Private Letter Ruling
Number: 202302013
Internal Revenue Service
June 15, 2022
   
   
   
Department of the Treasury
Internal Revenue Service
Tax Exempt and Government Entities
   
Number: 202302013
Release Date: 1/13/2023
   
UIL: 501.03-00
   
Date:
June 15, 2022
Taxpayer ID number:
Form:
Tax periods ended:
Person to contact:
Name:
ID number:
Telephone:
Fax:
   
CERTIFIED MAIL - RETURN RECEIPT REQUESTED
   
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 ******. Your determination letter dated ******, is revoked.
   
Our adverse determination as to your exempt status was made for the following reasons: You have not established that you conducted any charitable or exempt activity. In addition, your principal officers unlawfully appropriated funds for their personal use which is a means by which net earnings of your organization have inured to your private shareholders or individuals. IRC Section 501(c)(3) requires organizations to operate exclusively for an exempt purpose, which includes having a primary activity accomplishing exempt purposes as described in Treasury Regulations Section 1.501(c)(3)-1(a). IRC Section 501(c)(3) precludes federal income tax exemption if net earnings inure to the benefit of private shareholders or individuals as described in Treasury Regulations Section 1.501(c)(3)-1(c)(2). As such, you are not an organization described in 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 www.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 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.
   
Please contact the clerk of the appropriate court for rules and the appropriate forms for filing an action for declaratory judgment by referring to the enclosed Publication 892, How to Appeal an IRS Determination on Tax-Exempt Status. 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 20439
   
U.S. District Court for the District of Columbia
333 Constitution Ave., N.W.
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.
   
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:
   
   
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 www.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.
   
Keep the original letter for your records.
   
Sincerely,
   
Lynn A. Brinkley
Acing Director, Exempt Organizations Examinations
   
Enclosures:
Publication 1
Publication 594
Publication 892
   
cc:
   
   
   
Department of the Treasury
Internal Revenue Service
Tax Exempt and Government Entities
   
Date:
02/23/2022
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:
   
CERTIFIED MAIL -- Return Receipt Requested
   
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.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,
   
Acting Director, Exempt Organizations Examinations
   
Enclosures:
Publication 892
Publication 3498
Form 886-A, Exhibits A & B
Form 6018
   
   
   
                          
   
 Issues:
   
(1) Should ****** tax exemption under section 501(c)(3) of the Internal Revenue Code be revoked because (1) its income inured to the benefit of its principal officers ****** and ****** and (2) the organization has not engaged in any exempt activity during its entire existence?
   
(2) Is ****** liable for the penalty prescribed under IRC Section 6652(c)(1)(A)(ii)? Is ****** an organization exempt from tax under section 501(c)(3) of the Internal Revenue Code for failing to file complete and accurate Form ****** returns for the years ending ******, ******, ******, and ******?
   
 Facts:
   
Background   
   
The ******, hereinafter "******", was incorporated on ****** in the State of ****** by ******. ****** received its exemption from federal income tax under Section 501(a) on ****** as an organization described under 501(c)(3; and further classified as a publicly supported organization under section 170(b)(1)(A)(vi). ****** is required to file Form ******.
   
The organization's Articles of Incorporation state:
   
the organization is organized exclusively for charitable, religious, educational, and scientific purposes, including, for such purposes, the making of distributions to organizations that qualify as exempt organizations under section 501(c)(3) of the Internal Revenue Code, or corresponding section of any future federal tax code
   
The organization's bylaws state in Article VII, Section 7.01:
   
PROHIBITION AGAINST SHARING IN CORPORATE EARNINGS
   
No director, trustee, officers or employee of or member of a committee of or person connected with the Corporation shall receive at any time any of the net earnings or pecuniary profit from the operations of the Corporation, and no such person or persons shall be entitled to share in the distribution of any of the corporate assets upon the dissolution of the Corporation.
   
The organization's bylaws state in Article VII, Section 7.03:
   
DISSOLUTION OF THE ORGANIZATION
   
Upon dissolution of this organization the remaining assets after all the debtors had been paid must be distributed to all exempt organizations within IRS 501 c3. None of the exempt recipients must be affiliated with the officers, directors, board members or any of the organization employees.
   
Form   
   
The organization's Form ****** 1, Part IV, Narrative Description of Your Activities state:
   
1    The organization's bylaws include this stated purpose in Article II Purpose, Section 2.01 
   
Said Corporation is organized exclusively for charitable. To provide crucial resources to the elderly, disable and displaced persons in our local community and in ******. Such crucial resources are foods, clothing, and transportation assistance to doctors' visits, including for such purposes, the making of distributions to organizations that qualify as exempt organizations within the Section 501(c)(3) of the Internal Revenue Code of 1986 (or the corresponding provisions of any future United States Internal Revenue Law), as well as any lawful purpose, as authorized by law.
   
Form ******, Part V, Compensation and Other Arrangements with Your Officers, Directors, Trustees, etc., Line 1a, reports the organization's officers:
   
       
   
****** checked negatively "No" to line 2a, which asked are any of your officers, directors, or trustees related to each other through family or business relationships? If "Yes," identify the individuals and explain the relationship. ****** also provided an attached statement, "#2a & 2c: At this time none of the officers are related but the organization has adopted conflict of interest policy."
   
****** and ****** 2  are cohabitants based on public record research. Per IDR 2 & 3 response, ****** is ****** mother, ****** is ****** mother. ****** and ****** are cohabitants.
   
2    This report asserts in the government's position that organization was controlled by ****** and ****** with no board oversight.   
   
****** positively checked "Yes" to Line 8a which asked Do you or will you have any leases, contracts, loans, or other agreements with your officers, directors, trustees, highest compensated employees, or highest compensated independent contractors listed in lines 1a, 1b, or 1c? If "Yes," provide the information requested in lines 8b through 8f.
   
b Describe any written or oral arrangements that you made or intend to make.
   
c Identify with whom you have or will have such arrangements.
   
d Explain how the terms are or will be negotiated at arm's length.
   
e Explain how you determine you pay no more than fair market value or you are paid at least fair market value.
   
f Attach copies of any signed leases, contracts, loans, or other agreements relating to such arrangements.
   
****** attached a narrative to question 8, stating "****** is exclusively for charitable service to the public. In purchasing or leasing we do not discriminate. Our objective is to shop for the best goods, service and lease for the lowest price irrespective of the providers or sellers as long such businesses we are dealing with were not in violation of ****** law".
   
