By and large, petitioner's activities were in direct competition with other similar commercial businesses. In addition, it is obvious that substantial profits were generated from the various commercial ventures. Such factors are strong evidence of a substantial nonexempt commercial purpose. See B.S.W. Group, Inc. v. Commissioner, supra at 356-358. Moreover, petitioner's only activities to have even*194 a tangential exempt purpose appear to be Alamo Records and Hartford Advertising, each of which showed minimal activity during the years at issue. In addition, the dissemination of tracts and witnessing, which varied considerably from business to business, does not, in and of itself, require a different result. Although petitioner contends that the main purpose behind these activities was to spread Christianity to the public "by example", such activities, within the context of running a commercial business, were incidental to the underlying commercial purpose of petitioner's activities. See Riker v. Commissioner, 244 F.2d 220">244 F.2d 220 (9th Cir. 1957), affg. T.C. Memo. 1955-225; Living Faith, Inc. v. Commissioner, T.C. Memo. 1990-484.

Petitioner's raison d'etre was to provide subsistence to its members and economic wealth to Tony and Susan. If petitioner had ceased its operations, so too would petitioner cease. Rather than being a communal group only tangentially engaged in unrelated trades or businesses, petitioner was akin to a city of full-time workers, who also happen to pray together. Any sincerely held religious beliefs were*195 secondary to petitioner's main purpose, i.e., the operation of the businesses to provide subsistence to foundation members and economic wealth to Tony and Susan. See Shiloh Youth Revival Centers v. Commissioner, 88 T.C. 565">88 T.C. 565, 581-582 (1987). Cf. St. Joseph Farms of Indiana v. Commissioner, 85 T.C. 9">85 T.C. 9 (1985). See also Canada v. Commissioner, 82 T.C. 973">82 T.C. 973 (1984) (which discusses the operational test under section 501(c)(3) in a similar communal setting, within the context of section 170, charitable contributions).

Petitioner relies upon Golden Rule Church Association v. Commissioner, 41 T.C. 719">41 T.C. 719 (1964), to support its contention that it was operated exclusively for exempt purposes. In Golden Rule, we held, based upon the facts therein, that the operation of a variety of businesses, which would normally be considered as having a commercial objective, was an essential ingredient of religious activities in that they furnished a training ground for student ministers by affording them the opportunity to learn and acquire the ability to articulate to others the teachings of their church. Moreover, in *196 Golden Rule, we found that the church incurred consistent and substantial net losses during the years at issue. As this is primarily a question of fact, Est of Hawaii v. Commissioner, supra, we find that Golden Rule should be interpreted in light of its specific facts. By contrast, petitioner in this case has not shown that its businesses were required to further the teachings of the foundation. In addition, petitioner incurred consistent and substantial net profits. Accordingly, we think petitioner's reliance on Golden Rule is misplaced. See Riker v. Commissioner, supra.

Amazingly, petitioner also relies on Shiloh Youth Revival Centers v. Commissioner, supra, a case strikingly similar to ours, but framed within the context of an unrelated trade or business under section 513. ^{Shiloh by*197 focusing on Shiloh's avowed purpose to make a profit, as detailed in its articles of incorporation; the requirement that all members work, as a primary goal of the organization; and that the various living centers were required to monitor their efficiency in meeting revenue goals and budgets. By contrast, petitioner contends that there was no similar profit or work goals, and that as a result of Tony's centralized control over all foundation activities, petitioner could not have possibly been run in a businesslike and efficient manner to incur a profit. We find such distinctions to have no merit. Although petitioner is clearly correct in intimating that it generally had lax controls and did not carefully observe corporate formalities, such defects do not miraculously turn a nonexempt organization into an exempt organization. (If anything, it shows a conscious for proper record keeping, which is essential for a taxpayer to carry its burden of proof in a revocation proceeding.)}

*198 In addition, petitioner contends that its activities are akin to those in St. Joseph Farms of Indiana v. Commissioner, supra, wherein we found that, although an order of Holy Cross Brothers was engaged in a farming activity not substantially related to its exempt purpose, because substantially all of the farm work was performed without compensation, the activity fell within the exception to the definition of an unrelated trade or business as set forth in section 513(a). In St. Joseph Farms, only 12 to 14 of the taxpayer's 167 members worked in the unrelated business. In the instant case, however, we are convinced that the vast majority of petitioner's associates were required to work long hours in the businesses in order to keep petitioner's operations functioning. Accordingly, we find St. Joseph Farms to be distinguishable on its facts.

