501(c)(3) status revoked for failing to respond to an audit and for defective organizing documents

Plain-English summary

The IRS revoked a group's recognition as a tax-exempt charity under section 501(c)(3). The organization was selected for audit, but it never provided the records the IRS repeatedly asked for. The examiner sent multiple letters (several returned undeliverable or unclaimed) and reached the officers by phone; the officers said the organization had some revenue but little activity and were undecided whether to shut down or adopt a new exempt purpose, but they never produced the documents. On top of the non-response, the IRS found the organization's Articles of Incorporation did not contain the purpose-limitation and asset-dedication (dissolution) clauses that section 501(c)(3) requires, so it flunked the "organizational test" as well. Because an organization has to keep records and prove it still qualifies (Code sections 6001 and 6033), and this one did neither, the IRS issued a final adverse determination revoking exemption. The practical effect: the organization must file regular corporate income tax returns going forward, and donors can no longer deduct contributions to it under section 170.

Ruling snapshot

• Question: Should a 501(c)(3) organization's exempt status be revoked when it fails to respond to an audit, produce records, or maintain organizing documents that meet the organizational test?
• Outcome: Revocation (final adverse determination)
• Key authorities: IRC § 501(c)(3); IRC §§ 6001, 6033; Treas. Reg. §§ 1.501(c)(3)-1, 1.6033-1(h)(2); Rev. Rul. 59-95

Full text (IRS public release)

Department of the Treasury                       Date:
Internal Revenue Service                         January 13, 2023
Tax Exempt and Government Entities               Taxpayer ID number (last 4 digits):

                                                 Form:

                                                 Tax periods ended:
Release Number: 202319025

Release Date: 5/12/2023                          Person to contact:

UIL Code: 501.03-00                              Name:
                                                 ID number:

                                                 Telephone:
                                                 Fax:

                                                 Last day to file petition with United States
                                                 Tax Court:

                                                 April 13, 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:

In our letters dated       ,      ,      , and       ,     , we requested
information necessary to conduct an examination of your Form 990-EZ for the year ended       .
We have not received the requested information. Treasury Regulation Section 1.6033-2(i)(2) 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.

Because 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. Form
     , should be filed for the tax periods after       ,

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.

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.

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


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                       July 6, 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:
                                                 August 5, 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,

for Lynn A. Brinkley
Acting Director, Exempt Organizations Examinations

Enclosures:

Form 886-A
Form 6018
Form 4621-A
Publication 892
Publication 3498-A

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


Form 886-A         Department of the Treasury - Internal Revenue Service        Schedule No. or
                   Explanation of Items                                          Exhibit
Name of Taxpayer                                 Year/Period Ended
                                                 Date of Notice:
Issues:
Whether       (the organization), which qualified for
exemption from Federal income tax under Section 501(c)(3) of the Internal Revenue Code,
should be revoked due to its failure to respond and produce records to substantiate that
the organization is meeting the organizational and operational tests?

Facts:
     applied for tax-exempt status by filing the Form
     , on       ,      , and was granted tax-exempt status as a
501(c)(3) on       ,      , with an effective date of       ,

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

Section 501(c)(3) requires that an organizing document must limit your purposes to one
or more exempt purposes within section 501(c)(3). The organization attested that their
organizing document contains this limitation.

They also attested that their organizing document does not expressly empower you to
engage, otherwise than as an insubstantial part of your activities, in activities that in
themselves are not in furtherance of one or more exempt purposes.

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

An organization exempt under 501(c)(3) needs to be organized and operated exclusively
for religious, charitable, scientific, testing for public safety, literary or educational purposes
and to foster national and amateur sports competition.

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

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

The organization has not filed a Form       series return for the tax years
     through       , tax year.

