                       T.C. Memo. 1999-304



                     UNITED STATES TAX COURT



               WAYNE BASEBALL, INC., Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 15966-98X.                Filed September 15, 1999.



     John K. Graham and David J. Nagle, for petitioner.

     Mark A. Ericson, for respondent.


                       MEMORANDUM OPINION

     COHEN, Chief Judge:     Respondent determined that Wayne

Baseball, Inc. (petitioner), does not qualify as a section

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, petitioner seeks a declaratory judgment that it is a

qualified organization under section 501(c)(3).    The
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administrative record, which includes all the facts upon which

respondent made the final adverse determination, was submitted to

the Court under Rule 217(b)(1).    Unless otherwise indicated, all

section references are to 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

     Petitioner is a nonprofit Delaware corporation whose

principal activity is the sponsorship of a highly competitive

amateur baseball team.   The team plays almost exclusively in

Delaware County, Pennsylvania.    Home games are played on a local

high school field, and petitioner does not charge admission to

spectators who come to watch the games.

     Each year, the team holds a series of spring tryouts from

which approximately 25 players are selected to make up the roster

for a 40-game season.    The typical player is over the age of 21

and either has competed or currently competes at the collegiate

baseball level.   The roster also includes several younger players

between the ages of 17 and 21.    Each player possesses a high

degree of skill in the game of baseball.    At the time the

administrative record was compiled, one younger player was in the

process of trying out for the U.S. national baseball team, which

competes in the Olympic and Pan-American Games.    Also included on

the team are several perennial veteran players who are in their
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later 20's.   In addition to being players, these older team

members serve as mentors who instruct and assist in the

development of their younger teammates.    Two of the veteran

players also serve on petitioner's board of directors.    Of the 25

team members, 3 have experience playing in the professional minor

leagues.

     The team does not have a formal instructional program.     To

improve player performance, the team relies instead on informal

interaction between the players in giving each other advice and

on self-taught, hands-on training that occurs in game situations.

On their own time and initiative, two players have assisted local

high school athletes in the game of baseball, but this

extracurricular coaching is not sponsored by petitioner.

     Petitioner sponsors the team by supplying uniforms,

equipment, umpire fees, insurance, league fees, and miscellaneous

expenses.    The expenses of the team run typically between $5,000

and $9,000 per year.    A substantial amount of petitioner's

proceeds come from contributions made by Charles T. Freeman

(Freeman).    Freeman is president of petitioner, a director on

petitioner's board, and also volunteers as the general manager of

the team.

     On December 6, 1995, petitioner submitted a Form 1023,

Application for Recognition of Exemption, under section

501(c)(3).    Respondent issued an initial adverse determination on
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June 6, 1996.   Petitioner appealed to the Internal Revenue

Service Office of Appeals, which gave a final adverse

determination on July 1, 1998, denying tax-exempt status to

petitioner under section 501(c)(3).     Respondent's reasons for

denial stemmed from his conclusion that petitioner is not

operated exclusively for exempt purposes, in that a substantial

portion of the purposes and activities of petitioner is social

and recreational and inconsistent with the section 501(c)(3)

exemption.   Petitioner challenges that finding in this action for

declaratory judgment.

                             Discussion

     Petitioner bears the burden of proving that it is a section

501(c)(3) organization.    Rule 217(c)(2)(A).   A statute creating

an exemption must be strictly construed.     See American Auto.

Association v. Commissioner, 19 T.C. 1146, 1158 (1953);

Associated Indus. of Cleveland v. Commissioner, 7 T.C. 1449, 1464

(1946).

     Section 501(a) provides tax-exempt status for organizations

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

following organizations:

          (c)(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 to foster national or
     international amateur sports competition (but only
     if no part of its activities involve the provision
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     of athletic facilities or equipment), 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 * * *, any
     political campaign on behalf of any candidate for
     public office.

The theory behind the exemption is that the Government is

compensated for the loss of revenue by its relief from the

financial burden that would otherwise have to be met from public

funds and that the Government realizes benefits resulting from

private promotion of the general welfare.   See H. Rept. 1860,

75th Cong., 3d Sess. (1938), 1939-1 C.B. (Part 2) 728, 742.

     Section 501(c)(3) sets forth three requirements for an

organization to be exempt:   (1) The corporation must be organized

and operated exclusively for exempt purposes, (2) no part of the

net earnings of the corporation may inure to the benefit of any

shareholder or individual, and (3) the corporation must not

engage in political campaigns or, to a substantial extent, in

lobbying activities.   See Hutchinson Baseball Enters., Inc. v.

Commissioner, 73 T.C. 144, 151 (1979), affd. 696 F.2d 757 (10th

Cir. 1982).   Only the first requirement is at issue in this case.

     Respondent concedes that petitioner is organized exclusively

for exempt purposes within the meaning of section 501(c)(3).

