Abovo Foundation, Inc. v. Commissioner , 2018 T.C. Memo. 57 ( 2018 )

T.C. Memo. 2018-57UNITED STATES TAX COURT
ABOVO FOUNDATION, INC., Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 18673-15X. Filed April 30, 2018.
Emmanuel C. Okonkwo (an officer), for petitioner.
Marissa R. Lenius, for respondent.
MEMORANDUM OPINION
FOLEY, Judge: Pursuant to section 7428(a), petitioner seeks a declaratory
judgment that it meets the requirements of section 501(c)(3) and is exempt from
Federal income taxation. Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect at all relevant times, and all Rule references
are to the Tax Court Rules of Practice and Procedure. This case was submitted for
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[*2] decision based on the stipulated administrative record as defined in Rule
210(b)(12). See Rule 217. Petitioner exhausted its administrative remedies as
required by section 7428(b)(2) and Rule 210(c)(4); received a final adverse
determination letter dated June 5, 2015, relating to its initial application for tax-
exempt status; and filed its petition and amended petition with the Court on July
21 and August 26, 2015, respectively.
Background
Emmanuel C. Okonkwo is a military veteran, medical doctor, and board
certified expert in patient safety and risk management. He holds doctor of
medicine, master of science in quality systems management, and bachelor of
individual studies in hospital management degrees. On May 27, 2011, Dr.
Okonkwo incorporated petitioner, Abovo Foundation, Inc. (Abovo), as a Texas
domestic nonprofit corporation. Abovo’s primary purpose would be to deliver
quality management consulting services to medical providers and advance
Government programs through patient safety initiatives. Its quality management
services would include “defining, identifying, analyzing, measuring and
controlling systems and processes to ensure desirable outcomes”. In addition,
Abovo would provide “uplifting services for the elderly and veterans”, housing for
low-income individuals, and internal auditing services.
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[*3] Abovo would solicit donations and receive fees relating to its services. Dr.
Okonkwo, Abovo’s president, chief executive officer, and sole employee, would
perform services provided to clients (i.e., at an hourly rate of $350), receive a
$217,000 salary, and be eligible for an annual performance-based bonus (i.e., not
to exceed $100,000). While Abovo has not entered into any service contracts, its
fee structure would be market based and dependent on the nature of the project
and the expertise required to complete it.
On April 23, 2012, respondent received Abovo’s incomplete Form 1023,
Application for Recognition of Exemption Under Section 501(c)(3) of the Internal
Revenue Code. On September 4, 2012, at respondent’s request, Abovo sent
respondent an updated Form 1023, and on December 10, 2013, amended its
certificate of formation to provide that Abovo was organized exclusively for
charitable, religious, educational, and scientific purposes pursuant to section
501(c)(3).
Discussion
Pursuant to section 501(a), organizations described in section 501(c)
generally are exempt from Federal income taxation. Section 501(c)(3) requires
that an organization be organized and operated exclusively for exempt purposes,
and that “no part of * * * [its] net earnings * * * inure[] to the benefit of any
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[*4] private shareholder or individual” (i.e., the organizational and operational
tests). Sec. 501(c)(3); sec. 1.501(c)(3)-1(a) to (c)(2), Income Tax Regs. Only the
operational test is at issue.
Abovo contends and bears the burden of establishing that its services would
advance Government programs pursuant to Federal patient safety laws and lessen
the Government’s burden. See Rule 142(a). To the contrary, Abovo’s services
would not serve an exempt purpose, would be commercial in nature, and would
serve Dr. Okonkwo’s, rather than the public’s, interest. See sec. 501(c)(3); Better
Bus. Bureau v. United States, 326 U.S. 279, 283 (1945); sec. 1.501(c)(3)-1(c)(1)
and (2), Income Tax Regs. The administrative record does not establish that
Abovo would act on the Government’s behalf or that Abovo’s consulting services
would lessen the Government’s burden. See Quality Auditing Co. v.
Commissioner, 114 T.C. 498, 507-508 (2000) (citing Columbia Park & Recreation
Ass’n v. Commissioner, 88 T.C. 1, 21 & n.45 (1987), aff’d, 838 F.2d 465 (4th Cir.
1988)); cf. Ind. Crop Improvement Ass’n v. Commissioner, 76 T.C. 394 (1981)
(holding that a taxpayer’s testing and certification of agricultural products
lessened the Government’s burden).
In short, Abovo is a facade for Dr. Okonkwo’s consulting activities. See
B.S.W. Grp., Inc. v. Commissioner, 70 T.C. 352, 358 (1978) (stating that the
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[*5] relevant consulting activities were “of the sort which * * * [were] ordinarily
carried on by commercial ventures organized for profit”). Abovo would develop
Dr. Okonkwo’s business relationships, further his consulting career as a board
certified expert in patient safety and risk management, and potentially pay him
annual compensation in excess of $300,000. See sec. 501(c)(3); B.S.W. Grp., Inc.
v. Commissioner, 70 T.C. at 359; sec. 1.501(c)(3)-1(c)(2), Income Tax Regs. The
benefits relating to Abovo would inure to Dr. Okonkwo, Abovo’s sole employee,
service provider, and primary source of funding. Because Abovo would be
operated for commercial purposes and for the benefit of Dr. Okonkwo, it does not
qualify for tax exemption.
Contentions we have not addressed are irrelevant, moot, or meritless.
To reflect the foregoing,
Decision will be entered
for respondent.