Organization Loses Exemption

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

UIL 501.03-00
Release Date: 3/12/2021

Date: September 17,2020

Taxpayer ID Number: * * *

Form: * * *

Tax Periods Ending: * * *

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 (IRC) Section 501(a) as an organization described in IRC Section 501(c)(3), effective April 1, 20XX. Your determination letter dated March 9, 20XX is revoked.

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

Organizations described in IRC Section 501(c)(3) and exempt under Section 501(a) must be both organized and operated exclusively for exempt purposes. You have not demonstrated that you are organized and operated exclusively for charitable, educational, or other exempt purposes within toe meaning of 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. You have not established that you have organized and operated exclusively for an exempt purpose.

As such, you failed to meet the requirements of IRC Section 501(c)(3) and Treasury Regulations Section 1.501(c)(3)-1(a), in that you have not established that you were organized and operated exclusively tor 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 IRC Section 170.

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 www.irs.gov.

If you decide to contest this determination, you may file an action for declaratory judgment under the provisions of IRC Section 7428 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 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 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).

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.

Taxpayer Advocate assistance can't be used as substitute for established IRS procedures, formal appeals processes, etc. The Taxpayer Advocate is not able to reverse legal or technically correct tax determination, nor extend the time fixed by law that you have to file a petition in 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 can get any of the forms or publications mentioned in this letter by calling 800-TAX-FORM (800-829-3676) or visiting our website at www.irs.gov/forms-pubs.

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

Sincerely,

Sean E. O'Reilly
Director. Exempt Organizations Examinations

Enclosures:
Publication 892

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Person to contact:
Name: * * *
ID number: * * *
Telephone: * * *
Fax: * * *
Address: * * *

Date: 3/31/2020

Taxpayer ID number: * * *

Form: * * *

Tax periods ended: * * *

Manager's contact information: * * *

Name: * * *

ID number: * * *

Telephone: * * *

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).

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.

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.

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,

Russell T. Renwicks
For
Maria Hooke
Director, Exempt Organizations Examinations

Enclosures:
Form 886-A
Form 6018

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ISSUE:

Does * * * continue to qualify for exemption from Federal income tax under section 501(c)(3) of the Internal Revenue Code as an IRC 509(a)(3) Supporting Organization?

FACTS:

The organization was granted exemption under Internal Revenue Code Section 501(c)(3) on March 9, 20XX, effective September 19, 20XX. The organization was also determined to be a Type I supporting organization under section 509(a)(3).

The organization was incorporated in the state of * * * on September 22, 20XX.

The organization's stated purpose is to be operated exclusively for the benefit of, to perform the functions of, or to carry out the purposes of * * *. (the Supported Organization), a nonprofit organization described under section(s) 501(c)(3) and 509(a)(2).

Pursuant to the organization's Bylaws, the sole member of the corporation is * * * the supported organization. As the sole member, * * * shall appoint the directors to manage the business affairs of the organization.

The treasurer stated the organization had never had any income and expenses and does not have a general ledger. There is no bank account, and no assets or liabilities for the organization. There are no books of account, auditor's financial statements or reconciliations.

The organization does not make any payments or provide any financial support to the supported organizations.

The organization does not provide any services or facilities to the supported organizations.

The organization has not conducted any activity since its formation in 20XX and has filed Form 990-EZ with no income or expenses each year to-date.

Articles of Dissolution were drafted by the Board of Directors on March 2, 20XX, with the dissolution to be effective March 31,20XX. Any assets are to be transferred to the parent organization, * * *, a 501(c)(3) organization. There are no assets to be distributed.

LAW:

Section 501(c)(3) of the Internal Revenue Code provides for exemption from Federal income tax of organizations organized and operated exclusively for "charitable" purposes.

Section 1.501(c)(3)-1(d)(2) of the Income Tax Regulations states that the term "charitable” is used in section 501(c)(3) of the Code in its generally accepted legal sense. Such terms include the relief of the poor and distressed or the under privileged.

Section 509(a) of the Code defines the term "private foundation" as an organization described in section 501(c)(3) other than organizations described in section 509(a)(1), (2), (3), or (4). Section 509(a)(3) provides that the term "private foundation" does not include an organization that:

Treas. Reg. 1.509(a)-4(b)(1) states that “Under subparagraph (A) of section 509(a)(3), in order to qualify as a supporting organization, an organization must be both organized and operated exclusively for the benefit of. to perform the functions of. or to carry out the purposes of (hereinafter referred to in this section as being organized and operated to support or benefit) one or more specified publicly supported organizations. If an organization fails to meet either the organizational or the operational test, it cannot qualify as a supporting organization.”

Treas. Reg. 1.509(a)-4(e)(1) provides that “A supporting organization will be regarded as operated exclusively to support one or more specified publicly supported organizations (hereinafter referred to as the operational test) only if it engages solely in activities which support or benefit the specified publicly supported organizations. Such activities may include making payments to or for the use of, or providing services or facilities for, individual members of the charitable class benefited by the specified publicly supported organization. A supporting organization may also, for example, make a payment indirectly through another unrelated organization to a member of a charitable class benefited by the specified publicly supported organization, but only if such a payment constitutes a grant to an individual rather than a grant to an organization. In determining whether a grant is indirectly to an individual rather than to an organization the same standard shall be applied as in § 53.4945-4(a)(4) of this chapter. Similarly, an organization will be regarded as operated exclusively to support or benefit one or more specified publicly supported organizations even if it supports or benefits an organization, other than a private foundation, which is described in section 501(c)(3) and is operated, supervised, or controlled directly by or in connection with such publicly supported organizations, or which is described in section 511(a)(2)(B). However, an organization will not be regarded as operated exclusively if any part of its activities is in furtherance of a purpose other than supporting or benefiting one or more specified publicly supported organizations.”

TAX PAYER POSITION:

The organization indicated that it is in agreement with the Government's position that the organization does not qualify for exemption from Federal income tax under section 501(c)(3) of the Internal Revenue Code as an IRC 509(a)(3) Supporting Organization.

Articles of Dissolution were drafted by the Board of Directors on March 2, 20XX, with the dissolution to be effective March 31,20XX.

GOVERNMENT POSITION:

We are proposing the revocation of the Tax-Exempt Status of * * * due to the fact that the organization fails the operational test of Treas. Reg. 1.509(a)-4(e)(1) as it is not operated exclusively to provide support or benefits to the supported organizations.

The organization has not conducted any activities since its formation in 20XX.

The organization does not make any payments or provide any financial support to the supported organizations.

The organization does not provide any services or facilities to the supported organizations.

If an organization fails to meet either the organizational or the operational test, it cannot qualify as a supporting organization.

Therefore, it is recommended that the exempt status of the organization be revoked effective April 1, 20XX.