                              T.C. Memo. 2013-283



                        UNITED STATES TAX COURT



              THE COUNCIL FOR EDUCATION, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 17890-11X.                       Filed December 16, 2013.



      Harold R. Huggins (an officer), for petitioner.

      Victoria A. Judson, Kirk M. Paxson, Patricia P. Wang, and Eugene Kim, for

respondent.



                           MEMORANDUM OPINION


      GUY, Special Trial Judge: Respondent determined that the Council for

Education (petitioner) does not qualify for exemption from Federal income

taxation pursuant to section 501(a) as an organization described in section
                                         -2-

[*2] 501(c)(3).1 Petitioner challenged respondent’s determination by timely filing

a petition for declaratory judgment with the Court pursuant to section 7428(a). At

the time the petition was filed, petitioner’s principal place of business was in

California.

      The parties agree that petitioner exhausted the administrative remedies

available to it within the Internal Revenue Service (IRS). The parties also filed

with the Court the entire administrative record in accordance with Rule 217(b)(1).

For purposes of the instant proceeding, the facts and representations contained in

the administrative record are accepted as true and are incorporated herein by

reference. See id. Petitioner bears the burden of proving that respondent’s

determination is incorrect. See Calhoun Acad. v. Commissioner, 94 T.C. 284, 295

(1990).

                                    Background

I. Harold Huggins

      Harold Huggins is petitioner’s president and secretary and its sole officer,

director, and employee.


      1
       Unless otherwise indicated, section references are to the Internal Revenue
Code (Code), as amended, and Rule references are to the Tax Court Rules of
Practice and Procedure.
                                        -3-

[*3] A. University of California at Santa Barbara

      Mr. Huggins was enrolled as a student at the University of California at

Santa Barbara (UCSB) from 1991 to 1994. By all indications, he did not graduate

from UCSB. He has been an active and vocal critic of the University of California

(UC) university system generally and UCSB specifically.

      B. Mr. Huggins’ Administrative Complaints and Lawsuits2

      Between 1993 and 2002 Mr. Huggins filed (1) an administrative complaint

with UC’s vice chancellor for student affairs alleging academic fraud and civil

rights violations; (2) an administrative complaint with the U.S. Department of

Education’s (DOE) Office for Civil Rights alleging that UCSB administrators and

faculty discriminated against African American students by denying them “course

repeats”, violated the faculty code of conduct, and destroyed documents to conceal

evidence of academic fraud; (3) a lawsuit in Federal District Court against the UC

board of regents (board of regents) and the California Student Aid Commission

(CSAC) alleging that his Federal student loans should be extinguished because he

was given a poor grade in an engineering course at UCSB and university officials

      2
        The administrative record does not include all of the pleadings and/or the
final dispositions of lawsuits filed by Mr. Huggins (individually) and petitioner.
However, because the lawsuits are discussed and described to varying degrees in
the administrative record, we have taken judicial notice of certain opinions and
orders issued by the Federal courts with jurisdiction over those actions.
                                         -4-

[*4] violated the Racketeer Influenced and Corrupt Organizations Act (RICO);3

(4) a series of three lawsuits in Federal District Court against UCSB, numerous

UCSB officials, the board of regents, and the Western Association of Schools and

Colleges (WASC), alleging that the defendants coerced him into withdrawing

from UCSB, extorted student loans through grade fraud and intimidation, and

violated RICO and the False Claims Act.4

      C. Proposition 209

      Mr. Huggins is an opponent of Proposition 209, a ballot initiative that was

passed by the voters of the State of California in November 1996. At the time,

then Governor Pete Wilson endorsed Proposition 209, and Ward Connerly, a

member of the board of regents, actively promoted the initiative.




