IRS revokes 501(c)(3) status for defective articles and a failed audit response

Plain-English summary

This is the IRS's final determination revoking a nonprofit's section 501(c)(3) tax-exempt status, effective January 1, 2020. The revocation rests on two independent problems. First, the organizational test: the Articles of Incorporation on file with the state do not contain the required purpose clause or dissolution clause that permanently dedicates the organization's activities and assets to 501(c)(3) purposes. When the organization applied for exemption, it had attested that its organizing document did contain those clauses. Because that attestation was inaccurate, the IRS says the organization cannot rely on the determination letter it received (citing Rev. Proc. 2022-5, which addresses inaccurate attestations, including on Form 1023-EZ). Second, the recordkeeping and operational duties: the IRS selected the organization for audit and, despite a string of letters and phone calls (the organization even confirmed receipt and said it would send documents), it never produced records to show how it actually operated, violating sections 6001 and 6033. Unlike some organizations in this series, this one was still listed as active and in good standing with its state and did have some contact with the IRS; it simply never delivered the records or fixed its articles. With exemption revoked, contributions are no longer deductible under section 170. The takeaway: a bare-bones application attestation that does not match the real founding documents, combined with a failure to substantiate operations in an audit, will cost an organization its exemption.

Ruling snapshot

• Question: Should a 501(c)(3) organization lose exemption when its articles lack the required clauses and it will not produce records for an audit?
• Outcome: revocation (fails both the organizational test and the recordkeeping/operational requirements)
• Key authorities: IRC § 501(c)(3); IRC §§ 6001, 6033; IRC § 170; Treas. Reg. §§ 1.501(c)(3)-1(a), (c), 1.6001-1, 1.6033-1(h)(2), 1.61-1; Rev. Rul. 59-95; Rev. Proc. 2022-5

Full text (IRS public release)

Department of the Treasury Date:
Internal Revenue Service June 12, 2023

Tax Exempt and Government Entities Taxpayer ID number (last 4 digits):
Number: 202336029

Release Date: 9/8/2023 Tax periods ended:

Form:

Person to contact:
Name:
ID number:
Telephone:

UIL: 501.03-00 Fax:
Last day to file petition with United States
Tax Court:

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
January 1, 2020. Your determination letter dated is revoked.

Our adverse determination as to your exempt status was made for the following reasons: Organizations
described in Section 501(c)(3) of the Internal Revenue Code and exempt under Section 501(a) must be both
organized and operated exclusively for exempt purposes. You have failed to produce documents to establish
that no part of your net earnings inures to the benefit of private shareholders or individuals. You failed to
respond to repeated reasonable requests to allow the Internal Revenue Service to examine your records
regarding your receipts, expenditures, or activities as required by sections 6001 and 6033(a)(1) of the Code and
Rev. Rul. 59-95, 1959-1 C.B. 627. Further, the Articles of Incorporation available for the Organization do not
comply with the requirements of I.R.C. § 501(c) as they do not contain a purpose or dissolution clause that
permanently dedicates the organization's operations and assets to 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 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:

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

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


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).

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.

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
Director, Exempt Organizations Examinations

Enclosures:
Publication 1
Publication 594
Publication 892

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


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

Form:
Tax periods ended:

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

Manager's contact information:
Name:
ID number:

CERTIFIED MAIL — Return Receipt Requested Telephone:
Response due date:

Dear
Why you're receiving this letter

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.

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.

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.

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


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,

[illegible signature]
Director, Exempt Organizations Examinations

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

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


Form 886-A Department of the Treasury - Internal Revenue Service Schedule No. or Exhibit
Explanation of Items
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
, on , and was granted tax-exempt status as a
501(c)(3) on , with an effective date of
The organization attested on , part II, box 2 that they have the organizing
document necessary for their organizational structure.

Section 501(c)(3) requires that an organizing document must limit their 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 them to
engage, other than as an insubstantial part of their 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 their organizing document because they rely on the operation of
state law in the state in which they are formed for their 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 for the tax year

The organization has not filed a series return for the tax years ending
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 Exhibit
Explanation of Items

Name of Taxpayer Year/Period Ended
The application list the phone number as for the
president, , of
Per the State of website, it lists the organization as active and in good standing.
The website also provided a copy of the organizational documents. The initial Articles
of Incorporation were filed , with a subsequent amendment filed
The Articles of Incorporation, filed with State on , do not contain a
purpose or dissolution clause that permanently dedicates the organization's operations
and assets to Section 501(c)(3). The purpose clause within the Articles states the
following:

The Amendment to the Articles, filed with State on , amend
addresses and officers with no change to the language of the Articles.

The organization was informed that the Articles of Incorporation did not meet the
requirements and must be amended with the 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 not returned by the post office as being
undeliverable.

o Letter 6031 (Rev. 3-2022), Initial Exam Appointment, with attachments, was
securely emailed, per organization request, to , on
, with a response date of . This letter was not
returned by the post office as being undeliverable. The organization
confirmed receipt via email on , indicating the documents would
be sent on

o Letter 3844-A (Rev. 10-2021), Follow-Up - Exempt Organizations Compliance
Area, with attachments, was emailed to the organization on ,
with a response date of

o Letter 5077-B (1-2017), TE/GE IDR Delinquency Notice, was mailed to the
organization's address, on , with a response date of

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 Exhibit
Explanation of Items

Name of Taxpayer Year/Period Ended

This letter was mailed Certified Article Number
. Per USPS tracking, as of , this letter
was still in transit.

o Letter 5077-B (1-2017), TE/GE IDR Delinquency Notice, was mailed to the
organization's address, on , with a response date of
. This letter was mailed Certified Article Number
. Per USPS tracking, this letter was delivered on

* Telephone contact for the audit was as follows:

o , Tax Compliance Officer (TCO) received a phone call from
organization confirming receipt of letter and due date.

o , TCO attempted to contact organization and received VMS.
Left a message requesting a call back.

o , TCO attempted to contact organization with no answer.
o case transferred to a new TCO:

o , TCO attempted to contact , President of the
organization, at two separate numbers found. Numbers attempted were
found on and Amended Articles of
Incorporation . Both numbers had generic voicemail boxes
with no identifying information. TCO left a generic phone message asking for
a call back. called back, verified title/authority. During the call,
verified receipt of initial letter with an incorrect Employer Identification
Number and provided email address to forward future information to.

o , TCO contacted to advise that the indicated
response had not been received. He stated he would check with his
secretary and provide the tracking information as soon as possible.

o , TCO attempted to contact with no answer, left a
VM to please call back.

o , TCO attempted outcall to with no answer. TCO
sent email to asking for a phone call.
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 Exhibit
Explanation of Items
Name of Taxpayer Year/Period Ended
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.

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.

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 Exhibit
Explanation of Items

Name of Taxpayer Year/Period Ended

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.

Regulation §1.6001-1(e) of the Code provides 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 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.

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 Exhibit
Explanation of Items

Name of Taxpayer Year/Period Ended

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

Based on the above facts, the organization did not respond 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 of 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 .

, should be filed for the tax periods
after

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