Charity lost exemption for uncontrolled and undocumented transfers

Plain-English summary

A charity raised funds for assistance in the United States and foreign countries and made many payments to individuals and organizations. The IRS found that recipients were often identified through friends or family, that some funds moved between relatives or related entities, and that substantial numbers of transactions lacked receipts, reports, field-investigation evidence, or other proof of charitable use. The organization had promised due diligence, written agreements, monitoring, and expenditure control, but the examination did not find evidence that those procedures were consistently carried out. The IRS also identified payments to nonexempt entities and a transfer involving a related taxable entity without adequate documentation of a charitable purpose. It revoked exemption because the organization did not retain control and discretion over donated funds, could not substantiate charitable use, maintained inadequate records, and engaged in more than insubstantial nonexempt activity.

Ruling snapshot

• Question: Did the organization retain exemption when it could not document charitable control and use of domestic and foreign disbursements?
• Outcome: revoked
• 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; Rev. Rul. 66-79; Rev. Rul. 68-489

Full text (IRS public release)

Department of the Treasury Date:
Internal Revenue Service December 06, 2023
Tax Exempt and Government Entities

IRS Taxpayer ID number (last 4 digits):

Form:

Release Number: 202409017 Tax periods ended:
Release Date: 3/1/2024
UIL Code: 501.03-00

Person to contact:
Name:

ID number:
Telephone:
Fax:

Last day to file petition with United States
Tax Court:
March 5, 2024

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 must be
both organized and operated exclusively for charitable, educational, or other exempt purposes within the
meaning of section 501(c)(3). During our examination, you did not produce records regarding your receipts,
expenditures, or activities sufficient to demonstrate that you were operated exclusively for charitable,
educational. or other exempt purposes within the meaning of section 501(c)(3), nor that your net earnings did
not inure in whole or in part to the benefit of private shareholders or individuals. Further. you engage in a more
than insubstantial amount of non-exempt activity, including, but not limited to facilitating the transfer of funds
between family members and friends and otherwise transfer funds to individuals and entities without any
demonstrated exempt purpose.

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

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

Department of the Treasury Date:
Internal Revenue Service 08/04/2023

Tax Exempt and Government Entities Taxpayer ID number:
IRS Exempt Organizations :

Form:

Tax periods ended:

Person to contact:
Name:
ID number:
Telephone:

Fax:
Address:

Manager's contact information:

CERTIFIED MAIL ~— Return Receipt Requested Name:

ID number:

Telephone:
Response due date:

September 4, 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 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.

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.

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

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.

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,
Lynn A. Brinkley
Director, Exempt Organizations Examinations

Enclosures:
Form 886-A & Form 6018
Pubs 892 & 3498

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

Department of the Treasury - Internal Revenue Service Schedule number or
Form 886-A P Y

(May 2017) Explanation of Items

Name of taxpayer

Tax Identification Number (last 4 digits) | Year/Period Ended

ISSUES

1. Whether

( or continues to qualify as

an organization exempt from Federal income tax under Section 501(c)(3) of the Internal

Revenue Code (IRC).

2. Whether

exercised adequate control and accountability over

donated funds that were disbursed directly to non-exempt entities or individuals to ensure
that the funds were used to carry out purposes as described in IRC 501(c)(3).

3. Whether the operations of

fail the operational test under IRC section

501(c)(3) and therefore should be revoked

FACTS
Organizational and Operational Documents

was incorporated on in the state of as a
nonstock organization. Per its articles of incorporation, it was formed for the following purposes:

An unsigned copy and undated copy of the bylaws submitted with the Form 1023 Application provided

the following information.

Per the bylaws, the purpose was stated as follows. “

of the bylaws regarding membership stated that the number of classes, qualifications,
rights, privileges, dues, fees, responsibilities, and the provisions, governing the withdrawal,
suspension, and expulsion of members would be determined by the Board of Directors. The
bylaws also stated that the Board of Directors “may approve additional classes of membership
for, but not limited to individuals, businesses, and all other organizations which seek to affiliate

with the

Annual dues were determined by the board and each

member shall be entitled to vote on each matter . Upon payment of dues, the member is
considered to be in good standing and vested in full voting rights.

of the bylaws stated that the business of the organization shall be managed by a Board
and including the officers of the

of Directors consisting of at least

Catalog Number 20810W Page

1

Www.irs.gov Form 886-A (Rev, 5-2017)


corporation. Powers — stated that the Board of Directors “

Form 1023 Application Information

filed Form 1023 on , seeking tax exemption under IRC Section 501(c)(3). The
organization was granted exemption from Federal income tax under section 501(c)(3) of the Code in a
letter dated . It was classified as by reason of being

described in section 509(a)(2) of the Internal Revenue Code.

