                        T.C. Memo. 2011-20



                     UNITED STATES TAX COURT



          ASMARK INSTITUTE, INCORPORATED, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 30238-07X.             Filed January 24, 2011.



     E. Michael Paturis, for petitioner.

     William I. Miller, for respondent.



                        MEMORANDUM OPINION


     MORRISON, Judge:   Pursuant to section 7428(a),1 petitioner,

Asmark Institute, Inc., seeks a declaratory judgment that it

meets the requirements of section 501(c)(3) and is therefore

exempt from federal income taxation.   It exhausted its


     1
      All section references are to the Internal Revenue Code of
1986, as amended.
                                 -2-

administrative remedies as required by section 7428(b)(2) and

Rule 210(c)(4).2   It received a final adverse determination

letter dated November 8, 2007.   It invoked the jurisdiction of

this Court by a petition filed December 31, 2007.   This case was

submitted for decision on the stipulated “Administrative record”

as defined in Rule 210(b)(12).

                            Background

     The petitioner, Asmark Institute, Inc., will be referred to

as Asmark Institute.   Asmark Institute had a for-profit

predecessor.   We refer to this predecessor by its full name,

Asmark, Inc.   The respondent will be referred to here as the IRS.

In briefing this case after trial, Asmark Institute failed to

propose findings of fact regarding most of the factual

disagreements that it had with the IRS.

1.   Asmark, Inc.: The Predecessor of Asmark Institute

     Asmark, Inc., a for-profit company, began in 1990 with 25

clients.   By February 15, 2005, Asmark, Inc., provided risk

management services to 985 farm retailers.3   It developed

expertise in understanding government regulations that affect

agricultural businesses.   It became a resource center for

agricultural businesses by providing educational material,


     2
      All Rule references are to the Tax Court Rules of Practice
and Procedure.
     3
      By “farm retailers” we mean businesses that sell goods and
services mostly to farms.
                                 -3-

training programs, and on-site inspections.   It also created

computer programs that allowed businesses to file timely reports

with government agencies.   Its mission was to help agricultural

businesses comply with government regulations.   Its owners and

their ownership shares were Allen C. Summers, Jr. (37.5 percent),

his wife, Susan Summers (37.5 percent), and Johnnie R. Lawrence

(25 percent).   Allen C. Summers served as president.   We infer

that there were only two other officers, Susan Summers and

Johnnie R. Lawrence.

     On its Form 1120S, U.S. Income Tax Return for an S

Corporation, for the calendar year 2005, Asmark, Inc., reported

ordinary business income of $472,378.   It also reported that

“Compensation of officers” was $112,200.   In the calendar year

2005, Asmark, Inc., paid salaries to its “officers” and

“directors” of $112,200.    On its 2005 Form 1120S, Asmark, Inc.,

reported that “Salaries and wages” were $391,368.   In the

calendar year 2005, Asmark, Inc. paid “salaries” and “wages” of

$391,368.   During 2005, Asmark, Inc., paid “total salaries” of

$503,568 (which is the sum of $112,200 and $391,368).

     Landmark Technologies, L.L.C., was a for-profit company that

owned properties used in the operations of Asmark, Inc.    The

owners of Landmark Technologies, L.L.C., were Allen C. Summers,

Susan Summers, and Johnnie R. Lawrence.
                               -4-

     Asmark, Inc., recognized that it would greatly improve its

market share if it could gain access to the farm retailers who

were members of trade associations.   Yet it was reluctant to

cooperate with the associations because it feared that it would

lose control of its trade secrets.    By converting to a nonprofit

corporation, it believed that it would no longer be obligated to

protect its trade secrets and it could therefore cooperate with

the associations.

2.   Organization of Asmark Institute

     On March 22, 2005, Asmark Institute was incorporated as a

nonstock, nonprofit corporation under the laws of Kentucky.

Asmark Institute had its principal office in Owensboro, Kentucky.

