                  T.C. Memo. 2008-89



                UNITED STATES TAX COURT



       EXPLORATORY RESEARCH, INC., Petitioner v.
     COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 15082-05X.            Filed April 8, 2008.



     P, a corporation organized under the Iowa
Nonprofit Corporation Act, filed an application with R
for a determination of tax-exempt status, Form 1023,
Application for Recognition of Exemption Under Section
501(c)(3) of the Internal Revenue Code. P seeks
declaratory relief as to its qualification because of
R’s failure to make a determination. P also petitions
this Court to require the IRS to issue a 5-year advance
determination letter granting tax-exempt status, to set
a start date for this exemption letter, to issue an
injunction preventing revocation of tax-exempt status
for 5 years, and to order a refund of the user fee it
paid for the determination.

     Held: P failed to exhaust its administrative
remedies, a jurisdictional prerequisite to declaratory
judgment proceedings in the Tax Court relating to the
status of an organization under sec. 501(c)(3), I.R.C.,
as required by sec. 7428(b)(2), I.R.C. Therefore,
jurisdiction of this Court is not available.
                                - 2 -


     Arthur Anderson (an officer), for petitioner.

     William I. Miller, for respondent.


                         MEMORANDUM OPINION


     NIMS, Judge:   Petitioner, Exploratory Research, Inc.,

brought an action for declaratory judgment and relief pursuant to

section 7428(b)(2) and Rule 211 on the ground that respondent had

failed to determine whether petitioner qualifies as a tax-exempt

organization under section 501(c)(3).     Unless otherwise

indicated, all Rule references are to the Tax Court Rules of

Practice and Procedure, and all section references are to the

Internal Revenue Code.   Petitioner has also asked this Court to

require the IRS to issue a 5-year advance determination letter

granting petitioner’s application for tax-exempt status; to set

the start date of this letter as the first day of the month

following this Court’s ruling; to grant an injunction preventing

respondent from revoking the 5-year advance determination letter

until after that 5-year period has run; and to order a refund of

the $500 fee petitioner paid for the exempt organization

determination letter request.

                             Background

     Petitioner was organized as a nonprofit corporation in Iowa

on September 26, 2004.   On October 21, 2004, it submitted a Form

1023, Application for Recognition of Exemption Under Section
                                 - 3 -

501(c)(3) of the Internal Revenue Code, and other related forms.

The application was signed by its sole director, Arthur Anderson.

Petitioner also included a copy of its articles of incorporation.

     Petitioner’s Form 1023 stated that Mr. Anderson would

conduct its activities at a “yet undetermined” location.

Petitioner listed Mr. Anderson as its sole director and board

member.   Petitioner’s activities would commence after respondent

issued a favorable determination letter and after petitioner had

received grant funding.   Petitioner stated that the time spent on

its activities would be “90% Scientific, 5% Educational, and 5%

Charitable.”

     Petitioner said that the research would “explore new ways to

use old technology to resolve some of our environmental problems

with solid waste recycling of garbage, alternative energy

resources, and cleaner fuels.”    Petitioner listed two topics of

research:   (1) “Plasma gasification,” which would serve to

“reduce the amount of solid waste going to the landfill by

converting it to energy,” and (2) “synthetic fuels,” which would

reduce pollution and “dependency on foreign oil imports”.

Petitioner listed its educational purpose as disseminating

information to the public through television, radio, or the

Internet.   Its charitable purpose was “to lessen the burden of

government.”   Petitioner admitted that it had no fundraising
                               - 4 -

program, but listed potential sources of financial support as

“Federal”, “State”, and “Local (Scott County Regional Authority

and Riverboat Development Authority)”.

     By letter dated March 15, 2005, respondent’s Exempt

Organizations Specialist, James St.Julien, informed petitioner

that he could not determine whether petitioner had met all

requirements for exemption.   He requested that petitioner send

additional information, including a description of the research

projects in which petitioner planned to engage, how petitioner

would select projects, how the results would be used, and whether

petitioner planned to have contract or sponsored research.

Additionally, he asked petitioner to state the qualifications of

those who would conduct the research.    Furthermore, he requested

petitioner to alter its board of directors to include members

unrelated to Mr. Anderson “to insure that * * * [the]

organization will serve public interests”.

