1978 U.S. Tax Ct. LEXIS 101">*101
Petitioner is a testamentary trust. The decedent's will, which is petitioner's organizing document, specified that the income of the trust was to be used to provide scholarships at Yale College for students of the Duxbury, Mass., High School and other bona fide residents of Duxbury. The Commissioner determined that petitioner was a private foundation, and not a supporting organization as defined by
70 T.C. 515">*515 OPINION
The Commissioner determined that petitioner is a private foundation as defined in
1978 U.S. Tax Ct. LEXIS 101">*107 This case is submitted for our decision under
70 T.C. 515">*516 Petitioner, the Warren M. Goodspeed Scholarship Fund, is a trust described in section 501(c)(3) and exempt from taxation under section 501(a). It was established pursuant to the Will of Joan R. Goodspeed, who died on April 22, 1964, leaving a will dated October 28, 1955. Her will was allowed and the Merchants National Bank of New Bedford (now known and hereinafter referred to as Baybank Merchants, N.A.) was appointed executor by the Plymouth County Probate Court of the Commonwealth of Massachusetts on June 22, 1964. Baybank Merchants, N.A., was also appointed trustee of petitioner under the will by the Plymouth County Probate Court on November 1, 1966; it maintained its principal offices in New Bedford, Mass., at the time the petition in this case was filed.
Mrs. Goodspeed's will, dated October 28, 1955, 1978 U.S. Tax Ct. LEXIS 101">*108 constitutes petitioner's "articles of organization" as defined in
I give, devise and bequeath as follows, viz:
1. * * *
2. All the rest, residue and remainder of my estate, of every kind and nature, real, personal and/or mixed and wheresoever situated, including any property over which I may at the time of my decease have any power of appointment, as follows:
B. To The Merchants National Bank of New Bedford the balance of said rest and residue (including the legacy given by subparagraph "2A" if said Elsie Sylvia fails to survive me or if there is no sufficient evidence that she and I have died otherwise than simultaneously), but in perpetual trust nevertheless for the following uses and purposes and with the following powers and duties, the fund created by this subparagraph "2B" to be known as "The Warren M. Goodspeed Scholarship Fund":
II. To use the net income for the purpose of paying for (or contributing toward, if said net income be not sufficient) the education (including all college fees and charges, room, board, books and supplies) 1978 U.S. Tax Ct. LEXIS 101">*109 at Yale College of such graduates of Duxbury, Massachusetts, High School or bona fide residents of Duxbury, Massachusetts, as shall be elected by majority vote of a committee composed of the Principal of said Duxbury High School, the President (or Trust Officer) of said The Merchants National Bank of New Bedford and the President of Yale University * * *. No person so selected shall be deemed to have any right, interest or claim against the trust fund or the trustee, this being a "charitable trust".
* * * *
If at the time for selection of a student:
said Principalship is vacant or the incumbent is unable or unwilling to act, a 70 T.C. 515">*517 person chosen by vote of the Duxbury School Committee shall participate in said selection in place of the Principal,
neither the President nor the Trust Officer of said Bank is able or willing to act or a vacancy exists in both offices, a person chosen by vote of the Board of Directors of said Bank shall participate in said selection in place of either of said Bank officers,
the Presidency of Yale University is vacant or the incumbent is unable or unwilling to act, a person chosen by vote of the governing board of said University shall participate1978 U.S. Tax Ct. LEXIS 101">*110 in said selection in place of said President. It is my purpose to provide for the education of Duxbury High School graduates or bona fide Duxbury residents and not to impede the same by prescribing burdensome procedures for the selection of students; therefore no formal meetings of the selectors need be held, a majority of the selectors may act without the concurrence of the third, and the Trustee may rely on a certificate of selection signed by any two persons claiming to be duly qualified selectors without requiring further authentication.