     Article II of its articles of incorporation, dated March 14,

2005, provides that Asmark Institute “is organized exclusively

for the purpose of serving as a resource center for compliance

materials and services for the agribusiness industry”.   Article

VI provides in part:

     Not withstanding [sic] any other provision of these
     articles, the corporation shall not carry on any other
     activities not permitted to be carried on:
     a. By a corporation exempt from federal income tax
     under Section 501(c)(3) of the Internal Revenue Code,
     or corresponding section of any future federal tax
     code, or

              *        *   *    *       *     *     *

Article VII states in part:

     The Corporation is irrevocable [sic] dedicated to and
     is organized and operated exclusively for charitable
                                -5-

      purposes within the section of 501(c)(3) of the
      Internal Revenue Code, or corresponding section of any
      future code.

      According to its bylaws, the purpose of Asmark Institute is

to:

      (1) Serve as a national resource center for regulatory
      compliance assistance to agricultural retailers and
      related agricultural businesses, and trade
      associations;
      (2) Promote knowledge of regulatory compliance
      requirements;
      (3) Serve as the national coordinating institution for
      creation, development and administration of compliance-
      related aids, materials, products, tools or other
      solutions pertinent to the needs of agricultural
      retailers and related businesses;
      (4) Advance industry-standards and conformity with
      compliance as a means of benefitting the public health,
      safety, welfare and environment;
      (5) Promote industry-standard educational opportunities
      and materials as a means of facilitating compliance and
      safer work environments;
      (6) Cooperate with departments and agencies of
      federal, state and local governments in achieving
      optimum compatibility between regulatory compliance
      requirements and the efforts of industry and commerce;
      (7) Promote cooperation and support between the state
      and national trade associations and/or organizations
      directly related to the interests of agricultural
      retailers and related businesses;
      (8) Communicate and cooperate with other industries and
      organizations on issues of mutual interest; and
      (9) Establish high standards of business ethics and
      professionalism.

Asmark Institute was not affiliated with a governmental agency.

      In June 2005, Asmark Institute filed an application asking

the IRS to recognize that it was exempt from tax under section

501(c)(3).   At the time that it filed the application, Asmark
                                  -6-

Institute had not yet begun operations and did not have any

assets.

     Asmark, Inc., transferred all of its assets, worth $205,000

and consisting of supplies, furniture, and computers, to Asmark

Institute.   Asmark Institute did not assume the liabilities of

Asmark, Inc.   The Asmark website announced that “On September 1,

2005, Asmark, Inc., officially became the Asmark Institute.”      On

December 31, 2005, Asmark Institute entered into a lease

agreement with Landmark Technologies, L.L.C.    This lease was

similar to the lease between Landmark Technologies, L.L.C., and

Asmark Institute’s predecessor, Asmark, Inc.    The lease entitled

Asmark Institute to use a 16,164-square-foot office building

situated on a 3.22-acre lot.    The building was used by Asmark

Institute as offices, a training facility, and warehouse space.

The rent was $120,000 per year.

     On March 20, 2006, Asmark, Inc., was dissolved.    The

dissolution did not occur earlier because its owners had been

waiting for the IRS to act on Asmark Institute’s application for

recognition of exempt status.    When the IRS asked for more

information instead of reaching a decision, the owners decided to

dissolve the corporation.

3.   Asmark Institute’s Employees

     Asmark Institute had the same employees as its predecessor,

Asmark, Inc.   Allen C. Summers served as president.   Susan
                                   -7-

Summers served as secretary/treasurer.      Johnnie R. Lawrence

served as vice president.    Asmark’s board of directors consisted

of Allen C. Summers, representatives of its members (except

governments and educational institutions), and representatives of

the fertilizer and agrichemical industry.

       Asmark Institute projected that its total salary expense

would be:

                                        Asmark, Inc.
                                     Projected Salaries
        Position          2006            2007              2008
Officers/directors      $533,000         $533,000         $533,000
Other salaries          270,000          280,000          290,000
     Total salaries     803,000          813,000          823,000


Of the $533,000 projected to be the salaries for “Officers/

Directors”, $187,500 would be paid to Allen C. Summers, $187,500

would be paid to Susan Summers, and $157,500 would be paid to

Johnnie R. Lawrence.