****** did not report it would incur rental expense on Part IX, Financial Data, Line 20, Occupancy (rent, utilities, etc.) during the ******, ******, and ****** years. ****** also did not report occupancy expenses on its attached narrative of Part IX for ****** through ******.
   
Form ****** Part VIII, Line 4a, ****** indicated that it would engage in mail, email, personal, phone, government grant & foundation solicitations; accept donations from website; etc. and checked that it would operate as a 509(a)(1) & 170(b)(1)(a)(vi) - an organization that receives a substantial part of its financial support in the form of contributions from publicly supported organizations, from a governmental unite or from the general public.
   
****** checked negatively "No" when asked if the corporation intends to solicit charitable / tax deductible contributions on its ****** NONPROFIT INITIAL AUANNUAL LIST OF OFFICERS AND DIRECTORS form that it filed with the State of ****** on ******.
   
Form ******   
   
****** reported its financial information on ******, ******, & ****** Forms ****** and Form ******, as follows:
   
Part I, Revenue, Expenses and Change in Net Assets of Fund Balances   
   
       
   
Exclusively all contributions were received from ****** and for-profit flow through corporations owned by ******.
   
       
   
Part II, Balance Sheets   
   
       
   
Part III, Statement of Program Service Accomplishments   
   
****** reported its primary exempt purpose was to "provide crucial resources to the elderly, disable and displaced persons in our local community and in ****** Such crucial resources are foods [sic], clothing, and transportation assistance to doctor's visits
   
****** reported on Line 28 that it provided food and clothing to over ****** people in both ****** and in ****** - $ ******, $ ******, $ ****** in ******, ******, and ******, respectively. It also included $ ****** on line 4 of Form ****** for ******.
   
Line 29 reported that ****** provided transportation assistance for doctor's visits - blank, $ ****** & $ ****** in ******, ****** and ******, respectively. Assistance for doctor's visits was included in the amount on Line 4 of Form ****** for ******.
   
Line 30 reported that ****** provided medical equipment to the sicks [sic] - and did not quantify the amounts.
   
****** attached Schedule O, Supplemental information, to its ******, ******, and Form ****** and ****** Form ******, which listed the following "other" expenditure explanations and its "other asset":
   
       
   
Part IV, Officers Directors, Trustees, Key Employees   
   
****** reported the governing body as follows:
   
       
   
Part VI, Other Information   
   
****** checked negatively "No" to the following questions:
   
Line 33, "did the organization engage in any significant activity not previously reported to the IRS? If Yes, provide a detailed description of each activity in Schedule O."
   
Line 38(a) did the organization borrow from, or make any loans to, any officer director, trusted, or key employed or were any such loans made in a prior year and still outstanding at the end of the tax year covered by this return? (b) if yes, complete Schedule L, Part II and enter the total amount involved." Schedule L was not attached to the ****** - ****** Forms ******.
   
Line 40(b) "Did the organization engage in any section 4958 excess benefit transaction during the year, or did it engage in an excess benefit transaction in a prior year that has not been reported on any of its prior Forms ****** or ******? If yes, complete Schedule L, Part I." Schedule L was not attached to the ****** - ****** Forms ******.
   
Information Document Requests   
   
Form 4564, Information Document Request 1 (IDR 1) and initial exam letter was mailed to ****** on ****** to the organization's address ******, ******, which is reported as the organization's mailing address on Form ****** and Form ****** Part I, Identification of the Applicant.
   
3    ****** is the reported address on the organization's ****** - ****** Forms ****** mailing address; on its ****** bank statement mailing address; is also ****** and ****** personal residence; and is owned by ******. Because correspondence mailed to the ****** was 'returned to sender' / "vacant" subsequent mail certified & uncertified mail (such as Forms ******, Summons Noticee Copies) were mailed to ******. The certified mailed items were 'returned to sender' as unclaimed.   
   
A subsequent exam letter and IDR 1 was mailed 4  on ****** to ******, ******. The letter was returned to sender which labeled the address as "vacant".
   
4    Second issuance of IDR 1 was mailed standard, i.e. uncertified   
   
****** described its activity in IDR 1 response stating:
   
Since its establishment in ******, the ****** have [sic] partnered with many hospital discharge planners and owners of independent living houses especially in ****** & ******. These Independent living houses independently may house ****** to ****** individuals and or families for a short time following hospital discharge, preventing them from being discharged to a ****** shelter. There are at least ****** independent living houses operating in ****** and they have sheltered over ****** people since ******. While shelter is provided these house owners are not always able to meet the needs of these individuals and requires assistance from organizations such as the ****** to provide meals and assistance to individuals until they are able to secure their own housing, transportation, and financing. Here are a few addresses that have been supported by our organization since ******: See Exhibit A for the listing.
   
The Board members of ****** have a relationship with the community house owners and managers who identify independent living homes in the community. Known to our organization, independent living homes houses [sic] people of low income as well as no income. Due to this income deficiency, multiple adults share a living space so they can share the expenses and this leaves them little of nothing to survive on. The ****** will provide these individuals food, transportation and sometimes pay a small fee for individuals to allow them to reside in certain homes for a short period of time until their financial restrictions are lifted. Before individuals are accepted into independent living houses, their incomes [sic] are verified by hospital case managers as well as house owners and managers. Keep in mind that the average monthly payment by the state of ****** for ****** persons are $ ****** / month which they are expected to pay for housing food and maintenance.
   
The organization's response to IDR 1 omitted the names and contact information of the property owners and/or purported program coordinators of the temporary housing shelters. The examining agent contacted property owners from the addresses provided by ****** to query their involvement in the organization's mission (providing temporary assistance to ****** individuals, financial, and non-cash assistance).
   
****** (******) responses were received, ****** (******) in writing and ****** phone conversations were held. ****** (******) individuals stated they had no affiliation with the organization, or that their property was not used to temporarily house individuals. No property owner reported they receive any form of assistance or aid from ******.
   
Notably, ****** of the negative responses were from charities that operate homeless programs in ******, ******, in which one stated it did not recognize (******) as a collaborative partner and has no indication or evidence that it received support of any kind from ******. ****** private property owner stated they "never heard of them" referring to the ******.
   
****** IDR 1 response did not provide contemporaneous receipts, invoices, credible explanations, or other satisfying documents to substantiate its exempt activity. Rather, ****** substantiation consisted of hand-written notes prepared by ******. The notes explained numerous cash withdrawals (discussed below) as "******". Fast-food expenditures were described as "******", and lavish meals were described as "******"
   
Below is a sample of the handwritten explanations provided in IDR 1. The full expenditure listing consisted of ****** pages:
   
       
       
   
****** was asked numerous times to substantiate its expenditures and activities in IDRs 1, 2, 3, 4, & 5, however, ****** did not substantiate these expenditures to be charitable.
   
