IRS revoked a charity for insider inurement and no substantiated exempt activity

View official IRS release (PDF)

Plain-English summary

An organization said it provided food, clothing, transportation, medical equipment, and temporary housing assistance to elderly, disabled, displaced, and recently discharged hospital patients. The IRS found that it did not substantiate any charitable activity, and contacts identified by the organization did not verify that they had received its support. Bank records instead showed repeated cash withdrawals, dining, gambling, entertainment, travel, groceries, transfers, purported loans, rent, and other payments benefiting the principal officers and their family members. The IRS also found that the family-controlled board did not provide independent oversight and that annual returns omitted or misreported loans and excess-benefit transactions. It revoked the organization's section 501(c)(3) status retroactively and imposed section 6652 penalties for incomplete or inaccurate return information.

Ruling snapshot

• Question: Should the organization's section 501(c)(3) exemption be revoked, and should return-information penalties apply, because insiders received its assets and it failed to substantiate exempt activity?
• Outcome: Revocation
• Key authorities: IRC §§ 501(c)(3), 4958(f), 6033, and 6652(c)(1)(A)(ii); Treas. Reg. §§ 1.501(c)(3)-1 and 1.6033-2

Full text (IRS public release)

Department of the Treasury Date:

Internal Revenue Service June 15, 2022
Tax Exempt and Government Entities
Form:

Number: 202302013

Release Date: 1/13/2023 Tax periods ended:

Person to
Name:
UIL: 501.03-00 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
established that you conducted any charitable or exempt activity. In addition, your principal officers unlawfully
appropriated funds for their personal use, which is a means by which net earnings of your organization have
inured to your private shareholders or individuals. IRC Section 501(c)(3) requires organizations to operate
exclusively for an exempt purpose, which includes having a primary activity accomplishing exempt purposes as
described in Treasury Regulations Section 1.501(c)(3)-1(a). IRC Section 501(c)(3) precludes federal income tax
exemption if net earnings inure to the benefit of private shareholders or individuals as described in Treasury
Regulations Section 1.501(c)(3)-1(c)(2). As such, you are not an organization described in 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.

Letter 6337 (12-2020)
Catalog Number 74808E.

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.

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

cc:

Letter 6337 (12-2020)
Catalog Number 74808E

Department of the Treasury Date:
Internal Revenue Service 02/23/2022
IRS Tax Exempt and Government Entities Taxpayer ID number:

Form:

Tax periods ended:

Person to contact:
Name:
ID number:
Telephone:

Fax:
Address:

Manager's contact information:
CERTIFIED MAIL - Return Receipt Requested Name:
ID number:
Telephone:
Response due date:

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,

Acting Director, Exempt Organizations Examinations

Enclosures:

Publication 892

Publication 3498

Form 886-A, Exhibits A & B
Form 6018

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

a Schedule number or exhibit
Form 886-A EXPLANATIONS OF ITEMS
Name of taxpayer Tax Identification Number
Issues:
(1) Should tax exemption under
section 501(c) (3) of the Internal Revenue Code be revoked because (1) its
income inured to the benefit of its principal officers and

and (2) the organization has not engaged in any exempt
activity during its entire existence?

(2) Is liable for the penalty
prescribed under IRC Section 6652(c) (1) (A) (ii)? Is
an organization exempt from tax under section 501(c) (3)
of the Internal Revenue Code for failing to file complete and accurate Form

returns for the years ending , ' , and ?

Facts:
Background

The , hereinafter “ ", was incorporated
on in the State of by . received its
exemption from federal income tax under Section 501(a) on as an
organization described under 501(c)(3); and further classified as a publicly
supported organization under section 170 (b) (1) (A) (vi). is required to file
Form

The organization’s Articles of Incorporation state:

the organization is organized exclusively for charitable,
religious, educational, and scientific purposes, including, for
such purposes, the making of distributions to organizations that
qualify as exempt organizations under section 501(c)(3) of the
Internal Revenue Code, or corresponding section of any future
federal tax code

The organization’s bylaws state in Article VII, Section 7.01:

PROHIBITION AGAINST SHARING IN CORPORATE EARNINGS

No director, trustee, officers or employee of or member of a
committee of or person connected with the Corporation shall receive
at any time any of the net earnings or pecuniary profit from the
operations of the Corporation, and no such person or persons shall
be entitled to share in the distribution of any of the corporate
assets upon the dissolution of the Corporation.

Schedule number or exhibit

Form 886-A EXPLANATIONS OF ITEMS

Name of taxpayer Tax Identification Number

The organization’s bylaws state in Article VII, Section 7.03:

DISSOLUTION OF THE ORGANIZATION

Upon dissolution of this organization the remaining assets after
all the debtors had been paid must be distributed to all exempt
organizations within Section 501(c)(3). None of the exempt recipients must
be affiliated with the officers, directors, board members or any
of the organization employees.

Form

The organization’s Form , Part IV, Narrative Description of Your Activities
state: .

Said Corporation is organized exclusively for charitable. To
provide crucial resources to the elderly, disable and displaced
persons in our local community and in . Such crucial resources
are foods, clothing, and transportation assistance to doctors'
visits, including for such purposes, the making of distributions to
organizations that qualify as exempt organizations within the
Section 501(c)(3) of the Internal Revenue Code of 1986 (or the
corresponding provisions of any future United States Internal
Revenue Law), as well as any lawful purpose, as authorized by

law.

Form , Part V, Compensation and Other Arrangements with Your Officers,
Directors, Trustees, etc., Line 1a, reports the organization’s officers:

Name title Compensation Amount
President None
Secretary / Treasurer None
Director None
Director None
Director None

checked negatively “No” to line 2a, which asked are any of your officers,
directors, or trustees related to each other through family or business
relationships? If “Yes,” identify the individuals and explain the relationship.

also provided an attached statement, “#2a & 2c: At this time none of the
officers are related but the organization has adopted conflict of interest policy.”

and 2 are cohabitants based on public record research.
Per IDR 2 & 3 response, is mother, is
mother. and are cohabitants.

1 The organization’s bylaws include this stated purpose in Article II Purpose, Section 2.01
2 This report asserts in the government’s position that organization was controlled by
and with no board oversight.

2

Schedule number or exhibit
Form 886-A EXPLANATIONS OF ITEMS
Name of taxpayer Tax Identification Number

positively checked “Yes” to Line 8a which asked Do you or will you have any
leases, contracts, loans, or other agreements with your officers, directors,
trustees, highest compensated employees, or highest compensated independent
contractors listed in lines 1a, 1b, or 1c? If “Yes,” provide the information
requested in lines 8b through 8f.

Describe any written or oral arrangements that you made or intend to make.
Identify with whom you have or will have such arrangements.

Explain how the terms are or will be negotiated at arm’s length.