The in the articles of incorporation stated the following:

Response to indicated that will not have any leases, contracts, loans, or other
agreements with any organization in which any of your officers, directors, or trustees are also officers,
directors, or trustees, or in which any individual officer, director, or trustee owns more thana %
interest.

stated that

Response to ; through _ stated that will support nor oppose
political campaigns nor attempt to influence legislation nor operate bingo or gaming activities nor
contract individuals or organizations who operate these activities.

Response to questions through stated that will neither operate in foreign
countries nor issue grants, loans and other distributions to foreign organizations.

IRS issued dated to to obtain additional information regarding
its operations. In question and was asked to identify the specific countries ( and
regions within the countries) in which it operates and to describe its operations In each country. In
response, stated that it operates in and it stated that it
provides

was asked to provide a response to the following questions:
3) Please answer the following in regard to ( compliance:

a. When you conduct activities in foreign countries, will you check the OFAC List of
Specially Designated Nationals and Blocked Persons for names of individuals and
entities with whom you are dealing to determine if they are included on the list?
Response: “Yes”

b. What other practices will you engage in to ensure that foreign expenditures or
grants are not diverted to support terrorism or other non-charitable activities?
Response: : “

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


»

c. Will you comply with all United States statutes, executive orders, and regulations
that restrict or prohibit U.S. persons from engaging in transactions and dealings with
designated countries, entities, or individuals, or otherwise engaging in activities in
violation of economic sanctions administered by OFAC?

Response: “yes”

d. Will you acquire from OFAC the appropriate license and registration where
necessary?
Response: “yes”

of asked “

. State the organizations to which you do (or will) distribute funds or goods, and if they have been
recognized as tax-exempt by the IRS, state their exempt status.
Response: “

. List any distributions (in funds or goods) you made to date, including the recipient, what and how
much was disbursed, and how the distribution furthered your exempt purposes.
Response: “  (

. Describe your process for reviewing and approving requests for funds or goods, including the pre-
grant inquiries you conduct on potential grantees, and how you determine grant amounts.
Response:

. If you enter into a written grant agreement with grantees, submit representative copies of the
grant agreements.

Response: “We do not enter into written grants agreements with our grantees. We enter into a
MOU (see attached)”.

. Ifa grant recipient is eligible for repeated grants, explain whether they must reapply and continue
to provide information regarding how funds or goods are used.

Response: “We do disbursement of funds based on our assessment of need for services we want
to complete by any organizations and this is always based on the terms of our MOU as far

as reporting expectations.”

Explain whether you accept donations earmarked for particular organizations or individuals.
Response: “We do not accept donations earmarked for particular organizations or individuals.”

. Specify how you will exercise control and responsibility over the use of any funds or goods
granted to foreign organizations or individuals to ensure they are used properly (e.g., requiring
grantees to submit periodic reports, or accountings, engaging accountants to audit grantees,
sending representatives or agents for field investigations, etc.).

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


Response: “We send representatives and agents for field investigations, we adhere strictly to the
terms in our MOU as far as reporting and hard evidence of services rendered are concerned.

We require receipts of all transfers, photos, audio and video images of services rendered.

We also use other organizations to periodically review the activities of our partner

organizations in a peer review program and this increases competition, efficiency and
transparency.”

h. Specify to what extent, if any, you share board members or other key personnel with recipient
organizations.

Response: “We do not share board members with recipient organizations. Our organizations are
independent entities.”

provide a copy of the Memorandum of Understanding (MOU) in it
which stated the following:

This Memorandum of Understanding (MOU) sets forth the terms and understanding between

the and the to aid
citizens of currently in the and
Background
This partnership will and the
that within the and
Purpose

The MOU further stated that the goals would be accomplished by undertaking activities such as:

* will provide goods,
or and to
* will submit a to
provide.
* Upon agreement of their request of action, will use the relief

assistance to aid the displaced persons as dictated by the displaced person’s most
pressing needs.

* The will impose
The will document all activities it carries using

including but not limited to videos, pictures, receipts.

* The will promptly inform of any
difficulties or changes in its plans and obtain _ permission
to proceed.

* In the event where the cannot fulfill its mission, it shall
return/refund the goods/full amount it received excluding
wire transfer fees if applicable.

* There will be a at the end of the agreed upon

* Strictly prohibits the use of any part of its
goods/ services in support of or activities.

