1978 U.S. Tax Ct. LEXIS 126">*137 Respondent has promulgated detailed regulations under section 509(a)(3), which set forth a number of tests (organizational, operational, responsiveness, and integral part) that must be met by an organization in order to come within the exception of section 509(a)(3). Petitioner does not contest the validity of these regulations. Rather, it contends that it meets the requirements thereof. Respondent's main contention is that petitioner fails to meet the organizational test of section 509(a)(3)(A) and section 1.509(a)-4(d), Income Tax Regs., and it is that contention to which we first direct our attention.

Section 509(a)(3)(A) requires that a supporting organization be organized and operated exclusively to support or benefit one or more "specified" publicly supported organizations (organizations described in section 509(a)(1) or (2)). The parties agree that the organizational test in section 1.509(a)-4(d)(4), Income Tax Regs., is applicable to petitioner. It provides, in pertinent part, as follows:

(4) Designated publicly supported organizations. (i) If an organization is organized and operated to support one or more publicly supported organizations and it is "operated in 1978 U.S. Tax Ct. LEXIS 126">*138 connection with" such organization or organizations, then * * * its articles of organization must, for purposes of satisfying the organizational test under section 509(a)(3)(A), designate the "specified" organizations by name. Under the circumstances described in this subparagraph, a supporting organization which has one or more "specified" organizations designated by name in its articles, will not be considered as failing the test of being organized for the benefit of "specified" organizations solely because its articles:

(a) Permit a publicly supported organization which is designated by class or purpose, rather than by name, to be substituted for the publicly supported organization or organizations designated by name in the articles, but only if such substitution is conditioned upon the occurrence of an event which is beyond the control of the supporting organization, such as loss of exemption, substantial failure or abandonment of operations, or dissolution of the publicly supported organization or organizations designated in the articles;

(b) Permit the supporting organization to operate for the benefit of a beneficiary organization which is not a publicly supported1978 U.S. Tax Ct. LEXIS 126">*139 organization, but only if such supporting organization is currently operating for the benefit of a publicly supported organization and the possibility of its operating for the benefit of other than a publicly supported organization is a remote contingency; * * *

[Emphasis added.]

70 T.C. 182">*187 Petitioner's trustee has authority to substitute other charitable beneficiaries for those named whenever, in its judgment, the charitable uses have become "unnecessary, undesirable, impracticable, impossible or no longer adapted to the needs of the public." Respondent contends that the trustee's determination to substitute beneficiaries is not "conditioned upon the occurrence of an event which is beyond [its] control." See sec. 1.509(a)-4(d)(4)(i)(a), Income Tax Regs. Petitioner argues that the contingencies are similar to examples in respondent's regulations and are no more than those which would require an Illinois court to apply the cy pres doctrine.

While petitioner is literally correct that the circumstances giving rise to the events which can trigger the substitution of beneficiaries are beyond the trustee's control, the nature of those events combined with the trustee's exercise of judgment1978 U.S. Tax Ct. LEXIS 126">*140 brings the events within the trustee's control for all practical purposes. This is because the determination that a charitable use has become "undesirable" or "no longer adapted to the needs of the public" ⁷ requires the trustee to make a judgment as to what is desirable and what are the needs of the public. These are subjective decisions as to which different persons may hold diametrically opposed, but equally reasonable, opinions. Thus, for example, if one of the beneficiaries engaged in medical research and used its funds for genetic research, the trustee could, on the grounds that such research is "undesirable" and not "adapted to the needs of the public," substitute another beneficiary in its place.

Petitioner argues that the "substantial failure * * * of operations" condition in respondent's regulations involves1978 U.S. Tax Ct. LEXIS 126">*141 a similar judgment based upon subjective values. While there may be some subjective content to this condition, we think it is of narrow import. In any event, it should not be equated with the obviously broader subjective content implicit in the discretionary language of the designation. ⁸

1978 U.S. Tax Ct. LEXIS 126">*142 70 T.C. 182">*188 Petitioner argues that the language at issue does no more than give the trustee authority to take the same action that an Illinois court would take under the cy pres doctrine. Thus, according to petitioner, such language has no effect other than saving petitioner and its charitable beneficiaries from incurring court costs in clear-cut cases. In so arguing, petitioner seeks to equate such language with the words "impossible, impractical or inexpedient" utilized in applying the cy pres doctrine in Illinois. ⁹ We find it unnecessary to wend our way through the semantical analysis indulged in by petitioner. It is sufficient to say that its attempt to bring the cy pres doctrine within the ambit of this case should be rejected.

1978 U.S. Tax Ct. LEXIS 126">*143 In the first place, the threshold condition, under which the cy pres doctrine comes into play, is the potential failure of a charitable trust which is perceived to flow from the literal execution of its terms. See Graham Hospital Assn. v. Talley, 29 Ill. App. 3d 190, 329 N.E.2d 918">329 N.E.2d 918 (App. Ct. 1975); 2 Restatement, Trusts 2d, sec. 399 (1959). Moreover, the doctrine "is an extraordinary power not to be used on every occasion where administration of the trust becomes difficult." See Graham Hospital Assn. v. Talley, 329 N.E.2d 918">329 N.E.2d at 921. (Emphasis added.) The exercise of the discretionary powers of the trustee herein is obviously neither so conditioned nor so limited. The importance of such condition and limitation is clearly revealed in Graham Hospital Assn. v. Talley, where the court refused to apply the cy pres doctrine prior to the expiration of a 15-year period in which the trustees were given discretionary power in respect of the construction and manner of operation of a hospital, even though the trial court had found construction of the hospital to be impractical, inexpedient, and 1978 U.S. Tax Ct. LEXIS 126">*144 infeasible.