      3
       The lawsuit was dismissed on the grounds Mr. Huggins failed to allege a
pattern of racketeering activity and failed to demonstrate a basis for a class action.
See Huggins v. Univ. of Cal. at Santa Barbara, 21 Fed. Appx. 673 (9th Cir. 2001).
      4
        The first lawsuit, assigned docket No. SACV 02-0360 DOC, was short
lived inasmuch as the court denied Mr. Huggins’ request to proceed in forma
pauperis. The second lawsuit, assigned docket No. SACV 02-0610 DOC, was
dismissed on a number of grounds including failure to state a claim for relief. The
third lawsuit, assigned docket No. SACV 02-0810 DOC, was dismissed on the
ground of res judicata. The District Court granted WASC’s motion for sanctions
and a separate motion to declare Mr. Huggins a vexatious litigant, and those
actions were either left undisturbed or affirmed on appeal. See Huggins v. Hynes,
117 Fed. Appx. 517 (9th Cir. 2004).
                                          -5-

[*5] Proposition 209 amended the California State constitution, see Cal. Const.,

art. I, sec. 31(a), to provide in relevant part: “The State shall not discriminate

against, or grant preferential treatment to, any individual or group on the basis of

race, sex, color, ethnicity, or national origin in the operation of public

employment, public education, or public contracting.” The practical effect of

Proposition 209 was to eliminate race-based and gender-based affirmative action

programs in public employment, education, and contracting in the State of

California. The U.S. Court of Appeals for the Ninth Circuit has uniformly rejected

claims that Proposition 209 is unconstitutional. See Coal. to Defend Affirmative

Action v. Brown, 674 F.3d 1128 (9th Cir. 2012) (upholding the Court of Appeals’

earlier opinion Coal. for Econ. Equity v. Wilson, 122 F.3d 692 (9th Cir. 1997)).

II. The Council for Education

      A. Articles of Incorporation and Bylaws

      In May 2006 Mr. Huggins organized petitioner as a California nonprofit

mutual benefit corporation “to investigate academic fraud.” Petitioner’s articles of

incorporation were amended in June 2009 to state in relevant part:

      This corporation is a nonprofit public benefit corporation and is not
      organized for the private gain of any person. It is organized under the
      Nonprofit Public Benefit Corporation Law for public and charitable
      purposes. The specific purpose of the corporation is to advocate for
      the legal rights of an unrepresented charitable class of federal student
                                          -6-

      [*6] loan recipients, and lenders of the Federal Family Education
      Loan Program (FFEL): 1.) Investigate State Administered Student
      Loan Programs on improprieties under the guidelines of the Higher
      Education Act1 ; 2.) Litigate for collateral restitution; 3.) Commission
      a public report on institutional misconduct; 4.) Reimburse members
      of the charitable class, and FFEL Lenders under the National
      Lenders’ Assurance Program Center (NLAPC).[5]
             1
                 Title 20 U.S.C. §§ 1082(o)

      The administrative record includes two sets of bylaws for petitioner. The

bylaws generally state that petitioner will investigate and report fraudulent

activities relating to student loan programs, advocate for student loan recipients,

and enforce DOE accreditation standards for all students regardless of race or

ethnicity.

      B. Petitioner’s Administrative Complaints and Lawsuits

      On September 8, 2006, petitioner filed an administrative complaint with the

District of Columbia Department of Consumer and Regulatory Affairs alleging

that the American Civil Rights Institute (ACRI) and the American Civil Rights




      5
       The Federal Family Education Loan Program (FFELP), established under
Part B of the Higher Education Act of 1965, see 20 U.S.C. secs. 1071-1087-4
(2006), comprises certain student loan programs administered by DOE, see 34
C.F.R. sec. 682 (2010). For a detailed description of the relationships between
DOE, private lenders, and “Guaranty Agencies”, see United States ex rel. Vigil v.
Nelnet, Inc., 639 F.3d 791, 794-795 (8th Cir. 2011).
                                          -7-

[*7] Coalition (ACRC)6 failed to comply with certain regulations governing tax

exempt organizations. The complaint was referred to the Office of the District

Attorney for Sacramento, California. The district attorney subsequently informed

petitioner that ACRI and ACRC officials were guilty of nothing more than an

oversight in failing to pay required fees and in filing documents, and there was

insufficient evidence to warrant filing a criminal complaint.