For instance, IDR 3, pertaining to years ending ****** and ****** asked, (6) provide any other substantiation for the organization's expenditures such as invoices, receipts and similar contemporaneous substantiation.
   
****** responded "Question 6 Response: All receipts and invoices for substantiation has been submitted to your office already. If there are any specifics that you need clarification on, I will be happy to provide it."
   
****** provided a loan agreement in response to IDR 1 dated ******. The agreement was post-dated, and covered funds previously borrowed by ****** during ****** and ******. The agreement was signed by ****** and ****** and stated that ****** loaned ****** a total of $ ****** (in ****** & ******) and ****** re-payed $ ****** (in ****** & ******). The document further stated:
   
"The Remainder of the loan, $ ****** will be repaid with no interest at a rate of $ ****** over a course of ****** months. Repayment of the loan will commence on ******, ******, and end in ******, ******."
   
As of ******, the outstanding loan balance of $ ****** appears to have not been repaid by ****** (****** year and ****** months past the repayment date in the loan agreement) 5.
   
5    The exam of ****** was expanded to year ending ****** limited to addressing the cancellation of debt for the outstanding loan balance $ ******   
   
****** provided a ****** lease agreement in its IDR 1 response. The parties of the lease were ****** (landlord) and ****** (tenant) and was executed purportedly for ****** use of ****** personal residence (******, ******, ******). The term of the lease was ****** years (****** - ******) at a rental amount of ****** dollars ($ ******). The lease further stated that the agreement cannot be changed orally. The lease was signed by ****** as Landlord and ****** as tenant and representative of the ******.
   
****** stated in response to IDR 1 that ****** and ****** hold organizational debit cards with ******. IDR 3 asked ****** to identify the individual(s) that possess debit card(s) ending ****** and ******, and ****** replied that ****** possessed both debit cards (****** and ******). However, ****** information reported that the debit card ending in ****** was under ****** name and debit card ending in ****** was under ****** name.
   
IDR 5 asked ****** (question 4) to Identify all participating hospitals by name, address and the representative / contact person's whom ****** coordinated with as well as to provide the contact's name & telephone number to verify ****** exempt activity.
   
****** responded: "All major medical and mental health hospitals in ****** has benefitted from our services including ******, ******, ****** and many more. Discharge planners are individuals assigned to facilitate discharge and changes from time to time."
   
IDR 5 (question 5) asked: ****** to provide the contract or agreement between your organization and each participating hospital identifying the description of services rendered by ****** and remuneration received.
   
****** responded: "There are no contract or agreement [sic] between hospitals and my organization as our organization was not pressured to do it but these individuals especially mental health patients need the services and we provided it [sic]."
   
IDR 5 (question 6) asked: Provide all Hospital discharging documents, power of attorney forms, or any other required documentation; for all patients, authorizing you and your organization to take care or custody of each outgoing patient.
   
****** responded: "Absolutely not. All hospital discharge paperwork are covered under HIPAA. Your word custody tells me you have no clue about the voluntary nature of our organization. The organization will not be fighting for custody for some individuals it needs to help."
   
****** has not provided substantiation that it's a HIPAA 6  covered entity. ****** did not provided evidence that it furnishes, bills, or receives payment for healthcare services, nor did it provide evidence that it engages, transmits or sends any covered transaction(s) electronically in the normal course of business.
   
6    A HIPAA transaction is an exchange of electronic information between two Covered Entities to carry out financial or administrative activities related to healthcare. An example would be when a healthcare provider sends a claim to a health plan to request payment for services.   
   
IDR 5 (question 7) asked ****** to provide for each patient assisted:
   
a) full name
   
b) ssn
   
c) phone number
   
d) discharging hospital and address
   
e) discharging date
   
f) location of temporary housing including name, address and phone number of each individual housing provider
   
g) dates patient stayed in the temporary location
   
h) agreement contract between the organization and each temporary housing provider
   
i) records detailing and explaining the exact type of assistance provided for
   
ii) each individual named patient
   
j) records identifying the amount, or each fund expended for on behalf of each individual named patient
   
k) all documents reviewed and used to approve and verify each discharge patient qualifies as low-income.
   
l) Provide reports provided by to each discharging hospital by your organization
   
****** responded: Absolutely not.
   
IDR 5 (question 8) asked ****** to "Explain your role in the final care and disposition of each patient once the temporary housing has expired."
   
****** responded: "Our organization's role is to provide safe housing, food, transportation, assist with med co-pays until the individual is situated in the community this may include making use of ****** shelters".
   
IDR 5 (question 9) asked ******: Explain what type of follow up visit is conducted by either your organization or the discharging hospital, provide supporting documentation
   
****** responded: Again, this is something done voluntarily to ease the burden on hospitals and the city/state. There are no contracts or timetable or babysitting by the discharge hospital. All the hospitals care about is that the patients have left their doors that is why there are so many ****** persons and a broken state program with no assistance of these individuals.
   
Disqualified Persons   
   
****** and ****** are organizational managers and possess signature authority over the organization's ****** account ******. ****** and ****** are the organization's President and Secretary / Treasurer, respectively. ****** signed all Forms ******.
   
The organization's ****** account ****** revealed the following transactions during ******, ******, ******, & ******
   
Bank Accounts   
   
Expenditures conducted by ****** (debit card ending ******) worth noting include:
   
- ****** ATM cash withdrawals conducted at various ****** totaling $ ****** classified as "feeding and clothing the underprivileged" on general ledger (G/L). ****** explained these withdrawals in response to IDR 1 as "******" (listed for each withdrawal).
   
- Daily & reoccurring fast-food purchases, ****** & ****** purchases totaling $ ****** were classified on ******'s G/L as feeding and clothing the underprivileged.
   
- Lavish meal at ****** totaling $ ****** and ****** Buffet totaling $ ****** was classified on ****** G/L as feeding and clothing the underprivileged. ****** explained this expenditure in response to IDR 1 as a "******"
   
- ****** purchase of $ ****** classified on ****** G/L as feeding and clothing the underprivileged. ****** response to IDR 1 explained this expense as "******"
   
- Expenditure totaling $ ****** for ****** classified as an auto expense. The organization's response to IDR 1 explained this expense as "******".
   
Note that ****** is an online ticketing company; the ****** is an ****** in ******, ******. The expenditure is payment for an entertainment event in ******, ******.
   
