IRS written determination 201520013

Private letter rulings and published taxpayer determination letters. Native document type is retained separately; a determination letter is not labeled a private letter ruling. These taxpayer-specific releases cannot be used or cited as precedent under 26 USC 6110(k)(3); applicability and current legal force are not independently certified. Keep repeated UILC subjects attached to one actual numbered document.

Internal Revenue Service
Appeals Office
333 East River Dr., St. 200
East Hartford,
CT 06108
Oate: DEC 0 ,g· 2013
Number: 201520013
Release Date: 5/15/29015
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Dear
Department of the Treasury
Taxpayer Identification Number:
Person
to Contact:
Tax Perlod(s) Ended:
UIL: 503.03-00
This is a final adverse determination regarding your exempt status under section
501 (c)(3) of the Internal
Revenue Code (the "Code"). It is determined that you do not qualify as exempt from Federal income tax
under section 501(c)(3)
of the Code effective D.
The revocation of your exempt status was made for the following reason(s):
More than an insubstantial part
of the organization's activities are not in furtherance of exempt
purposes. Therefore, the organization fails to meet the operational test as defined in Regulation
1.501 (c)(3)-1 (a)(1
).
Contributions to your organization are not deductible under section 170 of the Code.
You are required to file Federal income tax returns on Forms E for the tax periods stated in the heading of
this letter and for all tax years thereafter. File your return with the appropriate Internal Revenue Service
Center per the instructions
of the return. For further instructions, forms, and information please visit
www.irs.gov.
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 Code.
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: 1) United States Tax Court,

2} the United States Court of Federal Claims, or 3) the United States District Court for the District of
Columbia. A petition or complaint in one of these three courts must be filed within 90 days from the date
this determination letter was
mailed to you. Please contact the clerk of the appropriate court for rules for
filing petitions for declaratory judgment. To secure a petition form from the United States Tax Court, write
to the United States Tax Court, 400 Second Street, N.W., Washington, D.C. 20217. See also Publication
892.
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 matters
that
may not have been resolved through normal channels get prompt and proper handling. If you want
Taxpayer
Advocate assistance, please contact the Taxpayer Advocate for the IRS office that issued this
letter. You may call toll-free, 1-877-777-4778, for the Taxpayer Advocate or visit www.irs.gov/advocate
for
more information.
We will notify the appropriate State officials of this action, as required by Code section 61 04(c). You
should contact your state officials if you have any questions about how this 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 Yours,
lsi
Appeals Team Manager
cc:
Enclosure: Publication 892

Fo.rm886A
LEGEND
ORG -Organization name XX -Date
Country -country website -website
RA DIR-1 -DIR-6 -1sT THROUGH 6™ DIR
12TK COMPANIES
ISSUE;
Year/Period
Ended
12/31/:XXthru
1
City -city State -state
RA-1, RA-2 & RA-3 -1sT, zNo & 3Ro
CO-l THROUGH C0-12 -1
5
T
THROUGH
Is the organization described below entitled to continued tax exempt status under Internal
Revenue Code Section 501(c)(3)?
ISSUE:
Are contributions to the organization described below deductible
under section 170 of the
Internal Revenue. Code?
(hereinafter referred to as the "organization ")was incorporated on July 10, 19XX in the
state
of State. The organization was granted tax exempt status under IRC section 501(c)(3)
as a public charity described in sections 509(a)(1) and 170(b)(1)(A)(vi)
of the Code on
January 15, 19XX.
purpose, the organization provides monetary
facilities to meet the religious and educational needs of Country
-··
Th~oreign organization has a similar name to the domestic organization which
is -(hereinafter referred to as "CO-l") , and they operate a network of
schools in Country.
The organization derives substantially all of its income in the form• of contributions from
foundations, individuals
and the general public. During the examination , it was
determined that the organization maintained accounts
at C0-2, C0-3 and C0-3 from
which funds were sent via checks or wire transfers
to support the foreign organization.
The website for
CO-l (website ) provides a history of the organization.
-
Form 886-A(Rev.4-68)
Department of the Treasury-Internal Revenue Service
Page: -1-

