Private Letter Ruling
Number: 202052039
Internal Revenue Service
December 10, 2019
   
   
   
DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
1100 Commerce Street, MC 4920DAL
Dallas, TX 75242
   
TAX EXEMPT AND GOVERNMENT ENTITIES DIVISION
   
Date: December 10, 2019
   
Number: 202052039
Release Date: 12/24/2020
   
UIL: 501.03-00
   
EIN:
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 section 501(a) of the Internal Revenue Code (the "Code") as an organization described in section 501(c)(3), effective January 1, 20XX. Your determination letter dated August 4, 20XX is revoked.
   
Our adverse determination as to your exempt status was made for the following reasons:
   
You failed to respond to repeated reasonable requests to allow the Internal Revenue Service to examine your records regarding your receipts, expenditures, and activities as required by sections 6001 and 6033(a)(1) of the Code and Rev.Rul. 59-95, 1959-1 C.B. 627. You also did not respond to questions about the nature of your activities.
   
Accordingly, you failed to meet the requirements of section 501(c)(3) of the Code and Treasury Regulation section 1.501(c)(3)-1(a), in that you have not established that you are operated exclusively for exempt purposes and that no part of your net earnings inures to the benefit of private shareholders or individuals.
   
Organizations that are not exempt under section 501 of the Code 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 section 170 of the Code.
   
If you decide to contest this determination, you may file an action for declaratory judgment under the provisions of section 7428 of the Code 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., 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 section 7428 of the Code.
   
We'll notify the appropriate state officials (as permitted by law) of our determination that you aren't an organization described in section 501(c)(3) of the Code.
   
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 questions, you can contact the person listed at the top of this letter.
   
Sincerely,
   
Maria D. Hooke
Director, EO Examinations
   
Enclosures:
Publication 892
   
   
   
Department of the Treasury
Internal Revenue Service
   
Date:
July 1, 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 of State Website
Publication 892
Publication 3498-A
   
   
   
                          
   
Date of Notice: July 1, 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 to verify that they are organized and operated exclusively for one or more of the purposes specified in IRC Section 501(c)(3)?
   
Facts:
   
******* applied for tax-exempt status by filing the Form 1023-EZ, Streamlined Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code, 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-N for the tax year December 31, 20XX.
   
The organization has not filed a Form 990 series return for the tax year December 31, 20XX.
   
The Form 1023-EZ application list the phone number of 772-462-1071 for the contact person and director/treasurer.
   
Per the State of ******* web-site, it lists the organization as in good standing, 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 November 19, 20XX, with a response date of December 19, 20XX. This letter was not return by the post office as being undeliverable.
   
o Letter 3606 (Rev. 6-2012) with attachments, was mailed certified to the organization again with a more complete address including the room number on February 1, 20XX, with a response date of March 4, 20XX, Article Number *******. Per the United States Postal Service (USPS) tracking, this was received and signed for on February 11, 20XX at 11:23 am.
   
o Letter 5798 (10-2016), granting 1 ST  extension, was mailed to the organization, on April 2, 20XX, with a respond date of April 16, 20XX. This letter was not return by the post office as being undeliverable
   
o Letter 5077-B (1-2017), TE/GE IDR Delinquency Notice, was mailed certified to the organization, on May 22, 20XX, with a respond date of June 12, 20XX, Article Number *******. This letter was signed for on May 28, 20XX and a return receipt was received on June 4, 20XX.
   
- Telephone contact for the audit was as follows:
   
o December 4, 20XX, Tax Compliance Officer (TCO) called the phone number listed on the Form 1023-EZ application for the Director/Treasurer of the organization of 772-462-1071 and received VMS. Left a message for an officer of the organization to return my phone call.
   
o Government shutdown from December 21, 20XX through January 25, 20XX.
   
o January 30, 20XX, Tax Compliance Officer attempted to contact Director/Treasurer again with phone number given on the form 1023-EZ. That number is no longer a working number. Through external research located a few different phone numbers for different officers, including the Director/President, *******, another Director/President, ******* and the Director/Secretary, *******. I had to leave a voice message with each phone number.
   
o January 31, 20XX, TCO received a phone message from a *******, who indicated she is the current Treasurer of the organization. She indicated the organization did not receive the initial letter 3606 letter with attachments. She asked to add the room number ******* to the address and they should get the letter. I explained we would reissue the initial letter for their response.
   
o February 21, 20XX, TCO had not received any call back indicating the treasurer receive our letter. I left a voice message on the treasurer's phone number *******.
   
o March 6, 20XX, TCO still had not received a call back from the treasurer of the organization. TCO called the phone number for the treasurer again, ******* and was able to reach the secretary. She indicated she had received the letter 3606 (Rev. 6-2012) and had not had time to respond to all that we had requested. She thought by the next week she would have an idea when she would have it completed.
   
o March 18, 20XX, TCO still had not received response nor call back from the treasurer of the organization indicating when they would/did respond. TCO left another voice message with the treasurer, ******* asking for the status of the organization's reply.
   
o March 27, 20XX, still no reply from the secretary or organization in response to the letter sent out or several phone messages left. Located work number for the treasurer and left a voice message there as well to have secretary call.
   
o April 2, 20XX, TCO was able to reach the treasurer of the organization. She said she had been too busy to respond to our request. I gave her a 10-work day time to respond and she said she would get it done and fax me the information.
   
o April 19, 20XX, the treasurer of the organization called to get our address to mail us the information since it was too large to fax. She indicated she would put information in the mail later today or no later than Monday, April 22, 20XX.
   
o May 1, 20XX, still no reply in the mail. TCO called and reached the treasurer of the organization again. She wanted to go over all the information once again to see what we needed, which makes the appearance the organization has yet to put together the information we have requested for so long. Once again, the secretary said she would fax the information to the TCO within the next day or two.
   
o May 9, 20XX, with the information from the organization being pass due the TCO called the treasurer once more and had to leave a voice message.
   
o May 14, 20XX, after leaving another message on the treasurer's phone she called back indicating she faxed the information to us on *******. After checking the E-faxes, the TCO told the treasurer that no such fax was received. The treasurer had a meeting to attend and would re-fax the information to us after the meeting.
   
o May 17, 20XX, no E-fax was received by the TCO for this organization's response to our audit. The TCO called and left a message to contact him as soon a possible or procedures for revocation would be started.
   
o June 6, 20XX, the TCO made one last attempt to contact the treasurer before sending the Letter 3618 (6-2012) 30-day proposed revocation. TCO left a voice message that has not had a response.
   
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.