Religious, Charitable, etc., Institutions and Community Chest

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION
Number: 201544027
Release Date: 10/30/2015
UIL Code: 501.03-00
TE/GE: EO Examinations
1100 Commerce Street, MC 4920 DAL
Dallas, TX 75242
August 7, 2015
Taxpayer Identification Number:
Person to Contact:
Identification Number:
Contact Telephone Number:
CERTIFIED MAIL- .RETURN RECEIPT REQUESTED
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 May 10, 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 have failed to demonstrate that you are operated exclusively for exempt purposes, and that no part of your net earnings inures to the benefit of your officers, directors, or other private shareholders and individuals, as required by section 501 (c)(3) of the
Code. In addition, your activities more than insubstantially further non-exempt purposes in that you operate primarily for the benefit of private rather than public interests, including private fundraising entities, a professional management company, and a for-profit vendor and coordinator of non-cash "gift-in-kind" services.
Contributions to your organization are no longer deductible under IRC §170 after
January 1, 20XX.
You are required to file Form 1120 U.S. Corporation Income Tax Return. These returns should be filed with the appropriate Service Center for tax year ended December 31, 20XX and for all 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 7 428 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 91 st 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:
United States Tax Court
400 Second Street, NW
Washington, D.C. 20217
United States Court of Federal Claims
717 Madison Place, NW
Washington, D.C. 20005
United States District Court for the District of Columbia
333 Constitution Avenue, NW
Washington, D.C. 20001
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:
Internal Revenue Service
Taxpayer Advocate
If you have any questions, please contact the person whose name and telephone number are shown in the heading of this letter.
Enclosure:
Publication 892
Sincerely,
Margaret Von Lienen
Director, EO Examinations
Letter 3607(04-2002)
Catalog Number: 34198J
Internal Revenue Service
Tax Exempt and Government Entities Division
Exempt Organizations: Examinations
7850 SW 6th Court
TEGE Group 7954
Plantation, FL 33324
Certified Mail - Return Receipt Requested
Dear
Why you are receiving this letter
Department of the Treasury
Date:
December 11, 2014
Taxpayer Identification Number:
Form:
Tax Year(s) Ended:
Person to Contact/ID Number:
Contact Numbers:
Telephone:
Fax:
Manager's name/ID number:
Manager's contact number:
Response due date:
We propose to revoke your status as an organization described in section 501 (c)(3) of the
Internal Revenue Code (Code). Enclosed is our report of examination explaining the proposed action.
What you need to do if you agree
If you agree with our proposal, please sign the enclosed Form 6018, Consent to Proposed
Action- Section 7428, and return it to the contact person at the address listed above (unless you have already provided us a signed Form 6018). We'll issue a final revocation letter determining that you aren't an organization described in section 501(c)(3).
After we issue the final revocation letter, we'll announce that your organization is no longer eligible for contributions deductible under section 170 of the Code.
If we don't hear from you
If you don't respond to this proposal within 30 calendar days from the date of this letter, we'll issue a final revocation letter. Failing to respond to this proposal will adversely impact your legal standing to seek a declaratory judgment because you failed to exhaust your administrative remedies.
Letter 3618 (Rev. 6-2012)
Effect of revocation status
If you receive a final revocation letter, you'll be required to file federal income tax returns for the tax year(s) shown above as well as for subsequent tax years.
What you need to do if you disagree with the proposed revocation
If you disagree with our proposed revocation, you may request a meeting or telephone conference with the supervisor of the IRS contact identified in the heading of this letter. You also may file a protest with the IRS Appeals office by submitting a written request to the contact person at the address listed above within 30 calendar days from the date of this letter.
The Appeals office is independent of the Exempt Organizations division and resolves most disputes informally.
For your protest to be valid, it must contain certain specific information including a statement of the facts, the applicable law, and arguments in support of your position. For specific information needed for a valid protest, please refer to page one of the enclosed Publication 892, How to Appeal an IRS Decision on Tax-Exempt Status, and page six of the enclosed Publication 3498, The Examination Process. Publication 3498 also includes information on your rights as a taxpayer and the IRS collection process. Please note that Fast Track Mediation referred to in Publication 3498 generally doesn't apply after we issue this letter.
