Exemption revoked for an organization that never became active

Plain-English summary

The IRS revoked the Section 501(c)(3) status of an organization that said it had never truly been active and had no plans to begin operating. The organization had received exemption through a streamlined application but did not provide its organizing document during the audit. Its officer told the IRS that dissolution documents and a final return had been filed, yet the organization did not provide the dissolution document and the return was not marked final. The IRS made repeated contacts by mail, email, and telephone while trying to obtain the required records and complete the dissolution process. Because the organization did not prove that it satisfied either the organizational test or the operational test, and did not maintain or provide adequate records, the IRS revoked its exemption.

Ruling snapshot

• Question: Could the organization keep Section 501(c)(3) status when it never operated, did not provide its organizing document, and did not complete or document its dissolution?
• Outcome: Revocation
• Key authorities: IRC §§ 501(c)(3), 6001, and 6033; Treas. Reg. §§ 1.501(c)(3)-1, 1.6001-1, and 1.6033-1; Rev. Rul. 59-95

Full text (IRS public release)

DEPARTMENT OF THE TREASURY

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

Date:
September 18, 2020

Number: 202242018 Taxpayer ID Number:
Release Date: 10/21/2022

Form:

Tax Period(s) Ending:

Person to Contact:

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 (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 Section
501(a) must be both organized and operated exclusively for exempt
purposes. You have not demonstrated that you are operated exclusively for
charitable, educational, or other exempt purposes within the meaning of
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.
You have not established that you have operated exclusively for an exempt
purpose.

As such, you failed to meet the requirements of IRC Section 501(c)(3) and Treasury
Regulations Section 1.501(c)(3)-1(a), in that you have not established that you were
organized and operated exclusively for exempt purposes and that no part of your earnings
inured to the benefit of private shareholders or individuals.

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

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.

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. 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 20439

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 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).

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

Sincerely,

Enclosures:
Publication 892

Sean E. O'Reilly
Director, Exempt Organizations Examinations

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

Date:
05/11/2020

Taxpayer ID number:

Form:
Tax periods ended:

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

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

Response due date:

CERTIFIED MAIL — Return Receipt Requested

Dear

Why you’re receiving this letter

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.

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 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.

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

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.

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 Hooke
Director, Exempt Organizations Examinations

Enclosures:

Form 886-A Explanation of Items

Form 6018 Consent to Proposed Action

Form 4621-A Report of Examination

Publication 892 How to Appeal

Publication 3498-A The Examination Process

Copy of Original Form 1023EZ Application for Recognition of Exemption

Letter 3618 (Rev. 8-2019)
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

Issues:

Whether the exempt status of under IRC § 501(c)(3)
should be revoked, effective because it has not proven it is organized
exclusively for exempt purposes within the meaning of section 501(c)(3) and Treas. Reg. §
1.501(c)(3)-1(b)?

Facts:

applied for tax-exempt status by filing the Form ,
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 .

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

The organization failed to adequately respond to the Internal Revenue Service
attempts to obtain information to perform an audit of Form for the tax year
ended .

The organization attested on Form , part II, box that they have the organizing
document necessary for their organizational structure.

The organization further attested that their organizing document contains the dissolution
provision required under section 501(c)(3) or that they did not need an express
dissolution provision in your organizing document because they rely on the operation of
state law in the state in which you are formed for your dissolution provision. The
organization failed to provide a copy of its organizing document.

The Form application did not list a contact phone number for
. However, the IRS agent made several attempts to contact
to request that it conform its organizing and
dissolving documents. Specifically, the IRS agent made contact with the
organization by letter on occasions, by email on occasions, and by
telephone on eleven occasions. All correspondence was sent to the address on
record:
.

Chronology for the audit was as follows:

• : Letter 3606 (Rev. 6-2012) with attachments, was mailed to the
organization with a response due date of . This letter was not
returned by the post office as being undeliverable.

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

• : Received incoming telephone call from the President of
(formerly ) phone
number stated . is
no longer active, was never truly active and has no plans to reactivate.
was advised the IRS agent would research the best resolution to this
case with management and would contact shortly.

• : Made outgoing call to President phone #
; there was no answer. The IRS agent left a message. The purpose
of the call was to request the organization file Articles of Dissolution with the
state of .

• : Letter 3844-B (Rev. 11-2015) with attachments, was mailed
certified to the President, , with a response due date of
. The purpose of the Letter 3844-B was to request
file a “final” Form and also Articles of Dissolution
with the State of and provide the IRS with copies. Per the United
States Postal Service (USPS) tracking, this was returned with a signature on
.

• : Made outgoing call to President phone
; there was no answer. The IRS agent left a message. The purpose
of the call was to 1) see if the organization had received the Letter 3844-B,
and 2) to see if the President, , had received the email sent by
the IRS agent with links to the state website.