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


Duration

Examination Findings:
Form 990 for tax year was selected for an examination and notice was provided to
via along with an ( The letter was mailed
to the organization on with a due date of using its last known address on
file. The examination was to the Form 990 for tax year ended on
with notice provided to

were made via mail and calls after the mailing of the letter. the
mail sent to mailing address nor messages left for (listed as Director
on the return) were answered. (listed as Director on the return)
responded to agent’s call on

in describing its activities on page of its Form 990 stated that it ‘s mission is to
In and

Activities Conducted by

Website
A review of website ) shows the following:
a. It's home landing page shows a request for donation and provided the following information:
Assist Stranded in and ~— Following the
and an estimated
have been and in in as a

b. Contribute to the

See

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


Interviews
During the examination, interviews were conducted with the being conducted on
and the on with and

The organization was asked about the number of board members. It was explained that there were

board members from is representative of each county with roots in that
county The board currently had members as of the date of the interview on

Some board members have not been identified as yet. The board could decide to use funds for
other things but must agree.

The following information was provided during the interview held on . does
charitable work to in has an

They do not engage in

The officers were asked about the source of membership income generated that was reported on the
Form 990. Membership income comes from the monthly subscriptions that people pledged and are

committed to donate every month. does fundraisers to Cash is
taken during fund raisers. Donors usually contribute such as,
and has donors to make donations

month. The officers stated that

The are deposited in the organization’s bank
account The process for raising monies may take the form of a person who calls the group for
assistance. The

Sometimes would do a rally in and have an event, collect from

those wanting to help. Other times, family members donate funds to be sent to their relatives. These
individuals feel comfortable donating to the They do ad hoc fundraisings where
people donate for different causes.

The officers were asked to explain how the process works in terms of a person getting assistance and
how do they become aware of the existence of the organization. indicated that it determines
who gets help based on calls and emails from friends. The officers stated that

that are linked to The person who receives help is generally known by a relative
as the people in knows each other. Sometimes it occurs when a family member who is

does not have a

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


list of and

of the officers stated that they try to lf are
sent through the
Board members are
and and . Board members decide when would be used for
main cause for which they are raising and

of the officers indicated that
in the in to

When they have to buy food or medical supplies, a

The does not have payroll expenses. workers of the have full-time jobs, and
they volunteer their time and are not paid by the There is a list of officers, board
members, who teach accountability and transparency.

The officers were asked to explain how they verify that the recipients received the funds Officers receive
some acknowledgement from text or email from or in

The officers also claimed that it provides assistance

also stated that it carried out a as a means in
The failed because the costs were too high. The minutes charged were too high and
benefited. The was available in and the provide the

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


information to and The utilize the through
Establishing a did not work because need charging and they would have
a to which the

also

they do not want to jeopardize their tax-
exempt status.

was asked about the nature of the amount reported as occupancy expense in the amount of
$ . It was explained that had an office, and now uses

The officers were asked about the cost reported on the Form 990. It was explained that the costs
are because they in

also stated that they also spend funds in and to
communicate with . stated that

also pays for web hosting and internet web site building.

Meeting Minutes

A copy of the meeting minutes dated was provided and showed that it was
conducted via to select the new officers, who were appointed as follows:
The Minutes stated that Treasury Board will hold meetings at
the are established. the meetings will
or even on the

Minutes reported that the meeting was conducted over to discuss their

fundraising efforts, visit to
and the funding requiring to contribute $ each.
Revenue
The reported a total revenue of $ on its Form 990 for tax year ended
It reported total revenue of $ for tax year ended but was
to report total income of $ . The Form 990 for reported the

following categories of income:

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


received its income via various platforms or applications as noted below.
and are __ types of online payment platforms used to transfer and receive

While information had similar data comprising its total revenue of $
list a category of funds received via categorized as “ ” noted as examples

below. The tax year also had another different method of transfer of funds of approximately
transactions in the general ledger totaling $ via such as the examples below.

, the general ledger did

Some of the transactions provided some detail description in the “Description” column of the general
Catalog Number 20810W

Page 9 www.irs.gov Form 886-A (Rev. 5-2017)


ledger. is a selection of items showing the descriptions for transactions.

Expenses

reported total expenses of $ on its Form 990 for tax year ended
It reported total expenses of $ on its original return but amended it to report
$ on its Form 990 for tax year ended

General Ledger Reporting of Expenditures

Based on review of the general ledger for the majority of total reported expenses of
$ were reported in the following categories.

