IRS Denies Sovereigns who want to set up own Nation-State Tax Exempt Status

[jcolvin2]

Short version: An organization whose purpose is to set up a sovereign nation-state does not qualify for tax exemption under 501(c)(25) as an entity that is organized or operated to hold title to real property for the benefit of a government entity, a qualified plan, or a section 501(c)(3) entity.

Person to contact: * * *

UIL: 501.25-00
Release Date: 7/1/2022

Date: April 4, 2022

Employer ID number: * * *

Dear * * *:

This letter is our final determination that you don't qualify for exemption from federal income tax under Internal Revenue Code (IRC) Section 501(a) as an organization described in IRC Section 501(c)(25). Recently, we sent you a proposed adverse determination in response to your application. The proposed adverse determination explained the facts, law, and basis for our conclusion, and it gave you 30 days to file a protest. Because we didn't receive a protest within the required 30 days, the proposed determination is now final.

You must file the federal income tax forms for the tax years shown above within 30 days from the date of this letter unless you request an extension of time to file. For further instructions, forms, and information, visit www.irs.gov.

We'll make this final adverse determination letter and the proposed adverse determination letter available for public inspection after deleting certain identifying information, as required by IRC Section 6110. Read the enclosed Letter 437, Notice of Intention to Disclose — Rulings, and review the two attached letters that show our proposed deletions. If you disagree with our proposed deletions, follow the instructions in the Letter 437 on how to notify us. If you agree with our deletions, you don't need to take any further action.

If you have questions about this letter, you can call the contact person shown above. If you have questions about your federal income tax status and responsibilities, call our customer service number at 800-829-1040 (TTY 800-829-4933 for deaf or hard of hearing) or customer service for businesses at 800-829-4933

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

Enclosures:
Letter 437
Redacted Letter 4034
Redacted Letter 4038

Person to contact:
Name: * * *
ID number: * * *
Telephone: * * *
Fax: * * *

UIL: 501.25-00

Date: January 1, 2022

Employer ID number: * * *

LEGEND:

B = Date
C = State
D = Self-Proclaimed Country

Dear * * *:

We considered your application for recognition of exemption from federal income tax under Internal Revenue Code (IRC) Section 501(a). We determined that you don't qualify for exemption under IRC Section 501(c)(25). This letter explains the reasons for our conclusion. Please keep it for your records.

Issues
Do you qualify for exemption under IRC Section 501(c)(25)? No, for the reasons stated below.

Facts
You were formed as a corporation, an unincorporated association and as a trust all in the state of C. Your date of incorporation is B. The purpose clause of your Articles of Incorporation states: “This state government is invested with the powers and authority to create and enforce laws and impose taxes including protection of lives and property by maintenance of a police force.”

You have adopted a constitution and have formed a “sovereign nation state of D.”

You intend to operate the following agencies:

Bureau of Motor Vehicles

Secretary of State

Department of Justice

Marshall Services

Electric Power Distribution

Libraries and Archives

Credit Card Issues

Research and Development in the Social Sciences and Humanities

Elementary and Secondary Schools

Business and Secretarial Schools

Courts

Police Protection

Legal Counsel and Prosecution

Correctional Institutions

Fire Protection

Your main source of financial support will come from your “taxpayers” who are citizens of D.

Law
Internal Revenue Code (IRC) Section 501(c)(25) of the Code provides for exemption from federal income tax for organizations that meet the following substantive requirements:

IRC Section 501(c)(25)(A) provides exemption to any corporation or trust which

(i) has no more than 35 shareholders or beneficiaries,

(ii) has only 1 class of stock or beneficial interest, and

(iii) is organized for the exclusive purposes of —

(I) acquiring real property and holding title to, and collecting income from, such property, and

(II) remitting the entire amount of income from such property (less expenses) to 1 or more organizations described in subparagraph (C) which are shareholders of such corporation or beneficiaries of such trust.

Section 501(c)(25)(C) provides an organization is described in this subparagraph if such organization is —

(i) a qualified pension, profit sharing, or stock bonus plan that meets the requirements of section 401(a),

(ii) a governmental plan (within the meaning of section 414(d)),

(iii) the United States, any State oi political subdivision thereof, or any agency or instrumentality of any of the foregoing, or

(iv) any organization described in paragraph (3).

Section 501(c)(25)(D) provides a corporation or trust shall in no event be treated as described in subparagraph (A) unless such corporation or trust permits its shareholders or beneficiaries —

(i) to dismiss the corporation's or trust's investment adviser, following reasonable notice, upon a vote of the shareholders or beneficiaries holding a majority of interest in the corporation or trust, and

(ii) to terminate their interest in the corporation or trust by either, or both of the following alternatives, as determined by the corporation or trust:

(I) by selling or exchanging then-stock in the corporation or interest in the trust (subject to any Federal or State securities law) to and organization described in subparagraph (C) so long as the sale or exchange does not increase the number of shareholders or beneficiaries in such corporation or trust above 35, or

(II) by having their stock or interest redeemed by the corporation or trust after the shareholder or beneficiary has provided 90 days' notice to such corporation or trust.

