Organization That Failed to File Returns Loses Exemption

Person to Contact: * * *
Identification Number: * * *
Telephone Number: * * *

UIL: 501.03-00
Release Date: 10/25/2019

Date: May 14, 2019 

EIN: * * *

LAST DAY FOR FILING A PETITION WITH THE TAX COURT: * * *

Dear * * *:

This is a final determination that you do not qualify for exemption from Federal income tax under Internal Revenue Code (the “Code”) section 501(a) as an organization described in Code section 501(c)(3), effective July 1, 20XX. Your determination letter dated November 6, 20XX is revoked.

Our adverse determination as to your exempt status was made for the following reasons:

As such, you failed to meet the requirements of I.R.C. § 501(c)(3) and Treasury Regulation § 1.501(c)(3)-1(a), in that you have not established that you were organized and operated exclusively for exempt purposes and that no part of your earnings inured to the benefit of private shareholders or individuals.

Contributions to your organization are no longer deductible under section 170 of the Internal Revenue Code.

Organizations that are not exempt under section 501 generally are required to file federal income tax returns and pay tax, where applicable. For further instructions, forms, and information please visit www.irs.gov.

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 three venues: 1) United States Tax Court, 2) the United States Court of Federal Claims, or 3) the United States District Court for the District of Columbia. A petition or complaint in one of these three courts must be filed within 90 days from the date this determination was mailed to you. Please contact the clerk of the appropriate court for the rules for initiating suits for declaratory judgment. Please contact the clerk of the appropriate court for rules and the appropriate forms for filing petitions for declaratory judgment by referring to the enclosed Publication 892. You may write to the courts at the following addresses:

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

You may be eligible for help from the Taxpayer advocate Service (TAS). (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 1-877-777-4778.

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

Sincerely yours,

Maria Hooke
Director, EO Examinations

Enclosures:
Publication 892 

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Person to contact: * * *
Employee ID number: * * *
Telephone number: * * *
Fax: * * *
Address: * * *
Manager's contact information: * * *
Employee ID number: * * *
Telephone number: * * *

Date: December 13, 2018

Taxpayer ID number: * * *

Form: * * *

Tax periods ended: * * * 

Response due date: * * *

Dear * * *:

Why you're receiving this letter

We enclosed a copy of our audit report, Form 886-A, Explanation of Items, explaining that we propose to revoke your tax-exempt status as an organization described in Internal Revenue Code (IRC) Section 501(c)(3). We enclosed a copy of our audit report, Form 886-A, Explanation of Items, explaining that your organization doesn't qualify as an organization described in Internal Revenue Code (IRC) Section 501(c)(3).

This letter is not a determination of your tax-exempt status under IRC Section 501 for any period other than the tax periods above.

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 [insert code section] 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

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.

In the future, if you believe your organization qualifies for tax-exempt status and would like a status determination letter from the IRS, you can request a determination by filing Form 1024, Application for Recognition of Exemption Under Section 501(a), and paying the required user fee.

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 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,

for Maria Hooke
Director, Exempt Organizations Examinations

Enclosures:
Form 886-A
Form 6018
Form 4621-A Report of Examination
Publication 892
Publication 3498-A

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Date of Notice: December 13, 20XX

Issues

Whether * * * (the organization), which qualified for exemption from Federal income tax under Section 501(c)(3) of the Internal Revenue Code, should be revoked due to its failure to respond and produce records?

Facts

* * * applied for tax-exempt status by filing the Form 1023-EZ, Streamlined Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code, on October 26, 20XX, and was granted tax-exempt status as a 501(c)(3) on November 4, 20XX, with an effective date of October 15, 20XX.

An organization exempt under 501(c)(3) needs to be organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary or educational purposes and to foster national and amatuer sports competition.

The organization was selected for audit to ensure that the activities and operations align with their approved exempt status.

The organization failed to respond to the Internal Revenue Service attempts to obtain information to perform an audit of Form 990-N for the tax year June 30, 20XX.

The Form 1023-EZ application list the phone number of * * * for * * *.

Per the State of * * * web-site, it lists the organization as not in good standing, copy attached from state web-site.

• Correspondence for the audit was as follows:

  • Letter 3606 (Rev. 6-2012) with attachments, was mailed to the organization on December 11, 20XX, with a response date of January 11, 20XX. This letter was not return by the post office as being undeliverable.

