Ministry lost exemption after failing to substantiate charitable activity and allowing insider benefit

View official IRS release (PDF)

Plain-English summary

A religious organization said it would conduct online ministry, Christian programs, community assistance, and promotional activities. During the examination, it acknowledged that it had no website, did not conduct online ministry, did not make grants, kept no books and records, and had been inactive for several years. Bank records showed substantial transfers and personal-looking expenditures involving the executive director, family members, and accounts they controlled, including funds used toward a principal residence. The IRS found no reliable substantiation that the organization conducted its stated exempt programs and concluded that its assets inured to insiders and served private interests. It revoked the organization’s IRC § 501(c)(3) exemption because the organization failed the operational test. The report also stated an alternative basis for automatic revocation under IRC § 6033(j)(1)(B): the organization allegedly exceeded the Form 990-N gross-receipts threshold but failed to file the required Form 990 or Form 990-EZ for three consecutive years.

Ruling snapshot

• Question: Did the organization operate exclusively for exempt purposes without private inurement, and alternatively, did repeated filing failures trigger automatic revocation?
• Outcome: Revocation
• Key authorities: IRC §§ 501(a), 501(c)(3), 6033(a), 6033(i), 6033(j), 7428; Treas. Reg. §§ 1.501(a)-1(c), 1.501(c)(3)-1, 1.6033-2, 1.6033-6; Better Business Bureau v. United States, 316 U.S. 279 (1945)

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: 202520013
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 did not meet the
organizational and operational tests, under IRC § 501(c)(3), which are required for the continuation of your
exempt status. The information provided did not substantiate that they are organized and operating exclusively
for one or more of the purposes specified in IRC Section 501(c)(3).

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

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.

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

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.

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.

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

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:
08/16/2024

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:
[redacted]

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

the meeting or after we consider the information.

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

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

apply now that we’ve issued this letter.

Letter 3618 (Rev. 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.
Sincerely,

Digitally signed by Jason E. Brasch
Date: 2024.08.16 08:09:47 -07'00"
Lynn A. Brinkley

Director Exempt Organizations

Enclosures:
Form 886-A Explanation of Items Report

Form 886-A Explanation of Items Report - Alternative
Form 6018

Publication 892

Publication 3498

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

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

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

Date of Notice: [redacted]

ISSUE:

1. Whether was operated exclusively for exempt purposes per Internal Revenue Code (IRC)
   501(c)(3).

FACTS:

(Taxpayer) filed articles of incorporation on [redacted] and has a status of active
on the Secretary of State website. Internal Revenue Service issued Letter 947 granting
exemption as a 501(c)(3) and a public charity under 170(b)(1)(A)(vi) was issued on [redacted].

Form 1023, Application for Recognition of Exemption, states the purpose of the organization is to stir the
hearts of believers and non-believers in America and to assist individuals to strengthen and develop a
relationship with God. Part IV states the organization will divide its activities into three major groups:
National Christian Initiative via online weekly ministry services — Fundraising to assist community program
development by providing grants to other ministry organizations, churches, and Christian programs —
Administrative and promotional activities which include emails, mass mailings, newspapers, tv, radio, and
website.

Article 2, Section 2 of the Bylaws state the purpose of the organization is “to implement National Christian
Initiative and develop online church, ministries, and churches throughout the country.”

Taxpayer filed Form 990-N (e-Postcard) for Tax-Exempt Organizations Not Required to File Form 990 or
Form 990-EZ during tax years under examination. Form 990-N (e-Postcard) is used by small tax-exempt
organizations for annual reporting if gross receipts are considered to be normally $50,000 or less.

Taxpayer does not make social media posts, Taxpayer does not distribute promotional materials, Taxpayer
does not advertise products or services, Taxpayer does not make grants and therefore has no grantmaking
procedures, Taxpayer did not receive grant applications in [redacted]. Taxpayer did not provide any financial
resources to other entities or individuals in [redacted] and Taxpayer does not have books and records and
annual activity is under [redacted].