Form 886-A (Rev. 4-68)        Department of the Treasury - Internal Revenue Service
Page: -1-

Form 886-A         Department of the Treasury - Internal Revenue Service        Schedule No. or
                   Explanation of Items                                          Exhibit
Name of Taxpayer                                 Year/Period Ended
The Form       application list the phone number of ( +) - for the director
of       .
Per the       website, it lists the organization as in good standing.
Articles of Incorporation were found on the       website. The Articles of
Incorporation do not contain the required provisions limiting activities and dedicating
assets to those purposes within the meaning of Section 501(c)(3).

The organization was informed that the Articles of Incorporation did not meet the
requirements and must be amended with the initial Information Document Request.

Correspondence for the audit was as follows:

o Letter 6031 (Rev. 11-2020), Initial Exam Appointment, with attachments, was
mailed to the organization on       , with a response date of
     ,      . This letter was returned by the post office as being
undeliverable on       ,

o Letter 6031 (Rev. 11-2020), Initial Exam Appointment, with attachments, was
re-mailed to the organization on       ,      , with a response date of
     . Through external research, found a current address on
the       website,       ,       . In addition, located addresses for officers, President and Treasurer.
     copies of Letter 6031 were mailed, certified, to the business address
and both officers. Certified Article Numbers
     . The letters mailed to the
business and President addresses were returned unclaimed. The letter
mailed to the Treasurer was delivered       at       .

o Letter 3844-A (Rev. 10-2021), Follow-Up - Exempt Organizations Compliance
Area, with attachments, was mailed certified to the organization on
     , with a response date of       ,      . Article Number
     . Per the       (       ) tracking, this
was returned on       ,      , at       . as unclaimed/max hold time
expired.

o Letter 3844-A (Rev. 10-2021), Follow-Up - Exempt Organizations Compliance
Area, with attachments, was mailed certified to       (President), per
Form       and external research, on       ,      , with a response date
of       . Article Number       . Per the       (       ) tracking, this was returned on       ,
     , at       . as unclaimed/max hold time expired.
Form 886-A (Rev. 4-68)        Department of the Treasury - Internal Revenue Service
Page: -2-

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

o Letter 3844-A (Rev. 10-2021), Follow-Up - Exempt Organizations Compliance
Area, with attachments, was mailed certified to       (President), per
Form       and external research, on       , with a response date
of       . Article Number       . Per the       (       ) tracking, this was delivered on
     ; at       P.M.

o Consent to receive electronic communication was received on
     , at       .       e-mail addresses were authorized to receive
electronic communication,       for the Treasurer and
     for the President

o Letter 5798 (10-2016), TE/GE Information Document Request Extension
Notice, granting 1st extension, with enclosures, was securely emailed to both
provided email addresses, on       ,      , with a response date of
     . Neither email was returned as being undeliverable.

o Letter 3844-A (Rev. 10-2021), Follow-Up - Exempt Organizations Compliance
Area, with attachments, was securely emailed to both email addresses, on
     . Included with the letter was Form 4564, Information
Document Request, requesting further information regarding either new
exempt purpose or termination of exemption documents. Neither email was
returned as being undeliverable.

o Letter 5077-B (Rev. 1-2017), TE/GE IDR Delinquency Notice, was emailed to
both the President and Treasurer on       at       . Neither
email was returned as being undeliverable.

* Telephone contact for the audit was as follows:

o       ,      , called the phone number
listed on the Form       filing for the President of       . Due to a
bad connection, the man who answered could not hear/understand
     attempted to call right back and received VMS. Left a message for the
president to return my call.

o       , attempted second outcall to same phone number for
President and received VMS. Left a message for the president to return my
call.
o       ,      , attempted third outcall to President with no answer.
Form 886-A (Rev. 4-68)        Department of the Treasury - Internal Revenue Service
Page: -3-