You also may request that we refer this matter for technical advice as explained in Publication
892. Please contact the individual identified on the first page of this letter if you are considering requesting technical advice. If we issue a determination letter to you based on a technical advice memorandum issued by the Exempt Organizations Rulings and Agreements office, no further IRS administrative appeal will be available to you.
Contacting the Taxpayer Advocate Office is a taxpayer right
You have the right to contact the office of the Taxpayer Advocate. Their assistance isn't a substitute for established IRS procedures, such as the formal appeals process. The Taxpayer Advocate can't reverse a legally correct tax determination or extend the time you have (fixed by law) to file a petition in a United States court. They can, however, see that a tax matter that hasn't 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:
Internal Revenue Service
Office of the Taxpayer Advocate
For additional information
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.
2 Letter 3618 (Rev. 6-2012)
Thank you for your cooperation.
Enclosures:
Report of Examination
Form 6018
Publication 892
Publication 3498
Sincerely,
Stephen A. Martin
Acting Director, EO Examinations
Letter 3618 {Rev. 6-2012)
3
Name of taxpayer Tax Identification Number Year/Period ended
December 31, 20XX

# ISSUES

Whether is operated exclusively for exempt purposes described within
Internal Revenue Code section 501(c)(3)?
Whether is engaged primarily in activities that accomplish an exempt purpose?
Whether complied with record keeping requirements as required under
Internal Revenue Code sections 6001 and 6003?

# FACTS

# Background

On February 28, 20XX, filed original articles of incorporation with the Secretary of State. The articles of incorporation provided that its purpose was to promote charity, education, and charitable causes by assisting United States Military Veterans in their education, training, employment placement and general assimilation into civilian life through any and all means consistent with its classification as an organization exempt from federal income taxation under Section 501 (c)(3) of the Internal Revenue Code. The articles also state the corporation may receive property by gift, devise or bequest, invest or reinvest the same, and apply the income and principal thereof, as the Board of the Directors may from time to time determine, either directly or through contributions to any charitable organizations, exclusively for charitable and educations purposes. filed several articles of amendment with the Secretary of State for the following:
• November 26, 20XX- Name changed to
• May 28, 20XX - New assumed named changed to
• March 7, 20XX- Principal address changed from
On August 8, 20XX, filed articles of incorporation with the Secretary of
State. The articles of incorporation provided that its purpose was to promote charity, education, and charitable causes by assisting United States Military Veterans in their education, training, employment placement and general assimilation into civilian life.
Form 1023 Application:
On March 5, 20XX, filed a Form 1 023,
Application for Recognition of Exemption under Section 501 (c)(3) of the Internal Revenue Code, with the Internal Revenue Service. As indicated above would later become stated the following in its 1 023: to Catalog Number 20810W Page_1_ Name of taxpayer Tax Identification Number Year/Period ended December 31, 20XX
• Primary activity- Training classes will be provided directly and the organization further intends to develop in-home classes via videos primarily created and disseminated in DVD format; anticipated that activity will compromise 75% of the organization's overall time and program service expense.
Organization will also provide services designed to assist veteran in obtaining job placement, either directly or in cooperation with other similar organization; anticipated that activity will compromise 25% of its overall time and program service expenditures.
• Fundraising Programs- Personal solicitation, foundation and government grant appeals, internet, and email In a letter dated May 10, 20XX, was recognized by the Service as exempt from Federal income tax as an organization described in section 501 ( c)(3) of the Internal Revenue Code.
Program Activities:
In a letter dated November 4, 20XX, was notified that its Form 990 for the tax year ended December 31, 20XX had been selected for examination. The examination was conducted via office correspondence because , the president of , had recently relocated the organization from to After several extension requests, I received responses to Information Document Requests #1-3 from the Power of Attorney at that time, , on February 18, 20XX. On June 2, 20XX, I conducted a telephone interview with , President of , to get an understanding of the organization's activities during the tax year ended December 31 , 20XX. I transcribed the interview I conducted with on Information Document Request #4 and mailed it to and on July 2, 20XX, for comments, clarification, or additional documentation. During the interview, there were several questions that did not know the answers to and he referred me to the accountant, submitted a new Form 2848 on July 18, 20XX, to take over as Power of Attorney for . In an email dated October 20, 20XX, stated that there are many issues and determinations made by IRS that we dispute the factual basis. has not provided any documentation to support his claim to date and has not responded to the numerous outstanding Information Document Requests issued.