As of February 1976 petitioner's trust fund had a principal value of more than $ 1 million and its annual net income was in excess of $ 40,000. Several eligible persons, selected in the manner prescribed in Mrs. Goodspeed's will, had been granted 4-year scholarships to Yale College, where their academic progress was monitored by the trustees. Yale University participated in the selection of scholarship recipients and also requested copies of petitioner's annual reports to the Plymouth County Probate Court for taxable years beginning after December 31, 1971. As of 1976, there was pending in the Plymouth County Probate Court a petition for reformation1978 U.S. Tax Ct. LEXIS 101">*111 and amendment of the trust, wherein the trustee was seeking authority to grant scholarships (i) to persons from a wider geographical area than the town of Duxbury, and (ii) to persons attending schools at Yale University other than Yale College. 2
The petitioner filed an Application for Recognition of Exemption under section 501(c)(3) with the District Director of Internal Revenue, Boston, Mass., on February 10, 1976, and requested therein a definitive ruling that it is not a private foundation because it is an organization described in
1978 U.S. Tax Ct. LEXIS 101">*113 Petitioner, the Warren M. Goodspeed Scholarship Fund, challenges the Commissioner's determination that it is a private foundation as defined in
(a) General Rule. -- For purposes of this title, the term "private foundation" means a domestic or foreign organization described in section 501(c)(3) other than -- * * * * (3) an organization which -- (A) is organized, and at all times thereafter is operated, exclusively for the benefit of, to perform the functions of, or to carry out the purposes of one or more specified organizations described in paragraph (1) or (2), 41978 U.S. Tax Ct. LEXIS 101">*115 70 T.C. 515">*519 (B) is operated, supervised, or controlled by or in connection with one or more organizations, described in paragraph (1) or (2), and (C) is not controlled directly or indirectly by one or more disqualified persons (as defined in section 4946) other than foundation managers and other than one or more organizations described in paragraph (1) or (2) * * *
The organizational test set forth by
Sec. 1.509(a)-4. Supporting organizations.
(b)
* * * *
(c)
(i) Limit the purposes of such organization to one or more of the purposes set forth in
* * * *
(2)
Mrs. Goodspeed's will, which 1978 U.S. Tax Ct. LEXIS 101">*118 is petitioner's organizing document, nowhere states in so many words that the trust is established "for the benefit of," "to perform the functions of," or "to carry out the purposes of" Yale University. The only provisions of the will which arguably meet the requirements of sections 1.509(a)-4(c)(1)(i) and 1.509(a)-4(c)(2) are those which require the net income of the trust to be used "for the purpose of paying for * * * the education * * * at Yale College of such graduates of Duxbury, Massachusetts, High School or bona fide residents of Duxbury" as shall be chosen according to procedures set forth in the will. 6 The narrow issue presented by this case, then, is whether such provisions are sufficient to meet the regulations' requirement that petitioner's purposes,
1978 U.S. Tax Ct. LEXIS 101">*119 A simple reading of the will reveals quite clearly, we think, the purpose for which petitioner was established. It was 70 T.C. 515">*521 established so that its income could be used to grant Yale College scholarships to selected students connected with the town of Duxbury, Mass. We see no use in requiring language more specific than that which Mrs. Goodspeed actually used. Her will stated, by its terms, the purpose for which petitioner was established, and that is all the specificity which the organizational test, as set forth in section 1.509(a)-4(c)(2), requires. 7 The regulation does not require that petitioner's organizational document use any specific words. 8
1978 U.S. Tax Ct. LEXIS 101">*120 If there is any objection to the will, we think it must be that petitioner's purpose,
The Commissioner's reissued final determination (dated April 5, 1977) that petitioner is a private foundation, stated:
Your organizationizing [sic] document did not state that you are organized exclusively for the benefit of Yale University. Therefore, you do not meet the "organizational test" as stated in section 501(c)(3) of the Code and
That determination1978 U.S. Tax Ct. LEXIS 101">*121 was open to the fair interpretation that all that was necessary for petitioner to satisfy the organizational test was to amend the organizing document (presumably by application to the Massachusetts courts for reformation) so that it would contain the words "organized exclusively for the benefit 70 T.C. 515">*522 of Yale University," or some similar words, without in any way eliminating the provisions limiting the Yale scholarships to graduates of Duxbury High School or bona fide residents of Duxbury. The petition to this Court admitted that the will did not "state
The Court: All right. Now, that is what you -- you say, "You are organized, but you did not state you were organized exclusively for the benefit of Yale University," is that what you rely on, because it didn't state that?
Mr. Kornmehl [respondent's counsel]: That it didn't state that, or words to that import, to import that meaning.
The Court: You mean the mere fact that it didn't state in so many words it was for the benefit of Yale University, that is what you are relying on?
Mr. Kornmehl: Correct.
And again, at page 12 of the transcript, the following appears:
The Court: I mean, is there any doubt that Yale University is intended to be the university to benefit from this trust that is created?
