Organization Loses Exemption

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

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

Date: September 18. 2020

Taxpayer ID Number: * * *

Form: * * *

Tax Period(s) 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 January 1, 20XX. Your determination letter dated May 16, 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 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 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 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, forma! 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 wviw.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: * * *
ID number: * * *
Telephone: * * *
Fax: * * *
Manager's contact information: * * *
ID number: * * *
Telephone: * * *

Date: January 7, 2020

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).

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,

Peter Jensen
for Maria Hooke
Director, Exempt Organizations Examinations

Enclosures:
Form 886-A
Form 6018

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ISSUES

Whether * * * (the Organization) qualifies for exemption from federal income tax under Internal Revenue Code (IRC) Section (Sec.) 501(c)(3).

FACTS

Formation

In June 20XX, the Organization was incorporated in the state of * * * Paragraph Two of Articles of Incorporation stated that:

This corporation is a nonprofit public benefit corporation and is not organized for the private gain of any person, it is organized under the Nonprofit Public Benefit Corporation Law for charitable purposes. The specific purposes for which this corporation is organized are to provide advocacy for the * * * community, provide community leadership, represent a unified voice for the community, and support and organize community projects.

Application for Recognition of Exemption

In December 20XX, the Organization submitted a Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the internet Revenue Code. Part II of Form 1023 provided the following activities and operational information of the Organization:

A. * * * is a non-profit entity formed to provide the traditional and cultural activities to its community.

The activities include the special events such as,

1. * * * New Year

2. Traditional dance of * * *

3. Other events

a. * * * beauty pageant

b. Singing contest and

c. Sport activities

B. The activities are initiated in a particular time and period, for example, the New Year is usually celebrated on * * * and ended in the next three days.

C. For the past few years. New Year celebration was conducted at * * * by the and supported by * * * Police Department, Volunteers, and non-profits in the area.

Exemption

In May 20XX, the Organization received recognition of exemption under IRC Sec. 501(c)(3). The Organization was not a private foundation because it was an organization described in IRC Sec. 509(a)(2).

Public Support Test

The Public Support Percentage Computation provided on the Form 990, Sch. A, Part III, Section C appears to be incorrect, but it shows a Public Support Percentage for 20XX (line 15) of 0% and a Public Support Percentage for 20XX (line 16) of 0%. During the examination the Public Support Percentage was computed to be 0%, still below the 0.0% required.

Examination

In July 20XX, Examiner issued an initial contact letter. Information Document Request (IDR), and attachment to inform the Organization of the examination.

On August 26, 20XX, the Organization provided the following documents:

LAW

Internal Revenue Code (IRC)

IRC Sec. 501(c)(3) exempts from income tax entities organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment), or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private shareholder or individual, no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation (except as otherwise provided in subsection (h)), and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office.

Treasury Regulations (Treas. Reg.)

§1.501(c)(3)-1(a) of the Federal Tax Regulations (“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.

Regulations §1.501(c)(3)-1(c) 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.

Court Cases

In Spanish American Cultural Association of Bergenfield v. Commissioner, T.C. Memo 1994-510, the court agreed with the Respondent (Internal Revenue Service) that the organization failed to meet the operational test required under § 501(c)(3) of the Code. Although the organization engaged in essentially three types of activities, social, charitable, and educational, the court agreed with the Respondent that “the amount and extent of petitioner's social purpose and activities render its charitable and educational activities insubstantial by comparison.” As such, the court determined that the organization did not qualify for tax exemption under § 501(c)(3) of the Code. However, the court also agreed with the Respondent that since the organization was created in order to foster the cultural heritage of Bergenfield, New Jersey's Spanish-American residents it was to be granted exemption under § 501(c)(4) of the Code. The organization engaged in activities designed to provide Bergenfield's Spanish-American residents with a sense of community. Furthermore, the purpose for which the corporation was organized was to preserve, present, and enhance the cultural heritage of Spanish-Americans and to provide for the unification of the community.

GOVERNMENT'S POSITION

It is the Government's position that the Organization did not qualify for exemption under IRC Sec. 501(c)(3).

Under Regulations Sec.1.501(c)(3)-1(c), 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 IRC Sec. 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.

Under the ruling of Spanish American Cultural Association of Bergenfield v. Commissioner, the Court decided that an organization primarily engaged in social activities designed to preserve, present, and enhance cultural heritage and provide unification of a community is not operated exclusively for an IRC Sec. 501(c)(3) purpose.

Here, the * * *, an annual one-day event, was the sole activity conducted by the Organization, the Organization's Officers expressed that the purpose of the * * * event is to bring people together to educate, promote and preserve * * * culture. The Organization's minutes, publications, and contracts entered with other organizations showed that the event's social activities are more than insubstantial in comparison to its charitable or educational activities, if any.

Here, the Organization's Officers provided that the event's vendors were divided into food vendors, merchandise vendors, and information booths. Each type of vendor was charged a different vendor fee to participate in the event. The Officers claimed that fees were waived on some organizations in the information booths where some activities consisted of religious or educational characteristics. The Organization or Officers did not provide information or documents to show how much of fees was waived, what were these religious or educational activities, and how they were delivered to the event participants.

Here, the Organization's Officers stated that, in addition to the annual event, the Organization also subsidized activities of other exempt organizations to fulfill its exempt purpose. Source documents revealed that the disbursement was paid for an advertisement space on a publication of a student organization. No document showed whether the student organization was exempt under IRC Sec. 501(c)(3).

Therefore, the Organization was not considered as operated exclusively for one or more exempt purposes specified under IRC Sec. 501(c)(3).

TAXPAYER'S POSITION

On October 23, 20XX, the Organization provided a written statement indicating that there are no additional records to provide to substantiate their qualification for exemption under IRC Sec. 501(c)(3).

The Organization is being solicited for its position at this time.

CONCLUSION

The Organization does not qualify for exemption from federal income tax for it failed to substantiate that it is operated exclusively for one or more exempt purposes, resulting in its failure to comply with the requirements of IRC Sec. 501(c)(3) and Treas. Reg. Sec.1.501(c)(3)-1(c).

It is the Government's position that the Organization failed to operate exclusively to accomplish one or more of such exempt purposes specified in IRC Sec. 501(c)(3). Because the Organization was not operated exclusively for the exempt purpose under IRC Sec. 501(c)(3), its Federal tax-exempt status under such section should be revoked effective January 1, 20XX. The Organization is liable for filing Form 1120, U.S. Corporation Income Tax Return, for the tax year ended December 31, 20XX and all years thereafter.