73 T.C. 144">*145 OPINION

Respondent, on August 28, 1978, issued a final adverse determination with respect to petitioner's exempt status under section 501(c)(3), I.R.C. 1954. This is an action for declaratory relief under the terms of section 7428.

The administrative record, which includes all the facts upon which respondent made his final adverse determination, was submitted to this Court under Rule 217(b)(1), Tax Court Rules of Practice and Procedure, and is incorporated herein by this reference. The facts and representations contained in the record are assumed to be true for purposes of this proceeding. This case was submitted1979 U.S. Tax Ct. LEXIS 30">*34 as a fully stipulated case under Rule 122 by joint motion of the parties.

Petitioner Hutchinson Baseball Enterprises, Inc., was incorporated on August 31, 1970, as a not-for-profit corporation under the laws of Kansas. Its principal office is located in Hutchinson, Kans. The primary purpose for incorporation, as stated in the June 26, 1973, amendment to the articles of incorporation, was to promote, advance, and sponsor baseball, including Little League and amateur baseball in the Hutchinson area.

The full text of petitioner's purposes, as set forth in the amended articles, is as follows:

FOURTH

Purposes:

This Corporation is organized, NOT FOR PROFIT and the objects and purposes to be transacted and carried on are:

(a) Promote, advance and sponsor baseball, which shall include Little League and Amateur Baseball, in the Hutchinson, Kansas area.

(b) Promote youth activities in baseball and related recreational activities;

(c) Operate, lease, and grant rights to others in connection with the operation of concessions as related to and in connection with any activity that it is engaged in, in the promotion of baseball;

(d) Promote, and sell all types of advertising in connection1979 U.S. Tax Ct. LEXIS 30">*35 with its baseball activities and program;

73 T.C. 144">*146 (e) To hold, purchase, acquire, sell, convey, lease, mortgage, take by gift, devise, donation or bequest, or otherwise acquire and dispose of property, real or personal, tangible or intangible;

(f) To borrow money and issue, sell or pledge bonds, promissory notes, debentures and other obligations and evidences of indebtedness, secured or unsecured;

(g) To engage in fund raising projects so as to raise and obtain money for the exclusive purpose of furthering the objects and purposes set forth herein;

(h) To organize club or clubs whose main purpose is the promotion and advancement of baseball as well as Little League and Amateur Baseball, and to operate the same exclusively for charitable, scientific, safety, or educational purposes, and no part of the net earnings of which shall inure to the benefit of any private shareholder or individual, and no substantial part of the activities of the organization shall be carried on for propaganda, or otherwise to attempt to influence legislation and shall not participate in or intervene in any political campaign on behalf of any candidate for public office, all within the meaning of section1979 U.S. Tax Ct. LEXIS 30">*36 501(c)(3) of the Internal Revenue Code of 1954 and any amendments or supplements thereto.

After amendment, article Fifth provided that:

This organization is a non-profit organization and no part of the dues, fees, assessments, moneys from fund raising projects or other moneys collected by the corporation shall inure to the benefit of any member of the corporation, and upon dissolution, any unexpended funds on hand shall be distributed to the United Community Chest of Hutchinson, Reno County, Kansas, if it be in existence, and if it be not in existence, then to be distributed in accordance with an order of the Judge of the District Court of Division I of Reno County, Kansas, except that such order shall be limited specifically to only those organizations described in Section 501(c)(3) of the 1954 Internal Revenue Code, and any amendments or supplements thereto.

On October 5, 1973, petitioner filed an application for exempt status under section 501(c)(3). Respondent recognized petitioner as an exempt organization under section 501(c)(3) effective as of October 5, 1973, by a determination letter dated October 24, 1973. Respondent's determination provided for the advance ruling period1979 U.S. Tax Ct. LEXIS 30">*37 to end on July 31, 1975, by which time petitioner must have raised the public support necessary for avoidance of private foundation status.

By letter dated June 12, 1975, petitioner was requested to establish compliance with the public support requirements of section 509(a)(2). Pursuant to such request, petitioner supplied a statement breaking down its receipts for the fiscal years ended July 31, 1973, 1974, and 1975 as follows: 73 T.C. 144">*147

1979 U.S. Tax Ct. LEXIS 30">*38 After reviewing such information, respondent, on December 15, 1975, notified petitioner that it had been classified as a private foundation.

As a result of an examination of petitioner's activities for the fiscal years ended July 31, 1974, and July 31, 1975, respondent concluded that it no longer qualified for exemption under section 501(c)(3). Respondent notified petitioner to this effect on January 12, 1977. Final adverse determination was issued August 28, 1978.

Petitioner is engaged in the following activities: (1) Owning and operating the Hutchinson Broncos (hereinafter Broncos) baseball team, (2) leasing and maintaining a playing field for the use of the Broncos, the American Legion teams, and a baseball camp, (3) furnishing instructors and coaches for the baseball camp, and (4) providing coaches for Little League teams. Petitioner also leases the baseball field to the local junior college for a nominal fee.

