Charity revoked for insider benefits and inadequate grant records

Plain-English summary

The IRS revoked an organization's section 501(c)(3) status after examining its grants and governance. The organization had no active board oversight, and one officer controlled operations and disbursements. Funds were used for payments benefiting the officer's relatives, including personal mortgage, credit card, bank, utility, and other living expenses. The organization also lacked grant applications, award letters, follow-up reports, board approvals, and records showing that grants served charitable purposes. The IRS concluded that private benefit, inurement, weak internal controls, and failure to maintain required records meant the organization was not operated exclusively for exempt purposes.

Ruling snapshot

• Question: Did the organization continue to qualify under section 501(c)(3) despite insider payments and deficient grant records?
• Outcome: Revoked because of private benefit, inurement, inadequate controls, and failure to substantiate charitable grants
• Key authorities: IRC §§ 501(c)(3), 6001, and 6033; Treas. Reg. §§ 1.501(c)(3)-1 and 1.6001-1; Rev. Rul. 56-304; Rev. Rul. 59-95

Full text (IRS public release)

Department of the Treasury
Internal Revenue Service
Tax Exempt and Government Entities

Date:
July 12, 2023

Taxpayer ID number (last 4 digits):

Form:

Release Number: 202340019
Release Date: 10/6/2023
UIL Code: 501.03-00

Tax periods ended:

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

Last day to file petition with United States Tax Court:
October 10, 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 did not establish
that you are organized and operated exclusively for exempt purposes within the meaning of IRC Section 501(c)
(3). You provided private benefits to relatives of the board members (siblings and in-laws). Thus, part of your
net earnings inure to the benefit of private shareholders or individuals. You also did not create or maintain
records regarding grants to individuals, as required by IRC Sections 6001 and 6033(a)(1). As such, you failed to
meet the requirements of IRC Section 501(c)(3) and Treasury Regulations Section 1.501(c)(3)-1(a) because you
did not establish that you were organized and operated exclusively for exempt purposes and part of your
earnings inured 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:

* 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.

Information about the IRS Taxpayer Advocate Service

The IRS office whose phone number appears at the top of the notice can best address and access your tax
information and help get you answers. However, you may be eligible for free help from the Taxpayer Advocate
Service (TAS) if you can't resolve your tax problem with the IRS, or you believe an IRS procedure just isn't
working as it should. TAS is an independent organization within the IRS that helps taxpayers and protects
taxpayer rights. Contact your local Taxpayer Advocate Office at:

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

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

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

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,

Lynn A. Brinkley

Director, Exempt Organizations Examinations

Enclosures:
Publication 1
Publication 594
Publication 892

cc: Eric Lafazank (Representative). Form 2848 was never revoked. Thus, mailing is required.

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

Department of the Treasury
Internal Revenue Service
Tax Exempt and Government Entities

Date:
04/28/2023

Taxpayer ID number:

Form:

Tax periods ended:

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

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

Response due date:
May 31, 2023

CERTIFIED MAIL — Return Receipt Requested Telephone

Response due date:
May 31, 2023

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 170(b)(1)(A)(vi).

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 170(b)(1)(A)(vi) for the periods above.

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

If you disagree

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

2. Send any information you want us to consider.

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

The IRS Appeals Office is independent of the Exempt Organizations division and resolves most disputes
informally. If you file a protest, the auditing agent may ask you to sign a consent to extend the period of
limitations for assessing tax. This is to allow the IRS Appeals Office enough time to consider your case.
For your protest to be valid, it must contain certain specific information, including a statement of the
facts, applicable law, and arguments in support of your position. For specific information needed for a
valid protest, refer to Publication 892, How to Appeal an IRS Determination on Tax-Exempt Status. Fast
Track Mediation (FTM) referred to in Publication 3498, The Examination Process, generally doesn’t
apply now that we’ve issued this letter.

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

4. Request technical advice from the Office of Associate Chief Counsel (Tax Exempt Government Entities)
if you feel the issue hasn’t been addressed in published precedent or has been treated inconsistently by the
IRS.

If you’re considering requesting technical advice, contact the person shown at the top of this letter. If you
disagree with the technical advice decision, you will be able to appeal to the IRS Appeals Office, as
explained above. A decision made in a technical advice memorandum, however, generally is final and
binding on Appeals.

