United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued January 18, 2011 Decided May 6, 2011
No. 09-5401
POLM FAMILY FOUNDATION, INC.,
APPELLANT
v.
UNITED STATES OF AMERICA AND INTERNAL
REVENUE SERVICE,
APPELLEES
Appeal from the United States District Court
for the District of Columbia
(No. 1:08-cv-00514)
Emanuel J. Kallina II argued the cause for appellant. With
him on the briefs was Elisabeth A. Koenig.
John Schumann, Attorney, U.S. Department of Justice,
argued the cause for appellees. With him on the brief were
Ronald C. Machen Jr., U.S. Attorney, and Jonathan S. Cohen,
Attorney.
Before: GINSBURG and GRIFFITH, Circuit Judges, and
RANDOLPH, Senior Circuit Judge.
2
Opinion for the Court filed by Senior Circuit Judge
RANDOLPH.
RANDOLPH, Senior Circuit Judge: This is an appeal from
the judgment of the district court declaring that the Polm Family
Foundation did not qualify as a public charity under § 509(a)(3)
of the Internal Revenue Code.
The Foundation is a Maryland non-stock corporation.
According to its current articles of incorporation, the Foundation
exists to “conduct[] and support[] activities for the benefit of, to
perform the functions of, and/or to carry out the purposes of”
other organizations “which support, promote and/or perform
public health and/or Christian objectives, including but not
limited to Christian evangelism, edification and stewardship.”
To carry out this mission, the Foundation’s articles of incorpora-
tion authorize it to accept gifts of property and “to exercise . . .
all powers conferred upon non-stock corporations by the
Maryland General Corporation Law.”
In 2007, the Foundation applied for tax-exempt status under
26 U.S.C. § 501(c)(3), and for recognition as a public charity
under 26 U.S.C. § 509(a)(3). A year of correspondence with the
Internal Revenue Service resulted in the Foundation amending
its articles of incorporation and bylaws and altering the compo-
sition of its board of directors. Still, the IRS did not reach a
final determination on the Foundation’s application.
Invoking jurisdiction under 26 U.S.C. § 7428, the Founda-
tion sued in the United States District Court for the District of
Columbia for a declaratory judgment that it was exempt from
federal income taxes under § 501(c)(3) and that it qualified as a
public charity under § 509(a)(3). The IRS did not—and does
not—dispute the Foundation’s status under § 501(c)(3). But it
moved for summary judgment on the Foundation’s claim for
3
recognition as a public charity. The district court granted the
government’s motion.
Section 501(c)(3) of the Internal Revenue Code provides
that a corporation organized and operated exclusively for
religious, charitable, scientific, testing for public safety, literary
or educational purposes is exempt from federal income taxes so
long as no part of its net earnings inure to the benefit of a private
individual and no substantial part of its activities involves
lobbying or political activities. 26 U.S.C. § 501(a), (c)(3).
Contributions to § 501(c)(3) organizations are deductible from
the donor’s income taxes, id. § 170(c), estate taxes, id.
§§ 2055(a)(2), 2106(a), and gift taxes, id. § 2522(a).
Section 501(c)(3) organizations are either public charities
or private foundations. All § 501(c)(3) organizations are
considered private foundations unless they qualify for an
exception under § 509(a). Because of congressional concern
about privately financed organizations abusing their tax-exempt
status, private foundations are subject to more restrictions than
are public charities. The theory is that public charities are less
likely to manipulate exemption from taxation because they are
exposed “to public scrutiny and the[y] depend[] on public
support.” Quarrie v. Comm’r of Internal Revenue, 603 F.2d
1274, 1277 (7th Cir. 1979). We have nothing to do with the
validity of the theory.
Public charities include churches, schools and hospitals, 26
U.S.C. § 509(a)(1); other publicly supported organizations, id.
§ 509(a)(2); and organizations supporting any of the above, id.
§ 509(a)(3). Supporting organizations are themselves of three
types, defined by the intimacy of their relationship with their
publicly supported organizations. Type I supporting organiza-
tions are the most closely connected to their publicly supported
organizations; Type III, the least.
4
The Polm Family Foundation claimed that it was a Type II
supporting organization under § 509(a)(3) and the implementing
regulations, Treas. Reg. § 1.509(a)-4. To support this claim, the
Foundation had to satisfy each of three separate tests: the
organizational test, 26 U.S.C. § 509(a)(3)(A); the relationship
test, id. § 509(a)(3)(B)(ii); and the control test, id.
§ 509(a)(3)(C).1 The IRS contends that the Foundation can meet
none of these tests. The district court granted summary judg-
ment on the ground that the Foundation satisfied neither the
relationship test nor the control test.
