IRS revokes a dormant nonprofit's 501(c)(3) status for years of inactivity

Plain-English summary

The IRS revoked a nonprofit's recognition as a tax-exempt charity under section 501(c)(3). The organization had been incorporated to run educational and cultural programs, but an examination found it had ceased all operations years earlier: no activities, no income, and no real assets during the year under audit or prior years. The board president confirmed the group was dormant, that the assets and liabilities on its final return were just numbers carried over from an earlier year, and that its only expenses (accounting and state filing fees) were paid out of the president's personal funds. Because a charity must be both organized and operated exclusively for exempt purposes, and this one no longer operated at all, it failed the "operational test" and no longer qualified for exemption. The IRS pointed to Community Education Foundation v. Commissioner, where a long period of inactivity supported revocation. 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) going forward. The board president agreed with the revocation at the closing conference.

Ruling snapshot

• Question: Should a nonprofit's 501(c)(3) exemption be revoked when it has ceased all operations and has no income or activities?
• Outcome: revocation (final adverse determination; exemption revoked, contributions no longer deductible)
• Key authorities: IRC § 501(c)(3); Treas. Reg. § 1.501(c)(3)-1(a), (c), (d); IRC §§ 6001, 170, 7428; Community Education Foundation v. Commissioner, T.C. Memo. 2016-223

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 , 2021
Internal Revenue Service

Tax Exempt and Government Entities

IRS 1100 Commerce Street
MS 4920 DAL
Dallas, TX 75242-1100

Taxpayer ID number:
Form:
Tax periods ended:
Person to contact:

Number: 202230016
Release Date: 7/29/2022

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
May , 20 . Your determination letter dated April , 20 , is revoked.

Our adverse determination as to your exempt status was made for the following reasons: As a result of our
examination of your activities and financial records for the year ending April , 20 we found that your
organization has been inactive during 20 and for prior years. We found you conducted no operations
or financial activities. As such, you fail to meet the operational requirements for continued exemption under
IRC Section 501(c)(3).

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

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.

Letter 6337 (12-2020)
Catalog Number 74808E

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
Telephone:
Fax:
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 E. O'Reilly
Director, Exempt Organizations Examinations

Enclosures:
Publication 1
Publication 594
Publication 892

cc:

Letter 6337 (12-2020)
Catalog Number 74808E

Department of the Treasury
Internal Revenue Service

Date:
September 30, 2020

Taxpayer ID number:
Form:
Tax Exempt and Government Entities
Tax periods ended:
Person to contact:
Name:
ID number:
Telephone:
Fax:
Address:
Manager's contact information:
Name:
ID number:
Telephone:
Response due date:

Dear

Why you're receiving this letter
We enclosed a copy of our audit report, Form 886-A, Explanation of Items, explaining that we
propose to revoke your tax-exempt status as an organization described in Internal Revenue Code
(IRC) Section 501(c)(3).

If you agree
If you haven't already, please sign the enclosed Form 6018, Consent to Proposed Action, and
return it to the contact person shown at the top of this letter. We'll issue a final adverse letter
determining that you aren't an organization described in IRC Section 501(c)(3) for the periods
above.

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

If you disagree

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

2. Send any information you want us to consider.

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

The IRS Appeals Office is independent of the Exempt Organizations division and
resolves most disputes informally. If you file a protest, the auditing agent may ask you to
sign a consent to extend the period of limitations for assessing tax. This is to allow the

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

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,

Sean E. O'Reilly
Director, Exempt Organizations
Examinations

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

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

Form 886-A, Explanation of Items

[Page 1]

ISSUE:
Whether (the Organization)'s tax-exempt status under Internal
Revenue Code (IRC) Section 501(c)(3) should be revoked because it has not met the operational
test?

FACTS:

(the "Organization") is recognized as a section 501(c)(3)
organization per determination letter from the Internal Revenue Service dated April , 20 . The
Organization was classified as a public charity within the meaning of section 509(a)(1) and
170(b)(1)(A)(vi).

The Organization was incorporated in State of as a Domestic Not-for-Profit Corporation
on May , 20 . The Certificate of Incorporation indicates it was formed for the purposes of
"       educational and cultural programs, training and performing to the general       ."
Form       for the tax year ending April , 20 was selected for an examination and it was the
final return filed by the Organization.