Although we hold that petitioner was not operated exclusively for religious or other exempt purposes, which holding is dispositive of this case, we will, for the sake of completeness, further address respondent's contention that petitioner's net earning inured to the benefit of private individuals.

Section 501(c)(3) *199 also requires, as a condition of exempt status, that "no part of the net earnings" of the organization inure to the benefit of any "private shareholder or individual". Although they are separate requirements, the "private inurement" test and the "operated exclusively for exempt purposes" test prescribed by section 501(c)(3) substantially overlap. Church of Ethereal Joy v. Commissioner, 83 T.C. 20">83 T.C. 20, 21 (1984); Church of the Transfiguring Spirit v. Commissioner, 76 T.C. 1">76 T.C. 1, 5 n.5 (1981); People of God Community v. Commissioner, 75 T.C. 127">75 T.C. 127, 131 (1980). Section 1.501(c)(3)-(1)(c)(2), Income Tax Regs., provides: "An organization is not operated exclusively for one or more exempt purposes if its net earnings inure in whole or in part to the benefit of private shareholders or individuals." A private shareholder or individual is a person having a personal or private interest in the activities of the organization. Sec. 1.501(a)-1(c), Income Tax Regs.

Since "no part" of the net earnings of an organization may inure to the benefit of a private shareholder or individual (sec. 501(c)(3)), the amount or extent of such inurement or *200 benefit is not determinative. Church of the Transfiguring Spirit v. Commissioner, supra; Unitary Mission Church v. Commissioner, 74 T.C. 507 (1980), affd. in an unpublished opinion 647 F.2d 163">647 F.2d 163 (2d Cir. 1981). The forbidden inurement may take the form of cash disbursements, or other less obvious forms, such as the provision of goods and services to private individuals. Texas Trade School v. Commissioner, 30 T.C. 642">30 T.C. 642, 647 (1958), affd. per curiam 272 F.2d 168">272 F.2d 168 (5th Cir. 1959). Cf. World Family Corp. v. Commissioner, 81 T.C. 958">81 T.C. 958, 968 (1983) (the payment of reasonable compensation for services rendered does not constitute forbidden inurement).

We are convinced that part of the net earnings did inure to the benefit of Tony and Susan. In other words, petitioner was operated for Tony and Susan's private benefit. The evidence in this case leads to the inescapable conclusion that petitioner's net earnings inured to benefit Tony and Susan. As recited in the Findings of Fact, there is credible, corroborated evidence of substantial amounts of jewelry, furs, clothing, automobiles, *201 personal residences, antiques, and currency being used exclusively by Tony and Susan. ^{were petitioner, hopelessly intertwined, with no separate identity, orchestrating a huge business organization (to be played by others) for their personal benefit.}

*202 In view of our conclusions regarding the operational and private inurement tests of section 501(c)(3), it is not necessary to address the parties' other contentions. An appropriate decision will be entered.