4.     Revenues

       Asmark Institute believed that all of its income would be

derived from fees for the services it would render.       It thought

that its fees for 2006, 2007, and 2008 would be $1,900,000, $2

million and $2,240,000, respectively.      Asmark Institute did not

intend to collect any income from grants, donations, or

fundraising operations.
                                  -8-

5.   Services Generally

     The general function of Asmark Institute was to help

agricultural retailers comply with OSHA, EPA, DOT, and DHS

regulatory requirements.     There were 75 separate regulatory

requirements for which Asmark Institute provided assistance.

Asmark Institute continued to provide the same regulatory

compliance services as Asmark, Inc.     Its customer base was larger

than that of Asmark, Inc., because the trade associations

promoted its services to their members.

6.   Membership

     Asmark Institute had five categories of membership, as

follows:

     (1) Charter member.     A Charter member was an entity or

individual that had contracted to purchase services from Asmark,

Inc., or Asmark Institute before the date that Asmark Institute

began operations.    Apparently, this date was considered to be

July 21, 2005.    Asmark Institute’s website stated:   “Clients of

Asmark on record on July 21, 2005 are considered charter members

of the new Asmark Institute.”

     (2)   Regular member.    A Regular member was any member that

was admitted to Asmark Institute after the date Asmark Institute

was created and that did not fit into the other categories of

membership.
                                    -9-

     (3)     Association member.    An Association member was “any

entity or individual of a state or national industry or trade

association or organization” who was not otherwise eligible for

membership.

     (4)     Government member.    A Government member was a

department, authority, or agency of a federal, state, or local

government.

     (5)   Educational member.      An Educational member was a

domestic not-for-profit institution of higher learning that was

not otherwise eligible for membership.

     The benefits received by each class of member, and the fees

paid by each, were as follows:

     Educational and Government members.         No fees were assessed.

The benefits to such members included basic communications such

as a newsletter, a service called “safety matters”, Ask ERICA,

and updates.    Ask ERICA is a service that is described later in

this opinion.    We find that the benefits provided to the

Educational and Government members were relatively insignificant.

     Association members.     No fees were assessed.     The benefits

offered included basic communications and the SABRS service

package (a package of services described below).

     Regular and Charter Members.         The fees for Regular and

Charter members were set forth in a “Price List & Distribution

Schedule”.    The Price List & Distribution Schedule set forth the
                                -10-

following service packages and prices for Regular and Charter

members:

                 Price List & Distribution Schedule
           Service Package               Price per Facility

Compass package                    $1,480 (for client with 1-99
                                     locations)
Lighthouse package (no annual      $2,180 (for client with 1-99
  travel by state association)       locations)
Lighthouse package (requiring      $2,480 (for client with 1-99
  annual travel by state             locations)
  association)

     As of March 13, 2006, Asmark Institute had 976 Charter

members, 102 Regular members, 9 Association members, no

Government members, and no Educational members.4      It anticipated

that the number of Charter members would be unchanged, the number

of Regular members would increase to 1,198, the number of

Government members would increase to 150, and the number of

Educational members would increase to 250.

7.   The SABRS Service Package, the Compass Service Package, and
     the Lighthouse Package

     Asmark Institute sold some of its services in bundled

packages.    There were three types of service packages, described

by Asmark Institute’s marketing brochures as:

     • “SABRSTM--Cut through the regulatory red tape!”



     4
      The parties agree that Asmark Institute had 976 Charter
members. Its website lists only 211 Charter members. The
parties do not explain the discrepancy.
                               -11-

     • “CompassTM--Helping you find your way!”

     • “LighthouseTM--Navigate the regulations!”

We refer to the three service packages as the SABRS package, the

Compass package, and the Lighthouse package.

     Of the three service packages, the one with the lowest level

of service was the SABRS package.     It appears that if a trade

association was a member of Asmark Institute, the trade

association received the SABRS service package, and its members

received indirect benefits through the SABRS service package.

