Research charity lost exemption after failing to document its activities, finances, and use of funds

Plain-English summary

A charity formed to conduct scientific research reported that it also offered youth basketball, tennis, and swimming programs and employed a foreign worker to research a camera’s capabilities. Its website did not describe those activities, and the organization did not provide requested details or documentation showing that the programs occurred. It also failed to produce complete bank and financial records, explain withdrawals and hotel charges, or identify the recipients and purposes of several payments. The IRS concluded that the organization had not shown that it operated primarily for exempt purposes or that its earnings did not benefit its principal officer or another private individual. The report separately found repeated failures to file required annual returns and failures to maintain and provide records required by IRC § 6033. The IRS revoked the organization’s IRC § 501(c)(3) exemption.

Ruling snapshot

• Question: Did the organization substantiate exempt activities, prevent private inurement, maintain required records, and file required annual returns?
• Outcome: Revocation
• Key authorities: IRC §§ 501(a), 501(c)(3), 6033(a); Treas. Reg. §§ 1.501(c)(3)-1, 1.6033-1(h)(2); Rev. Rul. 59-95

Full text (IRS public release)

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

[redacted]

[redacted]

Date:
January 28, 2025

Taxpayer ID number (last 4 digits):
[redacted]

Form:
[redacted]

Tax periods ended:
[redacted]

Person to contact:
Name: [redacted]
ID number: [redacted]
Telephone: [redacted]
Fax: [redacted]

Release Number: 202520012
Release Date: 5/16/2025
UIL Code: 501.03-00

Last day to file petition with United States
Tax Court:
April 28, 2025

CERTIFIED MAIL - Return Receipt Requested

Dear [redacted]:

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
[redacted]. Your determination letter dated [redacted] is revoked.

Our adverse determination as to your exempt status was made for the following reasons: You have not
demonstrated that you operated exclusively for exempt purposes within the meaning of Internal Revenue Code
section 501(c)(3). You did not maintain adequate books and records of your finances and activities. You also
did not respond to our requests for additional information about your finances and activities necessary to
complete the examination. In addition, there were bank transactions which inured to the benefit of your
principal officer. Consequently, you were unable to show that no part of your net earnings inured to the benefit
of a private shareholder or individual. Moreover, you operated for a private interest rather than a public interest.
Treasury Regulation section 1.501(c)(3)-1(d)(1)(ii) provides that an organization is not operated exclusively for
exempt purposes unless it serves a public rather than a private interest.

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.

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.

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

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,
[signature]
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

[redacted]

[redacted]

Date:
03/19/2024

Taxpayer ID number:
[redacted]

Form:
[redacted]

Tax periods ended:
[redacted]

Person to contact:
Name: [redacted]
ID number: [redacted]
Telephone: [redacted]
Fax: [redacted]

Address:
[redacted]

Manager’s contact information:
Name: [redacted]
ID number: [redacted]
Telephone: [redacted]

Response due date:
04/18/2024

CERTIFIED MAIL - Return Receipt Requested

Dear [redacted]:

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 | and 2, above, you’ll still be able to file a protest with IRS Appeals Office after

the meeting or after we consider the information.

The IRS Appeals Office is independent of the Exempt Organizations division and resolves most disputes

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

Fast Track Mediation (FTM) referred to in Publication 3498, The Examination Process, generally doesn’t

apply now that we’ve issued this letter.

Letter 3618 (Rev. 3-2024)

Catalog Number 34809F

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

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

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

adverse determination letter.

Contacting the Taxpayer Advocate Office is a taxpayer right
The Taxpayer Advocate Service (TAS) is an independent organization within the IRS that can help protect your

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

Additional information
You can get any of the forms and publications mentioned in this letter by visiting our website at

www.irs.gov/forms-pubs or by calling 800-TAX-FORM (800-829-3676).

