Dissolved charity loses exemption after failing the operational test

Plain-English summary

A charity failed to provide records requested during an IRS examination, even after receiving an extension because of the global pandemic. The organization later told the IRS that it had dissolved because it lacked resources and activities. Without organizational or financial records, the IRS could not verify that the charity primarily conducted activities furthering exempt purposes. The organization’s own statement also showed that it no longer had operational or financial activity. The IRS concluded that it failed the section 501(c)(3) operational test and revoked its exemption.

Ruling snapshot

• Question: Did the dissolved organization continue to qualify under section 501(c)(3) when it had no activities and failed to provide examination records?
• Outcome: revocation
• Key authorities: IRC § 501(c)(3); Treas. Reg. §§ 1.501(c)(3)-1 and 1.6001-1(e); Rev. Rul. 58-617

Full text (IRS public release)

Department of the Treasury                                             Date: June 3, 2022
Internal Revenue Service
Tax Exempt and Government Entities                                    Taxpayer ID number:

Number: 202248012                                                     Form:
Release Date: 12/2/2022
                                                                      Tax periods ended:

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

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
                         . Your determination letter dated                         , is revoked.

Our adverse determination as to your exempt status was made for the following reasons: You are not described
in IRC Section 501(c)(3) because you are not organized and operated exclusively for exempt purposes within the
meaning of IRC Section 501(c)(3) and Treasury Regulations Sections 1.501(c)(3)-1 (b)(1) and 1.501(c)(3)-1(c)
(1). You do not engage primarily in activities that accomplish one or more of the exempt purposes specified in
Section 501(c)(3) and Treasury Regulations Section 1.501(c)(3)-1(d).

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




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,

                                                          Lynn A. Brinkley
                                                          Acting Director, Exempt Organizations Examinations
Enclosures:
Publication 1
Publication 594
Publication 892




                                                                                              Letter 6337 (12-2020)
                                                                                              Catalog Number 74808E

         Department of the Treasury                                            Date:
         Internal Revenue Service                                               July 27, 2021
         Tax Exempt and Government Entities Division                           Taxpayer ID number:
         Exempt Organizations Examinations                                      47-1627881
         1100 Commerce Street, MS 4900 DAL                                     Form:
         Dallas, TX 75242-1100                                                  990
                                                                               Tax periods ended:
                                                                               December 31, 2018
         Chevy Chase University, Ltd                                           Person to contact:
         5600 Wisconsin Avenue, Apt 1405                                        Name: Festus Anaele
         Chevy Chase, MD 20815-4412                                             ID number: 1000219758
                                                                                Telephone: 202-317-8506
                                                                                Fax:855-804-6608
                                                                                Address: Tax Exempt and
                                                                                Government Entities Division
                                                                                Exempt Organizations Examinations
                                                                                1111 Constitution Avenue, NW.,
                                                                                NC-612
CERTIFIED MAIL – Return Receipt Requested
                                                                                Washington, DC 20224
                                                                               Manager's contact information:
                                                                               Name: Kenneth Bradley
                                                                               ID number: 1000274239
                                                                                Telephone: 202-317-8574
                                                                               Response due date:


Dear Chevy Chase University, Ltd:
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 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.
                                                                                            Letter 3618 (Rev. 8-2019)
                                                                                            Catalog Number 34809F

      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.
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,
                                                                          Digitally signed by
                                                                          Kenneth Bradley
                                                                          Date: 2021.07.27 11:37:26
                                                                 for      -04'00'

                                                          Sean E. O'Reilly
                                                          Director, Exempt Organizations Examinations
Enclosures:
Form 886-A, Form 4621-A,
Form 6018, Pub 892, Pub 3498




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

                                                                                                   Schedule number
Form 886-A                         Department of the Treasury - Internal Revenue Service           or exhibit
(Rev. May 2017)                         EXPLANATIONS OF ITEMS
Name of taxpayer                                 Tax Identification Number (Last 4 digits)         Year/Period ended




ISSUE:

Whether                              , continues to qualify for exemption as an organization
described in the Internal Revenue Code (IRC) Section 501(c)(3) because of your failure to meet
the Operational Test?

FACTS:

                                , was incorporated under the laws of the State of                         as a non-
profit corporation on                    for the following purposes:

                                 was organized and operated exclusively to further Charitable and
Scientific purposes.

On              ,                               was recognized to be exempt from federal
income tax as an organization described in IRC Section 501(c)(3).

On             , Internal Revenue Service sent                               Letter 3611 and
enclosed Form 4564, Information Document Request (IDR) listing items needed to conduct the
examination,                              did not provide response to the IDR.

On                      Internal Revenue Service sent                            Letter 3611
and enclosed Form 4564, IDR listing items needed to conduct the examination and again the
Organization did not respond.

On                  , Internal Revenue Service received correspondence from
               requesting extension due to the global pandemic crisis and lack of resources.
Extension was granted per your request to                .

