Tikar, Inc. v. Comm'r

• Decision Date: 06 May 2021
• Docket Number: Docket No. 14410-17X.,T.C. Memo. 2021-53
• Parties: TIKAR, INC., Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
• Court: U.S. Tax Court

TIKAR, INC., Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent

T.C. Memo. 2021-53

Docket No. 14410-17X.

UNITED STATES TAX COURT

May 6, 2021

William James (Jim) Linzy and Devon S. Linzy, for petitioner.

Milan H. Kim and Jeremy H. Fetter, for respondent.

MEMORANDUM OPINION

LEYDEN, Special Trial Judge: After examining the activities of petitioner, Tikar, Inc. (Tikar), the Internal Revenue Service (IRS)¹ issued a final adversedetermination letter dated May 9, 2017, revoking Tikar's tax-exempt status effective as of January 1, 2012. The IRS determined that Tikar was not operated exclusively for exempt purposes. Tikar exhausted its administrative remedies, see sec. 7428(b)(2); Rule 210(c)(4),² and challenged the IRS' determination by timely filing a petition with the Court for a declaratory judgment, see sec. 7428(a), (b)(3). The sole issue for determination is whether Tikar was operated exclusively for one or more exempt purposes as set forth in section 501(c)(3). The Court concludes it was not.

Background

The parties filed with the Court the administrative record on March 28, 2018, and a joint first stipulation of facts with attached exhibits on September 10, 2019.³ This case was submitted for decision without trial in accordance with Rule 217(b)(1) and (2). See also Rule 122. For purposes of this proceeding, the facts and representations in the administrative record and the first joint stipulation offacts and exhibits are accepted as true, see Rule 217(b)(1), and are incorporated herein by this reference.

Tikar's principal place of business was in Temple, Texas, when the petition was filed.

I. The Seghers Collection

In 1993, after a short stay in Cameroon, Victor Seghers, a cardiologist, began developing an interest in Tikar⁴ culture, including art and lifestyle, and in collecting Tikar artifacts, especially bronze objects. During 1994, 1995, and 1996 Dr. Seghers imported African artifacts⁵ through the ports of Houston and Dallas, Texas. Additionally, the administrative record includes 173 pages of "shipping documents" ranging in dates from 2001 to 2015 showing that objects such as "handicrafts", "statues", and bronzes were shipped from Cameroon to Belgium, purportedly for Dr. Seghers.

A. Dr. Seghers' African Artifacts

To assist with the collection, movement, and display of the African artifacts, Dr. Seghers engaged the services of Emmanuel Mbiam, an attorney in Cameroon. However, a portion of the African artifacts Dr. Seghers had purchased remained in Africa with Mr. Mbiam. In 2005 Dr. Seghers hired an attorney, Ronald J. Kormanik, to reclaim these African artifacts. With assistance from Mr. Kormanik, Dr. Seghers transferred the African artifacts in Mr. Mbiam's possession to the basement of the National Museum in Cameroon.⁶

B. J.F. Seghers Foundation

Sometime in 1996 Dr. Seghers' father, Conrad Seghers, created the J.F. Seghers Foundation (Seghers Foundation) in the Principality of Liechtenstein for the purpose of "the promotion of African Art from Cameroon by establishing museums, organizing exhibits, [and] sale of art in favour of other entities with the same object, etc." The collection of Tikar artifacts owned by the SeghersFoundation and by Dr. Seghers is collectively referred to as the Seghers Collection.

On May 3, 1996, the University of Yaoundé, School of Arts, Letters, and Humanities in Yaoundé, Cameroon, signed a Cooperation Agreement with The African Art Protection and Promotion Association and the Seghers Foundation for the purpose of: (a) researching and documenting African arts; (b) conducting anthropological studies and collection conservation; (c) researching and publishing scientific works; (d) creating expert reports on works of art; and (e) organizing art focused symposia.

C. American Black Cardiologists Exhibit

On August 9, 1996, Dr. Seghers, as the president of the Seghers Foundation, participated in a program for the opening of the Museum of Tikar Art⁷ at the office of the Association of Black Cardiologists, Inc. (ABC), which was to display 100 pieces of the Seghers Collection. In an agreement dated December 20, 1996, Dr. Seghers, as an art collector, allowed ABC the right to exhibit in the United States some of artifacts in the Seghers Collection. They were to be displayed under theauspices of ABC, which would have at least 100 pieces as a permanent display. Under the agreement Dr. Seghers retained the right to exhibit some of the African artifacts in any venue he chose and to sell any part of the ABC display at his own discretion.⁸ The agreement between Dr. Seghers and ABC also provided that ABC would receive 15% of gross receipts if ABC identified a buyer for a displayed Seghers Collection African artifact or was otherwise involved in the sale of such artifact, and 5% of the gross receipts if ABC played no part in the sale.