• : Made outgoing call to President phone #
; there was no answer. The IRS agent left a message. The purpose
of the call was to discuss the lack of response to the Letter 3844-B, which
was due .

• : Made outgoing call to President phone #
; there was no answer. The IRS agent left a message requesting a
return phone call.

• : Made outgoing call to President phone #
; there was no answer. The IRS agent left a message. The
purpose of the call was to discuss the lack of response to the Letter 3844-B,
which was due .

• : Received incoming call from President
phone # . The purpose of the call was to advise the IRS of her
attempts to provide a copy of the “finalizing documents” the organization had
recently filed with the State of . The organization also claimed to
have filed Articles of Dissolution and advised the IRS agent they could access

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

the state website if a copy was needed. IRS agent requested
provide IRS with a copy. stated would email or fax a
copy in the next few days.

• : Received incoming call from President
phone # . The purpose of the call was to advise the IRS of
attempts to provide a copy of the “finalizing documents” the organization had
recently filed with the State of . The organization also claimed to
have filed Articles of Dissolution and advised the IRS agent they could access
the state website if a copy is needed.

• : Received incoming emails from President
. The first email contained a screenshot of a
filing the organization did with the state titled “Confirmation of Business
Ending Filing”. The email contained a forwarded message from the
secretary of state website confirming the organization had filed an “Annual
Report for , Dissolution.”

• : Made outgoing call to President phone #
. Explained to that the information emailed to the IRS on
is insufficient. The IRS needs a copy of official Articles of
Dissolution and a Form for the year ended marked
“final”.

• : Received incoming email from President
. The purpose of the email was to advise the IRS the
organization had filed a “final” Form for the year ended
.

• : Made outgoing call to President phone #
. There was no answer; the voicemail box stated the mailbox
was full and could not accept messages. The purpose of the call was to
advise the organization that the Form filed for was not, in fact,
marked final, and the organization will need to file a “final” Form for
.

• : Made outgoing call to President phone #
. There was no answer; the voicemail box stated the mailbox
was full and could not accept messages. The purpose of the call was a
second attempt to advise the organization they need to file a “final” Form
for .

• : Sent outgoing email to President
containing links to irs.gov filing locations for online Form
filing.

Law:

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

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 if 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 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(b)(4) An organization is not organized exclusively for one or
more exempt purposes unless its assets are dedicated to an exempt purpose. An
organization's assets will be considered dedicated to an exempt purpose, for example, if,
upon dissolution, such assets would, by reason of a provision in the organization's articles
or by operation of law, be distributed for one or more exempt purposes, or to the Federal
Government, or to a State or local government, for a public purpose, or would be
distributed by a court to another organization to be used in such manner as in the
judgment of the court will best accomplish the general purposes for which the dissolved
organization was organized. However, an organization does not meet the organizational
test if its articles or the law of the State in which it was created provide that its assets

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

would, upon dissolution, be distributed to its members or shareholders.

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 time available for inspection by authorized internal revenue
officers or employees, and shall be retained if 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, if 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.

In Community Education Foundation v. Commissioner TC Memo. 2016-223, USTC,
revocation of an organization's exemption was supported due to a long, extended period of
inactivity. The organization did not meet the operational test in Treasury Regulations
1.501(c)(3)-1(c).

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, because the organization has not established that it is observing

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

the conditions required for the continuation of exempt status.

Organization’s Position

Organization stated it was never truly active, is not currently active, and has no plans to
reactivate.

Government’s Position

Based on the above facts, the organization has not demonstrated that it is organized and
operated exclusively for 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.

Organization was difficult to contact due to the lack of contact information provided
on the application. Organization's officer, when eventually reached, stated that the
Organization “is no longer active, was never truly active and has no plans to
reactivate.” After numerous written and oral communications regarding the
procedures to terminate the Organization’s existence and exempt status,
Organization verbally stated that it had filed Articles of Dissolution with the state of
and filed a “final” with the IRS. However, Organization has not
provided the examination agent with a copy of the Articles of Dissolution and the
Form filed with the IRS was not marked “final.”

Organization has not demonstrated that it is organized exclusively for exempt
purposes under section 501(c)(3) because it did not provide its organizational
documents to demonstrate that it met the requirements under 509(a)(2).

Further, Organization has not demonstrated that is operated exclusively for exempt
purposes as described in section 501(c)(3). Organization stated that it has never
operated and has no plans to commence operating. Organization is like the
organization Community Education Foundation, in that it did not over time
meaningfully allocate time or resources to any exempt activities.

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

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

Conclusion:

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 has not demonstrated that it is organized or
operated exclusively for exempt purposes as described in IRC § 501(c)(3). Accordingly,
the organization's exempt status is revoked effective .

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

Form 886-A (Rev. 4-68) Department of the Treasury - Internal Revenue Service
Page: -7-