Based on review of the general ledger for the majority of total reported expenses in
the amount of $ were reported in the following categories:

Catalog Number 20810W Page 10 www. irs.gov Form 886-A (Rev. 5-2017)


General Ledger Description Account Code  |Amount

Total $

In the categories of expenses listed above, the general ledger slowed belly
disbursed to various persons or entities. Information Document Request (IDR) was issued
regarding transactions that were reviewed for supporting documentation. The IDR stated that for
tax year transactions were reviewed looking for supporting documentation to support
charitable purpose. and had no documentation attached to the
transaction, and _— transactions had some type of documentation. The documentation consisted of a
requisition formed titled The The requisition
form includes the following details: amount, an agreed upon date and by whom, name/group/dept
requesting funds, purpose/Event, Date of event, purpose for expenditure, completion date,
receivers name — email and location, means of payment, bank
on Bank Account, Contact person. The Form requires the signature of the requestor and approver.

The requisition form has the following paragraphs noted:

Records associated with completion of event were not provided. Other documentation that was
provided for certain transactions includes the receipt notification showing name of recipient,
amount received and format i.e.,

isa of the requisition forms and other documentation provided in with
expenses. See for copies of the supporting documents of the charts below.

Catalog Number 20810W Page 11 Www. irs.gov Form 886-A (Rev. 5-2017)


puccnrnernn

Catalog Number 20810W

Page

12

www. irs.gov

Form 886-A (Rev. 5-2017)


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The following below are excerpts of transactions taken from the general ledger for which
requisitions were provided and amounts reported on the Form 990.

General Ledger | Amount | Form 990 Year Functional Requisition for Cash Disbursement or
Account Expenses Purpose —
In year paid $ to individuals through and Checking.
The Form 990 Year reported in
in the amount of $ . The paid to is equivalent to % of the
. Form 980 for year ( in

the amount of $

The chart lists payments to individuals, and ( taken from the
in the [he
is the expense account corresponding to the amounts paid. The
the requisition purpose’s information for the corresponding payment and selected
as a when determined that the reported amount in the cart below was of
payments.

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Catalog Number 20810W Page 15 www.irs.gov Form 886-A (Rev. 5-2017)


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In year paid $ to , and The
Form 990 reported in reported

in the amount of The § paid to individuals is equivalent to % of the
Total Functional Expenses.

Per the statement for wire transfers totaling $ were sent primarily to
referenced as ( Business Expenses as noted below.

Catalog Number 20810W Page 17 www.irs.gov Form 886-A (Rev. 5-2017)


Listed below are the recipients to whom were sent to via various electronic forms of

transfers for

Date Recipient

Payment

| Amount | Method

Catalog Number 20810W Page 18

WWW. iTS.gov

Form 886-A (Rev. 5-2017)


Payments to and
Bank Statements and General Ledger showed that amounts were paid to who is of

and of in and During interview held on
, It was stated that received rent
assistance. The rent assistance was provided, because made available for meetings and
coordinated which was a lot of work.

Bank Statements and General Ledger showed that received $ in and
$ in to pay their rent per

Date Recipient Amount Payment Method

$ Checking

i $
Total $

The $ amount was recorded in the general ledger account and included on
Line the Form 990. For the $ was reported on Line

Loan to . . 4
General Ledger reported that paid $ via Check issued on ; as a
Loan to received in the amount of $ and $ were applied against the loan
leaving a balance of $ The $ was shown as received from and the §
shown as received from This loan was recorded under general ledger
to No. was incorporated with the
as a Non for Profit. A search conducted via using the

did not return any results of being tax exempt.
During interview held with and held on stated that isa
of and there are . They stated the given to
were not a loan but a transfer between related entities.

Loan to

Review of the deposit through online transfer in the amount of $ from account ending on
does not show that the transfer came from

Bank Statement from , through reported a deposit in the
amount dated , as follows:

Catalog Number 20810W Page 19 www irs. gov Form 886-A (Rev. 5-2017)


LAW

Exempt Purpose

IRC Section 501 (c)(3) of the Internal Revenue Code ("IRC") exempts from federal income tax
organizations which are 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. The term charitable includes relief of the poor and distressed. Section
1.501(c) (3)-1(d) (2), Income Tax Regulations.

Tax Regulation Section 1.501(c)(3)-1(a)(1) provides 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

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.

Tax Regulation Section 1.501(c)(3)-1(c)(1) of the regulations provides that an organization will be
regarded as “operated exclusively” for or more exempt purposes only if it engages primarily in
activities that accomplish or more of such exempt purposes specified in 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 existence of a substantial purpose, regardless of the number or

importance of exempt purposes, will cause failure of the operational test. Better Business Bureau of
Washington, D.C. v. U.S., 326 U.S. 279 (1945)

Tax Regulation Section 1.501(c)(3)-1(c)(2) states an organization is not operated exclusively for or
more exempt purposes if its net earnings inure in whole or in part to the benefit of private shareholders
or individuals. The words "private shareholder or individual" refer to persons having a personal and
private interest in the activities of the organization. Tax Regulation Section 1.501(a)-1(c) . Such private
shareholders or individuals are commonly referred to for convenience as "insiders."