  • Letter 3844-A (Rev. 12-2015) with attachments, was mailed certified to the organization on January 24, 20XX, with a response date of February 26, 20XX, Article Number * * *. Per the United States Postal Service (USPS) on line tracking system, this item was delivered, left with individual on January 29, 20XX at 12:35 pm.

  • Letter 5077-B (Rev. 1-2017), with attachments, was mailed certified to the organization, on February 26, 20XX, with a response date of March 19, 20XX. Article Number * * *. Per USPS tracking this item was delivered, left with individual on March 5, 20XX at 12:00 pm.

  • March 2, 20XX, * * * responded with a partial response to Form 4564, Information Document Request with the organizations Income statement, Balance sheet and General ledger.

  • Letter 3844-B (Rev. 11-2015), with attachments, was mailed to the organization, on May 9, 20XX, with a response date of May 23, 20XX. This letter was not returned by the post office as being undeliverable.

  • Letter 3844-B (Rev. 11-2015), with attachments, was mailed certified to the organization, on July 25, 20XX, with a response date of August 1, 20XX. Article Number * * *. Per USPS online tracking system item was never delivered. This letter was not returned by the post office as being undeliverable.

  • Letter 5077-B (Rev. 1-2017), TE/GEIDR Delinquency Notice, was mailed certified to the organization, on August 27, 20XX, with a response date of September 10, 20XX. Article Number * * *. Per the United States Postal Service (USPS) on line tracking system, this item was returned to original sender on October 2, 20XX at 1:08 pm.

  • Letter 5077-B (Rev. 1-2017), TE/GE IDR Delinquency Notice, was mailed certified to * * * the organization, on August 27, 20XX, with a response date of September 10, 20XX. Article Number * * *. Per the United States Postal Service (USPS) on line tracking system, this item was returned to original sender due to problem with address on September 14, 20XX at 10:32 am.

  • Letter 5077-B (Rev. 1-2017), TE/GE IDR Delinquency Notice, was mailed certified to * * *, Director of the organization, on August 27, 20XX, with a response date of September 10, 20XX. Article Number * * *. Per the United States Postal Service (USPS) on line tracking system, this item was never delivered. This letter was not returned by the post office as being undeliverable.

  • Letter 5077-B (Rev. 1-2017), TE/GE IDR Delinquency Notice, was mailed certified to Timothy Flanigan, Director the organization, on August 27, 20XX, with a response date of September 10, 20XX. Article Number * * *

  • * * *. Per the United States Postal Service (USPS), PS Form 3811, this item was delivered and signed for on September 1, 20XX at 9:09 am.

  • Letter 5077-B (Rev. 1-2017), TE/GEIDR Delinquency Notice, was mailed certified to * * *, Director the organization, on August 27, 20XX, with a response date of September 10, 20XX. Article Number * * *. Per the United States Postal Service (USPS), PS Form 3811, this item was delivered and signed for on September 1, 20XX at 5:24 pm.

• Telephone contact for the audit was as follows:

  • December 19, 20XX, Tax Compliance Officer (TCO) called the phone number listed on the Form 1023-EZ application of * * *. * * * was no longer at the number, no forwarding number available.

  • April 12, 20XX, called * * *, the Director of * * * and received VMS. Left a message for the Director to return phone call.

  • April 13, 20XX, called * * *, the Director of * * * and received VMS. Left a message for the Director to return phone call.

  • May 9, 20XX, called * * *, the Director of * * * and received VMS. Left a message for the Director to return phone call.

  • August 23, 20XX, called * * *, the Director of * * * and received VMS. Left a message for the Director to return phone call.

  • September 17, 20XX, called * * *, the Director of * * * and received VMS. Left another message for the Director to return my phone call.

  • October 22, 20XX, called * * *, the Director of * * * and * * *, the Director of * * * and received VMS. Left a message for both Director's to return my phone call.

Law

Internal Revenue Code (IRC) §501(c)(3) of the Code provides that an organization organized and operated exclusively for charitable or educational purposes is exempt from Federal income tax, provided no part of its net earnings inures to the benefit of any private shareholder or individual.

IRC §511 of the Internal Revenue Code imposes a tax at corporate rates under section 11 on the unrelated business taxable income of certain tax-exempt organizations.

IRC §6001 of the Code provides that every person liable for any tax imposed by this title, or for the collection thereof, shall keep such records, render such statements, make such returns, and comply with such rules and regulations as the Secretary may from time to time prescribe. Whenever in the judgment of the Secretary it is necessary, he may require any person, by notice served upon such person or by regulations, to make such returns, render such statements, or keep such records, as the Secretary deems sufficient to show whether or not such person is liable for tax under this title.

