501(c)(3) exemption revoked for failure to keep and produce records

Plain-English summary

The IRS revoked a public charity's tax-exempt status. During an audit of the group's Form 990, the IRS repeatedly asked for the organization's books, bank statements, contracts, meeting minutes, and other financial records. Over many months the organization never produced enough records to let the agent verify that it still operated for charitable purposes. It said a former officer had taken the books, moved out of state, and destroyed them. Because the law (IRC §§ 6001 and 6033) requires an exempt organization to keep adequate records and let the IRS inspect them, the failure to do so meant the group could not show it still qualified under Section 501(c)(3). The IRS revoked the exemption, meaning the organization must now file regular corporate income tax returns and donors can no longer deduct contributions under Section 170. The organization can challenge the decision in federal court under Section 7428 within 90 days.

Ruling snapshot

• Question: Does the organization continue to qualify for exemption under IRC § 501(c)(3) when it did not maintain or produce adequate books and records?
• Outcome: revocation
• Key authorities: IRC §§ 501(c)(3), 6001, 6033(a); Treas. Reg. §§ 1.501(c)(3)-1, 1.6001-1, 1.6033-1(h)(2); Rev. Rul. 59-95; Better Business Bureau v. United States, 326 U.S. 279 (1945); Harding Hospital, Inc. v. United States, 505 F.2d 1068 (6th Cir. 1974)

Full text (IRS public release)

Department of the Treasury                                   Date:
Internal Revenue Service                                     March 19, 2024
IRS Tax Exempt and Government Entities                       Taxpayer ID number (last 4 digits):

                                                             Form:

                                                             Tax periods ended:
Release Number: 202424021
Release Date: 6/14/2024                                      Person to contact:

                                                             Name:
UIL Code: 501.03-00                                          ID number:

                                                             Telephone:
                                                             Fax:

                                                             Last day to file petition with United States
                                                             Tax Court:

                                                             Monday, June 17, 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: You are in violation of
Sections 6001 and 6033(a) of the Code because you did not provide records after the IRS's repeated requests.
Failure to comply with Section 6033 of the Code and the applicable regulations 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 an exempt
status. See Rev. Rul. 59-95. Here, the Organization's failure to respond to the IRS's repeated, reasonable
requests for information in connection with the examination constitutes a failure on the part of the Organization
to demonstrate continued compliance with the requirements in Section 501(c)(3) of the Code.

Organizations that are not exempt under IRC Section 501 generally are required to file federal income tax returns
and pay tax, where applicable. For further instructions, forms and information please visit IRS.gov.
Contributions to your organization are no longer deductible under IRC Section 170.

What you must do if you disagree with this determination
If you want to contest our final determination, you have 90 days from the date this determination letter was
mailed to you to file a petition or complaint in one of the three federal courts listed below.

How to file your action for declaratory judgment
If you decide to contest this determination, you can file an action for declaratory judgment under the provisions
of Section 7428 of the Code in either:

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

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

You must file a petition or complaint in one of these three courts within 90 days from the date we mailed this
determination letter to you. You can download a fillable petition or complaint form and get information about
filing at each respective court's website listed below or by contacting the Office of the Clerk of the Court at one
of the addresses below. Be sure to include a copy of this letter and any attachments and the applicable filing fee
with the petition or complaint.

You can eFile your completed U.S. Tax Court petition by following the instructions and user guides available
on the Tax Court website at ustaxcourt.gov/dawson.html. You will need to register for a DAWSON account to
do so. You may also file your petition at the address below:

United States Tax Court
400 Second Street, NW
Washington, DC 20217
ustaxcourt.gov

The websites of the U.S. Court of Federal Claims and the U.S. District Court for the District of Columbia contain
instructions about how to file your completed complaint electronically. You may also file your complaint at one of
the addresses below:

US Court of Federal Claims
717 Madison Place, NW
Washington, DC 20439
uscfc.uscourts.gov

US District Court for the District of Columbia
333 Constitution Avenue, NW
Washington, DC 20001
dcd.uscourts.gov

Processing of income tax returns and assessments of any taxes due will not be delayed if you file a petition for
declaratory judgment under IRC Section 7428.

We'll notify the appropriate state officials (as permitted by law) of our determination that you aren't an
organization described in IRC Section 501(c)(3).

Information about the IRS Taxpayer Advocate Service

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

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

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

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

Find tax forms or publications by visiting IRS.gov/forms or calling 800-TAX-FORM (800-829-3676). If you
have questions, you can call the person shown at the top of this letter.

If you prefer to write, use the address shown at the top of this letter. Include your telephone number, the best
time to call, and a copy of this letter.

You may fax your documents to the fax number shown above, using either a fax machine or online fax service.
Protect yourself when sending digital data by understanding the fax service's privacy and security policies.

Keep the original letter for your records.
Sincerely,

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                                   [illegible] December 28, 2022
Internal Revenue Service                                     Taxpayer ID number:
IRS Tax Exempt and Government Entities

                                                             Form:
                                                             Tax periods ended:

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

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

                                                             Response due date:
                                                             January 27, 2023
CERTIFIED MAIL — Return Receipt Requested
Dear

Why you're receiving this letter

We enclosed a copy of our audit report, Form 886-A, Explanation of Items, explaining that we
propose to revoke your tax-exempt status as an organization described in Internal Revenue Code
(IRC) Section 501(c)(3).