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

lo

— at Manager

Exempt Organizations Examinations

Enclosures:
Form 886-A
Form 6018

Form 4621-A
Publication 892
Publication 3498

Letter 3618 (Rev. 3-2024)
Catalog Number 34809F

Schedule number
Form 886-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
ISSUES:
Issue #1

Whether [redacted] exempt status under Internal Revenue Code (IRC)
Section (Sec. 501(c)(3) should be revoked for failing to demonstrate that it operates primarily

for an exempt purpose and that no part of its net earnings inures to the benefit of an individual.

Issue #2

Whether [redacted] exempt status under IRC Sec. 501(c)(3) should be
revoked for the additional reasons that it failed to maintain adequate records and file an annual
return as required by IRC Sec. 6033(a).

FACTS:

[redacted] (Organization) Articles of Incorporation were filed in the State of
[redacted]. The Articles of Incorporation state that the Organization is
organized and operated exclusively to conduct, support, encourage, and assist such religious,

charitable, scientific, literary, educational, and other programs and projects as are described in
Sections 170(c)(2)(B) and 501(c)(3) of the Internal Revenue Code of 1986...

The Organization filed Form 1023-EZ, Streamlined Application for Recognition of Exemption
Under Section 501(c)(3) of the Internal Revenue Code, [redacted]. The Form 1023-
EZ reported that the organization's mission or most significant activities are, “conduct research
in the area of science which applies mathematical and scientific principles to the solution of

practical problems for the benefit of society.” The Organization's application for exemption was
approved and the effective date of exemption [redacted].

The Organization's CEO and director, [redacted], said the Organization has

conducted the following activities:
« Facilitated a basketball league with help from a local Junior NBA organization.
e Provided tennis lessons to kids with help from the US Tennis Association.
e Operated a program to provide swimming lessons to children of single parents.
e Hired a foreign worker through the H-1B visa program to conduct research on the
capabilities and uses of a camera.

The Organization’s website does not contain information or references to the activities that

[redacted] described. The website, as it appeared in [redacted], contained verbiage
that is a space filler for website templates. The website, as it appears currently, contains

various code, revenue rulings, and links to IRS audit technique guides and other IRS

documents. There is no information on the Organization’s activities.

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

Schedule number
Form 886-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

During the examination of the Organization’s Form 990-N, for the tax period ended [redacted],
the Organization failed to provide bank statements for [redacted]
and only provided its PayPal activity [redacted].
Information Document Requests were issued on [redacted],
requesting the missing bank statements and financial statements from [redacted]

processor accounts. The Organization failed to respond to both information
document requests.

The bank statements that were provided, for [redacted], show the
Organization received [redacted] in Zelle transfers from other entities exempt under IRC Sec. [redacted]

through [redacted]. The table below shows a summary of the Organization's deposits for

through [redacted].

The bank statements show the Organization's expenditures included 2 withdrawals for [redacted]
each and hotel charges totaling [redacted]. The table below shows a summary of the
Organization’s expenditures for [redacted].

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

Form 886-A
(May 2017)

Department of the Treasury — Internal Revenue Service

Explanations of Items

Schedule number
or exhibit

Name of taxpayer

Year/Period ended

| Tax Identification Number (last 4 digits}

During the examination, the Organization failed to respond to requests asking for details about
the Organization’s activities. The table below shows a list of the information requested for the
Organization's activities and when it was requested:

Schedule number
Form 886-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
Request Date Information Requested

[redacted] A schedule of the organization's activities conducted during the year
under examination.
A schedule of the organization's activities conducted during the year

under examination. Including information such as the date the activity was
conducted, a summary of what the organization did on that date, list any
volunteers that helped on that date, etc.

A schedule of the organization's activities conducted during the year
under examination. Including information such as the date the activity was
conducted, a summary of what the organization did on that date, list any
volunteers that helped on that date, etc.

Details and documentation for the Organization's activities that

[redacted] discussed, i.e., [redacted], tennis lessons
with assistance from the [redacted], swimming lessons, and

any research conducted.