Form886A
Financial Information
A review of the organization's Form
990 information returns for tax years December 31,
20XX through December 31, 20XX disclosed that the organization's primary activity
is
providing financial support (totaling$$,$$,$$ and$$ respectively) to CO-l.
The Form 990 returns also show expenses classified as "Social Work Programs., The
organization represented that this expense category was the direct payment
of salaries to
teachers at the Country schools. For the years under examination "salary" payments to
Form 886-A(Rev.4-68) Department ofthe Treasury-Internal Revenue Service
Page: -2-

. Form886A
lnten1al Revenue
of Items
Schedule No. or
Exhibit
Year/Period
Ended
12/31/X.X thru
1
individuals for calendar years 20XX, 20XX, 20XX and 20XX were $$, $$, $$ and $$
respectively.
The organization provided itemized schedules of disbursements for CO-l and the Social
Work Programs for each year under examination. The schedules revealed that a
significant
number of checks and wire transfer receipts including bank statements were
missing. The amounts referenced on the various tables below were extracted from the
schedules provided by the organization.
Per 990, the table below summarizes payments the organization represents to have been
made for the benefit
of CO-l •
20XX
20XX 20XX
20XX
Total
1. Direct
support
$$ $$
$$
$$
$$
for CO-l
2.Payments for
$ $ $ $
$$ s $
$ $
teachers -Social
Work Prog_rams
3. Subtotal $$ $$ $ $ $$
$$
Percentage of funds earmarked for specific individuals (Total payments for teachers ) $$
divided by Total Distributions $$ = %
Direct payments of salaries to teachers
The organization was asked why in a<ldition to making dire~t support payments to the
educational institution they also made direct payment
of salaries to individuals at three of
the schools. The representative stated that the foreign organization had requested that
payment be made directly to the individuals in order to lessen the school's administrative
burdens.
In addition, he indicated that this was done in order to segregate those payments
from the
Country organization's regular cash flow for budgeting purposes. This enabled
them to
better track the portion of their payroll that they needed to cover from other
sources. The representative was also asked if these individuals receiving payments were
United States citizens. He indicated
that "to the best of our knowledge, these individuals
are not U.S. citizens."
The organization stated that CO-l periodically submitted a request listing the names of
individuals and the amounts to be paid to each on behalf of the foreign organization. The
Form
886-A(Rev.4-68)
Department of the Treasury-Internal Revenue Service
Page: -3-

Fotm886A
Service
Schedule No. or
Exhibit
Year/Period
Ended
12/31/XX thru
12/31
organization drafts the checks payable to the identified individuals, sends the checks to the
foreign organization who in
turn distributes them to the payees.
The Service issued
an Information Document Request (IDR) dated August 2, 20XX in
which the organization was asked what controls were in place to determine
that the
individuals
are employed by the schools in Country and to submit personnel files for these
individuals.
The organization's representative indicated that the board members visit the
Country organization on a monthly basis. During the visitation, they inspect records
and
make unannounced onsite visits of the schools. A board member resides in Country and
constantly monitors usage of funds provided by the organization.
The organization provided documents
in-both hand written and printed from the
school facilities operated in Country. The documents included photo identifications, W-4
equivalents
and personnel files, as verification that the individuals receiving payments are
in fact employees of the Country schools. However, the organization did not provide photo
identifications for
all individuals who received direct payments. Additional
correspondence received from the director
of the schools in Country listed the names,
employment dates, school locations and job function for each of the individuals to whom
payments were made by the organization. The Service did not accept these documents as
evidence that the individuals
are employees of the schools because they were unofficial
documents and appeared to be self-serving. Furthermore payments earmarked for
specific individuals
are not deductible under Section 170 of the Internal Revenue Code. A
discussion
of this issue is presented under the law section of this Form 886-A.
Payments made to the Director
ofC0-1 and other individuals
The organization's representative stated that the school is often in need
of immediate cash
to cover operational expenses. When this results, the representative stated that the director
frequently advances his own funds and the organization reimburses the director. The
organization also made payments to other individuals for which they did not provide
records to establish the exempt purpose of these disbursements. The table below
summarizes these payments.
20XX
20XX
1. DIR-1Director
$$
$$
2. DIR-2
$$ $$
3. DIR-3
$ $
4. DIR-4
$ $
S.DIR-5 $$
6. DIR-6
Form 886-A(Rev.4-68)
20XX
20XX
Total
$$
$$
$$
$$
$ $
$ $
$ $
$$
$
$
$$
$$
Department of the Treasury-Internal Revenue Service
Page: -4-