If you agree
If you haven't already, please sign the enclosed Form 6018, Consent to Proposed Action, and
return it to the contact person shown at the top of this letter. We'll issue a final adverse letter
determining that you aren't an organization described in IRC Section 501(c)(3) for the periods
above.

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

If you disagree

1. Request a meeting or telephone conference with the manager shown at the top of this
   letter.
2. Send any information you want us to consider.
3. File a protest with the IRS Appeals Office. If you request a meeting with the manager or
   send additional information as stated in 1 and 2, above, you'll still be able to file a protest
   with IRS Appeals Office after the meeting or after we consider the information.

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

The IRS Appeals Office is independent of the Exempt Organizations division and
resolves most disputes informally. If you file a protest, the auditing agent may ask you to
sign a consent to extend the period of limitations for assessing tax. This is to allow the
IRS Appeals Office enough time to consider your case. For your protest to be valid, it
must contain certain specific information, including a statement of the facts, applicable
law, and arguments in support of your position. For specific information needed for a
valid protest, refer to Publication 892, How to Appeal an IRS Determination on Tax-
Exempt Status.

Fast Track Mediation (FTM) referred to in Publication 3498, The Examination Process,
generally doesn't apply now that we've issued this letter.

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

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

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

Contacting the Taxpayer Advocate Office is a taxpayer right

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

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

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

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

Sincerely,
Russell T. Renwicks   Digitally signed by Russell T. Renwicks
                       Date: 2022.12.20 15:48:42 -05'00'
For
Lynn Brinkley
Acting Director, Exempt Organizations
Examinations

Enclosures:
Form 886-A
Form 6018

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

Form 886-A   Department of the Treasury - Internal Revenue Service   Schedule No. or
             Explanation of Items

Name of Taxpayer                                     Year/Period Ended
Issues:
Does                       continue to qualify as an organization exempt
from Federal income tax under Section 501(c)(3) of the Internal Revenue Code?

Facts:
       was granted exemption within the meaning
of Section 501(c)(3) with an effective date for exemption as of        .

The              was classified as a public charity within the
meaning of Section 509(a)(2) of the Internal Revenue Code.

The Form 990 for tax year ending       , filed by
was selected for examination to ensure that the examined organization's activities and
operations remain in compliance with Section 501(c)(3).

A correspondence examination for tax year ending       , was opened, and
       was sent Letter 6031 with Form 4564 Information
Document Request, Publication 1 and Notice 609 on       , with a response due
date of       . The correspondence requested specific details on activities
conducted by the organization; particularly the operation of conventions held by the
organization, copies of organizational documents, meeting minutes, contracts and leases,
financial data to reconcile the 990 Return to the organization's books, and copies of
employment tax records and other miscellaneous filings.

No response to Letter 6031 was received and a telephone call was made to the
       (as listed on Form 990) on       . The outgoing
message indicates that       screens all calls.

The call was returned on       .       indicated that she had not received the
letter sent on       . She confirmed that the address used on the
correspondence is correct.

Another copy of the Letter 6031 and attachments was mailed on       , with a
response due       .
A telephone call was made to       on       . A voicemail was left, no return call
was received.
On       , a duplicate copy of Letter 6031 and attachments was again mailed to       .
On       , a voicemail was left for       . A return call was received
       .       indicated she had not received any of the letters. She verified that the
address was correct.
On       , another copy Letter 6031 and attachments was sent by       with
Form 886-A (Rev.4-68)   Department of the Treasury - Internal Revenue Service

Page: -1-

Form 886-A   Department of the Treasury - Internal Revenue Service   Schedule No. or
             Explanation of Items

Name of Taxpayer                                     Year/Period Ended
       to       . The
Domestic Return Receipt has not been received.
On       , Letter 5077-B and Form 4564 were sent to
by       . The       has not been received.

On       , a letter and proposed revocation package was mailed to the
taxpayer. Packet returned by       .

On       , a copy of the Letter 6031 and attachments was sent to       .
       called on       , indicating she had received
the correspondence and would mail what documentation she could.       indicated that
the       had moved and taken all the financial records with her.
       , a response to the Form 4564 was received. The incomplete
response included none of the financial information needed to conduct the examination.

       , a Letter 5464 and Form 4564 was prepared requesting financial information
including bank statements and employment tax forms and information.

       , a call was placed to       and a voicemail left.       returned the call
and left a voice mail indicating the requested information was placed in the mail on
       . A response to Form 4564 was received on       . Response indicates that
there are no paid employees, compensation entered on Form 990 was an error.
       provided checking account statements but no
supporting documentation needed to substantiate the income and expenses.

       , a Letter 5464 and fourth Form 4564 was mailed requesting financial information
and Forms 1099.

A response was received on       , indicating that       were located
       were held in       .
       did provide copies of Forms W-9.       did not keep copies
of any 1099s issued, and she has indicated that she has been unable to obtain copies of
bank statements from       .

