Saturday, May 4, 2024
GiftLaw Pro
GiftLaw Note: ORG was granted tax exempt status under Sec. 501(c)(3) in an advance ruling. ORG filed its initial 990, Return of Organization Exempt from Income Tax, for the tax year ending June 30, 20XX. ORG then decided to allow its activities to be taken over by City, beginning July 1, 20XX- terminating ORG. The Service requested documentation, including an amended Form 990, a copy of the articles of dissolution filed with the Secretary of State and a signed document detailing the disposition of ORG's assets at the time of dissolution, to be submitted by April 15, 20XX. The correspondence clearly stated that "failure to comply" with the request "could result in the loss of your tax- exempt status." ORG failed to respond to the document request, as well as a second request for the same information.

The Service found that ORG failed to produce documents to establish ORG operated exclusively for exempt purposes within the meaning of Sec. 501(c)(3). ORG stated that it has been inactive since June 1, 20XX and has ceased all activities. As such, ORG is not operating exclusively for exempt purposes. Further, Treasury Reg. 1.6033-2 (h)(2) requires every organization exempt from tax to submit such additional information as may be required by the Service for the purpose of inquiring into its exempt status. ORG failed to provide information as requested and required by the Service. Therefore, the Service made a final adverse determination regarding ORG's tax-exempt status under Sec. 501(c)(3). ORG's tax-exempt status was revoked and contributions to ORG are no longer deductible.
PLR 201209007 IRS Revokes Exempt Status of Inactive Organization

Dear * * *

This is a final adverse determination regarding your exempt status under section 501(c)(3) of the Internal Revenue Code (the Code). Our favorable determination letter to you dated January 20XX is hereby revoked and you are no longer exempt under section 501(a) of the Code effective July 1, 20XX.

The revocation of your exempt status was made for the following reason(s):

You have failed to produce documents to establish that you are operated exclusively for exempt purposes within the meaning of Internal Revenue Code section 501(c)(3). You have not provided any information as requested and as required by Treas. Reg. 1.6033-2. You stated that you have been inactive since July 1, 20XX, and that you have ceased any activities. As such, you are not operating exclusively for exempt purposes.

Section 1.6033-2(h)(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. You have not provided the requested information.

Contributions to your organization are no longer deductible under section 170 of the Internal Revenue Code, effective July 1, 20XX.

You are required to file Federal income tax returns on Form 1120. These returns should be filed with the appropriate Service Center for the year ending June 30, 20XX, and for all the tax years thereafter in accordance with instructions of the return.

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: United States Tax Court, the United States Court of Federal Claims, or the United States District Court for the District of Columbia. A petition in one of these three courts must be filed before the 91st day after the date that this determination was mailed to you if you wish to seek review of our determination. Please contact the clerk of the respective court for rules regarding filing petitions for declaratory judgment by referring to the enclosed Publication 892. Please note that the United States Tax Court is the only one of these courts where a declaratory judgment action can be pursued without the services of a lawyer. You may write to the Untied States Tax Court at the following address: * * *

Please understand that filing a petition for a declaratory judgment under IRC section 7428 will not delay the processing of subsequent income tax returns and assessment of any taxes due.

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, 1-877-777-4778, and ask for the Taxpayer Advocate assistance. If you prefer, you may contact your local Taxpayer Advocate at: * * *

Taxpayer Advocate assistance cannot 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.

This letter should be kept within your permanent records.

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, Director, EO Examinations

* * * * *

June 20, 2011

Dear * * *

We have enclosed a copy of our report of examination explaining why we believe revocation of your exempt status under section 501(c)(3) of the Internal Revenue Code (Code) is necessary.

If you accept our findings, please sign and return the enclosed Form 6018, Consent to Proposed Action -- Section 7428. If you have already given us a signed Form 6018, you need not repeat this process. 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 30 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 3498, The Examination Process, and Publication 892, Exempt Organizations Appeal Procedures for Unagreed Issues, explain how to appeal an Internal Revenue Service (IRS) decision. Publication 3498 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 892. If we issue a determination letter to you based on technical advice, no further administrative appeal is available to you within the IRS regarding the issue that was the subject of the technical advice.

If we do not hear from you within 30 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 30 days from the date of this letter, the IRS will consider it to be a failure to exhaust your available administrative remedies. Section 7428(b)(2) of the Code 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 section 6104(c) of the Code.

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 1-877-777-4778 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. 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,

Nanette M. Downing, Director, EO Examinations

* * * * *

ISSUE


Whether ORG qualifies for exemption under Section 501(a) as described in Section 501(c)(3) of the Internal Revenue Code?

