internal_revenue_service ltpae sif gf-e0 te_ge technical_advice_memorandum te b lf taxpayers name taxpayers address taxpayers id no years involved conferences held legend v t r dollar_figure u city1 city2 city3 landlord d b c e g e h j k l m n p q issues was b c’s former president executive director and founder an sec_4958 disqualified_person in and years forward - was b an sec_4958 organization_manager with respect to c in and years forward is any part of the dollar_figure salary paid to b in an sec_4958 excess_benefit to b is any part of the dollar_figure' payment back pay from and severance_pay to b in an sec_4958 excess_benefit to b were c's repayments of undocumented loans by b an sec_4958 excess_benefit to b were payments to e towing company in excess of the fair_market_value an sec_4958 excess_benefit to b d and e was the value of the auto fumished to b an sec_4958 excess_benefit to b was the value of autos fumished to b's wife b's daughter and d an sec_4958 excess_benefit to b does c's payment of dollar_figure excess_benefit to b does c's payment of dollar_figure excess_benefit to b for alleged loan payments to b constitute an irc to b's corporation g constitute an sec_4958 does c's payment for rent on property leased and used by b and d constitute an sec_4958 excess_benefit to b was c's payment to h for insurance an sec_4958 excess_benefit to b should sec_6684 penalties be assessed against b is b subject_to the organization_manager tax under sec_4958 was b a promoter of a tax_shelter under irc misstatements under ibc ponsees 18mm teen ae did b make or participate in making false fraudulent or gross valuation if so is b liable for sec_6700 penalties facts the following facts have been collected by the agent from statements made by members of c's board_of directors and c’s records currently under the control of those directors because this memorandum concerns the tax_liability of b and the fact that many records were created and maintained by b and under the control of b the agent also made attempts to collect information from b on many occasions by phone correspondence and in person these facts and the analysis that follows takes into consideration the fact that b has been given the opportunity to respond both orally and in writing to the many questions conceming the actual operations of c cis a tax exempt entity that is recognized as exempt under sec_501 of the internal_revenue_code b who was a used car salesman created c the purpose of c is to allow individuals to donate their used vehicles for a tax deduction and at the same time choose the nonprofit charity they wanted the proceeds to be sent to if the donors do not designate a charity the proceeds go into a general fund the general funds after expenses are then distributed to various charities and social service organizations within the community c’s exemption_letter states that the determination is based on evidence that c's funds are dedicated to the purpose listed in sec_501 of the code to assure c's continued exemption c should keep records to show that funds are spent only for those purposes c’s articles of incorporation state n o part of the net_earnings of the corporation shall inure to the benefit of or be distributable to its members trustees officers or other private persons except that the corporation shall be authorized and empowered to pay reasonable_compensation for services rendered and to make payments and distributions in furtherance of the purposes set forth in this article c operated on the same premises as f f is a used car lot owned by d the son of b and operated for a time prior to date and continuing from date through at least date at j c used this lot to sell its donated vehicles to the public along side vehicles offered for sale by f in date c began auctioning vehicles at a second location c’s original board_of directors consisted of b c’s founder b's wife b’s father-in-law and a cpa at all relevant times from incorporation until date b was president executive director and in control of c's activities b stated there were four or five board_of directors' meetings they met in person in c’s office directors also discussed things over'the phone according to b they kept fninutes which hé left with’ c according to the new officers of c they do not have copies of the minutes for and the cpa the only non-family member director resigned on date agent secured a copy of the cpa's resignation letter which stated that the thirteen checks he reviewed were enough to cause loss of c' sec_501 status even after he explained to b that no part of any of c’s revenues may inure to any private_shareholder_or_individual as this will cause the loss of exemption b continued with the same pattern of conduct additionally the cpa indicated that no board meetings were held while he served as a board member lo approximately two months before the agent did his on site examination relinquished his position as president and executive director of c and completely and commensurately disbanded the old board_of directors the examination findings respecting c's car donation program disclosed that individual donors took charitable deductions greater than the fair_market_value of the donors’ vehicles in and part of c provided donors with only the retail kelley blue_book value in writing along with a signed form_8283 c did not provide the loan or trade-in value even though some of the vehicles were not able to be driven and were sold for scrap the following is a list of transactions between c and b and b's family b claims that he loaned c at’ interest for start-up costs however there is no written documentation of any such loan neither c nor b provided the agent with a copy of a loan agreement between b and c b admitted that there is no wnitten loan agreement for this loan additionally neither c nor b provided the agent with a copy of any loan agreement between c and any other party there is no record of a resolution of the board_of directors respecting any loan from b or any other party c's form_990 signed by b reports a dollar_figure trustee or key_employee page line however on schedule a part ill question 2b c answers no to the question of whether a loan was made with a trustee director officer key_employee or member of their family additionally no interest_expense was reported on page line loan from an officer director c's form_990 signed by l reports a beginning balance of dollar_figure and an _ending balance of dollar_figure employee page line however on schedule a part ill question 2b c answers no to the question of whether a loan was made with a trustee director _ fa loan from an officer director trustee or key officer key_employee or member of their family additionally no interest_expense was reported on page line _ that purportedly correspond with these alleged loans one dated with the notation - f loan one dated for dollar_figure c supplied records that show three carbon copies of deposit slips totaling dollar_figure- for dollar_figure notation g loan and one dated for dollar_figure the three deposit slips do not have a bank stamp acknowledging that the deposits actually were made _ deposit slip the word loan is written in ink on the carbon copy the with the with the notation g on the ageni‘s analysis of c's bank statements indicates deposits of dollar_figure made in the month of july additionally there were expenses tor loan payback’ in the amount of dollar_figure _ were o c has also supplied a spreadsheet that is purportedly a payback schedule of these alleged loans containing dates amounts interest charges and balances this schedule indicates an interest rate of dollar_figure additionally the schedule shows amounts of dollar_figure this schedule indicates an overpayment of dollar_figure evidence to show that this schedule was made contemporanously as checks were being issued and credits for autos transferred with a value of dollar_figure as interest -or dollar_figure’ as of there is no this schedule lists payments of checks executed by b and drawn on c's bank account with various notations related to loan payable date payee e g q b g b b cash forb forb amount dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure --5 wo of these checks totaling dollar_figure company owned by b- q is a third paity whose relatioriship to’ b or c is unknown _ on the same day b another payment was a check written for cash for dollar_figure were issued to g g was a floor_plan _ issued a check payable to u in the amount of dollar_figure indicated that b bought land in k for his personal_use with these funds the new trustees in a letter to cpa dated date b stated tlhe fact remains that c owes me money and from time to time as it can afford it will be paid back