Explain how you determine you pay no more than fair market value or you are paid
at least fair market value.

f Attach copies of any signed leases, contracts, loans, or other agreements
relating to such arrangements.

attached a narrative to question 8, stating “* is exclusively for
charitable service to the public. In purchasing or leasing we do not discriminate.
Our objective is to shop for the best goods, service and lease for the lowest price
irrespective of the providers or sellers as long such businesses we are dealing
with were not in violation of law”.

did not report it would incur rental expense on Part IX, Financial Data, Line

20, Occupancy (rent, utilities, etc.) during the 1 , and years.

also did not report occupancy expenses on its attached narrative of Part IX for
through

Form Part VIII, Line 4a, indicated that it would engage in mail, email,

personal, phone, government grant & foundation solicitations; accept donations from
website; etc. and checked that it would operate as a 509(a) (1) & 170(b) (1) (a) (vi) -
an organization that receives a substantial part of its financial support in the
form of contributions from publicly supported organizations, from a governmental
unit or from the general public.

checked negatively “No” when asked if the corporation intends to solicit

charitable / tax deductible contributions on its NONPROFIT INITIAL ANNUAL
LIST OF OFFICERS AND DIRECTORS form that it filed with the State of on
Form
reported its financial information on 1 , & Forms and
Form , as follows:

Part I, Revenue, Expenses and Change in Net Assets of Fund Balances

Contributions, Gifts & grants Total Revenue

[illegible]

Form 886-A

Schedule number or exhibit

EXPLANATIONS OF ITEMS

Name of taxpayer

Tax Identification Number

Exclusively all contributions were received from

and for-profit

flow through corporations owned by

Professional Fees Other Expenses Total Expenses Excess or Deficit
$ $ $ $
$ $ $
$ $ $ -$
Salaries, other comp
$ $ $ -$
Part II, Balance Sheets
Cash BOY EOY Other Assets EOY Net Assets or Fund Balance
$ $ $ $
$ $ $ $
$ $ $ $
Accounts receivable
$ $ $ $

Part III, Statement of Program Service Accomplishments

reported its primary exempt purpose was to “provide crucial resources to the
elderly, disable and displaced persons in our local community and in Such
crucial resources are foods [sic], clothing, and transportation assistance to
doctor’s visits

reported on Line 28 that it provided food and clothing to over people in
both and in - $ , $ , & $ in ' , and ,
respectively. It also included $ on line 4 of Form for

Line 29 reported that

blank, $

& $

provided transportation assistance for doctor’s visits -
in , and , respectively. Assistance for

doctor’s visits was included in the amount on Line 4 of Form for

Line 30 reported that

not quantify the amounts.

provided medical equipment to the sicks [sic] - and did

attached Schedule O, Supplemental information, to its , , and

Form

and

Form

, which listed the following “other” expenditure

explanations and its “other asset”:

Form 886-A

EXPLANATIONS OF ITEMS

Schedule number or exhibit

Name of taxpayer

Tax Identification Number

Forms & Form

Schedule O Information

Transportation
Bank Fee

Feeding & Clothing
in and
Liabbility Insurance
Promotion

Utilities

Receivable Loan

Amended

Accounting Fees

Auto Expenses
Benevolence

Bank Charges

Feeding & Clothing
Insurance

Maintenance and Repair
Office Supplies

Postage and Shipping
Rent

Supplies

Travel

Transportation Assistance
License and Permits

Receivable Loan

Accounting Fees

Auto Expenses
Benevolence
Transportation Assistance
Bank Charges

Feeding & Clothing
Insurance

License and Permits

Volunteers Meals and Snacks

Maintenance and Repair
Office Supplies

Postage and Shipping
Rent

Supplies

Telephone Exp

Travel

Utilities

Receivable Loan

Foreign Mission Exp
Insurance Expense

Postage & Shipping
Professional & Legal Services
Sipplies Expense

Other Expenses & Fees & Perm
Telephone expense

Utilities

Schedule number or exhibit

Form 886-A EXPLANATIONS OF ITEMS

Name of taxpayer Tax Identification Number

Part IV, Officers Directors, Trustees, Key Employees

reported the governing body as follows:

Name Average hrs per wk Compensation
, President $
, Secretary /
Treasurer $
, Director $
, Director $
, Director $

Part VI, Other Information
checked negatively “No” to the following questions:

Line 33, “did the organization engage in any significant activity not previously
reported to the IRS? If Yes, provide a detailed description of each activity in
Schedule O.”

Line 38 (a) did the organization borrow from, or make any loans to, any officer
director, trusted, or key employed or were any such loans made in a prior year and
still outstanding at the end of the tax year covered by this return? (b) if yes,
complete Schedule L, Part II and enter the total amount involved.” Schedule L was
not attached to the - Forms

Line 40 (b) “Did the organization engage in any section 4958 excess benefit
transaction during the year, or did it engage in an excess benefit transaction in a

prior year that has not been reported on any of its prior Forms or ? If
yes, complete Schedule L, Part I.” Schedule L was not attached to the -
Forms

Information Document Requests

Form 4564, Information Document Request 1 (IDR 1) and initial exam letter was

mailed to on to the organization’s address

, , which is reported as the organization’s mailing address on
Form and Form Part I, Identification of the Applicant.
3 is the reported address on the organization’s - Forms
mailing address; on its bank statement mailing address; is also

and personal residence; and is owned by .
Because correspondence mailed to the was ‘returned to sender’ / “vacant”
subsequent mail certified & uncertified mail (such as Forms , Summons Noticee Copies) were
mailed to . The certified mailed items were ‘returned to sender’ as
unclaimed.

Schedule number or exhibit
Form 886-A EXPLANATIONS OF ITEMS
Name of taxpayer Tax Identification Number
A subsequent exam letter and IDR 1 was mailed* on to

, . The letter was returned to sender which labeled
the address as “vacant”.

described its activity in IDR 1 response stating:

Since its establishment in , the have [sic] partnered with
many hospital discharge planners and owners of independent living
houses especially in & . These Independent living
houses independently may house to individuals and or families
for a short time following hospital discharge, preventing them from
being discharged to a shelter. There are at least

independent living houses operating in and they have
sheltered over people since . While shelter is provided

these house owners are not always able to meet the needs of these
individuals and requires assistance from organizations such as the
to provide meals and assistance to individuals until they are
able to secure their own housing, transportation, and financing.
Here are a few addresses that have been supported by our
organization since : See Exhibit A for the listing.

The Board members of have a relationship with the community
house owners and managers who identify independent living homes in
the community. Known to our organization, independent living homes
houses [sic] people of low income as well as no income. Due to
this income deficiency, multiple adults share a living space so
they can share the expenses and this leaves them little of nothing
to survive on. The will provide these individuals food,
transportation and sometimes pay a small fee for individuals to
allow them to reside in certain homes for a short period of time
until their financial restrictions are lifted. Before individuals
are accepted into independent living houses, their incomes [sic]
are verified by hospital case managers as well as house owners and
Managers. Keep in mind that the average monthly payment by the
state of for persons are $ / month which they
are expected to pay for housing food and maintenance.

The organization's response to IDR 1 omitted the names and contact information of
the property owners and/or purported program coordinators of the temporary housing
shelters. The examining agent contacted property owners from the addresses
provided by to query their involvement in the organization’s mission
(providing temporary assistance to individuals, financial, and non-cash
assistance).

( ) responses were received, ( ) in writing and phone conversations
were held. ( ) individuals stated they had no affiliation with the
organization, or that their property was not used to temporarily house

4 Second issuance of IDR 1 was mailed standard, i.e. uncertified

7

Schedule number or exhibit

Form 886-A EXPLANATIONS OF ITEMS

Name of taxpayer Tax identification Number

individuals. No property owner reported they receive any form of assistance or aid
from .

