Hart Foundation v. Commissioner, Docket No. 23093-96X.

CourtUnited States Tax Court
Citation78 T.C.M. 57
Docket NumberDocket No. 23093-96X.
PartiesHart Foundation v. Commissioner.
Decision Date12 July 1999
78 T.C.M. 57
T.C. Memo. 1999-228
Hart Foundation
Docket No. 23093-96X.
United States Tax Court.
Filed July 12, 1999.

William J. Tully (an officer), Ontario, Calif., for the petitioner. Kirk M. Paxson, for the respondent.

[78 T.C.M. 58]


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 Revenue Code. Rule references are to the Tax Court Rules of Practice and Procedure.


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."

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 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....

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1 cases
  • Boehm v. Commissioner, Docket No. 14355-97.
    • United States
    • United States Tax Court
    • July 12, 1999
    ...agent's report which indicates that the only items questioned in the 1990 audit were a charitable contribution deduction and a deduction 78 T.C.M. 57 for investment expenses. There is no evidence that the revenue agent was even aware of, much less approved, petitioners' diversion of income ......

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