There were several Information Document Requests issued to during the course of the examination and to date has not responded completely to the document requests.
Specifically the following requested information has not been furnished:
IDR 1 Identify and explain each of the programs, events and/or activities you conducted during the tax year ended December 31, (Exhibit #1) 20XX.
Please provide details and supporting documentation for the following Expense items:
0
Management Fees $
0
Legal$
0
Accounting $
0
Other$
0
Travel$
IDR3 Provide copies of inventories of gifts-in-kind you acquired or received, and inventories of gifts-in-kind that you donated or (Exhibit #2) delivered to end users. Provide bills of lading or other shipping invoices to and from your facilities, facility rental contracts or other storage contracts I agreements, and other documents relating to the collections or transfer of these gifts-in-kind, both from donors to you and from you to other donees.
IDR4 I conducted a telephone interview with on June 2, 20XX and have attached the transcript below. There Catalog Number 20810W Page_2_ publish.no.irs.gov Department of the Treasury-Internal Revenue Service Name of taxpayer Tax Identification Number Year/Period ended December 31, 20XX (Exhibit #3) were several questions that he did not know the answers and he referred me to the accountant, . I have attempted to contact several times and left several messages but have not received a return call to date.
Please review the interview transcript and provide any comments, clarification, or additional documentation as you deem necessary.
IDR5 I am unable to make a determination on whether your organization continues to operate in accordance with 501 (c)(3) (Exhibit #4) qualifications based on the information received thus far and from conducting an interview with your president, I have attached your organization's detenmination application filed with on March 5, 20XX, for your records.
Please thoroughly review the attached determination application and provide the following:
•
A detailed written description of each program and activity your organization conducted during the examination year ended December 31, 20XX.
•
Provide documentation to support to each program and activity your organization conducting during the examination year ended December 31, 20XX.
IDR6 I obtained a promissory note between (borrower) and (lender) in
(Exhibit #5) the amount of$ entered into on September 1, 20XX. Repayments to , without interest, were to be as follows:
•$ on or before September 10, 20XX
•$ on or before December 10, 20XX
•$ on or before March 10, 20XX
•$ on or before June 10, 20XX.
•The entire amount of principal shall be repaid by June 10, 20XX
•
What was the purpose of the loan from to ?
•
Provide a copy of the cancelled check, wire transfer, etc. to substantiate loan from to in 20XX.
•
Provide schedule of loan repayments from to
•
Please provide invoices, receipts, expense reports, etc. for the following expenses:
0
Travel expenses $
0
Meals$
0
Insurance$ lOR 7 During the examination of your books and records for the year ended December 31, 20XX, I detenmined that you paid the (Exhibit #6) following individuals and attorney fees in excess of $ for services provided and did not issue Forms 1 099-MISC as required:
I··~
I
Amount
I
$
$
$
Please provide the following:
•
Submit delinquent Fonms 1 099-MISC and Forms 1096 for the individuals and corporation you have obtained a valid TIN for payments made during 20XX.
•
Also submit a check in the amount of$ , payable to the United States Treasury for penalties under Section 6721 (a)/(b) for Failure to File Correct Forms ($1 00 for each 1099 for 2011) and Section 6722(a) for Failure to Furnish Correct Returns ($1 00 for each 1099 for 2011 ).
IDR8 On July 18, 20XX, submitted a Fonm 2848 to takeover Power of Attorney for
(Exhibit #7) I contacted on July 21, 20XX, and requested that he make minor changes to the Form 2848 in order for me to submit the form for processing. To date has not submitted the requested Fonm 2848. I have spoken to and left voicemails on several occasions to get the corrected Form 2848. I cannot discuss specific matters about your examination with until and valid Fonm 2848 is submitted.
If your organization still wants to represent you, a new Form 2848 with new signatures and a current date must be submitted. I have included the suggested line items to include on new Form 2848 below:
I Description of Matters
Tax Form Number Years or Periods
I
20XX-20XX
I
20XX-20XX
Catalog Number 20810W Page_3_
Name of taxpayer Tax Identification Number Year/Period ended
December 31, 20XX
Your organization has not submitted requested documents for the following Form 4564, Information Document Requests:
Information Document Reauest # Date Submitted Information Due Date
IDR#4 July 2, 20XX July 22, 20XX
IDR#S July 9, 20XX July 22, 20XX
IDR#6 July 9, 20XX August 8, 20XX
IDR#7 July 9, 20XX August 8, 20XX
Your organization was granted a 60 day extension as requested by on July 18, 20XX.
