Petersen v. Commissioner

• Decision Date: 24 February 1987
• Docket Number: Docket No. 30455-83.
• Citation: 1987 TC Memo 108,53 TCM (CCH) 235
• Parties: Ronald I. Petersen and Gloria M. Petersen v. Commissioner.
• Court: U.S. Tax Court

53 T.C.M. (CCH) 235 (1987)

T.C. Memo. 1987-108.

Ronald I. Petersen and Gloria M. Petersen v. Commissioner.

Docket No. 30455-83.

United States Tax Court.

Filed February 24, 1987.

Robert Chicoine, Waterfront Place One, 1011 Western Ave., Seattle, Wash., and Darrell D. Hallett, for the petitioners. Hugh Spall, for the respondent.

Memorandum Findings of Fact and Opinion

HAMBLEN, Judge:

Respondent determined a deficiency in and an addition to Petitioners' Federal income tax for the year 1979 as follows:

                Addition to Tax
                Deficiency Sec. 6653(a)
                $9,821.00                   $491.001
                

Respondent, in his answer, seeks damages pursuant to section 6673. The issue for decision is whether petitioners are entitled to deduct as charitable contributions pursuant to section 170 certain payments made to the Venusian Church.

Findings of Fact

Some of the facts have been stipulated and are incorporated herein by this reference. At the time the petition herein was filed petitioners maintained a legal residence within the state of Washington.

Petitioner Ronald I. Petersen ("Petersen") made six payments in the aggregate sum of $15,000.00 during the year in issue to the Venusian Church. Each transfer was from funds on deposit with the Pacific National Bank of Washington in the sole account name of Petersen. Petersen testified that additional payments in the aggregate sum of $3,239.00 were made to the Venusian Church during November and December of 1979 from an account other than the Pacific National Bank of Washington account. The record is devoid of other means of substantiation regarding the transfers in November and December of 1979. Petitioners deducted the amount of $18,339.00 designated as a charitable contribution to the Venusian Church on their 1979 Federal income tax return.

The Venusian Church was formed in July of 1976. Petitioners and William Cooley ("Cooley") were designated as directors and ordained ministers of the entity. The Venusian Church was incorporated in the state of California in the year 1977. The State of California suspended the corporate powers, rights and privileges of the Venusian Church on March 1, 1979 pursuant to the provisions of the California Bank and Corporation Tax Law. The Venusian Church also obtained a Universal Life Church charter on July 1, 1976. Petersen stated that his view at the time was that the Venusian Church would qualify for tax exempt status under the perceived umbrella tax exemption of the Universal Life Church. The Universal Life Church charter was posted at the Temple of Venus. In August of 1977, the Venusian Church made application to the Internal Revenue Service for recognition of exemption under section 501(c)(3). The Internal Revenue Service denied such application and at no time was the Venusian Church granted tax exempt status. The Venusian Church did not draft articles of incorporation or other governing instruments to establish guidelines concerning policies, activities or beliefs. Petersen stated that policies were established pursuant to egalitarian guidelines such that

"*** we were governed by the members. The members were the people that actually sourced events. They were the ones that would determine what kind of events they wanted to have and where they would have them and each and every facet that went on in the church was sourced by the members. ***"

During the year in issue, Petersen stated that approximately one hundred individuals had a "formal relationship" with the Venusian Church and that approximately fifteen hundred people were listed on a mailing list as occasional participants. The record provides no reliable evidence as to the intended distribution of Venusian Church assets upon any dissolution.

In 1977, Petersen owned a one-half interest in Delvesco, Inc. ("Delvesco") which owned property on which a massage parlor doing business as Yvette's Massage and Sauna ("Yvette's) was operated. In June of 1977, Petersen agreed to sell his entire interest in Delvesco and Yvette's for $25,000 to Joe Brown, the other stockholder of Delvesco. Instead, Petersen donated his interest in Delvesco and Yvette's to the the Venusian Church and valued such donation in the amount of $25,000.00 for deduction purposes on petitioners' 1977 Federal income tax return.²

Petersen was a minority shareholder in eight Ellwest Stereo Corporations ("Ellwest Theatres") and received dividend income from such source. Ellwest Theatres exhibited so-called adult films in various cities throughout the United States. The design of the Ellwest Theatres was essentially the same in each city such that customers viewed movies in individual booths containing coin boxes which activated a projector to exhibit approximately a three minute sequence of a film. The films were sexually explicit.³

