Charity loses exemption after failing to substantiate its overseas support activity

Plain-English summary

The IRS revoked a charity's section 501(c)(3) exemption after an examination produced too little information to establish how it operated. The organization said it supported an overseas educational organization, but it did not show that the recipient was tax-exempt or explain its background, purposes, and activities. It also did not establish that it retained control and discretion over the transferred funds so they would be used for charitable purposes. The organization supplied only a partial response to repeated information requests, and its general ledger did not reconcile with its check register. The IRS therefore concluded that the organization had not demonstrated an exclusively exempt operation, freedom from private inurement, or qualification as a publicly supported charity under section 509(a).

Ruling snapshot

• Question: Did the organization substantiate continued qualification under section 501(c)(3) and public-charity status under section 509(a)?
• Outcome: revocation
• Key authorities: IRC §§ 501(c)(3), 509(a), 6001, and 6033; Treas. Reg. §§ 1.501(c)(3)-1 and 1.6001-1; Rev. Ruls. 59-95, 66-79, and 68-489

Full text (IRS public release)

Department of the Treasury Date:

Internal Revenue Service May 13, 2022
IRS Tax Exempt and Government Entities Taxpayer ID number:
Form:
Tax periods ended:
Release Number : 202249016
Release Date: 12/9/2022 Person to contact:
UIL Code: 501.03-00 Name:
ID number:
Telephone:
Fax:

CERTIFIED MAIL - RETURN RECEIPT REQUESTED

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 have not
demonstrated that you are operated exclusively for one or more purposes described in IRC Section 501(c)(3)
and that no part of your net earnings inures to the benefit of any private shareholder or individual. We have also
determined that you have not demonstrated that you are not a private foundation under IRC Section 509. Your
determination letter dated                         is also revoked.

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

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:

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: March 8, 2022

Internal Revenue Service 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:

April 11, 2022

CERTIFIED MAIL — Return Receipt Requested

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).

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

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

Sincerely,

Lynn A Brinkley
Acting Director, Exempt Organizations
Examinations
Enclosures:
Form 886-A
Form 6018
3 Letter 3618 (Rev. 8-2019)

Catalog Number 34809F

Form 886A Department of the Treasury - Internal Revenue Service Form
Explanation of Items
Name of Taxpayer Year/Period Ended
Issues

1. Whether                                         (the EO) has demonstrated that

it is operated exclusively for one or more purposes described in section 501(c)(3) of the
Internal Revenue Code and that no part of its net earnings inures to the benefit of any
private shareholder or individual.

2. Whether the EO has demonstrated that it is a public charity under section 509(a) of the
Internal Revenue Code.

Facts

The EO is an organization exempt under Internal Revenue Code Section 501(c)(3). The EO

purports to support an organization called “                              ” in                 . According to
the EO’s Form             , Schedule A,                                  is an educational organization
described in section 170(b)(1)(A)(ii) of the Internal Revenue Code. However, no evidence has been
provided which demonstrates that                                is such an organization.

The EO received a determination letter from the IRS dated                         , in which the IRS
determined that the EO was exempt under section 501(c)(3) of the Internal Revenue Code. The EO
received another determination letter from the IRS dated                          , in which the IRS

determined that the EO was a public charity under sections 509(a)(1) and 170(b)(1)(A)(vi) of the
Internal Revenue Code.

A Form 4564, Information Document Request, IDR, was mailed to the address listed on the return

on                 . Information Document Request # 1 was returned to the Service as
“Attempted, Not Known.” Initial contact was made by phone with                        , Treasurer of
EO, on                 . The examination process was discussed, and the correct mailing address

was obtained. Forms 4564, Information Document Requests, were mailed to the address provided
by                    on the following dates:

IDR # 2
IDR # 3
IDR # 4
IDR # 5
IDR # 6
IDR # 7

Please see attached IDRs as Exhibits A — F, for review of information requested.

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

Page: -1-

Form 886A Department of the Treasury - Internal Revenue Service Form
Explanation of Items

Name of Taxpayer Year/Period Ended

In addition to contact that was made by mail, there were several voicemail messages left at
phone number between                         and

A response was received from                         on                         . The response consisted of
pages as follows:

Page 1                    responses to IDR

Pages 2 — 3      Form 2848, Power of Attorney and Declaration of Representative

Pages 4 — 6      Form 4506-A, Request for a Copy of Exempt or Political
                 Organization IRS Form

Page 7           General Ledger

Pages 8 — 12     Check Register

Please see attached response, Exhibit G. The information reported on the General Ledger did not
reconcile to the stubs on the check register. Cancelled checks were requested and were not provided.

Contact was made by phone with the representative,                         , on                         ,
requesting the missing items from the response. The requested information which was not provided
includes publications from                         ; bank statements; and emails between the
Director,                         , who resides in                         , and                         . As of the date of

this report, no additional information has been received from the EO.