The trade association was not charged a fee.     The trade

association’s members were not charged either, unless they

purchased an additional service.    Asmark Institute provided

partial access to its computer system to the trade association,

which could then use the computer system to provide services to

the trade association’s members.    The trade association and its

members could also place orders for materials for a fee from

Asmark Institute.   The trade association’s members could also

order specialized services from Asmark Institute, which would

split the fee for the services with the trade association.

     The next type of service package was the Compass package.

It appears that the Compass package was offered to any farm

retailer who chose the package.    All retailers who chose the

package were considered Regular or Charter members of Asmark

Institute.   If the retailer was a member of a trade association
                               -12-

that itself was an Association member, then the trade association

participated in the delivery of services to the retailer and

shared in the revenue from the services.

     Asmark Institute did not charge the Association member for

the Compass package.   It charged the Regular or Charter member

who chose this package $1,480 per facility per year.    Of this

$1,480 fee, $280 was shared with the Association member to which

the Regular or Charter member belonged.    Asmark Institute

provided training to the trade association, which in turn

provided services to the trade association’s members.    If the

retailer commissioned specialized work or products, Asmark

Institute split the fee with the trade association.

     The next type of service package was the Lighthouse package.

It appears that the Lighthouse package was a service offered to

any farm retailer who chose the package.    All retailers who chose

the package were considered Regular or Charter members of Asmark

Institute.   If the retailer was a member of a trade association

that itself was an Association member, then that trade

association participated in the delivery of services to the

retailer and shared in the revenue from the services.

     Asmark Institute did not charge the Association members for

the Lighthouse service package.   It charged its Regular or

Charter members who chose the package $2,480 per facility per

year.   Of this charge, $880 was shared with the Association
                                -13-

member to which the Charter member or Regular member belonged.

Alternatively, if no on-site visit was required, the charge to

the Regular or Charter member was $2,180 per manned facility, and

Asmark Institute paid $580 of the fee to the trade association.

Work duties were split between Asmark Institute and the trade

association.    A substantial portion of the work was done by

Asmark Institute.    The Lighthouse package was roughly comparable

to the services that Asmark, Inc., had provided to its clients.

8.   Specific Services.

     On a list that it gave the IRS of its major activities and

benefits, Asmark Institute identified six particular services:

SVA, Ask ERICA, NTIP, myRMP, IURA, and SPCC.      We describe each of

these services, the fee for each service, and whether the service

was offered through the three service packages.

     a.   Security Vulnerability Assessment (SVA)

     Asmark Institute offered a service called the security

vulnerability assessment, or SVA.      What follows is a description

of the SVA.    Many farm retailers sell ammonium nitrate and

anhydrous ammonia for use as fertilizer.     Ammonium nitrate can

also be used to make bombs.    Anhydrous ammonia can also be used

to make illegal drugs.    The SVA identified the ways in which a

farm retailer could prevent terrorists and criminals from

obtaining these chemicals.    SVA was used by retailers to satisfy

requirements imposed by the Department of Homeland Security.
                                -14-

     The SVA service was offered through all three service

packages.    For retailers who were not Regular or Charter members

but who belonged to an association that was an Association

member, the SVA service was provided through the SABRS service

package.    For these retailers, the fee for the SVA program was

$75 to $300.    Asmark Institute would share 40 percent of the fee

with the association.    The farm retailer could not directly

access the Asmark Institute website.    For farm retailers who had

enrolled in the Compass service package, the extra fee for the

SVA service was $27.50.    None of the fee was apparently shared

with the retailer’s association.    For farm retailers who had

enrolled in the Lighthouse package, the fee for the SVA service

was $27.50.    Apparently, none of the fee was shared with the

association.    The relative duties of the retailer, the

association, and Asmark Institute depended on the type of service

package.