Notably, of the negative responses were from charities that operate homeless
programs in ‘ , in which one stated it did not recognize ( ) as a
collaborative partner and has no indication or evidence that it received support of
any kind from . A private property owner stated they “never heard of them”
referring to the

IDR 1 response did not provide contemporaneous receipts, invoices,
credible explanations, or other satisfying documents to substantiate its exempt

activity. Rather, substantiation consisted of hand-written notes prepared
by . The notes explained numerous cash withdrawals (discussed below)
as * ", Fast-food expenditures were described as *

*

*, and lavish meals were described as *

Below is a sample of the handwritten explanations provided in IDR 1. The full
expenditure listing consisted of pages:

[illegible]

Schedule number or exhibit

Form 886-A EXPLANATIONS OF ITEMS

Name of taxpayer Tax identification Number

was asked numerous times to substantiate its expenditures and activities in

IDRs. 1, 2, 3, 4, & 5, however, did not substantiate these expenditures to be
charitable.
For instance, IDR 3, pertaining to years ending and asked, (6) provide

any other substantiation for the organization's expenditures such as invoices,
receipts and similar contemporaneous substantiation.

responded “Question 6 Response: All receipts and invoices for substantiation
has been submitted to your office already. If there are any specifics that you need
clarification on, I will be happy to provide it.”

provided a loan agreement in response to IDR 1 dated . The

agreement was post-dated, and covered funds previously borrowed by
during and . The agreement was signed by and

and stated that loaned a total of $ {in
& )} and re-payed $ (in & }. The document further stated:
*The Remainder of the loan, $ will be repaid with no interest at a rate
of $ over a course of months. Repayment of the loan will commence on

, , and end in ? .*
As of , the outstanding loan balance of $ appears to have
not been repaid by ( year and months past the repayment

date in the loan agreement)’.

• The exam of was expanded to year ending limited to
  addressing the cancellation of debt for the outstanding loan balance $

9

Schedule number or exhibit
Form 886-A EXPLANATIONS OF ITEMS
Name of taxpayer Tax Identification Number
provided a lease agreement in its IDR 1 response. The parties of
the lease were (landlord) and (tenant) and was executed
purportedly for use of personal residence (
, , ). The term of the lease was years ( -
) at a rental amount of dollars ($ ). The lease further stated that
the agreement cannot be changed orally. The lease was signed by
as Landlord and as tenant and representative of the .
stated in response to IDR 1 that and hold
organizational debit cards with . IDR 3 asked to identify the
individual(s) that possess debit card(s) ending and , and replied
that possessed both debit cards ( and ).
However, information reported that the debit card ending
in was under name and debit card ending in was under
name.
IDR 5 asked (question 4) to Identify all participating hospitals by name,
address and the representative / contact person’s whom coordinated with as
well as to provide the contact’s name & telephone number to verify exempt
activity.
responded: “All major medical and mental health hospitals in has

benefitted from our services including , ,
and many more. Discharge planners are individuals
assigned to facilitate discharge and changes from time to time.”

IDR 5 (question 5) asked: to provide the contract or agreement between your
organization and each participating hospital identifying the description of
services rendered by and remuneration received.

responded: “There are no contract or agreement [sic] between hospitals and my

organization as our organization was not pressured to do it but these individuals
especially mental health patients need the services and we provided it [sic] .”

IDR 5 (question 6) asked: Provide all Hospital discharging documents, power of
attorney forms, or any other required documentation; for all patients, authorizing
you and your organization to take care or custody of each outgoing patient.

responded: “Absolutely not. All hospital discharge paperwork are covered
under HIPAA. Your word custody tells me you have no clue about the voluntary
nature of our organization. The organization will not be fighting for custody for
some individuals it needs to help.”

has not provided substantiation that it’s a HIPAA® covered entity. did
not provide evidence that it furnishes, bills, or receives payment for healthcare

6 A HIPAA transaction is an exchange of electronic information between two Covered Entities to carry out
financial or administrative activities related to healthcare. An example would be when a healthcare
provider sends a claim to a health plan to request payment for services.

10

Schedule number or exhibit

Form 886-A EXPLANATIONS OF ITEMS

Name of taxpayer Tax Identification Number

services, nor did it provide evidence that it engages, transmits or sends any
covered transaction(s) electronically in the normal course of business.

IDR 5 (question 7) asked _ to provide for each patient assisted:

a) full name

b) ssn

c) phone number

d) discharging hospital and address

e) discharging date

f) location of temporary housing including name, address and phone number of

each individual housing provider

g) dates patient stayed in the temporary location

h) agreement contract between the organization and each temporary housing
provider
i) records detailing and explaining the exact type of assistance provided

for

ii) each individual named patient

j) records identifying the amount, or each fund expended for on behalf of each
individual named patient

k) all documents reviewed and used to approve and verify each discharge patient
qualifies as low-income.

l) Provide reports provided by to each discharging hospital by your organization

responded: Absolutely not.

IDR 5 (question 8) asked to “Explain your role in the final care and
disposition of each patient once the temporary housing has expired.”

responded: “Our organization's role is to provide safe housing, food,
transportation, assist with med co-pays until the individual is situated in the
community this may include making use of shelters”.

IDR 5 (question 9) asked : Explain what type of follow up visit is conducted
by either your organization or the discharging hospital, provide supporting
documentation

responded: Again, this is something done voluntarily to ease the burden on
hospitals and the city/state. There are no contracts or timetable or babysitting
by the discharge hospital. All the hospitals care about is that the patients have
left their doors that is why there are so many persons and a broken state
program with no assistance of these individuals.

Disqualified Persons

and are organizational managers and possess
signature authority over the organization's account
and are the organization’s President and Secretary /
Treasurer, respectively. signed all Forms

11

Form 886-A

EXPLANATIONS OF ITEMS

Schedule number or exhibit

Name of taxpayer

Tax Identification Number

The organization’s
transactions during ,

Expenditures conducted by
include:

account
os , &

Bank Accounts

revealed the following

(debit card ending ) worth noting

• ATM cash withdrawals conducted at various
  $ classified as “feeding and clothing the underprivileged” on
  explained these withdrawals in response to IDR 1

" (listed for each withdrawal).

general ledger (G/L).

as *

• Daily & reoccurring fast-food purchases,

totaling $
underprivileged.

• Lavish meal at
  Buffet totaling $
  the underprivileged
  asa ”“

were classified on

totaling $
was Classified on

&

G/L

totaling

purchases

's G/L as feeding and clothing the

and
as feeding and clothing

explained this expenditure in response to IDR 1

“"

• purchase of $ Classified on

clothing the underprivileged.

expense as *

• Expenditure totaling $

“

for

G/L as feeding and

response to IDR 1 explained this

classified as an auto

expense. The organization’s response to IDR 1 explained this expense as

“ “”

Note that is an online ticketing company;

in ,
in

• Expenditure totaling $

the

is an

The expenditure is payment for an entertainment event

classified as a

supplies expense. The organization’s response to IDR 1 explained this
expense as “entertainment”

Summary of

debits from card ending

ATM W/D $
Daily meals $

& Buffets $
Other entertainment $
Purchased items/Other $

, Groceries

etc. $
Total $

12

Schedule number or exhibit

Form 886-A EXPLANATIONS OF ITEMS

Name of taxpayer Tax Identification Number

did not provide contemporaneous substantiation to support these expenditures
served an exempt purpose.