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.

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 § 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. The Secretary may also prescribe by forms or regulations the requirement of every organization
to 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.

Form 886-A (Rev.4-68) Department of the Treasury - Internal Revenue Service
Page: -2-

Form 886A Department of the Treasury - Internal Revenue Service Form
Explanation of Items
Name of Taxpayer Year/Period Ended

Treas. Reg. § 1.6001-1(c) states that in addition to 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 -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.

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.

Treas. Reg. § 1.501(c)(3)-1(d)(1)(i) provides that, in general, 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:

(a) Religious

(b) Charitable

(c) Scientific

(d) Testing for public safety

(e) Literary

(f) Educational; or

(g) Prevention of cruelty to children or animals.

Treas. Reg. § 1.501(c)(3)-1(d)(1)(ii) provides that an organization is not organized or operated
exclusively for one or more of the purposes specified in subdivision (i) of this subparagraph unless it
serves a public rather than a private interest. Thus, to meet the requirement of this subdivision, it is
necessary for an organization to establish that it is not organized or operated for the benefit of
private interests such as designated individuals, the creator or his family, shareholders of the
organization, or persons controlled, directly or indirectly, by such private interests.

Treas. Reg. § 1.501(c)(3)-1(c)(1) 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). An organization
will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an
exempt purpose.

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

Page: -3-

Form 886A Department of the Treasury - Internal Revenue Service Form
Explanation of Items
Name of Taxpayer Year/Period Ended

Revenue Ruling 59-95 provides that failure or inability to file a required information return or
otherwise to comply with the provision 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 an exempt status.

Revenue Ruling 68-489 provides that an organization will not jeopardize its exemption under section
501(c)(3) of the Code, even though it distributes funds to nonexempt organizations, provided it
retains control and discretion over use of the funds for section 501(c)(3) purposes.

Revenue Ruling 66-79 provides that contributions to a domestic charity described in section
170(c)(2) of the Internal Revenue Code of 1954 which are solicited for a specific project of a foreign
charitable organization are deductible under section 170 of the Code where the domestic charity has
reviewed and approved the project as being in furtherance of its own exempt purposes and has
control and discretion as to the use of the contributions.

Under section 509(a) of the Internal Revenue Code, all organizations described in section 501(c)(3)
are private foundations except those excluded under sections 509(a)(1) through (4).

Issue # 1-

Taxpayer’s Position

Unknown
Government’s Position

The information provided during the examination is so incomplete that one cannot get a clear idea
of the EO’s activities. No information was provided demonstrating what
                         did with the money it purportedly received from the EO. No information was provided
describing                         in any meaningful manner, including its background,
purposes, and activities. No information was provided demonstrating that
                         was exempt under section 501(c)(3). No information was provided demonstrating that
the EO retained control and discretion over funds purportedly given to
                         to ensure that the funds were used for exempt purposes. Accordingly, the EO has not
demonstrated that it is operated exclusively for one or more purposes described in section 501(c)(3)
of the Internal Revenue Code and that no part of its net earnings inures to the benefit of any private

shareholder or individual. The EO’s determination letters dated                         and
                         should be revoked.
Form 886-A (Rev.4-68) Department of the Treasury - Internal Revenue Service

Page: -4-

Form 886A Department of the Treasury - Internal Revenue Service Form
Explanation of Items
Name of Taxpayer Year/Period Ended
Issue # 2

Taxpayer’s Position

Unknown

Government’s Position

In addition to failing to demonstrate that it is operated exclusively for one or more purposes
described in section 501(c)(3) of the Internal Revenue Code and that no part of its net earnings
inures to the benefit of private shareholders or individuals, the EO has also not demonstrated that it
is a public charity. No information was provided demonstrating that the EO receives the necessary
public support such that it qualifies for section 509(a)(1)/170(b)(1)(A)(vi) status. No information
was provided demonstrating that the EO qualifies as a public charity under sections 509(a)(1)
through 509(a)(4) of the Internal Revenue Code.

Conclusion

The EO has not demonstrated that it is operated exclusively for one or more purposes described in
section 501(c)(3) of the Internal Revenue Code and that no part of its net earnings inures to the
benefit of private shareholders or individuals. The EO has also not demonstrated that it is a public
charity under section 509(a) of the Internal Revenue Code. Accordingly, we are proposing

revocation of the EO’s tax-exempt status, effective                         . Since the EO will no longer
have tax-exempt status beginning                         , it is liable for filing Form                         , U.S.
Corporation Income Tax Return, as of that date. The EO’s determination letters dated

                         and                         should be revoked.

Form 886-A (Rev.4-68)

Department of the Treasury - Internal Revenue Service

Page: -5-