      In December 2006 petitioner filed an administrative complaint concerning

ACRI and ACRC with the IRS and the U.S. Department of Justice. The IRS

informed petitioner that disclosure of any action that it might take against ACRI or

ACRC would be prohibited.7

      In February 2007 petitioner filed a request under the Freedom of

Information Act with the U.S. Department of State requesting a report on the

number of students from Canada, China, Hong Kong, South Korea, Singapore, and

Taiwan that were issued visas between 1995 and 2005 to attend a college or

university in California. The Department of State informed petitioner by letter that

it did not maintain statistics for student visas by State or by academic institution.


      6
       The record suggests that Mr. Connerly organized ACRI and ACRC in part
to promote Proposition 209.
      7
        The record does not reflect whether the Department of Justice acted on
petitioner’s information.
                                         -8-

[*8] In March 2007 petitioner filed an administrative complaint with the UC

Academic Senate (UCAS). UCAS’ attorney wrote a letter to petitioner stating

that, much like a complaint that Mr. Huggins had filed with the UCSB Academic

Senate in 2002, petitioner’s complaint was defective because it was not limited

solely to UCAS members and it did not specify the provisions of the Faculty Code

of Conduct that each individual allegedly violated.

      In April 2007 petitioner authorized “Special Committee 1868”8 to gather

evidence in support of a complaint alleging that Mr. Connerly (1) was acting as an

unregistered foreign agent in violation of 18 U.S.C. section 951, (2) abused his

position as a member of the board of regents by failing to disclose (a) that he had a

personal financial interest in matters pending before the board, and (b) that he was

affiliated with members of the California Civil Rights Initiative, and (3) organized

ACRC and ACRI to deceive California voters and cause them to support activities

of a foreign Government. In October 2007 Special Committee 1868 allocated

funds to hire attorneys and an expert witness.




      8
       The administrative record does not include any information regarding
Special Committee 1868 such as the composition of its membership, the members’
individual qualifications, or a general description of its operations.
                                         -9-

[*9] In January 2008 petitioner’s attorney, Alexander F. Annett, sent a letter to

the IRS Whistleblower Office identifying potential discrepancies in respect of

amounts that ACRC, ACRI, and a third entity, the American Civil Rights

Foundation (ACRF), reported that they paid to Mr. Connerly in Forms 990, Return

of Organization Exempt From Income Tax, for 2004, 2005, and 2006. At the same

time, Mr. Annett sent a letter to the District of Columbia Office of Tax and

Revenue stating that ACRC and ACRI apparently failed to apply for exemption

from District of Columbia income and franchise tax.9

      In July 2008 petitioner’s attorney, Lewis P. Rhodes, requested that the

California attorney general provide access to former Governor Pete Wilson’s

records of meetings with members of the board of regents during the summer of

1995 and “all documents reflecting communication between Ward Connerly and

other members of the Regents.” The attorney general’s office informed petitioner

that any such records had been transferred to the State archives and were not

available for disclosure pursuant to State law.

      In January 2009 petitioner filed an administrative complaint with the

California Fair Political Practices Commission (CFPPC) alleging that Mr.

      9
       The administrative record does not reflect whether the IRS or the District
of Columbia Office of Tax and Revenue acted on the information contained in Mr.
Annett’s letters.
                                         -10-

[*10] Connerly violated the California Political Reform Act of 1974 by failing to

(1) register as a lobbyist in connection with his efforts to promote Proposition 209,

(2) sign ACRC campaign statements in his capacity as “chairman”, and (3) file a

“statement of economic interests” with the board of regents before it voted on

July 20, 1995, to amend UC’s admissions policies. CFPPC informed petitioner

that the alleged violations described in its complaint were “beyond the five-year

statute of limitations for commencing an administrative action and there are no

facts alleged or evidence presented that would allow for the tolling of the statute

of limitations.”

      In June 2009 petitioner (acting through Mr. Huggins) filed a lawsuit in

Federal District Court, assigned docket No. 2:09-CV-01503 FCD (EFB) against

the California attorney general, CFPPC, IRS, DOE, and Connerly & Associates

Inc. The complaint stated that petitioner was representing the interests of FFELP

and alleged that the California attorney general was acting as a private attorney for

Mr. Connerly and had improperly impeded petitioner’s investigation into Mr.