the money owed me am charging c no interest and am doing this simply because want c to be a success neither b nor c have provided any other documentation evidencing a loan no promissory note or other evidence_of_indebtedness no record of the rate and amount of interest no evidence of any security or collateral and no fixed maturity_date while there were some records of alleged repayments by c to b the repayments and the records were sporadic haphazard and informal cc paid e towing company dollar_figure profit towing company created in date by d the son of b in1998 ands in e is a for- the new trustees state that they do not use e towing services anymore because it is too expensive d never did towing until his father began operation of c the new trustees’ towing services are approximately _ less than e's towing fees the new _ trustees use three different towing companies and companies put bids in for their services b as president and executive director of c never requested any written bids for towing services he just assigned the towing service to his son d agent noted that at the beginning of c’s car donation program in september and october of c used another towing company which charged dollar_figure city1 area compared to dollar_figure for a tow in the that d was charging for a tow in the city1 area in e towing services received various advances on towing which outside towing services would nat have received in some instances e charged c two towing charges - one to tow the vehicle to one c lot then another to tow the same vehicle to c’s other fot according to the new trustees c provided a leased at a cost of dollar_figure per month to b there was no accountability for_the_use_of this vehicle and the personal_use of this vehicle was not reported on either a form_w-2 or according to the new trustees a drove b’s daughter a c part-time_employee drove a donated dx c spent money to fix these vehicles that were used by family members of b car was donated to c which b's wife l the officer manager of c in and stated that no accounting forthe’ autos verbally or in writing was ever given l also did not know if c's or board_of directors approved the personal_use of the autos l did not attend any meetings nor did l see any minutes indicating any board directive or approval for use of these vehicles as far as the current officers know these were simply unaccounted for benefits given by c to b and his family o drove a that was donated to c there was no accountability for_the_use_of this vehicle and the personal_use of this s vehicle was not reported on either a form_w-2 or arental agreement between landlord and f b and d for the year period beginning february was executed for the property located at j c is not a party to this lease b stated there was no written sublease agreement between f b d and c and ending on january os e operated out of this location prior to july also was located at the same property durir stated that during the years of to three quarters of the property the amount of space utilized by f or c could vary from day to day additionally e f was provided space to accommodate two car carrier roll backs both of which have an overall length of feet and one four car carrier that has the overall length of about feet the date of c’s incorporation e c’s current board f at various times could have had up __- and and examination findings disclosed that c paid landlord dollar_figure dollar_figure payments made to c from f e b or d for reimbursement of the rents paid_by c for rent on this property c's records indicate that there were no and in’ in examination of c for the year ended on date disclosed the following there were no minutes kept by b the former president and executive director for and when the new board_of directors took over in february of they had monthly meetings and minutes were kept the new board_of directors are name m n l title president also the auctioneer vice-president secretary -treasurer dn acc cenee cee lewenens oe dustee trustee r anew date joined board tt ee l was c's office manager and n was an employee of c when b was the president and executive director of c in february of when b resigned l n and m were appointed to the board_of directors and officers of c l and n also formed a partnership while they served as secretary -treasurer and vice-president of c the purpose of the partnership was to consult with charities in the car donation program there was no documentation to support an agreement between the partnership and c in and l and n received forms w-2 for their compensation from c in forms were issued to l for dollar_figure examination findings confirmed that l as secretary - treasurer and n as vice- president were involved in the everyday activities of c l signed the organization's checks in instead of forms w-2 _ and n for dollar_figure' c and b entered into an agreement dated date for b to relinquish his position as director of c m executed it as president of c the new board_of directors approved this resignation change-of-control agreement this agreement stated that b would immediately relinquish his position of director of c and completely and commensurately disband the current board_of directors in tum c will pay b for salary allegedly not received for seven months in plus two months severance salary -- a total of dollar_figure beginning date b received a w-2 for dollar_figure' from c for the year ending on date there is no evidence of any severance agreement between c and b other than this ad hoc agreement in regular bi-weekly payments land n stated that whatever measures were needed to acquire c out of the hands of b would be the prudent thing to do this would allegedly allow the new board_of directors to do what c was originally supposed to do there were no independent board members on c's board_of directors for the years ending on date or all board members of c were either employees of c or had a financial relationship with c contemporaneous with the above change-of-control agreement c also entered into an agreement with e towing company dated date this agreement ‘ stated the following a c will pay e to purchase the e this amount in monthly payments at a first payment on march e will be shown as a lien holder until the balance is paid in full interest of dollar_figure ‘for dollar_figure c will pay beginning with b c will pay e to purchase the for dollar_figure to do so c will pay s a total of dollar_figure will pay e the balance of dollar_figure dollar_figure a lien holder until the balance is paid in full in monthly payments at ‘ interest of beginning with the first payment on date e will be shown as ’ the total payoff to be paid within days c c cwill payesdollar_figure on each of the following fridays to include february february march and date thereafter c will pay e dollar_figure per week for consecutive weeks and dollar_figure include interest throughout these weeks for a final week calculated to d d may leave an automobile dealer license housed at a c location at his discretion for his own purposes this agreement was signed by d for e and by m as president of c c can provide no evidence that a determination of the fair_market_value of the equipment contained in sections a and b of this agreement was made additionally c cannot provide any documentation or explanation of the consideration for the payments contained in section c from february to date c issued checks totaling dollar_figure rate was determined by b as a fair interest rate to e c's new board indicated thatthe interest under the current officers in c ceased quoting only the kelley blue_book _ retail vatue it provides the donor in writing with the retail and wholesale values to use as a guide in determining the fair market values of their vehicles it also sent along irs form_8283 and pointed out to those donors that were donating vehicles in need of major mechanical repairs that the wholesale value would not be an accurate figure to go by with regard to their vehicles this practice was not part of the policy of c’s former executive director and president b it is no longer the policy of c to sell retail vehicles or wholesale vehicles to any retail customer or dealer all cars are sold at the auction the current officers believe that this practice is fair and affords everybody the same opportunity to buy vehicles at whatever the last bid brings employees and officers of c are allowed to'bid on any vehicle at their auctions these auctions are open to the public in c expanded from the city1 area into the city2 area ‘st operated two auctions a week one in city1 and one in city2 the expansion was possible through c's partnerships with other charities r was brought on as director of development his sole purpose