Bank statements provided to assigned examiner for account ending [redacted] from [redacted]
identified a total [redacted] in gross receipts. On [redacted], assigned examiner issued IDR2

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

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

requesting taxpayer provide substantiation to support income and questionable expenditure transactions
identified in the bank statements:

Expenditure Amount

ATM Withdrawals

Bank Transfers

Checks

Dining/Retail

Entertainment

Financial Institutions (Credit Cards, PayPal, etc.)
| Personal Services

Travel

Vehicle

Total

Aforementioned transactions were not substantiated.

IDR3 was issued expanding the examination to include the two prior and one subsequent tax years and
requested sale documents for property located at [redacted].
Summonsed title records confirmed the property was transferred to the Taxpayer on [redacted] with an
assessed value [redacted]. Taxpayer then sold the property on [redacted]. IDR3 also
requested Taxpayer provide documentation to support use of Form 990-N for annual filings and
documentation to support the organizations charitable activities to include bank statements for all
accounts during tax year ended [redacted].

IDR4 addressed tax year ended [redacted] and requested Taxpayer provide documentation to support use of
Form 990-N for annual filings and documentation to support the organizations charitable activities to
include bank statements for all accounts.

IDR 5 addressed tax year ended [redacted] and also requested Taxpayer provide documentation to support use of
Form 990-N for annual filings and documentation to support the organizations charitable activities to
include bank statements for all accounts. In response to IDR5, the Taxpayer’s representative provided a
narrative explaining that the expenditures that lack the appropriate business documentation should be
reclassified as compensation to the [redacted] for appearing to be for personal expenditures. For reference,
"[redacted]" are [redacted], Executive Director of the Board of Directors, and [redacted],
Secretary of the Board of Directors. IDR5 response narrative also named the following activities with
limited substantiation or explanation:

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

Department of the Treasury — Internal Revenue Service Schedule number or
Form 886-A p ¥

• hibit
  (May 2017) Explanations of Items eres

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

[redacted] program, which provides childcare alternative for working moms, disadvantaged single
parents, and unwed moms. (Checks paid to [redacted] have a description of “educational
institution to help with student costs.”)

e Weekly gatherings

e Home Fellowship

e Day-to-day Devotional activity it prepares, distributes, and follows up with materials)

Summonsed bank information revealed the following large unusual questionable transactions:
Num Date Name Memo Bank Account Amount

1 See Exhibit A Funds used to purchase primary residence
? See Exhibit B Transfer to account controlled by

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

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

• hibit
  (May 2017) Explanations of Items eres

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

3 See Exhibit C Transfer to account controlled by

• See Exhibit C Transfer to account controlled by

  See Exhibit C Transfer to account controlled by
  ® See Exhibit C Transfer to account controlled by

,

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

Schedule number or

—_ 886-A Department of the Treasury — Internal Revenue Service pS
(May 2017) Explanations of Items
Name of taxpayer Tax Identification Number (last 4 digits) Year/Period ended

Catalog Number 20810W Page 5

www.irs.gov

Form 886-A (Rev. 5-2017)

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

• hibi
  (May 2017) Explanations of Items =

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

N/A

N/A

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[redacted]

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

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

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

N/A
N/A
N/A
N/A
N/A

Summonsed bank records also identified Taxpayer received gross receipts in the following amounts:
2017 2018 2019 2020 Totals

On [redacted], assigned examiner conducted an interview with Executive Director [redacted] and the
Taxpayer’s representative. During the interview [redacted] was not forthcoming in responses.

[redacted] stated the organizations’ purpose was to have an online ministry community, but then answered
“no” to having a website and stated the organization does not actually conduct online ministry. [redacted]
also stated the organization does not make grants and therefore do not have grantmaking
procedures, but then later stated the organizations charitable expenditures were for payments to other
exempt organizations. [redacted] disclosed that in [redacted] the organization loaned [redacted]
for the down payment on their principal residence. Summonsed bank records also identify [redacted]
transfer wire out on [redacted]. In addition, later in the interview, [redacted] and the
representative stated the organization is no longer operational and has not been for several years. When
asked about a transfer [redacted] to an account ending in [redacted], [redacted] stated he did not
know what it was for. Summonsed bank records identified [redacted] as the account holder.