     Some farm retailers were not Regular or Charter members and

were not members of an association that was a member of Asmark

Institute.    Such retailers did not participate in any of the

three service packages.    However, they were eligible to purchase

the SVA service.

     b.     Nurse Tank Inspection Program (NTIP)

     Asmark Institute offered a service called the Nurse Tank

Inspection Program, or NTIP.   A nurse tank is a steel tank used
                                 -15-

to transport anhydrous ammonia, pressurized so that it is in

liquid form.     See 49 C.F.R. sec. 173.315(m) (2009) (defining

nurse tank).     Federal regulations require an identification plate

to be attached to each nurse tank in operation.     Id. sec.

173.315(m)(1).    Not infrequently, an identification plate falls

off a nurse tank.    In 2004, the Department of Transportation

created an alternative regulatory scheme that allowed nurse tanks

to operate after losing their identification plates.     75 Fed.

Reg. 42367 (July 21, 2010) (describing special permit SP 13554,

in effect since 2004).    Asmark Institute administered a national

registry of nurse tanks governed by this alternative regulatory

scheme.    This registry is referred to as the Nurse Tank

Inspection Program.    In order to qualify for the alternative

regulatory scheme, a retailer had to participate in the NTIP

program and pay $25.    The alternative regulatory scheme came

about through the lobbying efforts of the Fertilizer Institute,

an organization which then shared with Asmark Institute a role in

administering the NTIP.

       The NTIP program was offered through all three service

packages.    Some farm retailers received the NTIP service through

the SABRS service package.    These retailers received the NTIP

service at “cost”.    We infer from the record that the cost was

$25.    For farm retailers who received the NTIP service through
                                 -16-

the Compass or Lighthouse service package, the NTIP service was

also offered at “cost”.     Some farm retailers were not Regular or

Charter members and were not members of an association that was

itself a member of Asmark Institute.     Such retailers were

eligible to purchase NTIP.

       The NTIP program was not offered to the clients of Asmark,

Inc.    We infer, therefore, that NTIP was a new program started by

Asmark Institute.

       c.   myRMP

       Another service offered by Asmark Institute was myRMP, a

web-based application for the preparation and maintenance of a

risk management plan.     A risk management plan is used by a

facility that stores anhydrous ammonia to take steps to prevent

the uncontrolled release of the gas.     Such releases are dangerous

to people and destructive of the ozone layer.     Another purpose

of the myRMP program was, in the words of Asmark Institute, to

“address uneven enforcement by the various regions of EPA”.     The

price of myRMP and the type of service depended upon the service

package.    Some farm retailers received the myRMP service through

the SABRS service package.     They were retailers who were members

of Association members of Asmark Institute but who were not

Regular or Charter members.     For these retailers, the fee for the

myRMP service was $500.    Of the $500 fee, the association

received 30 percent.    The retailer did not have access to the
                                 -17-

Asmark Institute website directly.      For farm retailers who had

enrolled in the Compass service package, the price of the myRMP

service was $300, with the association receiving 30 percent of

the price.    The retailer had access to the website.   For

retailers who had enrolled in the Lighthouse package, the fee for

the myRMP service was $88.    Apparently, none of this fee was

shared with the association.    The retailer had access to the

website.

       Some farm retailers were not Regular or Charter members and

were not members of an association that was itself a member of

Asmark Institute.    Such retailers were eligible to purchase

myRMP.

       In 2007, the EPA awarded a $20,000 annual grant to Asmark

Institute for its work on the myRMP program.

       The myRMP program was not offered to the clients of Asmark,

Inc.     We infer, therefore, that myRMP was a new program started

by Asmark Institute.

       d.   Inventory Update Rule Amendment (IURA) Program

       The Inventory Update Rule Amendment program, or IURA, was a

web-based tool for making reports to the EPA regarding the

movement of imported fertilizers within the United States.      The

record does not indicate that IURA was offered through any of the

three service packages (i.e. SABRS, Compass, Lighthouse).     The

IURA service required the payment of a fee.
                                   -18-

       The IURA program was not offered to the clients of Asmark,

Inc.    We infer, therefore, that the IURA program was a new

program started by Asmark Institute.

       e.    SPCC

       Asmark Institute offered SPCC, a web-based tool for

preparing “Spill Prevention Control and Countermeasure” plans for

farm centers.       SPCC was not offered through the SABRS service

package.    SPCC was not offered through the Compass service

package.    SPCC was offered through the Lighthouse service package

for a fee.    The record does not reveal how or under what

circumstances the SPCC was offered to retailers other than

through the Lighthouse program.