The Organization filed Form 990-N, Electronic Notice (e-Postcard), for the tax period ended
[redacted], on [redacted]. To date, this is the only Form 990 series return that
has been filed by the Organization.

In [redacted] the Organization sent a statement that explained that it had hired professionals to
complete the Organization's financial statements and file the appropriate IRS forms, however,
during Covid-19 the tasks were not completed. It further stated that effort was underway to

bring the Organization into compliance for each tax year beginning [redacted] to present. Currently,
the Forms 990, for the tax periods [redacted] (partial year), [redacted]
LAW:

Internal Revenue Code

IRC Sec. 501(c)(3) provides for the recognition of exemption of organizations that are
organized and operated exclusively for religious, charitable, or other purposes as specified in
the statute. No part of the net earnings may inure to the benefit of any private shareholder or
individual.

IRC Sec. 6033(a)(1) establishes that, except as provided in paragraph 3, every organization
exempt from tax under IRC Sec. 501(a) shall file an annual return, stating specifically the terms
of gross income, receipts, and disbursements, and such other information for the purpose of
carrying out the Internal Revenue laws as the Secretary may by form or regulations prescribe,

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

Schedule number
Form 886-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

and keep such records, render under oath such statements, make such other returns, and
comply with such rules and regulations as the Secretary may from time to time prescribe.

Treasury Regulations

Treas. Reg. 1.501(c)(3)-1(a)(1) states that in order to be exempt as an organization described
in IRC Sec. 501(c)(3), an organization must be both organized and operated exclusively for
one or more of the purposes described in IRC Sec. 501(c)(3).

Treas. Reg. 1.501(c)(3)-1(c) states that an organization will be regarded as operated
exclusively for one or more exempt purposes only if it engages in activities which accomplish
one or more of such exempt purposes specified in IRC Sec. 501(c)(3). An organization will not
be so regarded if more than an insubstantial amount of its activities is not in furtherance of an
exempt purpose. An organization is not operated exclusively for one or more exempt purposes
if its net earnings inure in whole or part to the benefit of private shareholders or individuals.

Treas. Reg. 1.6033-1(h)(2) 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 purposes
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 IRC Sec. 6033.

Revenue Rulings
Rev. Rul. 59-95, 1959-1 CB 627 provides that a failure to file required information return or
comply with the provision of IRC Sec. 6033 and the regulations which implement it, may result
in the termination of the exempt status of an organization previously held exempt, because the
organization has not established that it is observing the conditions required for the continuation
of an exempt status.

TAXPAYER'S POSITION:
Issue #1
[redacted] exempt status under IRC Sec. 501(c)(3) should be
revoked for failing to demonstrate that it operates primarily for an exempt purpose and that no
part of its net earnings inures to the benefit of an individual.

The taxpayer’s position is unknown at this time.

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

Schedule number
Form 886-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
Issue #2

[redacted] exempt status under IRC Sec. 501(c)(3) should be
revoked for the additional reasons that it failed to maintain adequate records and file an annual
return as required by IRC Sec. 6033(a).

The taxpayer's position is unknown at this time.

GOVERNMENT’S POSITION:

Issue #1

Whether [redacted] exempt status under IRC Sec. 501(c)(3) should be
revoked for failing to demonstrate that it operates primarily for an exempt purpose and that no
part of its net earnings inures to the benefit of an individual.

It is the Government's position that the Organization does not qualify as an organization
described in IRC Sec. 501(c)(3) because it has not demonstrated that it is operated exclusively
for an exempt purpose or that no part of its net earnings inures to the benefit of an individual.

Under Treas. Reg. 1.501(c)(3)-1(a)(1), an organization must be both organized and operated
exclusively for purposes described in IRC Sec. 501(c)(3) in order to be exempt as an
organization described in IRC Sec. 501(c)(3). If an organization fails to meet either the
organizational test or operational test, it is not exempt. The operational test, Treas. Reg.
1.501(c)(3)-1(c), is specifically related to the purposes and activities of an organization. An
organization will only be regarded as operated exclusively for one or more exempt purposes if
it engages primarily in activities which accomplish one or more exempt purposes under IRC
Sec. 501(c)(3).

