                        T.C. Memo. 2002-275



                      UNITED STATES TAX COURT



      SALVATION NAVY, INC., Petitioner v. COMMISSIONER OF
                  INTERNAL REVENUE, Respondent




     Docket No.   7013-01X.            Filed October 30, 2002.



          Based upon the facts contained in the
     administrative record, Held: Petitioner is not
     operated as an organization entitled to exemption under
     sec. 501(c)(3), I.R.C.



     David A. Valfer (an officer), for petitioner.

     Linda P. Azmon, for respondent.



                        MEMORANDUM OPINION

     NIMS, Judge:   Respondent determined that petitioner

Salvation Navy, Inc. (SNI), does not qualify as a section
                               - 2 -

501(c)(3) charitable organization and, therefore, is not exempt

from Federal taxation under section 501(a).    Pursuant to section

7428 and title XXI of the Tax Court Rules of Practice and

Procedure, SNI seeks a declaratory judgment that it is a

qualified organization under section 501(c)(3).   The issue for

decision is whether SNI operates exclusively for charitable

purposes.   Unless otherwise indicated, all section references are

to sections of the Internal Revenue Code in effect at the time

the petition was filed, and all Rule references are to the Tax

Court Rules of Practice and Procedure.

                            Background

     The administrative record, which includes all of the facts

upon which the Commissioner made the final adverse determination,

was submitted to the Court under Rule 217(b)(1) and is

incorporated herein by this reference.

     SNI was incorporated on April 7, 1976, under the Nonprofit

Corporation Law of Pennsylvania.   Its principal office is located

in Hartford, Connecticut.   The founder, sole director, and

officer of SNI is David A. Valfer (Valfer).1

     1
          In response to a question posed by an IRS Exempt
Organization Specialist as to how the name “Salvation Navy”
relate(s) to the organization, SNI responded as follows:

     On New Year’s Eve, 1975, at a police station in Boston,
     MA, when told that David got kicked out of the
     Salvation Army shelter, the policeman told him to go to
     the Salvation Navy. He returned to Philadelphia, PA
     Articles of Incorporation were drawn up, then on to the
                                                    (continued...)
                               - 3 -

     On May 2, 1999, SNI filed a Form 1023, Application for

Recognition of Exemption Under Section 501(c)(3) of the Internal

Revenue Code, with the IRS, seeking recognition of exemption

under section 501(c)(3) of the Internal Revenue Code.   In its

Articles of Incorporation, SNI stated that one of its purposes is

to “find out where one goes when he or she leaves”, and that SNI

“does not contemplate pecuniary gain or profit, incidental or

otherwise.”   On the Form 1023, SNI recited that its activities

include charitable work performed on a volunteer basis by

petitioner’s founder and Chief Executive Officer (CEO), David A.

Valfer.

     SNI further indicated on Form 1023 that its sources of

financial support came solely from Valfer’s Supplemental Social

Security income, aid to the disabled income, medicaid payments,

and food stamps.   SNI also indicated that it had no fund-raising

program in place and had no revenue or expenses during the

taxable years 1995 through 1998.   The administrative record does

not reveal that SNI kept any financial books and records.

     Attached to the Form 1023 were several documents containing

citations and statements of recognition commemorating Valfer’s 20

years of community service to the City of Hartford, Connecticut,

which included his volunteer activities at a Hartford weekend


     1
      (...continued)
     Department of State in Harrisburg, paid 75 dollars and
     was incorporated on April 7, 1976.
                               - 4 -

Senior Citizen Center, a church-sponsored soup kitchen, and

various churches.

     By letter dated July 19, 1999, the IRS required that SNI

amend its Articles of Incorporation to meet the organizational

test for exemption under section 501(c)(3).   SNI complied by

amending its Articles of Incorporation to delete the statement

that one of its purposes is to “find out where one goes when he

or she leaves”, leaving in place the additional provision that

its purpose is to be “organized exclusively for charitable,

religious, educational, literary, and/or scientific purposes

under Section 501(c)(3) of the Internal Revenue Code.”

     SNI also responded to a number of questions raised by IRS in

the July 19, 1999, letter.   In response to a request that SNI

advise IRS as to the charitable purpose of SNI’s organization,

and provide a listing of the charitable activities conducted by

the organization, SNI responded:

     The charitable purpose of Salvation Navy, Inc. is to be
     an asset to the community and do good deeds. Although
     it does not say so, for the most part, David Valfer’s
     activities, as stated in the Mayor’s proclamation and
     the other citations that were with form 1023, were the
     same as the organization’s activities.


     In a further response to an IRS request that SNI describe in

detail the activities it would conduct, SNI stated:

     Presently, volunteering Saturdays and Sundays is taking
     up 100% of * * * [Valfer’s] weekends at Hartford’s only
     weekend senior center, WESP. David needs to be there
     in time to say hello to the elderly citizens while he
     hands the milk out before the hot noon meal. When
                               - 5 -

     necessary David replenishes the paper towels, toilet
     tissue, and soap in the restrooms. In addition, he
     sets up the video to show a movie to a few seniors,
     including a blind man. The show has to end just before
     two p.m. in order for Dial-a-Ride to take them to their
     respective residence.

     SNI answered “yes” to the following question on the Form

1023:   “Do you want us to consider the application as a request

for recognition of exemption as a section 501(c)(3) organization

from the date the application is received and not retroactively

to the date the organization was created or formed?”

     In a further response to the July 19 letter, SNI indicated

that “David” would like to receive a tax-exempt letter to be able

to apply for a grant to procure a computer, a printer, and

related software.   SNI indicated that after Valfer attended grant

writing and computer classes, the organization planned to

establish a website and homepage to start a chat room for the

psychiatrically disabled.

