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Inactive Organization Loses Exempt Status

FEB. 5, 2015

LTR 201519032

DATED FEB. 5, 2015
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Citations: LTR 201519032

Person to Contact: * * *

 

Employee Identification Number: * * *

 

Employee Telephone Number:

 

Phone: * * *

 

Fax: * * *

 

 

UIL Code: 501.03-00

 

Release Date: 5/8/2015

 

Date: February 5, 2015

 

 

Taxpayer Identification Number: * * *

 

 

Dear * * *:

This is a final adverse determination regarding your exempt status under section 501(c)(3) of the Internal Revenue Code. Our favorable determination letter to you dated July 19XX is hereby revoked and you are no longer exempt under section 501(a) of the Code effective July 1, 20XX.

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

Organizations described in IRC 501(c)(3) and exempt under section 501(a) must be both organized and operated exclusively for exempt purposes. You have failed to produce documents to establish that you are operated exclusively for exempt purposes and that no part of your net earnings inures to the benefit of private shareholders or individuals. You failed to respond to repeated reasonable requests to allow the Internal Revenue Service to examine your records regarding your receipts, expenditures, or activities as required by sections 6001 and 6033(a)(1) of the Code.

You did provide information stating that your organization has been inactive for several prior years and that there have been no operations or financial activities conducted or planned. As such, you fail to meet the operational requirements for continued exemption under section 501(c)(3).

Contributions to your organization are no longer deductible under IRC § 170 after July 1, 20XX.

You are required to file income tax returns on Form 1120. These returns should be filed with the appropriate Service Center for the tax year ending June 30, 20XX, and for all tax years thereafter in accordance with the instructions of the return.

Processing of income tax returns and assessments of any taxes due will not be delayed should a petition for declaratory judgment be filed under section 7428 of the Internal Revenue Code.

If you decide to contest this determination under the declaratory judgment provisions of section 7428 of the Code, a petition to the United States Tax Court, the United States Claims Court, or the district court of the United States for the District of Columbia must be filed before the 91st Day after the date this determination was mailed to you. Please contact the clerk of the appropriate court for rules regarding filing petitions for declaratory judgments by referring to the enclosed Publication 892. You may write to the United States Tax Court at the following address:

 

United States Tax Court

 

400 Second Street, NW

 

Washington, DC 20217

 

You also have the right to contact the Office of the Taxpayer Advocate. Taxpayer Advocate assistance is not a substitute for established IRS procedures, such as the formal Appeals process. The Taxpayer Advocate 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. The Taxpayer Advocate can, however, see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling. You may call toll-free, 1-877-777-4778, and ask for Taxpayer Advocate Assistance. If you prefer, you may contact your local Taxpayer Advocate at:

 

Internal Revenue Service

 

Office of the Taxpayer Advocate

 

* * *

 

If you have any questions, please contact the person whose name and telephone number are shown in the heading of this letter.
Sincerely,

 

 

Margaret Von Lienen

 

Director, EO Examinations

 

Enclosures:

 

Publication 892

 

* * * * *

 

 

Person to Contact/ID Number: * * *

 

Contact Numbers:

 

Tel: * * *

 

Fax: * * *

 

Manager's name: * * *

 

Manager's contact number: * * *

 

Date: June 25, 2014

 

 

Taxpayer Identification Number: * * *

 

 

Form: * * *

 

 

Tax Year(s) Ended: June 30, 20XX

 

 

Response due date: * * *

 

 

Dear * * *:

 

WHY YOU ARE RECEIVING THIS LETTER

 

 

We propose to revoke your status as an organization described in section 501(c)(3) of the Internal Revenue Code (Code). Enclosed is our report of examination explaining the proposed action.

 

WHAT YOU NEED TO DO IF YOU AGREE

 

 

If you agree with our proposal, please sign the enclosed Form 6018, Consent to Proposed Action -- Section 7428, and return it to the contact person at the address listed above (unless you have already provided us a signed Form 6018). We'll issue a final revocation letter determining that you aren't an organization described in section 501(c)(3).

After we issue the final revocation letter, we'll announce that your organization is no longer eligible for contributions deductible under section 170 of the Code.

 

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 revocation letter. Failing to respond to this proposal will adversely impact your legal standing to seek a declaratory judgment because you failed to exhaust your administrative remedies.

 

EFFECT OF REVOCATION STATUS

 

 

If you receive a final revocation letter, you'll be required to file federal income tax returns for the tax year(s) shown above as well as for subsequent tax years.

 

WHAT YOU NEED TO DO IF YOU DISAGREE WITH THE PROPOSED REVOCATION

 

 

If you disagree with our proposed revocation, you may request a meeting or telephone conference with the supervisor of the IRS contact identified in the heading of this letter. You also may file a protest with the IRS Appeals office by submitting a written request to the contact person at the address listed above within 30 calendar days from the date of this letter. The Appeals office is independent of the Exempt Organizations division and resolves most disputes informally.