Expenditures conducted by (debit card ending ) worth noting
include:
Date Amt Location IDR Substantiation: classification
$
Sponsored
for Couple
$ reported as "Family Entertainment"
$ reported as "Family Entertainment”
The above expenditures were reported on G/L as “Feed, Cloth, Underpriv”
[src}

• Daily & reoccurring fast-food purchases, & purchases
  totaled $ and were classified on G/L as “feeding and clothing
  the ”

• Airfare “travel” totaling $ . provided no further explanation or

contemporaneous substantiation.

• AS teller cash withdrawal conducted on classified on
  G/L as feeding and clothing the underprivileged. provided no
  further explanation or contemporaneous substantiation.

• • check numbers , , and for property maintenance, repairs
    and cleaning totaling $ ; Check numbers , 1 totaling $
    for bookkeeping/ return preparation; miscellaneous unexplained checks
    totaling $ . provided no contemporaneous substantiation to prove
    these expenditures served an exempt purpose. -

Summary of debits from card ending & other debits:
ATM W/D $
Daily meals $
Lavish Meals & Buffets $
Travel $

13

Schedule number or exhibit

Form 886-A EXPLANATIONS OF ITEMS

Name of taxpayer Tax Identification Number
Purchased items/Other $

, Groceries

etc.
Total debit card $
Total teller w/d & checks $
Total $

did not provide contemporaneous substantiation these expenditures served any
exempt purpose.

also provided interest free loans by the President during
and . The amounts are as follows:
$
$
$
$
$ Customer Withdrawal
$
Total Loan $

The ‘loans’ were explained as funds borrowed from the account by president of the
organization. Based on public record research, the loans were for some type of
down payment for non-exempt property purchase(s) owned by /

to be used as rental, office space or apartments.

Total expenditures during were $ (including loans)
The expenditures conducted by (debit cards ending and
) were similar to expenditures. Items worth noting include:
ATM cash withdrawals conducted at various totaling -
$ The withdrawals were classified as “transportation assistance” on

G/L which was provided in response to IDR 2.
Dining, buffets, Fast food purchases, etc. totaling $

Groceries totaling $

Total debit card and expenditures - $

14

Schedule number or exhibit
Form 886-A EXPLANATIONS OF ITEMS
Name of taxpayer Tax Identification Number
The expenditures conducted by (debit card ending ) were
similar to expenditures. Items worth noting include:
ATM cash withdrawals conducted at various totaling ATM

Withdrawals at casinos totaling $
Dining and fast-food purchases totaling $
Groceries totaling $

Other expenditures ( 1 ' '
, ) totaled $

Total Debit card expenditures $

Checks and other Debits

The following checks totaling $ were written to for ‘rent
payments’:
Date Check # Amt Payee memo
$ “Rent payment”
$ ‘rent from -
Checks and were written by to as the payee. Check
and was purportedly for end of the year rent for . In response to IDR 5,
stated that “* is and is

Trust. The trust does not have an EIN”

Note that Form and IDR 1 response reported that $ in occupancy /
rental expenses would be paid by the

Other transfers and payments to and flow-corporations owns
include:
Date Check # Amount Payee Memo Check Signer
$ Blank
Transfer $
$ Charitable

Assistance in

% owned by

15

Form 886-A

EXPLANATIONS OF ITEMS

Schedule number or exhibit

Name of taxpayer

Tax Identification Number

“withdrew check for $

number

Repayment
Of Travel
Expense to

for
date

response to IDR 5 stated check was a “loan to that has
since been reconciled on previously requested documents”; check number
for donation to different charitable organizations in
but only needed to ‘send $ . Deposited $
“repayment of ticket expense to
account for activities of ",

Summary of the transfers and check payments to

back in account”; check
for ticket bought from

[illegible]

ln

No contemporaneous substantiation has been provided to prove debit card purchases
served a charitable or tax-exempt purpose.

or checks and transfers to

The remainder of

Date

Check #

‘other’ expenditures include:

Amount Payee

$
$

16

Memo Check Signer
repair

Properties

Assistance

With Funeral
Expense for

Transport

Of Illegible

To picnic on
hrs.

Schedule number or exhibit
Form 886-A EXPLANATIONS OF ITEMS
Name of taxpayer Tax Identification Number
Total Other Expenses $
response to IDR 5 stated check was for “assistance with handyman
services to purchase and repair damaged residence for people who could not afford
it especially in the summer”; checks through were accounting fees for
books and tax return preparations; check was “to assist family going through
significan [sic] difficulties with funeral expenses”; check was " day (

hrs.) payment for driver to transport people to location picnic and back home”.

No contemporaneous substantiation has been provided to assert the Other expenses
served a charitable or tax-exempt purpose.

Total expenditures:
Debit Cards ( ' ' ) $
Transfers and check payments to $
Other Expenditures $
Total $
The expenditures conducted by (debit card ending )
Include:
ATM cash withdrawals conducted at various totaling $

Buffet dining at totaling $
Other Expenses $
Total $
The expenditures conducted by (debit card ending ) were
similar to & expenditures. Items worth noting include:

ATM cash withdrawals conducted at various totaling ATM

Withdrawals at casinos totaling $
Dining and fast-food purchases totaling $

Groceries totaling $

17

Schedule number or exhibit

Form 886-A EXPLANATIONS OF ITEMS

Name of taxpayer Tax Identification Number

Travel totaling $

Other debits $ (Internet and cable tv, furniture, insurance payment, DMV,
storage shed)

Total debits from card ending $

These expenditures remain unexplained and unsubstantiated.

Other debits payable to include:
Check number dated totaling $ was written by
to as the payee which stated in the memo “amount owed after

account reconciliation”.

has not provided contemporaneous substantiation or documentation to prove this
this expenditure served an exempt purpose.

on , conducted’ a bank teller withdrawal totaling $

Per minutes provided by the cash withdrawal was for a purported

project. The minutes discussed a “ to assist

with their construction project for orphans as well as provide food, total cost is
$ : representatives of the organization will be present at these
orphanages during to , after a brief discussion the board agreed”.

has not provided contemporaneous substantiation or documentation to prove this

this expenditure served an exempt purpose. Rather, provided vague and
generic donor acknowledgement letters dated & from “*

" a purported overseas entity. These letters were dated ( ) months
before the $ cash withdrawals. provided no other substantive

information. The required information must include specific accounting,
contemporaneous receipts, invoices & photo evidence, correspondence between parties
of the transactions, documents detailing of what type of assistance was given and
how much, to whom the grants were given (including contact information), whether
the recipient is a qualified charity or member of a charitable class, follow-up
grant reports, and other explanations (who, what, when, where, why, how?)

Furthermore, the donor ‘acknowledgement’ letters do not name as the donor the
donor.
Other unsubstantiated transfers to include a bank transfer
on totaling $ (Acct ending )
A bank teller withdrawal on totaling $

Unsubstantiated Checks include:

Checks written to totaling $ for bookkeeping/return
preparation. has not provided documentation that the bookkeeping expenditures
were solely for or whether the payments included bookkeeping fees for

other owned businesses.

