Private Letter Rulings - Unresponsive Organization Loses Exempt Status
GiftLaw Note:
Organization, a Sec. 501(c)(3) charity since April 13, 19XX, received a letter dated February 1, 20XX from the Service requesting additional information to conduct an examination of Organization's Form 990. The Service also attempted to contact Organization's representative by telephone on March 13, April 28, May 13 and May 28 of 20XX.
The Service revoked Organization's Sec. 501(c)(3) tax-exempt status for failure to produce the requested items. Under Sec. 6001, every person liable for tax imposed by the IRC must keep adequate records as the Secretary of the Treasury or his delegate may prescribe. Sec. 6033(a)(1) provides that tax-exempt organizations must file an annual return with items of gross income, receipts and disbursements and other information needed. Regs. 1.6001-1(a) and (c) state that tax-exempt organizations must keep sufficient records to substantiate the information required under Sec. 6033. Reg. 1.6033-1(h)(2) provides that every organization which is exempt from tax shall submit such additional information as may be required by the Service for the purpose of inquiring into its exempt status. In Rev. Rul. 59-95, 1959-1 C.B. 627, the Service held that an exempt organization's failure or inability to provide requested financial information may result in termination of exempt status because the organization has not established it is observing the conditions required for the continuation of exempt status.
The Service revoked Organization's Sec. 501(c)(3) tax-exempt status for failure to produce the requested items. Under Sec. 6001, every person liable for tax imposed by the IRC must keep adequate records as the Secretary of the Treasury or his delegate may prescribe. Sec. 6033(a)(1) provides that tax-exempt organizations must file an annual return with items of gross income, receipts and disbursements and other information needed. Regs. 1.6001-1(a) and (c) state that tax-exempt organizations must keep sufficient records to substantiate the information required under Sec. 6033. Reg. 1.6033-1(h)(2) provides that every organization which is exempt from tax shall submit such additional information as may be required by the Service for the purpose of inquiring into its exempt status. In Rev. Rul. 59-95, 1959-1 C.B. 627, the Service held that an exempt organization's failure or inability to provide requested financial information may result in termination of exempt status because the organization has not established it is observing the conditions required for the continuation of exempt status.
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 August 31, 19XX 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):
In our letters dated February 1, 20XX we requested additional information necessary to conduct an examination of your Form 990 for the year ended June 30, 20XX. We also made several telephones calls to your representative on March 13, 20XX, April 28, 20XX, May 13, 20XX and May 28, 20XX. We have not received the requested information.
Section 1.6033-1(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.
Since you have not provided the requested information, we hereby revoke your organization's exemption from Federal income tax under section 501(c)(3) of the Internal Revenue Code effective July 1, 20XX.
Contributions to your organization are no longer deductible under IRC § 170 after July 1, 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 30, 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 section 7428 of the Internal Revenue Code.
If you decide to contest this determination under the declaratory judgment provisions of section 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 91st 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 892. You may write to these courts at the following addresses:
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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 Taxpayer Advocate Assistance. If you prefer, you may contact your local Taxpayer Advocate at:
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We will notify the appropriate State Officials of this action, as required by Code section 6104(c), You should contact your State officials if you have any questions about how this final determination may affect your State responsibilities and requirements.
If you have any questions, please contact the person whose name and telephone number are shown in the heading of this letter.
Sincerely,
Renee Wells, Acting Director, EO Examinations
Date: June 4, 2008
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,
Marsha A. Ramirez, Director, EO
Form 886A
Explanation of Items
Schedule No. or Exhibit
Name of Taxpayer Year/Period Ended
ORG 20XX/06
EIN: * * *
ISSUE -- Organization not responding to document
request by The IRS
______________________________________________________________________
LEGEND:
ORG = Organization name
XX = Date
Failing to respond to document request.
ISSUE
Whether the organization qualifies for exemption under Section 501(c)(3) of the Internal Revenue Code.
FACTS
Exhibit A provides copy of the Internal Revenue Service correspondence requesting that Exempt Organization file the additional information required to complete the examination started earlier. Letter was mailed out on February 1, 20XX. Agent made several telephone calls to the representative following up on this issue. Agent had called on March 13, 20XX, April 28, 20XX, May 13, 20XX and May 28, 20XX with no response. Exempt Organization failed to respond to the Internal Revenue Service correspondence or telephone calls.
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)(3), every organization exempt from tax under section 501(a) shall file an annual return, stating specifically the items of gross income, receipts and disbursements, and such other information for the purposes of carrying out the internal revenue laws as the Secretary may by forms or regulations prescribe, and keep such records, render under oath such statements, make such other returns, and comply with such rules and regulations as the Secretary may from time to time prescribe.
Treas. Reg. § 1.6001-1(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. § 1.6033-2(i)(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
This area is left blank.
GOVERNMENT'S POSITION
Based on the above cited law, it is the government's position that the exempt organization has failed to meet its reporting requirements. As such, the tax exempt status of the same should be withdrawn.
CONCLUSION
It is the IRS's position that the organization failed to meet the reporting requirements under IRC §§ 6001 and 6033 to be recognized as exempt from federal income tax under IRC § 501(c)(3), Accordingly, the organization's exempt status is revoked effective July 1, 20XX.
Form 1120 returns should be filed for the lax periods ending on or after June 30, 20XX.