*fn5,The opinion of the court was delivered by: Reggie B. Walton United States District Judge,FAMILY TRUST OF MASSACHUSETTS, INC. PLAINTIFF, v. UNITED STATES OF AMERICA DEFENDANT." />

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Family Trust of Massachusetts, Inc. v. United States of America

September 24, 2012 *fn5


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


This case arises from a claim brought under a section of the Internal Revenue Code, specifically, 26 U.S.C. § 7428(a)(2) (2006), which allows a party to request declaratory relief from a United States District Court if the Internal Revenue Service ("IRS") fails to make a determination on its request for tax-exempt status within 270 days, Complaint ("Compl.") at 1, and the case is currently before the Court on the parties' cross-motions for summary judgment. United States' Motion for Summary Judgment ("Gov't's Mot.") at 1; Plaintiff's Cross-Motion for Summary Judgment and Memorandum in Opposition to Defendant's Motion for Summary Judgment ("Pl.'s Mem.") at 1. The plaintiff, the Family Trust of Massachusetts, Inc. ("FTM"), filed an application with the IRS for tax-exempt status on November 17, 2005, Administrative Record ("AR") at 00001, and the IRS has yet to make a determination. For the reasons set forth below, the Court will grant the IRS's motion for summary judgment, and deny the FTM's cross-motion for summary judgment.*fn1


The FTM is a trustee for over 300 disabled and elderly individuals who participate in a pooled-asset special needs trust program.*fn2 AR at 00015-16; AR at 00055-56; AR at 00334-335. A pooled-asset special needs trust that meets the requirements of the Medicaid Statute allows a disabled beneficiary or his or her family to establish a trust account that will supplement, but not replace, the benefits the beneficiary receives from Supplemental Security Income ("SSI"), Medicaid, and other governmental benefits programs. AR at 00420. It essentially allows disabled beneficiaries to "maintain their federal Medicaid and/or [SSI] eligibility, despite having assets in excess of federally allowed limits." Gov't's Mem. at 1.

The FTM was founded by Peter Macy ("Mr. Macy"), a private Massachusetts attorney who specializes in elder law. AR at 00016. Mr. Macy incorporated the FTM as a special needs trust in 2003. AR at 00011; AR at 00021. He serves as President, Treasurer, and sole Executive Director, and his law office is listed as the FTM's principal place of business. AR at 00016; AR at 00025. His "duties as Executive Director and Treasurer include presiding over meetings of the board of directors and supervising the day-to-day business matters of the [FTM], including financial matters, bookkeeping, and corresponding directly with outside parties." AR at 00016. He "works with the [FTM] daily, averaging two hundred and sixty hours per year." Id.

Mr. Macy refers his own disabled clients to the FTM "if they meet the criteria of [the] FTM's charitable class." AR at 00222. Additional clients have been obtained via legal or health care referrals to Macy, i.e., through "word-of-mouth in the Elder L aw legal community." AR at 00018; AR at 00079. Since 2005, the FTM's clientele has increased from 20 beneficiaries to over 300, AR at 00068; AR at 00328; AR at 00314, and the trust "hopes to expand the number of participants," AR at 00016. Consequently, annual revenues also rose from $5,825 in 2004, AR at 00102, Lines 12 & 18, to $667,679 in 2009, AR at 00551, Lines 12 & 19.

On November 21, 2005, the FTM applied for a determination from the IRS that it is an organization encompassed by § 501(c)(3) and therefore tax-exempt under § 501(a) of the Internal Revenue Code. See 26 U.S.C. §§ 501(a) & 501(c)(3) (2006); AR at 00001. The IRS acknowledged receipt of the application on November 28, 2005, and until at least August of 2007, the FTM continued to respond to numerous requests for further information and explanations. AR at 00047; AR at 00054; AR at 00077; AR at 00097A; AR at 00098-99; AR at 00152-155. On February 12, 2008, the IRS issued a proposed adverse determination letter to the FTM. AR at 00161-169. Despite the FTM's response to the IRS's proposed adverse determination, AR at 00186A, and the FTM's continued cooperation with subsequent requests from the IRS for information, e.g., AR at 00187; AR at 00217D; AR at 00242, the IRS has yet to issue to the plaintiff "a notice of determination," Compl. ¶ 6. As a result, the FTM initiated this action under 26 U.S.C. § 7428(a)(2), seeking a declaration by this Court that it "is exempt from federal income taxation." Id. at 1.