Catalog Number 20810W Page 20 Www. irs.gov Form 886~A (Rev. 5-2017)


Tax Regulation Section 1.501(c)(3)-1(d)(1) states, in part, that an organization is not organized or
operated exclusively for 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.”

Revenue Ruling 56-304 , 1956-2 C.B. 306, provides that an organization is not precluded from Section
501(c)(3) exemption when it makes grants to individuals, provided the distributions are made on a true
charitable basis and in furtherance of its exempt purposes. Such organizations should keep adequate

records and case histories to show:

1) The name and address of the recipients.

2) The amount distributed to each;

3) The purpose for which the aid was given

4) The manner in which the recipient was selected: and,

5) The relationship, if any, between the recipient and

(i) Members, officers, or trustees of the organization;

(ii) A grantor or substantial contributor to the organization or a member of the family of either; and

(iit) A Corporation Controlled by a grantor or substantial contributor

Revenue Ruling 67-149, 1967-1 C.B. 133, concerns an organization formed for the purpose of providing
financial assistance to several different types of organizations which are exempt under

Section 501(c)(3). It carries on no operations other than to receive contributions and incidental
investment income and to make distributions of income to such exempt organizations at periodic
intervals. The ruling indicates that a Section 501(c)(3) organization may further its exempt purposes by
giving assets to another Section 501(c)(3) organization.

Revenue Ruling 71-460, 1971 - 2 C.B. 231, provides that a domestic corporation that conducts a part or
all of its charitable activities in a foreign country is not precluded from qualifying for exemption under
section 501(c)(3) of the Code. The ruling held that since the organization's activities were charitable

when carried on within the United States, the conduct of such activities elsewhere should not preclude
qualification for exemption.

Revenue Ruling 68-489 ,1968-2 C.B. 210, provides that an exempt organization under section 501(c)(3)
does not jeopardize its exempt status by distributing funds to organizations not themselves exempt
under section 50 1(c)(3) , provided the exempt organization.

1) retains control and discretion as to the use of the funds;

2) maintains records establishing that the funds were used for section 501(c)(3) purposes; and

3) limits distributions to specific projects that are in furtherance of its own exempt purposes.

Revenue Ruling 63-252 illustrated the point with the following examples:

(1) In pursuance of a plan to solicit funds in this country, a foreign organization caused a domestic
organization to be formed. At the time of formation, it was proposed that the domestic organization
would conduct a fund-raising campaign, pay the administrative expenses from the collected fund and
remit any balance to the foreign organization.

(2) Certain persons in this country, desirous of furthering a foreign organization's work, formed a
charitable organization within the United States. The charter of the domestic organization provides that it
will receive contributions and send them, at convenient intervals, to the foreign organization.

(3) A foreign organization entered into an agreement with a domestic organization which provides that
the domestic organization will conduct a fund-raising campaign on behalf of the foreign organization.
The domestic organization has previously received a ruling that contributions to it are deductible under

Catalog Number 20810W Page 21 Www. irs.gov Form 886-A (Rev. 5-2017)


section 170 of the Code. In conducting the campaign, the domestic organization represents to
prospective contributors that the raised funds will go to the foreign organization.

(4) A domestic organization conducts a variety of charitable activities in a foreign country. Where its
purposes can be furthered by granting funds to charitable groups organized in the foreign country, the
domestic organization makes such grants for purposes which it has reviewed and approved. The grants
are paid from its general funds and although the organization solicits from the public, no special fund is
raised by a solicitation on behalf of particular foreign organizations.

(5) A domestic organization, which does charitable work in a foreign country, formed a subsidiary in that
country to facilitate its operations there. The foreign organization was formed for purposes of
administrative convenience and the domestic organization controls every facet of its operations. In the
past the domestic organization solicited contributions for the specific purpose of carrying out its
charitable activities in the foreign country and it will continue to do so in the future. However, following
the formation of the foreign subsidiary, the domestic organization will transmit funds it receives for its
foreign charitable activities directly to that organization.

Revenue Ruling 66-79, clarified an ambiguity contained in examples and four of Revenue Ruling
63-252. Revenue Ruling 66-79 provided that contributions to a domestic charity solicited for a specific
project of a foreign charity are deductible under IRC 170 where the domestic organization has approved
the project as being in furtherance of its own exempt purposes and has control and discretion as to the
use of the contributions. In this case the bylaws of the domestic organization provided among other
things that the Board of Directors would require that grantees furnish a periodic accounting to show that
the funds were expended for purposes for which they were approved, and the Board might, in its
absolute discretion, refuse to make grants for which any funds were requested. The revenue ruling
concluded that “the test in each case is whether the organization has full control of the donated funds,
and discretion as to their use, so as to [ensure] that they will be used to carry out [the domestic
organization's] function and purposes.”