Connerly’s, ACRC’s, and ACRI’s misconduct. On July 28, 2009, petitioner (with

Mr. Huggins joining the suit as a plaintiff in his individual capacity) filed a first

amended complaint identifying only IRS and DOE as defendants. Consequently,

the remaining defendants were effectively dismissed from the action. The
                                         -11-

[*11] amended complaint included a request that the court issue an order directing

DOE “to remove the federal offset against Harold Huggins, and cease any and all

loan collection activities”. In March 2010 Rickie Ivie entered his appearance as

counsel for petitioner and Mr. Huggins, and in May 2010 the parties to the suit

entered into a stipulation (approved by the court) that, in the event the plaintiffs

failed to file an amended complaint within 30 days, IRS and DOE would be

dismissed from the suit with prejudice. The action ended when petitioner and Mr.

Huggins failed to file a timely amended complaint.

III. Administrative Proceedings

      A. Petitioner’s Application for Exemption

      On August 11, 2008, petitioner filed with respondent Form 1023,

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

Revenue Code. Petitioner’s application includes a narrative description of its

various administrative complaints and litigation activities described above.

Petitioner did not attach any newsletters, brochures, or similar documents

describing its charitable purpose as directed in part IV of Form 1023.

      Petitioner’s application included (1) a cover sheet and a table of contents for

a proposal from EMS, Inc., to provide “Inbound Support Services” for petitioner,

and (2) several certificates of registration issued by the U.S. Copyright Office in
                                         -12-

[*12] respect of written works attributed to petitioner and identified as “Academic

Senate Complaint”, “Noncompliance Regents Complaint”, and “A Resolution

before the Regents of the University of California”.

      B. Respondent’s First Request for Information

      On March 9, 2009, respondent requested that petitioner provide additional

information in support of its application including a detailed description of its

activities and charitable purpose. Mr. Huggins responded to respondent’s request

by letter dated April 20, 2009, stating in relevant part:

      Response to Question Nos. 1, 2, 3 & 5: As the Director of the Council
      for Education (“Council”), my objective is to advocate for the legal
      rights of an unrepresented charitable class of federal student aid loan
      recipients. Investigate state administered financial student aid
      institutions, and to litigate for compensation the misappropriation of
      those federal loans used other than for educational purposes. (e.g.
      political activities).

In describing petitioner’s charitable purpose, Mr. Huggins listed the various

administrative complaints and the lawsuit it filed in Federal District Court,

summarized above. He also mentioned that petitioner retained (1) the law firm of

Patton & Boggs, LLP, to perform a forensic tax analysis of ACRC and ACRI, and

(2) a witness with a Ph.D. in education to determine whether UC faculty members

collaborated with Mr. Connerly in violation of the academic criteria standards of

WASC.
                                      -13-

[*13] Mr. Huggins further stated:

      A.    The passage of California Proposition 209 in 1996, an
            initiative chaired by Regent Ward Connerly (i.e.
            California Civil Rights Initiative) amendments [sic] the
            California Constitution to include the phrase
            “preferential treatment,” and thereby is in conflict with
            the federal U.S. constitution to the fourteenth
            Amendment. The amended state constitution removed
            U.S. Citizen[s]. After passage of the proposition, the
            state increased the rate of Chinese and South Korean
            graduate[s] in the scientific fields of engineering from
            top tiered public schools in California and Michigan.
            And, thus, an increase in the number of Chinese
            graduates from U.S. Colleges & Universities is the
            objective of Chinese covert undercover operations in the
            United States facilitated by the activities of Ward
            Connerly, and his tax exempt organizations.

      B.    Statistical data obtained from the U.S. State Department
            on the number of foreign student admissions of Chinese
            and South Korean student enrolment [sic] supports my
            thesis of a disproportional rate increase as compared to
            domestic rate admissions.