Form886A
Schedule No. or
Exhibit
Period
Ended
12/31/XX tlu:u
1
17. Subtotal $$ I$$ I$$ $$ I $ $
Percentage
of non-substantiated payments to Director of CO-l and other individuals
(Total payments to director
& individuals) $$ divided by Total Distributions $$ = %
Payments made to non-exempt entities
The organization made payments totaling
$$ to C0-4 , $$ to C0-5 and $$ to C0-6.
These entities were not listed in the Publication 78 as organizations to which
contributions
are deductible. The table below summarizes these payments.
20:XX 20:XX
20:XX 20:XX
Total
l.C0-4
$$
$$
2. C0-5
$$
$$
3. C0-6 $$
$$
4. Subtotal
$$
$$ $$
$$
Percentage of payments to non-exempt entities (Total payments to non-exempt entities)$$
divided by Total Distributions $
= %
Other questionable payments and transactions
Based on the breakdown
of disbursements on Form 990 for CO-l and the schedules
provided, there were other questionable transactions that required further substantiation
to establish
that funds were used for section 501 (c )(3) purposes. The table below
summarizes these transactions.
20:XX 20:XX 20XX
20:XX Total
!.Loans made
directly by
individuals to
Country
2. RA-2
3. Transfers
classified as
"Suspense"
4. School
5. C0-7
6. Withdrawal
7.
CO-l
8. Subtotal
Form 886-A<Rev.4-68) Department of the Treasury -Internal Revenue Service
Page: -5-

Form886A
Schedule No. or
Exhibit
Year/Period
Ended
12/31/XX thru
1
Percentage of other non-substantiated transactions (Total other questionable
transactions)$ divided by Total Distributions
$$ =%
Review of cancelled checks, wire transfers & bank statements
A sampling
of the cancelled checks issued to teachers disclosed that a significant n.qmber of
the checks were deposited into the same account of a particular
bank in . . .... · .... · .. ·· ·_for tax
year 20XX. However, for tax years 20XX through 20XX checks issued to individuals were
cashed
at various financial institutions located in Country. The organization's
representative indicated that the checks were cashed
at a check cashing agency that in turn
deposits the checks in the C0-8.
It was also determined that a few of the payments to teachers represented to be working
overseas were deposited in local
U.S. banks. Checks payable to one individual were
routinely deposited in an account maintained at C0-2 located in State. Checks payable to
another individual were regularly deposited into
C0-9, located in City, State. The
representative indicated that some of the checks were deposited to US banks because those
teachers have American
bank accounts managed by relatives who live in the US and
requested
their checks to be deposited to those accounts. It was also noted that the checks
made payable to the Director
of the schools were deposited into an account maintained at
C0-2 based in State even though he resides in Country.
A review of the
bank statements showed a very high frequency of large deposits and
subsequent withdrawals
of the same amounts within a matter of days. The C0-2 statements
showed significant transfer
of funds but did not identify the beneficiary. The C0-3
stat~~-~nts showed substantial transfers of funds that named the beneficiary as '~:,~ ..•
~j''· Although the bank statements for C0-3 and C0-3 identified the beneficiary of
the wire transfers, the Service was unable to determine whether the wire transfers
represented to have been made in support of foreign entity were used for section 501(c)(3)
purposes because
of inadequate recordkeeping by the organization.
Failure to respond to requests for information that would verify exempt purpose
of
payments
The Service issued Information Document Requests (IDR) dated February 28, 20XX for
each
year under examination. The IDR included specific requests for missing checks, wire
transfer receipts,
bank statements, documents to substantiate reimbursements to the
Director, records to substantiate that funds were used for section 50l(c)(3) purposes,
records to substantiate loans
made directly by individuals to Country and clarification on
particular transactions. The organization did not
respond to
our request for information.
Form
886-A(Rev.4-68) Department of the Treasury-Internal Revenue Semce
Page: -6-