Record Keeping

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

IRC Section 6033(a)(1) provides, except as provided in IRC 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. The Secretary may also prescribe by forms or regulations the requirement of
every organization to 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.

Tax Regulation Section 1.6001-1(c) states that in addition to 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 -3 .

Tax Regulation Section 1.6001-1(e) states that the books or records required by this section shall be
kept at all times available for inspection by authorized Internal Revenue Service officers or employees
and shall be retained as long as the contents thereof may be material in the administration of any
Internal Revenue law.

Catalog Number 20810W Page 22 Www. irs.gov Form 886-A (Rev. 5-2017)


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

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.

TAXPAYER’S POSITION
Unknown

GOVERNMENT’S POSITION

Organizations described in IRC section 501(c)(3) and exempt under section 501(a) must be both
organized and operated exclusively for exempt purposes. Based on the examination of It
was determined that its primary activity consist of raising funds and disbursement of such funds to
various individuals both domestically and in foreign countries. However, based on source documents
provided to support certain disbursements, as well as the lack of supporting documentation for a
significant number of transactions, the organization’s primary activity cannot be considered as charitable
as defined under the Internal Revenue Code, its regulations, or legal precedence since conclusive
documentation has not been provided to show that a significant portion of its expenditures were used for
purposes described in section 501(c)(3)

The limited documentation reviewed revealed transactions that appear to be inconsistent with Section
501(c)(3) of the Code. Thus, has failed to exercise adequate control of the donated funds to
ensure that it was used exclusively for charitable purposes. Consequently, exempt status
under 501(c)(3) should be revoked. During the interviews, the officers laid out an operation that is
loosely organized and functions in an environment that is not conducive to tracking and documenting the
usage of funds expended by the organization beyond showing that the disbursements were made. It
does not have structure in place and it’s very unlikely that in the current environment in which it
operates could have a structure to allow it to exercise adequate expenditure control.

Disbursement of Funds
website, Form 1023 application, and information provided in the interviews, claim that it

provides
unds are raised from individuals and
. It received request for via a ; ,
( Memoranda, messages,
Disbursements were made to individuals in the
Checks and other banking methods. Disbursements were also made via
wire transfer to individuals in operates by fulfilling requests for received
through calls, and email. The decision-making process of who should be given

Catalog Number 20810W Page 23 Www. irs.gov Form 886-A (Rev. 5-2017)


assistance is not documented since most transactions did not have any source documents to support
the purpose of the Neither a standard operating procedure nor a formal process exists in
conjunction with expenditures. Thus, the rationale for the provided aid is not documented to ascertain
whether meets the purpose and criteria set forth in IRC section 501 (c)(3).

Expenditure Control

In the Form 1023 application process, stated that to ensure that foreign expenditures or
grants are not , It would conduct routine
audits of to make sure they are used for the intended purpose. The requisition
form itself also noted that upon completion of the event, the funds receiver shall provide a
complete financial report to the “ ” including receipts and fund disbursement also
stating if the was completed and the results.

has a Memorandum of Understanding (MOU) with describing
, as follows:
determines the funding amounts based on their assessment of the needs for services.
wants to complete by any organizations, and this is always based on the terms of our
MOU.

* requires receipts of all transfers, photos, audio and video images of services
rendered.
* also uses other organizations to the
in a peer review program and this increases competition, efficiency and transparency.
does not accept donations earmarked for particular organizations or individuals.
sends representatives and agents for field investigations and adheres strictly to the terms
in our MOU as far as reporting and hard evidence of services rendered.

Based on review of operations, no evidence was provided that party non-profit
organizations are conducting due diligence. No evidence was provided that is conducting
field investigations nor is securing receipts or any other type of proof to show how the funds

were actually used.

During the interview it was that they were sent videos and pictures showing results of
activities. of this information was provided. In its Form 1023 application, stated that it
would exercise control and responsibility over the use of any funds or goods granted to foreign
organizations or individuals to ensure they are properly used by sending “representatives and agents for
field investigations, we adhere strictly to the terms in our MOU as far as reporting and hard evidence of
services rendered are concerned. We require receipts of all transfers, photos, audio and video images of
services rendered. We also use other organizations to periodically review the activities of our partner
organizations in a peer review program and this increases competition, efficiency and transparency.”

also stated in the Form 1023 that it would be checking the List, conducting periodic
and routine audits to verify all expenditures were used for the intended charitable purpose for which they
were provided, and conducting background checks on
has not provided any evidence of properly vetting the individuals
requesting and receiving nor has provided any documentation indicating the implementation of
such process nor alternative methods.