If we don't hear from you
If you don't respond to this proposal within 30 calendar days from the date of this letter, we'll issue a final
adverse determination letter,

Contacting the Taxpayer Advocate Office is a taxpayer right

The Taxpayer Advocate Service (TAS) is an independent organization within the IRS that can help protect your
taxpayer rights. TAS can offer you help if your tax problem is causing a hardship, or you've tried but haven't
been able to resolve your problem with the IRS. If you qualify for TAS assistance, which is always free, TAS
will do everything possible to help you. Visit www.taxpayeradvocate.irs.gov or call 877-777-4778.

Additional information
You can get any of the forms and publications mentioned in this letter by visiting our website at
www.irs.gov/forms-pubs or by calling 800-TAX-FORM (800-829-3676).

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

Sincerely,
Laura J. Chambers
for Lynn A. Brinkley
Director, Exempt Organizations Examinations

Enclosures:
Form 886-A
Form 6018
Form 4621-A
Pub 892

Pub 3498

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

Department of the Treasury — Internal Revenue Service Schedule number or exhibit
Form 886-A Explanations of Items — Revocation of
(May 2017) Tax-Exemption 1
Name of taxpayer Tax Identification Number (last 4 digits) Year/Period ended
ISSUE
Does (hereafter continue to qualify for exempt status under Section 501(c)(3) of the

Internal Revenue Code?

FACTS
is an exempt organization described in IRC § 501(c)(3) and was incorporated in
in the . received its determination letter from the IRS on ,
granting it exemption under Section 501(c)(3) effective . According to its Application for

Recognition of Exemption under 501(c)(3) of the Internal Revenue Code, provided the response below to
Part — which asks to describe the past, present and planned activities in a narrative.

The board of directors remain the same from the time of formation, (President),
(Vice-President), and (Secretary). and are husband and wife.
and reside in and have and in the

travels to the — throughout the year for business but in

has a Conflict-of-Interest Policy, submitted with its original application for exemption. The policy was signed
by all the board members, dated below is an excerpt from the policy.

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

Department of the Treasury — Internal Revenue Service Schedule number or exhibit
Form 886-A Explanations of Items — Revocation of
(May 2017) Tax-Exemption 1
Name of taxpayer Tax Identification Number (last 4 digits) Year/Period ended

Article - Purpose
The purpose of the conflict-of-interest policy is to protect the interest of
when it is contemplating entering in a transaction or arrangement
that might benefit the private interest of an officer or director of the Organization
or might result in a possible excess benefit transaction.

Article — Definitions

1. Interested Person — Any director, principal officer, or member of a committee
with governing board delegated powers, who has a direct or indirect financial
interest, as defined below, is an interested person.
2. Financial Interest — A person has financial interest if the person has, directly
or indirectly, through business, investment, or family:

a. An ownership or investment interest in any entity with which the
Organization has a transaction or arrangement.

b. A compensation arrangement with the Organization or with any entity
or individual with which the Organization has a transaction or
arrangement, or

c. A potential ownership or investment interest in, or compensation
arrangement with, any entity or individual with which the Organization
is negotiating a transaction or arrangement. Compensation includes
direct and indirect remuneration as well as gifts or favors that are not
insubstantial. A financial interest is not a conflict of interest only if the
appropriate governing board committee decides that a conflict of
interest exists.

The IRS began an examination of Form 990 for the tax year ending by letter dated
which requested the books and records for the organization. On the Revenue

Agent (hereafter RA) conducted a phone interview with to familiarize himself with

operations and their books and records. During the interview, stated that does not hold any board

meetings, maintain any bylaws, meeting minutes. stated he is the only active board member of the

organization and is responsible for all operations including bookkeeping. stated his wife,
acts as an advisor and assists when needed but provided no specifics.

stated that makes foreign grants directly to individuals in who are
. He stated that stated he
physically checks on the to ensure the funds are being used for the intended purposes,
however does not control or operate the solicits funds for
verbally through his personal and professional networks but stated he does not intend on expanding the

organization or attracting new public support.

did not maintain any completed grant award letters as a part of its records, despite distributing a total of
$ , in purported grants to individuals in Of that total, $ ( %) was distributed to individuals
in provided the RA with a bank statement labeled “ showing