On [redacted], assigned examiner issued IDR8 requesting loan agreement between the [redacted] and
Taxpayer executed [redacted] and names of account holders with explanation for outgoing transfers
to several accounts to which Taxpayer did not respond.

Assigned examiner issued IDR9 on [redacted] requesting documentation and explanation of transfers to
the following accounts which were controlled by [redacted] and his wife:

Cumulative

Account # Account Holder Principal Officer
Amount

[redacted]
[redacted]
[redacted]

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

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

Review of meeting minutes provided by Taxpayer do not include discussion or approval of expenditures in

question or the loan to the [redacted] in the amount of [redacted] for the down payment of their principal
residence. The board meeting minutes for [redacted] report the following board members:

[redacted]
[redacted] (daughter)
[redacted] (wife)
[redacted] (daughter)

The minutes reference ‘written director summary’ and ‘income and expense reports’ but in the interview
and in IDR responses the Taxpayer stated that it did not maintain books and records and did not prepare
financial statements for the exam years.

Taxpayer did not file Forms 941 Employer’s Quarterly Federal Tax Return during years under examination.

LAW:
IRC 501(c)(3) provides, 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.

IRC 501(c)(3) provides, and organization is not organized or operated exclusively for one or more exempt
purposes unless it serves a public rather than a private interest.

Section 501(c)(3); Treas. Reg. Section 1.501(c)(3)-1 provides an otherwise qualifying organization will be
disqualified for exemption if it: Excessively benefits private interests, either through inurement of its net
earnings to certain “insiders” or by primarily benefiting the interests of persons who, though not
“insiders”, do not comprise a charitable class.

IRC 501(c)(3) does not prohibit all dealings between a charitable organization and its founder or with those
in controlling positions. An organization’s trustees, officers, members, founders, and contributors may, of
course, receive reasonable compensation or fair market value for services or goods, or other expenditures

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

Form 886-A Department of the Treasury — intemal Revenue Service Schedule number or

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

in furtherance of exempt purposes. However, those in control may not, because of their position, acquire
any of the charitable organization’s funds. If funds are diverted from exempt purposes to private purposes,
exemption is in jeopardy.

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

Treas. Reg. Section 1.501(c)(3)-1(d)(1)(ii) provides, to be charitable, an organization must serve a public
rather than a private interest. The organization must demonstrate that it is not organized or operated for
the benefit of private interests such as designated individuals, the creator or his family, shareholders of the
organization, or persons controlled directly or indirectly by such private interests.

Treas. Reg. 1.501(a)-1(c) provides the words “private shareholder or individual” refer to persons having a
personal and private interest in the activities of the organization. For inurement to exist, an “insider” must
receive financial gain because of their position within the exempt organization. Insiders include:

e Trustees

e Board members

e Officers

e Members

e Founders

e Significant donors

e Employees

e Individuals with a close professional working relationship with the exempt organization

In Better Business Bureau v. United States, 316 U.S. 279 (1945), the court found in order to fall within the
claimed exemption, an organization must be devoted to exempt purposes exclusively. This plainly means
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 Texas Trade School v. Commissioner, 30 T.C. 642, aff'd, 272 F.2d 168 (5th Cir. 1959), the Commissioner
of Internal Revenue determined that Texas Trade School, petitioner, was not entitled to exemption from
taxation under Section 101(6) of the Internal Revenue Code of 1939, 26 U.S.C.A. § 101(6). This section
exempts from taxation corporations organized and operated exclusively for educational purposes, no part
of the net earnings of which inures to the benefit of any prior shareholder or individual.

In Association for Honest Attorneys v. Commissioner, T.C. Memo 2018-41, (2018), the court found that
during 2010, 2011, and 2012 petitioner did not, through Ms. Farr or anyone else, engage primarily in the

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 or

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

activities described in its articles of incorporation and its bylaws. It also found that during 2010, 2011, and
2012 the net earnings of petitioner inured to the benefit of Ms. Farr, its CEO/board president; petitioner
operated primarily for the benefit of private rather than public interests; and more than an insubstantial
part of petitioner's activities furthered nonexempt, private purposes. Therefore, the court upheld the IRS’s
decision to revoke petitioner’s tax-exempt status based on its finding that it no longer operated in
accordance with Section 501(c)(3).