Revenue Ruling 68-489, 1968-2 C.B. 210 listed actions that should be taken by an organization
that distribute funds to organizations that are not exempt under 501(c)(3). It includes maintaining
records to establish that the funds were used for section 501(c)(3) purposes. Most of

Catalog Number 20810W Page 24 WWw.irS.gov Form 886-A (Rev. 5-2017)


transactions had no records except for the disbursements showing on the bank statement. Thus, it has
failed to maintain records to show that funds were used for 501(c)(3) purposes.

In IDR the taxpayer was notified that out of transactions reviewed, had no documentation,
and had very limited substantiation of the organization’s exempt purpose. Thus, approximately %
of the disbursements for did not have any documentation. The majority of the disbursements were
made to individuals, thus not entities exempt under 501(c)(3) of the Code. - Wire transfers, there
are no trail to establish that to
Even with the wire transfers that showed the funds being sent to there was no additional
documentation to show how the funds were used. also indicated that it

and
which are Service approved IRC 501(c)(3) exempt organizations. No evidence exists that
has with organizations.

Based on review of documentation in place, has not exercised expenditure control as
discussed in Revenue Ruling 66-79. The Revenue Ruling provided that contributions to a domestic
charity solicited for a specific of a foreign charity are deductible under IRC 170
where the domestic organization has approved the as being in furtherance of its own exempt
purposes and has control and discretion as to the use of the contributions. In this case the bylaws of the
domestic organization provided among other things that the Board of Directors would require that
grantees furnish a periodic accounting to show that the funds were expended for purposes for which
they were approved, and the Board might, in its absolute discretion, refuse to make grants for which any
funds were requested. The revenue ruling concluded that “the test in each case is whether the
organization has full control of the donated funds, and discretion as to their use, so as to ensure that
they will be used to carry out function and purposes ”

The purpose stated on various requisition forms does not support an expenditure exempt under
501(c)(3) and released funds to the individuals or entities, it does not know if the funds
made it to its destination to

. It is not Known that the funds actually arrived
its final usage. During

interviews with the and they stated that they have a loosely formed
which requests financial assistance and through which individuals are verified to be recipients and
carriers of the This starts as the but no documentation or tracing of this

comprised of many individuals have been documented as to establish some formal
organizational structure capable of delivering a charitable endeavor that would clearly establish that
funds were used for 501(c)(3) purposes. Even if the funds were disbursed for 501(c)(3) purposes based
on what was told to them and calls were received that the funds were received, still did not
provide documentation verifying the use of the funds. Thus, it has failed to maintain full control of the
donated funds.

No Standard Operation Procedure has been implemented showing how is conducting any
form of due diligence on the individuals and organizations requesting and receiving nor that
these individuals and organizations have fulfilled the purpose for which were requested and
sent and whether this purpose is in agreement and concordance with charitable purpose

or purposes within 501 (c)(3).

Funds Expended for Non-Charitable Purposes

Even though documentation was lacking or nonexistent for many transactions, a review of what was
provided was reviewed to determine if these documents would support that was conducting
charitable activities.

Catalog Number 20810W Page 25 www irs gav Form 886-A (Rev 5-2017)


Listed in the facts section above were a list of requisitions representing request for funds, a summarized
list of payment per the general ledger, and excerpt of expenses from the general ledger.

- §$ was wired to an account in with purpose described as
to . The receiver was The requesting department was
The purpose noted for this transaction appears to be related
to but does not make a connection that this activity is within the meaning of
501(c)(3). Beyond the requisition form and the bank statement showing the withdrawal, no
additional documentation was provided. There was no accounting made from on
how the funds were spent. does not have a department called
Based solely on this documentation, the disbursements were not made for purposes
described in 501(c)(3). See , Page

- Disbursement of $ ( was for the purpose
during the of
Recipient name was The requesting department was
to the There was no accounting from on how the
funds were spent. See Page

Bank statement shows a wire transfer on via to recipient
for $ with reference to “ _ ” Wire
transfer was also sent on for $ to —- ‘
Also sent, on for $ was to to
No documentation was provided to show how
used the funds. See Page

