T.C. Memo. 1999-224
UNITED STATES TAX COURT
RESOURCE MANAGEMENT FOUNDATION, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 23090-96X. Filed July 8, 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,
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section references are to the applicable versions of the Internal
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. He
organized a corporation named "Resource Network Foundation"
(petitioner herein). Petitioner's officers are Mr. Tully (vice
president), David Lira (president), Salvador Lira (vice
president), Elizabeth A. Miller (secretary), and Marilyn Stewart
(vice president). David Lira, Salvador Lira, and Mr. Tully serve
as directors on petitioner's board.
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 vocational enhancement programs." 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 April 27, 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) A school,
college, trade school, etc., (2) other student aid, and (3) job
training, counseling, or assistance. 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
opera-
tion, 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 December 13, 1993, the Commissioner mailed petitioner a
letter seeking clarification of the information that it had
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provided him 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 March 10, 1994, 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 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, states 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
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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.
On October 5, 1994, petitioner responded to the
Commissioner's letter of August 2, 1994. This response was no
more informative than the prior response 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
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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
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
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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.
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 four other entities also formed and
represented by Mr. Tully, in cases having administrative records
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virtually identical to the administrative record at hand. See
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
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.