18

Schedule number or exhibit

Form 886-A EXPLANATIONS OF ITEMS

Name of taxpayer Tax Identification Number

Other unsubstantiated checks include:

Date amt check # payee memo
$
$ Feeding the
$ Feed the we
$ Feeding... (illegible)
$ repayment for..illegible)
$
$
Total $
$ Legal Representation
Total Expenditures:
Debit Cards . $
Transfers and check payments to 3 $
Bookkeeping $
Other Expenditures $
Audit representation $
Total $
Note the other expenditures above ($ ) includes check number for $ on
payable to mother, board member and disqualified
person . This expenditure also remains unsubstantiated.
The only expenditure that was verifiable was the $ payment for audit
representation.
The expenditures conducted by (debit card ending )
Include:

ATM cash withdrawal totaling $

19

Schedule number or exhibit
Form 886-A EXPLANATIONS OF ITEMS
Name of taxpayer Tax Identification Number
The expenditures conducted by (debit card ending ) were
similar to ' , & expenditures. Items worth noting include:

ATM cash withdrawals conducted at various locations totaling $
Dining and fast-food purchases totaling $
Groceries totaling $
Other debits $ ( )
Total debits from card ending $

These expenditures remain unexplained and unsubstantiated.

Other debits payable to include:
Check number dated totaling $ was written by
to as the payee which stated in the memo “sponsoring different

food services for indigents ",

has not provided contemporaneous substantiation or documentation to prove this
this expenditure served an exempt purpose.

on conducted a bank teller withdrawal totaling

$ . Per minutes provided by the cash withdrawal was for a purported
project. The Minutes alluded to a $ donation

“to assist individuals and families in during this pandemic.”

has not provided contemporaneous substantiation or documentation to prove this
this expenditure served an exempt purpose.

and mother, ( ) also initiated several wire
transfers from the account to , aS seen
below.
Wire Transfers to
Date Amount Desription

TOTAL =

meeting minutes for made reference to the purchase of property
for approximately $ , “to erect a structure that can be allocated to families
in need for a specific period ( months) .” The minutes also hinted at another
loan from , president of

20

Schedule number or exhibit

Form 886-A EXPLANATIONS OF ITEMS

Name of taxpayer Tax Identification Number

No information was submitted that included specific accounting, contemporaneous
receipts, invoices & photo evidence, correspondence between parties of the
transactions, documents detailing of what type of assistance was given and how
much, to whom the grants were given (including contact information), whether the
recipient is a qualified charity or member of a charitable class, follow-up grant
reports, and other explanations (who, what, when, where, why, how?)

Other unsubstantiated transfers to include a bank transfer on
totaling $ (Acct # ending ). A Customer “image” withdrawal on
totaling $

Unsubstantiated Checks include:

Checks written to totaling $ for bookkeeping/return
preparation. has not provided documentation that the bookkeeping expenditures
were solely for or if the payments included bookkeeping fees for

other owned businesses.

Other unsubstantiated checks include:
Unsubstantiated Checks
DATE AMOUNT CHECK# PAYEE MEMO DESRIPTION
Feeding underpriveledged
House Supply of
Repayment of Expenses
Funeral Assistance During

Dealer Fees & Transportation

TOTAL

Total Expenditures:

Debit Cards $
Transfers and check payments to $
Bookkeeping $
Wire Transfers ( ) $
Payroll $
Other Expenditures $
Total $

21

Schedule number or exhibit
Form 886-A EXPLANATIONS OF ITEMS
Name of taxpayer Tax Identification Number
Note the other expenditures above ($ ) includes check number for on
payable to mother, board member and disqualified person
This expenditure also remains unsubstantiated.
The only verifiable expenditures were the $ payments for payroll.
Total - expenditures
Total
[illegible]
Review of summonsed bank information for its initial short year (

) and full year, bank accounts ( ), revealed 1st
transaction conducted was at , , , an all-you-can-eat
buffet at the . The transactions in and
mirrored the exam years’ transactions through . See attached Exhibit B.

received a donated van from a public entity and continues to solicit donations
from the State of , Federal Surplus Program; The Department of Social Service
in ; and

Law

Section 501(c)(3) of the Internal Revenue Code provides for exemption from taxation
for organizations "organized and operated exclusively for religious, charitable,
scientific, testing for public safety, literary, or educational purposes, or to
foster national or amateur athletic competition.., 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..."

Regulation Section 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 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."

Regulation Section 1.501(c) (3)-1(c) (2) Distribution of Earnings. — An organization
is not operated exclusively for one or more exempt purposes if its net earnings
inure in whole or in part to the benefit of private shareholders or individuals.
For the definition of the words private shareholder or individual, see paragraph(c)
of § 1.501(a)-1.

Regulation Section 1.501(a)-1(c) Related Private Shareholder or Individual Defined.
— The words private shareholder or individual in section 501 refer to persons
having a personal and private interest in the activities of the organization.

8 Includes purported loans

22

Schedule number or exhibit

Form 886-A EXPLANATIONS OF ITEMS

Name of taxpayer Tax Identification Number

Regulation Section 1.501(c)-1(d) (1) (ii) states that "An organization is not
organized or operated exclusively for one or more of the purposes specified ...
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."

Section 4958(f) of the Internal Revenue Code - Other definitions
(1) Disqualified person
The term “disqualified person” means, with respect to any transaction—

(A)any person who was, at any time during the 5-year period ending on the date of
such transaction, in a position to exercise substantial influence over the affairs
of the organization,

(B)a member of the family of an individual described in subparagraph (A),
(C)a 35-percent controlled entity,

(D)any person who is described in subparagraph (A), (B), or (C) with respect to an
organization described in section 509(a) (3) and organized and operated exclusively
for the benefit of, to perform the functions of, or to carry out the purposes of
the applicable tax-exempt organization,

(E)which involves a donor advised fund (as defined in section 4966(d)(2)), any
person who is described in paragraph (7) with respect to such donor advised fund
(as so defined), and

(F)which involves a sponsoring organization (as defined in section 4966(d)(1)), any
person who is described in paragraph (8) with respect to such sponsoring
organization (as so defined).

(2) Organization manager

The term “organization manager” means, with respect to any applicable tax-exempt
organization, any officer, director, or trustee of such organization (or any
individual having powers or responsibilities similar to those of officers,
directors, or trustees of the organization).

Regulation Section 1.6033-2(i) (2) provides that "Every organization which is exempt
from tax, whether or not it is required to file an annual information return shall
submit such additional information as may be required by the Internal Revenue
Service for the purpose in inquiring into its exempt status and administering the
provisions of subchapter F (section 501 and following), chapter 1 of subtitle A of
the Code..."

23

Schedule number or exhibit

Form 886-A EXPLANATIONS OF ITEMS

Name of taxpayer Tax Identification Number

Rev. Rul 59-95, An organization previously held exempt from Federal income tax was
requested to produce a financial statement as of the end of the year anda
statement of its operations during such year. However, its records were so
incomplete that it was unable to furnish such statements. Section 6033 of the
Internal Revenue Code of 1954 provides that every organization, except as provided
therein, exempt from taxation under section 501(a) of the Code shall file an annual
return, stating specifically the items of gross income, receipts, and
disbursements, and shall keep such records, render under oath such statements, make
such other returns and comply with such rules and regulations as the Secretary of
the Treasury or his delegate may from time to time prescribe. Held, failure or
inability to file the 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.

