Fundraising charity loses exemption after founder diverted revenue for personal use

Plain-English summary

The IRS revoked a fundraising charity's 501(c)(3) status after an examination found that its founder and sole active officer controlled its operations and used charity revenue for personal expenses. The report described fundraising income moving through personal accounts, business accounts, online payment vendors, and an LLC with the same name, while Form 990 filings reported only a small part of the activity. It also described an altered IRS determination letter provided to a prospective charity client, advertising that blurred the charity and the founder's business, donor complaints, and efforts to direct donations away from client charities. The IRS treated the founder as a disqualified person and the repeated personal use of funds as excess benefit transactions under section 4958. Because the transactions were substantial, repeated over several years, and central to the operation, the IRS found both private inurement and a substantial non-exempt purpose. The organization therefore lost exemption and was required to file Form 1120 as a taxable entity.

Ruling snapshot

• Question: Did a fundraising organization remain exempt when its founder controlled revenue, routed funds through private accounts, and paid personal expenses?
• Outcome: revocation
• Key authorities: IRC §§ 501(c)(3), 4958; Treas. Reg. § 1.501(c)(3)-1(a), (c), (d), (f); Better Business Bureau v. United States; Church by Mail v. Commissioner

Full text (IRS public release)

Department of the Treasury
Internal Revenue Service
Tax Exempt and Government Entities
550 Main Street
Cincinnati, OH 45202

Date:
July 24, 2024

Taxpayer ID number (last 4 digits):

Form:

Tax periods ended:

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

Release Number: 202442007
Release Date: 10/18/2024
UIL Code: 501.03-00

Last day to file petition with United States
Tax Court:
October 22, 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
described in I.R.C. Section 501(c)(3) and exempt under I.R.C. Section 501(a) must be both organized and
operated exclusively for exempt purposes. Organizations exempt from Federal income tax under section 501(c)
(3) of the Code are required to operate exclusively for charitable, educational, or other exempt purposes.
Organizations are not operated exclusively for exempt purposes if the net earnings of the organization inure in
whole or in part to the benefit of private shareholders or individuals of the organization. See Treas. Reg. §
1.501(c)(3)-1(c)(2). During 2018, 2019, 2020 and 2021 we have determined that your net earnings inured to the
benefit of your founder and principal. The funds inuring to your founder were used to cover his personal
expenses, and were substantial in comparison to your total expenditures and were multiple or repeated over a
pattern of years. As such, you failed to meet the requirements of IRC Section 501(c)(3) and Treasury
Regulations Section 1.501(c)(3)-1(a), in that you have not established that you were organized and operated
exclusively for exempt purposes and that no 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. 3-2024)
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).

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 if 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. Visit TaxpayerAdvocate.IRS.gov/contact-us or call 877-777-4778 (TTY/TDD 800-829-4059)
to find the location and phone number of your local advocate. Learn more about TAS and your rights under the
Taxpayer Bill of Rights at TaxpayerAdvocate.IRS.gov. Do not send your Tax Court petition to TAS. Use the
Tax Court address provided earlier in the letter. Contacting TAS does not extend the time to file a petition.

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.

Letter 6337 (Rev. 3-2024)
Catalog Number 74808E

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. 3-2024)
Catalog Number 74808E

Department of the Treasury
Internal Revenue Service
Tax Exempt and Government Entities
Exempt Organizations: Examinations
310 Lowell St. Stop 500
Andover, MA 01810

Date:
January 16, 2024

Taxpayer ID number:

Form:

Tax periods ended:

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

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

Response due date:
February 15, 2024

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).

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

Sincerely,

Dawn Goldberg
Supervisory Internal Revenue Agent

Enclosures:
Form 886-A and attachments
Form 6018
Publications 892 & 3498

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

Form 886-A Department of the Treasury ~ Internal Revenue Service Schedule number
(May 2017) Explanations of Items

Name of taxpayer Tax Identification Number (last 4 digits) | Year/Period ended

Issues:

Whether          exemption under 501(c)(3) of the Internal Revenue
Code should be revoked based on the following:

1) Allowing the exempt organization income to inure to the benefit of the President and not
operating primarily for an exempt purpose.

