Private Letter Ruling
Number: 202052038
Internal Revenue Service
June 19, 2020
   
   
   
DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
1100 Commerce Street, MC 4920DAL
Dallas, TX 75242
   
TAX EXEMPT AND GOVERNMENT ENTITIES DIVISION
   
Number: 202052038
Release Date: 12/24/2020
   
UIL: 501-03.00
   
Date: June 19, 2020
Taxpayer ID Number:
Form
Tax Period(s) Ending:
Person to Contact:
Identification Number:
Telephone Number:
Fax Number:
   
CERTIFIED MAIL -- Return Receipt Requested
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 December 4, 20XX is revoked.
   
Our adverse determination as to your exempt status was made for the following reasons:
   
You did not respond to our requests for information regarding your finances and activities. You have not demonstrated that you are organized or operated exclusively for exempt purposes within the meaning of IRC Section 501(c)(3) and Treasury Regulations Section 1.501(c)(3)-1(d).
   
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:
   
United States Tax Court
400 Second Street, NW
Washington, DC 20217
   
U.S. Court of Federal Claims
717 Madison Place, NW
Washington, DC 20005
   
U.S. District Court for the District of Columbia
333 Constitution Ave., NW
Washington, DC 20001
   
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 about this letter, please contact the person whose name and telephone number are shown in the heading of this letter.
   
Sincerely,
   
Sean E. O'Reilly
Director, EO Examinations
   
Enclosures:
Publication 892
   
   
   
Department of the Treasury
Internal Revenue Service
PO Box 1190
Mail Stop 1112
Ogden, UT 84402-1190
   
Date
August 28, 2019
Taxpayer Identification Number:
Form:
Tax year(s) ended:
Person to contact/ ID number:
Contact numbers:
Toll Free
Long Distance
Fax:
Manager's name/ ID number:
Manager's contact number:
Response due date:
   
Certified Mail - Return Receipt Requested
   
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 may also 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: *******
   
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,
   
For Maria Hooke
Director, Exempt Organizations Examinations
   
Enclosures:
Report of Examination
Form 6018
Form 886-A
Copy from State Website
Publication 892
Publication 3498-A
   
   
   
                          
   
Date of Notice: August 28, 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 on ******* and was granted tax-exempt status as a 501(c)(3) on *******, with an effective date of *******.
   
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 for the tax year December 31, 20XX.
   
The organization has not filed a Form 990 series return for the tax years December 31, 20XX tax year.
   
The Form 1023-EZ application list the phone number of   ******* for the person to contact of *******.
   
Per the State of ******* web-site, it lists the organization as suspended. A copy attached from state web-site.
   
- Correspondence for the audit was as follows:
   
o Letter 3606 (Rev. 6-2012) with attachments, was mailed to the organization on April 23, 20XX, with a response date of May 22, 20XX. This letter was not return by the post office as being undeliverable.
   
o Letter 3844-A (Rev. 12-2015) with attachments, was mailed to the organization's address again as well as all officers listed on the Form 1023-EZ; the President, Assistant Director, Accountant, and Partner on May 28, 20XX, with a response date of June 27, 20XX. None of these letters came back as undeliverable.
   
o Letter 3844-A (12-2015), with attachments, was mailed certified this time to the organization's address again as well as all officers listed on the Form 1023-EZ; the President, Assistant Director, Accountant, and Partner on June 26, 20XX, with a respond date of July 10, 20XX. The organization's address's Article Number: *******, which was also the president's address was received back signed July 1, 20XX. Assistant Director's Article Number: *******, was received back signed on July 1, 20XX. The accountant's Articles Number: *******, was received back signed but no date stamp was on the receipt. The partner's Article Number: *******, was also received back signed without a date stamp. Per USPS tracking all these were received and signed for at the address they were sent. Two other letters were sent to different addresses that were located for the accountant and the partner, but both were returned as undeliverable.
   
o Letter 5077-B (1-2017), TE/GE IDR Delinquency Notice, was mailed certified to the organization's address located from IDRS, on July 30, 20XX, with a respond date of August 20, 20XX, Article Number *******. This letter was signed for on August 6, 20XX and a return receipt was received on August 9, 20XX.
   
- Telephone contact for the audit was as follows:
   
o May 7, 20XX, I called the phone number listed on the Form 1023-EZ application for the Person to Contact of ******* and received recording. I left a message for an officer of the organization to return my phone call.
   
o May 22, 20XX, with no call back I called the phone number listed on the Form 1023-EZ application for the Person to Contact of ******* again and reached a person that was not the Person to Contact. The phone number was incorrect.
   
o May 22, 20XX, through research of the organization's Form 990 I located the presidents name, address and phone number from the person who possesses the organization's books and records. I called the number and received a voice message. I left a message to have the president or officer of the organization call me.
   
o May 23, 20XX, through external research located phone numbers for other officers listed on the form 1023-EZ, the partner; ******* and accountant *******. I called both number and received a recording. I left a message indicating who I was and who I was looking to speak with and to call me back if this was their number.
   
o May 31, 20XX, I called the president's phone number that I got from the form 990 again and had to leave another voice message to call me back.
   
o June 20, 20XX, I tried all three numbers that I had located with research for officers of the organization. I researched some more and was unable to find any other numbers for the officers of the organization.
   
o July 16, 20XX, I received a call back from *******, the partner listed on the form 1023-EZ. He indicated he no longer has anything to do with the organization. He said ******* is still president of the organization and would contact him to call me. He would not verify ******* phone number.
   
o July 23, 20XX, no calls from any of the officers of the organization. I called one more time to the president's phone number that was located on the 20XX form 990 and left one more message to call as soon as possible. I also called the former partner of the organization, ******* and also left a message to have the president call me or call me with the president's phone number (to make sure I have the correct phone number).
   
o July 27, 20XX, I tried calling one more time and was unable to even leave a voice message this time.
   
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 respond 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 January 1, 20XX.
   
Form 1120, U.S. Corporation Income Tax Return, should be filed for the tax periods after January 1, 20XX.