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

Department of the Treasury — Internal Revenue Service Schedule number or exhibit
Form 886-A Explanations of Items — Revocation of
(May 2017) Tax-Exemption 1
Name of taxpayer Tax Identification Number (last 4 digits) Year/Period ended

currency being transferred to an bank account and then being transferred to various individuals in
The statement only shows the transaction date, currency exchange rate, fees, and recipient name. Further, did
not maintain any follow-up reports, pre-grant inquires, or detailed records on the use of assets,

also stated that as a precondition to receiving grant funds, must ensure that the individuals and
organizations are in compliance with ( ,
however no written evidence of compliance verification was provided during the examination

The RA's inspection of books and records revealed that reimbursed himself for expenditures
charged on his personal credit card, which he purported were to pay for expenses on behalf of

an individual. The transaction was listed in books and records as, “

- with .’ There was no application or documentation

regarding this assistance paid out. Per bank statements, the utility company
is located is and this specific individual received the same assistance with his utility bill on separate
occasions in tax year

On the RA conducted a follow-up phone interview with and confirmed that he is
related to & (hereafter wife, is
sister to received payments totaling $ in tax year from

is the largest individual recipients of funds in from receiving _—_ individual
disbursements or payments made on their behalf, such as payments made directly to their personal mortgage,
credit cards, and bank account. stated that his in-laws were facing financial hardships due to a false
lawsuit against them and was providing financial support. had total discretion over disbursements

of funds, including to or for his relatives.

LAW

501(c)(3) generally

Section 501(a) exempts organizations described in Section 501(c) of the Code from federal income taxation.

Section 501(c)(3) of the Code exempts from federal income tax organizations organized and operated exclusively
for charitable, educational, and other exempt purposes, provided that no part of the organization's net earnings
inures to the benefit of any private shareholder or individual.

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

Section 1.501(c)(3)-1(c)(1) of the regulations provides that an organization will be regarded as “operated
exclusively” for one or more exempt purposes, only if it engages primarily in activities which accomplish one or

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

Department of the Treasury — Internal Revenue Service Schedule number or exhibit
Form 886-A Explanations of Items — Revocation of
(May 2017) Tax-Exemption 1
Name of taxpayer Tax Identification Number (last 4 digits) Year/Period ended

more of such exempt purposes specified in IRC 501(c)(3). An organization will not be so regarded if more than
an insubstantial part of its activities is not in furtherance of an exempt purpose.

Section 1.501(c)(3)-1(c)(2) of the regulations provides that an organization is not operated exclusively for one or
more exempt purposes if its net earnings inure in whole or in part inure to the benefit of private shareholders or
individuals.

Section 1.501(c)(3)-1(d)(ii) of the regulations provides that an organization is not organized or operated
exclusively for one or more exempt purposes unless it serves a public rather than a private interest. Thus, it is
necessary for an organization to establish that it is not organized or operated for the benefit of private interests
such as designated individuals, the creator or his family, shareholders of the organization, or persons controlled,
directly or indirectly, by such private interests.

Section 1.501(c)(3)-1(d)(2) of the regulations defines the term "charitable" for 501(c)(3) purposes as including
relief of the poor and distressed or of the underprivileged; advancement of religion; advancement of education or
science; erection or maintenance of public buildings, monuments, or works; lessening of the burdens of
Government; and promotion of social welfare by organizations designed to accomplish any of the above purposes,
or (i) to lessen neighborhood tensions; (ii) to eliminate prejudice and discrimination; (iii) to defend human and
civil rights secured by law; or (iv) to combat community deterioration and juvenile delinquency.

The term "charitable" also includes the advancement of education. Section 1.501(c)(3)-1(d)(3)(i) of the
regulations provides, in part, that the term "educational" as used in section 501(c)(3) of the Code relates to the
instruction of the public on subjects useful to the individual and beneficial to the community.

The term “charitable” as used in Section 501(c)(3) is used in its generally accepted legal sense and therefore is
not to be construed as limited by the separate enumerations in section 501(c)(3). See Redland Surgical Services
v. Commissioner, 113 T.C. 47 (1999), aff'd per curiam, 242 F.3d 904 (9th Cir. 2001).

Operational test, generally

Section 1.501(c)(3)-1(c)(1) of the regulations states that an organization will be regarded as operated exclusively
for one or more exempt purposes only if it engages primarily in activities which accomplish one or more of such
exempt purposes specified section 501(c)(3). An organization will not be so regarded if more than an insubstantial
part of its activities is not in furtherance of an exempt purpose.