- Expenditure totaling $ ****** classified as a supplies expense. The organization's response to IDR 1 explained this expense as "entertainment"
   
       
   
****** did not provide contemporaneous substantiation to support these expenditures served an exempt purpose.
   
Expenditures conducted by ****** (debit card ending ******) worth noting include:
   
       
   
The above expenditures were reported on ****** G/L as "Feed, Cloth, Underpriv" [SIC}
   
- Daily & reoccurring fast-food purchases, ****** & ****** purchases totaled $ ****** and were classified on ****** G/L as "feeding and clothing the ******"
   
- Airfare "travel" totaling $ ******. ****** provided no further explanation or contemporaneous substantiation.
   
- A $ ****** teller cash withdrawal conducted on ****** classified on ****** G/L as feeding and clothing the underprivileged. ****** provided no further explanation or contemporaneous substantiation.
   
- ****** check numbers ******, ******, and ****** for property maintenance, repairs and cleaning totaling $ ******; Check numbers ******, ******, ****** totaling $ ****** for bookkeeping/ return preparation; miscellaneous unexplained checks totaling $ ******. ****** provided no contemporaneous substantiation to prove these expenditures served an exempt purpose.
   
Summary of ****** debits from card ending ****** & other debits:
   
       
       
   
****** did not provide contemporaneous substantiation these expenditures served any exempt purpose.
   
****** also provided interest free loans by the President ****** during ****** and ******. The amounts are as follows:
   
       
   
The 'loans' were explained as funds borrowed from the account by president of the organization. Based on public record research, the loans were for some type of down payment for non-exempt property purchase(s) owned by ****** / ****** to be used as rental, office space or apartments.
   
Total ****** expenditures during ****** were $ ****** (including loans)
   
The ****** expenditures conducted by ****** (debit cards ending ****** and ******) were similar to ****** expenditures. Items worth noting include:
   
****** ATM cash withdrawals conducted at various ****** totaling - $ ******. The withdrawals were classified as "transportation assistance" on ****** G/L which was provided in response to IDR 2.
   
Dining, buffets, Fast food purchases, etc. totaling $ ******
   
Groceries totaling $ ******
   
Total debit card ****** and ****** expenditures - $ ******
   
The ****** expenditures conducted by ****** (debit card ending ******) were similar to ****** expenditures. Items worth noting include:
   
****** ATM cash withdrawals conducted at various ****** totaling ATM Withdrawals at casinos totaling $ ******
   
Dining and fast-food purchases totaling $ ******
   
Groceries totaling $ ******
   
Other expenditures (******, ******, ******, ******, ******) totaled $ ******
   
Total Debit card ****** expenditures $ ******
   
****** Checks and other Debits
   
The following checks totaling $ ****** were written to ****** for 'rent payments':
   
       
   
Checks ****** and ****** were written by ****** to ****** as the payee. Check ****** and was purportedly for end of the year rent for ******. In response to IDR 5, ****** stated that "****** is ****** and ****** is ****** Trust. The trust does not have an EIN"
   
Note that ****** Form ****** and IDR 1 response reported that $ ****** in occupancy / rental expenses would be paid by the ******.
   
Other transfers and payments to ****** and ****** flow-corporations ****** owns include:
   
       
   
       
   
****** response to IDR 5 stated check ****** was a "loan to ****** that has since been reconciled on previously requested documents"; check number ****** "withdrew check for $ ****** for donation to different charitable organizations in ****** but only needed to send $ ******. Deposited $ ****** back in account"; check number ****** "repayment of ticket expense to ****** for ticket bought from ****** account for activities of ******".
   
Summary of the transfers and check payments to ******:
   
       
   
No contemporaneous substantiation has been provided to prove debit card purchases or checks and transfers to ****** served a charitable or tax-exempt purpose.
   
The remainder of ****** 'other' expenditures include:
   
       
       
   
****** response to IDR 5 stated check ****** was for "assistance with handyman services to purchase and repair damaged residence for people who could not afford it especially in the summer"; checks ****** through ****** were accounting fees for books and tax return preparations; check ****** was "to assist family going through significan [sic] difficulties with funeral expenses"; check ****** was" ****** day ****** hrs.) payment for driver to transport people to location picnic and back home".
   
No contemporaneous substantiation has been provided to assert the Other expenses served a charitable or tax-exempt purpose.
   
       
   
The ****** expenditures conducted by ****** (debit card ending ******) Include:
   
****** ATM cash withdrawals conducted at various ****** totaling $ ******
   
Buffet dining at ****** totaling $ ******
   
Other Expenses $ ******
   
Total $ ******
   
The ****** expenditures conducted by ****** (debit card ending ******) were similar to ****** & ****** expenditures. Items worth noting include:
   
****** ATM cash withdrawals conducted at various ****** totaling ATM Withdrawals at casinos totaling $ ******
   
Dining and fast-food purchases totaling $ ******
   
Groceries totaling $ ******
   
Travel totaling $ ******
   
Other debits $ ****** (Internet and cable tv, furniture, insurance payment, DMV, storage shed)
   
Total debits from card ending ****** $ ******
   
These expenditures remain unexplained and unsubstantiated.
   
Other debits payable to ****** include:
   
Check number ****** dated ****** totaling $ ****** was written by ****** to ****** as the payee which stated in the memo "amount owed after account reconciliation".
   
****** has not provided contemporaneous substantiation or documentation to prove this this expenditure served an exempt purpose.
   
On ******, ****** conducted a bank teller withdrawal totaling $ ******. Per minutes provided by ****** the cash withdrawal was for a purported ****** project. The minutes discussed a "****** to assist ****** with their construction project for orphans as well as provide food, total cost is ******. ****** representatives of the organization will be present at these orphanages during ****** to ******, after a brief discussion the board agreed".
   
****** has not provided contemporaneous substantiation or documentation to prove this this expenditure served an exempt purpose. Rather, ****** provided ****** vague and generic donor acknowledgement letters dated ****** & ******from "******" a purported overseas entity. These letters were dated ****** (******) months before the $ ****** cash withdrawals. ****** provided no other substantive information. The required information must include specific accounting, contemporaneous receipts, invoices & photo evidence, correspondence between parties of the transactions, documents detailing of what type of assistance was given and how much, to whom the grants were given (including contact information), whether the recipient is a qualified charity or member of a charitable class, follow-up grant reports, and other explanations (who, what, when, where, why, how?) Furthermore, the donor 'acknowledgement' letters do not name ****** as the donor the donor.
   
