501(c)(3) status revoked for failing to produce records during an audit

Plain-English summary

The IRS revoked a charity's 501(c)(3) exemption because it would not turn over the financial records the IRS needed to audit it. The examiner spent months trying: the first appointment letter came back undeliverable, the director gave a new address, more letters and information document requests followed, two extensions were granted, and delinquency notices went out. The director kept asking for more time and eventually sent only a partial response. The specific items the IRS asked for but never got were bank statements, cancelled checks, and invoices. Without those records, the IRS could not confirm the organization was operated exclusively for exempt purposes or that no earnings benefited insiders. Under Code sections 6001 and 6033 (and Rev. Rul. 59-95), an exempt organization must keep adequate records and produce them on request; failure to do so can end its exemption. The IRS revoked the exemption back to the first day of the first tax year examined. Contributions are no longer deductible, and the organization must file corporate income tax returns (Form 1120).

Ruling snapshot

• Question: Should a 501(c)(3) organization keep its exemption when it fails to produce the records needed to verify it operates for exempt purposes?
• Outcome: Revocation (final adverse determination)
• Key authorities: IRC § 501(c)(3); IRC §§ 6001, 6033(a)(1); Treas. Reg. §§ 1.6001-1(e), 1.6033-2(i)(2); Rev. Rul. 59-95

Full text (IRS public release)

Department of the Treasury                       Date: December 15, 2022
Internal Revenue Service                         Taxpayer ID number (last 4 digits):
Tax Exempt and Government Entities
IRS                                              Form:

Release Number: 202319020                        Tax periods ended:
Release Date: 5/12/2023
UIL Code: 501.03-00                              Person to contact:
                                                 Name:
                                                 ID number:
                                                 Telephone:
                                                 Fax:

                                                 Last day to file petition with United States
                                                 Tax Court:

                                                 Tuesday, March 15, 2023
CERTIFIED MAIL - Return Receipt Requested
Dear

Why we are sending you this letter
This is a final determination that you don’t qualify for exemption from federal income tax under Internal
Revenue Code (IRC) Section 501(a) as an organization described in IRC Section 501(c)(3), effective
     . Your determination letter dated       , is revoked.

Our adverse determination as to your exempt status was made for the following reasons: You have failed to
produce documents to establish that you are organized and operated exclusively for exempt purposes within the
meaning of IRC Section 501(c)(3). You failed to respond to repeated reasonable requests to allow the Internal
Revenue Service to examine your records regarding your organization and activities as required by IRC Sections
6001, 6033(a)(1) and Revenue Ruling 59-95, 1959-1 C.B. 627. In our letters dated       ,
     ,       , and       , we requested information necessary to
conduct an examination of your Form       for the year ended       . We have not received the
requested information. Section 1.6033-2(i)(2) of the Income Tax Regulations provides, in part, that every
organization which is exempt from tax, shall submit such additional information as may be required by the
Internal Revenue Service for the purpose of inquiring into its exempt status. Since you have not provided the
requested information, you have failed to establish that you are operated exclusively for exempt purposes within
the meaning of IRC Section 501(c)(3) and that no part of your net earnings inure to the benefit of private
shareholders or individuals.

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 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 can file an action for declaratory judgment under the provisions
of Section 7428 of the Code in either:

Letter 6337 (Rev. 8-2022)
Catalog Number 74808E


* The United States Tax Court,
* The United States Court of Federal Claims, or
* The United States District Court for the District of Columbia

You must file a petition or complaint in one of these three courts within 90 days from the date we mailed this
determination letter to you. You can download a fillable petition or complaint form and get information about
filing at each respective court's website listed below or by contacting the Office of the Clerk of the Court at one
of the addresses below. Be sure to include a copy of this letter and any attachments and the applicable filing fee
with the petition or complaint.