Notice 87-18, 1987-1 C.B. 455, states an IRC Section 501(c)(25) applicant's articles of incorporation or trust instrument must include the above requirements.

Application of law
To be exempt as an organization described in IRC Section 501(c)(25) of the Code, you must be both organized and operated for the purposes of acquiring real property and holding title to, and collecting income from such property, and remitting the entire amount of income from such property (less expenses) to 1 or more organizations described in subparagraph (C) which are shareholders of such corporation or beneficiaries of such trust. Your organizing documents are silent with regards to the requirements of an IRC 501(c)(25) applicant. (See Notice 87-18). You are neither organized nor operated to hold title to real property. You state you were created to operate as a sovereign nation state, which is not a Section 501(c)(25) purpose.

Conclusion
You do not qualify for exemption as an organization described in Section 501(c)(25). You are not organized or operated for the purpose of holding title to real property. As stated above, you were created to operate as a sovereign nation state.

If you agree
If you agree with our proposed adverse determination, you don't need to do anything. If we don't hear from you within 30 days, we'll issue a final adverse determination letter. That letter will provide information on your income tax filing requirements.

If you don't agree
You have a right to protest if you don't agree with our proposed adverse determination. To do so, send us a protest within 30 days of the date of this letter. You must include:

Your name, address, employer identification number (EIN), and a daytime phone number

A statement of the facts, law, and arguments supporting your position

A statement indicating whether you are requesting an Appeals Office conference

The signature of an officer, director, trustee, or other official who is authorized to sign for the organization or your authorized representative

The following declaration:

For an officer, director, trustee, or other official who is authorized to sign for the organization: Under penalties of perjury, I declare that I have examined this request, or this modification to the request, including accompanying documents, and to the best of my knowledge and belief, the request or the modification contains all relevant facts relating to the request, and such facts are true, correct, and complete.

Your representative (attorney, certified public accountant, or other individual enrolled to practice before the IRS) must file a Form 2848, Power of Attorney and Declaration of Representative, with us if they haven't already done so. You can find more information about representation in Publication 947, Practice Before the IRS and Power of Attorney.

We'll review your protest statement and decide if you gave us a basis to reconsider our determination. If so, we'll continue to process your case considering the information you provided. If you haven't given us a basis for reconsideration, we'll send your case to the Appeals Office and notify you. You can find more information in Publication 892, How to Appeal an IRS Determination on Tax-Exempt Status.

If you don't file a protest within 30 days, you can't seek a declaratory judgment in court later because the law requires that you use the IRC administrative process first (IRC Section 7428(b)(2)).

Where to send your protest
Send your protest, Form 2848, if applicable, and any supporting documents to the applicable address:

U.S. mail:

Internal Revenue Service
EO Determinations Quality Assurance
Mail Stop 6403
PO Box 2508
Cincinnati, OH 45201

Street address for delivery service:

Internal Revenue Service
EO Determinations Quality Assurance
550 Main Street, Mail Stop 6403
Cincinnati, OH 45202

You can also fax your protest and supporting documents to the fax number listed at the top of this letter. If you fax your statement, please contact the person listed at the top of this letter to confirm that they received it.

You can get the forms and publications mentioned in this letter by visiting our website at www.irs.gov/forms-pubs or by calling 800-TAX-FORM (800-829-3676). If you have questions, you can contact the person listed at the top of this letter.

Contacting the Taxpayer Advocate Service
The Taxpayer Advocate Sendee (TAS) is an independent organization within the IRS that can help protect your taxpayer rights. TAS can offer you help if your tax problem is causing a hardship, or if you've tried but haven't been able to resolve your problem with the IRS. If you qualify for TAS assistance, which is always free, TAS will do everything possible to help you. Visit www.taxpayeradvocate.irs.gov or call 877-777-4778.

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

[The Observer]

This is an amusing attempt to get out of paying income taxes. Creative, yes, but stupid at the same time. I suppose the initiator of this nonsense thought that he/she was going to trick the IRS into granting them sovereign nation status. I am more curious how this letter got past the disclosure laws into the public light of day.

[jcolvin2]

I am more curious how this letter got past the disclosure laws into the public light of day.

The IRS regularly releases redacted versions of exemption denial letters. Release of such final determination letters (sanitized to remove taxpayer identifying information) is specifically authorized by section 6110.

[Burnaby49]

Canada has the same situation in respect to what are called rulings. A taxpayer can make a request to the Ruling directorate for a CRA determination of a point of tax law in respect to a specific transaction or series of transactions the taxpayer plans to make. There are many excluded areas where rulings aren't allowed but if the CRA accepts one the taxpayer pays the expense of staff time to do it. Once the ruling is released the CRA is bound by it unless the taxpayer changes the method and intent of the transaction or if significant information was withheld from the CRA when the request was made. As I understand it the purpose of rulings is to give taxpayers greater certainty in conducting their affairs. The rulings themselves become public documents after excising taxpayer-specific information. When I was a CRA auditor I received copies of all newly released rulings as a matter of course.

[The Observer]

The IRS regularly releases redacted versions of exemption denial letters

Yes, I am familiar with that process and just wanted to confirm this was the source. The original post made no clear reference to this being the situation.