Other unsubstantiated transfers to ****** include a bank transfer ****** on ****** totaling $ ****** (Acct ending ******)
   
A bank teller withdrawal on ****** totaling $ ******
   
Unsubstantiated Checks include:
   
Checks written to ****** totaling $ ****** for bookkeeping/return preparation. ****** has not provided documentation that the bookkeeping expenditures were solely for ****** or whether the payments included bookkeeping fees for ****** other owned businesses.
   
Other unsubstantiated checks include:
   
       
   
Note the other expenditures above ($ ******) includes check number ****** for $ ****** on ****** payable to ****** mother, board member and disqualified person ******. This expenditure also remains unsubstantiated.
   
The only expenditure that was verifiable was the $ ****** payment for audit representation.
   
The ****** expenditures conducted by ****** (debit card ending ******) Include:
   
****** ATM cash withdrawal totaling $ ******
   
   
Total $ ******
   
The ****** expenditures conducted by ****** (debit card ending ******) were similar to ******, ******, & ****** expenditures. Items worth noting include:
   
****** ATM cash withdrawals conducted at various locations totaling $ ******
   
Dining and fast-food purchases totaling $ ******
   
Groceries totaling $ ******
   
Other debits $ ****** (******)
   
Total debits from card ending ****** $ ******
   
These expenditures remain unexplained and unsubstantiated.
   
Other debits payable to ****** include:
   
Check number ****** dated ****** totaling $ ****** was written by ****** to ****** as the payee which stated in the memo "sponsoring different food services for indigents ******".
   
****** has not provided contemporaneous substantiation or documentation to prove this this expenditure served an exempt purpose.
   
On ****** conducted a bank teller withdrawal totaling ****** $ ******. Per minutes provided by ****** the cash withdrawal was for a purported ****** project. The ****** minutes alluded to a $ ****** donation "to assist individuals and families in ****** during this pandemic."
   
****** has not provided contemporaneous substantiation or documentation to prove this this expenditure served an exempt purpose.
   
****** and ****** mother, ****** (******) also initiated several wire transfers from the ****** account to ******, as seen below.
   
       
   
****** meeting minutes for ****** made reference to the purchase of property for approximately $ ******, "to erect a structure that can be allocated to families in need for a specific period (****** months)." The minutes also hinted at another loan from ******, president of ******.
   
No information was submitted that included specific accounting, contemporaneous receipts, invoices & photo evidence, correspondence between parties of the transactions, documents detailing of what type of assistance was given and how much, to whom the grants were given (including contact information), whether the recipient is a qualified charity or member of a charitable class, follow-up grant reports, and other explanations (who, what, when, where, why, how?)
   
Other unsubstantiated transfers to ****** include a bank transfer on ****** totaling $ ****** (Acct # ending ******). A Customer "image" withdrawal on ****** totaling $ ******.
   
Unsubstantiated Checks include:
   
Checks written to ****** totaling $ ****** for bookkeeping/return preparation. ****** has not provided documentation that the bookkeeping expenditures were solely for ****** or if the payments included bookkeeping fees for ****** other owned businesses.
   
Other unsubstantiated checks include:
   
       
   
Note the other expenditures above ($ ******) includes check number ****** for ****** on ****** payable to ****** mother, board member and disqualified person ******. This expenditure also remains unsubstantiated.
   
The only verifiable expenditures were the $ ****** payments for payroll.
   
       
   
8    Includes purported loans 
   
Review of ****** summonsed bank information for its initial short year ****** (******) and ****** full year, ****** bank accounts (******), revealed ****** 1st transaction conducted was at ******, ******, ******, an all-you-can-eat buffet at the ******. The transactions in ****** and ****** mirrored the exam years' transactions ****** through ******. See attached Exhibit B.
   
****** received a donated van from a public entity and continues to solicit donations from the State of ******, Federal Surplus Program; The Department of Social Service in ******; and ******.
   
 Law    
   
Section 501(c)(3) of the Internal Revenue Code provides for exemption from taxation for organizations "organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or ****** amateur athletic 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..."
   
Regulation Section 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 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."
   
Regulation Section 1.501(c)(3)-1(c)(2) Distribution of Earnings. -- An organization is not operated exclusively for one or more exempt purposes if its net earnings inure in whole or in part to the benefit of private shareholders or individuals. For the definition of the words private shareholder or individual, see paragraph(c) of § 1.501(a)-1.
   
Regulation Section 1.501(a)-1(c) Related Private Shareholder or Individual Defined. -- The words private shareholder or individual in section 501 refer to persons having a personal and private interest in the activities of the organization.
   
Regulation Section 1.501(c)-1(d)(1)(ii) states that "An organization is not organized or operated exclusively for one or more of the purposes specified unless it serves a public rather than a private interest. Thus, to meet the requirement of this subdivision, it is necessary for an organization to establish that it is not organized or operated for the benefit of private interests such as designated individuals, the creator or his family, shareholders of the organization, or persons controlled, directly or indirectly, by such private interests."
   
Section 4958(f) of the Internal Revenue Code - Other definitions
   
(1) Disqualified person
   
The term "disqualified person" means, with respect to any transaction-
   
(A) any person who was, at any time during the 5-year period ending on the date of such transaction, in a position to exercise substantial influence over the affairs of the organization,
   
(B) a member of the family of an individual described in subparagraph (A),
   
(C)a 35-percent controlled entity,
   
(D) any person who is described in subparagraph (A), (B), or (C) with respect to an organization described in section 509(a)(3) and organized and operated exclusively for the benefit of, to perform the functions of, or to carry out the purposes of the applicable tax-exempt organization,
   
(E) which involves a donor advised fund (as defined in section 4966(d)(2)), any person who is described in paragraph (7) with respect to such donor advised fund (as so defined), and
   
(F) which involves a sponsoring organization (as defined in section 4966(d)(1)), any person who is described in paragraph (8) with respect to such sponsoring organization (as so defined).
   
(2) Organization manager
   
The term "organization manager" means, with respect to any applicable tax-exempt organization, any officer, director, or trustee of such organization (or any individual having powers or responsibilities similar to those of officers, directors, or trustees of the organization).
   
Regulation Section 1.6033-2(i)(2) provides that "Every organization which is exempt from tax, whether or not it is required to file an annual information return shall submit such additional information as may be required by the Internal Revenue Service for the purpose in inquiring into its exempt status and administering the provisions of subchapter F (section 501 and following), chapter 1 of subtitle A of the Code...."
   
