Another IRS Adverse Private Letter Ruling | Revocation of Tax-Exempt Status and Organizational and Operational Issues

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Cindy Wofford joined Freeman Law as Senior Counsel in 2022. Ms. Wofford brings to the firm over 40 years of tax controversy and estate planning/probate experience, 20 years with the IRS’s Office of Chief Counsel in Washington, D.C. and Dallas; the remainder with firms in Washington, D.C., Dallas, and Houston.

IRS Counsel’s National Office is charged with formulating the IRS’s litigating position in cases pending before federal courts. As a National Office attorney, Ms. Wofford primarily focused on collection due process litigation policy and strategy. The tax code requires the IRS to follow certain laws and procedures prior to filing a notice of federal tax lien or issuing a levy to collect a taxpayer’s unpaid taxes. “CDP” allows certain delinquent taxpayers to test whether the IRS followed these laws and procedures in Tax Court. Among her National Office functions, Ms. Wofford reviewed briefs, motions and memoranda to be filed with the Tax Court in CDP cases. She drafted sections of the first CDP Guidebook. She also prepared and reviewed published and internal guidance relating to liens, levies and other collection issues.

Ms. Wofford left the  IRS Counsel’s National Office for its Small Business/Self-Employed (SB/SE) Dallas office. While in SB/SE, Ms. Wofford handled over 840 docketed Tax Court cases, from case analysis and development to trial and briefing or settlement. Ms. Wofford also served as a CDP resource to SB/SE attorneys and appeals officers in and out of Texas for 18 years. She participated regularly in internal/external attorney and CDP settlement officer trainings at the local, regional and national levels.

Another IRS Adverse Private Letter Ruling | Revocation of Tax-Exempt Status and Organizational and Operational Issues

Private Letter Ruling 202226013 | July 1, 2022 


Short Summary:

In this ruling, a corporation’s I.R.C. § 501(c)(3) tax exempt status was under scrutiny. The corporation (“Company”) represented in its articles of incorporation and during its Form 1023 application process that it was organized to provide a “broad range” of educational and other community-based services to benefit the elderly, disabled, veterans, and children, but no program services or activities were reported on the Company’s Form 990 returns or accompanying tax schedules for a period of years. The return which the IRS selected for audit reported no revenues and only one unsubstantiated expense for the audited year. Questions raised by these filings were not addressed during the examination. The revenue agent attempted repeatedly but failed to secure an interview with a Company officer. The CPA who represented the entity knew little about the Company’s operations and the documents he turned over, including corporate minutes, gave no indication of the Company’s mission or activities. The Company’s submissions did not include the Company’s financials, requested bank statements, or a description of activities undertaken in the year under examination. The Company’s balance sheet contained unexplained irregularities.

Key Issue:

Primary Rulings:

Key Points of Law:

Insights:  This ruling illustrates that a section 501(c)(3) organization, to maintain its tax exempt status, must continue to pursue its charitable activities, must properly document those activities on tax returns and in its corporate records, and is advised to cooperate with the IRS in its exercise of investigatory and audit authority over the privilege of tax exemption.

For additional information on legal and tax issues facing tax-exempt and nonprofit organizations, search this Freeman Law Insights blog for topics such as:

Adverse Rulings from the IRS on Tax-Exempt Entities/Nonprofits (other July 1, 2022 IRS Private Letter Rulings)

Three-Part blog on Tax Exemption and Unrelated Business Income Rules

Can Nonprofits Fundraise for Other Nonprofits?

What is a Section 509(a)(3) Supporting Organization?

Representing Texas Nonprofit Corporations