DocketNumber: Docket No. 5127-78X
Citation Numbers: 72 T.C. 267, 1979 U.S. Tax Ct. LEXIS 126
Judges: Quealy
Filed Date: 5/1/1979
Status: Precedential
Modified Date: 1/13/2023
*126
The petitioner was set up to provide a fund for the purpose of giving scholarships to contestants in the Miss Georgia Pageant. The participants were required as a condition for qualifying for scholarships to enter into a contract which would obligate them in the event they were selected to participate in the Miss America Pageant to abide by the rules and regulations of the pageants, including participation in public appearances and the like, under the sponsorship of the Miss Georgia Pageant.
*267 OPINION
Respondent determined that petitioner does not qualify for exemption from Federal income tax under section 501(c)(3). 1 Petitioner challenges respondent's determination and has invoked the jurisdiction of this Court for a declaratory judgment pursuant to section 7428. The issue presented to us is whether petitioner is operated exclusively for charitable, religious, or educational purposes within the meaning of section 501(c)(3) of the Code.
This case was submitted for decision on the stipulated*129 administrative record under
Miss Georgia Scholarship Fund, Inc. (hereinafter referred to as petitioner), is a Georgia nonprofit corporation, incorporated *268 and organized under the laws of the State of Georgia on December 11, 1973. Petitioner's stated purposes are as follows:
To solicit, receive, hold, manage, control, disburse and generally administer property, funds and monies for the principal purpose of providing educational scholarships to contestants of the annual Miss Georgia Pageant; to receive donations and agree upon the conditions thereof with donors for purposes within these Articles of Incorporation; to invest the funds of the Corporation in such property, real and personal, as the Board of Trustees may, from time to time, in their discretion determine; to engage in public or private fund raising activities, not prohibited by law, to further the purposes of the Corporation * * *
Petitioner conducts*130 its operations in affiliation with the Miss Georgia Pageant Corp. (hereinafter referred to as Georgia Pageant). The latter is a nonprofit corporation, incorporated under the laws of the State of Georgia in November 1964. The purpose of Georgia Pageant is to select a Miss Georgia each year and to promote the City of Columbus and the State of Georgia. Georgia Pageant is an organization described under section 501(c)(4).
The articles of incorporation of petitioner require that a majority of its board of trustees at all times be members of the board of Georgia Pageant.
Petitioner affords the way for citizens of Georgia to assist the Miss Georgia Pageant in meeting its challenges for scholarship expansion to attract Georgia's most talented young ladies to participate in the Miss Georgia Pageant.
The Miss Georgia Pageant stresses "scholarships" because a better "scholarship" program will better the quality of contestants who seek the Miss Georgia crown.
All participants in the Miss Georgia Pageant must complete the Miss Georgia Pageant Contestant Contract (hereinafter referred to as the contestant contract).
Every contestant in the Miss Georgia Pageant is a recipient of remuneration*131 designated as a "scholarship." These "scholarships" are paid solely to recognized educational institutions attended by the contestants. However, "scholarships" will not be available to contestants who fail to execute the contestant contract with Georgia Pageant.
The contestant contract places the following requirements upon all participants in the MissGeorgia Pageant:
*269 (1) Contestant agrees to participate in the series of events leading up to the final selection of Miss Georgia and to abide by and be bound by the rules and regulations governing the Miss Georgia Pageant and the awarding and supervision of the Miss Georgia scholarships and other prizes.
(2) Contestant in the finals of the Miss Georgia Pageant shall participate in all public appearances required of contestant by the Pageant officials such as telecasts, radio broadcasts, and moving pictures of all or any part of the events in connection with the finals.
(3) Contestant authorizes the "State Pageant" and anyone duly licensed by it to televise, broadcast, and take moving pictures of her singly or in a group.
(4) Contestant will furnish to "State Pageant" an official questionnaire properly filled out.
(5) Contestant, *132 to assist her sponsor, must furnish to Georgia Pageant six black and white glossy photographs of contestant consisting of head and shoulder front view poses in evening dress.
On April 23, 1975, petitioner mailed Department of Treasury Form 1023 to the District Director of the Internal Revenue Service in Atlanta, Ga., requesting a ruling that it was an exempt organization within the meaning of section 501(c)(3).
On February 14, 1978, the Internal Revenue Service issued a final adverse ruling letter to petitioner denying it exempt status under section 501(c)(3).
Our consideration will be restricted to the reasons set forth by respondent in his adverse ruling from which this appeal was taken. Respondent determined that petitioner failed to qualify under section 501(c)(3) for the following reasons:
The scholarships that you award the participants in the Miss Georgia Beauty Pageant constitute the payment of compensation within the meaning of
The principal issue for our decision is whether the purported "scholarships" granted by petitioner are exempt under
A similar issue was presented in
This proceeding in which the Court is limited to the administrative record is analogous to the situation in
In our opinion, it is immaterial whether the relationship between Georgia Pageant and the contestant is that of employer and employee. The fact remains that the "scholarship" *136 grant is compensatory in nature -- payment for the contestant's agreement to perform the requirements of the contestant contract. A scholarship for compensation is not a scholarship within the meaning of
Petitioner also argues that the determination of whether the "scholarships" are excludable under
We conclude that petitioner was not operated exclusively for a purpose exempt under section 501(c)(3), and so the exemption was properly denied by respondent.
1. All section references are to the Internal Revenue Code of 1954, as amended, unless otherwise stated.↩
2.
(a) General Rule. -- In the case of an individual, gross income does not include -- (1) any amount received -- (A) as a scholarship at an educational organization described in section 170(b)(1)(A)(ii), or (B) as a fellowship grant, including the value of contributed services and accommodations; * * *↩
3. SEC. 74. PRIZES AND AWARDS.
(a) General Rule. -- Except as provided in subsection (b) and in
(b) Exception. -- Gross income does not include amounts received as prizes and awards made primarily in recognition of religious, charitable, scientific, educational, artistic, literary, or civic achievement, but only if -- (1) the recipient was selected without any action on his part to enter the contest or proceeding; and (2) the recipient is not required to render substantial future services as a condition to receiving the prize or award.↩
4.
The following payments or allowances shall not be considered to be amounts received as a scholarship or a fellowship grant for the purpose of
* * * *
(c)