     In subsequent correspondence dated December 10, 1999, SNI

indicated that it would also provide services as a “Shomer” (a

night watchman) to funeral homes, mortuaries, and morgues to keep

vigil through the night and into the mornings for persons who are

deceased and of the Jewish faith.   SNI indicated that an offering

of between $75 and $90 per 12-hour vigil “would be accepted by

the Shomer for the organization.”

     By letter dated April 19, 2000, IRS requested that SNI

modify its Board of Directors to place control in the hands of
                               - 6 -

unrelated individuals selected from the community which SNI

serves.   According to the IRS, this request for modification was

made to ensure that SNI would serve the interests of the public,

rather than the interests of a particular individual.   Valfer

refused the IRS request, stating that he does not trust any Board

of Directors that might vote him out of the Salvation Navy, Inc.

     On June 16, 2000, the IRS issued an initial adverse

determination letter to SNI.   SNI appealed to the IRS Office of

Appeals, which issued to SNI a final adverse determination on

April 4, 2001, denying tax-exempt status to SNI under section

501(c)(3).

                            Discussion

     Petitioner SNI bears the burden of proving that it is a

section 501(c)(3) organization.   See Rule 217(c)(2)(A).    In order

to meet this burden, SNI must show that the administrative record

contains sufficient evidence to overcome the grounds stated in

the notice of final adverse determination.   See Nationalist

Movement v. Commissioner, 102 T.C. 558, 572 (1994), affd. 37 F.3d

216 (5th Cir. 1994); At Cost Servs., Inc. v. Commissioner, T.C.

Memo. 2000-329.   The following reason was given in the Notice:

     Your organization is not organized or operated
     exclusively for charitable purposes. Additionally,
     part of the net earnings of your organization inure to
     the benefit of a private individual.
     Section 501(a) provides tax-exempt status for organizations

described in section 501(c).   Section 501(c)(3) includes

“Corporations, and any community chest, fund, or foundation,
                                 - 7 -

organized and operated exclusively for * * * charitable * * *

purposes, * * * no part of the net earnings of which inures to

the benefit of any private shareholder or individual.”   (Emphasis

added.)   Thus, the organization must be both organized and

operated exclusively for at least one of the stated purposes.

Sec. 1.501(c)(3)-1(a)(1), Income Tax Regs.

     Respondent concedes that once SNI amended its Articles of

Incorporation to delete that one of its purposes was to “find out

where one goes when he or she leaves”, so that the Articles now

reflect that SNI’s activities would be limited to charitable,

religious, educational, literary, and/or scientific purposes, SNI

meets the organizational test.    However, respondent asserts that

SNI fails to meet the operational test because SNI has not shown

that it is not operated for the benefit of a private individual;

i.e., David A. Valfer.   See sec. 1.501(c)(3)-1(d)(1)(ii), Income

Tax Regs.

     We agree with respondent.    As stated in the regulations, the

operational test is as follows:

     An organization will be regarded as “operated
     exclusively” for one or more exempt purposes only if it
     engages primarily in activities which accomplish one or
     more of such exempt purposes specified in section
                               - 8 -

     501(c)(3). An organization will not be so regarded if
     more than an insubstantial part of its activities is
     not in furtherance of an exempt purpose. [Sec.
     1.501(c)(3)-1(c)(1), Income Tax Regs.]

     As already noted, SNI desires recognition of exemption from

the date the Form 1023 was received by the IRS, and not

retroactively.   As also indicated above, SNI responded to a

request for a detailed description of its contemplated future

activities by reiterating a description of the activities in

which Valfer was already engaged.   In its brief SNI concedes that

“the Petitioner, SNI, and David A. Valfer are one and the same.”

However, SNI challenges respondent’s contention that

contributions to SNI inure to Valfer’s benefit, because “The

plain fact is that no contributions of either money or services

have been received by SNI from any source other than Mr. Valfer.”

Nevertheless, Valfer, responding on behalf of SNI to the July 19,

1999 IRS letter, stated that he would like to receive “a Tax

Exempt letter to apply for a grant to procure a computer,

printer, and related software.”   Since the affairs of SNI and

Valfer are irretrievably intertwined, as Valfer/SNI readily

admits, the benefits Valfer plainly hopes to obtain via the “Tax

Exempt letter” would obviously inure to Valfer himself.

     Similarly, SNI has not shown that compensation for Valfer’s

serving as a Shomer at a rate of $75 to $90 per 12-hour vigil

would not inure to a private individual.   Petitioner SNI has not

shown that the recipients of Valfer’s services as a Shomer are
                                - 9 -

members of a charitable class, or that the fees SNI proposes to

charge serve any purpose other than to provide a source of income

for Valfer.   Cf. Rev. Rul. 76-244, 1976-1 C.B. 155 (granting

exempt status to an organization providing home delivery of meals

at cost or less to financially distressed elderly and handicapped

persons).

     Section 501(c)(3) provides for tax-exempt status for

corporations, and any community chest, fund, or foundation,

organized and operated exclusively for, among other things,

charitable purposes.   It does not provide exemption for an

individual engaged in various activities, charitable or

otherwise.    Insofar as can be ascertained from the administrative

record, Valfer engaged in various commendable activities--perhaps

sometimes in the name of SNI--but the activities were those of

Valfer, not SNI.

     We accordingly conclude that SNI is not operated as a

section 501(c)(3) organization.


                                        Decision will be entered

                                for respondent.