Mr. Kornmehl: Well, the Respondent's argument is that it did not meet the organizational test by specifically stating in the will, which is the articles in this case, that
1978 U.S. Tax Ct. LEXIS 101">*123 The Court then granted petitioner's motion for more definite statement, and the Government filed an amendment to the answer in which in this respect it denied merely that the adverse ruling on the organizational test was based upon an in haec verba requirement.
Petitioner's opening brief contained the following allegation:
The Government did not challenge this statement in its reply. Moreover, the Government stated in its opening brief:
To meet the requirements of the "organizational test" petitioner must merely amend its articles of organization to conform with
Again in its reply, the Government stated:
Petitioner can easily amend its articles of incorporation to comply with the organizational test of1978 U.S. Tax Ct. LEXIS 101">*124
The issue posed, then, was whether
The Government, in both its original and its reply briefs, did argue that Mrs. Goodspeed's will was ambiguous as to whether petitioner was organized for the benefit of Yale University or for the benefit of Duxbury students. It particularly relied in this respect on the statement in the will that "it is my purpose to provide for the educatin of Duxbury High School 1978 U.S. Tax Ct. LEXIS 101">*125 graduates or bona fide Duxbury residents," and requested, as a finding of fact, the following: "Mrs. Goodspeed's purpose in establishing the Warren M. Goodspeed Scholarship Fund was 'to provide for the education of Duxbury High School graduates or bona fide Duxbury residents.'" Mrs. Goodspeed's personal motives, however, do not control the determination of whether petitioner meets the organizational test of
The Government nowhere contended -- at least as we have 1978 U.S. Tax Ct. LEXIS 101">*126 been able to interpret its position in a confused procedural setting -- that the limitation of Yale scholarships to Duxbury students would by itself prevent petitioner from satisfying the organizational test
1. Petitioner has satisfied the prerequisites for this declaratory judgment action: it has exhausted its administrative remedies, sec. 7428(b)(2); it is the organization the classification of which is at issue, sec. 7428(b)(1); and it filed its petition in a timely fashion, sec. 7428(b)(3). See also
2. The trustee also sought certain other relief, "including appropriate language regarding the prohibitions imposed upon private foundations by the Tax Reform Act of 1969, which would become applicable if [petitioner] is determined not to be a
3. The petitioner argues on brief that the Commissioner's determination was based upon the narrow finding that petitioner was not organized "for the benefit of Yale University," and that no other ground for classifying petitioner as a private foundation is properly before the Court on the basis of this administrative record. We find, however, that the Commissioner's rulings dated Sept. 1, 1976, and Apr. 5, 1977, placed the adverse determination on the more general ground that petitioner did not meet the organizational test stated in
4. Paragraphs (1) and (2) read as follows:
(1) an organization described in section 170(b)(1)(A) (other than in clauses (vii) and (viii));
(2) an organization which -- (A) normally receives more than one-third of its support in each taxable year from any combination of -- (i) gifts, grants, contributions, or membership fees, and (ii) gross receipts from admissions, sales of merchandise, performance of services, or furnishing of facilities, in an activity which is not an unrelated trade or business (within the meaning of section 513), not including such receipts from any person, or from any bureau or similar agency of a governmental unit (as described in section 170(c)(1)), in any taxable year to the extent such receipts exceed the greater of $ 5,000 or 1 percent of the organization's support in such taxable year, from persons other than disqualified persons (as defined in section 4946) with respect to the organization, from governmental units described in section 170(c)(1), or from organizations described in section 170(b)(1)(A) (other than in clauses (vii) and (viii)), and (B) normally receives not more than one-third of its support in each taxable year from the sum of -- (i) gross investment income (as defined in subsection (e)) and (ii) the excess (if any) of the amount of the unrelated business taxable income (as defined in section 512) over the amount of the tax imposed by section 511 * * *↩
5. The Commissioner has not suggested that petitioner is controlled directly or indirectly by one or more disqualified persons other than foundation managers and other than one or more organizations described in
6. The other provision of the will which is arguably relevant is the provision stating that the trust is a charitable trust and that, therefore, no scholarship recipient is to have any right, interest, or claim against the trustee or the trust fund.↩
7. This is not a case where the organizing document granted the organization powers which, although in fact unused, were sufficient to destroy the organization's exemption or render it a private foundation. See sec. 1.509(a)-4(c)(3); sec. 1.501(c)(3)-1(b)(1)(iii);
8. This is also not a case where there is a question as to the identity of the organization allegedly supported: the Commissioner admits that Yale University is specified in the will as the public supported organization. See sec. 1.509(a)-4(d)(4). Compare