Facts:

Origins of the Organization

On erinman eae and formed

e organization applied for tax exemption using the Form
tax exemption was granted under IRC 501(c)(3) of the Code. It’s stated
urpose was ‘

name was chang
As explained by

ed to
In an email

Research on the Secretary of State website found the name
was related to an LLC of the same name established by | Per the}
dissolution document was to relinquish all rights and claims to

Instead of dissolving alone signed the name
change amendment with the State o eeping the same . attempted to file
a new Form 1023 several times, but as he had simply changed the name of the organization his
applications were rejected by EO Determinations.

is the sole officer/worker in the organization. He has listed his father
several times as an officer on Form 990’s and as a voting Board member during
meetings, but later admitted it was just for appearances and his father has nothing to do with the
organization. See the attached Interview Transcript (MM and Board meeting minutes

D.

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

Form 886-A Department of the Treasury — Internal Revenue Service Schedule number
(May 2017) Explanations of Items

Name of taxpayer Tax identification Number (last 4 digits) | Year/Period ended

False Determination Letter

An animal rescue organization interested in the fundraising services provided y

I attempted to verify the organization’s tax-exempt status. They discovere
the EIN under the exemption was for When asked about this discrepancy,
rovided the rescue with a copy of the determination letter from however

name on the letter had been altered. See attached email from the client
rescue organization which had the altered determinations letter attached.

The A sce provided to them had the name ‘
The letter as issued and retained in the IRS determination’s file, was under
Ian . When asked about the origins of the altered letter
uring the interview, stated he had not seen the letter before and that it must have

been changed by someone involved in a group called

Activities

In Board meeting minutes provided for |, resolutions were passed that fundraising
would not start until However, extensive fundraising did occur during these years, including
a multi-state tour which was also discussed in the minutes. The activities of this tour are described
below.

fundraisers for
. The client charity enters into a contract for the fundraiser where
deposit and | of the proceeds received

the cut of the fundraising income and any private

On years after forming and operatin a
ormed an LLC of the same name: e€ opened a bank account in the

name and began invoicing the charitable fundraising through the LLC. This caused confusion

with | he worked with as they believed they were working with a charity
but would receive an  —_— PRR The website, social media and advertising

materials simply refers to ‘

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

Form 886-A Department of the Treasury — Internal Revenue Service Schedule number
(May 2017) Explanations of Items

Name of taxpayer Tax identification Number (last 4 digits) | Year/Period ended

has no activity of its own. All monies received through the LLC bank account
fundraising events historically held by
to a member of the public,

a message from

specifically discuss the

The Board meeting minutes a
multi-state fundraising tour which later funded his personal and business accounts. (i)

Form 990 Filing

BB until present. From

the form reported 9@ in income and expenses. In the income was listed as § and
expenses as . The bank account only showed of these expenses and no

The Form 990-EZ was filed since the organization’s a": in
supporting information was provided for the large discrepancy.

The only financial records provided by the organization was bank account opened
iil In actuality there were many accounts used to run the organization’s operations but were in
the name of or Ce | The correct and complete

source documents were obtained through third party contacts and summonses.

After reviewing each of thelJ accounts held ond it was
determined that the following income should have been reported on the Form 8 for the years

under examination:

Form 990 Actual
Reported | Form 990
Year Income Income

The fj Form 990-EZ reported a loan from RE of SE RR later

stated it was not a formal loan, but a guesstimate of money he gave to the organization. No record

of this transfer of money into the organization exists. further stated verbally and in
writing that he was claiming the —_ as a charitable contribution deduction 1

Catalog Number 20810W Page 3 www.irs.gov Form 886-A (Rev. 5.2017)

Form 886-A Department of the Treasury ~ Internal Revenue Service Schedule number
(May 2017) Explanations of Items

Name of taxpayer Tax Identification Number (last 4 digits) | Year/Period ended

Bank Accounts

se Giemretesisir daniel has been in existence since wr ermacitat A bank
account in its name was not opene until and even then, did not reflect the extent of

income/expenses related to the exempt organization. The exempt organization’s income and

expenses are run through ersonal and business accounts with banks and online
vendors. In total there are

Questionable Activity

e During the investigation
on

ocean worker present that day who admitted the link was embedded on purpose to
ivert the donations meant ‘or a somewhere else.