' l.
Fotm886A
Schedule No. or
Exhibit
Year/Period
Ended
12/31/XX th.ru
1
Tax Attache
Due
to the taxpayer's lack of substantiation of payments sent overseas, the Area Office
sought the assistance
of the Service's Foreign Tax Attache. The Foreign Tax Attache
contacted the Country taxing authority and conducted a collateral investigation. The
following
is a summary of their interview with officials of the foreign entity.
According to the report, the CO-l employs
approximately. workers in
different educational institutions in Country. Eighty percent of the
workers. workers) are~ CO-l and some are
being paid the
Country-. Twenty ~he
workers workers) are being paid only by the Country---
C0-1 receives revenues from the Country
Municipalities, Tuition
fees and Donations
four
bank accounts which are C0-10 (acct##), C0-10 (acct# #),CO-
ll(acct##) and C0-12(acct##).
The foreign organization's manager, RA-3, claims all of the wire transfers
and checks
of the US organization were deposited in one of the bank
accounts of CO-l. He also claims that there was no case of a donation
received from abroad and transferred to the account
of one of the
employees.
CO-l is registered as a non-profit organization, but is not recognized as an
organization that Country citizens can donate to and receive a tax credit
according
to article. of the Country Tax Ordinance.
Some
of the workers who were listed on the Social Work Programs
schedule were found to be registered employees
ofC0-1. However, the
checks sent from the organization specially for these teachers were not
recorded on the books of C0-1.
In addition to the report, the Service received the foreign entity's bank statements
from the Country authorities. Notations within a number
of the statements
indicated
that funds totaling approximately (approximately
-
U.S. dollars today) were returned to the during the
years 20XX through 20XX.
LAW:
Form 886-A(Rev.4-68)
Department of the Treasury - Internal Revenue Service
Page: -7-

Form886A
Department
Ex
Schedule No. or
Exhibit
Ended
12/31/X.X thru
1/XX
Section 501(c)(3) of the Code describes, in pertinent part, organizations organized and
operated exclusively for religious, charitable and educational purposes, no part of the net
earnings of which inures to the benefit of any private shareholder or individual.
Section 170 ( c)(l) allows a charitable contribution deduction for a gift to
or for the use of a
corporation,
trust community chest or foundation that is created or organized in the United
States,
or in any possession thereof, or" under the laws ofthe United States, any State, the
District
of Columbia, or any possession thereof, but only if the gift is made for exclusively
public purposes.
Section 1.501(c)(3)-l(c)(l)
of the income tax regulations (the "regulations") provides that an
organization will be regarded as "operated exclusively" for one or more exempt purposes
only
if it engages primarily in activities which accomplish one or more of such exempt
purposes specified in section 501(c)(3).
An organization will not be so regarded if more
than an insubstantial part of its activities is not in furtherance of an exempt purpose.
Section 1.501(c)(3)-l(c)(2)
of the regulations provides that an organization is not operated
exclusively for one
or more exempt purposes if its net earnings inure in whole or in part to
the benefit
of private shareholders or bidividuals. Section 1.501(a)-1(c) of the regulations
provides
that the terms "private shareholder or individual" as used in section 501(c)(3)
re(er
to persons having a personal and private interest in the activities
of the organization.
Section 1.501(c)(3)-1(d)(1)(ii) of the regulations provides
that an organization is not
organized
or operated exclusively for one or more exempt purposes unless it serves a public
rather than a private interest. Thus, in order to meet this requirement, it is necessary for
an organization to establish that it is not organized or operated for the benefit of private
interests.
In Better Business Bureau v. United States, 326 279 (1945), the Supreme Court stated that
the presence of a single, nonexempt purpose, if more than insubstantial in nature, will
defeat exemption under section 501(c)(3) of the Code, regardless of the manner or
importance of the truly exempt purposes.
An organization
is not described in section 501(c)(3) if it serves a private interest more than
incidentally. See Rev. Rul. 69-545, 1965-2 C.B. 117; Rev. Rul. 78-86, 1978-1 C.B. 151; and
Rev. Rul. 76-152, 1976-1 C.B. 151.
If, however, the private benefit is only incidental to the
exempt purposes served, and not substantial, it will not result
in a loss of exempt status.
Rev. Rul. 71-460, 1971-2 C.B. 231, provides
that a domestic organization that conducts
some
or all of its activities outside the United States is not precluded from qualifying for
exempt status
under section 501(c)(3).
Form 886-A(Rev.4-68) Department ofthe Treasury • Internal Revenue Service
Page: -8-

