T.C. Memo. 1999-228
UNITED STATES TAX COURT
HART FOUNDATION, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 23093-96X. Filed July 12, 1999.
William J. Tully (an officer), for petitioner.
Kirk M. Paxson, for respondent.
MEMORANDUM OPINION
LARO, Judge: Petitioner petitioned the Court to declare
whether petitioner qualifies for exempt status under section
501(c)(3). See sec. 7428. The parties dispute whether
petitioner meets the operational test of section 1.501(c)(3)-1,
Income Tax Regs. We hold it does not. Unless otherwise stated,
section references are to the applicable versions of the Internal
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Revenue Code. Rule references are to the Tax Court Rules of
Practice and Procedure.
Background
We decide this case on the basis of the entire
administrative record, see Rule 217(b)(1), which is incorporated
herein by this reference. Petitioner's mailing address was in
Ontario, California, when its petition was filed.
William J. Tully is a promoter of tax-exempt entities, and
he was retained by Bruce R. Hart to form a tax-exempt foundation
under the control of the Hart family. Mr. Tully formed a
corporation named "Hart Foundation" (petitioner herein).
Petitioner's officers are Mr. Tully (vice president), Mr. Hart
(president), Dixie Hart (secretary), and Elva Mae Hart
(treasurer). Petitioner's officers also serve as its directors.
Mr. Tully filed articles of incorporation for petitioner
with the Nevada secretary of state, and he prepared bylaws for
petitioner. The articles state that petitioner's primary purpose
is "TO PROVIDE FINANCIAL ASSISTANCE FOR THE NEEDY." The bylaws
state that petitioner's primary purpose is that set forth in the
articles. The bylaws further state that "Nothing herein
contained shall be construed to prevent any Director from
receiving compensation for services to the Corporation rendered
in a capacity other than Director."
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On May 24, 1993, petitioner filed with the Commissioner a
Form 1023, Application for Recognition of Exemption Under Section
501(c)(3) of the Internal Revenue Code (application), in which it
sought recognition as a tax-exempt entity. The application
reported that petitioner's activities were: (1) Supplying money,
goods, or services to the poor, (2) services for the aged, and
(3) aid to the handicapped. The information that petitioner
provided to the Commissioner on and with the application was
vague as to the specifics of these activities. The application
indicated that petitioner had not currently begun any activity,
except for organizational activities. As to sources of financial
support, the application stated:
At the present time this organization does not have any
procedure for the generation of income other than * * *
* * * * * * *
(a) Direct donations from the general
public at large,
(b) Larger sums from various fund
raising activities,
(c) A possible "Thrift Store" type of
operation, and
(d) Donations of property (both
personal and real) which can be
turned into cash, and
(e) Various others as may be
recommended and implemented by the
organization.
On July 9, 1993, the Commissioner mailed petitioner a letter
seeking clarification of the information that it had provided him
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on and with the application. The letter specified the
information that the Commissioner needed to rule on petitioner's
request for exempt status and listed the name and phone number of
a person at the Internal Revenue Service to contact with any
questions.
On September 13, 1993, the Commissioner received a response
to his letter. The response, which was written by Mr. Tully,
gave vague answers to the questions set forth in the
Commissioner's letter and did not explain in detail petitioner's
proposed activities or operation.
On January 20, 1994, the Commissioner mailed petitioner
another letter seeking specificity as to petitioner's
organization, activities, and operation. The letter asked for
specific information that the Commissioner needed to rule on
petitioner's request for exemption and listed the name and phone
number of the person at the Internal Revenue Service to contact
with any questions.
On March 14, 1994, Mr. Tully, on behalf of petitioner,
responded to the Commissioner's letter of January 20, 1994.
This response was no more informative than the prior response as
to the specifics of petitioner's organization, activities, or
operation. Approximately 2 months later, Mr. Hart, in his
capacity as petitioner's president, also responded to the
Commissioner's letter of January 20, 1994. The Commissioner had
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requested Mr. Hart respond in his capacity as president. Mr.
Hart's response was no more informative than Mr. Tully's response
of March 14, 1994.
On August 2, 1994, the Commissioner mailed petitioner
another letter seeking specificity as to petitioner's
organization, activities, and operation. The letter explained
that the Commissioner needed specific information before he could
rule that petitioner was exempt from taxation under section
501(c)(3). The letter, citing and quoting Rev. Proc. 90-27, sec.
5.02, 1990-1 C.B. 514, 515, stated that
"Exempt status will be recognized in advance of
operations if proposed operations can be described in
sufficient detail to permit a conclusion that the
organization will clearly meet the particular
requirements of the section under which exemption is
claimed. A mere restatement of purposes or a statement
that proposed activities will be in furtherance of such
purposes will not satisfy this requirement. The
organization must fully describe the activities in
which it expects to engage, including the standards,
criteria, procedures or other means adopted or planned
for carrying out the activities, the anticipated
sources of receipts, and the nature of contemplated
expenditures. Where the organization cannot
demonstrate to the satisfaction of the Service that its
proposed activities will be exempt, a record of actual
operations may be required before a ruling or
determination letter will be issued. * * *" [Emphasis
added in the letter.]