Rev.Rul 59-95, An organization previously held exempt from Federal income tax was requested to produce a financial statement as of the end of the year and a statement of its operations during such year. However, its records were so incomplete that it was unable to furnish such statements. Section 6033 of the Internal Revenue Code of 1954 provides that every organization, except as provided therein, exempt from taxation under section 501(a) of the Code shall file an annual return, stating specifically the items of gross income, receipts, and disbursements, and shall keep such records, render under oath such statements, make such other returns and comply with such rules and regulations as the Secretary of the Treasury or his delegate may from time to time prescribe. Held, failure or inability to file the required information return or otherwise to comply with the provision 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 an exempt status.
   
Rev.Rul. 56-304, Organizations privately established and funded as charitable foundations which are organized and actively operated to carry on one or more of the purposes specified in section 501(c)(3) of the Internal Revenue Code of 1954, and which otherwise meet the requirements for exemption from Federal income tax are not precluded from making distributions of their funds to individuals, provided such distributions are made on a true charitable basis in furtherance of the purposes for which they are organized. However, organizations of this character which make such distributions should maintain adequate records and case histories to show the name and address of each recipient of aid; the amount distributed to each; the purpose for which the aid was given; the manner in which the recipient was selected and the relationship, if any, between the recipient and (1) members, officers, or trustees of the organization, (2) a grantor or substantial contributor to the organization or a member of the family of either, and (3) a corporation controlled by a grantor or substantial contributor, in order that any or all distributions made to individuals can be substantiated upon request by the Internal Revenue Service.
   
In John Marshall Law School v. U.S., 81-2 U.S.T.C. 9514 (Ct.Cl. 1981), in which the Court found that the Commissioner acted properly in revoking exemption under IRC 501(c)(3) on the grounds of inurement to the controlling officers and their families. The inurement included, but was not limited to, payments to the families as follows: automobile, education and travel expenses, insurance policies, basketball and hockey tickets, membership in a private eating establishment, membership in a health spa, interest-free loans, home repairs, personal household furnishings and appliances, and golfing equipment.
   
Better Business Bureau v. United States, 316 U.S. 279 (1945), holds that the existence of a single non-exempt purpose, if substantial in nature, will destroy the exemption under section 501(c)(3). An organization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities that accomplish one or more of such purposes.
   
In 63-1 USTC ¶9200, Cleveland Chiropractic College, a Corporation, Petitioner v. Commissioner of Internal Revenue, Respondent, --, (Jan. 17, 1963) Affirming Tax Court, 21 TCM 1, Dec. 25,299(M), T.C. Memo. 1962-1 [1939 Code Sec. 101(6)--similar to 1954 Code Sec. 501]--The court found: "A college was not entitled to exemption from corporate income tax for 1948-1951 where part of the net earnings of the college was found to have inured to the benefit of one of its trustees through payment of his personal expenses."
   
In 60-1 USTC ¶ 9371, Birmingham Business College, Inc.; John Ike Griffith; Hulon A. Spears and Audrey Spears; Carl B. Carter and Jewell Carter, and Jewell Carter, Petitioners v. Commissioner of Internal Revenue, Respondent, (Apr. 04, 1960); The court found that: "Taxpayer, an incorporated business college owned and operated by a brother and two sisters, was not a tax-exempt educational... Substantial portions of its net earnings were distributed to its owner-operators for their personal benefit."
   
IRC 6652
   
(c) Returns by exempt organizations and by certain trusts
   
(1) Annual returns under section 6033(a)(1) or 6012(a)(6)
   
(A) Penalty on organization. In the case of-
   
(i) a failure to file a return required under section 6033(a)(1) (relating to returns by exempt organizations) or section 6012(a)(6) (relating to returns by political organizations) on the date and in the manner prescribed therefor (determined with regard to any extension of time for filing), or
   
(ii) a failure to include any of the information required to be shown on a return filed under section 6033(a)(1) or section 6012(a)(6)
   
or to show the correct information, there shall be paid by the exempt organization $20 for each day during which such failure continues. The maximum penalty under this subparagraph on failures with respect to any 1 return shall not exceed the lesser of $10,000 or 5 percent of the gross receipts of the organization for the year. In the case of an organization having gross receipts exceeding $1,000,000 for any year, with respect to the return required under section 6033(a)(1) or section 6012(a)(6) for such year, in applying the first sentence of this subparagraph, the amount of the penalty for each day during which a failure continues shall be $100 in lieu of the amount otherwise specified, and, in lieu of applying the second sentence of this subparagraph, the maximum penalty under this subparagraph shall not exceed $50,000.
   
 Government's Position:    
   
****** failed the operational test of IRC 501(c)(3) on the following grounds:
   
(1) Inurement of the organization's income and assets 
   
Disqualified Persons   
   
****** and ****** are disqualified persons with respect to ******. Both are organizational managers that possess signature authority and debit cards over ****** bank account; and control the affairs ******. ****** and ****** are also disqualified persons, as they serve on ****** board of directors, which constitute organizational managers. They were also able to exercise substantial influence over the affairs of the organization. ****** is also a disqualified person by being a family member (Ancestor) to ******.
   
****** earnings inured to the benefit of its disqualified persons and private shareholders ****** and ******. ****** operates to fund their gambling habits, personal entertainment, buffets, travels, and other personal purposes.
   
Analysis of the bank records reveals the total economic benefit provided to ****** by ****** was $ ****** during the ******-year period. These expenditures were personal in nature and did not serve any exempt purpose and constitute inurement:
   
       
   
The total economic benefit provided to ****** by ****** was $ ****** during the ******-year period (inclusion of the year ****** to capture forgiven loan). These expenditures were personal in nature and did not serve any exempt purpose:
   
       
   
Checks, transfers and other debits for the benefit of ****** include but not limited to:
   
******: check numbers ******, ******, and ****** for property maintenance, repairs and cleaning totaling $ ******; a teller withdrawal totaling $ ******; Check numbers ******, ******, ****** totaling $ ****** for bookkeeping/ return preparation; miscellaneous unexplained checks deemed personal ****** & ****** totaling $ ******
   
******: check number ****** totaling $ ****** for property repairs; check numbers ****** and ****** totaling $ ****** for purported rent payments; online banking transfer & check numbers ******, ******, ****** consisting of unsubstantiated payments / ****** distributions of ****** funds to ****** totaling $ ******, check numbers ******, ******, ******, ****** totaling $ ****** for bookkeeping / return preparation; unexplained and unsubstantiated checks ****** & ****** totaling $ ******
   
******: Teller cash withdrawals totaling $ ******, online bank transfers totaling $ ******; check numbers ******, ******, ******, ******, ******, ******, ******, ******, ******, ******, ******, ******, ******, ** ******, ******, ****** totaling $ ****** for bookkeeping / return preparation; unexplained checks ******, ******, ******, ****** totaling $ ******; Check number ****** totaling $ ****** consisting of a distribution to ******
   
******: Teller cash withdrawals totaling $ ******, online bank transfers to account # ending ******, totaling $ ******; wire transfers to ******, totaling $ ******; check numbers ******, ******, ******, ******, totaling $ ****** for bookkeeping / return preparation; withdrawals and checks, numbers ******, ******, ******, totaling $ ****** for cable/internet; unexplained checks ******, ******, ******, ****** totaling $ ******; Check number ****** totaling $ ****** consisting of a distribution to ******
   
Total Benefits to ****** which constitute inurement:
   
       
   
9    Includes Loan Forgiveness of $ ****** 
   
The Combined economic benefit provided to   ******'s disqualified persons totals $ ****** (****** - ******, includes loan forgiveness).
   