‘WR (12s been featured b which advertises the fundraising as a
charitable activity. )

e {thas a website which showcases the traveling fundraising activities dubbed ‘

It offers donation payment options, sells merchandise, advertises a
and

e There are complaints from donors who intended to donate once but found later their
accounts were debited monthly. When they attempted to contact he would not
respond and the donors were eventually forced to cancel their credit cards.

escribes itself as a c)(3) charity. Each video is also captioned with a statement that it
is a non-profit. See attached for additional examples | advertising as a
Chari rT

)

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

_ j Schedule number
Form 886-A Department of the Treasury — Internal Revenue Service

* hibit
(May 2017) Explanations of Items aoe

Name of taxpayer Tax identification Number (last 4 digits) u

¢ ina booklet advertising the fundraising GE. pace If), asks for
donations to be made directly to instead of to the charities he is working with:

IRC § 501(c)(3) exempts from federal income tax organizations which are organized and
operated exclusively for religious, charitable, scientific, testing for public safety, literary, or
educational purposes, or to foster national or international amateur sports cornpetition (but only if
no part of its activities involve the provision of athletic facilities or equipment), or for the prevention
of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any
private shareholder or individual, no substantial part of the activities of which is carrying on
propaganda, or otherwise attempting, to influence legislation (except as otherwise provided in
subsection (h)), and which does not participate in, or intervene in (including the publishing or
distributing of statements), any political campaign on behalf of (or in opposition to) any candidate
for public office.

Law:

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

Form 886-A Department of the Treasury — Internal Revenue Service Schedule number
(May 2017) Explanations of Items

Name of taxpayer Tax Identification Number (last 4 digits) | Year/Period ended

Treas. Reg. § 1.501(c)(3)-1(d)(i) states that an organization may be exempt as an organization
described in 501(c)(3) if it is organized and operated exclusively for one or more of the following
purposes: religious, charitable, scientific, testing for public safety, literary, educational, or
prevention of cruelty to children or animals.

Inurement

IRC § 4958(c) defines the term “excess benefit transaction” as any transaction in which an
economic benefit is provided by an applicable tax-exempt organization directly or indirectly to or
for the use of any disqualified person if the value of the economic benefit provided exceeds the
value of the consideration (including the performance of services) received for providing such
benefit. For purposes of the preceding sentence, an economic benefit shall not be treated as
consideration for performance of services unless such organization clearly indicated its intent to so
treat such benefit.

IRC § 4958(e) defines “applicable tax-exempt organization” as an organization described in
either §501(c)(3) or §501(c)(4) of the Internal Revenue Code or an organization which was so
described at any time during the five-year period ending on the date of the excess benefit
transaction.

IRC § 4958(f)(1) defines a “disqualified person” as (A) any person who was, at any time during
the five-year period ending on the date of such transaction, in a position to exercise substantial
influence over the affairs of the organization, (B) a member of the family of a disqualified person,
and (C) a 35% controlled entity.

Treas. Reg. § 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 one or more of the purposes specified in such section. !f an organization fails to meet either the
organizational test or the operational test, it is not exempt.

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

Treas. Reg. § 1.501(c)(3)-1(f)(2)(ii) provides that, in determining whether to continue to
recognize the tax-exempt status of an applicable tax-exempt organization (as defined in section
4958(e) and §53.4958-2) described in section 501(c)(3) that engages in one or more excess
benefit transactions that violate the prohibition on inurement under section 501(c)(3), the
Commissioner will consider all relevant facts and circumstances, including, but not limited to, the
following —

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

Form 886-A Department of the Treasury ~ Internal Revenue Service Schedule number
(May 2017) Explanations of Items

Name of taxpayer Tax identification Number (/ast 4 digits) | Year/Period ended

(A) The size and scope of the organization's regular and ongoing activities that further exempt
purposes before and after the excess benefit transaction or transactions occurred;

(B) The size and scope of the excess benefit transaction or transactions (collectively, if more than
one) in relation to the size and scope of the organization's regular and ongoing activities that
further exempt purposes;

(C) Whether the organization has been involved in multiple excess benefit transactions with one or
more persons;

(D) Whether the organization has implemented safeguards that are reasonably calculated to
prevent excess benefit transactions; and

(E) Whether the excess benefit transaction has been corrected (within the meaning of section
4958(f)(6) and §53.4958-7), or the organization has made good faith efforts to seek correction
from the disqualified person(s) who benefited from the excess benefit transaction.

Substantial Non-Exempt Purpose

In Better Business Bureau of Washington, D.C. v. United States, 326 U.S. 279, 283 (1945), the
United States Supreme Court stated that “the presence of a single [non-exempt] purpose, if
substantial in nature, will destroy the exemption regardless of the number or importance of truly
[exempt] purposes.”

In Old Dominion Box Co. v. United States, 477 F.2d 344 (4th Cir. 1973), cert denied, 413 U.S.
910 (1973), the Court held that operating for the benefit of private parties constitutes a substantial
nonexempt purpose. See also Salvation Navy, Inc. v. Commissioner, T.C. Memo 2002-275.

