Private Letter Ruling
Number: 202402011
Internal Revenue Service
October 19, 2023
   
   
   
Department of the Treasury
Internal Revenue Service
Independent Office of Appeals
   
Release Number 202402011
Release Date: 1/12/2024
UIL Code: 501.08.00
   
Date: OCT 19 2023
Person to contact:
Name:
Employee ID Number:
Phone:
Fax:
Hours:
Employer ID number:
Uniform issue list (UIL):
0501.08-00
   
Certified Mail
   
Dear ******:
   
This is a final adverse determination that you do not qualify for exemption from federal income tax under Internal Revenue Code (the "Code") Section 501(a) as an organization described in Section 501(c) of the Code.
   
We have hereby revoked the favorable determination letter to you dated ****** and you are no longer exempt under Section 501(a) of the Code effective June 1, 2018.
   
We made the adverse determination for the following reasons:
   
Organizations exempt from tax under section 501(c)(8) of the Internal Revenue Code must be fraternal beneficial societies, operated under the lodge system, which provide life, sick, accident, or other benefits to their members or their dependents. See Treas.Reg. § 1.501(c)(8)-1(a). You have not demonstrated that you are a fraternal organization, or that you provide life, sick, accident or other benefits required by I.R.C. § 501(c)(8). Further, you have not kept sufficient records to establish that you are observing the conditions of your tax-exempt status. See Treas.Reg. § 1.6033-1; Rev.Rul. 59-95.
   
Contributions to your organization are not deductible under Section 170 of the Code.
   
You're required to file federal income tax returns on Forms 1120, U.S. Corporation Income Tax Return. Mail your form to the appropriate Internal Revenue Service Center per the form's instructions. You can get forms and instructions by visiting our website at www.irs.gov/forms  or by calling 800-TAX-FORM (800-829-3676).
   
You've agreed to waive your right to contest this determination under the declaratory judgment provisions of Section 7428 of the Code.
   
We'll make this letter and the proposed adverse determination letter available for public inspection under Section 6110 of the Code after deleting certain identifying information. We provided to you, in a separate mailing, Notice 437, Notice of Intention to Disclose. Please review the Notice 437 and the documents attached that show our proposed deletions. If you disagree with our proposed deletions, follow the instructions in Notice 437.
   
If you have questions, contact the person at the top of this letter.
   
Sincerely,
   
Valeria B. Farr   
   
Valeria B. Farr
Appeals Team Manager
   
Enclosures:
IRS Appeals Survey
   
   
   
Department of the Treasury
Internal Revenue Service
Tax Exempt and Government Entities
   
Date:
04/11/2022
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:
05/11/2022
   
CERTIFIED MAIL Return Receipt Requested
   
Dear ******:
   
Why you're receiving this letter   
We enclosed a copy of our audit report, Form 886-A, Explanation of Items, explaining that we propose to revoke your tax-exempt status as an organization described in Internal Revenue Code (IRC) Section 501(c)(8).
   
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)(8) for the periods above.
   
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,
   
Lynn Brinkley
Director, Exempt Organizations Examinations
   
Enclosures:
Form 886-A
Form 6018
Form 4621-A
Pub 892
Pub 3498
   
   
   
                          
   
 ISSUES:
   
Whether the ****** exempt under a group ruling as 501(c)(8) should be removed from the group exemption due to its failure to respond and produce records.
   
 FACTS:
   
The ****** (hereafter referred to as the ****** "******") is an Association. The ****** is a subordinate exempt under an IRC 501(c)(8) group ruling with the central organization being the ******. The ****** is classified as an IRC 501(c)(8) Fraternal Beneficiary Society/Association. Its prior subsection classification was an IRC 501(c)(10) Domestic Fraternal Society & Association.
   
Per the ****** Form ******, it is operated for the purpose of providing charitable donations.
   
After previously responding and communicating with the Internal Revenue Service, as of ******, the ****** has completely stopped verbal and written communication in connection to the examination of the Form ****** for the tax year ending ******. As a result, the ****** has failed to provide all the requested documents required to conduct and conclude the examination.
   