This Court has "original jurisdiction of any civil action against the United States provided in . . . [§] 7428 . . . of the Internal Revenue Code of 1986." 28 U.S.C. § 1346(e) (2006) (amended 2011). And, § 7428 "permits [the Court of Federal Claims], the United States Tax Court and the United States District Court for the District of Columbia to issue declaratory judgments on the initial qualification of an organization for tax exempt status under Revenue Code] § 501(c)(3) if a plaintiff has exhausted its administrative remedies." Church of the Visible Intelligence that Governs the Universe v. United States, 4 Cl. Ct. 55, 60 (1983). "An organization requesting the determination . . . shall be deemed to have exhausted its administrative remedies with respect to a failure by the Secretary [of the Department of the Treasury] to make a determination with respect to such issue at the expiration of 270 days after the date on which the request for such determination was made if the organization has taken, in a timely manner, all reasonable steps to secure such determination." 26 U.S.C. § 7428(b)(2). Because the FTM took all reasonable steps to secure a determination in a timely manner, and not having received a determination before 270 days had elapsed after its request was submitted, the Court agrees, as the defendant concedes, that the FTM has satisfied the jurisdictional requirements of § 7428(b)(2). See Gov't's Mem. at 13.

"The standard of review in [this case] is de novo and the scope of review is limited to the administrative record." Arlie Found. v. I.R.S., 283 F. Supp. 2d 58, 61 (D.D.C. 2003). "The legislative history of § 7428 makes it clear that Congress intended that this [C]court follow the practices of the Tax Court in § 7428 declaratory judgment actions." Easter House v. United States, 12 Cl. Ct. 476, 482-483 (1987) (citing Visible Intelligence, 4 Cl. Ct. at 60); see B.S.W. Group, Inc. v. Comm'r, 70 T.C. 352, 353 (1978). Thus, "the Court's decision will be based upon the assumption that the facts as represented in the administrative record . . . are true." Tax Court Rule 217(b).

Upon consideration of the parties' cross-motions for summary judgment, "the [C]court shall grant summary judgment only if one of the moving parties," Arlie, 283 F. Supp. 2d at 61, shows that "there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law," Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). "When faced with cross-motions for summary judgment, th[is C]court must review each motion separately on its own merits 'to determine whether either of the parties deserves judgment as a matter of law.'" Rossignol v. Voorhaar, 316 F.3d 516, 523 (4th Cir. 2003); see also Fair Housing Council of Riverside County, Inc. v. Riverside Two, 249 F.3d 1132, 1136 (9th Cir. 2001) ("It is well-settled in this circuit and others that the filing of cross-motions for summary judgment . . . does not vitiate the court's responsibility to determine whether disputed issues of material fact are present.") (internal quotations omitted). "The evidence of the non-movant is to be believed, and all justifiable inferences are to be drawn in [its] favor." Estate of Parsons v. Palestinian Auth., 651 F.3d 118, 123 (D.C. Cir. 2011) (citing Andersen v. Liberty Lobby, 477 U.S. 242, 255 (1986)). Additionally, "a moving party is 'entitled to a judgment as a matter of law' [when] the nonmoving party has failed to make a sufficient showing on an essential element of [its] case with respect to which [it] has the burden of proof." Maydak v. United States, 630 F.2d 166, 181 (D.C. Cir. 2010) (citing Celotex, 477 U.S. at 322-323). And here, despite the plaintiff's assertions to the contrary, Compl. at 1, "[t]he burden is on [the FTM] to establish that it meets [the] statutory requirements" of § 501(c)(3), New Dynamics Found. v. United States, 70 Fed. Cl. 782, 799 (2006) (citing, inter alia, IHC Health Plans, Inc. v. Comm'r, 325 F.3d 1188, 1193 (10th Cir. 2003)); see also Found. of Human Understanding v. United States, 88 Fed. Cl. 203, 212 (2009) ("Courts have recognized that exemptions from tax are matters of 'legislative grace,' and, accordingly, the burden of establishing entitlement to an exemption is on the taxpayer .").*fn3

Reply at 5. However, contrary to the plaintiff's understanding of Polm Family Found., Inc. v. United States, 655 F. Supp. 2d 125 (D.D.C. 2009), see Pl.'s Reply at 5 ("Polm . . . did not consider [§] 7491"), this Judge did consider the issue. In Polm, the issue of whether § 7491 is applicable in such cases was raised in the parties' pleadings, and footnote 4 of the Court's opinion clearly demonstrates, by implication, that this Court considered the issue. By relying on Tax Court Rule 142(a)(1) in placing the burden on


For the Court to declare the FTM exempt from federal income taxation, the Administrative Record must demonstrate that it meets three requirements under ยงยง 501(a) and (c)(3): "(1) it is organized and operated exclusively for an exempt purpose; (2) its net earnings do not inure to the benefit of any private shareholder or individual; and (3) its activities do not . . . attempt[] to influence legislation." Visible Intelligence, 4 Cl. Ct. at 61. The IRS does not contend that the FTM is an organization that seeks to influence legislation. Gov't's Mem. at 1 ("[P]laintiff operates its Medicaid-qualified trust in a commercial manner that reflects private business purposes."); see Gov't's Response to Pl.'s Stmt. of Facts at 19 ("Plaintiff has a commercial purpose."). That leaves only the first two requirements for analysis, and because the organization ...

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