FACTS


ORG (the Organization) was formed and incorporated in the state of State on June 5, 20XX. The Organization was issued a determination letter granting the Organization exemption from federal income taxes under Internal Revenue Code (IRC) § 501(a) as described in § 501(c)(3) and further described in § 170(b)(1)(A)(vi), by virtue of an advanced ruling on February 7, of 20XX. The effective date of the exemption was June 6, 20XX. The advanced ruling period was set to end on June 30, 20XX.

Upon making telephone contact with the Organization, the agent was notified that the Organization had ceased operations and the story behind its lack of operations. The Organization filed Form 990, Return of Organization Exempt from Income Tax, for the tax year ending June 30, 20XX as its initial return. However, the Organization decided to allow its activities to be taken over by the municipality of City, State, beginning July 1, 20XX, effectively terminating the Organization. The Organization under examination has remained inactive since June 30, 20XX, and no longer operates.

The Organization under examination did not correctly dissolve with the State Secretary of State and Internal Revenue Service. The Organization still maintains a "Good Standing" status with the State Secretary of State.

A written request was sent to the Organization on March 30, 20XX with Form 4564, Information Document Request, identifying an amended Form 990, Return of Organization Exempt from Income Tax, due for the tax year ending June 30, 20XX due to the Organization no longer operating effective June 30, 20XX. In addition to the amended return, a copy of the articles of dissolution filed with the State Secretary of State and a signed statement detailing the disposition of the Organization's assets at the time of dissolution were also requested. The cover letter of the correspondence indicated that "failure to comply with our request for information could result in the loss of your tax exempt status." The information was to be submitted by April 15, 20XX.

The April 15, 20XX deadline for submission of the requested information passed without any contact from the taxpayer.

A second letter was sent to the Organization on April 25, 20XX with Form 4564, Information Document Request, requesting for the second time, the information requested in the correspondence sent March 30, 20XX. The cover letter of the correspondence indicated that "failure to comply with our request for information could result in the loss of your tax exempt status," as well as indicated that penalties may be assessed under IRC § 6652(c). The information was to be received by the Organization no later than May 9, 20XX.

The May 9, 20XX deadline for submission of the requested information passed without any contact from the taxpayer.

LAW


Internal Revenue Code (IRC) § 501(a) states that an organization described in subsection (c) or (d) shall be exempt from taxation under this subtitle unless such exemption is denied under Section 502 (concerning feeder organization) or Section 503 (concerning organizations engaged in prohibited transactions).

IRC § 501(c) identifies in its subparagraphs the list of organizations referred to in subsection (a).

IRC § 501(c)(3) exempts from taxation, corporations, and any community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment), or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private shareholder or individual, no substantial part of the activities of which is carrying on propaganda, or otherwise attempting to influence legislation, and which does not participate in, or intervene in any political campaign on behalf of (or in opposition to) any candidate for public office.

IRC § 501(d) states that the following organizations are referred to in subsection (a): Religious or apostolic associations or corporations, if such associations or corporations have a common treasury or community treasury, even if such associations or corporations engage in business for the common benefit of the members, but only if the members thereof include (at the time of filing their returns) in their gross income their entire pro rata shares, whether distributed or not, of the taxable income of the association or corporation for such year. Any amount so included in the gross income of a member shall be treated as a dividend received.

IRC § 509(a) states in part for purposes of this title, the term "private foundation" means a domestic or foreign organization described in section 501(c)(3) other than

(1) an organization described in section 170(b)(1)(A), other than clauses vii and viii,

(2) an organization which

(A) normally receives more than one-third of its support in each taxable year from any combination of --

(i) gifts, grants, contributions, or membership fees, and

(ii) gross receipts from admissions, sales of merchandise, performance of services, or furnishing of facilities, in an activity which is not an unrelated trade or business, not including such receipts from any person, or from any bureau or similar agency of a governmental unit, in any taxable year to the extent such receipts exceed the greater of $5,000 or 1 percent of the organization's support in such taxable year, from persons other than disqualified persons (as defined in § 4946) with respect to the organization, from governmental units, or from organizations described in section 170(b)(1)(A) (other than in clauses (vii) and (viii)), and

(B) normally receives not more than one-third of its support in each taxable year from the sum of --

(i) gross investment income and

(ii) the excess (if any) of the amount of the unrelated business taxable income over the amount of the tax imposed by section 511.

IRC § 170(b)(1)(A)(vi) states in part that an organization that normally receives a substantial part of its support (exclusive of income received in the exercise or performance by such organization of its charitable, educational, or other purpose or function constituting the basis for its exemption under section 501(a)) from a governmental unit or from direct or indirect contributions from the general public.

IRC § 6001 states in part 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.