For your protest to be valid, it must contain certain specific information including a statement of the facts, the applicable law, and arguments in support of your position. For specific information needed for a valid protest, please refer to page one of the enclosed Publication 892, How to Appeal an IRS Decision on Tax-Exempt Status, and page six of the enclosed Publication 3498, The Examination Process. Publication 3498 also includes information on your rights as a taxpayer and the IRS collection process. Please note that Fast Track Mediation referred to in Publication 3498 generally doesn't apply after we issue this letter.

You also may request that we refer this matter for technical advice as explained in Publication 892. Please contact the individual identified on the first page of this letter if you are considering requesting technical advice. If we issue a determination letter to you based on a technical advice memorandum issued by the Exempt Organizations Rulings and Agreements office, no further IRS administrative appeal will be available to you.

 

CONTACTING THE TAXPAYER ADVOCATE OFFICE IS A TAXPAYER RIGHT

 

 

You have the right to contact the office of the Taxpayer Advocate. Their assistance isn't a substitute for established IRS procedures, such as the formal appeals process. The Taxpayer Advocate can't reverse a legally correct tax determination or extend the time you have (fixed by law) to file a petition in a United States court. They can, however, see that a tax matter that hasn't been resolved through normal channels gets prompt and proper handling. You may call toll-free 1-877-777-4778 and ask for Taxpayer Advocate assistance. If you prefer, you may contact your local Taxpayer Advocate at:

 

Internal Revenue Service

 

Office of the Taxpayer Advocate

 

* * *

 

FOR ADDITIONAL INFORMATION

 

 

If you have any questions, please call the contact person at the telephone number shown in the heading of this letter. If you write, please provide a telephone number and the most convenient time to call if we need to contact you.

Thank you for your cooperation.

Sincerely,

 

 

Mary A. Epps,

 

Acting Director,

 

EO Examinations

 

Enclosures:

 

Report of Examination

 

Form 6018

 

Publication 5

 

Publication 892

 

Publication 3498

 

* * * * *

 

 

 

 

ISSUE

 

 

Whether an organization can retain its tax exemption as a 501(c)(3) organization if it no longer performs activities.

 

FACTS

 

 

The * * * was granted tax exemption under IRC 501(c)(3). The organization filed a tax return showing that no activities were conducted during the year, with no revenues or expenses associated with exempt functions. The tax return also contained a written statement of bankruptcy and that all activities have ended. The agent mailed an audit letter to the taxpayer, via certified mail. Agent received the signed certified receipt, but the taxpayer did not respond to the audit letter. Efforts to contact the taxpayer by phone were not successful.

 

LAW

 

 

Section 501(a) of the Code provides, in part, that organizations described in section 501(c) are exempt from federal income tax. Section 501(c)(3) of the Code describes, in part, an organization which is organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purpose, no part of the net earnings of which inures to the benefit of any private shareholder or individual.

Section 501(c)(3) of the Code provides, in part, for the exemption from Federal income tax of organizations organized and operated exclusively for charitable, religious or educational purposes, no part of the net earnings of which inures to the benefit of any private shareholder or individual.

Section 1.501(c)(3)-1(a)(1) of the Income Tax Regulations states that in order to qualify under section 501(c)(3) of the Code, an organization must be both organized and operated exclusively for one or more of the purposes specified in such section. If an organization fails to meet either the organizational or operational test, it is not exempt.

Section 1.501(c)(3)-1(a)(2) of the Regulations states the term "exempt purpose or purposes", means any purpose or purposes specified in section 501(c)(3) of the Code.

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

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

Section 1.501(c)(3)-1(d)(1)(ii) of the Regulations states that an organization is not operated exclusively for one or more exempt purposes unless it serves a public rather than a private interest. It must not be operated for the benefit of designated individuals or the persons who created it.

 

GOVERNMENT'S POSITION

 

 

Section 501(c) of the Code and Section 1.501(c)(3)-1(a) of the Regulations sets forth two requirements for qualification for exempt status. An organization must be organized and operated exclusively for purposes described in section 501(c)(3) of the Code. An organization must satisfy the operational test. The key requirement is that an organization be operated exclusively for one or more purposes describe in section 501(c)(3) of the Code. An organization must be operational. If an organization conducts no activities and is not operating, it is not operated exclusively for exempt purposes. Therefore, it fails the operational test, and it is no longer entitled to continued exempt status.

 

TAXPAYER'S POSITION

 

 

The taxpayer did not respond to any IRS communication.

 

CONCLUSION

 

 

The * * * is no longer organized and operated as an IRC 501(c)(3) organization, and the tax exemption is to be revoked effective July 1, 20XX.
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