APPENDIX GROSS SALES AS REPORTED ON PETITIONER'S WORKING TRIAL BALANCE

From	Through	Business Name ¹⁹⁷⁷
01/01/77	12/31/80	Hartford Advertising	*
01/01/77	12/31/80	Alamo Record Company	$ 179
01/01/77	12/31/80	Fort Smith Nursery	60,710
01/01/77	12/31/80	Alamo Shoppers Emporium	*
01/01/77	12/31/80	Alamo Kerr McGee	89,041
01/01/77	12/31/80	Alamo DX	346,938
01/01/77	12/31/80	Alamo Restaurant	425,162
01/01/77	12/31/80	Alamo Candy Company,
		including Fleetwood Candies	1,498
01/01/77	12/31/80	Alamo of Nashville	68,157
01/01/77	05/30/78	Alamo Bandito	46,370
01/01/77	12/31/80	Alamo Discount Grocery	288,234
01/05/77	12/31/80	Alamo Construction	*
06/01/77	12/31/80	Alamo Auto	52,561
05/20/78	12/31/80	Alamo Freight	N/A
07/01/78	12/31/80	Alamo Ready-Mix	N/A
06/27/79	12/31/80	Alamo Farms, including
		Bosco Feed	N/A
01/01/77	12/31/80	Alamo on Vine	*
01/01/77	12/31/80	Alamo of Nashville	453,166
01/01/77	12/31/80	Tennessee Country Boy	0

*203

Business Name 21	1978	1979	1980
Hartford Advertising	*	0	0
Alamo Record Company	$ 684	$ 0	*
Fort Smith Nursery	75,493	51,005	$ 4,314
Alamo Shoppers Emporium	*	0	0
Alamo Kerr McGee	1,302,895	1,402,394	1,171,730
Alamo DX	360,957	308,893	254,466
Alamo Restaurant	528,228	742,971	430,368
Alamo Candy Company,
including Fleetwood Candies	19,063	370,949	500,419
Alamo of Nashville	204,887	147,387	129,349
Alamo Bandito	8,631	N/A	N/A
Alamo Discount Grocery	340,150	486,845	444,842
Alamo Construction	*	71,066	122,392
Alamo Auto	83,179	296,239	327,466
Alamo Freight	*	83,255	116,169
Alamo Ready-Mix	84,717	197,951	95,927
Alamo Farms, including
Bosco Feed	N/A	*	285,913
Alamo on Vine	*	*	*
Alamo of Nashville	626,051	603,932	750,404
Tennessee Country Boy	*	*	84,752

*204 Note: * = Unknown; figures not determinable from petitioner's records.