      C.    Documents and analysis supporting my thesis is
            furthered [sic] described in an unpublished manuscript.

Among the attachments to Mr. Huggins’ response was an engagement letter from

Dorrance Publishing Co., Inc., addressed to Mr. Huggins and petitioner, regarding

an agreement to publish Mr. Huggins’ manuscript entitled “China Report:

Undercover Operations in US Colleges and Universities.”
                                         -14-

[*14] Mr. Huggins indicated in his response that the only expenses petitioner

incurred and expected to incur for 2008, 2009, and 2010 were professional fees

(e.g., litigation expenses) of $98,567.08, $108,330.21, and $101,340.69,

respectively. He also stated that petitioner held a “loan receivable” of

$179,590.34 and included a “Line Of Credit Agreement” indicating that petitioner

intended to borrow $395,000 from ISISCOM, LLC.10

      C. Respondent’s Second Request for Information

      On May 29, 2009, respondent requested additional documents and

information from petitioner including a current list of petitioner’s officers and

board members and a copy of petitioner’s retainer agreement with Patton &

Boggs, LLP, along with a detailed description of the work the law firm completed

for petitioner. Mr. Huggins responded by letter dated June 8, 2009, repeating

allegations that Mr. Connerly was guilty of misconduct in promoting Proposition

209 and informing respondent that petitioner recently filed a lawsuit in Federal

District Court.




      10
       The record indicates that petitioner and ISISCOM, LLC, share the same
business address and that Mr. Huggins is the managing member of the latter.
                                         -15-

[*15] D. Respondent’s Third Request for Information

      By letter dated July 13, 2009, respondent requested that petitioner provide,

inter alia, (1) an explanation whether Proposition 209 is the focus of petitioner’s

activities, (2) an explanation of the relationship between petitioner’s exempt

activities and Mr. Connerly, ACRI, and ACRC, (3) additional information about

the “unrepresented charitable class” referred to in petitioner’s amended articles of

incorporation, (4) additional details regarding its plans to engage in litigation for

“collateral restitution” including whether the law firms engaged in such litigation

will receive a percentage of any monetary awards, and (5) a description of

petitioner’s plans to reimburse members of the charitable class and FFELP lenders

under the National Lenders’ Assurance Program. Respondent again requested that

petitioner provide a current list of its officers and board members.

      Mr. Huggins responded by letter dated July 16, 2009, attaching some of the

pleadings and other documents that he and petitioner filed in Council for Educ. v.

Cal. Att’y Gen., No. 2:09-CV-1503 (E.D. Cal. filed June 1, 2009), a copy of a

letter from Patton & Boggs, LLP, indicating that the firm would no longer

represent petitioner until its outstanding legal fees were paid in full, and a copy of

a letter from the California Government Claims Program addressed to petitioner’s

attorney, Mr. Ivie, acknowledging receipt of petitioner’s application for a
                                        -16-

[*16] “Government Claim”.11 Finally, Mr. Huggins referred respondent to a

provision in petitioner’s bylaws stating: “The appointment of a Board of Directors

shall commence ninety 90 days after the Corporation is fully funded and is able to

pay each board member an annual salary to be determined through negotiations by

the appointed Director.”

      E. Respondent’s Fourth Request for Information

      By letter dated July 31, 2009, respondent requested additional information

from petitioner including a detailed description of its plans to investigate and

report instances of academic fraud related to federally guaranteed student loans.

Respondent also requested copies of any brochures, pamphlets, newsletters,

advertisements, or any other literature regarding petitioner.

      On August 3, 2009, Mr. Huggins sent a series of facsimile transmissions to

respondent and included a copy of the Form 1024, Application for Recognition of

Exemption Under Section 501(a), and related documents, that ACRC submitted to

the IRS in 1997. By letter dated August 11, 2009, Mr. Huggins informed

respondent that, in accordance with its mission statement, petitioner commissioned

a report on the practical effects of Proposition 209, focusing on admission and


      11
      The administrative record does not disclose the disposition of petitioner’s
“Government Claim”.
                                         -17-

[*17] graduation rates for African American students enrolled at UC. The letter

was accompanied by (1) a report prepared by Dr. Dawn Person, dated June 26,

2008, discussing the impact of Proposition 209 on African American students and

(2) a written exchange between Mr. Huggins and Ryan Azlein of Stubbs,

Alderston & Markiles, LLP, regarding a proposed retainer agreement under which

Mr. Azlein would assist with an otherwise unidentified private offering of

securities.