was to develop partnerships with charities enabling those charities to generate monies not normally available to them since splits all partnership donations and charities designated by donor on a split with c absorbing all the costs for towing reconditioning auction fees advertising detailing and all costs of pamphlets or any other written material that would help them in their car donation program since b's departure c has partnered with several nationally known charities there were four checks drawn on c's bank account and issued to h life_insurance in the amount of dollar_figure company these payments included in the amount of dollar_figure amount of dollar_figure and in the amount of dollar_figure there are corresponding invoices to these checks the first invoice listed g the second lists c the third lists v and the fourth lists c all with the same group number the first two invoices list d and t as employees the last two invoices list t and n as employees there is a notation on the last invoice removing d from the invoice and c remitted only an amount for t and n c's current management r and p were not employed at that time so they could not explain why this insurance premium was paid out of c’s accounts in the applicable law sec_4958 was added to the internal_revenue_code by sec_1311 of the taxpayer bill of right sec_2 p l 110_stat_1452 enacted date the sec_4958 excise_taxes generally apply to excess_benefit transactions occuring on or after date the report from the committee on ways and means on the taxpayer bill of right sec_2 h_r was submitted date h_rep_no cong 2d sess proposed_regulations were published in the federal_register date f_r the proposed_regulations were replaced by - temporary regulations that were published in the federal_register date f_r the temporary regulations were replaced by final regulations that were published in the federal_register date f_r the final regulations which apply as of date represent a fair and reasonable interpretation of sec_4958 based on the intent of congress as expressed in the report from the ways_and_means_committee submitted date none of the sec_4958 regulations cited below are more unfavorable to the taxpayer than the comparable provisions in the proposed_regulations or the temporary regulations sec_4958 of the internal_revenue_code imposes on the participation of any organization_manager a tax equal to percent of the excess_benefit the first_tier_tax this tax must be paid_by any disqualified_person with respect to such transaction rt cma we sec_4958 of the code imposes on each excess_benefit_transaction a tax equal te percent of the excess_benefit unless the participation is not willfuland is due to_ reasonable_cause os -11- sec_4958 of the code provides that where an initial tax is imposed but the excess_benefit involved in such transaction is not corrected within the taxable_period a tax equal to percent of the excess_benefit involved is imposed and must be paid_by any disqualitied person with respect to such transaction the second tier tax’ sec_4958 of the code in part defines excess_benefit_transaction as any transaction in which an economic benefit is provided by an applicable_tax-exempt_organization directly or indirectly to or for_the_use_of any disqualified_person if the value of the economic benefit provided exceeds the value of the consideration including the performance of services received for providing such benefit sec_4958 of the code defines applicable_tax-exempt_organization as an organization described in either sec_501 or sec_501 of the code or an organization which was so described at any time during the five-year period ending on the date of the excess_benefit_transaction sec_4958 of the code defines disqualified_person as a any person who was at any time during the five-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 a disqualified_person and c a 35-percent_controlled_entity sec_4958 of the code defines organization_manager as any officer director or trustee of an exempt_organization or any individual having powers or resonsibilities similar to those of an officer director or trustee sec_4958 of the provides that with respect to any excess_benefit_transaction if more than one person is liable for any sec_4958 tax all such persons are jointly and severally liable for that tax sec_53_4958-1 of the regulations provides that except as otherwise provided an excess_benefit_transaction occurs on the date on which the disqualified_person receives the economic benefit for federal_income_tax purposes sec_53_4958-3 of the regulations provides that voting members of the governing body presidents chief executive officers or chief operating officers are persons who are in a position to exercise substantial influence over the affairs of the organization sec_53_4958-4 of the regulations provides that to determine whether an excess_benefit_transaction has occurred all consideration and benefits exchanged between a disqualified_person and the applicable_tax-exempt_organization and all entities it controls are taken into account in determining the reasonableness of -12- compensation that is paid in one year services performed in prior years may be taken into account sec_53_4958-4 of the regulations provides that the value of services is the amount that would ordinarily be paid for like services by like enterprises under like circumstances ie reasonable_compensation the standards under sec_162 of the code apply in determining the reasonableness of compensation taking into account the aggregate benefits provided to a person sec_53_4958-4 provides that the compensation_for purposes of determining reasonableness under sec_4958 includes all economic benefits provided by the organization in exchange for the performance of services except for economic benefits that are disregarded for purposes of sec_4958 of the code under sec_53_4958-4 _ sec_53_4958-4 of the regulations provides that the facts and circumstances to be taken into consideration in determining the reasonableness of a fixed payment are those existing on the date the parties enter into the contract pursuant to which the payment is made sec_53 b ii b of the regulations provides that except for economic benefits that are disregarded for purposes of sec_4958 compensation_for purposes of determining reasonableness under sec_4958 includes all economic benefits provided by an applicable tax exempt_organization in exchange for the performance of services including all forms of cash and noncash compensation such as salary and severance payments the payment of liability insurance premiums for a disqualified_person and all other compensatory benefits whether or not included in gross_income for income_tax purposes including taxable and nontaxable fringe_benefits sec_53_4958-4 of the regulations provides that an economic benefit is not treated as consideration for the performance of services unless the organization providing the benefit clearly indicates its intent to treat the benefit as compensation when the benefit is paid an applicable tax exempt_organization is treated as clearly indicating its intent to provide an economic benefit as compensation_for services only if the organization provided written substantiation that is contemporaneous with the transfer of the economic benefit at issue if an organization fails to provide this contemporaneous substantiation any services provided by the disqualified_person will not be treated as provided in consideration for the economic benefit for purposes of determining the reasonableness of the transaction sec_53_4958-4 of the regulations provides that an organization's reporting constitutes contemporaneous substantiation to treat a benefit as compensation if the ‘organization reports-the benefit as compensation’on an original-federal tax information - return with respect to the payment eg form_w-2 or form_1099 or the recipient -13- disqualified_person reports the benefit as income on the person's original federal tax_return eg form_1040 or there is an approved written employment contract executed on or before the date of the transfer indicating the benefit is compensation or there is documentation by the organization’ s authorized body approving the transfer as compensation_for services on or before the date of transfer or there was other written evidence in existence before the due_date of the applicable federal tax_return indicating a reasonable belief by the organization that the benefit was a nontaxable benefit as described in reg c sec_6001 of the code provides that every person liable for any_tax imposed by the code or for the collection thereof shall keep adequate_records as the secretary_of_the_treasury or_his_delegate may from time to time