Form886A
Ended
12/31/:XX thru
1 1/XX
Revenue Ruling 63-252 1963-2 C.B. 101 holds that for a contribution to a domestic
organization
to be deducible under section 170 a grant that is sent to a foreign entity must
be reviewed and approved by the domestic organization. This ensures that the grant is not
earmarked and subject to the control of" the domestic organization.
Revenue Ruling 66-791966-1 C.B. 48 clarifies Revenue Ruling 63-252. Rev. Ruling 66-79,
1966-1 C.B. 48, provides rules
for determining whether a domestic charitable organization
has and exercises sufficient control as to the use of contributions for the purposes of section
170(c).
Contributions to a foreign charity generally are not deductible. While a domestic
charity
can use the contributions abroad, it cannot merely transfer them to a foreign
charity. Revenue
Ruling 66-79 describes the following factors that indicate that the
domestic organization has discretion and control over the use of monies sent abroad.
The bylaws of the corporation provide, in part, that: (1) The making of
grants and contributions and otherwise rendering financial assistance
for the purposes expressed in the charter of the organization shall be
within the exclusive power of the board of directors; (2) in furtherance
of the organization's purposes, the board of directors shall have power
to make grants to any organization organized and operated exclusively
for charitable, scientific or educational purposes within the meaning of
section 501( c)(3) of the Code; (3) the board of directors shall review all
requests for funds from other organizations, shall require that such
requests specify
the use to which the funds will be put, and if the board
of directors approves the request, shall authorize payment of such
funds to the approved grantee; (4) the board of directors shall require
that the grantees furnish a periodic accounting to show that the funds
were expended for the purposes which were approved by the board of
directors; and (5) the board of directors may, in its absolute discretion,
refuse to
make any grants or contributions or otherwise render
financial assistance to or for any or all the.purposes for which funds
are requested.
This revenue
ruling concluded that contributions to this organization are deductible
because gifts received
were used for the domestic organization's charitable purpose and the
domestic organization maintained control and discretion over the use of the funds.
Rev. Rul 68-489, 1968-2 C.B. 210, provides that an exempt organization under section
501(c)(3) does
not jeopardize its exempt status by distributing funds to organizations not
themselves exempt under section_ 501(c)(3), provided the exempt organization:
1)
retains control and discretion as to the use of the funds;
Form 886-A(Rev.4-68)
Department of the Treasury-Internal Revenue Service
Page: -9-