       The SPCC program was not offered to the clients of Asmark,

Inc.    We infer, therefore, that SPCC was a new service offered by

Asmark Institute.

       f.   Ask ERICA

       Asmark Institute offered a service called “Ask ERICA”.      Ask

ERICA was a repository of agency interpretations from DOT, EPA,

and OSHA that were important to agribusiness.       “ERICA” is the

acronym for Electronic Repository of Interpretations Critical to

Agriculture.

       The Ask ERICA service was provided for no charge to the

Association members.       It was also provided at no additional

charge to Regular and Charter members.       The record is scanty on
                                 -19-

the terms by which Ask ERICA was provided to retailers who were

not Regular and Charter members.     Asmark Institute made a vague

representation to the IRS that it “administers and/or acts as a

resource” for Ask ERICA, and that Ask ERICA was “available to the

entire industry (nonmembers and members)”.     This representation

is ambiguous.     Thus, the record does not reveal whether Ask ERICA

was offered to nonmembers for a fee.

        The Ask Erica program was not offered to the clients of

Asmark, Inc.     We infer, therefore, that Ask Erica was a new

program started by Asmark Institute.

9.      Services to Section 501(c)(3) Organizations.

     The IRS contends that there is no evidence in the record

that any of Asmark Institute’s clients are section 501(c)(3)

organizations.     Asmark Institute objects to such a finding of

fact.     It claims that a document in the record, “List of Federal,

State and County Government Entities Served by the Asmark

Institute”, demonstrates that it served section 501(c)(3)

organizations.     But the document to which Asmark Institute refers

appears to be a list of governmental units, not section 501(c)(3)

organizations.     We find that there is no evidence in the record

that any of Asmark Institute’s clients are section 501(c)(3)

organizations.
                                   -20-

10.     Procedural History

      As noted, Asmark Institute applied to the IRS for

recognition of tax-exempt status in June 2005.      The IRS Tax

Exempt and Government Entities (TEGE) Division requested

additional information from Asmark Institute on March 1, 2006.

Asmark Institute supplied additional information on March 20,

2006.     In November 2006, the IRS TEGE Division denied Asmark

Institute’s request for recognition of exempt status.      In January

2007, Asmark Institute appealed the denial to the IRS Appeals

Office.     To support its appeal, Asmark Institute sent the IRS

Appeals Office 11 additional documents.      In November 2007, the

IRS Appeals Office determined that Asmark Institute was not

exempt under section 501(c)(3).      Asmark Institute filed a

petition for declaratory judgment with the Tax Court.      Asmark

Institute and the IRS stipulated that the administrative record

comprised 84 exhibits.       At the request of the parties, the case

was submitted without trial under Rule 122.

                                Discussion

      Section 7428(a) confers jurisdiction on the Tax Court to

“make a declaration” with respect to the “initial qualification”

of an organization seeking tax-exempt status under section

501(c)(3).     Rule 217(a) provides that such an action for

declaratory judgment shall be resolved on the basis of the

administrative record.       Furthermore, Rule 217(b)(1) provides that
                               -21-

“the Court’s decision will be based upon the assumption that the

facts as represented in the administrative record as so

stipulated or so certified are true and upon any additional facts

as found by the Court if the Court deems that a trial is

necessary.”

     Neither party expresses a view about who has the burden of

proof in this proceeding.   As explained below, we find that a

preponderance of the evidence shows that Asmark Institute did not

satisfy the requirements of section 501(c)(3).    Therefore, even

if the IRS has the burden of proof, the IRS has shown that Asmark

Institute was not entitled to tax-exempt status.    Neither party

expresses a view as to the standard by which we should review the

IRS’s denial of recognition of tax-exempt status.    Even if the

appropriate standard of review is de novo, i.e. even if we gave

no deference to the determination of the IRS, we believe the

determination should be sustained.