IRC § 6033(a)(1) states in part that except as provided in paragraph (3), every organization exempt from taxation under § 501(a) shall file an annual return, stating specifically the items of gross income, receipts, and disbursements, and such other information for the purpose of carrying out the internal revenue laws as the Secretary may by forms or regulations prescribe, and shall 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.

IRC § 6033(a)(3)(A) states in part that the above paragraph shall not apply to --

(i) churches, their integrated auxiliaries, and conventions or associations of churches,

(ii) any organization (other than a private foundation, as defined in Link section 509(a)), the gross receipts of which in each taxable year are normally not more than $5,000, or (iii) the exclusively religious activities of any religious order.

IRC § 7602(a) states in part that for the purpose of ascertaining the correctness of any return, making a return where none has been made, determining the liability of any person for any internal revenue tax or the liability at law or in equity of any transferee or fiduciary of any person in respect of any internal revenue tax, or collecting any such liability, the Secretary is authorized ***

(1) To examine any books, papers, records, or other data which may be relevant or material to such inquiry;

(2) To summon the person liable for tax or required to perform the act, or any officer or employee of such person, or any person having possession, custody, or care of books of account containing entries relating to the business of the person liable for tax or required to perform the act, or any other person the Secretary may deem proper, to appear before the Secretary at a time and place named in the summons and to produce such books, papers, records, or other data, and to give such testimony, under oath, as may be relevant or material to such inquiry; and

(3) To take such testimony of the person concerned, under oath, as may be relevant or material to such inquiry.

Treasury Regulation § 1.6001-1(a) in conjunction with Treasury Regulation § 1.6001-1(c) states in part that every organization exempt from tax under IRC § 501(a) must keep such permanent books or accounts or records, including inventories, as are sufficient to establish the amount of gross income, deductions, credits, or other materials 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.

Treasury Regulation § 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.

Treasury Regulation § 1.6033-2(i)(2) states in part that every organization which is exempt from tax, whether or not it is required to file an annual information return, shall submit such additional information as may be required by the Internal Revenue Service for the purpose of inquiring into its exempt status.

Revenue Ruling 59-95 concerns an organization previously held exempt from Federal income tax was requested to produce a financial statement as of the end of the year and a statement of its operations during such year. However, its records were so incomplete that it was unable to furnish such statements. The Service held that the failure or inability to file the required information return or otherwise to comply with the provision of IRC Section 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 an exempt status.

TAXPAYER'S POSITION


ORG has not responded to any requests for information by the Internal Revenue Service. The Organization has not provided a position.

GOVERNMENT'S POSITION


The exempt status of the ORG should be revoked because it fails to meet the requirements of Treasury Regulation § 1.6033-2(i)(2) by providing the information required by the Internal Revenue Service for the purpose of inquiring into its tax exempt status.

The Organization has failed to respond to requests from the Internal Revenue Service to file its amended Form 990 return, and requests to inquire into its tax exempt status. According to § 6033(a)(1) of the Internal Revenue Code, every organization exempt from taxation under IRC § 501(a) shall file an annual return, stating specifically the items of gross income, receipts, and disbursements, and such other information for the purpose of carrying out the internal revenue laws as the Secretary may by forms or regulations prescribe, and shall 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. The Organization has repeatedly been asked to submit information to the IRS for purposes of inquiring into its tax exempt status, but has failed to provide the requested information.

Furthermore, as referenced by Revenue Ruling 59-95, an organization exempt from taxation under IRC § 501(a) that fails to submit such additional information as may be required by the Internal Revenue Service for the purpose of inquiring into its exempt status may result in the termination of its exempt status. Multiple written requests were made for the Service to conduct an examination of the Organization's Form 990 for the tax year June 30, 20XX. The Organization has failed to respond to any of these mailings, and has not returned any contact from the Service regarding the inquiry into its tax exempt status since receipt of the mailed correspondence.

The Organization's failure to follow the above regulations and requirements, pertaining to requests made by the Internal Revenue Service into an organization's tax exempt status, should result in the loss of its tax exempt status.

CONCLUSION


ORG does not qualify for tax exempt status under Internal Revenue Code § 501(a) as described in § 501(c)(3). The lack of any meaningful response to requests for information demonstrate that the Organization has not met its obligations and responsibilities to maintain tax exempt status under section 501(c)(3) of the Code. Revocation of the tax exempt status of ORG is proposed with an effective date of July 1, 20XX.

A closing conference was not held since the Organization has repeatedly failed to respond to requests for information and attempts at communication.

Related Topics On IRS Revokes Exempt Status of Inactive ORG

7.1.1  Types of Public Charities:    There are three main ways to qualify as a public charity. The first is to operate as a traditional public charity, the second is to have broad public financial support and the third is to actively function in a supporting relationship to another public charity. Sec. 509(a).



© Copyright 1999-2024 Crescendo Interactive, Inc.