      F. Respondent’s Fifth Request for Information

      On August 12, 2009, respondent requested that petitioner provide the

following information:

      1.      Please provide a detailed business plan for the next 2
              years.

      2.      Please explain how you will gather public support for
              your advocacy programs.

      3.      How will the population you intend to serve be made
              aware of your services? Please explain and provide
              specific examples.

      4.      Please explain your relationship with Isecom LLC.

      5.      Please provide a complete copy of the report
              commissioned by you in 2008.

      6.      How many are represented in the class action?
                                        -18-

[*18] 7.     Documents submitted August 3, 2009 indicate “the
             petitioner moves the court to order the U.S. Department
             of Education to remove the federal offset against Harold
             Huggins and cease any and all loan collections
             activities.” Explain how this activity is exempt under
             Section 501(c)(3).

      8.     The instruction of the public by recognized educational
             methods on controversial subjects may qualify for
             exempt status. On the other hand, the mere presentation
             of unsupported opinion is not “educational.”
             (1.501(c)(3)- 1(d)(3) of the Income Tax Regulations).
             Using enclosed revenue ruling, explain your organization
             is educational within the meaning of 501(c)(3). (See
             enclosed Revenue Ruling 68-263).

      9.     Provide detailed examples of student loan fraud that you
             will investigate.

      In a letter to respondent dated September 14, 2009, Mr. Huggins stated that

many of respondent’s questions should be reviewed “in consensus with the

Assistant United States Attorneys”, citing questions 2, 3, 6 and 9, quoted above.

Mr. Huggins also stated that petitioner would modify its Web site “to reflect that

the Council for Education is a nonprofit, litigation, organization, contributions

received will be used for professional attorney fees, research consultants, and

professional staff in support thereof enforcing the audit provisions of the Higher

Education Act by means of judicial opinion review.”
                                       -19-

[*19] On October 2, 2009, Mr. Huggins submitted a further response to

respondent’s letter dated August 3, 2009, as follows:

      1.    Response to Question No. 1: CforEd is in the process of
            retaining an outside consultant to write a Business Plan;

      2.    Response to Question No. 2: CforEd will gather public
            support through the filings of legal pleadings in federal
            courts designed to enforce the academic criteria
            standards mandated by Congress under the provisions of
            the Higher Education Act which is enforced by those
            academic institutions;

      3.    Response to Question No. 3: The public will benefit
            through greater transparency of those academic
            institutions. According to a U.S. Department of
            Education study, 41 percent of low-income students
            entering a post secondary college managed to graduate
            within five years as compared [to] 66 percent of high-
            income students. CforEd is an advocate for universally
            recognized blind academic evaluations through the use
            of electronic machines, rather than individual grader;

      4.    Response to Question No. 4: IsisCom, LLC., is CforEd’s
            underwriter. I presently serve as ISISCOM, LLC.,
            manager,

      5.    Response to Question No. 5: Read herein enclosed
            attachment Exhibit “A”;

      6.    Response to Question No. 6: The commissioned
            researched and federal court system will determine the
            likely class action status;
                                        -20-

[*20] 7.    Response to Question No. 7: The goal of the legal
            proceedings in Council v U S Department of Education,
            et al., is to provide temporary debt relief until the final
            disposition of an administrative review process;

      8.    Response to Question No. 8: Unsupported opinions are
            those court pleadings (i.e. Revenue Ruling 68-263, 1968-
            1 CB 256) filed before a judicial judge for review, thus,
            the unsupported opinion becomes a supported judicial
            opinion upon review thereafter by the federal judge; and

      9.     Response to Question No. 9: An example of student
             loan fraud is the awarding of student grades on the
             bases of social economics rather than academic
             standards as recognized by those academic accreditation
             institutions (i.e. Western Association of Schools and
             Colleges, and Council for Higher Education
             Accreditation).

             a. Ethic violations of collusion regarding a conflict of
             interest between a student and faculty member, where
             said faculty member has a financial, quid quo pro,
             economic benefit (i.e. failure to remove one self from
             the decision process constitutes a violation);

             b. A violation of a student’s legal right to an academic
             appeal regarding an instructor’s evaluation therefore
             constitutes a violation.