On                 , Internal Revenue Service sent                                Delinquency
Notice, Letter 5077-B informing the taxpayer if you don’t fully respond to the IDR by the due date
of           , we’ll propose revocation of your exempt status.

On                   , Internal Revenue Service received correspondence from
                   stating that the organization has dissolved due to lack of resources and activities.

LAW:

IRC § 501 (c)(3) exempts from federal income tax organizations which are organized and
operated exclusively for religious, charitable, scientific, testing for public safety, literary, or
educational purposes, or to foster national or international amateur sports competition (but only if



Catalog Number 20810W                     Page      1                    www.irs.gov         Form 886-A (Rev. 5-2017)

                                                                                                   Schedule number
Form 886-A                         Department of the Treasury - Internal Revenue Service           or exhibit
(Rev. May 2017)                         EXPLANATIONS OF ITEMS
Name of taxpayer                                 Tax Identification Number (Last 4 digits)         Year/Period ended



no part of its activities involve the provision of athletic facilities or equipment), 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 (except as otherwise provided in
subsection (h)), and which does not participate in, or intervene in (including the publishing or
distributing of statements), any political campaign on behalf of (or in opposition to) any candidate
for public office.

IRC § 501(c)(3) requires an organization to be both “organized” and “operated” exclusively for one
or more IRC § 501(c)(3) purposes. If the organization fails either the organizational test or the
operational test, it isn’t exempt. The operational test applies to the organization’s activities and
how it furthers exempt purposes.

Tax Reg. § 1. 501(c)(3)-1(d)(i) states that an organization may be exempt as an organization
described in Section 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.

Tax Reg. § 1.501(c)(3)-1(a)(1) of the regulations provides that in order to be exempt as an
organization described in Section 501(c)(3) of the Code, the organization must be one that is both
organized and operated exclusively for one or more of the purposes specified in that section.

Tax Reg. § 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).

Treas. Reg. § 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 Service officers or employees,
and shall be retained as long as the contents thereof may be material in the administration of any
Internal Revenue Law.

Revenue Ruling 58-617, 1958-2 CB 260, (Jan. 01, 1958) Rulings and determinations letters
granting exemption from federal income tax to an organization described in Section 501(a) of the
Internal Revenue Code of 1954, to which contributions are deductible by donors in computing their
taxable income in the manner and to the extent provided by section 170 of the Code, are effective
only so long as there are no material changes in the character of the organization, the purposes
for which it was organized, or its methods of operation. Failure to comply with this requirement
may result in serious consequences to the organization for the reason that the ruling or
determination letter holding the organization exempt may be revoked retroactively to the date of
the changes affecting its exempt status, depending upon the circumstances involved, and subject
to the limitations on retroactivity of revocation found in Section 503 of the Code.




Catalog Number 20810W                     Page      2                    www.irs.gov         Form 886-A (Rev. 5-2017)

                                                                                                  Schedule number
Form 886-A                        Department of the Treasury - Internal Revenue Service           or exhibit
(Rev. May 2017)                        EXPLANATIONS OF ITEMS
Name of taxpayer                                Tax Identification Number (Last 4 digits)         Year/Period ended




TAXPAYER’S POSITION:

                               , in their letter to the Service dated           stated “
                        was dissolved due to lack of resources and activities during                       l
                   ”.

GOVERNMENT’S POSITION:

Failure to Meet the Operational Test:                                     has failed to show us that they
meet the operational test for a § 501(c)(3) organization for the year under examination. To meet
the operational test, they must show that they engage primarily in activities which accomplish one
or more of such exempt purposes specified in section § 501(c)(3). An organization won’t meet the
operational test if more than an insubstantial part of its activities isn’t in furtherance of an exempt
purpose.

Failure to Provide Records:                                failed to provide records as is required
in Treas. Reg. § 1.6001-1(e). They failed to provide any organizational or financial information that
we requested for the examination. We attempted to obtain these records numerous times by both
registered/regular mail and phone.

Without the Exempt Organization records, we cannot verify that they are operating according to
their exempt purpose.                                  by their own admission in their letter to the
Service declared that it has no operational or financial activities. Our position is that the
organization will be revoked for failing the operational test, it is not operating for exempt purpose.

CONCLUSION:

As demonstrated in Rev. Rul. 58-617, an organization’s exempt status will remain in effect only so
long as there are no material changes in the character of the organization, the purposes for which
it was organized, or its methods of operation. In the case of                               the
organization states it has dissolved due to lack of resources and activities during
                  .                               did not provide any of the requested items in the
Information Document Request (IDR) for the examination. As such,
fails to meet the operational requirements to continue its exemption status under IRC § 501(c)(3).
Therefore, the effective revocation date will be                 .




Catalog Number 20810W                    Page      3                    www.irs.gov         Form 886-A (Rev. 5-2017)