- Atotal of $ was sent to via Since the method of disbursement was
thru we are concluding that it was a disbursement made to within the
of the transactions a requisition showed as the recipient of
on / for $ with purpose of disbursement to prevent of in
The bank statement showed receiving $ via and
to via Not all the transactions had a requisition. There is no correlation
between the disbursements of the funds and claimed exempt purposes of
. The documentation provided did not conclusively show how the funds
disbursed were used. There was not supporting documentation to show how
used the funds. The entry is the withdrawal on the bank statement and the entry in the
general ledger. See Page Page and Pages and

Based on the purpose for which the funds were requested as noted on the requisition form or the
general ledger, the expenditures have not been substantiated as being used for 501(c)(3) purposes.
The mere notation of designating the by itself does not substantiate a
501(c)(3) purpose.

claimed that it was engaged ina in
Also, a
was started in but discontinued due to high costs. Although the intent of the
may have been to improve the communication among the in and the
in the and in invested a total of $ in
for and and $ for in

Catalog Number 20810W Page 26 Www. irs.gov Form 886-A (Rev. 5-2017)


Date Type Contact Description Amount Source

of the requisition noted funds to
The purpose was described as
as by . There was no
documentation to show who actually received There was no clear evidence as
to how these relates to their 501(c)(3) purposes or falls within the purpose of IRC 501(c)(3).

Loan
Inc. { is not a 501(c)(3) organization. allocated
$ was labeled as a loan in the records but should have been labeled a
transfer of assets between received directly $ and $ were used to pay the
is the % shareholder and

Because and qualified the transaction as a transfer of assets between
The transfer was executed between a tax exempt and a taxable entity. Evidence of the
charitable use of funds must be secured to ensure the funds are being used for 501(c)(3) purposes. No

evidence was provided that this transfer of funds was in accordance with 501(c)(3)
purpose.
Based on review of the financial operations, it appears that is serving

Payments were also
made to page (See yon states the following:

Source: -

Requests for funds were made for various counties noted in the description The requests
for funds appears to be related to the funding of Based on the
requisitions for moneys found in the following information indicates the purposes and recipients
that appears to be . See for supporting documentation.

Catalog Number 20810W Page 27 www. irs.gov Form 886-A (Rev. 5-2017)


Some of the requests above appear to be f

Other payments were made to as noted below.

| Date Recipient | Amount | Payment Method |

| Date | Recipient | Amount | Payment Method |
The support

Catalog Number 20810W Page 28 Www.irs.gov Form 886-A (Rev. 5-2017)


How these
For transactions, appears to be spending the moneys that

Record Keeping
and its officers use an has the
such as, ( to General Ledger),

also has the ability to have supported documents to be uploaded with each
transaction specially expenditures.

For year out of Expense related transactions, over transactions were reviewed for
receipts, money requisition orders and other supporting documentation. Incomplete documentation was
found to account for $ and $ reported under the and
respectively as reported in the or General Ledger. These
types of expenses are part of the All Other Expenses in the amount of $ reported in Line
of the Revised Form 990 Year No other expenses account with any other type of supporting
documentation
IRC Section 6001 provides that every person liable for any tax imposed by the IRC, or for the collection
thereof, shall keep adequate records as the Secretary of the Treasury or his delegate may from time to
time prescribe.

IRC Section 6033(a)(1) provides, except as provided in IRC 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. The Secretary may also prescribe by forms or regulations the requirement of
every organization to 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.

Tax Regulation Section 1.6001-1(c) states that in addition to 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 -3 .

Tax Regulation Section 1.6001-1(e) states that the books or records required by this section shall be
kept at all times available for inspection by authorized Internal Revenue Service officers or employees
and shall be retained as long as the contents thereof may be material in the administration of any
Internal Revenue law.

Most of the transactions recorded in the general ledger, and/or bank statements were not adequately
supported with source documents.

has failed to meet the reporting requirements of section 6033 of the Code since it failed to
provide records to show that payments made to individuals and non-501(c)(3) entities were used for
purposes described in 501(c)(3) of the Code. It failed to keep adequate records as required under IRC
6001.

Catalog Number 20810W Page 29 www.irs.gov Form 886-A (Rev. 5-2017)


CONCLUSION

claim of its usage of funds to has not
been adequately supported that such funds were used for 501(c)(3) purposes. The disbursements of
funds to individuals and non-501(c)(3) entities without proper accounting does not support an exempt
purpose being conducted. has failed to retain control and discretion as to the use of the
funds, and has failed to maintain records to show that its expenses are consistent with 501(c)(3)
purposes. As a result of the lack of expenditure control, expenditures made for non-501(c)(3) purposes

and recordkeeping deficiencies the exempt status granted to under 501(c)(3) should be
revoked effective

Catalog Number 20810W Page 30 www. irs.gov Form 886-A (Rev. 5-2017)