The operational test of Section 1.501(c)(3)-1(c)(1) of the regulations is designed to ensure that the organization’s
resources and activities are devoted to furthering exempt purposes. The operational test examines the actual
purpose for the organization’s activities and not the nature of the activities or the organization’s statement of
purpose. What an organization’s purposes are and what purposes its activities support are questions of fact. To
pass the operational test, the organization must be primarily engaged in activities which accomplish one or more
of the exempt purposes specified in Section 501(c)(3) and the net earnings must not be distributed in whole or in

Catalog Number 20810W Page 4 www.irs.gov Form 886-A (Rev. 5-2017)

Department of the Treasury — Internal Revenue Service Schedule number or exhibit
Form 886-A Explanations of Items — Revocation of
(May 2017) Tax-Exemption 1
Name of taxpayer Tax Identification Number (last 4 digits) Year/Period ended

part for the benefit of private shareholders or individuals. America Campaign Academy v. Commissioner, 92
T.C. 1053 (1989).

The existence of a single nonexempt purpose, if substantial in nature, will cause failure of the operational
test, regardless of the number or importance of truly exempt purposes. Better Business Bureau v. United
States, 326 U.S. 279 (1945). See also Stevens Bros. Foundation, Inc. v. Commissioner, 324 F.2d 633,
638 (8 Cir. 1963), cert denied. 376 U.S. 969 (1964) (if there is present in an organization’s operations a
single noncharitable purpose substantial in nature, though it may have other truly and important charitable
purposes, it is not entitled to be exempt).

Private Benefit

An organization is not organized or operated exclusively for an exempt purpose unless it serves a public rather
than a private interest. To meet this requirement, an organization must establish “that it is not organized or
operated for the benefit of private interests such as designated individuals, the creator or his family, shareholders
of the organization, or persons controlled, directly or indirectly, by such private interests.” TR 1.501(c)(3)-

1(d)(1) (ii).

In Basic Bible Church v. Commissioner, 74 T.C. 846 (1980), the organization's founder and his wife executed
vows of poverty and transferred all their possessions and income to the organization on the condition that it
qualified under IRC 501(c)(3). The founder controlled all financial decisions of the organization. The court found
that a substantial purpose of the organization was to serve the private interests of the founder and his wife.
Accordingly, the court held that the organization did not qualify under IRC 501(c)(3).

In Ramses School of San Antonio, Texas, v. Commissioner of Internal Revenue, T.C. Memo 2007-85, 2007 WL 1061871, the court held that the IRS properly revoked the exempt status of a school that failed to satisfy the
operational test because of private benefit to the founder, who also served as its executive director, president, and
CEO. The governing board failed to provide oversight, direction, supervision and control over the administration
of the school as required by its charter thus allowing its founder to exercise authority over the school’s finances.
The record lacked supporting documentation of exempt purposes for payments for personal services of the
founder; purchasing property as an individual and not as a representative of the school using school funds; and
other disbursements for personal use of the founder. The organization had provided no credible information to
support an exempt purpose for the expenditures. The court noted that upon a conclusion that relevant facts reveal
private benefit; the organization will not qualify as operating primarily for exempt purposes “absent a showing
that no more than an insubstantial part of its activities further the private interests or any other nonexempt
purposes.”

Prohibited private interests include those of unrelated third parties as well as insiders. Christian Stewardship
Assistance, Inc. v. Commissioner, 70 T.C. 1037 (1978); American Campaign Academy v. Commissioner, 92 T.C.
1053 (1989). Private benefits include an “advantage; profit; fruit; privilege; gain; [or] interest.” Retired Teachers
Legal Fund v. Commissioner, 78 T.C. 280, 286 (1982).