Form886A
Schedule No. or
Exhibit
Year/Period
Ended
12/31/XX thru
2) maintains records establishing that the funds were used for section 501(c)(3)
purposes; and
3) limits distributions to specific projects that are in furtherance
of its own exempt
purposes.
Revenue Ruling 56-304 1956-2 C.B. 306 holds that an organization described in section
501(c)(3) may make distributions of their funds to individuals, provid.ed such distributions
are made on a true charitable basis. Organizations that make distributions to individuals
should maintain adequate records and case histories to show the name and address
of each
recipient
of aid; the amount distributed to each; the purpose for which the aid was given;
the manner in which the recipient was selected and the relationship,
if any, between the
recipient and (1) members, officers,
or trustees of the organization, (2) a grantor or
substantial contributor to the organization or a member of the family of either, and (3) a
corporation controlled by a grantor
or substantial contributor, in order that any or all
distributions made to individuals can be substantiated upon request by the Internal
Revenue Service.
RATIONALE:
Exemption
In order to qualify for tax exempt status under section 50l(c)(3) an organization must
engage primarily in activities which accomplish one
or more exempt purposes and no more
than an insubstantial
part of its activities may be in furtherance of a nonexempt purpose.
(Section 1.501(c)(3)-l(c)(l))
The organization does not satisfy the conditions outlined in this regulation.
A review of the charts in the Facts section of this report indicates that over a four year
period
approximately(.~% of $;'""<""' ..... ,,.~dollars were disbursed as follows:{,··,% to
teachers,
·'%to the director of CO-l and other individuals,. %to non-exempt entities
and
~ll ·;% .. for other questionable transactions.
The representative stated
that some payments to individuals were for salaries and to
reimburse a director of organization for advances he made to CO-l. The organization did
riot substantiate
that the payments made to the teachers were to subsidize CO-l's salary
expense. Over the four year examination. period the "salary expense" was
S. ··· .• . .
But assuming that the representative's oral testimony
is accurate and this was indeed a
valid salary expense, having the organization make these payments instead of CO-l serves
to frustrate the administration of the Country income tax laws by having these monies
escape reporting requirements. This
is a substantial nonexempt purpose.
Fonn 886-A(Rev.4-68)
Department of the Treasury-Internal Revenue Service
Page: -10-

Fonn886A
Revenue Servtce
Period
Ended
12/31/:XX thru
1
If these payments were not for salary expense, then the organization did not maintain the
records outlined in Revenue Ruling
56M304 to establish that a charitable purpose was
served by these payments. In either event more than an insubstantial
part of the
organizations activities were not in furtherance of exempt purposes.
Over a four
year period the taxpayer made payments of over[ _ __ ~-~----'dollars directly to
a director
of COM 1 . The oral testimony of the representative indicated' that these
payments were reimbursements for advances by the director
of CO-l . If the director did
advance
CO-l that much money and the organization wanted to assist in alleviating the
foreign organization's debt, the organization could just as easily given the money to
COMl
and not the individual. The organization has not established that these payments did not
serve private interests more than insubstantially. (See Section 1.50l(c)
(3) -l(d)(l) of the
income tax regulation)
The organization made other questionable payments and transactions totaling
50%
of
disbursements for which no substantiation was provided to establish whether the funds
were used for a 501 (c)(3) purposes. The organization also made contributions to non-
exempt entities
and did not maintain records to establish that an exempt purpose was
served by these disbursements.
Deductibility
In order for contributions to be deductible, the domestic charitable organization must
ensure
that grants made to a foreign organization or monies paid to an individual have
been reviewed and approved in advance to ensure that the exempt purpose
of the domestic
charity
is furthered.
Revenue Rulings 63-252 and 66-79 dealing with deductibility
of contributions, hold that if
payments are made to a foreign organization that have not been reviewed and approved in
advance by the Board
of the domestic organization then contributions to the domestic
organization
are not deductible because the domestic organization is acting as a conduit for
the foreign organization and the domestic organization cannot establish
that the funds
were not earmarked for the foreign organization.
A foreign organization should
be viewed as a non-exempt organization since that entity has
not established
that it meets the requirements of tax exempt status under section 501(c)(3).
Based on Revenue Ruling 68-489 an exempt purpose can be established
if a grant made to a
non-exempt organization
is subject to the discretion and control of the exempt charitable
organization. The organization described in the
r~venue ruling accomplished this by
Form 886-A(Rev.4-68)
Department of the Treasury-Internal Revenue Service
Page: -11-

