Nationalist Found. v. Commissioner

T.C. Memo. 2000-318
UNITED STATES TAX COURT
THE NATIONALIST FOUNDATION, A MISSISSIPPI NON-PROFIT CORPORATION,
Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 14871-98X. Filed October 11, 2000.
Richard Barrett, for petitioner.
Joan Ronder Domike, for respondent.
MEMORANDUM OPINION
COHEN, Judge: Respondent determined that The Nationalist
Foundation (petitioner) does not qualify as a section 501(c)(3)
charitable organization and, therefore, is not exempt from
Federal taxation under section 501(a). Pursuant to section 7428
and title XXI of the Tax Court Rules of Practice and Procedure,
petitioner seeks a declaratory judgment that it is a qualified
organization under section 501(c)(3). The issues for decision
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are whether petitioner operates exclusively for charitable and/or
educational purposes and whether the Commissioner treated
petitioner differently from other similarly situated
organizations in violation of petitioner’s due process and equal
protection rights under the 5th and 14th Amendments to the
Constitution. Unless otherwise indicated, all section references
are to the Internal Revenue Code in effect at the time the
petition was filed, and all Rule references are to the Tax Court
Rules of Practice and Procedure.
Background
The administrative record, which includes all of the facts
upon which the Commissioner made the final adverse determination,
was submitted to the Court under Rule 217(b)(1) and is
incorporated herein by this reference.
Petitioner is a nonprofit Mississippi corporation with its
principal office in Jackson, Mississippi. Petitioner’s articles
of incorporation, filed on March 25, 1996, list Vince Thornton
and Dan Daniels as incorporators and Richard Barrett (Barrett) as
registered agent. Barrett is also serving as counsel to
petitioner in this action. Wendell Garner replaced Barrett as
registered agent on or around October 30, 1997.
On Form 1023, Application for Recognition of Exemption Under
Section 501(c)(3) of the Internal Revenue Code, petitioner stated
that its principal activities are:
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Conducting forums to discuss Constitutional rights’
issues, stressing the First Amendment; conducting
public access cable television and internet programs
featuring guests, interviews and documentaries on
current issues stressing the use of lawful, peaceful
and positive means to achieve democratic ends.
Conducting litigation (or amicus curiae) to lessen the
burdens of government under the “private attorney
general” method to secure and advance civil,
constitutional and First Amendment rights.
According to petitioner, “private attorney general” means that
“citizens assist in enforcement of the laws, saving the
government time and expense of doing so, such as by private
litigation”. Petitioner’s constitution states that it shall be a
nonprofit charitable and educational organization dedicated to
advancing American freedom, American democracy, and American
nationality.
Petitioner seeks to become the legal and educational arm of
rightist and promajority Americans. Petitioner states, in a
letter soliciting donations from the public, that it will use the
courts to bring “terrorists” who attack promajority demonstrators
to justice. The letter cites two examples of events where
petitioner would bring litigation using the “private attorney
general” technique:
In Simi Valley, self-described communists
advertised in the newspaper that they would kill
patriots assembled to thank the jury that acquitted
Officers Koon and Powell (Police officers accused of
beating Rodney King).
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In New Hampshire, avowed homosexuals advertised
that they would attack patriots calling for abolishing
the * * * [Martin Luther King, Jr.] Holiday. It took
massive intervention by riot police to back them off.
Both of these events were assemblies organized by Barrett, in
which promajority demonstrators were attacked by
counterdemonstrators. Petitioner also plans to file amicus
curiae briefs in cases involving the First Amendment rights of
promajority-minded Americans and to use 42 U.S.C. sec. 3604(e) as
an antiblockbusting law to “save” neighborhoods by suing incoming
minorities.