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

Department of the Treasury — Internal Revenue Service Schedule number or exhibit
Form 886-A Explanations of Items — Revocation of
(May 2017) Tax-Exemption 1
Name of taxpayer Tax Identification Number (last 4 digits) Year/Period ended

Grants to individuals

Assuming that an organization qualifies for exemption under section 501(c)(3), contributions to individuals, non-
charitable organizations and to non-charitable activities in furtherance of the organization’s exempt purpose does
not result in loss of exempt status (assuming there is no inurement or private benefit), especially when the
contributions are insubstantial. See Center on Corporate Responsibility, Inc. v. George P. Shultz, 368 F. Supp.
863 (D.D.C. 1973) in which the Court stated:

The Defendants’ Revenue Rulings, as well as case law clearly permit charitable organizations to
contribute their proceeds both to individuals, Rev. Rul. 56-304, 1956-2 C.B. 306; Rev. Rul. 72-559,
1972-2 C.B. 247; and to non-charitable activities in the furtherance of its charitable purposes. Rev.
Rul. 73-313, 1973-30 I.R.B. 15; Rev. Rul. 71-29, 1971-1 C.B. 150; Rev. Rul. 62-78, 1962-1 C.B. 86;
Edward Orton, Jr., Ceramic Foundation, 65 T.C. 147.

Revenue Ruling 56-304, 1956-2 C.B. 306 states that an organization which otherwise meets the requirements for
exemption from Federal income tax are not precluded from making distributions of their funds to individuals,
provided such distributions are made on a true charitable basis in furtherance of the purposes for which they are
organized. However, organizations of this character which make such distributions should maintain adequate
records and case histories to show the name and address of each recipient of aid; the amount distributed to each;
the purpose for which the aid was given; the manner in which the recipient was selected and the relationship, if
any, between the recipient and (1) members, officers, or trustees of the organization, (2) a grantor or substantial
contributor to the organization or a member of the family of either, and (3) a corporation controlled by a grantor
or substantial contributor, in order that any or all distributions made to individuals can be substantiated upon
request by the Internal Revenue Service.

Part of the educational analysis determines whether the education benefits the private interest of the individuals
receiving the information and whether the individuals who receive the education are in a charitable class. Retired
Teachers Legal Defense Fund, Inc. v. Commissioner, 78 T.C. 280 (1982) (organization which issued newsletter
to New York City Teacher Retirees advising them of status of litigation held not be exempt. The information was
only useful for the retirees’ private interests---to ensure the financial stability of pension plan. Moreover, most
of the retirees were not members of a charitable class. The provision of free services to persons who are not poor
is not an exempt purpose and aid to pensioners without regard to need is not a charitable purpose).

In The Church of Boston v. Commissioner, 71 T.C. 102 (1978), the court found the church’s documentation
inadequate where the records of its grants to individuals were a list of grants made to individuals which included
the name of the recipient, the amount of the grant, and the “reason” for the grant which was specified as either
unemployment, moving expenses, school scholarship, or medical expense. The court concluded that this stated
documentation failed to establish whether exempt charitable purposes were served in fact.

Catalog Number 20810W Page 6 www.irs.gov Form 886-A (Rev. 5-2017)

Department of the Treasury — Internal Revenue Service Schedule number or exhibit
Form 886-A Explanations of Items — Revocation of
(May 2017) Tax-Exemption 1
Name of taxpayer Tax Identification Number (last 4 digits) Year/Period ended

Records requirements, generally

Section 6001 of the Code states that "Notice or regulations requiring records, statements, and special returns,"
provides that every person liable for any tax imposed by this title (Title 26 of the United States Code, which is
the Internal Revenue Code), 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.

Section 1.6001-1(a) of the Procedure and Administration Regulations provides, in general, that any person subject
to tax under subtitle A of the Code or any person required to file an information return with respect to income
shall keep such permanent books of account or records, including inventories, as are sufficient to establish the
amount of gross income, deductions, credits, or other matters required to be shown by such person in any return
of such tax or information.

Section 1.6001-1(c) of the regulations provides that for exempt organizations, in addition to such permanent books
and records required by section 1.6001-1(a) with respect to the tax imposed by section 511 on the 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.

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.

TAXPAYER’S POSITION
Not known at this time.

GOVERNMENT’S POSITION

Based on the application of the law to the facts described above, the Service has determined that has not
demonstrated that is operated exclusively for exempt purposes within the meaning of section 501(c)(3).