prescribe sec_6033 of the code provides except as provided in sec_6033 every organization exempt from tax under sec_501 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 sec_1_6001-1 of the procedure and administration regulations in conjunction with sec_1_6001-1 provides that every organization exempt from tax under sec_501 of the code and subject_to the tax imposed by sec_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 credits 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 sec_6033 sec_1_6001-1 of the regulations 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 sec_6684 of the code imposes a penalty on any person who becomes liable for tax under any section of chapter relating to private_foundations and certain other tax-exempt organizations equal to the amount of such tax by reason of any act or failure to act which is not due to reasonable_cause and either such person has theretofore been liable for tax under such chapter or such act or failure to act is both willful and flagrant -14- sec_6700 of the code provides that any person who a organizes or assists in the organization of a partnership or other entity any investment plan or arrangement or any other plan or arrangement or b participates directly or indirectly in the sale of any interest in an entity or plan or arrangement referred to in a and makes or furnishes or causes another person to make or furnish in connection with such organization or sale - a a statement with respect to the allowability of any deduction or credit the excludability of any income or the securing of any other tax_benefit by reason of holding an interest in the entity or participating in the plan or arrangement which the person knows or has reason to know is false or fraudulent as to any material matter or b a gross_valuation_overstatement as to any material matter shall pay with respect to each activity described in paragraph a penalty equal to the dollar_figure or if the person establishes that it is lesser percent of the gross_income derived or to be derived by such person from such activity sec_6701 a of the code imposes a penalty on any person who aids assists in procures or advises with respect to the preparation or presentation of any portion of a retum affidavit claim or other document who knows or has to reason to know that such portion will be used in connection with any material matter arising under the intemal revenue laws and who knows that such portion if so used would result in an understatement of the liability for tax of another person shall pay a penalty with respect to each such document in the amount determined under subsection b sec_6701 of the code provides that the amount of the penalty imposed by _ sec_6701 shall be dollar_figure greg r vinikoor v commissioner tcmemo_1998_152 held that whether a loan exists depends on all the facts and circumstances including whether there was a promissory note or other evidence_of_indebtedness interest was charged there was security or collateral there was a fixed maturity_date ademand for repayment was made any actual repayment was made the transferee had the ability to repay any records maintained by'the transferor and or the transferee reflected the transaction as a loan and the manner in which the transaction v was reported for federal tax purposes is - consistent with a loan in 412_f2d_1197 ct_cl cert den 397_us_1009 an organization argued that the court should not find that the organization’ s earnings have inured to its founders since it had made some payments to him as repayments on a loan the organization could not however produce any documents evidencing indebtedness the court concluded that the plaintiff had failed to meet its burden_of_proof that a part of the corporate net eamings was not a source of benefit to private individuals in john marshall law school v united_states ct_cl the law school and the coliege paid for the founding family’s automobiles education 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 the court determined that the expenditures_for the founding family were not ordinary and necessary expenses in the course of the law school's and the college's operations the court also found that the payment of college expenses for the founder's children by the law school provided direct and substantial benefits to the founder of the law school and his brother the payment of the college expenses helped to defray the costs of their children’s education a cost which they otherwise would have had to satisfy from other resources the court found these payments to constitute prohibited inurement of the law school's earnings to the founder and his brother parents of the students in 927_fsupp_1274 d ariz affd 117_f3d_1424 cir a tax preparer prepared the individual returns for a couple and for their - closely-held corporation following an audit the internal_revenue_service imposed civil penalties upon the tax preparer the court held the imposition of a penalty under - moreover the record indicates that it was the custom and practice of c and b to provide each donor in writing with only the retail kelley blue_book value of the donated vehicle together with an irs form_8283 this was done for all vehicles regardless of the condition of the vehicle in many cases the vehicles were inoperable and had to be resold by c as salvage or scrap tn issue below we have concluded the b through c aided and abetted understatement of the tax_liabilities of donors to c given these circumstances - the failure of b to carry his burden of proving what if any salary was reasonable and his activities to aid and abet understatement_of_tax liabilities - we conclude that all of the dollar_figure excess_benefit to b must presumptively be treated as a section if credible probative evidence can be provided of any time in b spent administrering a charitable program of c and of the value of such services then it is possible that such value might be used to reduce the dollar_figure _ excess_benefit issue - is any part of the dollar_figure pay to b in an sec_4958 excess_benefit to b payment back pay from and severance as part of the reorganization of c under new directors in c agreed to pay a total of dollar_figure to b as alleged back pay for part of and as severance_pay similar to the situation described in issue above there is no evidence of the number of hours worked by b during the nature of his services or comparable salary for similar services there is also no evidence of any severance agreement between b and c apart from the ad hoc agreement reached by the new board_of directors in moreover the new board_of directors had actual knowledge of the improper payments made by b to himself during his tenure as an officer of c and yet they made no effort to obtain repayment of these amounts instead they agreed to pay b an additional dollar_figure benefit transaction to b in these circumstances this payment constituted a sec_4958 excess moreover the record indicates that it was the custom and practice of c and b to provide each donor in writing with only the retail kelley blue_book value of the donated vehicle together with an irs form_8283 this was done for all vehicles regardless of the condition of the vehicle in many cases the vehicles were inoperable and had to be resold by c as salvage or scrap in issue below we have concluded the b through c aided and abetted understatement of the tax_liabilities of donors to c given these circumstances -- the failure of b to carry his burden of proving what if any to aid and abet understatement_of_tax liabilities - was reasonable his activities ' salary and c's new board_of directors failure to consider his improper operation of c we sec_6701 of the code did not require that the retum be used the preparer could not claim mistake or mere negligence because his own testimony demonstrated knowledge he aided or assisted in the preparation or presentation of tax related documents knowing that if used a tax_liability understatement would result analysis issue - was b c’s former president executive director and founder an sec_4958 disqualified_person in and years forward sec_4958 f of the code defines disqualified_person as including any person who was at any time during the five-year period ending on the date of a transaction in a position to exercise substantial influence over the affairs of the organization sec_53_4958-3 of the regulations further provides that voting members of the goveming body presidents chief executive officers or chief operating officers are persons who are in a position to exercise substantial influence over the affairs of the organization b was the founder of c having incorporated c on date b served as a member of the board_of directors president and