Rev. Rul. 56-304, Organizations privately established and funded as charitable
foundations which are organized and actively operated to carry on one or more of
the purposes specified in section 501(c) (3) of the Internal Revenue Code of 1954,
and which otherwise meet the requirements for exemption from Federal income tax are
not precluded from making distributions of their funds to individuals, provided
such distributions are made on a true charitable basis in furtherance of the
purposes for which they are organized. However, organizations of this character
which make such distributions should maintain adequate records and case histories
to show the name and address of each recipient of aid; the amount distributed to
each; the purpose for which the aid was given; the manner in which the recipient
was selected and the relationship, if any, between the recipient and (1) members,
officers, or trustees of the organization, (2) a grantor or substantial contributor
to the organization or a member of the family of either, and (3) a corporation
controlled by a grantor or substantial contributor, in order that any or all
distributions made to individuals can be substantiated upon request by the Internal
Revenue Service.

In John Marshall Law School v. U.S., 81-2 U.S.T.C. 9514 (Ct. Cl. 1981), in which
the Court found that the Commissioner acted properly in revoking exemption under
IRC 501(c) (3) on the grounds of inurement to the controlling officers and their
families. The inurement included, but was not limited to, payments to the families
as follows: automobile, education and travel expenses, insurance policies,
basketball and hockey tickets, membership in a private eating establishment,
membership in a health spa, interest-free loans, home repairs, personal household
furnishings and appliances, and golfing equipment.

Better Business Bureau v. United States, 316 U.S. 279 (1945), holds that the
existence of a single non-exempt purpose, if substantial in nature, will destroy
the exemption under section 501(c) (3). An organization will be regarded as operated
exclusively for one or more exempt purposes only if it engages primarily in
activities that accomplish one or more of such purposes.

24

Schedule number or exhibit

Form 886-A EXPLANATIONS OF ITEMS

Name of taxpayer Tax Identification Number

In 63-1 USTC ¶ 9200, Cleveland Chiropractic College, a Corporation, Petitioner v.
Commissioner of Internal Revenue, Respondent, --, (Jan. 17, 1963) Affirming Tax
Court, 21 TCM 1, Dec. 25,299(M), T. C. Memo. 1962-1 [1939 Code Sec. 101(6)--similar
to 1954 Code Sec. 501]--The court found: “A college was not entitled to exemption
from corporate income tax for 1948-1951 where part of the net earnings of the
college was found to have inured to the benefit of one of its trustees through
payment of his personal expenses.”

In 60-1 USTC ¶ 9371, Birmingham Business College, Inc.; John Ike Griffith; Hulon A.
Spears and Audrey Spears; Carl B. Carter and Jewell Carter, and Jewell Carter,
Petitioners v. Commissioner of Internal Revenue, Respondent , (Apr. 04, 1960);
The court found that: “Taxpayer, an incorporated business college owned and
operated by a brother and two sisters, was not a tax-exempt educational ...
Substantial portions of its net earnings were distributed to its owner-operators
for their personal benefit.”

IRC 6652
(c) Returns by exempt organizations and by certain trusts
(1) Annual returns under section 6033(a) (1) or 6012 (a) (6)
(A) Penalty on organization. In the case of—

(i)a failure to file a return required under section 6033 (a) (1)
(relating to returns by exempt organizations) or section 6012 (a) (6)
(relating to returns by political organizations) on the date and in the
manner prescribed therefor (determined with regard to any extension of
time for filing), or

(ii) a failure to include any of the information required to be shown
on a return filed under section 6033(a) (1) or section 6012 (a) (6)

or to show the correct information, there shall be paid by the exempt
organization $20 for each day during which such failure continues. The
maximum penalty under this subparagraph on failures with respect to any
1 return shall not exceed the lesser of $10,000 or 5 percent of the
gross receipts of the organization for the year. In the case of an
organization having gross receipts exceeding $1,000,000 for any year,
with respect to the return required under section 6033(a) (1) or section
6012(a) (6) for such year, in applying the first sentence of this
subparagraph, the amount of the penalty for each day during which a
failure continues shall be $100 in lieu of the amount otherwise
specified, and, in lieu of applying the second sentence of this
subparagraph, the maximum penalty under this subparagraph shall not
exceed $50,000.

Government's Position:

25

Schedule number or exhibit

Form 886-A EXPLANATIONS OF ITEMS

Name of taxpayer Tax Identification Number

failed the operational test of IRC
501(c) (3) on the following grounds:

(1) Inurement of the organization’s income and assets

Disqualified Persons

and are disqualified persons with respect to

Both are organizational managers that possess signature authority and debit

cards over bank account; and control the affairs . and
are also disqualified persons, as they serve on board of

directors, which constitute organizational managers. They were also able to
exercise substantial influence over the affairs of the organization.
is also a disqualified person by being a family member (Ancestor) to

earnings inured to the benefit of its disqualified persons and private
shareholders and . operates to fund their
gambling habits, personal entertainment, buffets, travels, and other personal
purposes.

Analysis of the bank records reveals the total economic benefit provided to

by was $ during the -year period. These expenditures
were personal in nature and did not serve any exempt purpose and constitute
inurement:

• Total
  ATM W/D $ $ $ $ $
  Daily meals $ $ $

$ $ $
Entertainment $ $
Purchased Other $ $ $ $

, Groceries

etc. $ __$ $ $
Total $ $ $ $ $
The total economic benefit provided to by was $
during the -year period (inclusion of the year to capture forgiven loan).

These expenditures were personal in nature and did not serve any exempt purpose:

26

Schedule number or exhibit
Form 886-A EXPLANATIONS OF ITEMS
Name of taxpayer Tax Identification Number
Total
ATM W/D $ $ $ $
Daily meals $ $ $ $ $
$ $
Travel $ $ $
Purchased Other $ $ $ $
, Groceries
etc. $ $ $ _$ $
Total $ $ $ $ $
Checks, transfers and other debits for the benefit of include but not
limited to:
check numbers , , and for property maintenance, repairs and
cleaning totaling $ ; a teller withdrawal totaling $ ; Check numbers ,
, totaling $ for bookkeeping/ return preparation; miscellaneous
unexplained checks deemed personal & totaling $
check number totaling $ for property repairs; check numbers
and totaling $ for purported rent payments; online banking transfer &
check numbers , , consisting of unsubstantiated payments /
distributions of funds to totaling $ , check numbers
, , , totaling $ for bookkeeping / return preparation;
unexplained and unsubstantiated checks & totaling $
Teller cash withdrawals totaling $ , online bank transfers totaling
$ ; check numbers , , , , , ,
, , , , , totaling $ for bookkeeping / return
preparation; unexplained checks , , , totaling $ ; Check
number totaling $ consisting of a distribution to
Teller cash withdrawals totaling $ , online bank transfers to account#
ending , totaling $ ; wire transfers to , totaling
$ ; check numbers , , , , totaling $ for bookkeeping /
return preparation; withdrawals and checks, numbers , , , totaling
$ for cable/internet; unexplained checks ' , ' totaling
$ ; Check number totaling $ consisting of a distribution to
Total Benefits to which constitute inurement:

27

Schedule number or exhibit

Form 886-A EXPLANATIONS OF ITEMS

Name of taxpayer Tax Identification Number

Total

$ $ $ °$ $

The Combined economic benefit provided to ‘s disqualified persons totals
$ ( - , includes loan forgiveness) .