Form 886-A         Department of the Treasury - Internal Revenue Service        Schedule No. or
                   Explanation of Items                                          Exhibit
Name of Taxpayer                                 Year/Period Ended
o       ,      , through external research, located phone number for
Treasurer,       . Treasurer answered, verified disclosure, and
confirmed receipt of letter. Treasurer wanted to speak with President and
would call back before due date on letter.
o       , attempted outcall to Treasurer and received VMS.
     left message to return call.

o       , attempted outcall to Treasurer. Treasurer advised he
had a meeting scheduled with the President on       , to discuss the
letter received. During the call, advised of e-mail options, per Interim
Guidance Memo. Treasurer stated that he would e-mail consent and
applicable documentation after meeting with President.

o       , attempted outcall to Treasurer. He advised he was too
busy to talk and scheduled phone call for later in the day.

o       ,      , Treasurer and President called
President advised had not received letter that Treasurer had. During the call,
they stated there had been revenues and little to no activities for the
organization. An extension was requested to provide documentation.

o       ,      , received message from President requesting a
conference call.       returned phone call and schedule the call for       ,
at       .
o       , at       , conducted conference call with
President and Treasurer. During the call, they stated again the revenues
and little to no activity for the organization. They were undecided during that
time if they needed to terminate the organization or pivot to a new exempt
purpose.

o       , contacted President to inform that no response had been
received. During the call, the President confirmed receipt of letters and
provided he hoped to have documents within a few days. The decision was
to terminate the organization.

Law:

Internal Revenue Code (IRC) §501(c)(3) of the Code provides that an organization
organized and operated exclusively for charitable or educational purposes is exempt from
Federal income tax, provided no part of its net earnings inures to the benefit of any private
shareholder or individual.

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


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

IRC §511 of the Internal Revenue Code imposes a tax at corporate rates under section 11
on the unrelated business taxable income of certain tax-exempt organizations.

IRC §6001 of the Code provides that every person liable for any tax imposed by this title,
or for the collection thereof, shall keep such records, render such statements, make such
returns, and comply with such rules and regulations as the Secretary may from time to
time prescribe. Whenever in the judgment of the Secretary it is necessary, he may require
any person, by notice served upon such person or by regulations, to make such returns,
render such statements, or keep such records, as the Secretary deems sufficient to show
whether or not such person is liable for tax under this title.

IRC §6033(a)(1) of the Code provides, except as provided in section 6033(a)(2), every
organization exempt from tax under section 501(a) shall file an annual return, stating
specifically the items of gross income, receipts and disbursements, and such other
information for the purposes of carrying out the internal revenue laws as the Secretary may
by forms or regulations prescribe, and keep such records, render under oath such
statements, make such other returns, and comply with such rules and regulations as the
Secretary may from time to time prescribe.

Treasury Regulations (Regulation) 1.501(c)(3)-1 In order to be exempt under
§501(c)(3) the organization must be both organized and operated exclusively for one or
more of the purposes specified in the section. (religious, charitable, scientific, testing for
public safety, literary or educational).

Regulation §1.501(c)(3)-1(a)(1) of the regulations states that in order to be exempt as an
organization described in section 501(c)(3), an organization must be both organized and
operated exclusively for one or more of the purposes specified in such section. If an
organization fails to meet either the organizational test or the operational test, it is not
exempt.

Regulation §1.501(c)(3)-1(c)(1) of the regulations provides that an organization will not be
regarded as "operated exclusively" for one or more exempt purposes described in section
501(c)(3) of the Code if more than an insubstantial part of its activities is not in furtherance
of a 501(c)(3) purpose. Accordingly, the organization does not qualify for exemption under
section 501(c)(3) of the Code.

Regulation §1.6001-1(c) of the Code provides that such permanent books and records as
are required by paragraph (a) of this section with respect to the tax imposed by section
511 on unrelated business income of certain exempt organizations, every organization
exempt from tax under section 501(a) shall keep such permanent books of account or
records, including inventories, as are sufficient to show specifically the items of gross
income, receipts and disbursements. Such organizations shall also keep such books and
records as are required to substantiate the information required by section 6033. See
section 6033 and §§ 1.6033-1 through 1.6033-3.