The letter asked for specific information that the Commissioner
needed to rule on petitioner's request for exemption and listed
the name and phone number of the person at the Internal Revenue
Service to contact with any questions.
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On October 6, 1994, petitioner responded to the
Commissioner's letter of August 2, 1994. This response was no
more informative than the prior responses as to the specifics of
petitioner's organization, activities, or operation. The latest
response repeated many of the statements set forth on the prior
response.
On December 13, 1994, the Commissioner issued to petitioner
a 30-day letter reflecting the Commissioner's determination that
petitioner did not qualify under section 501(c)(3) because it
failed the operational test of section 1.501(c)(3)-1(c), Income
Tax Regs. On February 2, 1995, petitioner notified the
Commissioner that it was appealing that determination, and
approximately 6 months after that, Mr. Tully met with one of the
Commissioner's Appeals officers to discuss petitioner's case. On
or about August 10, 1995, petitioner filed with the Commissioner
a second Form 1023. Petitioner's second Form 1023 stated that
the primary purpose of the foundation, as stated in its
oroginal [sic] application for exemption, * * * [was]
amended to read as follows:
"The primary purpose of the foundation will be to
raise funds for financially strap families living
within the immediate area of the foundation's base of
operation with all funds being administered by other
IRS approved 501(c)(3) charitable organizations such as
the Salvation Army, United Way and the Catholic
Church".
* * * the foundation will limit its currect [sic] fund
raising activities to raising funds directly from its
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officers, directors and their immediate familites
[sic], friends and business associates.
The second Form 1023 did not list specifics as to petitioner's
operations, including the manner in which petitioner would effect
its primary purpose. The second Form 1023 did not address any
safeguards against private inurement.
On April 9, 1996, the Commissioner mailed a letter to
petitioner explaining that it had not yet described its
operations in sufficient detail. The letter set forth four items
of information that the Commissioner lacked as to petitioner
including a definition of the term "financially strap" as set
forth in the second Form 1023.
By way of an undated letter, Mr. Tully responded to the
Commissioner's letter of April 9, 1996. The response was
generally vague as to the information sought. As to the
definition of the term "financially strap", the letter stated:
This organization defines the term "financially
strap" as a temporary condition wherein the person, or
family, under consideration is without "immediate funds
in sufficient amount to provide the very necessities of
life for the present day, or week, at most".
It is not to bail out any person or family from
their current financial psoition [sic]. Rather, it is
a temporary means of relief that is intended to assist
that person or family in their immediate need of foods
and or lodging for at least a day or two, perhaps a
week at the most until they can get on relief or find
other assistance, if that be the case.
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It is to make sure that the person or persons in
question do not have to go hungry over night or not
have a safe place to stay.
Included in this immediate need might be
considered a doctor appointment for life threatening
situations.
On July 24, 1996, the Commissioner issued to petitioner a
final adverse determination letter. The letter stated:
Our adverse determination was made for the following
reason(s):
You did not meet the operational test under
section 1.501(c)(3)-1 of the Income Tax
Regulations. In order to qualify under Code
section 501(c)(3), an organization must be
both organized and operated exclusively for
one or more purposes specified in that
section. You did not describe your proposed
activities in sufficient detail as required
by section 1.501(c)(3)-1 of the Regulations.
Discussion
We must decide whether petitioner qualifies for exempt
status under section 501(c)(3). We have recently decided the
same issue adversely to five other entities also formed and
represented by Mr. Tully, in cases with administrative records
virtually identical to the administrative record at hand. See
Resource Management Found. v. Commissioner, T.C. Memo. 1999-224;
Share Network Found. v. Commissioner, T.C. Memo. 1999-216; Tamaki
Found. v. Commissioner, T.C. Memo. 1999-166; Tate Family Found.
v. Commissioner, T.C. Memo. 1999-165; Larry D. Bowen Family
Found. v. Commissioner, T.C. Memo. 1999-149. In each of those
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cases, we held that the administrative record upon which the case
was to be decided did not contain enough evidence to support a
finding that the taxpayer met the operational test of section
1.501(c)(3)-1(c), Income Tax Regs. We also noted that each of
the taxpayers had failed to prosecute its case properly,
including the fact that none of the taxpayers had filed a brief,
as ordered by the Court and required by Rule 151, or had
explained its failure to do so.
We apply the reasoning of those cases and hold that
petitioner fails to qualify for exempt status under section
501(c)(3). Accordingly,
Decision will be entered
for respondent.