                         T.C. Memo. 1999-216



                       UNITED STATES TAX COURT



                SHARE NETWORK FOUNDATION, Petitioner v.
             COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 23091-96X.                 Filed July 2, 1999.



     William J. Tully (an officer), for petitioner.

     Kirk M. Paxson, for respondent.



                          MEMORANDUM OPINION


     LARO, Judge:    Petitioner petitioned the Court to declare

whether petitioner qualifies for exempt status under section

501(c)(3).    See sec. 7428.   The parties dispute whether

petitioner meets the operational test of section 1.501(c)(3)-1,

Income Tax Regs.    We hold it does not.    Unless otherwise stated,
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section references are to the applicable versions of the Internal

Revenue Code.   Rule references are to the Tax Court Rules of

Practice and Procedure.

                             Background

     We decide this case on the basis of the entire

administrative record, see Rule 217(b)(1), which is incorporated

herein by this reference.    Petitioner's mailing address was in

Ontario, California, when its petition was filed.

     William J. Tully is a promoter of tax-exempt entities.     Karl

H. Goesele attended a seminar presented by Mr. Tully, and Mr.

Goesele retained Mr. Tully to organize a tax-exempt foundation

for Mr. Goesele.    Mr. Tully organized a corporation named "Share

Network Foundation" (petitioner herein). Petitioner's officers

are Mr. Tully (vice president), Mr. Goesele (president and

treasurer), Michael D. Tate (vice president), Sylvia A. Goesele

(secretary), and Ven. N. Kunga Gyaltsen (secretary).    Karl H.

Goesele is Sylvia A. Goesele's father, and Ms. Goesele is Mr.

Tate's wife.    Messrs. Goesele, Tate, and Tully serve as directors

on petitioner's board.

     Mr. Tully filed articles of incorporation for petitioner

with the Nevada secretary of state, and he prepared bylaws for

petitioner.    The articles state that petitioner's primary purpose

is "TO PROVIDE AND MAINTAIN A PHYSICAL FACILITY FOR SPIRITAL

[sic] WORSHIP."    The bylaws state that petitioner's primary
                               - 3 -


purpose is that set forth in the articles.     The bylaws further

state that "Nothing herein contained shall be construed to

prevent any Director from receiving compensation for services to

the Corporation rendered in a capacity other than Director."

     On November 4, 1993, petitioner filed with the Commissioner

a Form 1023, Application for Recognition of Exemption Under

Section 501(c)(3) of the Internal Revenue Code (application), in

which it sought recognition as a tax-exempt entity.     The

application reported that petitioner's activities were:       (1) A

church, synagogue, etc., (2) an association or convention of

churches, and (3) missionary activities.   The information that

petitioner provided to the Commissioner on and with the

application was vague as to the specifics of these activities.

The application indicated that petitioner had not currently begun

any activity, except for organizational activities.     As to

sources of financial support, the application stated:

     At the present time this organization does not have any
     procedure for the generation of income other than * * *

                 *    *    *    *      *   *      *

          (a)   Direct donations from the general
                public at large,

          (b)   Larger sums from various fund
                raising activities,

          (c)   A possible "thrift store" type
                operation, and

          (d)   Donations of property (both
                personal and real) which can be
                turned into cash, and
                               - 4 -



          (e)   Various others as may be
                recommended and implemented by the
                organization.

     On January 20, 1994, the Commissioner mailed petitioner a

letter seeking clarification of the information that it had

provided him on and with the application.    The letter specified

the information that the Commissioner needed to rule on

petitioner's request for exempt status and listed the name and

phone number of a person at the Internal Revenue Service to

contact with any questions.   The letter stated:   "We can only

recognize you as exempt in advance of operations if you are able

to describe your proposed operations in sufficient detail to

enable us to determine that you will be organized and operated in

accordance with section 501(c)(3) of the Code."

     On April 7, 1994, the Commissioner received a response to

his letter.   The response, which was written by Mr. Tully, gave

vague answers to the questions set forth in the Commissioner's

letter and did not explain in detail petitioner's proposed

activities or operation.

     On August 2, 1994, the Commissioner mailed petitioner

another letter seeking specificity as to petitioner's

organization, activities, and operation.    The letter explained

that the Commissioner needed specific information before he could

rule that petitioner was exempt from taxation under section
                               - 5 -


501(c)(3).   The letter, citing and quoting Rev. Proc. 90-27, sec.

5.02, 1990-1 C.B. 514, 515, stated that

     Exempt status will be recognized in advance of
     operations if proposed operations can be described in
     sufficient detail to permit a conclusion that the
     organization will clearly meet the particular
     requirements of the section under which exemption is
     claimed. A mere restatement of purposes or a statement
     that proposed activities will be in furtherance of such
     purposes will not satisfy this requirement. 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. Where the organization cannot
     demonstrate to the satisfaction of the Service that its
     proposed activities will be exempt, a record of actual
     operations may be required before a ruling or
     determination letter will be issued. * * * [Emphasis
     added in the letter.]

