Housing organization lost exemption after discontinuing its exempt operations

Plain-English summary

The IRS revoked the section 501(c)(3) exemption of an organization formed to alleviate a redacted housing shortage. The organization no longer owned or operated housing facilities, had not owned them for years, and had made no grants to such facilities during the corresponding period. Its former housing assets had been distributed to other organizations, and it had no plan to resume exempt operations or formally terminate. The IRS concluded that this extended inactivity caused the organization to fail the operational test for exemption. Because the organization held a group exemption, the IRS also terminated that ruling and instructed its subordinate organizations to seek recognition separately or file returns as appropriate. The revocation took effect on a redacted date, and contributions were no longer deductible.

Ruling snapshot

• Question: Does an organization remain exempt under IRC § 501(c)(3) after it stops owning or operating its housing facilities and has no plan to resume exempt activity?
• Outcome: Revocation
• Key authorities: IRC §§ 170(c)(2), 501(a), 501(c)(3), 509(a)(1); Treas. Reg. § 1.501(c)(3)-1(a), (c); Community Education Foundation v. Commissioner, T.C. Memo 2016-223; Rev. Proc. 80-27

Full text (IRS public release)

Department of the Treasury
Internal Revenue Service

[redacted]

[redacted]

Date:
[redacted]

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

Form:
990-N

Tax periods ended:
[redacted]

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

Release Number: 202547020
Release Date: 11/21/2025
UIL Code: 501.03-00

Last day to file petition with United States
Tax Court:
[redacted]

CERTIFIED MAIL - Return Receipt Requested

Dear [redacted]:

Why we are sending you this letter:

This is a final adverse determination regarding your exempt status under section 501(c)(3) of the Internal Revenue
Code (the Code). Our favorable determination letter to you dated [redacted] is hereby revoked and you are
no longer exempt under section 501(a) of the Code effective [redacted].

The revocation of your exempt status was made for the following reason(s):

[redacted] does not meet the requirements to qualify as a 501(c)(3) exempt organization.

Given the fact that [redacted] does not currently operate or own any housing for [redacted]
[redacted] it is evident that the [redacted] has effectively discontinued operations as
an IRC section 501(c)(3) organization because it is no longer operating for exempt purposes. Any housing
facilities which were previously owned have been distributed to other organizations. There is no expectation that
[redacted] will be conducting any exempt activity in the future. Where it is evident that an
organization exempt under IRC Section 501(c)(3) is no longer actively operating in furtherance of its exempt
purpose, it does not pass the operational test and its tax-exempt status must be revoked.

Contributions to your organization are no longer deductible.

[redacted] According to this revenue procedure, when
we terminate your tax exemption, we also terminate your group exemption. Effective [redacted],
your [redacted] is no longer valid. Please tell your subordinates of this action. Each
subordinate seeking recognition of tax exemption should file an individual application or file a Form 990 series
return, as appropriate.

You are required to file federal tax returns for the tax period(s) shown above. Unless an extension of time is
granted or the returns are already filed, send them to Ogden Service Center within [redacted] days from the date on this
letter. Returns for later years are filed with the appropriate service center indicated in the return instructions.

If you decide to contest this determination, you may file an action for declaratory judgment under the provisions
of section 7428 of the Code in one of the following venues:

• the United States Tax Court

• the United States Court of Federal Claims

• the United States District Court for the [redacted]

A petition or complaint in one of these three courts must be filed before the [redacted]st day after the date this
determination was mailed to you if you wish to seek review of our determination. Please contact the clerk of the
respective court for rules and the appropriate forms regarding filing petitions for declaratory judgment by
referring to the enclosed Publication 892. Please note that the United States Tax Court is the only one of these
courts where a declaratory judgment action can be pursued without the services of a lawyer. You may write to
the courts at the following addresses:

United States Tax Court
[redacted]

US Court of Federal Claims
[redacted]

US District Court for the [redacted]
[redacted]

Filing a petition for declaratory judgment however, does not delay the processing of income tax returns and
assessments of any taxes due. A petition or complaint must be filed in one of these [redacted] courts before the [redacted]st day
after the date this determination was mailed to you.

You have the right to contact the Taxpayer Advocate Service. Their assistance is not a substitute for established
IRS procedures, such as the formal appeals process. They cannot reverse a legally correct tax determination, or
extend the time fixed by law that you have to file a petition in a United States court. However, they can see that
a tax matter that may not have been resolved through normal channels gets prompt and proper handling. You
may call toll-free [redacted] and ask for Taxpayer Advocate assistance. If you prefer, you may contact
your local Taxpayer Advocate at:

Internal Revenue Service
Taxpayer Advocate Service
[redacted]

If you have any questions, please contact the person listed above.

Sincerely,

[redacted]

Enclosures:
Publication 892
Form 6018, Consent to Proposed Action - Section 7428

Department of the Treasury
Internal Revenue Service

[redacted]

[redacted]

Date:
[redacted]

Taxpayer ID number:
[redacted]

Form:
990-N

Tax periods ended:
[redacted]

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

Revenue Procedure 80-27 requires that, in the event your tax-exempt status is revoked, your group exemption will
also be revoked. If that occurs, none of your subordinates will be able to rely on the group ruling for tax-exempt
status. You should notify each subordinate of this proposed action.

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 [redacted].

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 [redacted].

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

Sincerely,

[redacted]

Enclosures:
Form 6018
Form 4621-A
Form 886-A
Pub 892
Pub 3498

Letter 3618 [redacted]
Catalog Number 34809F

Form 886-A
(Rev. [redacted])

EXPLANATIONS OF ITEMS

Schedule number or exhibit

Name of taxpayer
[redacted]

Tax Identification Number (Last 4 digits)
[redacted]

Year/Period ended
[redacted]

ISSUE

Does the organization continue to qualify as an organization exempt from Federal income tax
under Section 501(c)(3) the Internal Revenue Code (IRC)?