IV. Respondent’s Preliminary Determination and the Appeals Process

      On May 25, 2010, respondent issued a preliminary determination

concluding that petitioner (1) was not organized or operated exclusively for an

exempt purpose within the meaning of section 501(c)(3), and (2) was operated
                                          -21-

[*21] primarily to serve Mr. Huggins’ private interests. Petitioner appealed

respondent’s preliminary determination, asserting that it was engaged in education

activities that served an exempt purpose within the meaning of section 501(c)(3).

      During the appeal process, Mr. Huggins sent a letter to the Appeals Office

stating that petitioner provides educational materials to college applicants

informing them of colleges and universities with high student attrition rates, with

the aim of reducing the risk of default on Federal student loans, and that petitioner

advocates on behalf of Federal student loan recipients through litigation intended

to protect individual civil rights. Mr. Huggins did not produce any educational

materials such as pamphlets or newsletters. The Appeals Office concluded that

petitioner was not operated for an exempt purpose.

V. Respondent’s Final Determination

      As indicated, respondent issued to petitioner a final notice of determination

denying its application for exemption under section 501(c)(3). The notice states

that petitioner failed to show that (1) its activities are educational within the

meaning of section 1.501(c)(3)-1(d)(3)(1), Income Tax Regs., and (2) it is

operated exclusively for an exempt purpose.
                                          -22-

[*22]                                 Discussion

        Section 501(a) provides in relevant part that an organization described in

section 501(c)(3) (including a corporation) shall be exempt from Federal income

tax unless exemption is denied under section 502 or 503. To qualify as an exempt

organization described in section 501(c)(3), a corporation generally must

demonstrate that (1) it is organized and will operate exclusively for religious,

charitable, scientific, educational, or other specified exempt purposes; (2) no part

of its net earnings will inure to the benefit of a private shareholder or individual;

(3) no part of its activities constitutes intervention or participation in any political

campaign on behalf of any candidate for public office; and (4) no substantial part

of its activities consists of political or lobbying activities. Am. Campaign Acad. v.

Commissioner, 92 T.C. 1053, 1062 (1989).

        Qualification as a corporation described in section 501(c)(3) not only

provides an exemption from Federal income tax, but also generally permits the

corporation to solicit and accept donations which normally are deductible by the

donor against his or her Federal income tax. See sec. 170(c); Bob Jones Univ. v.

United States, 461 U.S. 574, 578 (1983).

        Section 1.501(c)(3)-1(b)(1)(i), Income Tax Regs., provides that an

organization is “organized exclusively” for one or more exempt purposes only if
                                          -23-

[*23] its articles of organization (1) limit the purposes of such organization to one

or more exempt purposes and (2) do not expressly empower the organization to

engage, otherwise than as an insubstantial part of its activities, in activities which

in themselves are not in furtherance of one or more exempt purposes.

      Respondent’s notice of determination does not refer to whether petitioner is

organized exclusively for an exempt purpose, and the matter is not addressed in

respondent’s answer to the petition as amended. Under the circumstances,

respondent is deemed to have conceded that petitioner was organized exclusively

for an exempt purpose.

      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 the exempt purposes specified in section 501(c)(3) (i.e., religious,

charitable, scientific, testing for public safety, literary, or educational purposes).

Sec. 1.501(c)(3)-1(c)(1), Income Tax Regs. An organization will not be so

regarded if more than an insubstantial part of its activities is not in furtherance of

an exempt purpose, see id., or if the organization operates for the benefit of private

interests such as designated individuals or the creator of the organization, see sec.

1.501(c)(3)-1(d)(1)(ii), Income Tax Regs.
                                         -24-

[*24] Respondent asserts that petitioner failed to show that it is operated

exclusively in furtherance of a charitable or educational purpose and that, in fact,

its activities serve Mr. Huggins’ private interests. Petitioner maintains that its

litigation activities accomplish a charitable purpose--promoting social welfare--by

defending human and civil rights secured by law.