     Petitioner, in a letter dated March 28, 2005, replied to

this Internal Revenue Service (IRS) request for additional

information.   Petitioner, in answering several of the questions

related to research activities and criteria, referred back to its

original application.   Petitioner did add that projects would be

selected by the director, Mr. Anderson, “based on subject

interest.” Petitioner stated that it existed only on paper and

had no contracts or grants for research.   Petitioner did not
                               - 5 -

comply with the IRS request to add parties to petitioner’s board

of directors, stating that neither the Internal Revenue Code nor

the regulations required a change to the board of directors.

Petitioner stated that Mr. Anderson would be petitioner’s sole

employee and would earn $400 a week in compensation, with no

other benefits.   Petitioner attached a proposed budget to the

letter, calling it an “educated guess.” This budget restated the

sources of grant income.   Petitioner’s costs included attorney’s

and accountant’s fees, office expenses, continuing education for

Mr. Anderson, and “project costs.”

     Mr. St.Julien, in a letter dated April 8, 2005, indicated

that he still needed information from petitioner before making a

determination on petitioner’s application.   Mr. St.Julien again

asked for a more complete description of the activities

petitioner would perform, including the standards, criteria,

procedures, and other means adopted for carrying out its

activities.   Additionally, Mr. St.Julien expressed his concern

that petitioner might act in the private interest of Mr.

Anderson.   He also renewed his request that petitioner add

members to its board of directors, asked whether petitioner had

adopted a conflict of interest policy, and inquired as to what

policies and procedures were in place to ensure that the board of

directors was not receiving benefits from petitioner’s

activities.   Finally, he asked petitioner to detail what internal
                               - 6 -

controls on decisionmaking were in place to prevent petitioner

from operating for the private benefit of Mr. Anderson.

     Petitioner replied to this letter on April 25, 2005.

Petitioner stated that its “goal” was to “develop a process were

[sic] garbage is converted into electricity without producing any

air pollution or green house gases.”   Petitioner reiterated that

the board of directors (Mr. Anderson) would select projects on

the basis of “subject interest”.   Petitioner offered two examples

of the board’s (Mr. Anderson’s) interests:   (1) “Electrical

production without global warming from green house gases or air

pollution, using a renewable fuel source, like garbage, reducing

what goes to the landfill”, and (2) “synthetic fuel production to

reduce air pollution, global warming, and our dependency on

foreign oil imports.”   Petitioner stated that it would not exert

ownership or control of any patents, copyrights, processes, or

formulas.   Petitioner stated that it had no research facilities,

but that it would seek a location for research after it received

tax-exempt status and had “successful grant writing.”   Petitioner

admitted that it had no educational programs or workshops.

Instead, petitioner said that its educational purpose “might be

to provide free information to the public that is beneficial to

the public good.”   Petitioner again refused to alter the

composition of its board.   Petitioner stated that Mr. Anderson

“is the governing body of the organization,” and that he “will be
                                - 7 -

involved in all day-to-day operations of the organization.”

Petitioner also listed several “controls” that would prevent Mr.

Anderson from using petitioner for his own purposes, which

included petitioner’s articles and bylaws and IRS oversight.

Petitioner also submitted another proposed budget listing under

project costs items including hand tools, meters, gauges, motors,

welding equipment, and “heat resistant materials”.    These project

costs were significantly less than those in petitioner’s first

proposed budget, which listed no materials.

     In a letter dated June 1, 2005, Lois Lerner, Director of

Exempt Organizations Rulings and Agreements, informed petitioner

that the IRS was unable to make a final determination and was

closing petitioner’s case.    She instructed petitioner to call if

petitioner had already submitted the information or believed the

letter was sent in error.    She invited petitioner to ask any

questions it had regarding the matter.    Additionally, she advised

petitioner that if the requested information was received within

90 days (by August 30, 2005), the case would be reopened without

an additional fee.   She also stated that her office had contacted

petitioner’s attorney, Mrs. Olsen, and explained to her that

petitioner’s responses were insufficient and that petitioner

“does not meet the operational test and appears to be control

[sic] by and for the one person board, officer, researcher and
                                - 8 -

staff.”    She invited petitioner to make a “sufficient response”

to the April 8 letter.

     Petitioner made no further contact with respondent and filed

its petition seeking a declaratory judgment on August 15, 2005.