Petitioner will use the internet to conduct seminars for
teaching skills for more effective social action. The
administrative record contains a transcript from only one
seminar, which was conducted February 18, 1997. The seminar,
recounted on the website of petitioner, gives students
instruction on how to advocate peacefully without violating laws
pertaining to hate crimes, housing violations, harassment, and
racketeering. Petitioner’s home page also contains links to
other articles entitled “Constitutional Protection”, “Educational
Outreach”, “Nationalist Ideology”, “Private Attorney-General”,
“Pro-Democracy Methodology”, “Relief for the Poor”, and “Using
the First Amendment as Democracy’s Shield and Sword”. The
administrative record, however, does not contain copies of these
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articles despite attempts by the Commissioner to obtain them from
petitioner.
Petitioner allocates its time in the following manner:
Internet seminars and preparation 15%
Researching legal and educational issues 20%
Website setup and maintenance 25%
Administration, correspondence,
record keeping 30%
Meetings and conferences 10%
The actions of petitioner are designed to counteract the work of
organizations such as the NAACP Legal Defense Fund, Inc., and the
American Civil Liberties Union. Petitioner characterizes these
groups as “the leftist threat to our liberties”.
Petitioner’s donation solicitation material contains several
distortions of fact. Petitioner’s statement, in its solicitation
letter, that “avowed homosexuals advertised that they would
attack patriots” was fabricated from a newspaper article that
reads “Members of the National Peoples Campaign plan to shadow
Barrett outside the State House beginning at 8 a.m. to oppose his
ultra-conservative views. And they are looking for all the
picketers they can get.” (Emphasis added.) The same
solicitation letter also claims that petitioner has in its
possession “actual photos of the terrorists in the act of
attacking the Anti-King Rally at the State Capitol.” Petitioner,
however, has only one photograph of three individuals holding a
banner, which opposes the views of petitioner. The individuals
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depicted in the photograph are not engaged in any kind of attack
on Barrett or his fellow demonstrators.
On December 9, 1996, petitioner submitted its Form 1023,
Application for Recognition of Exemption Under Section 501(c)(3)
of the Internal Revenue Code. Respondent issued an initial
adverse determination on August 4, 1997. Petitioner appealed to
the Internal Revenue Service Office of Appeals, which gave a
final adverse determination on June 19, 1998, denying tax-exempt
status to petitioner under section 501(c)(3). The Commissioner’s
reasons for denial stemmed from the determination that petitioner
has failed to establish that it is operated exclusively for
exempt purposes, that net earnings will not inure to the benefit
of private individuals, and that petitioner will not serve
private interests. Petitioner challenges that determination in
this action for declaratory judgment.
Discussion
Petitioner bears the burden of proving that it is a section
501(c)(3) organization. See Rule 217(c)(2)(A). In order for
petitioner to meet this burden, the administrative record, upon
which this case is to be decided, must contain enough evidence to
support a finding contrary to the grounds set forth in the notice
of determination. See Nationalist Movement v. Commissioner, 102
T.C. 558 (1994), affd. 37 F.3d 216 (5th Cir. 1994); Church in
Boston v. Commissioner, 71 T.C. 102, 105 (1978).
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During the administrative proceeding, petitioner attempted
to countermand and withdraw several of its comments, practices,
and activities after the Commissioner determined that these items
would preclude petitioner from qualifying as a section 501(c)(3)
organization. However, we review the administrative record in
its entirety.
Section 501(a) provides tax-exempt status for organizations
described in section 501(c). Section 501(c)(3) includes the
following organizations:
(c)(3) Corporations, and any community chest,
fund, or foundation, organized and operated exclusively
for religious, charitable, scientific, testing for
public safety, literary, or educational purposes, * * *
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, * * * and which does not participate in,
or intervene in * * * any political campaign on behalf
of (or in opposition to) any candidate for public
office.
Contributions to organizations described in section 501(c)(3) are
generally deductible to donors. See sec. 170(a)(1).