The Organization presented only vague ideas about its activities on its Form 1023-EZ and
website. During an [redacted], [redacted] provided a list of activities conducted by
the Organization that furthered [redacted]. However, the Organization did not respond
to requests to provide substantiation that the activities were conducted.

The Organization does not meet the operational test under IRC Sec. 501(c)(3) because it has
failed to establish that it is operating exclusively for charitable purposes.

IRC Sec. 501(c)(3) describes, in part, that an organization exempt from tax is organized and
operated exclusively for charitable purposes if... no part of the net earnings inures to the
benefit of any private shareholder or individual.

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

Schedule number
Form 886-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

The Organization did not respond to requests for the complete books and records for the
period under examination. There were several withdrawals from the Organization’s bank
account that the Organization did not provide who received the funds or what the funds were
used for. The Organization has not demonstrated that no part of its net earnings inures to the
benefit of any private shareholder or individual.

The Organization has not submitted sufficient information establishing it is operated exclusively
for IRC Sec. 501(c)(3) purposes. The Organization has failed to demonstrate that no part of its
net earnings inures to the benefit of any private shareholder or individual.

Issue #2

[redacted] exempt status under IRC Sec. 501(c)(3) should be
revoked for the additional reasons that it failed to maintain adequate records and file an annual
return as required by IRC Sec. 6033(a).

It is the Government's position that the Organization's exempt status under IRC Sec. 501(c)(3)
should be revoked for the additional reasons that it failed to maintain adequate records and file
an annual return as required by IRC Sec. 6033(a).

IRC Sec. 6033(a)(1) states in part that, “Except as provided in paragraph (3), every
organization exempt from tax under IRC Sec. 501(a) shall file an annual return...”. The
Organization does not meet any of the exclusions provided for in paragraph 3 of IRC Sec.
6033.

Revenue Ruling 59-95, 1959-1 CB 627 held that failure or inability to file the required
information return or otherwise to comply with the provision of IRC Sec. 6033 may result in the
termination of the exempt status of an organization previously held exempt.

The Organization received exemption under IRC Sec. 501(c)(3) with an effective date of
exemption of [redacted]. The Organization had a Form 990 series return due for the
tax periods ended on [redacted], and the Organization has only filed a single
Form 990-N, for the tax period ended [redacted].

Revenue Ruling 59-95 and Treas. Reg. 1.6033-1(h)(2) requires every organization which is
exempt from tax to submit additional information upon request by the Internal Revenue
Service.

The Service has requested the Organization to provide information for the purposes of
inquiring into its exempt status. The requested information was material in determining whether
the organization continues to qualify for exempt status under IRC Sec. 501(c)(3) and whether

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

| Schedule number

Form 886-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

its net earnings inured to any private individual. The Organization failed to provide the
requested information and its director/officer explained that the Organization’s books and
records were not adequately maintained.

The Organization's exempt status should be revoked for the additional reasons that it failed to
maintain adequate records and has repeatedly failed to file an annual return.

CONCLUSION:

The Organization's tax-exempt status under IRC Sec. 501(c)(3) should be revoked because
the Organization has not responded to repeated requests for information about the
Organization's activities and financial records. By not providing the requested information, the
Organization has failed to demonstrate that it is conducting activities that further an exempt
purpose and that its net earnings are not inuring to the benefit of an individual. Additionally, the
Organization has failed to file a Form 990, for the tax periods ended [redacted].

The Organization has failed to demonstrate that it meets the requirements to qualify as exempt

from federal income tax under IRC Sec. 501(c)(3). Therefore, its exempt status under IRC Sec.
501(c)(3) will be revoked effective [redacted]. The Organization should file Forms 1120,

U.S. Corporation Income Tax Return, for all tax years beginning on or after [redacted].

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