The letter asked for specific information that the Commissioner

needed to rule on petitioner's request for exemption and listed

the name and phone number of the person at the Internal Revenue

Service to contact with any questions.

     By way of an undated letter to the Commissioner, petitioner

responded to the Commissioner's letter of August 2, 1994.    This

response was no more informative than the prior response as to

the specifics of petitioner's organization, activities, or

operation.   The latest response repeated many of the statements

set forth on the prior response.

     On December 13, 1994, the Commissioner issued to petitioner

a 30-day letter reflecting the Commissioner's determination that
                                - 6 -


petitioner did not qualify under section 501(c)(3) because it

failed the operational test of section 1.501(c)(3)-1(c), Income

Tax Regs.   On February 2, 1995, petitioner notified the

Commissioner that it was appealing that determination, and

approximately 6 months after that, Mr. Tully met with one of the

Commissioner's Appeals officers to discuss petitioner's case.      On

or about August 10, 1995, petitioner filed with the Commissioner

a second Form 1023.    Petitioner's second Form 1023 stated that

     the primary purpose of the foundation, as stated in its
     oroginal [sic] application for exemption, * * * [was]
     amended to read as follows:

          "The primary purpose of the foundation will be to
     raise funds for financially strap [sic] families living
     within the immediate area of the foundation's base of
     operation with all funds being administered by other
     IRS approved 501(c)(3) charitable organizations such as
     the Salvation Army, United Way and the Catholic
     Church".

     * * * the foundation will limit its currect [sic] fund
     raising activities to raising funds directly from its
     officers, directors and their immediate familites
     [sic], friends and business associates.

The second Form 1023 did not list specifics as to petitioner's

operations, including the manner in which petitioner would effect

its primary purpose.    The second Form 1023 did not address any

safeguards against private inurement.

     On April 9, 1996, the Commissioner mailed a letter to

Mr. Tully, in his capacity as vice president of petitioner,

explaining that petitioner had not yet described its operations
                                 - 7 -


in sufficient detail.   The letter set forth four items of

information that the Commissioner lacked as to petitioner

including a definition of the term "financially strap" as set

forth in the second Form 1023.

     By way of an undated letter, Mr. Tully responded to the

Commissioner's letter of April 15, 1996.   The response was

generally vague as to the information sought.   As to the

definition of the term "financially strap", the letter stated:

          This organization defines the term "financially
     strap" as a temporary condition wherein the person, or
     family, under consideration is without "immediate funds
     in sufficient amount to provide the very necessities of
     life for the present day, or week, at most".

          It is not to bail out any person or family from
     their current financial psoition [sic]. Rather, it is
     a temporary means of relief that is intended to assist
     that person or family in their immediate need of foods
     and or lodging for at least a day or two, perhaps a
     week at the most until they can get on relief or find
     other assistance, if that be the case.

          It is to make sure that the person or persons in
     question do not have to go hungry over night or not
     have a safe place to stay.

          Included in this immediate need might be
     considered a doctor appointment for life threatening
     situations.

     On July 24, 1996, the Commissioner issued to petitioner a

final adverse determination letter. The letter stated:

     Our adverse determination was made for the following
     reason(s):
                               - 8 -


          You did not meet the operational test under
          section 1.501(c)(3)-1 of the Income Tax
          Regulations. In order to qualify under Code
          section 501(c)(3), an organization must be
          both organized and operated exclusively for
          one or more purposes specified in that
          section. You did not describe your proposed
          activities in sufficient detail as required
          by section 1.501(c)(3)-1 of the Regulations.

                            Discussion

     Respondent has determined that petitioner does not meet the

requirements of section 501(c)(3).     Petitioner must prove this

determination wrong.   See Rule 217(c)(2)(A); Church By Mail, Inc.

v. Commissioner, 765 F.2d 1387, 1391 (9th Cir. 1985), affg. T.C.

Memo. 1984-349; Church of Scientology v. Commissioner, 83 T.C.

381, 491 (1984), affd. 823 F.2d 1310 (9th Cir. 1987).     In order

for petitioner to do so, the administrative record upon which

this case is to be decided must contain enough evidence to

support a finding contrary to the grounds set forth in the notice

of determination, and petitioner must demonstrate the merits of

its claim by at least a preponderance of the evidence.     See

Estate of Gilford v. Commissioner, 88 T.C. 38, 51 (1987); see

also Rule 217(c)(2)(A); Fed. R. Evid. 301.     If petitioner fails

to carry its burden, respondent will prevail.     See Rockwell v.

Commissioner, 512 F.2d 882, 885 (9th Cir. 1975), affg. T.C. Memo.

1972-133; American Pipe & Steel Corp. v. Commissioner, 243 F.2d

125, 126 (9th Cir. 1957), affg. 25 T.C. 351 (1955); Estate of

Gilford v. Commissioner, supra at 51.
                                 - 9 -


     Section 501 provides in part:

          SEC. 501(a). Exemption From Taxation.--An
     organization described in subsection (c) * * * shall be
     exempt from taxation under this subtitle unless such
     exemption is denied under section 502 or 503.

