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GiftLaw Note: ORG received tax-exempt status under Sec. 501(c)(3) in January 20XX. ORG was incorporated to educate the public about the duties and responsibilities of immigration law enforcement agents and how they can assist agents. On January 24, 20XX, the Service initiated an examination of ORG for the 20XX calendar year. Revenue Agent sent a letter and requests to ORG, requesting ORG contact Revenue Agent upon receipt. Attorney contacted Revenue Agent regarding the request, but Revenue Agent could not disclose information to Attorney because ORG had not provided a valid Form 2848, Power of Attorney. Revenue Agent did not hear back from Attorney or ORG, despite repeated attempts to contact both. On March 30, 20XX, Revenue Agent sent a second correspondence to ORG via certified mail, which was returned to Revenue Agent with a note indicating "notice was unclaimed; unable to forward."

Sections 6001 and 6033(a)(1) require every organization exempt from tax meet certain reporting requirements, including retention of records sufficient to determine whether such entity is operating for the purpose for which it was granted tax-exempt status. Here, ORG failed to provide documentation sufficient to determine whether ORG was operating for the purpose for which ORG was originally granted tax-exempt status. The Service made multiple attempts to contact ORG, but ORG failed to respond. Therefore, the Service made a final adverse determination, revoking ORG's exempt status under Sec. 501(c)(3).
PLR 201218022 Exempt Status Revoked for Failure to Report

05/04/2012 (January 10, 2012)

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 January 1, 20XX.

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

You are not operated exclusively for an exempt purpose as required by Internal Revenue Code section 501(c)(3). You are not and have not been engaged primarily in activities which accomplish one or more exempt purposes. You are not a charitable organization within the meaning of Treasury Regulation 1.501(c)(3)-1(d); rather, your activities further a substantial nonexempt commercial purpose and serve private rather than public interests.

Because you did not protest the proposed modification of your non-private foundation status and have indicated your agreement by signing the Form 6018 on September 8, 20XX, it is further determined that you have not exhausted your available remedies for purposes of declaratory judgment under section 7428 of the Code.

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 January 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 December 31, 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


April 28, 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, 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 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 (ORG) qualifies for exemption under Section 501(c)(3) of the Internal Revenue Code (IRC).

FACTS


ORG was incorporated in 20XX and received exemption from Federal Income Taxes under IRC § 501(c)(3) and described under IRC §§ 509(a)(1) and 170(b)(1)(A)(vi) in January 20XX. ORG was incorporated to educate the public about the duties and responsibilities of immigration law enforcement agents and how they can assist such agents through trained observation and reporting actionable information.

On January 24, 20XX, the Internal Revenue Service (Service) initiated an examination on ORG for the 20XX calendar year. Revenue Agent sent Letter 3611 along with Information Document Request (IDR) #1 and Publication 1 to ORG. Via IDR#1, the Agent requested ORG to contact him upon receipt of the initial appointment letter.

On February 17, 20XX Revenue Agent received a voicemail from an attorney named Attorney. Agent was on leave and returned the Attorney's call on February 21, 20XX. Agent was unable to disclose information regarding the nature of the exam since ORG did not provide a valid Form 2848, Power of Attorney. Attorney indicated Chairman, the Chairman of the ORG, instructed him to contact the Revenue Agent to coordinate the initial contact between ORG and the Service. After the initial telephone call with Attorney, Revenue Agent had not heard from the attorney. Revenue Agent left multiple voicemails with Attorney to determine why the ORG did not contact the Service. The agent did not, however, receive any oral or written responses from ORG or Attorney.

After the Revenue Agent did extensive research for ORG's current address, on March 30, 20XX, Revenue Agent sent a second correspondence via certified mail to ORG with the terminology 'second notice' on the initial contact letter and copy of IDR#1. On May 9, 20XX, the United States Postal Service (USPS) returned the second correspondence to Revenue Agent with a note indicating "notice was unclaimed; unable to forward".

LAW


IRC § 6001 provides that every person liable for any tax imposed by the IRC, or for the collection thereof, shall keep adequate records as the Secretary of the Treasury or his delegate may from time to time prescribe.

IRC § 6033(a)(1) provides, except as provided in IRC § 6033(a)(2), every organization exempt from tax under section 501(a) shall file an annual return, stating specifically the items of gross income, receipts and disbursements, and such other information for the purposes of carrying out the internal revenue laws as the Secretary may by forms or regulations prescribe, and keep such records, render under oath such statements, make such other returns, and comply with such rules and regulations as the Secretary may from time to time prescribe.

Treas. Reg. § 1.6001-1(a) in conjunction with Treas. Reg. § 1.6001-1(c) provides that every organization exempt from tax under IRC § 501(a) and subject to the tax imposed by IRC § 511 on its unrelated business income must keep such permanent books or accounts or records, including inventories, as are sufficient to establish the amount of gross income, deduction, 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 IRC § 6033.

Treas. Reg. § 1.6001-1(e) states that the books or records required by this section shall be kept at all times available for inspection by authorized internal revenue officers or employees, and shall be retained as long as the contents thereof may be material in the administration of any internal revenue law.

Treas. Reg § 1.6033-1(h)(2) provides that every organization which has established its right to exemption from tax, whether or not it is required to file an annual return of information, shall submit such additional information as may be required by the district director for the purpose of enabling him to inquire further into its exempt status and to administer the provisions of subchapter F (section 501 and the following), chapter 1 of the Code and IRC § 6033.

Rev. Rul. 59-95, 1959-1 C.B. 627, concerns an Exempt Organization that was requested to produce a financial statement and statement of its operations for a certain year. However, its records were so incomplete that the organization was unable to furnish such statements. The Service held that the failure or inability to file the required information return or otherwise to comply with the provisions of IRC § 6033 and the regulations which implement it, may result in the termination of the exempt status of an organization previously held exempt, on the grounds that the organization has not established that it is observing the conditions required for the continuation of exempt status.

In accordance with the above cited provisions of the Code and regulations under IRC §§ 6001 and 6033, organizations recognized as exempt from federal income tax must meet certain reporting requirements. These requirements relate to the filing of a complete and accurate annual information (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.

TAXPAYER'S POSITION


ORG's position has not been determined.

GOVERNMENT'S POSITION


In accordance with the above cited provisions of the Code and regulations under §§ 6001 and 6033, organizations recognized as exempt from federal income tax must meet certain reporting requirements. These requirements relate to the retention of records sufficient to determine whether such entity is operating for the purpose for which it was granted tax exempt status and to determine its liability for any unrelated business income tax.

ORG has failed to provide documentation sufficient to determine whether it is operating for the purpose of which it was originally granted tax-exempt status. Numerous attempts have been made to contact the organization; however, all attempts have failed.

Therefore, since ORG is not in compliance with the requirements set forth under IRC §§ 6001 and 6033, the organization should no longer be granted tax-exempt status under IRC § 501(c)(3) and described under IRC §§ 509(a)(1) and 170(b)(1)(A)(vi).

CONCLUSION


Based on the information noted above, the Service proposes the revocation of the ORG's exempt status under IRC section 501(c)(3) effective January 1, 20XX.

Form 1120 returns should be filed for the tax periods ending December 31, 20XX, and all subsequent years.

Related Topics On Exempt Status Revoked for Failure to Report

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).



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