II. Tikar

Tikar was organized as a Texas nonprofit corporation on May 14, 1999. Tikar's initial directors were Dr. Seghers, Conrad Seghers, and William James (Jim) Linzy.⁹ According to Tikar's articles of incorporation, signed April 27, 1999, Tikar was organized "[t]o present expositions of objects belonging to the corporation. To negotiate contracts with Museums and other organizations to organize expositions. To promote African Art by exhibits through the corporation itself or through museums. To do any and all necessary and incidental to thestated purpose but in no * * * [way] in violation of Section 501(c)(3) of the Internal Revenue Code."

III. Tikar's Application for Recognition of Tax-Exempt Status

On April 30, 1999, the IRS received Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code, submitted by Tikar.¹⁰ Tikar listed its activities as "[t]o present expositions of objects belonging to the corporation. To negotiate contracts with Museums and other organizations to organize expositions. To promote African Art by exhibits through the corporation itself or through museums." Tikar described its fundraising program as: "[p]rivate exposition open to the public, sales for the benefit of other organizations with the same objective, publications of articles as well as textbooks and films."

The Form 1023 listed Tikar's sources of financial support as "[c]ontributions from Museums, corporations and general public." On the Form 1023, Part IV, Financial Data, A. Statement of Revenue and Expenses, Tikar reported revenue of $25 million and $5 million for "Gifts, grants, andcontributions received" for tax years 1999 and 2000, respectively. Tikar also reported expenses of $15 million for "Contributions, gifts, grants, and similar amounts paid" and "Amounts dist. to museums" and $10 million for "Cost of Acquisition" for tax year 1999.

On the Form 1023, Part IV, Financial Data, B. Balance Sheet, Tikar listed as assets on line 7, "Other investments", "African Art" with a value of $15 million. The form did not include a date after the column heading "Current tax year Date ___."

On the Form 1023 Tikar reported it had "artifacts and pieces of art of African culture" that it used in the performance of its exempt function with a value of $15 million. Question 12a on Form 1023, Part II, Activities and Operational Information, asks: "If the organization provides benefits, services, or products, are the recipients required, or will they be required, to pay for them?" Tikar answered "Yes" and provided the following explanation: "Museums that purchase the art will be required to reimburse for the costs associated with obtaining the art. If the corporation has art exhibits, costs will be passed on to the viewing public in the form of admittance fees". Tikar's governing body was listed on Form 1023 as Dr. Seghers as president, Conrad Seghers as vice president, and Mr. Linzy as secretary.

In a letter dated July 19, 1999, the IRS requested the following additional information from Tikar: (1) a copy of its articles of incorporation, (2) confirmation that the items to be exhibited are currently owned by the organization and whether they were donated and by whom, and (3) an explanation as to why the sale of exhibited items would not result in a private benefit being bestowed on the individual artists and the organization.

By letter dated August 4, 1999, Tikar submitted a copy of its articles of incorporation and provided the following responses:

2. Items are owned by the corporation. They were not donated.

3. Several private institutions which include the University of Yaoundé in Cameroon acquired these objects by purchasing them from native tribes in Cameroon. The organization intends to reimburse these institutions for their costs in acquiring these objects. The remainder of the funds will be used for charitable purposes of the organization. * * * [Mr. Linzy] do[es] not believe this requires any IRS precedent.

The administrative record includes two unexecuted agreements purporting to show that in 1999 Dr. Seghers sold his collection of African artifacts to the Rivus Trust Reg. of FL 9490 Vaduz, Principality of Liechtenstein (Rivus Trust) for $20 million and then, in a separate agreement, the Rivus Trust sold the African artifacts to Tikar for $20 million. The agreements included signature lines for Friedrich Wohlmacher on behalf of Rivus Trust, the only board member and trustee of Rivus Trust, and Dr. Seghers in his individual capacity for the first agreement and on behalf of Tikar for the second agreement. The record does not include signed copies of these agreements.

The agreements referred to schedule "A" for the African artifacts that were sold, but the administrative record does not include a copy of schedule "A". Mr. Wohlmacher stated in an email that the amount the Rivus Trust paid for African artifacts was close to $800,000, not $20 million. The administrative record does not include any signed documents that show the transfer of African artifacts from the Seghers Foundation to the Rivus Trust or from the Rivus Trust to Tikar.

The...