Fonn886A
Revenue Service
Year/Period
Ended
12/31/:XX thru
1 1/:XX
limiting its grant to a specific project that it reviewed in advance and by maintaining
records to establish
that an exempt purpose is served.
Foreign organizations should be treated as non-exempt entities since they have not
established
that they meet the requirements for exemption under section 501(c)(3) and the
rationale in Revenue Ruling 68-489 should be applied.
For the years under examination substantially all of the organization's disbursements were
reportedly made to
or for the benefit of CO-l. These payments were not for specific
projects,
but for the general operating expenses of CO-l • The organization did not
maintain records to establish that:
(1) The making of grants was within the exclusive power of the board
of directors;
(2) The board
of directors reviewed all requests for funds and required
that the recipient organization specify the use to which the funds will be
put;
(3) The
board of directors required that the grantees furnish a periodic
accounting to show
that the funds were expended for the purposes
which
:were approved by the board
of directors; and
(4)
The board of directors may, in its absolute discretion, refuse to
make any grants
or contributions or otherwise render financial
assistance to
or for any or all the purposes for which funds are
requested.
The organization has not established that it maintained contemporaneous
written substantiation to verify
that it maintained discretion and control of its
funds to comply with the contribution deductibility rules outlined in Revenue
Rulings 63-252 and 66-79. The organization did not establish
that it funded
specific projects reviewed in advance. Instead the organization acted as a
conduit for
CO-l, in effect making CO-l the actual donee organization.
GOVERNMENT'S PRIMARY POSITION:
Based upon
our examination, we determined that more than an insubstantial part of
Form 886-A(Rev.4-68)
Department of the Treasury -Internal Revenue Service
Page: -12-

·. ''· ':
Form886A
Intemal Revenue
Schedule No. or
of Items
Exhibit
Ended
12/31/:XX thru
12/31
the organization's activities are not in furtherance of exempt purposes and, as a result, the
organization fails to meet the operational test as defined in Regulations Section l.SOl(c
)(3)M
l(a)(l).
With respect to payments made to individuals represented
by the organization as
employees
of the schools, the organization has failed to provide acceptable documentation
as proof that these individuals are employees. With respect
to the payments to a director of
CO-l
the Service asserts that payments to him serve a private rather than a public
interest. See Section 1.50l(c)(3) -l(d)(l)(ii).
GOVERNMENT'S SECONDARY POSITION:
If the Government's primary position is not sustained, the government secondary position
is that contributions to the organization are not deductible.
The organization failed to exercise discretion and control
of monies sent abroad. The
organization acted as a conduit. Contributions are only deductible
if made to a domestic
organization for the use of the domestic organization's exempt purpose. To establish
that
monies sent outside the United States serve the domestic organization's exempt purpose the
domestic organization must establish discretion and control over the use of the funds. The
organization did not exercise discretion and control and acted as a conduit for
CO-l.
Accordingly, contributions to the organization are not deductible under section 170( c).
TAXPAYER'S POSITION:
Information Document Requests
sub~itted to the organization regarding their position on
the issues contained herein remain unanswered.
CONCLUSION:
Based upon
the fact stated herein, we determined that the organization does not qualify for
exemption
under Section 501(c)(3) of the Code. We, therefore, propose to revoke its
exemption
under IRC Section 50l(c)(3) effective January 1, 20XX.
Secondarily, the organization. acted as a conduit for a foreign organization and
contributions to the organization are not deductible.
Fonn 886-A(Rev.4-68)
Department of the Treasury· Internal Revenue Service
Page: -13-