F. Revocation

(1) Propose to revoke exemption if the foundation ceases to be operated exclusively

for exempt purposes but the circumstances don’t warrant involuntary termination of private foundation status under Section 507(a)(2). A Section 501(c)(3) foundation must engage primarily in activities that accomplish Section 501(c)(3) purposes. If more than an insubstantial part of its activities does not further an exempt purpose, propose revocation. A private foundation is subject to the autorevocation process of Section 6033(j). (See IRM 4.70.14, Resolving the Examination.)

(2) Foundations are subject to similar restrictions as other Section 501(c)(3)

organizations:

a. Absolute prohibition for political campaigning.

b. Limitation on lobbying (subject to Section 4945(d) which functions as a virtual

ban on lobbying).

c. Prohibition on inurement.

d. Prohibition on operating for the benefit of private interests.

e. Limitation on UBI activities (less than primary purpose).

f. Limitation on commercial-type insurance (Section 501(m)).

g. Prohibition on illegal activities/purposes that violate public policy.

(3) If the foundation violates any of the prohibitions and/or restrictions listed above,

propose revocation. Private foundations are subject to declaratory judgement under Section 7428 when proposing revocation. An administrative record and administrative record index are required for all proposed revocations and should be prepared in accordance with IRM 4.70.14, Resolving the Examination. Additionally, when proposing revocation, follow the information in IRM 4.70.14, Resolving the Examination. Upon revocation, the foundation becomes a taxable private foundation.

(4) In many revocations, the foundation, disqualified persons, and foundation

managers may also be subject to Chapter 42 excise taxes. If there are willful

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repeated acts or a single willful and flagrant act triggering Chapter 42 taxes, propose the termination tax in addition to revocation. You may include the basic report forms with Letter 3614, 30-day letter package for Chapter 42 excise taxes. Form 870-E (Waiver of Restrictions on Assessment and Collection of Deficiency and Acceptance of Overassessment) is used to shows all tax deficiencies of the foundation.

(5) In revocations of private foundations, the foundation becomes a taxable

foundation and must file an income tax return as well as Form 990-PF. See Section 509(b) and Treas. Reg. 1.509(b)-1(b). Use status codes 18 (for trusts) and 19 (for corporations) in lieu of status code 22. Status codes 18 and 19 set the Form 990-PF and Form 1041 or Form 1120 filing requirements. Prepare Form 2363-A with status code change and indicate the effective date of revocation in YYYYMM format. Leave the Form 2363-A in the case file for processing following review.

(6) All revocations are subject to Mandatory Review.