You can eFile your completed U.S. Tax Court petition by following the instructions and user guides available
on the Tax Court website at ustaxcourt.gov/dawson.html. You will need to register for a DAWSON account to
do so. You may also file your petition at the address below:

United States Tax Court
400 Second Street, NW
Washington, DC 20217
ustaxcourt.gov

The websites of the U.S. Court of Federal Claims and the U.S. District Court for the District of Columbia contain
instructions about how to file your completed complaint electronically. You may also file your complaint at one of
the addresses below:

US Court of Federal Claims
717 Madison Place, NW
Washington, DC 20439
uscfc.uscourts.gov

US District Court for the District of Columbia
333 Constitution Avenue, NW
Washington, DC 20001
dcd.uscourts.gov

Processing of income tax returns and assessments of any taxes due will not be delayed if you file a petition for
declaratory judgment under IRC Section 7428.

We'll notify the appropriate state officials (as permitted by law) of our determination that you aren’t an
organization described in IRC Section 501(c)(3).

Letter 6337 (Rev. 8-2022)
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:

Internal Revenue Service
Taxpayer Advocate Office

Or call TAS at 877-777-4778. For more information about TAS and your rights under the Taxpayer Bill of Rights,
go to taxpayeradvocate.IRS.gov. Do not send your federal court pleading to the TAS address listed above.
Use the applicable federal court address provided earlier in the letter. Contacting TAS does not extend the time
to file an action for declaratory judgment.

Where you can find more information
Enclosed are Publication 1, Your Rights as a Taxpayer, and Publication 594, The IRS Collection Process, for
more comprehensive information.

Find tax forms or publications by visiting 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.

You may fax your documents to the fax number shown above, using either a fax machine or online fax service.
Protect yourself when sending digital data by understanding the fax service's privacy and security policies.

Keep the original letter for your records.

Sincerely,

[illegible signature]
Lynn A. Brinkley
Acting Director, Exempt Organizations Examinations

Enclosures:
Publication 1
Publication 594
Publication 892

Letter 6337 (Rev. 8-2022)
Catalog Number 74808E


Department of the Treasury                       Date: June 16, 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:
                                                 July 16, 2022

CERTIFIED MAIL — Return Receipt Requested
Dear

Why you’re receiving this letter

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

If you agree

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

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

If you disagree

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

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

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).

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

Sincerely,

[illegible signature]
Lynn A. Brinkley
Acting Director, Exempt Organizations
Examinations

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

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


Form 886-A          Department of the Treasury — Internal Revenue Service          Schedule number or exhibit
(May 2017)          Explanations of Items                                          A
Name of taxpayer          Tax Identification Number (last 4 digits)          Year/Period ended

ISSUE:
Whether       (       ) qualifies for exemption under section 501(c)(3) of
the Internal Revenue Code as a public charity after failure to provide requested information.

FACTS:

     (       ) was granted tax-exempt status in       under
Internal Revenue Code Section (IRC or Code) 501(a) as an organization described in
501(c)(3).

On       the Agent was assigned the year to examine. On       the Agent
prepared Letter 6031, Initial Appointment Letter with Information Document Request #1 (IDR)
Form 4564, requesting information to determine if       was compliant with its filing requirements.
This letter was mailed by the Group Manager. On       , the mail was returned undeliverable.

On       , the Agent called and spoke to the Director listed on a prior year return and was
provided with a new address. On       a second copy of Letter 6031, Initial Appointment
Letter with IDR #1, requesting information and written request for current address, was mailed by
the Group Manager. On       , the mail was returned undeliverable because it was mailed to
the old address (envelope was not addressed to the new address).

On       , the Agent re-mailed second copy of Letter 6031 with IDR #1 to the new address.
On       , Agent made a follow-up call to the Director and was informed that he still had not
received Letter 6031. Agent mailed Letter 6031 again with IDR #1 to the new address. On
     , Agent received a voicemail from the Director acknowledging receipt of Letter 6031. On
     , Agent mailed Letter 5798 granting a 15-day extension. On       , per the
Director's request, a second extension was requested and approved by the group manager.
Letter 5798 was mailed and emailed, per officer’s written request dated       . Also, a second
IDR #2 was mailed on       with the extension which requested additional information to
determine compliance with other requirements, as suggested by the Group Manager.

Several calls were made to the Director; however, no response to IDRs #1 or 2 was received. At
the approval of the Group Manager, Agent issued a Letter 5077-B and 5077-D, Delinquency
Notices on       .

