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Polm Family Foundation, Inc. v. United States

September 14, 2009

POLM FAMILY FOUNDATION, INC., PLAINTIFF,
v.
UNITED STATES OF AMERICA AND THE INTERNAL REVENUE SERVICE DEFENDANTS.



The opinion of the court was delivered by: Reggie B. Walton United States District Judge

MEMORANDUM OPINION

The plaintiff, the Polm Family Foundation, Inc. ("Foundation"), filed this action on March 25, 2008, seeking a declaratory judgment pursuant to 26 U.S.C. § 7428 (2006), declaring that it qualifies as a tax-exempt organization under 26 U.S.C. § 501(c)(3) (2006) and as a supporting organization under 26 U.S.C. § 509(a)(3) (2006). See generally, Complaint ("Compl."). The plaintiff submitted its initial application to the Internal Revenue Service ("IRS") for tax-exempt status on or about April 10, 2007. Compl. at ¶ 5. Thereafter, the plaintiff and the IRS exchanged communications regarding the structure of the plaintiff's organization, and the plaintiff responded to all requests made by the IRS for further information for nearly a year after the initial application was submitted. Id. at ¶¶ 7-9, 12. However, the IRS never rendered a determination on the plaintiff's application. Id. at ¶ 17. Therefore, because 270 days had elapsed since the plaintiff submitted its initial application for tax exempt status with the IRS, and had timely responded to all requests made by the IRS for additional information, the plaintiff filed this action. Currently before the Court are the parties' cross-motions for summary judgment.*fn1

Upon consideration of the parties' written submissions, the administrative record presented to the Court, and the applicable legal authority, the Court finds that the plaintiff does not meet the requirements of a supporting organization under § 509(a)(3) and is therefore considered a private foundation.*fn2 Specifically, the plaintiff fails to satisfy the requirements under § 509(a)(3)(B)(ii) and § 509(a)(3)(C).*fn3

"Under [§] 509(a), all organizations described in [§] 501(c)(3) are private foundations except those excluded under [§] 509(a)(1) through (4)." Cockerline Mem'l Fund v. Comm'r of Internal Revenue, 86 T.C. 53, 58 (1986). One of the exemptions from private foundation status is reserved for those § 501(c)(3) organizations that qualify as a supporting organizations under § 509(a)(3). See § 509(a)(3)(A)-(C) (providing for three circumstances under which an organization may qualify as a supporting organization, only one of which need be satisfied). Section 509(a)(3) organizations are exempted from private foundation status, and therefore excused from the extensive regulation of private foundations, because "their exposure to public scrutiny and their dependence on public support [is believed to] keep them from the abuses to which private foundations [are] subject." Quarrie v. Comm'r of Internal Revenue, 603 F.2d 1274, 1277 (7th Cir. 1979), affirming 70 T.C. 182 (1978); see also Roe Found. Charitable Trust v. Comm'r of Internal Revenue, T.C. Memo 1989-566, 1989 WL 123012 (Oct. 19, 1989). "The Treasury Regulations therefore provide that the supporting organization must be responsive to the needs of the public charity and intimately involved in its operations." Quarrie, 603 F.2d at 1277.

The plaintiff seeks to qualify as a supporting organization under § 509(a)(3)(B)(ii) ("Type II"), and therefore is required to prove that it is "organized... and... operated... exclusively for the benefit of, to perform the functions of, or to carry out the purposes of one or more [publicly supported] organizations[,]... is... supervised or controlled in connection with one or more such organizations... [and] is not controlled directly or indirectly by one or more disqualified persons" in order to qualify as a supporting organization. Id. The Court's review of the IRS's action (or inaction) is de novo, but it is limited to a review of the administrative record, see Airlie Found. v. IRS, 283 F. Supp. 2d 58, 61-62 (D.D.C. 2003), and the plaintiff bears the burden of proving that it satisfied all of the requirements necessary to qualify as a Type II supporting organization, see Tax Court Rule 217(b)(3).*fn4 As explained below, ...


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