executive director of c at all times until he relinquished control of c on date he was in a position to exercise substantial influence over the affairs of c therefore b was a disqualified_person within the meaning of sec_4958 of the code issue - was b an sec_4958 organization_manager with respect to c in and years forward sec_4958 of the code defines organization_manager as any officer director or trustee of an exempt_organization or any individual having powers or responsibilities similar to those of an officer director or trustee b was the founder of c having - incorporated c on date b served as a member of the board_of directors president and executive director of c therefore b was an organization_manager within the meaning of sec_4958 of the code issue - is any part of the dollar_figure benefit to b - salary paid to b in an sec_4958 excess c paid bs in salary in neither c nor b has provided any evidence of the number of hours b worked he has not documented or described the services that he provided he has provided no evidence of comparable salaries for similar services there were no board minutes authorizing the payment of his salary -18- conclude that all of the dollar_figure excess_benefit to b must presumptively be treated as a sec_4958 if credible probative evidence can be provided of any time in or b spent administering a charitable program of c and of the value of such services then it is possible that such value might be used to reduce the dollar_figure excess_benefit _ issue - were c's repayments of undocumented loans by b an sec_4958 excess’ benefit to b the clearest evidence of the existence of a loan is a written_agreement between the parties neither c nor b provided a loan agreement evidencing any loan betweenc and b without an agreement we are left to determine its existence based upon the facts and circumstances the burden_of_proof is on b to show enough facts and circumstances to determine the existence of a loan - there is insufficient detail to determine the existence of a borrower lender relationship between c and b there is no record of a resolution of the board_of directors respecting any loan from b there is no evidence of any other action taken by c's board_of directors the failure to document any financial relationship between c and b is especially troublesome given the fact that b was the founder director president and the person in control of c c's form_990 information returns for the year and indicate that a loan s was received from from an officer director trustee or key_employee this information ‘however is confused with evidence from the same retums that indicates that no loans were made by an officer director trustee or key_employee additionally no interest_expense was recorded on c's financial statements _ there is insufficient evidence of a transfer of money from b to c as consideration of a loan there is evidence of three deposits slips for c's bank account two from g and one from ef first it is not clear that these deposits v were actually made and there is evidence that one slip may have been altered second assuming these deposits were actually made neither deposit came from b has not supplied any other documentation to show that he in fact lent money to c there is no evidence of a fixed maturity_date or an actual repayrbent schedule c supplied a spreadsheet which is purported to be a repayment schedule the spreadsheet does not contain a date and it is impossible to determine if the schedule was made contemporanously with payments the payments on the schedule do not correspond with amounts reported on c's form_990 the three’ deposits purportedly made in july or the checks written to b f g q and or cash -19- the best that can be said based upon the evidence is that b disregarded any sort of requirement to properly maintain c's accounts and proper form in the operation of c and b's other for-profit entities when c needed money he transferred money from one of his for-profit entities when he needed money as in the case of the downpayment for property in k he wrote a check from c and labeled it loan payable c has written checks to cash b g f and q and has labeled them loan payable for loans of which c has no documentation there is no explanation why the alleged loan repayments were so sporadic or why no payment was made for almost a year repayments of alleged loans to an organization's founder constitute a classic form of prohibited inurement e g founding church of scientology v united_states supra this same type of transaction also constitutes an excess_benefit_transaction the burden of proving the existence of a loan rests on c and b vinikoor v commissioner supra the burden has not been met and the alleged repayments to b thus constitute sec_4958 excess_benefits if credible probative evidence can be provided by b to explain the many inconsistencies in the current information then it is possible that such evidence might be used to determine based upon the facts and circumstances that a loan existed between c and b the examination agent has the discretion to adjust all or part of the excess_benefit_transaction based upon such evidence issue - were payments to e towing company in excess of the fair_market_value an sec_4958 excess_benefit to b d and e in date c made e donated vehicles c made payments to e for these services rendered on february anda c entered into an agreement with e to purchase a ‘ its exclusive tow company for picking up and transferring atdollar_figure at dollar_figure along with agreeing to pay an additional dollar_figure all at an interest rate of time it appears that e ceased providing towing services at that the relationship between c and e towing company provided a sec_4958 excess_benefit to e and d for several reasons d is the son of b and was the exclusive towing service provider of c the fees charges by e were greater than fees normally charged by tow service providers in the area the agreement entered into on date compensates e unreasonably and without proper documentation d created e in date several months after his father created c e immediately ‘became the sole provider of towing séfvicés to c ‘however c is notin possession of any service agreement between c and e c has no board meeting minutes to indicate -20- that discussions conceming towing companies were being evaluated or that a bidding process was used c has no notes or other writing to help determine why its previous tow company was replaced by e it is unknown what the terms and conditions of this relationship was who negotiated it reviewed it or signed off on it n c's director indicated that e was created for the sole purpose of towing for c prior to e's creation c used an unrelated towing company at a fee which was less than that charged by e after b relinquished control of c e ceased providing towing services to c it appears that e sold its tow trucks to c and got out of the business the amounts paid to e varied but evidence indicates that they were in excess of the fair_market_value after e ceased providing towing services c used three different towing services each charging substantially less than what e charged for example e charged dollar_figure for a tow in the city3 area in the city1 area e charged dollar_figure pays dollar_figure for a tow in the city3 area however c currently pays dollar_figure _ orless - per tow and c currently additionally under a date agreement c agreed to purchase two from e there is no indication that the appraisal was not obtained nor was there any other attempt to determine the fair_market_value of the s were purchased at fair_market_value an c's payments to e resulted in a sec_4958 excess_benefit_transaction to e and d to the extent c’s payments to e and d were in excess to the fair_market_value or reasonable_compensation they also constitute sec_4958 excess_benefits to b e received these excessive payments from c solely by reason of the fact that it was the wholly owned company of the son of the president of c if b had used his authority as president of c to take cash in the amount of the excess payments place it in his personal bank account and then transfer the funds to his son the payments would obviously be excess_benefits to b the fact that the father b caused c to directly transfer the funds to the company of his son - the natural object of his bounty - cannot eliminate the father’s excess_benefit liability see john marshall law school v united_states ct_cl father and son have joint_and_several_liability for the sec_4958 excise_taxes on these excess_benefits the examiner should determine the exact amount of the excess_benefit based on the extent to which the payments exceed the fair_market_value of the services rendered or property