Please submit ~our resQonses to IDRs #4-7 no later than October 1, 20XX.
Failure to provide the reauested documentation may result in the revocation of vour organization's tax-exempt status.
IDR9 On July 21, 20XX, I sent third party contact letters to all the organizations either received or (Exhibit #8) donated gifts in kind to during 20XX. I requested all documentation related to any gift in kind donations they made or received from during 20XX including, but not limited to, inventory list of donated items, Fair Market Value of items donated, contracts, acknowledgement letters, em ails, bills of lading or other shipping invoices, etc.
I have endosed copies of the responses received from your gifts in kind donors and recipients.
Please thoroughly review the attached documents and submit any comments regarding the accuracy of the documents within 10 days from the date of this letter.
IDR 10 has several Information Document Requests that are extremely past due. (Please see (Exhibit #9) attached I DRs #4-9) Neither nor your Power of Attorney, , has responded to any of my phone calls or letters.
Please provide outstanding information as soon as possible. Failure to provide the requested documentation may result in the revocation of your organization's tax-exempt status.
On its Form 990 return for the tax year ended December 31, 20XX, described its primary purpose and program achievements as follows.
Organization's mission:
Mission is to help motivate and offer assistance programs to disabled veterans in order to assist the service related disabled veterans in regaining their position back into society.
Exempt Purpose Achievements:
Support and help service related veterans facilitated donations of clothing, personal health and hygiene products to the in addition provided medical supplies to homeless veterans promoted and provided to the public through its website a booklet designed to help veterans deal with Post-Traumatic Stress Disorder has Program Service Expenses $ Gifts-in-Kind activities accounted for $ mentioned above. of the$ in program service expenses Gifts-in-Kind: entered into a contract with to handle gifts-inkind services on their behalf. acted as an in-house gifts-in-kind department which enabled to receive donated good. requested to obtain donations of medicine, medical supplies, medical equipment, food and food supplements, clothing, shoes, shelters, and disaster relief items provided the following services:
1. Find and process, at the request of donation that are listed in
Catalog Number 20810W Page_4_ , specified goods available for request for donation letter.
Name of taxpayer Tax Identification Number Year/Period ended
December 31, 20XX
2. Audit the value of donated goods according to fair value measurements as explained in FASB 157.
3. Handle logistics and arrange the shipping and handling of goods to the consignee of their choice
4. Handle the processing of all documentation. did not submit required Schedule B- Schedule of Contributors, Schedule 1-Supp/ementa//nformation on Grants and Other Assistance to Organizations, Governments, and Individuals in the United States, or Schedule F- Statement of Activities Outside of the United States, with the Form 990 filed for the tax year ended December 31, 20XX to disclose gifts-in-kind donors and recipients. During the year under examination, records showed it incurred the following giftsin-kind expenses:
Shipping costs and refund
Gifts-in-Kind:
Total Gifts in Kind
Total program services records also showed the same $ contributions from the following sources:
Gifts-in-Kind:
Total Gifts in Kind
' in gifts-in-kind as non-cash
The gifts-in-kind amounts reported as revenue and expenses on Form 990 could not be verified based on all documentation obtained from various sources during the examination.
The records provided by were incomplete and some were contradictory. did not provide complete shipping documentation to verify what was shipped and signatures of recipients. The records also contained two confirmations of shipment letters with the same date from to addressing the same gifts-inkind reference number, , but listing different recipient organizations. In addition, provided records for $ in gifts-in-kinds it claims it received and distributed in the examination year, but this amount was not included on the Form 990 or any of the accountant's reports.
