Private Letter Ruling
Number: 202419021
Internal Revenue Service
January 31, 2024
   
   
   
Department of the Treasury
Internal Revenue Service
Tax Exempt and Government Entities
   
Release Number: 202419021
Release Date: 5/10/2024
UIL Code: 501.03-00
   
Date:
01/31/2024
Taxpayer ID number (last 4 digits):
Form:
Tax periods ended:
Person to contact:
Name:
ID number:
Telephone:
Fax:
Last day to file petition with United States
Tax Court:
   
CERTIFIED MAIL - Return Receipt Requested
   
Dear ******:
   
Why we are sending you this letter   
This is a final determination that you don't 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, 20**. Your determination letter dated July 25, 19**, is revoked.
   
Our adverse determination as to your exempt status was made for the following reasons: Organization fails the operational test because you could not demonstrate that you operated for one or more exempt purposes as required by IRC Section 501(c)(3).
   
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 IRS.gov.
   
Contributions to your organization are no longer deductible under IRC Section 170.
   
What you must do if you disagree with this determination   
If you want to contest our final determination, you have 90 days from the date this determination letter was mailed to you to file a petition or complaint in one of the three federal courts listed below.
   
How to file your action for declaratory judgment   
If you decide to contest this determination, you can file an action for declaratory judgment under the provisions of Section 7428 of the Code in either:
   
- The United States Tax Court,
- The United States Court of Federal Claims, or
- The United States District Court for the District of Columbia
   
You must file a petition or complaint in one of these three courts within 90 days from the date we mailed this determination letter to you. You can download a fillable petition or complaint form and get information about filing at each respective court's website listed below or by contacting the Office of the Clerk of the Court at one of the addresses below. Be sure to include a copy of this letter and any attachments and the applicable filing fee with the petition or complaint.
   
You can eFile your completed U.S. Tax Court petition by following the instructions and user guides available on the Tax Court website at ustaxcourt.gov/dawson.html. You will need to register for a DAWSON account to do so. You may also file your petition at the address below:
   
United States Tax Court   
400 Second Street, NW
Washington, DC 20217
ustaxcourt.gov   
   
The websites of the U.S. Court of Federal Claims and the U.S. District Court for the District of Columbia contain instructions about how to file your completed complaint electronically. You may also file your complaint at one of the addresses below:
   
US Court of Federal Claims   
717 Madison Place, NW
Washington, DC 20439
uscfc.uscourts.gov   
   
US District Court for the District of Columbia   
333 Constitution Avenue, NW
Washington, DC 20001
dcd.uscourts.gov   
   
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).
   
Information about the IRS Taxpayer Advocate Service   
The IRS office whose phone number appears at the top of the notice can best address and access your tax information and help get you answers. However, you may be eligible for free help from the Taxpayer Advocate Service (TAS) if you can't resolve your tax problem with the IRS, or you believe an IRS procedure just isn't working as it should. TAS is an independent organization within the IRS that helps taxpayers and protects taxpayer rights. Contact your local Taxpayer Advocate Office at:
   
Internal Revenue Service
Taxpayer Advocate Office
Telephone:
Fax:
   
Or call TAS at 877-777-4778. For more information about TAS and your rights under the Taxpayer Bill of Rights, go to taxpayeradvocate.IRS.gov. Do not send your federal court pleading to the TAS address listed above. Use the applicable federal court address provided earlier in the letter. Contacting TAS does not extend the time to file an action for declaratory judgment.
   
Where you can find more information   
Enclosed are Publication 1, Your Rights as a Taxpayer, and Publication 594, The IRS Collection Process, for more comprehensive information.
   
Find tax forms or publications by visiting IRS.gov/forms or calling 800-TAX-FORM (800-829-3676). If you have questions, you can call the person shown at the top of this letter.
   
If you prefer to write, use the address shown at the top of this letter. Include your telephone number, the best time to call, and a copy of this letter.
   
You may fax your documents to the fax number shown above, using either a fax machine or online fax service. Protect yourself when sending digital data by understanding the fax service's privacy and security policies.
   
Keep the original letter for your records.
   