The organization's total expenditures (including loans issued) for ****** through ****** was $ ******. The only verifiable expenditures were professional / legal fees paid to ****** current representative, the ****** / ******, totaling $ ******, and payroll amounts (Total $ ******) to ****** and ******. The total inurement of ****** income and assets by the disqualified persons' equals 10  *** % during ****** - ******.
   
10    [$ ****** - $ ****** = $ ******] $ ****** / $ ****** = ****** % 
   
****** and ****** received improper economic benefits from ****** transactions over the course of ******, ******, ******, & ******. They used funds for personal purposes unrelated to furthering an exempt purpose. The expenditures were not remuneration for the performance of services as the exam concluded that ****** did not conduct any activities. Furthermore, ****** did not file any Forms W-2 or 1099- Miscellaneous. ****** reported on both Forms ****** and ****** that no compensation would be paid to the disqualified persons. There is no other evidence, contracts, agreements or claims to suggest these expenditures were consideration for the performance of services.
   
In addition to the gambling & entertainment, buffets, travel, groceries, transfers and dividend type distributions, loan forgiveness, and other personal items, the inurement includes checks written to family members - disqualified persons ****** for repairs of ****** personal and business properties. ****** does not own any property, nor does it engage in any activity that would warrant such expenditures.
   
The bank transfers and dividend type distributions conducted in ****** and ****** are not loans or payments for charitable endeavors. For instance, the ****** $ ****** check written to ****** clearly stated these funds were owed to ****** as the check memo stated, "amount owed after account reconciliation". Furthermore, the ****** and ****** cash withdrawals totaling $ ****** and $ ****** respectively, nor the wire transfers totaling $ ****** to the ****** during ******, constitute charitable expenditures as the exam concluded the ****** is a sham organization conducting no charitable activity.
   
****** has not provided contemporaneous substantiation or sufficient documentation to show these expenditures served an exempt purpose. ****** provided no evidence that it exercised any expenditure responsibility regarding these purported foreign charitable grants. ****** did provide board approval minutes and generic donor acknowledgement letters from "******", or any other source. The acknowledgement letters submitted, fail the substantiation requirements based on the following information:
   
- The letters were dated ****** and ******, ****** months before the $ ****** withdrawals occurred.
   
- The letters do not specify ****** as the donor the donor.
   
- The letters do not specify what was given and how, why and when ******
   
****** did not provide expenditure responsibility or other substantiation, such as line-by-line accounting, contemporaneous receipts, invoices & photo evidence, descriptions of the type of assistance given, to whom, evidence that the recipients are of a charitable class or is a qualified charitable organization.
   
****** Board of Directors are 'in name only' because the Board is complacent and does not exercise fiduciary care because they allowed and failed to prevent the inurement of ****** assets by ****** and ******. The board also failed to compel accounting and expense authorization from ****** and ******. Furthermore, the Board of Directors also participates in the inurement of ****** assets, as of ****** board members received unsubstantiated payments from ****** during the exam period that was not reported on ****** Forms ******.
   
The $ ****** cash withdrawals conducted by ****** constitute inurement of ****** income and assets, and the acknowledgement letters and board approval are false attempts to legitimize the inurement.
   
The inurement of ****** income and assets is exacerbated further by the fact that ****** has attempted to pass off these personal expenditures as legitimate expenses; aimed at serving ****** purported mission to clothe and feed the ******. ****** has not provided substantiation that the bookkeeping and return preparation were exclusively for ****** as opposed to his personal for-profit entities. As a result, bookkeeping and tax return preparation expenditures are also deemed personal.
   
The Revenue Agent attempted to get further clarification from ****** as to how its expenditures, which appeared highly personal in nature, served to further tax-exempt purposes. ****** responses ranged from wholly unbelievable to obstructionist. For example, in one response, ****** claimed that the numerous cash withdrawals ****** and ****** conducted at casinos were for "yard sales". In a separate response to the Revenue Agent's requests for detailed information on the ****** patients that ****** helped support, the organization simply replied, "Absolutely not."
   
****** paid $ ****** in 'rent' expense during ******, yet ****** inexplicably produced a rental agreement 11  stating ****** would not charge ****** rent. ****** Form ****** and Forms ****** reported $ ****** in occupancy expenditures. The exam of ****** concludes that it only operates to serve ****** and ****** and does not engage in any activity to support the rental expense paid by ****** to ****** is a valid expense. The rent expense is an improper payment and constitutes inurement.
   
11    In initial IDR 1 response for the ****** year. 
   
The disqualified persons siphoned nearly *** % of ****** funds for the years ******, ******, & ******. This constitutes inurement and is explicitly prohibited in IRC Code Section 1.501(c)(3)-1(c)(2), Distribution of Earnings.
   
****** operated like the organizations described in ****** and Better Business Bureau. Those organizations were revoked due to inurement in the form of various improper payments to the controlling officers and their families.
   
The continued and constant inurement of ****** assets demonstrate that there is no accountability, internal controls or safeguards in place to protect ****** assets. There is no independent board oversight preventing the commingling and inurement of the organization's funds and assets. The board of directors is comprised of all family members who also participate in the inurement (to a lesser degree).
   
(2)  ****** has not engaged in any exempt activity during its entire existence.
   
****** expenditure incurred was in ******, which was a $ ****** expenditure at the ****** in ******, ******, for an all-you-can eat buffet located in the ******. ****** transactions from ****** through ****** mirrored the inurement transactions of ****** - ******. The Internal Revenue Service requested that the organization provide specific information about its activities during the years ending ******, ******, ******, & ******. ****** has refused to provide information on its charitable activity and has refused to show its transactions served an exclusive charitable purpose.
   