TAXPAYER’S POSITION:

Taxpayer contends that questionable expenditures should be reclassified as compensation to the
for appearing to be for personal expenditures and that the organization is no longer operational and has
not been for several years.

GOVERNMENT’S POSITION:

A corporation recognized by the Internal Revenue Service as being exempt from federal income tax under
IRC 501(c)(3) and having a foundation status of 170(b)(1)(A)(vi), must pass two tests in order to continue
its exempt status. The first test, the Organizational Test, relates to the organization’s organizational
documents. The test can only be satisfied if the written documents prepared at the time of the
organization’s formation meets the requirements of the regulations. As organizational document must
meet requirements in both form and language. Taxpayer satisfied the organizational requirement by
having their Articles of Incorporation formed under the State of California and satisfied the language
requirement by having an acceptable purpose and dissolution clause.

To establish that Taxpayer operates primarily in activities which accomplish its exempt purposes, the
organization must establish that no more than an insubstantial part of its activities isn’t in furtherance of
an exempt purpose. See Better Business Bureau v. United States, 316 U.S. 279 (1945) above.

The Taxpayer’s purpose per the organizing documents is clear. It is also clear that the org is not conducting
activities that further aforementioned exempt purpose. Further, financials show funds are being used to
enrich and benefit insiders. According to the Form 1023, its purpose is “to stir the hearts of believers and non-
believers in America to assist individuals to strengthen and develop a relationship with God.” According to
the Bylaws, its purpose is “to implement National Christian Initiative and develop online church, ministries
and churches throughout the country.” The Taxpayer has not explained what ‘National Christian Initiative’
is.

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 or

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

There is no evidence that this activity has ever been conducted in the past or currently. The Taxpayer
stated in the interview specifically that it does not have a website and does not conduct any online
activities therefore this activity is not considered part of its exempt program.

The taxpayer does not make grants as initially stated. Bank records show that the organizations that
received funds from taxpayer were created/owned/controlled by [redacted]. The taxpayer did not
exercise expenditure responsibility or maintain any documentation showing purpose and character of
these payments. This activity cannot be considered to further an exempt purpose.

There is no evidence to determine the nature of the activity. The Taxpayer did not speak on this activity
during the interview, suggesting that this activity is either not conducted at all, or very rarely conducted.
The Taxpayer also maintained no records to show how the expenditures found in the bank statements
were for the Sunday Gatherings. This cannot be considered an exempt activity without any substantiation
for its existence.

There is no evidence of exempt-purpose retreats being conducted. Based on the lack of substantiation and
explanation by the Taxpayer, and the lack of any other exempt activities, it appears the expenditures
referred to as “retreat” may have been for personal purposes rather than exempt ones. In the absence of
any substantiation otherwise, this activity cannot be considered exempt.

There is no evidence that this activity exists other than the Taxpayer statement in an IDR that it does. In
fact, in response to IDR5, the Taxpayer stated [redacted] is responsible for the day-to-day devotional
activity, by preparing, distributing, and following up on the materials, but in a previous IDR response and
during the interview, the TP stated they have no published or distributed materials and no other evidence
of their activities such as a brochure or booklet. This cannot be considered an exempt activity without any
substantiation for its existence.

Travel expenses in the amount of [redacted] were not substantiated and are more appropriately classified as
personal.

Per Treas. Reg. 1.501(c)(3)-1(b)(4), a 501(c)(3)’s assets are required to be irrevocably dedicated to their
exempt purpose(s). The inurement prohibition serves to prevent the individuals who operate the
organization from siphoning off any of a charity’s income or assets for personal use.

An organization is described in IRC 501(c)(3) only if no part of its net earnings inures to the benefit of any
private shareholder. The inurement prohibition is designed to ensure that organization’s assets are
dedicated to exclusively furthering public purposes. An organization is not operated exclusively for exempt
purposes if its net earnings inure to the benefit of private shareholders or individuals.