Sincerely,
   
Lynn A Brinkley
Director, Exempt Organizations Examinations
   
Enclosures:
Publication 1
Publication 594
Publication 892
   
   
   
Department of the Treasury
Internal Revenue Service
Tax Exempt and Government Entities
   
Date:
08/10/2023
Taxpayer ID number:
Form:
Tax periods ended:
Person to contact:
Name:
ID number:
Telephone:
Fax:
Address:
Manager's contact information:
Name:
ID number:
Telephone:
Response due date:
09/11/2023
   
CERTIFIED MAIL -- Return Receipt Requested
   
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.
   
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.
   
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.
   
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.taxpaveradvocate.irs.gov  or call 877-777-4778.
   
For additional information   
You can get any of the forms and publications mentioned in this letter by visiting our web site 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
   
Lynn A. Brinkley
Director, Exempt Organizations
Examinations
   
Enclosures:
Form 886-A
Form 6018
Publication 892
Publication 3498
   
   
   
                          
   
ISSUE:   
   
Whether ****** continues to qualify for exemption under Internal Revenue Code (IRC) Section 501(a) as an organization described in IRC Section 501(c)(3) due to lack of operations or activities for a significant period, including the year under examination.
   
FACTS:   
   
****** (hereinafter, ******) was incorporated as a nonprofit corporation on ****** pursuant to the ******, Title ******, Sections ******. The name of the corporation that appeared on the initial Certificate of Incorporation was ****** (hereinafter, ******). A Certificate of Amendment was filed on ****** to change name to ******
   
According to the Certificate of Incorporation, ****** (known then as ******) was formed for the following purposes:
   
A. establish and maintain ****** / ****** for the exchange of ****** and ****** among all of the ****** by the ****** "******" and related ****** and ******, for the purpose of ****** and ******, ****** and ******;
   
B. reduce the ****** and ****** services currently being provided by ****** and ****** interest groups;
   
C. allow for a governance structure for ****** efforts which reflects that interests of ******, ****** and ******;
   
D. provide ****** to ****** and ****** in the implementation of the "******", including:
   
1. development and maintenance of a ****** of information on the implementation of the ******;
   
2. development and maintenance of a ****** to assist ****** and ****** in their resolution of ******, ****** and ****** problems;
   
3. provision of ****** in the interpretation and implementation of the "Job Training Partnership Act" and regulations promulgated thereunder;
   
4. ****** in planning and conducting ****** on ******and ******; and
   
5. analyses of ****** actions relative to the ******.
   
****** was recognized as a section 501(c)(3) organization pursuant to a ruling dated ****** and was treated as a publicly supported organization described in section 509(a)(2) during the advance ruling period. ****** later received another determination letter dated ****** after the advance ruling period had ended. In this latest determination letter, ****** was given the foundation status under section 509(a)(2).
   
According to the Tax Exempt Organization Search website (https://apps.irs.gov/app/eos/), ****** filed Forms ****** in tax years ****** through ******, which includes the year under examination. Form ****** (******) is an ****** filed by eligible small tax-exempt organizations to satisfy their annual reporting requirements if their annual gross receipts are normally $ ****** or ******.
   
 Determination Administrative File    
****** determination administrative file, which includes the exemption application Form 1023 and supporting documents under former name ******, indicates that ****** was set up as a ****** organization that consisted of ****** and ****** charged with implementation of the ******. Its activities described in the exemption application were to provide ****** and ****** to the active ****** involved in implementing the ******. Such information exchange consists of notices and documentations of the ****** and ****** programs being implemented at the ****** and ****** levels under the ******.
   
According to the exemption application, "primary source of funds shall be ****** and ****** assessed against ****** and ****** under the ******, ******; secondary source of support will be contributions from other ****** organizations; final source of support will be ****** interested in ****** and ****** and ****** programs".
   
 The ******    
The ****** was a ****** enacted by ****** on ******, ******, to establish ****** to prepare ****** for entry into the ****** and to ****** to those ****** individuals and other individuals facing serious barriers to ******, who are in ****** of such ****** to obtain ******. (******)
   
The ****** of ****** was repealed by the ****** (******)
   
 Related Organization - ******    
Correspondence dated ****** from ****** (under former name ******) stated that ****** had begun operating under the trade name "******" (hereinafter, '******'). The IRS then received an application for exemption, Form 1024, from ****** on ******. ****** applied for tax-exempt status under section 501(c)( ) as an unincorporated association. Per its determination letter dated ******, ****** was recognized as a section 501(c)( ) organization.
   