KJ's Fund Raisers v. Commissioner, T.C. Memo 1997-424, aff'd 166 F.3d 1200 (2nd Cir. 1998),
petitioner also operated for the substantial private benefit of KJ's Place and its owners. A
substantial nonexempt purpose thus characterizes its operation, disqualifying it from exemption
under Sections 501(a) and 501(c)(3). Citing Better Business Bureau v. United States, 326 U.S. at
283; Copyright Clearance Center, Inc. v. Commissioner, 79 T.C. at 803.

In Church by Mail v. Commissioner, 765 F.2d 1387 (9"" Cir. 1985) aff'g TCM 1984-349 (1984),
the Court noted that Church by Mail, Inc. (‘Church’) paid Twentieth Century Advertising Agency
(‘Twentieth’) for services provided. Twentieth was owned and controlled by the two individuals who
ran Church. The Tax Court had found it unnecessary to consider the reasonableness of payments
made by the applicant to a business owned by its officers. In addressing whether Church operated
for a substantial non-exempt purpose the 9" Circuit Court of Appeals, in affirming the Tax Court’s
decision, siated: “... The critical inquiry is not whether particular contractual payments to a related
for-profit organization are reasonable or excessive, but instead whether the entire enterprise is

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

Form 886-A Department of the Treasury — Internal Revenue Service Schedule number
° or exhibi

(May 2017) Explanations of Items

Name of taxpayer Tax Identification Number (last 4 digits) | Year/Period ended

carried on in such a manner that the for-profit organization benefits substantially from the
operation of the Church. est of f fawaii v. Commissioner, 77 T.C. at 1080-87; see also Presbyterian
& Reformed Publishing Co. v. Commissioner, 743 F.2d 148, 155 (3d Cir. 1984) (courts must look
to all objective indicia from which a corporate actor's intent may be discerned); United States v.
Dykema, 666 F.2d 1096, 1100 (7th Cir. 1981), cert. denied, 456 U.S. 983, 72. L. Ed. 2d 867, 102 S.
Ct. 2257 (1982) (it is necessary and proper for the I.R.S. to survey all of the activities of an
organization to determine whether a non-exempt purpose is furthered).

In American Campaign Academy v. Commissioner, 92 T.C. 1053, 1065-1066 (1989), the court
stated that when an organization operates for the benefit of private interests...the organization by
definition does not operate exclusively for exempt purposes. Prohibited private benefits may
Include an “advantage; profit, fruit; privilege; gain; [or] interest.” Occasional economic benefits
flowing to persons, as an incidental consequence of an organization pursuing exempt charitable
purposes will not generally constitute prohibited private benefits. Thus, should [the organization]
be shown to benefit private interests, it will be deemed to further a nonexempt purpose under
Section 1.501(c)(3)-1(d)(1)(ii)... This nonexempt purpose will prevent [the organization] from
operating primarily for exempt purposes absent a showing that no more than insubstantial part of
its activities further private interests or any other nonexempt purposes.

In Rameses School of San Antonio, Texas v. Commissioner, T.C. Memo 2007-85, the Tax
Court held that a private school failed to qualify for exemption under Section 501(c)(3) because it
operated for the private benefit of its founder. Factors highlighting a prohibited relationship
included control by the founder over the entity's funds, assets, and disbursements; use of entity’s
money for personal expenses; payments of salary or rent to the founder without any
accompanying evidence or analysis of the reasonableness of the amounts; and purported loans to
the founder showing a ready private source of credit.

Government’s Position:

is the founder, a officer and currently Il | cxscore for

Although formed in ij a bank account for the exempt __- was
. Throughout this time all income and expenses for the charity
personal and business accounts for his own use.

not opened until
were absorbed into

The activity reported through the charity bank account starting in          is miniscule compared to
the actual income received through operation of the charity.          uses a web of
          (including online financial vendors, bank accounts and credit cards) to funnel the
charity's income to himself. From          through          he took over $          of exempt organization
money to fund his lifestyle, including all living expenses, student loans, home improvement
projects etc. This constitutes          excess business transactions spread over          years
and counting.