(Exhibit #1 0)
Third party contact letters were mailed to all donor and recipient organizations stated it conducted gifts-in-kind activities with during the tax year December 31, 20XX, after several attempts were made to obtain complete documentation from . A majority of the Catalog Number 20810W Page_S_ publish.no.irs.gov Department of the Treasury-Internal Revenue Service Name of taxpayer Tax Identification Number Year/Period ended December 31, 20XX responses received from the third parties were also incomplete and inconsistent with records (See Exhibit# 8 for third party responses). was the only organization that provided the exact records as . The other responders provided incomplete, irrelevant, wrong information. On October 10, 20XX, Information Document Request #9 along with copies of third party responses was mailed to requesting comments regarding the accuracy of the documents. Neither nor its Power of Attorney has responded to date.
Section 1.501(c)(3)-1(a)(1) of the regulations provides that, in order to be exempt as an organization described in section 501(c)(3), an organization must be both organized and operated exclusively for one or more of the purposes specified in such section. If an organization fails to meet either the organizational test or the operational test, it is not exempt.
Section 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.
Section 6033(a)(1) of the Code provides, except as provided in section 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, as 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.
Section 1.6001-1(a) of the regulations in conjunction with section 1.6001-1(c) provides that every organization exempt from tax under section 501 (a) of the Code and subject to the tax imposed by section 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 section 6033.
Section 1.6001-1 (e) 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, an shall be retained as long as the contents thereof may be material in the administration of any internal revenue law.
Section 1.6033-1 (h)(2) of the regulations 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 section 6033.
Revenue Ruling 59-95, 1959-1 G.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 section 6033 of the Code and the regulations which implement it, may result in the termination of the exempt status of an catalog Number 20810W Page__§_ publish.no.irs.gov Department of the Treasury-Internal Revenue Service Name of taxpayer Tax Identification Number Year/Period ended December 31, 20XX organization previously held exempt, on the grounds that the organization has not established that it is observing conditions required for the continuation of exempt status.
In accordance with the above cited provisions of the Code and regulations under sections 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.
Revenue Procedure 80-25, 1980-1 CB 667, Section 12.02 states that a ruling or determination letter recognizing exemption may not be relied upon if there is a material change, inconsistent with exemption, in the character, the purpose, or the method of operation of the organization. Section 13.01 further states that where there is a material change, inconsistent with exemption, in the character, the purpose, or the method of operation of an organization, revocation or modification will ordinarily take effect as of the date of such material change.
GOVERNMENT'S POSITION:
In order for an organization to retain its exempt status it must demonstrate to the Service that it meets both the organizational and the operational tests. described what it had done on its Forms 990. However, the records did not support the existence of most of the activities did not provide any documentation to justify its stated exempt purpose achievements of providing support and help service related veterans facilitated donations of clothing, personal health and hygiene products to the in addition provided medical supplies to homeless veterans promoted and provided to the public through its website a booklet designed to help veterans deal with Post-Traumatic Stress Disorder, as reported on the Form 990 for the tax year ended December 31, 20XX.
Gifts-in-kinds activities conducted by a paid for-profit organization appeared to be primary exempt activity. failed to appropriately disclose these activities by filing required Schedules B, I, and F. The fact that these schedules were not included renders the 990 incomplete. Additionally, was unwilling or unable to produce the records necessary to support and substantiate the gifts-in-kind activities. The gifts-in-kind records provided by , its accountant, and third-party sources were incomplete and inconsistent.
Revenue Ruling 59-95 states that the failure or inability to file the required information return or otherwise to comply with the provision of section 6033 of the Code 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: position has not been determined.
Catalog Number 20810W Page_?_ publish.no.irs.gov Department of the Treasury-Internal Revenue Service Name of taxpayer Tax Identification Number Year/Period ended December 31, 20XX CONCLUSION: is not operated exclusively for 501(c)(3) exempt purposes. An organization cannot be recognized as exempt under section 501(c)(3) of the Code unless its shows that it is operated exclusively for charitable, education, or other exempt purposes. Among other things, activities must demonstrate conclusively that it meets the operational test of section 1.501(c)(3)-1(c) of the Regulations.
Based on the information secured during the examination, we conclude that did not meet the operational test. also failed to comply with the recording requirements specified under the Code sections 6011 and 6033 the Regulations thereunder. Therefore, the exempt status granted to should be revoked effective from January 1 , 20XX.
If the revocation is sustained, is required to file Forms 1120 for the years ending December 31, 20XX and after.
Catalog Number 20810W Page_JL_ publish.no.irs.gov Department of the Treasury-Internal Revenue Service