Catalog Number 20810W Page 7 www.irs.gov Form 886-A (Rev. 5-2017)

Department of the Treasury — Internal Revenue Service Schedule number or exhibit
Form 886-A Explanations of Items — Revocation of
(May 2017) Tax-Exemption 1
Name of taxpayer Tax Identification Number (last 4 digits) Year/Period ended

Private benefits

operated for the substantial non-exempt purposes of providing private benefits to relatives of

board members (siblings and in-laws), as done under the discretion of founder and officer As
explained in Treasury Regulation 1.501(c)(3)-1(d)(1)(i), to satisfy the operational test, an organization must
establish “that it is not organized or operated for the benefit of private interests such as designated individuals,
the creator or his family, shareholders of the organization, or persons controlled, directly or indirectly, by such
private interests.” is like the organizations in Basic Bible Church and Ramses School of San Antonio in that
a lack of oversight and internal controls effectively ceding control over the organization to a single individual
contributed to use of funds to further private rather than exempt interests.

has engaged in multiple instances of private benefit by diverting assets ($ in to &

the in-laws of for personal reasons including credit card payments, mortgage

payments, and direct transfers of funds. This practice represents clear violation of the 501(c)(3) requirements,

which demands that the organization operate solely for charitable, educational, or scientific purposes. No

justification was provided for this diversion of assets for private use, which violated conflict of

interest policy. did not have an active board which monitored the use of assets which allowed such
transitions to occur without objection.

Lack of documentation of expenditure responsibility

did not maintain records sufficient to demonstrate that its individual grant program furthered exempt
purposes within the meaning of section 501(c)(3), educational or otherwise. As explained in Rev. Proc 56-304.
Organizations which make distributions to individuals or non-exempt organizations should maintain adequate
records and case histories to show the name and address of each recipient of aid; the amount distributed to each;
the purpose for which the aid was given; the manner in which the recipient was selected and the relationship, if
any, between the recipient and (1) members, officers, or trustees of the organization, (2) a grantor or substantial
contributor to the organization or a member of the family of either, and (3) a corporation controlled by a grantor
or substantial contributor, in order that any or all distributions made to individuals can be substantiated upon
request by the Internal Revenue Service. Further, as explained in Retired Teachers Legal Defense Fund, Inc. v.
Commissioner, the payments should generally be demonstrated to benefit a charitable class.

is like the organization in The Church of Boston v. Commissioner, because its documentation was inadequate
in that its records of its grants to individuals was a list of grants made to individuals which included the name
of the recipient and the amount of the grant, did not require applications to the award of individual
grants. Despite representations in its application that it would provide grant letters which set out conditions for
the use of grant funds by individuals, it did not issue such letters or maintain any records other than the names of
the individuals who received funds. Further, there is no board review or approval process for grants, rather
has exclusive authority to disperse funds.

charged utilities and other living expenses for the “grantees” to his personal credit card and
then reimbursed himself. Just as with the direct transfers of funds to the individuals in there were no
records maintained to demonstrate that these payments were made for charitable or educational purposes.

Catalog Number 20810W Page 8 www.irs.gov Form 886-A (Rev. 5-2017)

Department of the Treasury — Internal Revenue Service Schedule number or exhibit
Form 886-A Explanations of Items — Revocation of
(May 2017) Tax-Exemption 1
Name of taxpayer Tax Identification Number (last 4 digits) Year/Period ended

Failure to maintain adequate records

the organization has failed to maintain proper records to demonstrate that it is operated exclusively for
exempt purposes as required by IRC sections 6001 and 6033. __is like the organization in Rev. Rul. 59-95 in
that the lack of documentation including board meeting minutes, bylaws, and records of its purported grant
expenditures has made it difficult to determine whether the organization is operating in accordance with its stated
purpose and whether its activities are exclusively charitable. has displayed poor internal controls such as not
maintaining a governing body, lack of separation of duties, grant applications or follow-ups, which has left its
assets are more susceptible to misuse.

CONCLUSION

The Service has determined that no longer qualifies for exemption under Section 501(c)(3)
as it is not operated exclusively for exempt purposes evidenced by its lack of adequate internal controls, records,
governing body, and other facts and circumstances detailed in this report. None of the documents provided by the
organization supports that is operating exclusively for exempt purposes. The RA determined that the size and
scope of the organization’s regular and ongoing activity do not further the exempt purpose while being consistent
with the code requirement for a 501(c)(3) organization.

The Service is proposing revocation of tax exempt status effect

If you agree to this conclusion, please sign the attached Forms 6018.

If you disagree, please submit a statement of your position.

Catalog Number 20810W Page 9 www.irs.gov Form 886-A (Rev. 5-2017)