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

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

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

Inurement can take the form of questionable transactions that have no causal relationship to the
organization’s exempt purposes but result in some benefit to an insider. The taxpayer is in a position to
exercise control over the organization’s net earnings as if they were his own by using them at will rather
than within the limitations of a fiduciary capacity. In effect, the taxpayer is using the public’s net earnings
for his own benefit. By using the organization’s assets, the taxpayer has breached the private inurement
prohibition. See John Marshall Law School v. U.S.

Although the requirements for finding inurement or private benefit are similar, inurement and private
benefit differ in two key respects. The first is that even a minimal amount of inurement results in
disqualification for exempt status, whereas private benefit must be more than quantitatively or
qualitatively incidental in order to jeopardize tax exempt status. The second is that inurement only applies
to insiders, whereas private benefit may accrue to anyone. Taxpayer has failed the operational
requirement (inurement), in using a substantial amount of the organization’s assets for personal gain as
discussed in Treas. Reg. 1.501(c)(3)-1(d)(1)(ii). Inurement can take the form of any transaction. The
transaction results in inurement because it provides a disproportionate benefit to an insider. Private
inurement may be as straightforward as a cash payment to an insider when the organization has no
obligation to pay. Put simply, inurement is the use of an exempt organization’s assets to benefit an
individual(s) connected to it on a personal level. As a result, such use means the organization does not
exclusively serve the public.

As in the case of John Marshall Law School v. U.S., the assets of the Taxpayer inured to the private benefit
of [redacted], an Officer on the Board of Directors. The IRC and Treas. Reg. provide that an organization

exempt under IRC 501(c)(3) cannot allow its assets to benefit private interests; an organization that allows
their assets to benefit private interests is not exempt.

The “not more than an insubstantial part of its activities” standard of 1.501(c)(3)-1(c)(1) of the regulations
can be understood by reference to Better Business Bureau v. United States, 316 U.S. 279 (1945) which held
that an organization which engaged in some educational activity but pursued nonprofit goals outside the
scope of the statute was not exempt under IRC 501(c)(3). The Court stated that an organization is not
operated exclusively for charitable purposes if it has a single noncharitable purpose that is substantial in
nature. This is true regardless of the number or importance of the organization’s charitable purposes.
Thus, the operational test standard prohibiting a substantial nonexempt purpose is broad enough to
include inurement, private benefit, and operations which further goals outside the scope of IRC 501(c)(3).

With regard to the Taxpayer the board is closely held by the [redacted] family. The governing documents and
meeting minutes contain standard language with little substance and contain provisions that contradict
the statements made by the Taxpayer. For example, the minutes make reference to income and expense

Catalog Number 20810W Page 12 www.irs.gov Form 886-A (Rev. 5-2017)

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

reports, yet the Taxpayer has stated that it did not prepare financial statements during the exam years.
The Bylaws Article 7 contains a conflict of interest policy, which does not appear to be adhered to.

The Taxpayer and its representative disclosed that it loaned [redacted] for the
down payment on their current residence. The representative also stated that the significant number of
transactions without the proper business receipts (constituting substantially all of the transactions that
occurred during the exam years) should be classified as compensation to the [redacted] because they were
for personal instead of exempt purposes.

The Taxpayer provided no supporting documentation other than bank statements and copies of canceled
checks, which the examiner had already obtained from the summons. The IDR responses did not contain
sufficient evidence to show how it is operated exclusively for exempt purposes. The majority of the
expenditures reported on the bank statements appear to be for personal purposes and was confirmed by
the representative. The expenditures the IDR responses identified as furthering exempt purposes lack the
substantiation to show as much. There are many large outgoing transfers that the Taxpayer was unable to
explain during the interview, to accounts unknown at this time. The income and expenditures show a
major misappropriation of funds and lack of an exempt program.

The Taxpayer failed the operational test.

CONCLUSION:

It is the government’s position the Taxpayer was not operated exclusively for exempt purposes per IRC
501(c)(3) due to its net earnings inuring to the benefit of private individuals.

Consequently, we are proposing that Taxpayer’s exemption from federal income tax be revoked as of [redacted].