     To be exempt from income tax under section 501(c)(3), an

organization must be “operated exclusively” for exempt purposes.

Exempt purposes include a “charitable” purpose.    Here is the

standard for determining whether Asmark Institute meets the test:

     Under the operational test * * * the critical inquiry
     is whether * * * [an organization’s] primary purpose
     for engaging in its * * * activity is an exempt
     purpose, or whether its primary purpose is the
     nonexempt one of operating a commercial business
     producing net profits * * *
                                -22-

B.S.W. Group, Inc., v. Commissioner, 70 T.C. 352, 356-357 (1978).

Asmark Institute argues that its activities served the charitable

purpose of “assisting agricultural retail centers to comply with

the myriad requirements of Federal and state laws designed to

protect the public.”    It gives three examples of how it assisted

farm centers with legal compliance:    (1) its security

vulnerability assessment program (SVA), (2) its risk management

program (myRMP), and (3) its nurse tank inspection program

(NTIP).   In addition, Asmark Institute argues that it provided

free services.    As evidence of the free services, it points to

the following five items:

     •The attorney for Asmark Institute wrote a letter to the IRS

     Appeals Office protesting the decision of the IRS TEGE

     Division.    The letter stated that “The compliance tool is

     available without charge to the public.”

     •The same letter stated that “The database has been turned

     over to an unrelated company to administer and maintain and

     which has agreed to make information therefrom available to

     the public.”

     •The SABRS service package provided free information to

     members of trade associations who have signed an affiliation

     agreement.

     •The SABRS service package provided free posters to trade

     associations.
                               -23-

     •For no charge, Asmark Institute’s president and CEO,

     Allen C. Summers, testified at a hearing on “Preventing

     Terrorist Attacks on America’s Chemical Plants” before

     the House Committee on Homeland Security, Subcommittee

     on Economic Security Infrastructure Protection and

     Cybersecurity, on June 15, 2005.

     Before analyzing Asmark Institute’s arguments, we will

summarize the IRS’s position that Asmark Institute conducted

commercial activity rather than charitable activity.    First, the

IRS argues that Asmark competed with commercial firms.    Second,

the IRS argues that providing services to agribusiness is not an

inherently charitable activity.   Third, the IRS argues that

Asmark Institute offered the same services, charged the same

prices, and employed the same workers as its for-profit

predecessor, Asmark, Inc.   Fourth, the IRS argues that the Asmark

Institute’s commercial nature is evinced by the fact that its

clients were for-profit businesses.     Fifth, the IRS observes that

Asmark Institute’s relationships with trade associations were

designed to increase its client base.    Sixth, the IRS argues that

Asmark did not educate the public because its educational and

compliance materials were available only for a fee.

     As we will explain, we agree with the IRS that Asmark

Institute’s operations were commercial rather than charitable.

Its operations consisted mainly of compliance services provided
                                -24-

for a fee.   Therefore, we will first discuss whether the

providing of compliance services for a fee was charitable.     We

will then discuss the free services provided by Asmark Institute.

     Asmark Institute argues that by providing compliance

services to farm retailers for a fee, it generated public

benefits.    For example, one service was to identify ways for its

members to comply with regulations designed to prevent the

uncontrolled release of anhydrous ammonia gas.    But the public

benefit of preventing the release of ammonia into the air is no

different from the benefits of complying with many other legal

requirements.   Many laws are supposed to produce benefits to the

public.   Improving compliance with these laws should therefore

produce public benefits.    This is not sufficient to constitute a

charitable operation.   Were it otherwise, firms that assist their

clients in complying with the laws on a fee-for-service basis

could claim exemption from income tax.

     Besides its paid services, Asmark Institute offered free

services.    In considering whether the free services provided by

Asmark require us to characterize its operations as charitable

instead of commercial, we first observe that the free services it

provided were relatively small in relation to all of its

services.    Of three major services provided by Asmark--the

Security Vulnerability Assessment, the Nurse Tank Inspection

Program, and myRMP--none was free.     Asmark Institute identified
                               -25-

five free services in its brief, but these do not tilt the scale.