To come within the terms of section 501(c)(3), an
organization must be both “organized” and “operated” exclusively
for tax-exempt purposes. Sec. 1.501(c)(3)-1(a)(1), Income Tax
Regs. The presence of a single substantial nonexempt purpose
precludes exempt status for the organization, regardless of the
number or importance of exempt purposes. See Better Bus. Bureau
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v. United States, 326 U.S. 279, 283 (1945). The actual purposes
of the organization, not necessarily limited to those purposes
stated in the organizing documents, are the appropriate focus.
See American Campaign Academy v. Commissioner, 92 T.C. 1053, 1064
(1989).
As stated in the regulations, the “operational test” is as
follows:
An organization will be regarded as “operated
exclusively” for one or more exempt purposes only if it
engages primarily in activities which accomplish one or
more of such exempt purposes specified in section
501(c)(3). An organization will not be so regarded if
more than an insubstantial part of its activities is
not in furtherance of an exempt purpose. [Sec.
1.501(c)(3)-1(c)(1), Income Tax Regs.]
Of the exempt purposes listed in section 501(c)(3), petitioner
maintains that it operates for charitable and educational
purposes.
The term “charitable” is used in section 501(c)(3) in its
generally accepted legal sense and includes, but is not limited
to:
Relief of the poor and distressed or of the
underprivileged; advancement of religion; advancement
of education or science; erection or maintenance of
public buildings, monuments, or works; lessening of the
burdens of Government; and promotion of social welfare
by organizations designed to accomplish any of the
above purposes, or (i) to lessen neighborhood tensions;
(ii) to eliminate prejudice and discrimination;
(iii) to defend human and civil rights secured by law;
or (iv) to combat community deterioration and juvenile
delinquency. * * * [Sec. 1.501(c)(3)-1(d)(2), Income
Tax Regs.]
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The term “educational” as used in section 501(c)(3) is
defined as the instruction or training of the individual for the
purpose of improving or developing his capabilities or the
instruction of the public on subjects useful to the individual
and beneficial to the community. An organization may be
educational even though it advocates a particular position or
viewpoint. See sec. 1.501(c)(3)-1(d)(3)(i), Income Tax Regs.
Petitioner argues that its activities, which promote free
speech and create forums for the exchange of ideas and
information, are charitable and educational by nature. The
rationale of petitioner is that freedom of speech is the highest
national priority, and, if freedom is extended to even one group
or individual, all Americans benefit. Respondent claims that
petitioner has failed to prove that its activities are charitable
and educational within the meaning of section 501(c)(3).
In order to gain section 501(c)(3) status, a taxpayer must
openly and candidly disclose all facts bearing upon the
organization, its operations, and its finances so that the Court
may be assured that it is not sanctioning an abuse of the revenue
laws by granting a claimed exemption. Where such a disclosure is
not made, the logical inference is that the facts, if disclosed,
would show that the taxpayer fails to meet the requirements of
section 501(c)(3). See Bubbling Well Church v. Commissioner, 74
T.C. 531, 535 (1980), affd. 670 F.2d 104 (9th Cir. 1981).
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The record is vague and inconsistent concerning the
purported activities of petitioner. Petitioner has produced only
one transcript of a seminar conducted from its website. The home
page of petitioner has links to articles entitled “Constitutional
Protection”, “Educational Outreach”, “Nationalist Ideology”,
“Private Attorney-General”, “Pro-Democracy Methodology”, “Relief
for the Poor”, and “Using the First Amendment as Democracy’s
Shield and Sword”, which petitioner has refused to place in the
administrative record. Also, petitioner has attempted to
countermand and withdraw much of the administrative record, such
that only a skeletal description of its activities would remain
for the Court to examine if we were to allow petitioner to modify
the administrative record. The reasonable inference from the
record is that petitioner does not meet the requirements of
section 501(c)(3).