Catalog Number 20810W Page 13 www.irs.gov Form 886-A (Rev. 5-2017)

Exhibit A
Your savings account

Bank of America ye

Bank of America is pleased to introduce Bank of America Business Advantage. This new name reflects our commitment to meet your
evolving needs, giving you a competitive advantage — with people, technology and solutions that can help you achieve smart growth
that lasts. That is why your Business Interest Maximizer account will be re-named Business Advantage Platinum Savings. There are no
other changes or actions needed by you

Deposits and other credits

Date Description Amount

Total deposits and other credits

Withdrawals and other debits

Date Description Amount

Total withdrawals and other debits

Service fees

Date Transaction description Amount

Total service fees

Note your Ending Balance already reflects the subtraction of Service Fees

Page 3 of 4

Exhibit B

Your savings account

Bank of America a
a

Deposits and other credits

Date Description Amount
Total deposits and other credits a

Withdrawals and other debits

Date Description

Total withdrawals and other debits

Daily ledger balances

Date Balance (S) Date Balance(S)

Page 3 of 4

Exhibit C

Bank of America

Your savings account

Deposits and other credits

Date Description

Total deposits and other credits

Withdrawals and other debits

Date Description

Total withdrawals and other debits

Service fees

Date Transaction description

Total service fees

Note your Ending Balance already reflects the subtraction of Service Fees

Page 3 of 4

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

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

Date of Notice:

ALTERNATIVE ISSUE:

In the alternative, if the organization continues to qualify for exemption under IRC 501(c)(3), it shall be
determined:

1. Whether (taxpayer) annual gross receipts were normally more than [redacted] for tax
   [redacted], and therefore, the taxpayer was ineligible to satisfy the annual return filing requirement
   under Internal Revenue Code (“IRC”) Section (§) 6033(a)(1) by filing Form 990-N, Electronic Notice
   (e-Postcard) for Tax-Exempt Organizations Not Required to File Form 990 or 990-EZ.

2. Whether the taxpayer’s exempt status should be revoked by operation of law under IRC
   §6033(j)(1)(B) for failure to satisfy the annual return filing requirement under Section 6033(a)(1) for
   [redacted].

FACTS:

Issue #1 and #2:

Taxpayer is recognized as an IRC Section 501(c)(3) tax-exempt organization described in IRC Section
509(a)(1) and 170(b)(1)(A)(vi). Taxpayer is neither a church nor affiliated with a church

In the year ended [redacted], taxpayer received [redacted] in annual gross receipts.
In the year ended [redacted], taxpayer received [redacted] in annual gross receipts and averaged
[redacted] in annual gross receipts over the two-year period ending that same year.

In the year ended [redacted], taxpayer received [redacted] in annual gross receipts and averaged
[redacted] in annual gross receipts over the three-year period ending that same year.

In the year ended [redacted], taxpayer received [redacted] in annual gross receipts and averaged [redacted]

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

Form 886-A Department of the Treasury — Internal Revenue Service a number or
" exhi

(May 2017) Explanations of Items

Name of taxpayer Tax Identification Number (last 4 digits)

Year/Period ended

[redacted] in annual gross receipts over the four-year period ending that same year.

LAW:

Under IRC Section 6033(a)(1), every organization exempt from taxation under Section 501(a), subject to
certain exceptions, must file an annual information return (Form 990, Form 990-EZ, or Form 990-PF).
Section 6033(a)(3)(A)(ii) provides a mandatory exception for organizations with annual gross receipts
normally not more than $5,000. Section 6033(a)(3)(B) additionally provides that the Secretary may relieve
any organization (other than an organization described in Section 509(a)(3)) from the annual return filing
requirement where the Secretary determines such a filing is not necessary to the efficient administration
of the internal revenue laws. Under this discretionary exception, most exempt organizations with annual
gross receipts normally not more than $50,000 are not required to file an annual information return. See
Treasury Regulation (“Regulation”) Section 1.6033-2(g)(1)(iii) and (viii).