transferred issue - was the value of the auto furnished to an sec_4958 excess_benefit to b the value of the lease payments made by c on an auto leased byb bt isa sec_4958 - 6x6ess benefit transaction se c does not have written documentation to show that the board_of directors approved payments for b's leased vehicle either for c purposes or for his personal_use c has not adopted any policy concerning the payment or use of vehicles for c purposes or procedures for tracking their use there is no accountibility for_the_use_of this vehicte through the use of a logbook or other form af documentaton additionally payment for personal_use of the vehicle was not reported as income on either form_w-2 or to b c had no accountable_plan under sec_1_62-2 c’s lease payments were thus not substantiated as compensation pursuant to reg c accordingly the total amount of the lease payments constitutes an automatic excess_benefit subject_to sec_4958 excise_taxes issue - was the value of autos fumished to b’s wife b’s daughter and d an sec_4958 excess_benefit to b the value of the autos fumished to b’s wife b's daughter and b's son constitutes sec_4958 excess_benefit transactions these individuals received an economic benefit from persona use of these vehicles that were donated to c wife's b’s daughters or b's son’s use of c vehicles either for c purposes c does not have written documentation to show that the board_of directors actually approved b’s or for their personal_use c has not adopted any policy conceming the use of c vehicles or procedures for tracking their use there is no accountibility for_the_use_of this vehicles through the use of logbooks or other forms of documentaton additionally personal_use of the vehicles was not reported as income on either form_w-2 or to the individuals use of c’s cars must be documented to show that their use is in furtherance of c's exempt_purpose without documentation it is impossible to show that a vehicles’s use furthers an organization's exempt_purpose the value of these benefits was not substantiated as compensation and thus constituted an excess_benefit in their entirety the wife daughter and son of b are disqualified persons under sec_4958 as explained under ssue above b was responsible for improperly transferring assets from and giving them to the natural objects of his bounty accordingly b is jointly and severally liable for sec_4958 sanctions on these excess_benefits see john marshall law school v united_states supra the examiner should determine the fair_market_value of the use of these vehicles by the _wife daughter and sor that value constitutes a sec_4958 excess_benefit -22 issue does c's payment of dollar_figure sec_4958 excess_benefit to b for alleged loan payments to b constitute an c’s payment of dollar_figure b and or f received economic benefit on payments recorded as loan payable for which no written documentation has been provided for the alleged loans b prepared and executed all checks to b constitutes a sec_4958 excess_benefit_transaction as discussed in issue b has shown little evidence that would indicate that any loan exists between c and b or f b has not articulated any other reasons for the payments to f b or cash without documentation b has not shown that the payments received from c were legimate loan payments because the payments were not in furtherance of c’s exempt_purpose the checks issued to or endorsed by b constitutes a sec_4958 excess_benefit_transaction to b additionally the checks issued to or endorsed by f constitutes a sec_4958 excess_benefit to b f was the wholly owned corporation of d the son of b for the reasons stated above b is jointly and severally liable with his son for sec_4958 excise_taxes on these checks lf credible probative evidence can be provided by b to explain the many inconsistencies in the current information then it is possible that such evidence might be used to determine based upon the facts and circumstances that a loan existed between c and b and or f the examination agent has the discretion to adjust all or part of the excess_benefit_transaction based upon such evidence issue - does c’s payment of dollar_figure excess_benefit to b to b's corporation g constitute an sec_4958 c's payment of dollar_figure received economic benefit on payments recorded as loan payable for which no written documentation has been provided for the alleged loans to g constitutes a sec_4958 excess_benefit_transaction b as discussed in issue above b has shown no evidence that would indicate that any loan exists between c and g b has not articulated any other reasons for the payment to g without documentation b has not shown that payment to g was payment for products or services rendered by g because the payments were for the personal benefit of b and not for products or services rendered by g the dollar_figure sec_4958 excess_benefit_transaction to b constitutes a coane ted no tenes ee oe wee eeo go me une tee ho ten a erin oe -23- if credible probative evidence can be provided by b to explain the many inconsistencies in the current information then it is possible that such evidence might be used to determine based upon the facts and circumstances that a loan existed between c and b and or g the examination agent has the discretion to adjust all or part of the excess_benefit_transaction based upon such evidence issue - did c’s payments for rent on property leased and used by b and d constitute an sec_4958 excess_benefit to b c’s payment of rent for property also used by b and or d and or f and or e constituted a sec_4958 excess_benefit b and d received an economic benefit by c cc making the rental payments that f b and d were obligated to make and by allowing e free use of the property without board approval or obligation to do so c began making payments to the lessor of the property located at j in there is no evidence of a sub-lease executed by c e continued to utilize the property after c began making lease payments in addition c allowed e to utilize space on the property without charge the lease payments were ultimately for the personal benefit of b to the extent they paid for space not occupied by c see john marshall law school v united_states supra the lease payments were not substantiated as compensation and thus constitutes automatic excess_benefits subject_to sec_4958 excise_taxes the examiner should determine the rental value of the space not occupied by c and that value will constitute the amount of the excess_benefit issue was c's payment to g for insurance an sec_4958 excess_benefit to b it appears from the record that d this issue addresses payments made by c to the h t and n were employees of g at no time was d an employee of c it is unclear from the record whether t and n were employees of c neither c nor b have provided any documentation or other evidence to indicate that these payments were made for insurance coverage of c employees c’s new board members could not explain why these insurance premiums were paid out of c’s accounts given these circumstances the full amount of the payments constitutes an excess_benefit to g and therefore b moreover d was not an employee of c c's payment of insurance premiums for the benefit of d is an excess_benefit payment ultimately even c realized they were paying d's premiums in error however no attempt was made to remedy this erroneous payment therefore any payment by c for life_insurance on behalf of d-is-a private - benefit to d additionally the amounts in payment of insurance coverage for d - - constitute a sec_4958 excess_benefit to b as discussed in issue b is jointly and severally liable with his son - the natural object of his bounty - for sec_4958 excise_taxes on these amounts additionally c made payment of invoices that clearly do not list c as the vendee payment for invoices that are the obligation of other entities is a benefit to the party whose obligation it was to make payment if credible probative evidence can be provided that t and n were employed by c to administer a charitable program of c that c provided an insurance benefit to its employees and this insurance was intended to cover c employees then it is possible that the value of the payments for insurance for those individuals might be used to reduce the excess_benefit issue - should sec_6684 penalties be assessed against b sec_6684 of the code states that if any person becomes liable for tax under any section of chapter by reason of any act or failure to act which is not due to reasonable_cause and such act or failure to act is both willful and fragrant then such person shail be liable for a penalty equal to the amount of such tax by this memorandum b has been found to be liable for taxes under several sections of chapter