Petersen and Cooley were trustees of Interfaith Foundation. Petersen and Cooley owned in excess of fifty percent (50%) of the stock of Uniview Corporation ("Uniview"). Cooley and the other stockholders of Uniview were also stockholders of Ellwest Theatres. One of the initial activities of the Venusian Church was to establish the Temple of Venus ("Temple") at 1414 First Avenue in Seattle, Washington within an area sometimes referred to as an adult entertainment district. Uniview owned and operated a business known as the Amusement Center located at 1416 First Avenue immediately adjacent to the Temple. The premises of the Amusement Center was leased by Interfaith Foundation. Interfaith Foundation held the panoram license for the Amusement Center. A panoram license is a business license issued by the city of Seattle to establishments which exhibit coin operated films. Uniview previously held the panoram license for the Amusement Center. Interfaith Foundation claimed to be exempt from all applicable city of Seattle fees on the basis that Interfaith Foundation was a non-profit religious foundation.

The Temple included approximately forty-eight exhibits including lithographs, films, brochures, recorded messages, and a form of live exhibit. According to Petersen each exhibit was intended to further the philosophies and values of the Venusian Church. The Temple contained as one type of exhibit individual movie booths containing coin operated movie projectors exhibiting sexually graphic films similar to those at Ellwest Theatres.

The Temple also included a series of individual booths arranged in a horseshoe shaped configuration for purposes of viewing a live performance. Each booth contained a coin operated "donation box" which upon the deposit of a silver dollar raised a window shade or curtain revealing the live performance for a period of three minutes. Individual performers were auditioned for the cast. Membership in the Venusian Church was not a mandatory requirement to become a performer. The Venusian Church paid the performers wages of approximately $5.00 per hour. The live performance exhibited various sexual acts including heterosexual, bisexual and homosexual acts. On occasion, the performances included three members of the cast. The Temple also offered sexually explicit individual performances in which a woman would also engage in a discussion of the sexual fantasies or the frustration of patrons with the group. The fee for individual performance was $10.00. Sharon Cain was a performer in the individual performance and was paid compensation comparable to the other performers. Sharon Cain also paid a "poverty assistance" stipend by the Venusian Church in the amount of $10,200.00.

Patrons of the Temple were generally expected to pay for the right to view the films or the live performances. There were no signs in the Temple to indicate that patrons could view such exhibits at no cost. On occasion, certain groups such as academic or journalistic interests were provided access to the Temple's exhibits at no cost.

During the year 1979, several performers at the Temple were arrested and charged with lewd conduct related to the live performances pursuant to Seattle Criminal Code section 12A.10.070 ("lewd conduct ordinance") and Seattle Criminal Code section 12A.10.080 ("body studio ordinance"). Trials were held in the year 1980 which resulted in several convictions pursuant to the lewd conduct ordinance and the body studio ordinance. The defendants were fined and received deferred jail sentences. The lewd conduct ordinance and body studio ordinance convictions were appealed to the Washington State Supreme Court regarding First Amendment issues. The Washington State Supreme Court affirmed the convictions determined by the trial court. Curtis v. Seattle, 97 Wash. 2d. 59, 639 P.2d 1370 (1982). The Venusian Church paid the legal costs incurred by the individuals concerned.

During the year 1977, the Venusian Church located an abandoned retreat camp referred to as Camp Armac ("Armac"). The Venusian Church leased Armac for a period of approximately two years and six months. Armac was situated on the thirty two acres of land in Bothell, Washington. The facilities at Armac included dormitories, cafeteria, three houses, a pool, a hot tub, and a large seminar building. Patrons of the Temple received leaflets and viewed a film depicting the activities at Armac. Fees were charged by the Venusian Church to patrons participating at Armac. The membership fee was $250.00. Fees at Armac were on occasion lower than $250.00 for members of the Venusian Church. Children were permitted at Armac. However, children were prohibited from certain designated areas and activities.

The Venusian Church leaftlet described the Armac retreat as follows:

Armac is

A private religious retreat where people experience ways of being together in an atmosphere that permits pleasure, creativity and expression of fantasy. We actively support efforts to expand our spiritual potential as human beings. Our goal is processing human growth.

A serene setting where the worth and dignity of our humanness can be experienced. The wearing of clothing

...