IRS revokes a scholarship charity whose incorporation papers lacked a purpose limitation and dissolution clause

Plain-English summary

The IRS revoked the 501(c)(3) exemption of a charity that awards scholarships to students at a specific school, not because of what it did, but because of what its organizing paperwork left out. To be exempt, an organization must pass the "organizational test," which requires its articles or certificate of incorporation to (1) limit its purposes to exempt 501(c)(3) purposes and (2) permanently dedicate its assets to charitable purposes if it dissolves. The organization had attested on its exemption application that its organizing document contained the required dissolution provision, but on examination its Certificate of Incorporation had neither an acceptable exempt-purpose clause nor a dissolution clause, and the organization did not intend to amend it. Because the organizing document failed the organizational test of Treas. Reg. § 1.501(c)(3)-1(a) and (b)(4), the IRS concluded the organization was not organized exclusively for exempt purposes and revoked its exemption. Contributions are no longer deductible under § 170, and the organization has 90 days to seek declaratory judgment under § 7428. The lesson: a genuinely charitable group can still lose (or never keep) its exemption if its founding document does not contain the specific purpose and dissolution language the Code requires, and the fix is often a simple amendment the organization here declined to make.

Ruling snapshot

• Question: Does an organization qualify under IRC § 501(c)(3) when its Certificate of Incorporation lacks both a purpose clause limiting it to exempt purposes and a dissolution clause dedicating its assets to exempt purposes, and it will not amend?
• Outcome: Revoked for failing the organizational test (final determination; 90 days to seek declaratory judgment under IRC § 7428)
• Key authorities: IRC § 501(c)(3); Treas. Reg. § 1.501(c)(3)-1(a), (b)(4); IRC §§ 170, 7428

Full text (IRS public release)

(Scanned document; OCR-proofread. Obvious scan misreads were corrected; wording is preserved verbatim. This release combines the final adverse determination (Letter 6337), the proposed revocation (Letter 3618), and the audit report (Form 886-A). Blanks where identifying details, amounts, and dates were redacted appear as gaps in the original.)

Department of the Treasury                    Date:
Internal Revenue Service                      February 23, 2023
Tax Exempt and Government Entities            Taxpayer ID number (last 4 digits):
Exempt Organizations Examinations
                                              Form:
Release Number: 202321010                     Tax periods ended:
Release Date: 5/26/2023                       Person to contact:
UIL Code: 501.03-00                           Name:
                                              ID number:
                                              Telephone:
                                              Fax:

Last day to file petition with United States
Tax Court: May 24, 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: Organizations
described in IRC Section 501(c)(3) and exempt from tax under Section 501(a) must be both organized and
operated exclusively for exempt purposes. Your certificate of incorporation does not contain an explicit
statement, which limits the purpose of your organization to one or more exempt purposes, nor does the
certificate permanently dedicate the organization's assets to IRC Section 501(c)(3) purposes on dissolution. You
are not organized exclusively for one or more of IRC Section 501(c)(3) purposes because you do not have an
acceptable exempt purpose and a qualified dissolution clause in your organizing documents.

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.

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:

* 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.

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


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

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.

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


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,

Enclosures:
Publication 1
Publication 594
Publication 892

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


Department of the Treasury                    Date: August 11, 2022
Internal Revenue Service                      Taxpayer ID number:
IRS Tax Exempt and Government Entities
Exempt Organizations Examinations            Form:
                                             Tax periods ended:

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

                                             Manager's contact information:
                                             Name:
                                             ID number:
                                             Telephone:

                                             Response due date:
                                             September 12, 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).

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


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

Sincerely,
for
Lynn A. Brinkley
Acting Director, Exempt Organizations [illegible]

Enclosures:
Form 886-A
Form 6018

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


Form 886-A   Department of the Treasury - Internal Revenue Service   Schedule number or exhibit
(May 2017)   Explanation of Items

Name of taxpayer    Tax Identification Number    Year/Period ended

ISSUE
If continues to qualify for exemption under Section 501(c)(3) of
the Internal Revenue Code considering that their Certificate of Incorporation does not have a dissolution clause, the
organization was not organized in , and they do not intend to amend their organizing document?

FACTS

* The was organized under law in

* On received tax exemption as a Public
Charity under 509(a)(2) within the meaning of Internal Revenue Code 501(c)(3) from the date of

* On their application for exemption under IRC Section 501(c)(3), the
attested to the statement that their organizing document contained the dissolution provision
required under section 501(c)(3).

* Per their organizing documents, the 's purposes are

* The accomplishes their primary purposes by providing
scholarships to in specific school that meet certain criteria.

* During the examination, the Revenue Agent discussed the lack of a dissolution clause with the Power of
Attorney for and explained the need for an amendment of
their Certificate of Incorporation such that it meets Internal Revenue Code Section 501(c)(3) criteria.

* The filed all required

LAW

Internal Revenue Code Section 501(c)(3) provides for exemption from Income Tax for corporations, and any
community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, testing
for public safety, literary, or educational purposes, or to foster national or international amateur sports competition
(but only if no part of its activities involve the provision of athletic facilities or equipment), or for the prevention of
the cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private shareholder
or individual, no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to
influence legislation (except as otherwise provided in subsection (h)), and which does not participate in, or intervene
in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to)
any candidate for public office.

Treasury Regulations (Treas. Regs.) 1.501(c)(3)-1(a) 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.

Treas. Regs. 1.501(c)(3)-1(b)(4) explains that an organization is not organized exclusively for one or more exempt
purposes unless its assets are dedicated to an exempt purpose. An organization's assets will be considered dedicated to
an exempt purpose, for example, if, upon dissolution, such assets would, by reason of a provision in the organization's
articles or by operation of law, be distributed for one or more exempt purposes, or to the Federal Government, or to a
State or local government, for a public purpose, or would be distributed by a court to another organization to be used
in such manner as in the judgment of the court will best accomplish the general purposes for which the dissolved
organization was organized. However, an organization does not meet the organizational test if its articles or the law of
the State in which it was created provide that its assets would, upon dissolution, be distributed to its members or
shareholders.

TAXPAYER'S POSITION
The taxpayer has not provided their position at this time.

GOVERNMENT'S POSITION

The received tax exemption as a Public Charity under 509(a)(2)
within the meaning of Internal Revenue Code 501(c)(3) from the date of . In their application for tax
exempt status under IRC Section 501(c)(3), the attested to the
statement that their organizing document contained the dissolution provision required under section 501(c)(3). The
was assigned the for audit on

During the examination, the provided their Certificate of
Incorporation and stated that no further amendments were made to the organizing documents.

Treas. Regs. 1.501(c)(3)-1(b)(4) explains that an organization is not organized exclusively for one or more exempt
purposes unless its assets are dedicated to an exempt purpose. An organization's assets will be considered dedicated
to an exempt purpose, for example, if, upon dissolution, such assets would, by reason of a provision in the
organization's articles or by operation of law, be distributed for one or more exempt purposes, or to the Federal
Government, or to a State or local government, for a public purpose, or would be distributed by a court to another
organization to be used in such manner as in the judgment of the court will best accomplish the general purposes for
which the dissolved organization was organized. Further, Treas. Regs. 1.501(c)(3)-1(a) states that if an organization
does not meet the organizational test or the operational test, it is not exempt.

Following the preceding Treasury Regulations, the is not
exempt under Internal Revenue Section 501(c)(3) and should be revoked.

CONCLUSION
The should be revoked as a tax-exempt organization described in
section 501(c)(3) of the Internal Revenue Code because they are not exclusively organized for exempt purposes.

The effective date of revocation is

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