IRC §6033(a)(1) of the Code provides, except as provided in section 6033(a)(2), every organization exempt from tax under section 501(a) shall file an annual return, stating specifically the items of gross income, receipts and disbursements, and such other information for the purposes of carrying out the internal revenue laws as the Secretary may by forms or regulations prescribe, 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 (Regulation) 1.501(c)(3)-1 In order to be exempt under §501(c)(3) the organization must be both organized and operated exclusively for one or more of the purposes specified in the section, (religious, charitable, scientific, testing for public safety, literary or educational).

Regulation §1.501(c)(3)-1(a)(1) of the regulations states that in order to be exempt as an organization described in section 501(c)(3), an organization must be both organized and operated exclusively for one or more of the purposes specified in such section. If an organization fails to meet either the organizational test or the operational test, it is not exempt.

Regulation 1.501(c)(3)-1(c)(1) of the regulations provides that an organization will not be regarded as "operated exclusively" for one or more exempt purposes described in section 501(c)(3) of the Code if more than an insubstantial part of its activities is not in furtherance of a 501(c)(3) purpose. Accordingly, the organization does not qualify for exemption under section 501(c)(3) of the Code.

Regulation §1.6001-1(c) of the Code provides that such permanent books and records as are required by paragraph (a) of this section with respect to the tax imposed by section 511 on unrelated business income of certain exempt organizations, every organization exempt from tax under section 501(a) shall keep such permanent books of account or records, including inventories, as are sufficient to show specifically the items of gross income, receipts and disbursements. Such organizations shall also keep such books and records as are required to substantiate the information required by section 6033. See section 6033 and §§ 1.6033-1 through 1.6033-3.

Regulation §1.6001-1(e) of the Code provides that the books or records required by this section shall be kept at all time available for inspection by authorized internal revenue officers or employees, and shall be retained as long as the contents thereof may be material in the administration of any internal revenue law.

Regulation §1.6033-1(h)(2) of the regulations 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 purpose 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 section 6033.

Regulation §1.61-1 of the regulations provides that Gross income means all income from whatever source derived, unless excluded by law. Gross income includes income realized in any form, whether in money, property, or services. Income may be realized, therefore, in the form of services, meals, accommodations, stock, or other property, as well as in cash.

Rev. Rul. 59-95, 1959-1 C.B. 627, concerns an exempt organization that was requested to produce a financial statement and statement of its operations for a certain year. However, its records were so incomplete that the organization was unable to furnish such statements. The Service held that the failure or inability to file the required information return or otherwise to comply with the provisions of section 6033 of the Code and the regulations which implement it, may result in the termination of the exempt status of an organization previously held exempt, on the grounds that the organization has not established that it is observing the conditions required for the continuation of exempt status.

Organization's Position

Taxpayer's position is unknown at this time.

Government's Position

Based on the above facts, the organization did not provide a complete response to verify that they are organized and operated exclusively for one or more of the purposes specified in IRC Section 501(c)(3). If an organization fails to meet either the organizational test or the operational test, it is not exempt.

In accordance with the above-cited provisions of the Code and regulations under sections 6001 and 6033, organizations recognized as exempt from federal income tax must meet certain reporting requirements. These requirements relate to the filing of a complete and accurate annual information (and other required federal tax forms) and the retention of records sufficient to determine whether such entity is operated for the purposes for which it was granted tax-exempt status and to determine its liability for any unrelated business income tax.

Section 1.6033-1(h)(2) of the regulations specifically state that exempt organizations shall submit additional information for the purpose on enabling the Internal Revenue Service to inquire further into its exempt status.

Using the rationale that was developed in Revenue Ruling 59-95, the Organization's failure to provide requested information should result in the termination of exempt status.

Conclusion

Based on the foregoing reasons, the organization does not qualify for exemption under section 501(c)(3) and its tax-exempt status should be revoked.

It is the IRS's position that the organization failed to establish that it meets the reporting requirements under IRC §§ 6001 and 6033 to be recognized as exempt from federal income tax under IRC § 501(c)(3). Furthermore, the organization has not established that it is observing the conditions required for the continuation of its exempt status or that it is organized and operated exclusively for an exempt purpose. Accordingly, the organization's exempt status is revoked effective July 1, 20XX.

Form 1120, U.S. Corporation Income Tax Return, should be filed for the tax periods after July 1, 20XX.