The organization’s total expenditures (including loans issued) for through
was $ . The only verifiable expenditures were professional / legal
fees paid to current representative, the / , totaling
$ , and payroll amounts (Total $ ) to and
. The total inurement of income and assets by the disqualified
persons’ equals 1 % during -

and received improper economic benefits from
transactions over the course of , , , & . They used

funds for personal purposes unrelated to furthering an exempt purpose. The
expenditures were not remuneration for the performance of services as the exam
concluded that did not conduct any activities. Furthermore, did not file
any Forms W-2 or 1099- Miscellaneous. reported on both Forms and
that no compensation would be paid to the disqualified persons. There is no other
evidence, contracts, agreements or claims to suggest these expenditures were
consideration for the performance of services.

In addition to the gambling & entertainment, buffets, travel, groceries, transfers
and dividend type distributions, loan forgiveness, and other personal items, the
inurement includes checks written to family members - disqualified persons
for repairs of personal and business properties.
does not own any property, nor does it engage in any activity that would
warrant such expenditures.

The bank transfers and dividend type distributions conducted in and are
not loans or payments for charitable endeavors. For instance, the
$ check written to clearly stated these funds were owed to

as the check memo stated, “amount owed after account reconciliation”.
Furthermore, the and cash withdrawals totaling $ and $
respectively, nor the wire transfers totaling $ to the
during , constitute charitable expenditures as the exam concluded the is a

sham organization conducting no charitable activity.

has not provided contemporaneous substantiation or sufficient documentation to

show these expenditures served an exempt purpose. provided no evidence that it
exercised any expenditure responsibility regarding these purported foreign
charitable grants. did provide board approval minutes and generic donor
acknowledgement letters from “ ", or any other source. The

° Includes Loan Forgiveness of $

[illegible]
28

oe

Schedule number or exhibit

Form 886-A EXPLANATIONS OF ITEMS

Name of taxpayer Tax Identification Number

acknowledgement letters submitted, fail the substantiation requirements based on
the following information:

• The letters were dated and , months before the
  $ withdrawals occurred.

• The letters do not specify as the donor the donor.

• The letters do not specify what was given and how, why and when

did not provide expenditure responsibility or other substantiation, such as
line-by-line accounting, contemporaneous receipts, invoices & photo evidence,
descriptions of the type of assistance given, to whom, evidence that the recipients
are of a charitable class or is a qualified charitable organization.

Board of Directors are ‘in name only’ because the Board is complacent and
does not exercise fiduciary care because they allowed and failed to prevent the

inurement of assets by and . The board also

failed to compel accounting and expense authorization from and
Furthermore, the Board of Directors also participates in the inurement

of assets, as of board members received unsubstantiated payments

from during the exam period that was not reported on Forms

The $ cash withdrawals conducted by constitute inurement of

income and assets, and the acknowledgement letters and board approval are
false attempts to legitimize the inurement.

The inurement of income and assets is exacerbated further by the fact that
has attempted to pass off these personal expenditures as legitimate expenses;

aimed at serving purported mission to clothe and feed the

has not provided substantiation that the bookkeeping and return preparation were

exclusively for as opposed to his personal for-profit entities. As a result,

bookkeeping and tax return preparation expenditures are also deemed personal.

The Revenue Agent attempted to get further clarification from as to how its
expenditures, which appeared highly personal in nature, served to further
tax-exempt purposes. responses ranged from wholly unbelievable to
obstructionist. For example, in one response, claimed that the numerous cash
withdrawals and conducted at casinos were for “yard
sales”. In a separate response to the Revenue Agent’s requests for detailed
information on the patients that helped support, the organization
simply replied, “Absolutely not.”

paid $ in ‘rent’ expense during , yet inexplicably produced a
rental agreement!? stating would not charge rent. Form
and Forms reported $ in occupancy expenditures. The exam of concludes
that it only operates to serve and and does not engage
11 In initial IDR 1 response for the year.

29

Schedule number or exhibit
Form 886-A EXPLANATIONS OF ITEMS
Name of taxpayer Tax Identification Number
in any activity to support the rental expense paid by to isa

valid expense. The rent expense is an improper payment and constitutes inurement.
The disqualified persons siphoned nearly % of funds for the years ,

, & . This constitutes inurement and is explicitly prohibited in IRC Code
Section 1.501 (c) (3)-1(c) (2), Distribution of Earnings.

operated like the organizations described in and
Better Business Bureau. Those organizations were revoked due to inurement in the
form of various improper payments to the controlling officers and their families.

The continued and constant inurement of assets demonstrate that there is no
accountability, internal controls or safeguards in place to protect assets.
There is no independent board oversight preventing the commingling and inurement of
the organization’s funds and assets. The board of directors is comprised of all
family members who also participate in the inurement (to a lesser degree).

(2) has not engaged in any exempt activity during its entire existence.
expenditure incurred was in , which was a $

expenditure at the in , , for an all-you-can eat

buffet located in the - transactions from

through mirrored the inurement transactions of - . The Internal

Revenue Service requested that the organization provide specific information about

its activities during the years ending ' , , &

has refused to provide information on its charitable activity and has refused to
show its transactions served an exclusive charitable purpose.

will not identified any individuals it purportedly assisted, nor will it
describe a selection process used to screen and award a potential candidate.
did not provided verification documents, or organizational policies describing its
selection process. does have a website to advertise its services and is not
located or referenced in any online directory as a provider assistance.

attempted to circumvent the substantiation requirement by falsely claiming it
is a HIPAA covered entity subject to HIPAA’s disclosure and confidentiality rules.
However, is not a covered healthcare provided under HIPAA because it does not
furnish, bill, or receive payment for healthcare, nor does it transmit (send) any
covered transactions electronically in the normal course of business. More
importantly, has not satisfied the record keeping requirements of Rev. Rul.
56-304.

As required by Revenue Ruling 56-304, the organization did not provide any records
to show that it continues to operate for exempt purposes; and has failed to comply
with the provision of section 6033 of the Code. An exempt organization must
respond to Internal Revenue Service inquiries to establish that it is entitled to
tax exempt status. In this case, the organization did not provide adequate records
to show it was operated exclusively for exempt purposes. The primary position

30

Schedule number or exhibit

Form 886-A EXPLANATIONS OF ITEMS

Name of taxpayer Tax Identification Number

outlined above further demonstrates that the organization’s assets inured to its
private shareholder.

Despite not conducting any charitable activity and transferring exclusively
all of its assets to and ' as president of
the continues to solicit donations from the State of '
falsely claiming the is engaged in charitable activity; The
in ' ; and

has operated as a sham charity since inception.

Penalties under 6652(c) (1) (A) (ii)

Part III, Statement of Program Service Accomplishments

reported its primary exempt purpose was to “provide crucial resources to the
elderly, disable and displaced persons in our local community and in . Such
crucial resources are foods [sic], clothing, and transportation assistance to
doctor’s visits

reported on Line 28 and Line 4 (Form , ) that it provided food and
clothing to over people in both and in : $ , $ , $
& $ for the respective , 1 , and years.