According to Schedule A of Form       , there was no income or public support for the last
years. And the sole expense was from accounting fees and state filing fees in total amount of
$      . Per cancelled checks provided, these fees were paid through       personal bank
account.       is the board president of the Organization.

The return reported the assets as follows:

                              Beginning Balance    Ending Balance
Cash: non-interest-bearing    $                    $
Intangible assets             $
Total assets                  $                    $

The return reported the liabilities as follows:

                              Beginning Balance    Ending Balance
Loan payables to officer      $                    $
Other liabilities             $                    $
Total liabilities             $                    $

[Page 2]

During the examination,       , the board president, stated the Organization has ceased
operations since 20 which includes the year of examination.       has confirmed there were no
activities, no income and no actual assets since 20 and the year under examination. The assets
and liabilities reported on the last return were merely numbers carried from the year 20 . No
actual records provided to support these assets and liabilities on the return.

In addition, the Organization provided a letter dated February , 20 , that confirms it was no
longer operational since the year 20 :

- There has been no activity since the year 20 .

- The balances (assets and liabilities) were carried from 20 to the year that it decided to
file the final return.

- Bank account was actually closed long time ago and       , the board president,
attempted to retrieve the final bank statements from the bank institution but was told no
record anymore.

- Over the last years (since the year 20 ) all accounting fees and annual state filing fees
were paid from       , the board president's personal fund. And those were recorded
as loan (payables) to officer.

- Assets and liabilities were write-off upon filing the final return.

- A copy of Certificate of Withdrawal filed with the State of       on February , 20
was attached to the letter which shows it has ceased doing business in State of       .

- It is in progress of filing the Certificate of Dissolution with the State of       .

According to       of       , the Organization's
corporate status is still active.

- Information Document Requests (IDRs) were sent to request Certificate of Dissolution issued by
State of incorporation.       , the board president, has been attempting to
dissolve with       since March 20 . In September 20 ,       provided a copy of the
letter received from       stating its submission for dissolution was rejected because of
improper procedures and incorrect forms used.

[Page 3]

LAWS:

Internal Revenue Code (IRC) Section 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 Regulation 1.501(c)(3)-1(a)(1) provides 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.

Treasury Regulation 1.501(c)(3)-1(c)(1) states 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 exempt purposes specified in section 501(c)(3). An organization will not
be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt
purpose.

Treasury Regulation 1.501(c)(3)-1(d)(1)(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.

In Community Education Foundation v. Commissioner, T.C. Memo. 2016-223, revocation of the
petitioner's exemption was supported due to a long-extended period of inactivity. The petitioner
did not meet the operational test requirements for a section 501(c)(3) organization.

TAXPAYER'S POSITION:

Revocation was discussed with       , the board president, during the closing conference
held on September , 20 . The board president agreed with proposed revocation and stated
would sign the agreement form.

[Page 4]

The Organization is like the petitioner in the Community

GOVERNMENT'S POSITION:

In accordance with the above cited provisions of the Code and regulations under IRC 501(c)(3),
organizations recognized as exempt from federal income tax under IRC 501(c)(3) must meet both
organizational and operational tests.

The Organization has failed the operational test for a section 501(c)(3) organization for the year
under examination. It has ceased all operations since the year 20 which includes the year under
examination. There were no activities, no income and no actual assets for the year under
examination. While the Organization has been given time to dissolve with the state of
incorporation, it has not been able to provide proof of dissolution without assets after several
attempts. Because the Organization has not conducted any exempt activities and has no plans to
be operational, it does not continue to qualify for exemption under IRC 501(c)(3).

Education Foundation v Commissioner
case wherein the court concluded that revocation was appropriate due to the organization's
inactivity.

CONCLUSION:

The Organization fails to meet the operational requirements for continued exemption under
section 501(c)(3) of the Code due to inactivity. Moreover, the Organization fails to satisfy any
public charity status because there was no income received for the last years. Therefore, the
Organization's exempt status should be revoked effective May , 20 . Form 1120, U.S.
Corporation Income Tax, should be filed for tax year ending April , 20 and thereafter.

If you agree to this conclusion, please sign and return the enclosed Form 6018.

If you disagree, please submit a statement of your position.