active and in good standing with its state, and state records showed it in involuntary dissolution. A charity must keep adequate records and let the IRS examine them under sections 6001 and 6033, and must show it operates exclusively for exempt purposes; the failure to respond meant the organization could not establish that it still qualified. The IRS relied on Rev. Rul. 59-95, which holds that failure to comply with the recordkeeping and reporting rules can end exempt status. The revocation is effective retroactively, contributions are no longer deductible under section 170, and the organization is directed to file corporate income tax returns (Form 1120).

Ruling snapshot

• Question: Should a nonprofit's 501(c)(3) exemption be revoked when it fails to respond to an audit and produce records showing it operates for exempt purposes?
• Outcome: revocation (final adverse determination; exemption revoked, contributions no longer deductible)
• Key authorities: IRC §§ 501(c)(3), 6001, 6033(a)(1), 170, 7428; Treas. Reg. §§ 1.501(c)(3)-1, 1.6001-1, 1.6033-1(h)(2); Rev. Rul. 59-95

Full text (IRS public release)

Transcriber's note: this is a scanned adverse-determination package, comprising a Letter 6337 final revocation letter, a Letter 3618 proposed-revocation letter, and a Form 886-A audit report ("Explanation of Items"). The repeating Form 886-A page-header furniture has been removed and each page replaced with a bracketed [Page N] marker; the cover letters keep their own footers. The report is heavily redacted, so many names, dates, and dollar amounts appear as blanks, and some OCR artifacts remain in that portion; wording is reproduced as scanned. Obvious OCR misreads have been corrected.

Department of the Treasury Date: May 10, 2021
Internal Revenue Service

Tax Exempt and Government Entities

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

Number: 202230015
Release Date: 7/29/2022

UIL: 501.03-00

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
. Your determination letter dated 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 failed to adequately 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) as well as the regulations thereunder. You also failed to demonstrate that you are operating
exclusively for one or more exempt purposes as required by Treas. Reg. Section 1.501(c)(3)-1(c)(1).

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
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        U.S. Court of Federal Claims        U.S. 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.

Sincerely,

Sean O'Reilly
Director, Exempt Organizations Examinations

Enclosures:
Publication 1
Publication 594
Publication 892

Letter 6337 (12-2020)
Catalog Number 74808E

Department of the Treasury
Internal Revenue Service

Date:
July 1, 2020

Taxpayer ID number:

IRS Tax Exempt and Government Entities
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 3618 (Rev. 8-2019)
Catalog Number 34809F

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).

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

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

Enclosures:
Report of Examination
Form 6018
Form 886-A
Publication 892
Publication 3498
State of information

Sincerely,

Director, Exempt Organizations
Examinations

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

Form 886-A, Explanation of Items

[Page 1]

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?

Facts:

applied for tax-exempt status by filing the Form 1023 on
April , 20 and was granted tax-exempt status as a 501(c)(3) on May , 20 , with
an effective date of February , 20 .

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-EZ for the tax year December 31, 20 .

The organization failed to respond to the Internal Revenue Service attempts to obtain
information to show proof the organization is active and in good standings with the state
of .

The Form 1023 application list the phone number of ( ) - - for the Executive
Director of .

Per the State of Web-site, it lists the organization in Involuntary
Dissolution/Revocation and is not 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 September , 20 , with a response date of October , 20 . This letter
was not return by the post office as being undeliverable.

- Letter 5798 (Rev. 10-2016), was mailed to the organization on October ,
20 , with a response date of November , 20 . This letter was received
by the organization.

[Page 2]

- Response received on November , 20 . I was not able to review the
organization's information until January , 20 due to and
. The organization indicated they were inactive for the year
of examination and all issues of initial Letter 3606 and Form 4564 were
responded to except proof that they were active with the state of and
current in their state filings.

- Letter 3844-B (11-2015), with attachments, was mailed to
on January , 20 , with a respond date of January , 20 . This
letter was received by the organization.

- Letter 5077-B (REV 1-2017), with attachments, was mailed to the
organization, certified on February , 20 , with a respond date of March ,
20 . Article Number . The signed return receipt
was received on March , 20 .

- Telephone contact for the audit was as follows:

- September , 20 , called the phone number listed on the Form 1023
application for the Executive Director of ( ) - - and received VMS
(Voice Message System). I left a message for an officer of the organization to
return my phone call and to verify if they did receive our initial contact letter
3606.

- September , 20 , I received a call back from the Executive Director of the
organization on my VMS stating they did get our initial letter and was
preparing a response to our inquiry.

- October , 20 , I called the phone number listed for the Executive Director
of ( ) - - and once again received a VM (Voice Message). I left a
message for the Executive Director to return my phone call.

- October , 20 , I received a call back from the Executive Director, ( ) -
- , who left another VM indicating has been moving from area to
area and would be hard to contact. I called her back at ( ) - - and
left a message we would extend her response time to our examination.

- December , 20 , I called the phone number of the Executive Director,
( ) - - and had to leave a VM, indicating we received their response
but I would not be able to respond to it due to and
time from .

- February , 20 , I called the Executive Director's phone number again

[Page 3]

( ) - - and once again left a VM to have call me as soon as
possible. I also requested they respond to our Letter 3844-B with Form 4564
(002) requesting proof their organization is still active and filing with the state
of .

- February , 20 , I called the Executive Director's phone number again,
( ) - - and left another message to call me as soon as possible. I
mentioned if I did not hear from we may have to start procedures for
revocation of the organization's exempt status.

- February , 20 , received a VM from the Executive Director of the
organization. always calls after hours so I am unable to talk to .
apologized stating that my phone number shows up on her phone as a "scam
number" and would never answer, nor did listen to my messages.
indicated that the organization was thinking about terminating. I called
back the day I received answering machine and still was unable to speak
to . I left a message to call me so we could go over the information I
would need to terminate or have organization revoked.

- March , 20 , I called the Executive Director's number ( ) - - and
left another VM to tell I will be sending a letter soon for the revocation
of organization.

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)(3), 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

[Page 4]

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
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 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.

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 4 of
the Code and section 6033.

[Page 5]

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
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:

[Page 6]

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, 20 .

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