Line 29 reported that provided transportation assistance for doctor’s visits -
blank ( ), $ & $ for the respective , and years.

Line 30 reported that provided medical equipment to the sicks [sic] - and did
not quantify the amounts.

attached Schedule O, Supplemental information, to its and Form

which listed the following “other” expenditure explanations and its “other
asset”:

31

Form 886-A

EXPLANATIONS OF ITEMS

Schedule number or exhibit

Name of taxpayer

Tax Identification Number

Forms & Form

Schedule O Information

Transportation
Bank Fee

Feeding & Clothing
in and
Liabbility Insurance
Promotion

‘Utilities

Receivable Loan
Amended

Accounting Fees

Auto Expenses
Benevolence

Bank Charges

Feeding & Clothing
Insurance

Maintenance and Repair
Office Supplies

Postage and Shipping
Rent

Supplies

Travel

Transportation Assistance
License and Permits

Receivable Loan

Accounting Fees

Auto Expenses
Benevolence
Transportation Assistance
Bank Charges

Feeding & Clothing
Insurance

License and Permits

Volunteers Meals and Snacks

Maintenance and Repair
Office Supplies

Postage and Shipping
Rent

Supplies

Telephone Exp

Travel

Utilities

Receivable Loan

Foreign Mission Exp
Insurance Expense

Postage & Shipping
Profession! & Legal Services
Sipplies Expense

Other Expenses & Fees & Perm
Telephone expense

Utilities

32

Schedule number or exhibit
Form 886-A EXPLANATIONS OF ITEMS
Name of taxpayer Tax Identification Number
This reporting on the Form is false. None of activities or
expenditures during ' , and served a tax-exempt purpose, rather,
its income and assets inured to the benefit of the insiders and

Part IV, Officers Directors, Trustees, Key Employees

The organization reported the governing body as follows:

Name Average hrs. per wk. Compensation
, President $

, Secretary /

Treasurer ‘ $
, Director $
, Director $
, Director $
This reporting on the Form is false. The total benefit provided by the
organization to the disqualified persons was substantial and included payroll
( ) to of $ during the -year exam period.

Part VI, Other Information

checked negatively “No” to the following questions:
Line 33, “did the organization engage in any significant activity not previously
reported to the IRS? If Yes, provide a detailed description of each activity in

Schedule O.”

This reporting is false because did not disclose to the Service that it
exclusively served the benefit of the founders.

Line 38 (a) asked, “did the organization borrow from, or make any loans to, any
officer director, trusted, or key employed or were any such loans made in a prior
year and still outstanding at the end of the tax year covered by this return? (b)
if yes, complete Schedule L, Part II and enter the total amount involved.”

Schedule L was not attached to the - Forms

33

Schedule number or exhibit

Form 886-A EXPLANATIONS OF ITEMS

Name of taxpayer Tax Identification Number

Line 40 (b) asked “Did the organization engage in any section 4958 excess benefit
transaction during the year, or did it engage in an excess benefit transaction in a
prior year that has not been reported on any of its prior Forms or ? If
yes, complete Schedule L, Part I.”

This reporting is false because the exam determined that did engage in excess
benefit transactions under 4958 during all years with its disqualified persons.
Schedule I was not attached to the - Forms , or Form for

Taxpayer's Position:

The organization has not submitted its position.

Conclusion:

Revocation of tax-exempt status
under 501(c) (3) is proposed because (1) the assets inured to the organization's
disqualified persons and and (2) has not

conducted any charitable or exempt activity (since inception) and failed to failure
to provide records to the Service regarding its expenditures. Exemption under Code

section 501(c) (3) for should be
revoked retroactively effective . The organization is required to
file Forms for all taxable years.

has failed to show the correct
information on its Forms or Form , as required by section 6033(a) (1) for
the years ending through . The organization has not
established reasonable cause and is therefore liable for penalties described under
IRC Sec. 6652(c) (1) (A) (ii). The penalty prescribed by §6652(c) of $ per day will
be utilized for computational purposes as the organization has received less than

$ in gross receipts during each of the years.

Forms & Form
Gross Receipts $ $ $ $
Due Date
Days¹²
Rate $ per day $ $ $ $
Penalties $ $ $ $
Total :

12 Report date

34

Exhibit A

DESCRIPTION OF SERVICES BY THE

We are well aware that has a. and
crisis. These people are left to live in the streets, sleeping on street
side walks and park benches while the government continues to scramble for

solution for many years.

Since, its establishment in >
have-partnered with many hospital discharge planners and owners of independent
living houses especially in and . These independent living
houses independently may house to individuals and or families for a short
time following hospital discharge, preventing them from being discharged to a
shelter. There are at least independent living houses operating in
and they have sheltered over people since . While shelter
is provided, these house owners are not always able to meet the needs of these
individuals and requires assistance from organizations such as the
to provide meals and assistance to individuals until
they are able to secure their own housing, transportation and financing. Here are a
few addresses that have been supported by our organization since ;

•
•
•
•
•
•
•
•
•
•
•
•
•
•

Exhibit A

•
•
•
•
•
•
•
•
•
•
•
•
•
•
•

Explanation of how decide to help:

Board members of have a relationship with the community house owners
and managers who identify independent living homes in the community. Known
to our organization, independent living homes houses people of low income as well
as no income. Due to this income deficiency, multiple adults share a living space

Exhibit A

so they can share the expenses and this leaves them little or nothing to survive on.
will provide these individuals

food, transportation and sometimes pay a small fee for individuals to allow them to
reside in certain homes for a short period of time until their financial restrictions

are lifted.
Criteria for Helping those in Need:

• Before individuals are accepted into independent living houses, their incomes are

verified by hospital case managers as well as house owners and managers, Keep in

mind that the average monthly payment by the state of for
persons are $ which they are expected to pay for housing, food and

maintenance.

Exhibit B

account Year Ending

Debit Card Ending Debit Card Ending
date amount description date amount description
$ Transfer to savings
$ ATM W/D
$
$
$
$
$
$
$ W/D -
$
$
$ W/D - DR ( )
$ W/D - L

Exhibit B

$ Service Fees
$ W/D - DR ( )
$ W/D - ( )
$ W/D - ( )
$ W/D -
$ service fees
$ TLR w/d
$ TLR w/d (loan)
$ w/d - (loan)
$ W/D -
$ W/D -
$
$
$
$
$ W/D -

Exhibit B

$ service fees
$ W/D -
$ W/D -
$ W/D -
$ W/D -
$ Service Fee
$ W/D -
$ W/D -
$ W/D -

Exhibit B

$ Service Fees
$
$
$ W/D -
$
$ W/D -
$ W/D -
$ Service Fees
$ W/D -
$
$ W/D -
$ Service Fees
$ W/D
$

Total $

Exhibit B

Account Short Year Ending

Date Credit Debit Payee Memo Debit Card # Balance
$ - Checking Opening Deposit
$ Interest Payment
$
$
$
$
$
$ Check
$ - Interest Payment
$ W/D
$ W/D
$ W/D

Grand Total $ Total Expenditures including loans
Less Loans Issued
Less Tax Law Center -$
Plus Loan Forgiveness
total benefits $

%