FACTS

From information obtained in the initial interview with the [redacted] and records provided during the
examination of the Form 990 for the tax periods ending [redacted], and
[redacted], [redacted] ([redacted]) operates to “alleviate housing
shortages which currently exist for [redacted].”

Information contained on the Form 1023 application for federal tax exemption under IRC section
501(c)(3), shows that the [redacted], was originally called
[redacted]. IRS records show federal tax exemption under IRC
section 501(c)(3) was granted. The organization was classified as a public charity within the
meaning of IRC sections 509(a)(1) and 170(b)(1)(A)(vi) effective [redacted]. The exempt
organization has filed Forms 990-N as it has annual average gross receipts of less than $[redacted].

The [redacted] currently does not currently operate or own any housing for [redacted]. The Articles of Incorporation state that the organization
intended to [redacted]. At present, the exempt organization does not own any such facilities, and derivative
of that, the exempt organization does not operate such facilities. The exempt organization has not
owned any such facilities in the [redacted] years preceding [redacted]. Furthermore, there
have been no grants to any such facilities in the corresponding period.

An interview with the [redacted] confirmed that the [redacted]
had at least two subsidiary organizations, The [redacted], and the [redacted] which received exemption
from the parent organization, the [redacted]. The subsidiary
organizations currently maintain and operate [redacted].

LAW

Internal Revenue Code section 501(c)(3) provides for the exemption from Federal income tax of
corporations organized and operated exclusively for religious, charitable, literary, scientific, and
educational purposes; no part of the net earnings of which [redacted] to any private shareholder or
individual.

Catalog Number 20810W Page 1 www.irs.gov Form 886-A ([redacted])

Form 886-A
(Rev. [redacted])

EXPLANATIONS OF ITEMS

Schedule number or exhibit

Name of taxpayer
[redacted]

Tax Identification Number (Last 4 digits)
[redacted]

Year/Period ended
[redacted]

Treasury Regulation 1.501(c)(3)-1(a)(1) provides that in order to be exempt as an organization
described 501(c)(3) of the Code, the organization must be one that is both organized and
operated exclusively for one or more of the purposes specified in that section.

Treasury Regulations section 1.501(c)(3)-1(c)(1) states that, an organization will be regarded as
“operated exclusively” for one or more exempt purposes only if it engages primarily in activities
which accomplish one or more of such exempt purposes specified in section 501(c)(3). An
organization will not be so regarded if more than an insubstantial part of its activities is not in
furtherance of an exempt purpose.

Treasury Regulations section 1.503(c)(3)-1(c)(2) states 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.

In Community Education Foundation v. Commissioner TC Memo. 2016-223, USTC, revocation of
an organization’s exemption was supported due to a long-extended period of inactivity. The
organization did not meet the operational test in Treasury Regulations 1.501(c)(3)-1(c).

GOVERNMENT POSITION

The exempt organization does not currently operate facilities which alleviate the
[redacted]. No actionable steps to acquire said housing or
facilities have occurred in the [redacted] years preceding [redacted].

It is the government's position that the organization’s IRC section 501(c)(3) tax exemption should
be revoked as it is no longer organized or operated for exclusively charitable, educational, or
religious purposes within the meaning of IRC section 501(c)(3).

Based on the examination, The [redacted] has ceased to
operate in furtherance of tax-exempt purposes and has no plan to either continue or formally
terminate, therefore revocation is required as provided in Treasury Regulations 1.501(c)(3)-1(c).

TAXPAYER’S POSITION

The taxpayer’s position is unknow as of the mailing of this report.

CONCLUSION

To qualify under IRC section 501(c)(3), an organization must be both “organized” and “operated”
exclusively for one or more purposes specified in that section. If the organization fails to meet
either the organizational test or the operational test, it is not exempt. (Regs. 1.501(c)(3)-1(a)(1)).
The organizational test relates to the rules for governing an organization and the purposes stated
in its articles of organization. The operational test relates to the organization's activities.

Catalog Number 20810W Page 2 www.irs.gov Form 886-A ([redacted])

Form 886-A
(Rev. [redacted])

EXPLANATIONS OF ITEMS

Schedule number or exhibit

Name of taxpayer
[redacted]

Tax Identification Number (Last 4 digits)
[redacted]

Year/Period ended
[redacted]

The [redacted] has effectively discontinued operations as an IRC section 501(c)(3) organization
because it is no longer operating for exempt purposes.

As a result of the examination, the IRS has determined that the [redacted] has failed to operate for
exempt purposes under IRC section 501(c)(3). The [redacted] ceased operations as a tax-exempt
organization. Any housing facilities which were previously owned have been distributed to other
organizations. There is no expectation that the [redacted] will be conducting any exempt activity in
the future. Where it is evident that an organization exempt under IRC Section 501(c)(3) is no
longer actively operating in furtherance of its exempt purpose, it does not pass the operational test
and its tax-exempt status must be revoked.

Accordingly, it is proposed that the exemption from Federal income tax as an organization
described in IRC section 501(c)(3) be revoked effective [redacted].

Contributions to your organization are no longer deductible by donors under section 170(c)(2) of
the Code.

In accordance with this determination and should you operate in the future, you are required to file
any appropriate Federal income tax returns as required.

If you accept our findings, please sign, and return the enclosed Form 6018, Consent to Proposed
Action - Section 7428.

Catalog Number 20810W Page 3 www.irs.gov Form 886-A ([redacted])