722 F.3d 355
D.C. Cir.2013Background
- FTM manages pooled special needs trusts under 42 U.S.C. § 1396p(d) and sought 501(c)(3) tax exemption for its trustee services.
- IRS proposed denial, arguing FTM lacked a donative element and was not operated exclusively for charitable purposes.
- FTM’s Articles of Organization list directors including Peter Macy, who is also FTM’s President/Treasurer and whose law office is FTM’s principal office.
- In 2004, FTM established the Family Trust for Supplemental Needs II with a minimum account contribution of $25,000 and a provision that residual corpus goes to FTM after a beneficiary’s death, plus annual trustee fees.
- Accounts grew from about 20 in 2005 to about 300 by 2010; FTM marketed its services largely through elder-law professionals and word-of-mouth in that community.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether FTM is operated exclusively for charitable purposes under 501(c)(3). | FTM provides trustee services to disabled individuals in furtherance of charitable aims. | FTM’s activities are commercial with a profit motive and lack a donative element. | FTM is not operated exclusively for charitable purposes. |
Key Cases Cited
- Living Faith, Inc. v. Comm’r, 950 F.2d 365 (7th Cir. 1991) (factors indicating commercial hue negate charitable exemption)
- Lewis v. Alexander, 685 F.3d 325 (3d Cir. 2012) (trusts and donor-beneficiary considerations in eligibility and exemptions)
- ASA Investerings P’ship v. Comm’r, 201 F.3d 505 (D.C. Cir. 2003) (mixed questions of law and fact regarding charitable status)
- Fund for the Study of Econ. Growth & Tax Reform v. IRS, 161 F.3d 755 (D.C. Cir. 1998) (exclusivity and commerciality considerations in exemption analysis)
- IHC Health Plans, Inc. v. Comm’r, 325 F.3d 1188 (10th Cir. 2003) (three-part test for 501(c)(3) exemption)
- Living Faith, Inc. v. Comm’r, 950 F.2d 365 (7th Cir. 1991) (commercial hue as a disqualifying factor for charitable exemption)
- Better Bus. Bureau of Wash., D.C. v. United States, 326 U.S. 279 (1945) (principles on commercial activities and exemptions)