The Broncos is an amateur baseball team, owned by petitioner, which plays in a semiprofessional league. The league consists of 7 teams and covers a 3-State area. These 7 teams would be ranked in the top 15 teams in the nation. The Broncos also play 73 T.C. 144">*148 nonleague1979 U.S. Tax Ct. LEXIS 30">*39 games with teams. The Broncos have a general manager, a coach, a grounds keeper, and trainer.

Broncos players are acquired through recruiting efforts or tryouts. Recruited players are often discovered by their high school or college coaches. The tryouts are open to the public and are advertized locally on the radio and in the newspaper. There are no prerequisites for selection as a team player. The resultant team is composed primarily of college baseball players.

Petitioner's bylaws provide that its players shall not be paid, either directly or indirectly, for their participation on the team. They do not share in the gate receipts. Prospective players are told that employment will be found for them during the Broncos season, and that the pay will be at least minimum wage. Local industry provides some jobs, but jobs are typically manual labor, ranging from roofing and insulation to maintenance of private yards. A few players are employed full time by petitioner. These players are given field maintenance jobs -- picking up trash, cleaning restrooms and bleachers, mowing and watering the field, and repairing the field surface.

The players are also furnished with lodging in 1979 U.S. Tax Ct. LEXIS 30">*40 the Hutchinson Community Junior College dormitories, for which petitioner pays $ 2,300.

Petitioner leases a baseball facility, Bud Detter Field, from the city of Hutchinson for $ 500 per year. The facility leased includes the bleachers, concession stands, and appurtenances thereto. Pursuant to the lease, petitioner covenanted to keep the ball park clean and free of trash, to maintain and care for the playing field, and to pay for telephone service. The city agreed to provide trash barrels and pickup, to maintain the grandstand, lights, restrooms, and watering system and to pay for electricity and water used.

Petitioner also agreed that all American Legion baseball home games would be played on Bud Detter Field at no charge. The American Legion is allowed to host tournaments at the field for the actual cost of field maintenance. In exchange, petitioner received exclusive concession rights for all such games and tournaments.

When petitioner assumed the care of the field, the outfield was overgrown with weed grasses, the infield was bare, light poles and fences were hazardous, seats, walks, dugouts, and restrooms were in disrepair. Petitioner installed new fences and 73 T.C. 144">*149 screens1979 U.S. Tax Ct. LEXIS 30">*41 and constructed dugouts, offices, a tool shed, and additional bleachers. The city of Hutchinson has calculated that petitioner's maintenance of the field has resulted in a savings of 4,150 man hours at an average of $ 4.12 per hour or $ 17,098 per year.

Petitioner approached the recreation commission for the Hutchinson parks department with a proposal for a baseball camp for children 7 to 12 years of age. Petitioner volunteered to assume complete responsibility for the program. However, the commission decided that it would provide a sports director to arrange publicity, collect a nominal registration fee to be kept by the commission, and schedule the sessions. Petitioner furnishes instructors, coaches, and playing field for the camp. It also gives each participant a Broncos T-shirt and a baseball cap and free admission to Broncos games. There are presently two 4-week sessions with a third session to be added as the need arises. Petitioner also provides coaches for Little League teams and admits participants thereof to Broncos games without charge.

Petitioner provides the two American Legion teams with free use of the Bud Detter Field for their home games. These teams consist1979 U.S. Tax Ct. LEXIS 30">*42 of youths 14 to 18 years of age. This program was in jeopardy due to the cost of field maintenance. The arrangement with petitioner released the American Legion from the financial burden of field maintenance. The program is now financially sound. Petitioner also makes the field available to Hutchinson Community Junior College for a nominal fee of $ 500. ¹The college has both a spring and fall season. Hutchinson Junior College did not have its own baseball facilities.

Petitioner raises funds through sales of tickets, advertising, concessions, contribution solicitation, and operation of the Broncos. For fiscal year ended July 31, 1973, petitioner calculated its income and expenses as follows:

1979 U.S. Tax Ct. LEXIS 30">*43 73 T.C. 144">*150 Petitioner's returns for its fiscal years ended July 31, 1974, and 1975 reflected the following amounts:

73 T.C. 144">*151 Subsection 501(a) ² provides tax-exempt status for organizations 1979 U.S. Tax Ct. LEXIS 30">*44 described in subsection 501(c). Petitioner contends that it is an organization described in subsection 501(c)(3) which provided for the taxable years during which the advance ruling was in effect and for years commencing prior to October 5, 1976, as follows:

(c) List of Exempt Organizations. -- The following organizations are referred to in subsection (a):

* * * *

(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, 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, 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.