                             Discussion

     Where the Secretary has failed to make a determination of an

entity’s qualification as a tax-exempt entity, this Court has

jurisdiction to provide declaratory relief under section

7428(b)(2).   This Court may issue a declaratory judgment once the

organization involved has exhausted all administrative remedies

and 270 days have passed since the date the application was

filed.    Sec. 7428(b)(2); Rule 210(c); Natl. Paralegal Inst. Coal.

v. Commissioner, T.C. Memo. 2005-293.

     An applicant has not exhausted his administrative remedies

until the applicant has:   (1) Filed a substantially completed

Form 1023, (2) timely submitted all additional information

requested to perfect the application, and (3) exhausted all

administrative appeals available within the IRS.   See sec.

601.201(n)(7)(iv), Statement of Procedural Rules; Rev. Proc. 90-

27, sec. 12.01, 1990-1 C.B. 514, 517, superseded by Rev. Proc.

2007-52, sec. 10.02, 2007-30 I.R.B. 222, 231.

     Section 601.201(n)(7)(i), Statement of Procedural Rules,

provides that a “substantially completed application Form 1023”

is one that--
                              - 9 -

          (a) Is signed by an authorized individual;

          (b) Includes an Employer Identification Number
     (EIN) or a completed Form SS-4, Application for
     Employer Identification Number;

          (c) Includes a statement of receipts and
     expenditures and a balance sheet for the current year
     and the three proceeding years or the years the
     organization was in existence, if less than four years
     (if the organization has not yet commenced operations,
     a proposed budget for two full accounting periods and a
     current statement of assets and liabilities will be
     acceptable);

          (d) Includes a statement of proposed activities
     and a description of anticipated receipts and
     contemplated expenditures;

          (e) Includes a copy of the organizing or enabling
     document that is signed by a principal officer or is
     accompanied by a written declaration signed by an
     officer authorized to sign for the organization
     certifying that the document is a complete and accurate
     copy of the original; and

          (f) If the organization is a corporation or
     unincorporated association and it has adopted bylaws,
     includes a copy that is signed or otherwise verified as
     current by an authorized officer. * * *

If the application does not contain all of these items, it may be

returned to the applicant for completion.   Id.

     The parties differ as to whether petitioner described its

proposed activities in sufficient detail.   Where an organization

has not yet commenced activities, proposed activities must be

described in sufficient detail in order to establish that the

activities further an exempt purpose.   Section 601.201(n)(1)(ii),

Statement of Procedural Rules, provides:
                              - 10 -

     A mere restatement of purposes or a statement that
     proposed activities will be in furtherance of such
     purposes will not satisfy these requirements. The
     organization must fully describe the activities in
     which it expects to engage, including the standards,
     criteria, procedures, or other means adopted or planned
     for carrying out the activities; the anticipated
     sources of receipts; and the nature of contemplated
     expenditures. * * *

If an application fails to meet these requirements, the

application may be returned to the applicant with a request for

additional information.   Sec. 601.201(n)(1)(iii), Statement of

Procedural Rules.

     Therefore, where the proposed activities are not described

in sufficient detail to permit final determination of an

application and the applicant has not submitted material

sufficient to perfect its application, the applicant has not

exhausted its administrative remedies.   A letter from the IRS

stating that consideration of an application is closed without a

final determination is not an adverse determination that allows

the applicant to invoke this Court’s jurisdiction.    See Natl.

Paralegal Inst. Coal. v. Commissioner, supra (holding that this

Court lacked jurisdiction where the applicant had received a

letter closing its case).

     Respondent determined that petitioner had not described its

proposed activities in sufficient detail to allow respondent to

make a determination on petitioner’s application.    We agree.
                               - 11 -

     Petitioner’s responses to respondent’s inquiries, though

timely, did not offer sufficient detail as to petitioner’s

planned activities.   In petitioner’s application and subsequent

answers to respondent’s inquiries, petitioner merely stated goals

such as developing a process to convert garbage into electricity

without producing airborne pollution.    Petitioner gave little

indication as to what activities it would perform in furtherance

of this goal.   Petitioner stated that it would find “new ways to

use old technology” to solve environmental problems.    The only

identifiable process petitioner listed is “plasma gasification,”

and petitioner provided no explanation of the process or the

activities it would perform to develop this process.    This does

not qualify as a full description of petitioner’s planned

activities.