                   *    *    *    *      *   *   *

          (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,
            * * * 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 (or in
            opposition to) any candidate for public
            office.

From this text, we understand that an organization is entitled to

exempt status if it is organized and operated exclusively for

charitable purposes.    See also sec. 1.501(c)(3)-1(a)(1), Income

Tax Regs.    We also understand that an organization that fails

this test does not qualify for exempt status under section

501(c)(3).    See also id.

     Respondent focuses entirely on petitioner's failure to

satisfy its burden as to the operational test.    So do we.
                              - 10 -


Section 1.501(c)(3)-1(c), Income Tax Regs., provides as follows

as to the operational test:

          (c) Operational test.--(1) Primary activities. 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 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.

               (2) Distribution of earnings. An
     organization is not operated exclusively for one or
     more exempt purposes if its net earnings inure in whole
     or in part to the benefit of private shareholders or
     individuals. * * *

     From the text of these regulations, we understand that an

organization is not operated exclusively for one or more exempt

purposes if its net earnings inure in whole or in part to the

benefit of private shareholders or individuals.    See sec.

1.501(c)(3)-1(c)(2), Income Tax Regs.   The concept of private

inurement as expressed therein ensures that the organization

serves public rather than private interests.    See Church of

Scientology v. Commissioner, supra at 491.     Tax exemption is a

matter of legislative grace; it is not a matter of right.     See

Christian Echoes Natl. Ministry, Inc. v. United States, 470 F.2d

849, 857 (10th Cir. 1972).

     We have previously observed that the opportunity for abuse

is present when the affairs of an organization are controlled by

its creators who belong to the same family.    See Bubbling Well
                               - 11 -


Church of Universal Love, Inc. v. Commissioner, 74 T.C. 531, 535

(1980), affd. 670 F.2d 104 (9th Cir. 1981).    In such a situation,

therefore, we require an open and candid disclosure of all facts

bearing upon the organization, its operations, and its finances

so that we may be assured that we are not sanctioning an abuse of

the revenue laws by granting a claimed exemption.    See id.; see

also United Libertarian Fellowship, Inc. v. Commissioner, T.C.

Memo. 1993-116.    Where such a disclosure is not made, the logical

inference is that the facts, if disclosed, would show that the

taxpayer fails to meet the requirements of section 501(c)(3).

See Bubbling Well Church of Universal Love, Inc. v. Commissioner,

supra at 535.

     Petitioner leaves us no choice but to draw such an inference

here.    The record is devoid of sufficient documentation or other

substantive information regarding petitioner's organization,

activities, or operations.    What little information petitioner

did provide, pursuant to respondent's requests, was extremely

vague and, in our view, simply an attempt by petitioner to avoid

disclosing the requested information.    Petitioner has completely

failed to establish its entitlement to tax-exempt status.

     We also note that petitioner has failed to prosecute its

case properly.1   Petitioner failed to file a brief, as ordered by


     1
         Petitioner's representative, Mr. Tully, is no stranger to
                                                     (continued...)
                              - 12 -

2
 the Court and required by Rule 151, and it has failed to explain

its failure to do so.   We have previously treated such inaction

by a party as an abandonment of those issues not addressed.     See

Calcutt v. Commissioner, 84 T.C. 716, 721 (1985).   We also have

held that the failure to file a brief may justify the dismissal

of all issues as to which a taxpayer has the burden of proof.

See Stringer v. Commissioner, 84 T.C. 693, 708 (1985), affd.

without published opinion 789 F.2d 917 (4th Cir. 1986).

     We sustain respondent's determination.   See also Tamaki

Found. v. Commissioner, T.C. Memo. 1999-166; Tate Family Found.

v. Commissioner, T.C. Memo. 1999-165; Larry D. Bowen Family

Found. v. Commissioner, T.C. Memo. 1999-149, wherein we reached

the same result based on administrative records that were

virtually identical to the administrative record at hand; as is

true with the case here, Mr. Tully also organized the


     1
      (...continued)
litigation. In addition to the cases cited in the last paragraph
of this memorandum opinion, he has filed cases in this Court on
at least three prior occasions, see Tully v. Commissioner, an
Order of this Court dated Jan. 8, 1998 (dismissing the case for
failure to prosecute), vacated and remanded without published
opinion 164 F.3d 631 (9th Cir. 1998) (with instructions to
dismiss petition for lack of jurisdiction); Tully v.
Commissioner, T.C. Memo. 1997-310, on appeal (9th Cir., July 29,
1997); Oliver Family Found. v. Commissioner, T.C. Memo. 1997-220,
he has prosecuted or is prosecuting the appeal of two of these
cases before the Court of Appeals for the Ninth Circuit, and he
prosecuted one case before a Federal District Court, see Tully v.
Kaply, 81 AFTR 2d 98-2125 (C.D. Cal. 1998).
                             - 13 -


corporations in Tamaki Found., Tate Family Found., and Larry D.

Bowen Family Found. and represented all three taxpayers before

this Court.   Accordingly,

                                        Decision will be entered

                                   for respondent.