Form 886-A (Rev. 4-68)        Department of the Treasury - Internal Revenue Service
Page: -5-

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

Regulation §1.6001-1(e) of the Code provides that the books or records required by this
section shall be kept at all time available for inspection by authorized internal revenue
officers or employees, and shall be retained as long as the contents thereof may be
material in the administration of any internal revenue law.

Regulation §1.6033-1(h)(2) of the regulations provides that every organization which has
established its right to exemption from tax, whether or not it is required to file an annual
return of information, shall submit such additional information as may be required by the
district director for the purpose of enabling him to inquire further into its exempt status and
to administer the provisions of subchapter F (section 501 and the following), chapter 1 of
the Code and section 6033.

Regulation §1.61-1 of the regulations provides that Gross income means all income from
whatever source derived, unless excluded by law. Gross income includes income realized
in any form, whether in money, property, or services. Income may be realized, therefore, in
the form of services, meals, accommodations, stock, or other property, as well as in cash.

Rev. Rul. 59-95, 1959-1 C.B. 627, concerns an exempt organization that was requested to
produce a financial statement and statement of its operations for a certain year. However,
its records were so incomplete that the organization was unable to furnish such
statements. The Service held that the failure or inability to file the required information
return or otherwise to comply with the provisions of section 6033 of the Code and the
regulations which implement it, may result in the termination of the exempt status of an
organization previously held exempt, on the grounds that the organization has not
established that it is observing the conditions required for the continuation of exempt
status.

Rev. Proc. 2022-5, Sec 11.02 (3), Inaccurate information on request. A determination
letter issued to an organization that submitted a request in accordance with this revenue
procedure may not be relied upon by the organization submitting the request if it was
based on any inaccurate material information submitted by the organization. Inaccurate
material information includes an incorrect representation or attestation as to the
organization’s organizational documents, the organization’s exempt purpose, the
organization’s conduct of prohibited and restricted activities, or the organization’s eligibility
to file Form 1023-EZ.

Organization’s Position
Taxpayer's position is unknown at this time.
Government's Position

Based on the above facts, the organization did not maintain proper organizational

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

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

documents, failing to amend the Articles of Incorporation for the limitations outlined
within Section 501(c)(3). Further, the organization did not respond and produce records
to verify that they are organized and operated exclusively for one or more of the
purposes specified in IRC Section 501(c)(3). If an organization fails to meet either the
organizational test or the operational test, it is not exempt.

In accordance with the above-cited provisions of the Code and regulations under
sections 6001 and 6033, organizations recognized as exempt from federal income tax
must meet certain reporting requirements. These requirements relate to the filing of a
complete and accurate annual information (and other required federal tax forms) and
the retention of records sufficient to determine whether such entity is operated for the
purposes for which it was granted tax-exempt status and to determine its liability for any
unrelated business income tax.

Section 1.6033-1(h)(2) of the regulations specifically state that exempt organizations
shall submit additional information for the purpose on enabling the Internal Revenue
Service to inquire further into its exempt status.

Using the rationale that was developed in Revenue Ruling 59-95, the Organization’s
failure to provide requested information should result in the termination of exempt
status.

Conclusion:

Based on the foregoing reasons, the organization does not qualify for exemption under
section 501(c)(3) and its tax-exempt status should be revoked.

It is the IRS's position that the organization failed to establish that it meets the reporting
requirements under IRC §§ 6001 and 6033 to be recognized as exempt from federal
income tax under IRC § 501(c)(3). Furthermore, the organization has not established
that it is observing the conditions required for the continuation of its exempt status or
that it is organized and operated exclusively for an exempt purpose. Accordingly, the
organization's exempt status is revoked effective       .

Form 1120, U.S. Corporation Income Tax Return, should be filed for the tax periods
after       .

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