The gross receipts of an organization are normally not more than $50,000 if, in the case of an organization
that has been in existence for three years or more, the average of the gross receipts received by the
organization in the immediately preceding three taxable years, including the year for which the return
would be required to be filed, is $50,000 or less. See Regulation Section 1.6033-2(g)(3)(iii) and Revenue
Procedure 2011-15, 2011-3 IRB 322.

IRC Sections 6033(i) and (j) were added to the Internal Revenue Code by section 1223 of the Pension
Protection Act (PPA) and became effective for taxable years beginning after 2006. Section 6033(i)(1)
contains an annual electronic notice requirement for most exempt organizations that are not required to
file an annual information return under Section 6033(a)(1) because their annual gross receipts result in
such organizations being referred to in Section 6033(a)(3)(A)(ii) or (a)(3)(B). In effect, Section 6033(i)
generally requires an exempt organization to submit an annual electronic notice (Form 990-N) if its annual
gross receipts are normally not more than $50,000. The Department of the Treasury and the Service issued
final regulations under Section 6033(i) that describe the time and manner of submitting the annual
electronic notice. See Regulation Section 1.6033-6.

Regulation Section 1.6033-6(b)(1) provides that an organization that is required to file an annual
information return under IRC Section 6033(a)(1) shall not submit an annual electronic notice. Regulation
Section 1.6033-6(c)(3) further provides that by submitting the annual electronic notice, “an organization
acknowledges that it is not required to file a return under section 6033(a) because its annual gross receipts
are not normally in excess of [$50,000].” In order to make this determination, the organization must
maintain records that enable it to calculate its gross receipts. All organizations are required to keep
records under IRC Section 6001. These records will provide evidence of the continuing basis for the
organization’s exemption from the annual return requirement under Section 6033(a)(1). Finally, the

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

Form 886-A Department of the Treasury — Internal Revenue Service a number or
" exhi

(May 2017) Explanations of Items

Name of taxpayer Tax Identification Number (last 4 digits)

Year/Period ended

regulations provide that an organization’s eligibility to submit the annual electronic notice under Section
6033(i) rather than having to file a return does not relieve the organization from having to file other
required information or tax returns, or from the penalties for the failure to file such returns.

IRC Section 6033(j)(1)(B) provides, in part, that if an organization required to file an annual information
return under Section 6033(a)(1) fails to file the return or notice required for three consecutive years, the
organization’s tax-exempt status is revoked by operation of law (automatic revocation). The revocation is
effective as of the date set by the Secretary for the filing of the third required information return or
electronic notice.

If an organization is required to file an annual information return on Form 990 or Form 990-EZ pursuant to
IRC Section 6033(a)(1) or an annual electronic notice on Form 990-N pursuant to Section 6033(i), Section
6033(j)(1)(B) provides for the automatic revocation of the exempt status of the organization if it fails to file
the required return or notice for three consecutive years. Section 6033(i) and the regulations thereunder
require an organization to submit a Form 990-N (with some exceptions not applicable here) if it is not
required by Section 6033(a)(1) to file Form 990 or Form 990-EZ. Regulation Section 1.6033-6(b)(1)
expressly provides that an organization required to file an annual information return under IRC Section
6033(a)(1) shall not submit an annual electronic notice under Section 6033(i). In other words, an
organization whose annual gross receipts normally exceed $50,000 can neither satisfy its annual reporting
obligation nor avoid the automatic revocation provision of Section 6033(j)(1)(B) by submitting a Form 990-
N. Thus, any organization that fails to file the return required by Section 6033(a)(1) for three consecutive
years, including an organization identified as having improperly submitted a Form 990-N for a consecutive
three-year period, will be revoked by operation of law pursuant to Section 6033(j)(1)(B).

TAXPAYER’S POSITION:

Taxpayer’s position regarding the issue is solicited.

GOVERNMENT’S POSITION:

Issue #1 and #2:

An IRC 501(c)(3) organization must file an annual information return or notice with the IRS unless an
exception applies. Annual information returns for most types of organizations include Form 990 or Form
990-EZ. Small organizations may be eligible to file Form 990-N (e-Postcard), an annual notice. An
organization, whose annual gross receipts are normally $50,000 or less, may file Form 990-N.