       , a voice mail was left for       .

A final call was placed to       on       .       was asked if she had been
able to retrieve the books and records from the       or the bank statements
from       . She indicated that the       has moved out of state and
destroyed the books and records.       was asked about the copies of the Forms 1099,
and told the agent to get them from our records, as       didn't keep copies.

Agent indicated that without adequate books and records she is unable to determine if
       meets the organizational and operational tests of
Internal Revenue Code Section 501(c)(3) and would be preparing a Revenue Agent Report

Form 886-A (Rev.4-68)   Department of the Treasury - Internal Revenue Service
Page: -2-

Form 886-A   Department of the Treasury - Internal Revenue Service   Schedule No. or
             Explanation of Items

Name of Taxpayer                                     Year/Period Ended
proposing revocation of exempt status.       said, "do what had to be done."

Law:

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

Treasury Regulation 1.501(c)(3)-1(a)(1) provides "In order to be exempt as an organization
described §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."

Treasury Regulation 1.501(c)(3)-1(b) states, in part, that an organization is organized
exclusively for one or more exempt purposes only if its articles limit the purposes to one or more
such exempt purposes and do not expressly empower the organization to engage, other than as
an insubstantial part of its activities, in activities which in themselves are not in furtherance of
exempt purposes. Articles which expressly empower the organization to engage in other than
exempt activities, and other than as an insubstantial part of the activities is not organized
exclusively for exempt purposes even if the Articles stated the organization is created for
charitable or educational or other exempt purposes.

Treasury Regulation 1.501(c)(3)-1(b)(1)(i) provides that an organization is organized
exclusively for one or more exempt purposes only if its articles of organization limit its purposes
to one or more exempt purposes and do not expressly empower it to engage, otherwise than as
an insubstantial part, in activities which in themselves are not in furtherance of one or more
exempt purposes.

Treasury Regulation 1.501(c)(3)-1(c)1 of the Income Tax 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 further one 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.

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

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

Form 886-A (Rev.4-68)   Department of the Treasury - Internal Revenue Service
Page: -3-

Form 886-A   Department of the Treasury - Internal Revenue Service   Schedule No. or
             Explanation of Items

Name of Taxpayer                                     Year/Period Ended

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

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

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

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.

In Better Business Bureau v. United States, 326 U.S. 279-283, (1945), the court held that the
existence of a single non-exempt purpose, if substantial in nature, will destroy exemption under
section 501(c)(3) regardless of the number or importance of truly exempt purposes. To qualify
for exemption under section 501(c)(3), the applicant organization must show (1) that it is
organized and operated exclusively for religious, or charitable purposes, (2) that no part of the
net earnings inures to the benefit of a private individual or shareholder, and (3) that no
substantial part of its activities consists of the dissemination of propaganda or otherwise
attempting to influence legislation or engaging in political activity.

In Harding Hospital, Inc. v. United States, 505 F.2d 1068, 1071 (6th Cir. 1974), the court held
that an organization has the burden of proof that it satisfies the requirements of the particular
exemption statute. The court noted that whether an organization has satisfied the operational
test is a question of fact.

Taxpayer's Position

       has struggled to provide sufficient financial information needed to conduct an
examination of Form 990 for tax year       .       has stated that the
       of       had possession of the books and records

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

Form 886-A   Department of the Treasury - Internal Revenue Service   Schedule No. or
             Explanation of Items

Name of Taxpayer                                     Year/Period Ended

belonging to       and has since moved out of       and
has indicated that the records have been destroyed.

       has not been able to obtain copies of bank statements from       after repeated
attempts to obtain them electronically.

       has not provided copies of Forms 1099 issued by
as she did not keep copies. She stated that she was not aware that she needed to keep
copies and the Revenue Agent should be able to obtain them.

Government's Position

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

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

       has not provided sufficient books and records to
conduct an examination as requested by multiple attempts to secure specific details on its
activities or financial data for the year under examination, to enable the Service to determine
whether the organization's exemption under Section 501(c)(3) should remain in effect.

Following the rationale established in Harding Hospital, Inc. v. United States, and Better
Business Bureau v. United States, without the requested information and cooperation of
       , it is not possible to conduct the examination process
favorably for the taxpayer. The burden of proof lies with
       , who has not provided the requested information to complete the examination of its tax
return.

Using the rationale that was developed in Revenue Ruling 59-95, the
       's failure to maintain adequate books and records should result in
the revocation of its exempt status.

It is the government's position that the organization should be revoked as it has not proved that
it is organized or operated for exclusively charitable, educational or religious purposes within the
meaning of Section 501(c)(3).

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

Form 886-A   Department of the Treasury - Internal Revenue Service   Schedule No. or
             Explanation of Items

Name of Taxpayer                                     Year/Period Ended
Conclusion:
Based on the foregoing reasons, revocation of exempt
status is proposed effective       , because of the organization's failure to provide
adequate information substantiating its continued qualification for exempt status within the
meaning of Section 501(c)(3) of the Internal Revenue Code.

Form 1120 returns should be filed for the tax periods effective       .

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