On ******, ****** formally incorporated, pursuant to the ****** edition, Title ******, Chapter ******, for the following purposes:
   
A. improve the effectiveness of the ****** and ******;
B. enhance ******;
C. ****** among ****** and ******.
   
****** filed a Certificate of Amendment on ******, changing its name to ****** of ******. (hereinafter, "******").
   
****** has been filing Forms ****** since its inception. ****** now files Forms ****** and Forms ****** on behalf of ****** as, according to ******, ****** and ****** share employees.
   
 Operational    
******'s Form ****** and ****** of Form ****** for the tax year ended ****** were under examination. Based on interviews and responses provided in reply to information document requests, ****** claims it shares board members, officers, employees, and office space with ******. The ****** organizations do not enter into any agreements regarding the sharing of such organizational resources. ****** is a ****** organization. ****** was initially set up as a ****** organization as well; however, ****** does not have any ****** separate and apart from ****** members.
   
The board meeting minutes provided by ****** were under the letterhead of ******, and the matters discussed during the meeting pertained to ****** relating to ****** conferences and ******. ****** responded that there were no minutes solely for ******.
   
When asked to substantiate its ******, ****** responded with the following sentence alone: "All activities conducted on behalf of the ****** and ****** are done in ******."
   
****** failed to provide documents and/or information to substantiate that ****** was or is conducting its own activities during the year under examination through the present. In fact, ****** failed to provide any specific details or descriptions of activities it has conducted in furtherance of an exempt purpose.
   
 Financial    
****** maintained one money market account; it had no operating account, other assets or liabilities; ****** did not receive any donations or grants; it had no ****** income or program service revenue; the only source of income was the ****** from that money market account. When asked to provide the gross receipts for each tax year ended ******, ******, ****** and the ***-year gross receipt average for the purpose of determining whether ****** was eligible to file the Form ******, the financial records showed that the ****** income was ranged from $ ****** to $ ****** for those *** years. Besides the ******, ****** had no deposit or disbursement transactions according to the ****** account's bank statements. All ****** for those ****** that ****** filed ****** for were paid directly by ******.
   
****** applied the ****** (******) loan and was approved $ ******, ****** during the year under examination; all of the approved funds were subsequently transferred to the primary checking account of ******.
   
Per inspection of ****** Form ******, ****** identified ****** as its related organization on the Schedule *** The Schedule *** indicated that ****** did not engage in any financial transactions with the related organization ******, i.e., no gift, grant, or capital contribution to/from related organization, no loans to to/from related organization, no reimbursement paid to/by related organization, no sharing of facilities, paid employees with related organization.
   
LAWS:   
   
Internal Revenue Code (IRC) Section 501(c)(3)  provides exemption from Federal income tax on corporations, and any community chest, fund, or foundation, 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, 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 and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of any candidate for public office.
   
IRC Section 509(a)(2)  describes an organization that receives no more than one-third of its support from gross investment income and more than one-third of its support in each tax year from a combination of the following:
   
i) gifts, grants, contributions, or membership fees from other than a disqualified person, and
   
ii) gross receipts from admissions, sales of merchandise, performance of services or furnishing of facilities in an activity that is not an unrelated trade or business (to the extent that gross receipts from any one individual does not exceed the greater of $5,000 or 1 percent of the organization's total support on that tax year.
   
Treasury Regulation 1.501(c)(3)-1(a)(1)  provides 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.
   
Treasury Regulation 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 exempt purposes specified in section 501(c)(3). An organization will not be so regarded if more than in insubstantial part of its activities is not in furtherance of an exempt purpose.
   
Treasury Regulation 1.501(c)(3)-1(d)(1)(i)  states that an organization may be exempt as an organization described in 501(c)(3) if it is organized and operated exclusively for one or more of the following purposes: religious, charitable, scientific, testing for public safety, literary, educational, or prevention of cruelty to children or animals.
   