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 or

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

Taxpayer failed to satisfy its annual return filing requirement under IRC Section 6033(a)(1) for the tax
periods ended [redacted]. For
each of these tax periods, taxpayer did not file a Form 990 or Form 990-EZ and was ineligible to file a Form
990-N due to normally receiving more than [redacted] in annual gross receipts as follows:

Tax Year [redacted]
2-Year Average [redacted]
3-Year Average

4-Year Average

Per IRC §6033(j)(1)(B), if the organization fails to file a Form 990 or 990-EZ as required for 3 consecutive
years, it will automatically lose its tax-exempt status by operation of law effective as of the due date for
the third missed return or notice.

LIMITED OPPORTUNITY FOR APPEAL CONSIDERATION:

Automatic revocation under IRC Section 6033(j) occurs by operation of law and is not an adverse
determination within the meaning of Section 7123(c). Therefore, an organization whose tax exemption is
automatically revoked generally may not appeal the revocation of its exempt status but must reapply for
exempt status. See also Section 12.02 of Revenue Procedure 2022-5.

This limitation on administrative appeals parallels the limitation on declaratory judgment actions with
respect to automatic revocation in IRC Section 7428. In general, Section 7428(a)(1) permits, in pertinent
part, an organization to bring an action for declaratory judgment in cases involving a determination of an
organization’s continuing qualification as an organization described in Section 501(c). Section 7428(b)(4),
however, provides that no action may be brought with respect to the revocation of exempt status under
Section 6033(j)(1)(B). There is similarly no determination for the Independent Office of Appeals to review
with respect to an automatic revocation.

Although an organization whose exempt status is revoked by operation of law under IRC Section
6033(j)(1)(B) has no declaratory judgment rights and is not eligible to challenge the revocation, including
the opportunity for consideration by Appeals, the Service has the discretion to offer organizations the
opportunity for Appeals consideration with respect to certain issues. The Service has determined that
Appeals, in its discretion, may provide a limited review as to whether the Taxpayer’s annual gross receipts
normally exceeded [redacted] in a specific year, rendering it ineligible to submit the Form 990-N for that
year.

At the taxpayer’s request and with Appeals’ agreement to review the case, Appeals may sustain or reverse
the Service’s examination conclusion that the taxpayer’s annual gross receipts normally exceeded [redacted]

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

Form 886-A Department of the Treasury — Internal Revenue Service oe number or
(May 2017) Explanations of Items =o

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

for a specific year. If Appeals reverses this conclusion as to the taxpayer’s annual gross receipts, automatic
revocation will not occur because the organization would not have failed to file its required annual return
or notice for three consecutive years. However, if Appeals sustains the Service’s conclusion that the
taxpayer’s gross receipts normally exceeded [redacted] (rendering it ineligible to submit a Form 990-N), the
taxpayer’s exempt status is revoked. Appeals does not have authority to reverse the automatic revocation
based on IRC Section 6033(j)(1)(B) because such revocation occurs by operation of law.

CONCLUSION:

Taxpayer failed to satisfy its annual filing requirement for tax years ending [redacted]
as required under IRC Section 6033(a)(1). Taxpayer
was ineligible to satisfy this requirement by filing Form 990-N due to its annual gross receipts normally
exceeding [redacted] during each of those tax periods.

Taxpayer’s exempt status should be revoked by operation of law pursuant to IRC Section 6033(j)(1)(B) due
to its failure to file a proper return for three consecutive years as required under Section 6033(a)(1). If
finalized, the effective date of this automatic revocation will be [redacted], the due date of the third tax
year without the filing of a proper return by the taxpayer.

If automatically revoked, taxpayer will be removed from the Tax-Exempt Organizations Search webpage at
www.irs.gov/teos that lists organizations eligible to receive tax-deductible charitable contributions. In
addition, taxpayer will be added to the Tax-Exempt Organizations Search webpage that lists automatically
revoked organizations. For additional information concerning automatic revocations of exempt status
under IRC Section 6033(j)(1), please visit irs.gov website link Automatic Exemption Revocation for Non-
Filing: Effect of Losing Exemption | Internal Revenue Service (irs.gov).

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