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Internal Revenue Service

TE/GE Customer Account Services

P.O. Box 2508

Cincinnati, Ohio 45201

Dear Sirs:

I am writing in regard to a 501 (c) (7) membership organization (social and recreational club) entitled the "Smoke Rise Field Club, Inc", P.O. Box 1791, Cashiers, N.C. 28717. Recently, various newspaper reports and articles have indicated that this organization may have been involved in a number of activities including private land development and equipment sales activities that may be precluded under existing IRS regulations. Recognizing that these and other potential violations of IRS rules may have occurred, we would respectfully like to request that the IRS conduct a field investigation and review of the tax-exempt status of this organization and its activities and programs allegedly being operated for the benefit of its members.

Specifically, we would like to point out the following discrepancies in their financial records as obtained under the IRS public records regulations:

  • The organization is claiming depreciation and other related maintenance expenses for property it does not own. Specifically, a clubhouse on a site the property leases has been depreciated yet the actual owner of the property has paid the appropriate county taxes. The Jackson County tax assessor has commenced an investigation of the group on this issue as well as issues related to personal property and business equipment taxes that were not paid.
  • The organization in its 2003 IRS Form 990 reported income of over $23,000 from allegedly exempt functions and over $37,000 from related functions. Both sources of income are derived from functions that would appear to invalidate this organizations exempt status pursuant to the 1994 EO CPE Text rulings. Moreover, these revenues are not supported by an appropriate expense category sufficient in size to account for the related sales of equipment or supplies. Similar reports are contained in the organizations 2001 and 2002 IRS Form 990ís as filed. In addition, in 2001, the organization reported over $72,000 in program revenue, yet provided no indication of the amount that came from exempt functions.
  • In 2003, the organization reported salaries of over $68,000 with only $303 in employee payroll taxes being reported. The amount of payroll taxes being reported in this fiscal year as well as other fiscal years is totally inadequate given the level of salaries being indicated and may constitute an act of tax fraud.
  • Information obtained through the State of North Carolina corporate tax records indicates that a sizeable portion of the membership revenue is being derived from the sales of guest and single day memberships. The proportion of income being generated from these sources would appear to totally invalidate the organizationís claim of a membership organization under the provisions of the 501 (c) (7) section and would appear to be used to protect their operations from further public scrutiny and public control. In addition, it provides the member and organization with a tax exempt status that is totally improper and possibly illegal under existing IRS regulations.
  • Finally, recent advertisements by this organization indicate that daily memberships are available to the general public. This arrangement would appear to invalidate the organizationís claim of private membership club and would support our claim that this organization should be recognized as a private business without the tax exempt benefits that it presently enjoys.

While we have highlighted only a few of the discrepancies that we have identified through our review of the limited tax returns and other information available to the public, we are also aware of other apparent violations of IRS regulations that could be more readily identified through a professional review of this organizationís tax exempt operations. Based on the above listed information alone, we respectfully request a full field review of this organizationís tax exempt status.

Sincerely yours,