Olumbia Park & Recreation Ass'n, Inc. v. Comm'r of Internal Revenue

• Decision Date: 06 January 1987
• Docket Number: Docket No. 19537-84X.
• Citation: 88 T.C. No. 1,88 T.C. 1
• Parties: COLUMBIA PARK AND RECREATION ASSOCIATION, INC., Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
• Court: U.S. Tax Court

88 T.C. 1

88 T.C. No. 1

COLUMBIA PARK AND RECREATION ASSOCIATION, INC., Petitioner

v.COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 19537-84X.

United States Tax Court

Filed January 6, 1987.

P is a sec. 501(c)(4), I.R.C. 1954, organization exempt from tax under sec. 501(a), I.R.C. 1954. P sought to be qualified as a charitable organization under sec. 501(c)(3), I.R.C. 1954, to, among other things, be able to obtain the benefit of sec. 103, I.R.C. 1954, bond financing. R issued an adverse ruling determining that P was not organized or operated exclusively for an exempt purpose within the meaning of sec. 501(c)(3), I.R.C. 1954. P seeks a declaratory judgment from R's adverse ruling.

C is a private real estate development with a population of more than 100,000 residents. It is a planned community which offers low, middle and high income housing integrated with business, industrial and recreational facilities. C is neither incorporated as a city nor is it a political subdivision of any state or county. P was incorporated as a not-for-profit civic organization to develop and operate utilities, systems, services and facilities ‘for the common good and social welfare‘ of the people of C. C deeded about 10 percent of its 14,600 acres to P.

The facilities and services developed and operated by P include, among others, pathways (bicycle and pedestrian), parks, swimming pools, neighborhood and community centers, tennis courts, golf courses, a zoo, ice rink, boat docks, and athletic clubs. P charges fees of varied amounts for the use of some of the facilities and services; with nonresidents of C paying higher rates. The lower rates paid by residents are subsidized through their additional payments based upon real property ownership within C.

Upon dissolution of P, its assets, including the facilities, would either go to the county government within which C is located, or to another not-for-profit corporation to be used for the benefit of residents and property holders within C.

HELD: P is not an organization which was organized or operated as ‘charitable‘ within the meaning of sec. 501(c)(3), I.R.C. 1954. Julie Noel Gilbert, for the petitioner.

George J. Blaine, for the respondent.

GERBER, JUDGE:

This is an action for declaratory judgment pursuant to section 7428. ¹

By a final adverse ruling dated March 21, 1984, respondent determined that petitioner is neither organized nor operated exclusively for exempt purposes within the meaning of section 501(c)(3). Petitioner invokes the jurisdiction of this Court and challenges respondent's adverse determination, ² seeking a declaratory judgment. ³

The issue for our consideration is whether petitioner, a section 501(c)(4) organization, qualifies as a section 501(c)(3) charitable organization. This case was submitted fully stipulated pursuant to Rule 122. ⁴ Our decision is based upon the stipulated administrative record, as defined in Rule 210(b)(11), which is accepted as true for purposes of this proceeding and is incorporated herein by reference.

OPINION

General Background

Columbia Park and Recreation Association, Inc. (petitioner or Association), was incorporated as a nonprofit organization under the laws of the State of Maryland on December 10, 1965. the time its petition was filed, petitioner was located (had its ‘principal place of business‘) in Columbia, Maryland. Petitioner was created by the developers of Columbia, Howard Research and Development Corporation (the Development Corporation), ⁵ as an integral part of Columbia.

Columbia (Columbia or the Development) is a large, private development of residential, commercial and industrial real property located in Howard County, Maryland. ⁶ Columbia is an unincorporated part of Howard County and is not a political subdivision. The residents of Columbia look to Howard County as the lowest level of public governmental authority. The Development covers 14,600 acres with a projected ‘full occupancy‘ population of approximately 110,000. Conceived as an experiment in city planning, Columbia is comprised of a number of residential villages which are designed to provide housing opportunities for high, moderate and low income groups. The master plan requires each village to be serviced by or provided with roads, utilities, facilities, amenities, and employment and industrial areas, all of which are crucial to the establishment of self-sufficient communities. Neighborhoods, which are components of villages, share common educational and recreational facilities concentrated around a centrally located retail, office and commercial core. The commercial core is composed of business and industrial property which overall represents about $130 million of the Development's $600 million assessable real property. Approximately 20 percent of the 14,600 acres (2,920 acres) is designated for industrial purposes.

