Tax Court: Revocation letter must be publicly disclosed

Revoking exempt organization's tax-exempt status

The U.S. Tax Court today issued an opinion denying a request to restrain disclosure of a written determination issued by the IRS revoking an entity’s tax-exempt status. The Tax Court concluded that the revocation letter and accompanying report constituted a “written determination” that had been “issued” to the entity, pursuant to the provisions of section 6110.

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The case is:  Anonymous v. Commissioner, 145 T.C. No. 10 (October 26, 2015). Read the Tax Court’s opinion [PDF 87 KB]

Summary

The IRS issued a final adverse determination letter (the “first revocation letter”), accompanied by an examination report, that revoked the entity’s tax-exempt status under section 501(c)(3) retroactively to Date 1.

Litigation followed, and was settled by a closing agreement. Under that closing agreement, the entity agreed not to contest revocation of its tax-exempt status for prior years and to make a lump-sum payment to satisfy its tax obligations for those years. The IRS agreed to withdraw the first revocation letter, and to consider a new application for exempt status, and after acting on that application, to issue a new revocation letter.

The IRS granted the new application for exempt status, and issued a new revocation letter (the “second revocation letter”). This letter also revoked the entity’s exempt status retroactively to Date 1, but did not include the examination report.

The second revocation letter (redacted) was made available for public inspection. The entity initiated this action before the Tax Court, to restrain disclosure of the first revocation letter and accompanying examination report. The entity contended that the IRS withdrawal of that letter before it was disclosed had the effect of rendering it “un-issued” or “a legal nullity.”

The Tax Court today concluded:

  • The first revocation letter and accompanying examination report constituted a “written determination” that was properly “issued” and therefore must be made available for public inspection under section 6110(a), subject to the deletions required by section 6110(c).
  • There were no provisions under section 6110 that authorize the deletion, in its entirety, of the portion of the examination report discussing private inurement.

 

For more information, contact the Managing Director-in-Charge of KPMG's Washington National Tax Exempt Organizations Tax group:

D. Greg Goller | (703) 286-8391 | greggoller@kpmg.com

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