T.C. Memo. 1999-234
UNITED STATES TAX COURT
OLIVER FAMILY FOUNDATION, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 8346-96X. Filed July 19, 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(c), Income Tax Regs. We hold it does not. Unless otherwise
stated, section references are to the applicable versions of the
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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 principal place of
business was in Ontario, California, when its petition was filed.
William J. Tully is a promoter of tax-exempt entities, and
he was retained by William Shelby Oliver to form a tax-exempt
foundation under the control of the Oliver family. Mr. Tully
formed a corporation named "Oliver Family Foundation" (petitioner
herein). Petitioner's officers are Mr. Tully (vice president),
William Shelby Oliver (president), David S. Oliver (vice
president), Evelyn G. Oliver (secretary), and Robert W. Oliver
(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 February 22, 1994, 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) gifts or
grants to individuals; and (3) services for the aged. 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. The application stated, as to sources of financial
support, that
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.
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On June 14, 1994, the Commissioner mailed petitioner a
letter seeking clarification of the information included 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 July 11, 1994, William Shelby Oliver responded to the
Commissioner's letter of June 14, 1994. The response 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 September 20, 1994, the Commissioner mailed petitioner
another letter seeking specificity as to petitioner's
organization, activities, and operation. 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
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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.
By way of an undated letter, petitioner responded to the
Commissioner's letter of September 20, 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 in the
prior response.
On December 13, 1994, the Commissioner issued to petitioner
a 30-day letter reflecting his 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.
One month later, petitioner notified the Commissioner that it was
appealing that determination, and 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 Oliver Family Foundation,
for certification on its application to the IRS as a
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non-profit organization be amended, as follows: The
primary purpose of the Oliver Family Foundation shall
be to fund a chair (full professorship) at Overlin
[sic] College, Oberlin, Ohio, in any department that
the college so names.
* * * * * * *
all fund raising carried on by the foundation, in the
future, be raised within the immediate family, their
friends and business associates, and not from members
of the public at large.
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 November 8, 1995, the Commissioner mailed a letter to
petitioner explaining that it had not yet described its
operations in sufficient detail. Three months later, the
Commissioner issued to petitioner a final adverse determination
letter stating:
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.
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Discussion
We must decide whether petitioner qualifies for exempt
status under section 501(c)(3). We have recently decided the
same issue adversely to six other entities formed and represented
by Mr. Tully, in cases with administrative records which were
virtually identical to the administrative record at hand. See
Hart Found. v. Commissioner, T.C. Memo. 1999-228; 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
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 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.
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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.