Family Trust of Massachusetts, Inc. v. United States
892 F. Supp. 2d 149
D.D.C.2012Background
- FTM applied for 501(c)(3) tax exemption in 2005; IRS acknowledged receipt but never issued a determination.
- FTM sponsors a pooled-asset special needs trust for 300+ disabled/elderly beneficiaries; trust aims to supplement government benefits.
- Founder Mr. Macy has controlling roles and his law office is listed as the FTM’s principal place of business.
- IRS issued a proposed adverse determination in 2008; FTM cooperated but no final notice of determination.
- Court reviews cross-motions for summary judgment on whether FTM meets 501(c)(3) requirements based on the administrative record.
- Court holds that IRS motion for summary judgment is granted and FTM’s cross-motion is denied.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether FTM’s net earnings inure to private individuals | FTM argues no private inurement; no private benefit to Macy | IRS contends Macy has substantial control causing private benefit | FTM fails the inurement requirement |
| Whether FTM is operated exclusively for exempt purposes | FTM emphasizes charitable mission and public benefits | FTM operates with a commercial hue and private benefit | FTM not operated exclusively for exempt purposes |
| Whether the organizational/test satisfies the public-benefit requirement | FTM relies on public charitable aims | Commercial aspects and lack of solicitations indicate non-exempt purpose | Operational test not satisfied; exemption denied |
Key Cases Cited
- Presbyterian and Reformed Pub. Co. v. Comm’r, 743 F.2d 148 (3d Cir. 1984) (private inurement and public-benefit standards apply to 501(c)(3))
- Orange County Agric. Soc., Inc. v. Comm’r, 893 F.2d 529 (2d Cir. 1990) (even small private benefit can defeat exemption)
- Bob Jones Univ. v. United States, 461 U.S. 574 (U.S. 1983) (public-benefit requirement; charitable status requires public purpose)
- United Cancer Council, Inc. v. Comm’r, 165 F.3d 1173 (7th Cir. 1999) (insider benefit and compensation scrutiny)
- Easter House v. United States, 12 Cl. Ct. 476 (Cl. Ct. 1987) (reasonableness of compensation and related issues in exemption analysis)
- Bubbling Well Church of Universal Love, Inc. v. Comm’r, 74 T.C. 531 (Tax Ct. 1980) (need for complete factual record; abuse risk in initial qualification)
- Arlie Found. v. IRS, 283 F. Supp. 2d 58 (D.D.C. 2003) (commerciality factors in operation test; governing framework)