Exhibit A (below)  provides a list of the Internal Revenue Service's correspondence or phone contact made to the ****** requesting that it provide information pertaining to its Form ****** for the year ending ******.
   
Summary of Exhibit A
       
   
       
   
       
   
As demonstrated on Exhibit A, the ****** has failed to meaningfully respond to the Internal Revenue Service's correspondence requests for information pertaining to the Form ****** for the tax period ending ******.
   
 LAW:
   
501(c)(8)   
-- Fraternal beneficiary societies, orders, or associations--
   
501(c)(8)(A)
-- operating under the lodge system or for the exclusive benefit of the members of a fraternity itself operating under the lodge system, and
   
501(c)(8)(B)
-- providing for the payment of life, sick, accident, or other benefits to the members of such society, order, or association or their dependents.
   
Reg. 1.501(c)(8)-1  provides that a fraternal beneficiary society is exempt from tax only if operated under the lodge system or for the exclusive benefit of the members so operating. Operating under the lodge system means carrying on its activities under a form of organization that comprises local branches, chartered by a parent organization and largely self-governing, called lodges, chapters, or the like. In order to be exempt, it is also necessary that the society have an established system for the payment to its members or their dependents of life, sick, accident, or other benefits.
   
IRC § 6001  provides that every person liable for any tax imposed by the IRC, or for the collection thereof, shall keep adequate records as the Secretary of the Treasury or his delegate may from time to time prescribe. Whenever necessary, the Secretary may require any person, by notice served upon that 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 that person is liable for tax.
   
Treas.Reg.§ 1.6001-1(a)  in conjunction with Treas.Reg.§ 1.6001-1(c) provides that every organization exempt from tax under IRC § 501(a) and subject to the tax imposed by IRC § 511 on its unrelated business income must keep such permanent books or accounts or records, including inventories, as are sufficient to establish the amount of gross income, deduction, receipts, disbursements, or other matters required to be shown by such person in any return of such tax. Such organization shall also keep such books and records as are required to substantiate the information required by IRC § 6033.
   
Treas.Reg. § 1.6001-1(e)  states that the books or records required by this section shall be kept at all times 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.
   
IRC § 6033(a)(1)  provides, except as provided in paragraph (3), 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.
   
Treas.Reg § 1.6033-1(h)(2)  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 IRC § 6033.
   
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 IRC § 6033 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.
   
 TAXPAYER'S POSITION:
   
Due to the lack of response, the ****** position is unknown. No formal position has been provided by the ******.
   
 GOVERNMMENT'S POSITION:
   
In accordance with the above cited provisions of the Code and regulations under IRC §§ 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 return (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.
   
The ****** has been contacted on numerous occasions both verbally and in writing. The ****** had replied sporadically with incomplete responses. However, as of ******, the ****** has ceased communication with the Government. Repeated attempts to contact the ****** have gone unanswered. With the latest attempt being made on ******, with the issuance of the Initial Report. The ****** again provided no response by the due date. As such, the Government has been unable to conduct or determine the following:
   
- Organizational status as that of a 501(c)(8) Fraternal Beneficiary Society/Association
   
- Initial interview to determine if the activities performed by ****** are those of a 501(c)(8) exempt organization
   
- The ****** gaming and bar operations and related income and expenses
   
- The ****** financial position
   
Hence, the Government cannot make a determination as to the ****** operations and activities are that of a 501(c)(8); existence of any applicable tax liabilities; and as to whether any other information return filings are required.
   
Due to the ****** failure to meaningfully respond and provide information, the ****** has not established that it is observing the conditions required for the continuation of its exempt status. The ****** has not established that it is organized and operated exclusively for an exempt purpose.
   
 CONCLUSION:
It is the IRS' position that the ****** 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)(8). Furthermore, the ****** 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 ****** is hereby removed from the group exemption effective ******.