The Development Corporation intended to and did develop Columbia as a community that offered a new living style: ‘a job opportunity for every residence; a dwelling for every job situation: houses and apartments in a wide variety of size and cost, and a chance to live, work, shop and play in the same place * * *.‘ Petitioner was created in an effort to achieve some of these goals. ⁷ Additionally, and in furtherance of these goals, the Development Corporation transferred 1,400 of Columbia's 14,600 acres to petitioner without receiving any consideration in exchange.

Petitioner's purposes as set forth in its Articles of Incorporation, ⁸ are as follows:

THIRD: * * *

To organize and operate a civic organization which shall not be organized or operated for profit, but which shall be organized and operated exclusively for the promotion of the common good and social welfare of the people of the community of Columbia and its environs * * *.

* * *

For the general purpose aforesaid, and limited to that purpose * * *, the corporation shall have the following SPECIFIC purposes:

(1) To aid, promote, and provide for the establishment, advancement and perpetuation of any and all utilities, systems, services and facilities within Columbia which tend to promote the general welfare of its people with regard to health, safety, education, culture, recreation, comfort or convenience to the extent and in the manner deemed desirable by the Board of Directors;

(2) To exercise all the rights, powers and privileges, and to perform all of the duties and interests of the Corporation * * *.

* * *

(5) To do any and all lawful things and acts that the Corporation may from time to time, in its discretion, deem to be FOR THE BENEFIT OF COLUMBIA AND THE INHABITANTS THEREOF or advisable, PROPER OR CONVENIENT FOR THE PROMOTION OF THE INTERESTS OF SAID INHABITANTS with regard to health, safety, education, culture, recreation, comfort or convenience. [Emphasis supplied.]

Facilities and Services

Petitioner owns and maintains pedestrian and bicycle pathways, parks and open-space areas, 15 neighborhood centers, 16 neighborhood pools, 4 village community centers, 2 tennis clubs, 10 tennis courts, 4 softball fields, a horse center, 2 athletic clubs, ⁹ 2 golf courses, boat docks, an indoor swim complex, a children's zoo, an ice rink, a visual arts center, ¹⁰ and a transportation system. ¹¹ The services offered include a free monthly magazine, a before and after-school program, a day care program, ¹² senior citizen activities, adult education, and a variety of community events and festivals. Of these facilities and services the following do not have user fees and are open to the public: Pathways, parks, open-space areas, swim complex, one golf course, tennis courts and community festivals. The transportation system is available for public use, but a fare is charged for its use. ¹³ The system operates 8 buses on 9 routes within Columbia. Howard County has been instrumental in securing both state and Federal funding for the system, which constituted 60 percent of ColumBus' 1982 ¹⁴ operating budget. ¹⁵ Howard County replaced the older buses with wheelchair-equipped buses to make the system more accessible.

The before and after-school program has been available in Columbia's 14 elementary schools since 1972. This program is designed to provide care and supervision on a regular basis for school-age children of parents residing in Columbia who either work, attend school or training programs, or have special needs. Children enrolled in the program must be registered, and fees paid one month in advance of attendance. The fee structure is based on operating a break-even service, including administrative overhead and an energy surcharge. ¹⁶ Families may qualify for a half-price fee for this service. ¹⁷

Financing—Assessments, Fees and Debt

Part of the cost of providing the desired facilities and services is financed through liens and assessments on all real property in Columbia. ¹⁸ The lien secures petitioner's right to collect assessments arising out of the requirement that every property owner pay an annual assessment at a rate not to exceed $.75 per $100 of ‘assessed valuation.‘ ¹⁹ Petitioner pledged its future assessment revenues to secure repayment of bonds issued to finance the construction of its facilities, ²⁰ and to cover its operating deficits. ²¹ The assessment system is petitioner's principal source of revenue. The required annual assessment is embodied in the ownership of property in Columbia. This right to ownership carries an inherent right to use the facilities and services offered by petitioner. The payment of the assessed fees is the equivalent of a quid pro quo for the owner's right to use the facilities and services petitioner offers. ²²

In addition to the assessment system, and as a major source of revenue, petitioner has developed a system of user fees. ²³ Under this system members pay a stated fee, generally set in excess of cost, for the use of some recreational facilities and services. The use of the terms ‘member‘ or ‘membership‘ does not denote...