b’s accountant and former director of c explained to b that no part of any of c’s revenues may inure to the benefit of any private shareholder or individuals as this will cause loss of exemption after being counseled by his cpa co-director b continued to engage in the activities that caused excess_benefit transactions penalties under sec_6684 of the code should be assessed against b because these excess_benefit transactions with c were not due to reasonable_cause and the failure was a willful and flagrant act issue - is b subject_to the organization_manager tax under sec_4958 sec_4958 imposes a tax on the participation of an organization_manager in an excess_benefit_transaction as discussed in issue b was an organization_manager within the meaning of sec_4958 of the code b’s participation in these excess_benefit transactions was willful and was not due to reasonable_cause within the meaning of sec_4958 b continued to participate in excess_benefit transactions even after cpa a former director of c warned him of the ramifications of excess_benefit transactions after the cpa's warning and resignation from c's board_of directors b continued to knowingly participate in excess_benefit transactions issue ts - was b a promoter ofa tax‘shetter under sec_6700 -25- sec_6700 of the code imposés a penalty on persons promoting an abusive_tax_shelter sec_6701 imposes a penalty on persons who aid and abet the understatement of a tax_liability the penalty under sec_6700 is in addition to any other penalty provided by law except the penalty under sec_6701 f the service assesses a penalty under it cannot assess a penalty under sec_6701 or vice versa - because sec_6700 and sec_6701 are mutually exclusive and b’s actions more easily satisfy the elements needed to impose the sec_6701 penalty we recommend pursuing sec_6701 rather than sec_6700 penalties therefore no technical_advice is being issued with respect to issue issues and will be analyzed under sec_6701 of the code issue - did b make or participate in making false fraudulent or gross valuation misstaternents under sec_6700 as stated in issue it is more appropriate to analyze the facts of this mamorandum under sec_6701 of the code t applies to any person who advises with respect to the sec_6701 of the code provides for penalties for aiding_and_abetting understatement_of_tax liability preparation or presentation of any portion of a return who who knows that such portion if so used would result in an understatement of the liability for tax of another person that such portion will be used in connection with any material irc matter has reason to believe and in the instant case b was president executive director and day-to-day manager of an - organization whose principal purpose was to solicit donations of automobiles to c the major thrust of the promotional literature prepared by c under b’s supervision was that donors would obtain a substantial sec_170 charitable deduction for the value of the donated vehicle b was an experienced used car dealer and well knew the approximate value of used automobiles each donor the kelly blue_book retail value of the donor's automobile together with a copy of the iirs form_8283 used by donors to claim charitable_contributions for the value of donated automobiles he made no attempt to provide donors with the more relevant and muct lower kelly wholesale or salvage_value of the donated automobile he provided this information even though he knew that many of the donated vehicles could only be sold for salvage or scrap ignoring this knowledge b instead sent to as a direct result of this misleading information several donors claimed greatly overstatéd vallatioris in taking sec_170 deductions for their vehicle donation under these circumstances b has advise d with respect to the preparation or - - presentation of a portion of a retum and had reason to believe that such portion will be used in connection with a material sec_170 deduction sec_6701 moreover he knew that such deduction would result in an understatement of the liability for tax of the donor ibid therefore b participated in making false fraudulent and gross_valuation_misstatements under sec_6701 issue - if so is b liable for sec_6700 penalties as stated in issue it is more appropriate to analyze the facts of this memorandum under sec_6701 of the code as discussed in ssue b participated in making false fraudulent and gross’ valuation misstatements accordingly b is liable for sec_6701 penalties a penalty of dollar_figure with respect to each person to whom b provided a false valuation should be imposed upon b the penaity applies to each false valuation regardless whether it was or was not used to claim an overvalued deduction 927_fsupp_1274 d ariz affd 117_f3d_1424 cir conclusions b was a disqualified_person within the meaning of sec_4958 of the code in and years forward b was an organization_manager within the meaning of sec_4958 of the code in and years forward salary paid to b in is an sec_4958 excess_benefit_transaction to payment back pay from and severance_pay to b in is an sec_4958 excess_benefit_transaction to b c's repayment of undocumented loans by b is an sec_4958 excess_benefit_transaction to b c's payments to e towing company in excess of the fair_market_value an sec_4958 excess_benefits to b d and e towing the value of the payments for a vehicle leased by b is an sec_4958 excess_benefit __ transactiontob - the dollar_figure b the dollar_figure the value of autos fumished to b's wife b's daughter and d is an sec_4958 excess_benefit_transaction to b c's payment of dollar_figure ‘for alleged loans payments to b constitutes an sec_4958 excess_benefit_transaction to b c's payment of dollar_figure benefit transaction to b to b's corporation g constitutes an sec_4958 excess ’s payments for rent on property leased and used by b and d constitutes an sec_4958 excess_benefit_transaction to b ' c's payment to h for insurance is an sec_4958 excess_benefit_transaction to bs sec_6684 penalties should be assessed against b bis subject_to the organization_manager tax under sec_4958 it is more appropriate to analyze the facts of this memorandum under sec_6701 rather than sec_6700 therefore no technical_advice is being issued with respect to issue made and paiticipated in making false fraudulent or gross_valuation_misstatements under sec_6701 bis liable for sec_6701 penalties a copy of this memorandum is to be given to the taxpayer under sec_6110 of the code it may not be used or cited as precedent -end- tt te ee gem rs ae ne ors me cen meen eo fame mass


in ae department of the treasury internal_revenue_service tege eo examinations mail stop dal commerce st dallas texas release number release date cae oe ss pens rice address address org address certified mail - return receipt dear date date taxpayer_identification_number person to contact employee identification_number employee telephone number phone fax last date to file a petition in tax_court may 20xx this is a final adverse determination regarding your exempt status under sec_501 of the internal_revenue_code the code our favorable determination_letter to you dated march 19xxx is hereby revoked and you are no longer exempt under sec_501 of the code effective january 20xx the revocation of your exempt status was made for the following reason s in our letters dated november 20xx and january 20xx we requested information necessary to conduct an examination of your form_990 for the year ended december 20xx we have not received the requested information sec_1_6033-2 of the income_tax regulations provides in part that every organization which is exempt from tax shall submit such additional information as may be required by the internal_revenue_service for the purpose of inquiring into its exempt status since you have not provided the requested information we hereby revoke your organization’s exemption from federal_income_tax under sec_501 of the internal_revenue_code effective january 20xx contributions to your organization are no longer deductible under sec_170 after january 20xx you are required to file income_tax returns on form_1120 these returns should be filed with the appropriate service_center for the tax_year ending june 20xx and for all tax years thereafter in accordance with the instructions of the return processing of income_tax returns and assessments of any taxes due will not be delayed should a petition for declaratory_judgment be filed under sec_7428 of the internal_revenue_code if you decide to contest this determination under the declaratory_judgment provisions of sec_7428 of the code a petition to the united_states tax_court the united_states claims_court or the district_court of the united_states for the district of