We prefer to rest our decision on the Foundation’s failure
to satisfy the organizational test. Of the three tests, this is the
1
26 U.S.C. § 509(a)(3) states that a § 501(c)(3) organization is not
a “private foundation” if the organization:
(A) is organized, and at all times thereafter is
operated, exclusively for the benefit of, to perform
the functions of, or to carry out the purposes of one
or more specified organizations described in
paragraph (1) or (2),
(B) is-
(i) operated, supervised, or controlled by one or
more organizations described in paragraph (1) or
(2),
(ii) supervised or controlled in connection with
one or more such organizations, or
(iii) operated in connection with one or more
such organizations, and
(C) is not controlled directly or indirectly by one or
more disqualified persons (as defined in section
4946) other than foundation managers and other than
one or more organizations described in paragraph (1)
or (2) . . ..
5
most straightforward. That the district court did not rely on this
ground is of no moment. A prevailing party may “defend its
judgment on any ground properly raised below whether or not
that ground was relied upon, rejected, or even considered by the
District Court . . ..” Granfinanciera, S.A. v. Nordberg, 492 U.S.
33, 38-39 (1989); see also Wash.-Balt. Newspaper Guild, Local
35 v. Wash. Post, 959 F.2d 288, 292 n.3 (D.C. Cir. 1992);
Adams v. Agnew, 860 F.2d 1093, 1097 (D.C. Cir. 1988).
To satisfy the organizational test, the Foundation had to
demonstrate that it is “organized, and at all times thereafter is
operated, exclusively for the benefit of, to perform the functions
of, or to carry out the purposes of one or more specified [pub-
licly supported] organizations . . ..” 26 U.S.C § 509(a)(3)(A).
Regulations implementing this provision require the articles of
incorporation of a supporting organization to “designate each of
the specified organizations by name . . ..” Treas. Reg.
§ 1.509(a)-4(d)(2)(i).
There is an exception to this requirement: a Type II
supporting organization need not specify by name each publicly
supported organization if its articles of incorporation “require
that it be operated to support or benefit one or more beneficiary
organizations which are designated by class or purpose . . ..”
Treas. Reg. § 1.509(a)-4(d)(2)(i)(b). The IRS tells us that the
exception applies only if the class of beneficiary organizations
is “readily identifiable.” In support, it points to the examples in
the regulations and a related revenue ruling. See Treas. Reg.
§ 1.509(a)-4(d)(2)(iii); Rev. Rul. 81-43, 1981-1 C.B. 350. In
each example, the description of the class allows easy identifica-
tion of the beneficiary organizations—e.g., “institutions of
higher learning in the State of Y,” Treas. Reg. § 1.509(a)-
4(d)(2)(iii); “[tax-exempt public charities] located in the [city
of] Z area,” Rev. Rul. 81-43.
6
An agency’s interpretation of its regulation is controlling
unless the interpretation is “plainly erroneous or inconsistent
with the regulation.” Auer v. Robbins, 519 U.S. 452, 461
(1997). This is so even if the interpretation appears for the first
time in a legal brief. Chase Bank USA, N.A. v. McCoy, 131 S.
Ct. 871, 880-81 (2011); Bigelow v. Dep’t of Def., 217 F.3d 875,
878 (D.C. Cir. 2000). “Because the interpretation the [IRS]
presents in its brief is consistent with the regulatory text,” Chase
Bank, 131 S. Ct at 880, we have no basis for rejecting it in favor
of some other version. In the statute’s terms, the organizations
the Foundation supports must be “specified.” This strongly
suggests that either the Foundation must identify those organiza-
tions by name or the organizations must be identifiable from the
Foundation’s articles of incorporation. That essentially is what
the Treasury regulation provides. The IRS so interprets it in its
submissions to this court and to the district court. The Founda-
tion has offered nothing to counter the IRS’s interpretation. All
the Foundation has to say is that the government is forbidden
from making the argument. This is frivolous for the reasons we
have already given—a winning party may support the judgment
on appeal on any grounds argued below, even if the district court
never reached them.
All that is left is the question whether the Foundation
satisfied the organizational test, as the IRS interprets it. The
Foundation has no defense. Its amended articles of incorpora-
tion designate as supported organizations “the class of organiza-
tions . . . which support, promote and/or perform public health
and/or Christian objectives, including but not limited to Chris-
tian evangelism, edification and stewardship.” Unlike the
examples contained in the regulation and the revenue ruling, this
designation does not make its beneficiary organizations readily
identifiable. There is no geographic limit. There is no limit by
type of publicly supported organization (such as churches or
seminaries). In light of the broad purposes mentioned in
7
Foundation’s articles of incorporation, we agree with the
government that it would be difficult, if not impossible, to
determine whether the Foundation will receive oversight from
a readily identifiable class of publicly supported organizations.
Affirmed.