****** will not identified any individuals it purportedly assisted, nor will it describe a selection process used to screen and award a potential candidate. ****** did not provided verification documents, or organizational policies describing its selection process. ****** does have a website to advertise its services and is not located or referenced in any online directory as a provider ****** assistance.
   
****** attempted to circumvent the substantiation requirement by falsely claiming it is a HIPAA covered entity subject to HIPAA's disclosure and confidentiality rules. However, ****** is not a covered healthcare provided under HIPAA because it does not furnish, bill, or receive payment for healthcare, nor does it transmit (send) any covered transactions electronically in the normal course of business. More importantly, ****** has not satisfied the record keeping requirements of Rev.Rul. 56-304.
   
As required by Revenue Ruling 56-304, the organization did not provide any records to show that it continues to operate for exempt purposes; and has failed to comply with the provision of section 6033 of the Code. An exempt organization must respond to Internal Revenue Service inquiries to establish that it is entitled to tax exempt status. In this case, the organization did not provide adequate records to show it was operated exclusively for exempt purposes. The primary position outlined above further demonstrates that the organization's assets inured to its private shareholder.
   
Despite ****** not conducting any charitable activity and transferring exclusively all of its assets to ****** and ******, ****** as president of the ****** continues to solicit donations from the State of ******, ****** falsely claiming the ****** is engaged in charitable activity; The ****** in ******, ******; and ******.
   
****** has operated as a sham charity since inception.
   
Penalties under 6652(c)(1)(A)(ii)   
   
Part III, Statement of Program Service Accomplishments
   
****** reported its primary exempt purpose was to "provide crucial resources to the elderly, disable and displaced persons in our local community and in ******. Such crucial resources are foods [sic], clothing, and transportation assistance to doctor's visits
   
****** reported on Line 28 and Line 4 (Form ******, ******) that it provide food and clothing to over ****** people in both ****** and in ******: $ ******, $ ******, $ ****** & $ ****** for the respective ******, ******, ******, and ****** years.
   
Line 29 reported that ****** provided transportation assistance for doctor's visits - blank (******), $ ****** & $ ****** for the respective ******, ****** and ****** years.
   
Line 30 reported that ****** provided medical equipment to the sicks [sic] - and did not quantify the amounts.
   
****** attached Schedule O, Supplemental information, to its ****** and ****** Form ****** which listed the following "other" expenditure explanations and its "other asset":
   
       
   
This reporting on the Form ****** is false. None of ****** activities or ****** expenditures during ******, ******, ******, and ****** served a tax-exempt purpose, rather, its income and assets inured to the benefit of the insiders ****** and ******.
   
Part IV, Officers Directors, Trustees, Key Employees
   
The organization reported the governing body as follows:
   
       
   
This reporting on the Form ****** is False. The total benefit provided by the organization to the disqualified persons was substantial and included payroll (******) to ****** of $ ****** during the ******-year exam period.
   
Part VI, Other Information
   
****** checked negatively "No" to the following questions:
   
Line 33, "did the organization engage in any significant activity not previously reported to the IRS? If Yes, provide a detailed description of each activity in Schedule O."
   
This reporting is false because ****** did not disclose to the Service that it exclusively served the benefit of the founders.
   
Line 38(a) asked, "did the organization borrow from, or make any loans to, any officer director, trusted, or key employed or were any such loans made in a prior year and still outstanding at the end of the tax year covered by this return? (b) if yes, complete Schedule L, Part II and enter the total amount involved."
   
Schedule L was not attached to the ****** - ****** Forms
   
Line 40 (b) asked "Did the organization engage in any section 4958 excess benefit transaction during the year, or did it engage in an excess benefit transaction in a prior year that has not been reported on any of its prior Forms ****** or ******? If yes, complete Schedule L, Part I."
   
This reporting is false because the exam determined that ****** did engage in excess benefit transactions under 4958 during all years with its disqualified persons. Schedule I was not attached to the ****** - ****** Forms ******, or Form ****** for ******.
   
 Taxpayer's Position:
   
The organization has not submitted its position.
   
 Conclusion:
   
Revocation of ****** tax-exempt status under 501(c)(3) is proposed because (1) the assets inured to the organization's disqualified persons ****** and ****** and (2) ****** has not conducted any charitable or exempt activity (since inception) and failed to failure to provide records to the Service regarding its expenditures. Exemption under Code section 501(c)(3) for ****** should be revoked retroactively effective ******. The organization is required to file Forms ****** for all taxable years.
   
****** has failed to show the correct information on its Forms ****** or Form ******, as required by section 6033(a)(1) for the years ending ****** through ******. The organization has not established reasonable cause and is therefore liable for penalties described under IRC Sec. 6652(c)(1)(A)(ii). The penalty prescribed by §6652(c) of $ ****** per day will be utilized for computational purposes as the organization has received less than $ ****** in gross receipts during each of the years.
   
       
   
12    Report date 
   
Exhibit A   
   
DESCRIPTION OF SERVICES BY THE ******   
   
We are well aware that ****** has a ****** and ****** crisis. These people are left to live in the streets, sleeping on street side walks and park benches while the government continues to scramble for solution for many years.
   
Since, its establishment in ******, ****** have partnered with many hospital discharge planners and owners of independent living houses especially in ****** and ******. These independent living houses independently may house ****** to ****** individuals and or families for a short time following hospital discharge, preventing them from being discharged to a ****** shelter. There are at least ****** independent living houses operating in ****** and they have sheltered over ****** people since ******. While shelter is provided, these house owners are not always able to meet the needs of these individuals and requires assistance from organizations such as the ****** to provide meals and assistance to individuals until they are able to secure their own housing, transportation and financing. Here are a few addresses that have been supported by our organization since ******;
   
       
   
Explanation of how ****** decide to help:   
   
Board members of ****** have a relationship with the community house owners and managers who identify independent living homes in the community. Known to our organization, independent living homes houses people of low income as well as no income. Due to this income deficiency, multiple adults share a living space so they can share the expenses and this leaves them little or nothing to survive on. ****** will provide these individuals food, transportation and sometimes pay a small fee for individuals to allow them to reside in certain homes for a short period of time until their financial restrictions are lifted.
   
Criteria for Helping those in Need:   
   
Before individuals ate accepted into independent living houses, their incomes are verified by hospital case managers as well as house owners and managers. Keep in mind that the average monthly payment by the state of ****** for ****** persons are $ ****** which they are expected to pay for housing, food and maintenance.