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

Schedule number
Form 8 8 6. A Department of the Treasury ~ Internal Revenue Service

. or exhibit
(May 2017) Explanations of Items
Name of taxpayer Tax Identification Number (last 4 digits) | Year/Period ended

ears after the charity received exemption and started the fundraising
activity, formed Per an email he sent to who was

questioning | was a business or charity:

i
gprs

FRE in a separate message:

He has used deceptive advertising and confusion to trick unsuspecting legitimate charities into
partnering with a He has actively tried to solicit donations through
methods, including diverting legitimate donations meant for client charities and asking the public to
donate to a directly instead of to the legitimate shelters and rescues he partners with.

abuse of has warranted negative reactions
from those associated with the charity. Volunteers have left when they realized the charity was not

about the mission to hel but instead to ine pockets. A age
was formed to disclose the bad acts associated with

informants have stepped forward to provide information
regarding bad practices.

has consistently

, while funneling the income into his own private accounts. Board meeting
minutes discuss the multi-state fundraising tour which has generated the EO’s income over the
years, even though stated the fundraising income belonged to his LLC.

IRC § 4958(f)(1) defines a “disqualified person” as (A) any person who was, at any time during
the five-year period ending on the date of such transaction, in a position to exercise substantial
influence over the affairs of the organization, (B) a member of the family of a disqualified person,
and (C) a 35% controlled entity. Ce is the founder and only officer a a
a He is solely responsible for the daily operations of the organization
qualifies as a

has sole control over all bank accounts and files all information returns.
disqualified person.

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

Form 886-A Department of the Treasury — Internal Revenue Service Schedule number
(May 2017) Explanations of Items

Name of taxpayer Tax Identification Number (last 4 digits) {Pari d

IRC § 4958(c) defines the term “excess benefit transaction” (EBT) as any transaction in which
an economic benefit is provided by an applicable tax-exempt organization directly or indirectly to
or for the use of any disqualified person if the value of the economic benefit provided exceeds the
value of the consideration (including the performance of services) received for providing such
benefit. i.e. never indicated the intent io
treat the economic benefit to
EBT’s were funneled through
an effort to conceal their existence.

as compensation. In fact, the income and related
personal accounts and not reported on Form 990 in

Treas. Reg. § 1.501(c)(3)-1(c)(2) provides that an organization is not operated exclusively for
one or more exempi purposes if its net earni

ngs inure in whole or in part to the benefit of private
shareholders or individuals, In this case all [ii net earnings

inure to the benefit of

Treas. Reg. § 1.501(c)(3)-1(f)(2)(ii) provides that, in determining whether to continue to
recognize the tax-exempt status of an applicable tax-exempt organization described in section
501(c)(3) that engages in one or more excess benefit transactions that violate the prohibition on
inurement under section 501(c)(3), the Commissioner will consider all relevant facts and
circumstances. All of earnings inure to the benefit of
.  This totals over as of the end of and included of
individual transactions. Even after being warned of this activity,          has continued

operating in the same manner.

In Old Dominion Box Co. v. United States, 477 F.2d 344 (4th Cir. 1973), cert denied, 413 U.S.
910 (1973), the Court held that operating for the benefit of private parties constitutes a substantial
nonexempt purpose. The case law firmly shows that when an organization operates for the benefit
of private interests, it does not operate exclusively for exempt purposes.          is the
officer and board member          . He has used his
control to funnel money meant for the charity into his personal accounts. This is the main purpose

Conclusion:

The investigation uncovered a history of misrepresentation and non-transparency which left
both client charity organizations, donors and volunteers
confused as to the charitable nature of

a officer and disqualified person
uses the name and tax-exempt status of said organization to benefit himself. the income derive

through the name recognition of | rec charity is funneled through his personal accounts
to pay all of his personal and living expenses. These transactions have occurred consistently

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

Form 886-A Department of the Treasury — Internal Revenue Service Schedule number
(May 2017) Explanations of Items

Name of taxpayer Tax Identification Number (last 4 digits) | Year/Period ended

since inception in MM and continue to this day as ij
has not stopped operations even after being warned of the consequences.

These are excess benefit transactions as defined under IRC § 4958 and constitute inurement
for purposes of exemption under IRC § 501(c)(3). Per Treas. Reg. § 1.501(c)(3)-1(c)(2) provides
that an organization is not operated exclusively for one or more exempt purposes if its net
earnings inure in whole or in part to the benefit of private shareholders or individuals, as such the
organization’s exemption should be revoked.

was formed and is operated to provide economic benefit to
IS IS a non-exempt purpose, the existence of which will destroy the
exemption under section 501 (c)(3).

In conclusion, does not qualify for exemption under section
501(c)(3) of the Code based on its revenue inuring to the benefit of a President
and disqualified person. The activity is substantial in nature and constitutes a non-exempt
purpose. The organization should be revoked effective BRE anc is required to file
Form 1120s as a commercial entity for and all subsequent years.

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