Therefore, the only remaining question is whether petitioner is
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operated as a section 501(c)(3) organization.     The operational

test requires the activities of an organization to be primarily

those that accomplish an exempt purpose as described in section

501(c)(3).    See sec. 1.501(c)(3)-1(c)(1), Income Tax Regs.    A

single substantial nonexempt purpose will disqualify an

organization despite the importance of its exempt purpose.      See

Better Business Bureau v. United States, 326 U.S. 279, 283

(1945).    If an organization serves private rather than public

interests, it also will not meet the operational test.       See sec.

1.501(c)(3)-1(d)(1)(ii), Income Tax Regs.

     Petitioner contends that it operates exclusively for one or

more exempt purposes within the meaning of section 501(c)(3) and

does not further private interests.     In support of this

assertion, petitioner relies on Hutchinson Baseball Enters., Inc.

v. Commissioner, supra at 155-156, which held that the promotion

of amateur baseball is an exempt purpose.     Respondent argues that

petitioner does not qualify under section 501(c)(3) because more

than an insubstantial part of the activities of petitioner

furthers nonexempt social and recreational interests of its

members.    Respondent relies on the similarities of this case to

Media Sports League, Inc. v. Commissioner, T.C. Memo. 1986-568,

which denied exempt status to an amateur sports league.

     Section 501(c)(3) exempt purposes are those of a charitable

character and are not limited to the classifications enumerated
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by the statute.    See Hutchinson Baseball Enters., Inc. v.

Commissioner, supra at 152.      The term "charitable" embraces "'any

benevolent or philanthropic objective not prohibited by law or

public policy which tends to advance the well-doing and well-

being of man.'"    Id. at 153.

     In Hutchinson Baseball Enters., Inc., we held that

promotion, advancement, and sponsorship of amateur baseball are

exempt purposes under section 501(c)(3).     See id.   The

organization in Hutchinson Baseball Enters., Inc. sponsored a

highly skilled adult amateur baseball team.     It also leased and

maintained baseball fields for the use of Little League teams, a

local community college team, American Legion teams, and a

baseball camp.    In addition, the organization provided coaches

for the Little League teams and baseball camp.     See id. at 147.

The Court held that these activities as a whole advanced amateur

baseball in the Hutchinson community.     See id. at 155.

     In Media Sports League, Inc., the Court addressed a similar

issue but concluded that a corporation is not a section 501(c)(3)

organization when its activities solely sponsor sports games for

novice adult amateur athletes.     We distinguished the organization

in Media Sports League, Inc. from the organization in Hutchinson

Baseball Enters., Inc. as follows:

          In Hutchinson we found the organization's
     predominant motivation for engaging in its activities
     was the furtherance of amateur athletics. The
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     organization provided coaching and instruction for
     children and recruited only top amateur baseball
     players to play on the team it sponsored. The
     organization also hired a coach, general manager and
     trainer to work with the team. Petitioner, in
     contrast, provides no formal or ongoing instruction to
     its members, has no skill requirements for eligibility
     to play in its leagues and does not require members to
     participate in any of its activities. Petitioner also
     provides facilities and equipment for its members. An
     organization may engage in a particular activity for
     exempt and nonexempt purposes, but the operational test
     will be satisfied only if the taxpayer is operated
     exclusively for one or more of the exempt purposes
     specified in the statute. * * * Although we believe
     that the furtherance of amateur athletics is one of
     petitioner's goals, we find that a substantial purpose
     was to further the social and recreational interests of
     its members. We have repeatedly held that
     organizations whose activities are directed
     substantially toward social and recreational purposes
     are not eligible for section 501(c)(3) status.
     [Media Sports League, Inc. v. Commissioner, supra;
     citations omitted.]

     We conclude that petitioner is unlike the organization in

Hutchinson Baseball Enters., Inc. and indistinguishable from the

organization in Media Sports League, Inc.   In Hutchinson

Baseball Enters., Inc., the activities of the organization

primarily promoted baseball in the surrounding community by

maintaining a baseball field for the public and providing

coaches for Little League teams and baseball camp.   Hutchinson

Baseball Enters., Inc. v. Commissioner, supra at 155.   In

contrast, the only activity sponsored by petitioner is the

operation of the adult amateur baseball team.   As in Media

Sports League, Inc., the primary beneficiaries of petitioner are
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the individual team participants, including the player/directors

and Freeman, who serves as the team manager.    The team furthers

their social and recreational interests, and, on balance, this

nonexempt purpose was substantial in comparison to petitioner's

promotion of the game of baseball to the surrounding community.

Allowing spectators to watch the games free of charge is

incidental to the purpose of providing a team for the enjoyment,

recreation, and social interaction of the players, and, although

two players on their own have taken the initiative to teach

baseball to several local youths, petitioner does not sponsor

those activities.   Therefore, petitioner does not benefit its

community in a way comparable to the charitable activities

described in Hutchinson Baseball Enters., Inc. v. Commissioner,

supra at 153-156.

     For the reasons stated, we conclude that petitioner is not

operated as a section 501(c)(3) organization.   We have

considered the other arguments of petitioner, and they are

addressed by the consideration of nonexempt purposes or

otherwise lack merit.

                                         Decision will be

                               entered upholding

                               respondent’s determination.