Revenue Ruling 58-617, 1958-2 C.B. 260  states that, rulings and determinations letters granting exemption from Federal income tax to an organization described in section 501(a) of the Internal Revenue Code of 1954, to which contributions are deductible by donors in computing their taxable income in the manner and to the extent provided by section 170 of the Code, are effective only so long as there are no material changes in the character of the organization, the purposes for which it was organized, or its methods of operation. Failure to comply with this requirement may result in serious consequences to the organization for the reason that the ruling or determination letter holding the organization exempt may be revoked retroactively to the date of the changes affecting its exempt status, depending upon the circumstances involved, and subject to the limitations on retroactivity of revocation found in section 503 of the Code.
   
In  Community Education Foundation v. Commissioner T.C. Memo. 2016-223, revocation of the petitioner's exemption was supported due to a long-extended period of inactivity. The petitioner did not meet the operational test requirements for a section 501(c)(3) organization.
   
TAXPAYER'S POSITION:   
   
When asked for a detailed description of activities conducted by ****** during the year under examination and present, ****** stated that:
   
"****** (******) serves an ****** mission to ******, ******, and ****** the ****** field. The ****** (******) was formed for a complementary purpose: to offer ****** a ****** for ******, ****** and ******. The ****** organizations work closely together to ****** practices and ******."
   
When asked to provide documents to support the types of activities specifically conducted by ******, ****** stated that "all activities conducted on behalf of the ****** and ****** are done in ******" but materials such as newsletters and blogs are "published under the entity name ******".
   
When asked to explain ******'s relationship with ******, ****** stated that:
   
"****** (******) serves an ****** to ******, ******, and support the ******. The ****** (******) was formed for a complementary purpose: to offer ****** a ****** for ****** and ******. The organizations work closely together to ****** and ******."
   
GOVERNMENT'S POSITION:   
   
This report addresses the issue whether ****** continues to qualify for exemption as an organization described under IRC 501(c)( ) due to lack of operations or inactivity for a significant period of time, including the year under examination. Any issues associated with the filing of ****** (i.e., Form ******) by ****** are not addressed in this report.
   
Information presented during the examination indicates that ****** has ceased to conduct the types of activities described in its exemption application. ****** is no longer serving as an ****** for parties involved in the implementation of the ****** of ****** as the ****** was repealed in ******. Moreover, although ****** claims it conducts activities jointly with its related organization, ******, ****** has not provided any documentation to substantiate its own activities, nor how it participates jointly in activities with ******.
   
****** has failed to provide evidence to substantiate it has its own operations to accomplish one or more exempt purposes specified in section 501(c)( ). ****** does not have outside contributions or grants; it does not have any ****** income or income from exempt operations. As such, ****** has failed the operational requirements under section 501(c)( ) and failed the public support test under section 509(a)( ).
   
As demonstrated in Rev.Rul. ******, an organization's exempt status will remain in effect only so long as there are no material changes in the character of the organization, the purposes for which it was organized, or its methods of operation. Information suggests that ****** has been inactive for a long-extended period, including the year under examination, as (1) ****** clearly no longer serves the same purposes stated in its exemption application because the ****** was repealed in ******; (2) it has been filing the Form ****** at least since ****** to present; (3) no income or expenses transactions except for ****** at least since ****** to present; (4) no other assets or liabilities except for ******; and (5) no records to substantiate ****** has been actively engaged in its own exempt functions. The sole function of ****** seems to be to file Forms ****** and ****** on behalf of ******, with whom ****** claims to have ******. In fact, ****** was not able to establish how many ****** the allegedly "******" ****** for ****** versus ******.
   
****** is like the petitioner in the ****** v ****** case where the court concluded that revocation was appropriate due to a significant period of inactivity.
   
Accordingly, ******'s tax-exempt status should be revoked because it fails to demonstrate it continues to meet the operational requirements under section 501(c)( ).
   
CONCLUSION:   
   
****** fails to meet the operational requirements for continued exemption under section 501(c)( ) of the Code due to lack of operations or activities that accomplish one or more of the exempt purposes described in section 501(c)( ). Moreover, ****** fails to satisfy section 509(a)( ) foundation status or any public charity status because it has no public donations, grants, membership fees, or any exempt function income. Therefore, ****** exempt status under section 501(c)( ) should be revoked effective ******, ******. Form 1120, U.S. Corporation Income Tax, should be filed for tax year ended ******, ******, and thereafter.
   
If you agree to this conclusion, please sign and return the enclosed Form 6018.
   
If you disagree, please submit a written statement of your position.