Director requested more time to respond on       . Due to lack of response to Letter 5077-B
and 5077-D, Agent was instructed by the Group Manager on       to call the Director and
inform him that if the information is not received in the next two weeks, we will propose revocation.
After phone-call to the Director on       , provided a partial response to the Internal
Revenue Service correspondence for the tax period ended       .

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


Form 886-A          Department of the Treasury — Internal Revenue Service          Schedule number or exhibit
(May 2017)          Explanations of Items                                          A
Name of taxpayer          Tax Identification Number (last 4 digits)          Year/Period ended

Without all the financial documents requested we cannot determine that the organization is
operating within the meaning of 501(c)(3). Therefore, because of lack of responsiveness to
our requests we are proposing revocation of their exempt status.

The items requested but never received are as follows:
a. bank statements, cancelled checks, and
b. invoices.

LAW:

Internal Revenue Code section 6001 provides that every person liable for any tax imposed by the
Internal Revenue Code, or for the collection thereof, shall keep adequate records as the Secretary
of the Treasury or his delegate may from time to time prescribe.

Internal Revenue Code section 6033(a)(1) provides that every organization exempt from taxation
under section 501(a) shall file an annual return, stating specifically the items of gross income,
receipts, and disbursements, and such other information for the purpose of carrying out the
internal revenue laws as the Secretary may by forms or regulations prescribe, and shall 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.

Federal Tax Regulations section 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 officers or
employees and shall be retained so long as the contents thereof may become material in the
administration of any internal revenue law.

Federal Tax Regulations 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 return of information, shall submit such
additional information as may be required by the Internal Revenue Service for the purpose of
inquiring into its exempt status and administering the provisions of subchapter F (section 501 and
the following), chapter 1 of the Code and section 6033 of the Code.

Revenue Ruling 59-95, 1959-1 C.B. 627, concerns an exempt organization that was requested to
produce a financial statement and statement of its operations for a certain year. However, its
records were so incomplete that the organization was unable to furnish such statements. The
Service held that the failure or inability to file the required information return or otherwise to
comply with the provisions of Internal Revenue Code section 6033 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 exempt status.

In accordance with the above cited provisions of the Code and regulations under sections 6001
and 6033 as well as the revenue ruling, organizations recognized as exempt from federal income

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


Form 886-A          Department of the Treasury — Internal Revenue Service          Schedule number or exhibit
(May 2017)          Explanations of Items                                          A
Name of taxpayer          Tax Identification Number (last 4 digits)          Year/Period ended

tax must meet certain reporting requirements. These requirements relate to the retention of
records sufficient to determine whether such entity is operated for the purposes for which it was
granted tax-exempt status and to determine its liability for any unrelated business income tax.

TAXPAYER'S POSITION:

The taxpayer's position is unknown currently.

GOVERNMENT’S POSITION:

The purpose of this examination as noted in appointment Letter 6031 was to ensure compliance
with federal tax requirements. We were unable to ensure compliance because information
requested was not supplied.

The above cited Internal Revenue Code and Federal Tax Regulations make it clear that an
organization must maintain adequate books and records for inspection by authorized internal
revenue officers or employees. Adequate books and records shall be retained so long as the
contents thereof may become material in the administration of any internal revenue law. Revenue
Ruling 59-95 held that failure or inability to file the required information return or otherwise to
comply with the provisions of section 6033 of the Code and the regulations which implement it,
may result in the termination of the exempt status of an organization previously held exempt
because the organization has not established that it is observing the conditions required for the
continuation of an exempt status. Accordingly, failure to provide the requested information
should result in the loss of their exempt status.

CONCLUSION:

It is the position of the Internal Revenue Service that the organization failed to meet the reporting
requirements under IRC sections 6001 and 6033 to be recognized as exempt from federal income
tax under IRC section 501(c)(3). Accordingly, we are proposing that the organization’s exempt
status be revoked effective       , the first day of the first tax year under examination.

Since the organization will no longer have tax-exempt status beginning       , it is
required to file Form 1120, U.S. Corporation Income Tax Return, as of that date.

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