The few activities of petitioner that have been disclosed
fall outside of the definitions of “charitable” and “educational”
under section 501(c)(3). Section 1.501(c)(3)-1(d)(2), Income Tax
Regs., specifically states that examples of charitable activities
are ones designed “to lessen neighborhood tension” and “to
eliminate prejudice and discrimination.” Petitioner’s actions
serve the purpose of increasing social activism of promajority
and rightist beliefs and are antithetical to these examples.
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In addition, some of petitioner’s materials contain
distortions of fact. Distortion of facts is the second negative
factor of the methodology test of Rev. Proc. 86-43, 1986-2 C.B.
729, applied by the Commissioner during the administrative
process. The methodology test is applied to resolve whether a
taxpayer is operated exclusively for educational purposes and
includes:
1. Whether or not the presentation of viewpoints
unsupported by a relevant factual basis constitutes a significant
portion of the organization’s communications.
2. To the extent viewpoints purport to be supported by a
factual basis, are the facts distorted.
3. Whether or not the organization makes substantial use of
particularly inflammatory and disparaging terms, expressing
conclusions based on strong emotional feelings rather than
objective factual evaluations.
4. Whether or not the approach to a subject matter is aimed
at developing an understanding on the part of the addressees, by
reflecting consideration of the extent to which they have prior
background or training.
In Nationalist Movement v. Commissioner, 102 T.C. 558
(1994), affd. 37 F.3d 216 (5th Cir. 1994), this Court addressed
the issue of whether Rev. Proc. 86-43, supra, is constitutional,
which is raised by petitioner in this case. The taxpayer in
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Nationalist Movement was an organization whose activities are
very similar to the activities of petitioner. Barrett served as
the taxpayer’s chairman, treasurer, and attorney in that case.
This Court held that Rev. Proc. 86-43, supra, is not overbroad
and does not violate the 1st and 14th Amendments to the
Constitution. See id. at 583-589.
Citing the 5th and 14th Amendments to the Constitution,
petitioner argues that respondent has treated it differently from
other organizations similarly situated, thereby violating its due
process and equal protection rights. The 14th Amendment provides
that no State shall deny to any person the equal protection of
the laws. The Fifth Amendment, as applicable to the Federal
Government, has no equal protection clause, but its due process
guarantees incorporate similar principles. See Regan v. Taxation
with Representation, 461 U.S. 540, 542 n.2 (1983); Bolling v.
Sharpe, 347 U.S. 497, 499 (1954).
Petitioner moved to compel discovery relating to these
constitutional arguments after the parties had filed the
administrative record with the Court. Only in very unusual
circumstances and upon good cause shown will the Court permit
either party to supplement the administrative record. See Rule
217(a); Nationalist Movement v. Commissioner, 37 F.3d 216,
218-219 (5th Cir. 1994), affg. T.C. Memo. 1992-698. In response
to petitioner’s motion, this Court concluded that good cause had
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not been shown for submission of evidence in addition to the
administrative record, and, therefore, the motion was denied.
What is contained in the administrative record, in terms of
petitioner’s factual foundation, is wholly unpersuasive.
Using as a source an IRS publication, “Cumulative List of
Organizations described in Section 170(c) of the Internal Revenue
Code of 1986", revised to September 30, 1989, petitioner points
out that there are many listed organizations whose names begin
with words of apparent ethnic, racial, or sexual partiality, such
as “Black”, “Hispanic”, “Jewish”, and “Gay”. An important
disparity, according to petitioner, is the conspicuous absence of
“White” organizations.
This issue has already been addressed by this Court in
Nationalist Movement v. Commissioner, 102 T.C. 594-596, in
which we held that there was no evidence of a constitutional
violation. Petitioner’s arguments are identical to those of the
taxpayer in Nationalist Movement. Therefore, there is no reason
to change the analysis or the result reached in that opinion.
For the reasons stated, we conclude that petitioner is not
operated as a section 501(c)(3) organization. We have considered
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the remaining arguments of petitioner, and they are either
irrelevant or otherwise lack merit.
Decision will be entered
upholding respondent’s
determination.