The first free service was a “compliance tool”, as it was vaguely

described in the protest letter by Asmark Institute’s attorney.

We do not know what the “compliance tool” was, how it was

administered, and who it benefited.   The second free service was

identified as “the database” in the same protest letter.

Similarly, we do not know specific information about “the

database”, how it was administered, and who it benefited.

     The third free service identified by Asmark Institute was

the information that it made available to members of the trade

associations who participated in the SABRS service package.     It

is obvious that this service was part of Asmark Institute’s

campaign to market itself to members of the trade associations.

Asmark Institute hoped to convince these members to pay it for

services.   Thus, its distribution of free information to the

associations does not demonstrate that Asmark operated as a

charity.

     The fourth free service identified by Asmark Institute was

its distribution of free posters to trade associations as part of

the SABRS service package.   However, the portions of the

administrative record cited by Asmark Institute show that it

charged a fee for these posters.   The posters were not in fact

free.
                               -26-

     Fifth, Asmark Institute argues that it provided a free

service to the Congress when its president and CEO testified

before a congressional committee.     We have no reason to doubt

that the testimony of Mr. Summers was beneficial to the

committee.   But we believe that the testimony also served private

interests.   As a publication of the Fertilizer Institute noted

“Summers used his testimony to relay to the subcommittee the

fertilizer industry’s opposition to any legislation that mandates

the use of inherently safer technologies (IST).”    On balance,

this testimony and the other free services provided by Asmark

Institute (for example, the standard services it provided to

Government members and Educational members, to whom it charged no

membership fee) do not convince us that Asmark Institute was

something other than a commercial provider of services.

     Our conclusion that Asmark Institution’s operations were

commercial rather than charitable is fortified by the fact that

Asmark Institute competed with commercial firms,5 the fact that

Asmark Institute continued the same operations as its for-profit

predecessor (except for its expansion of its relationships with

trade associations, a move designed to increase its base of fee-

paying members), and the fact that its clients were for-profit




     5
      The administrative record establishes that Asmark Institute
took a more “hands-on” approach to compliance services than other
service providers.
                                 -27-

businesses that purchased Asmark Institute’s services in order to

minimize the costs of regulatory compliance.

     In an additional attempt to explain why its operations were

charitable, Asmark Institute argues that its operations lessened

the burdens of government.     According to section 1.501(c)(3)-

1(d)(2), Income Tax Regs., one purpose that qualifies as a

charitable purpose is the “lessening of the burdens of

Government”.   An organization may be considered to lessen the

burdens of government if a government unit (1) has accepted as

its responsibility the activities conducted by the organization

and (2) recognizes that the organization is acting on the

government’s behalf.    Columbia Park & Recreation Association,

Inc. v. Commissioner, 88 T.C. 1, 21 (1987), affd. without

published opinion 838 F.2d 465 (4th Cir. 1988).    Asmark

Institute’s activity is to assist farm retailers in complying

with government regulations.    The record does not show that a

government agency has accepted responsibility for Asmark

Institute’s activity.   Nor does the record show that Asmark

Institute was acting on behalf of any government agency.      There

are various letters from government agencies expressing their

appreciation for the efforts of Asmark Institute in improving

compliance with regulations.    There is also evidence that

government agencies have expressed an interest in “working with”

Asmark Institute.   There is also some evidence that the EPA gave
                               -28-

Asmark Institute a $20,000 grant.     These documents do not

establish that a government agency has accepted responsibility

for Asmark Institute’s activities, or that a government agency

has recognized that Asmark Institute is acting on the agency’s

behalf.

     We find that Asmark Institute was not operated exclusively

for exempt purposes.   It therefore was not tax exempt.    We need

not reach the IRS’s additional argument that Asmark Institute was

operated for the benefit of private interests.



                                           Decision will be entered

                                      for respondent.