In the second place, where a trustee (including a trustee of a charitable trust) is given discretionary powers, the Illinois courts 70 T.C. 182">*189 will not interfere with the exercise of such powers "absent proof of fraud, bad faith or abuse of discretion"; they will not substitute their judgment for that of the trustee merely because they would have acted differently if the powers conferred on the trustee had been conferred upon them. See Graham Hospital Assn. v. Talley, 329 N.E.2d 918">329 N.E.2d at 922. See also 3 A. Scott, Trusts 187 (3d ed. 1967); 1 Restatement, Trusts 2d, sec. 187 (1959). The fact that the attorney general of Illinois or any beneficiary of petitioner could bring an action for review does not change the scope of the permissible exercise of a trustee's discretionary power. See Ill. Rev. Stat. ch. 14, secs. 51-64 (Smith-Hurd 1963), and particularly sec. 62.

The long and the short of the matter is that the proper analysis of the applicability of the cy pres doctrine, coupled with the policy of noninterference by the courts in the exercise of a trustee's discretionary powers, clearly reveals that, although the trustee's powers1978 U.S. Tax Ct. LEXIS 126">*145 herein can be considered as a substitute for that doctrine, they are not its equivalent.

Moreover, as we read respondent's regulations, they seek to establish an "ascertainable standard" not unlike that which applies in determining whether a power of invasion for the benefit of the life beneficiary of a trust should be held not to preclude the deduction for estate tax purposes of a charitable remainder. The language of the designation herein would not pass muster in this context. Zentmayer's Estate v. Commissioner, 336 F.2d 488">336 F.2d 488 (3d Cir. 1964), affg. T.C. Memo. 1963-197. Compare McDowell Nat. Bank of Sharon, Pa. v. United States, 419 F. Supp. 1164">419 F. Supp. 1164 (W.D. Pa. 1976).

The legislative history and the statutory scheme of section 509(a)(3) also furnish some guidance to decision herein. Prior to the enactment of the Tax Reform Act of 1969, Pub. L. 91-172, 83 Stat. 487, the Internal Revenue Code did not contain a statutory definition of a private foundation. That act added the definition as well as a series of excise taxes that operate as penalties on certain activities of such foundations. Pub. L. 1978 U.S. Tax Ct. LEXIS 126">*146 91-172, sec. 101, 83 Stat. 492. See secs. 4941 through 4945. The definition is all-inclusive, subject only to specified exclusions. See n. 5 supra. A careful reading of portions of the committee reports dealing with section 509(a) reveals a concern over the fact that private foundations had been "loosely used with a few tax consequences" and the need carefully to hone the definitional rules to make 70 T.C. 182">*190 certain that the overall objectives of the 1969 Act were not undermined. H. Rept. 91-413 (Part 1) 40-41 (1969), 1969-3 C.B. 200, 226-227; S. Rept. 91-552, 56-59 (1969), 1969-3 C.B. 423, 460-462; Conf. Rept. 91-782, 288-289 (1969), 1969-3 C.B. 644, 651.

These portions of the House and Senate reports further indicate that the purpose of section 509(a)(3) was limited, namely, to exclude from private foundation status, organizations which were theoretically separate from publicly supported organizations but were not thought of as private foundations because they were operated in close association with publicly supported organizations. The reports give, as examples of section 509(a)(3) organizations, 1978 U.S. Tax Ct. LEXIS 126">*147 religious organizations other than churches, the Hershey Trust (which is organized and operated for and in connection with a specific school), and university presses. See also 115 Cong. Rec. 37,514-37,515 (1969).

The assumption underlying the exclusions from private foundation status appears to have been that the excluded organizations are subject to public scrutiny and need not be subject to Government regulation as well. See Joint Comm. on Internal Revenue Taxation and Comm. on Finance, 91st Cong., 1st Sess., Summary of H.R. 13270, The Tax Reform Act of 1969, p. 21 (Comm. Print 1969); see generally D. Halperin, "Private Foundations -- Definition and Termination," 29th Ann. N.Y.U. Tax Inst. 1783, 1784-1785 (1971). In the case of supporting organizations described in section 509(a)(3), the public scrutiny derives from the publicly supported beneficiaries, which, in turn, oversee the activities of the supporting organization. The provisions of section 509(a)(3) and the regulations thereunder are designed to assure that the publicly supported beneficiaries of a section 509(a)(3) organization have both the ability and the motivation to do so. See especially section 1.509(a)-4(f) 1978 U.S. Tax Ct. LEXIS 126">*148 through (i), Income Tax Regs. This oversight function is substantially weakened if the trustee has broad authority to substitute beneficiaries and, thus, it is essential that such authority be strictly limited.

We hold that petitioner fails to meet the organizational test of section 509(a)(3)(A) and section 1.509(a)-4(d)(4)(i)(a), Income Tax Regs. In light of this holding, we need not reach the further questions raised by the parties involving the applicability of the remoteness test contained in section 1.509(a)-4(d)(4)(i)(b), Income Tax Regs., or the operational, responsiveness, and integral 70 T.C. 182">*191 part tests (see generally sec. 509 and sec. 1.509(a)-4, Income Tax Regs.), including the possible effect of Mrs. Quarrie's incompetency on the irrevocability of the designation on November 20, 1970, for purposes of the "Integral part test; transitional rule" (see sec. 1.509(a)-4(i)(4), Income Tax Regs.; n. 3 supra).

Petitioner also asserts a claim for attorneys' fees under 42 U.S.C. sec. 1988. We have previously held that this provision is inapplicable to Tax Court proceedings. Key Buick Co. v. Commissioner, 68 T.C. 178">68 T.C. 178 (1977).1978 U.S. Tax Ct. LEXIS 126">*149 Moreover, since petitioner is not the prevailing party, it would not in any event be entitled to attorneys' fees.

Decision will be entered for the respondent.