N/A = Not applicable

Footnotes

1. All section references are to the Internal Revenue Code in effect for the years in issue. All Rule references are to the Tax Court Rules of Practice and Procedure.↩
2. Rule 217(a), in relevant part, provides:
Disposition of an action for declaratory judgment involving a revocation may be made on the basis of the administrative record alone only where the parties agree that such record contains all the relevant facts and that such facts are not in dispute.↩
3. For convenience, we will refer to Tony Alamo and Susan Alamo as Tony and Susan, respectively. We note that the Alamos were uniformly referred to by counsel, and all witnesses, by their first names during the trial herein, rather than by Reverend, or Mr. and Mrs. Alamo.↩
4. There was no evidence submitted as to whether Tony or Susan was ever ordained as ministers by an ecclesiastical body. Moreover, petitioner was not affiliated with any higher ecclesiastical body or organization.↩
5. Witnessing has been defined as the act of giving testimony to another about the teachings of the Bible and Jesus Christ.↩
6. A tract is printed literature, in various sizes, with a gospel message on it.↩
7. There was no documentation concerning the number of foundation members during the years at issue. However, a letter dated Mar. 10, 1982, from petitioner's then counsel to respondent, lists foundation membership at 314. (Thirty-eight were listed in Nashville, Tennessee, 85 in California, and 191 in Arkansas.) In a lawsuit involving petitioner and the Department of Labor, the District Court made a finding of an average number of adult associates in the foundation of 385 in 1977, 355 in 1978, 347 in 1979, and 337 in 1980. See Donovan v. Tony and Susan Alamo Foundation, 567 F. Supp. 556">567 F. Supp. 556 (W.D. Ark. 1982), affd. in part and vacated in part 722 F.2d 397">722 F.2d 397 (8th Cir. 1983), affd. sub nom. Tony and Susan Alamo Foundation v. Secretary of Labor, 471 U.S. 290">471 U.S. 290↩ (1985).
8. The administrative record contained corporate resolutions authorizing the financing and production of two religious albums, namely, "I John," dated Mar. 1, 1977, and "Mr. D.J.," dated Oct. 1, 1977. The costs incurred and distribution efforts are unknown.↩
9. However, fictitious name filings for the above entities were included in the administrative record.↩
10. Although we list financial data as reported on the Forms 990, we express no opinion as to the reliability or validity thereof. Specifically, we note that the reported disbursements contained apparent transfers between the various businesses and the foundation, the methodology and propriety of which is not determinable from this record.↩
11. The corporate resolution concerning this expenditure reflects that this was a purchase of a prototype or sample for future production purposes.↩
12. A duplicate 1979 inventory list indicated additional jewelry inventory of $ 7,800. However, we note that the $ 7,800 figure appears to be written in afterwards and was not included in the column total. ↩
13. It should be noted that petitioner entered into a license agreement with Lorimar Productions, Inc., to market, through a catalog, clothing and accessories, based upon the television series Dallas, including the names and likenesses of the series' performers portraying the characters depicted therein. The license was for the period Oct. 2, 1980, through Oct. 1, 1981, at a total guaranteed compensation of $ 200,000. Included in the catalog were advertisements for mink and fox furs, ranging from $ 2,000 to $ 7,000 each. Accordingly, the photographs of furs at the Alamo of Nashville were probably taken post-1980. We further note that a resolution dated Aug. 4, 1980, authorized a trip to Palm Springs, California, for the Alamos for 2 months in order to formulate the Dallas Commemorative Catalogue. ↩
14. Cash disbursement journals for 1979 and 1980, and accounts payable journals for 1977 and 1978 were not included in the administrative record.↩
15. Respondent's expert, John J. Boyett, estimated an original cost of $ 380,000 in June 1979. However, due to numerous inconsistencies and mistakes in methodology, we place no reliance on his report.↩
16. Section 501(c)(3) provides:
Corporations, and any community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment), or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private shareholder or individual, no substantial part of the activities of which is carrying on propaganda, or otherwise attempting to influence legislation, (except as otherwise provided in subsection (h)), and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of any candidate for public office. ↩
17. Although respondent, in her motion for summary judgment, infra↩, contends there are five issues in this case, we note that such issues are nothing more than a restatement of requirements one and two above, by which we also structure our opinion.
18. Section 513(a) provides: "The term 'unrelated trade or business' means, in the case of any organization subject to the tax imposed by section 511, any trade or business the conduct of which is not substantially related (aside form the need of such organization for income or funds or the use it makes of the profits derived) to the exercise or performance by such organization of its * * * [religious] function constituting the basis for its exemption under section 501 * * *.↩
19. We find the testimony of former foundation member Norman Kaffen, who lived at petitioner's property in Arkansas during the years at issue, to be very credible. He testified, in relevant part, as follows: "Looking at it percentage-wise, I would say the largest percentage of the money during this period of time '77 to '80 went into the community. * * * The next chunk, I believe, percentage-wise, during this period of time, went for christian outreach. * * * The third percentage of the monies went to support Tony and Sue's very, very excessive; very abusive; very frivolous and squanderous lifestyle * * *."↩
20. Both respondent and petitioner have argued, in the alternative, whether petitioner's businesses are included or excluded, respectively, in or from the definition of unrelated trades or businesses under section 513. Respondent has further argued that foundation members, other than Tony and Susan, were the recipients of net earnings from petitioner.↩
21. All businesses were located in Alma, Arkansas, except Alamo on Vine in Hollywood, Cal., and Alamo of Nashville and Tennessee Country Boy, both of which were in Nashville, Tenn.↩

Document Info

Docket Number： Docket No. 39921-85X.

Judges： DAWSON

Filed Date： 3/18/1992

Precedential Status： Non-Precedential

Modified Date： 11/20/2020

Authorities (4)

Texas Trade School v. Commissioner of Internal Revenue ( 1959 )

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Church of Scientology of California v. Commissioner of ... ( 1987 )

Tony and Susan Alamo Foundation v. Secretary of Labor ( 1985 )

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