     Additionally, we cannot deduce any concrete activity from

petitioner’s proposed budget or its list of materials petitioner

plans to purchase.    The list contains mostly basic hardware

materials, measuring tools, and electronic equipment.    Petitioner

at no time elaborates how it will use these materials in its

activities or experiments, and the ordinary uses of these

materials are far too many to allow us to form any conclusion as

to the activities petitioner would undertake.

     Petitioner also did not disclose any concrete standards,

criteria or procedures it would employ in the selection and
                               - 12 -

implementation of its functions.    Petitioner stated that any

experiments would be chosen and conducted by Mr. Anderson, solely

on the basis of his “interest”.    From that we infer that

petitioner has not established any meaningful criteria by which

it would select future activities, other than the unbridled

discretion of Mr. Anderson.

     Because petitioner’s application lacked proposals for

tangible facilities, detailed plans, and criteria for selecting

activities and because petitioner was controlled completely by

Mr. Anderson, respondent rightfully concluded that he required

additional information before issuing a determination on

petitioner’s status.    Throughout the period during which

respondent requested information, petitioner had ample

opportunity to develop concrete plans for activities it would

perform.   Respondent advised petitioner twice by letter to give

sufficient details of its planned activities.    These

notifications were prompt and detailed.    Despite the opportunity,

petitioner did little more than reiterate its objectives from the

original application.   Even after respondent notified petitioner

that consideration of its application was closed, petitioner

still had an additional opportunity to renew the application by

developing a detailed explanation of its planned activities.

Petitioner chose not to do so.    Because petitioner’s supplemented

application fails to describe its proposed activities in
                              - 13 -

sufficient detail and fails to disclose meaningful standards and

criteria by which it will select future activities, petitioner

has not met the requirements for a “substantially completed Form

1023.”   As a result, respondent’s failure to issue a

determination letter was proper, and jurisdiction of this Court

under section 7428(b)(2) is not available.

     Petitioner nonetheless argues that respondent had ample

information about petitioner’s activities.   In support of that

argument, petitioner states that respondent was able, in his

pleadings before this Court, to describe petitioner’s activities.

On the contrary, respondent’s pleadings at most summarize

petitioner’s own descriptions, and as a result suffer the same

lack of detail as petitioner’s descriptions.    From this we cannot

infer that respondent had sufficient knowledge of petitioner’s

proposed activities to warrant a determination.

     Petitioner also argues that respondent has conceded this

Court’s jurisdiction by failing to file a motion to dismiss for

lack of jurisdiction within 45 days of the filing of the original

petition.   This is an incorrect application of Rule 213.   The Tax

Court is a court of limited jurisdiction and may only exercise

jurisdiction to the extent granted by Congress.     Commissioner v.

Gooch Co., 320 U.S. 418 (1943).   Thus, while Rule 213 provides a

45-day limitation on the Commissioner for moving on a petition, a

motion to dismiss may be made at any time.     French & Co. v.
                               - 14 -

Commissioner, 10 B.T.A. 665, 671 (1928); Hodges v. Commissioner,

T.C. Memo. 1987-340.   Additionally, this Court can, on its own

motion, dismiss for lack of jurisdiction.   See, e.g., Smith v.

Commissioner, 124 T.C. 36 (2005); Naftel v. Commissioner, 85 T.C.

527, 529 (1985).   As a result, the Commissioner cannot concede

this Court’s jurisdiction.

     Furthermore, respondent did not concede that petitioner

exhausted its administrative remedies.   Respondent did not issue

a determination on petitioner’s application.    None of

respondent’s correspondence with petitioner indicates that he

believed the administrative record was complete enough to make a

determination.   In his answer, respondent specifically denied

petitioner’s allegation that it had exhausted its administrative

remedies.   Respondent has not conceded that petitioner exhausted

its administrative remedies.

     We hold that petitioner has not submitted a substantially

completed Form 1023 as defined by section 601.201(n)(7)(i),

Statement of Procedural Rules.   As a result, petitioner has not

exhausted its administrative remedies, and this Court does not

have jurisdiction to issue declaratory relief under section

7428(b)(2).   Consequently, this Court cannot grant any of the

additional relief that petitioner requests.    In reaching this
                             - 15 -

conclusion, we have considered all arguments made by the parties,

and to the extent not discussed above, we find them irrelevant,

without merit, or both.

     To reflect the foregoing,


                                      An order of dismissal

                                 for lack of jurisdiction will

                                 be entered.