columbia must be filed before the day after the date this determination was mailed to you please contact the clerk of the appropriate court for rules regarding filing petitions for declaratory judgments by referring to the enclosed publication you may write to the united_states tax_court at the following address you also have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states 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 may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely nanette m downing acting director eo examinations enclosure publication government entities division org address department of the treasury internal_revenue_service mail stop po box ogden ut date of this notice contact person id number contact telephone numbers employer_identification_number tax period s form s certified mail - return receipt requested dear we have enclosed a copy of our report of examination explaining why we believe revocation of your exempt status under sec_501 of the internal_revenue_code irc is necessary if you accept our findings take no further action we will issue a final revocation letter if you do not agree with our proposed revocation you must submit to us a written request for appeals_office consideration within days from the date of this letter to protest our decision your protest should include a statement of the facts the applicable law and arguments in support of your position an appeals officer will review your case the appeals_office is independent of the director eo examinations the appeals_office resolves most disputes informally and promptly the enclosed publication the examination process and publication exempt_organizations appeal procedures for unagreed issues explain how to appeal an internal_revenue_service irs decision publication also includes information on your rights as a taxpayer and the irs collection process you may also request that we refer this matter for technical_advice as explained in publication further administrative appeal is available to you within the irs regarding the issue that was the subject of the technical_advice if we issue a determination_letter to you based on technical_advice no letter catalog number 34809zf if we do not hear from you within days from the date of this letter we will process your case based on the recommendations shown in the report of examination if you do not protest this proposed determination within days from the date of this letter the irs will consider it to be a failure to exhaust your available administrative remedies sec_7428 of the irc provides in part a declaratory_judgment or decree under this section shall not be issued in any proceeding unless the tax_court the claims_court or the district_court of the united_states for the district of columbia determines that the organization involved has exhausted its administrative remedies within the internal_revenue_service we will then issue a final revocation letter we will also notify the appropriate state officials of the revocation in accordance with sec_6104 of the irc you have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states 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 may call toll free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at if you have any questions please call the contact person at the telephone number shown in the heading of this letter the most convenient time to call if we need to contact you if you write please provide a telephone number and telephone number __ hours sincerely sunita lough director eo examinations eo ce enclosures publication publication form 886a report of examination form_6018 consent to proposed action - sec_7428 letter catalog number 34809zf form 886-a rev date name of taxpayer explanations of items l tax identification_number year period ended schedule number or exhibit org _ _- december 20xx legend org organization name state state xx date address address city city number number president president issue whether org qualifies for exemption under sec_501 of the internal_revenue_code facts org has not provided the requested information for the form_990 for the tax_year ending december 20xx or filed form_990 for the tax periods ending december 20xx and december 20xx the organizations received their approval for tax exemption march 19xx the organization was established for the purpose of improving standards of care for animals used in research and testing supporting scientific alternatives to the use of live animals in research and improving standards for transporting animals exhibit a provides a list of the internal_revenue_service correspondence or phone contact to exempt_organization eo or power_of_attorney poa requesting that exempt_organization provide information pertaining to the form_990 for the year ending december 20xx the exempt_organization was also requested to file the form_990 for the tax periods ending december 20xx and december 20xx summary of exhibit a contact type correspondence sent phone contact date sent or called certified mail y n receipt signed date or phone response eo advised returns would be filed n a phone phone letter 11-04-xx 11-03-xx called president number sent letter to address city state left voice mail to return my call signed by president left voice mail to return my call per usps a notice was left to pick up the letter 01-26-xx letter returned marked unclaimed by usps number sent letter address city state sent draft letter for revocation address city state called president letter 03-18-xx 01-20-xx o1-21-xx letter n a y y y org has failed to respond to the internal_revenue_service correspondence for information pertaining to the form_990 for the tax period ending december 20xx and to file the forms for the tax periods ending december 20xx and december 20xx form_8 86-a rev department of the treasury - internal_revenue_service page -1- form 886-a rev date schedule number or exhibit explanations of items l name of taxpayer tax identification_number year period ended org december 20xx law c sec_501 organized and operates exclusively for religious charitable scientific testing for public safety literary or educational_purposes and to foster national and amatuer sports competition reg c -1 a in order to be exempt under sec_501 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 sec_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 sec_1_6001-1 in conjunction with sec_1_6001-1 provides that every organization exempt from tax under sec_501 and subject_to the tax imposed by sec_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 credits 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 sec_6033 sec_1_6001-1 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 sec_6033 provides except as provided in sec_6033 every organization exempt from tax under sec_501 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 sec_1_6033-1 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 sec_501 and the following chapter of the code and sec_6033 revrul_59_95 1959_1_cb_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 sec_6033 and the regulations which implement it may result in form 886-a rev department of the treasury - internal_revenue_service page -2- form 886-a rev date explanations of items schedule number or exhibit name of taxpayer tax identification_number year period ended _org december 20xx 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 government’s position in accordance with the above cited provisions of the code and regulations under sec_6001 and sec_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 several attempts have been made to contact the organization in order to advise them of their delinquency in filing federal tax forms since the organization has not met the requirements to file federal returns they are not following the requirements for exempt status and fail to continues to qualify for tax exempt status organization’s position several attempts to contact the organizations have been made by either letters or phone calls the organization did receive one letter per the signed certified return receipt but they failed to respond due to the lack of response the organization's position is unknown conclusion is the irs's position that the organization failed to meet the reporting requirements under it sec_6001 and sec_6033 to be recognized as exempt from federal_income_tax under sec_501 furthermore the organization has failed to establish that it continues to qualify for tax exempt status accordingly the organization's exempt status is revoked effective january 20xx form s u s_corporation income_tax return should be filed for the tax periods ending on or after december 20xx form 886-a rev department of the treasury - internal_revenue_service page -3-