      The term “charitable” in section 501(c)(3) is used in its generally accepted

legal sense and includes activities such as relief of the poor or the underprivileged;

advancement of religion, education, or science; lessening the burdens of

Government; and promotion of social welfare, including eliminating prejudice and

discrimination and defending human and civil rights. Sec. 1.501(c)(3)-1(d)(2),

Income Tax Regs. The fact that an organization, in carrying out its primary

purpose, advocates social or civic changes or presents opinion on controversial

issues does not preclude the organization from qualifying under section 501(c)(3)

so long as it is not an action organization of any one of the types described in

paragraph (c)(3) of section 1.501(c)(3)-1, Income Tax Regs. Id.12

      The Commissioner recognizes that some organizations that provide legal

services or engage in litigation may serve a charitable purpose within the meaning

      12
       Respondent does not contend that petitioner is an action organization (i.e.,
an organization that attempts to influence legislation or participates in a political
campaign) within the meaning of sec. 1.501(c)(3)-1(c)(3), Income Tax Regs.
                                         -25-

[*25] of section 501(c)(3). A review of IRS administrative rulings shows that the

Commissioner has granted tax-exempt status to legal services organizations

including: (1) legal aid societies that provide free or subsidized legal services to

indigent or low-income persons, see Rev. Rul. 69-161, 1969-1 C.B. 149; (2)

organizations that assist individuals or groups in litigation to protect human and

civil rights, see Rev. Rul. 73-285, 1973-2 C.B. 174 (discussing the exempt status

of an organization that provided funds to defend members of a religious sect in

legal actions involving substantial constitutional issues);13 (3) so-called public

interest law firms--organizations that employ in-house attorneys to provide legal

representation to individuals or groups in respect of matters of broad public

interest, see Rev. Proc. 92-59, 1992-2 C.B. 411 (providing general guidelines for

public interest law firms); and (4) organizations that act as the party-plaintiff in

administrative and judicial proceedings to enforce Federal and State laws for the

benefit of the general public, see Rev. Rul. 80-278, 1980-2 C.B. 175 (discussing

the exempt status of an organization that filed suit against a local manufacturer

and the State environmental protection agency for the purpose of enjoining the




      13
       To the same effect, see Rev. Rul. 68-438, 1968-2 C.B. 209, discussing the
exempt status of an organization that worked with trade associations for the
purpose of encouraging compliance with civil rights laws.
                                         -26-

[*26] manufacturer from continuing to emit certain air contaminants and to require

the State agency to enforce applicable laws).

      Petitioner contends that it will act as an advocate for Federal student loan

recipients and for FFELP lenders, investigate State-administered student loan

programs for improprieties, seek restitution through litigation, commission a

public report on institutional misconduct, and reimburse “members of the

charitable class”. Although these objectives are matters that would engender a

broad public interest, we cannot say on the basis of this record that petitioner has

been or will be operated in a manner that will further a charitable purpose.

      Mr. Huggins undoubtedly believes he was mistreated by faculty and other

officials at UCSB and that his inability to complete his studies at UCSB is

attributable in large part to Mr. Connerly and his efforts in support of Proposition

209. Seeking redress, Mr. Huggins embarked on what is best described as a

quixotic quest for relief, filing numerous lawsuits, without the assistance of an

attorney. As previously discussed, those lawsuits were dismissed primarily as a

result of his failure to state a claim. Many of his filings were frivolous or

groundless, leading the Federal District Court to declare him a vexatious litigant.

      Undeterred, Mr. Huggins organized petitioner and filed another lawsuit,

similar in many respects to those that preceded it, targeting not only Mr. Connerly,
                                        -27-

[*27] but also the California attorney general, CFPPC, IRS, and DOE. Much like

Mr. Huggins’ earlier lawsuits, this action was dismissed when petitioner failed to

file a proper amended complaint within the time prescribed in a stipulation

approved by the court.

      This Court has previously held that, where an individual creates and

controls the affairs of an organization seeking tax-exempt status, there is an

obvious opportunity for abuse, which necessitates an open and candid disclosure

of all facts bearing upon the organization and its operations and finances so that

the Court can be assured that by granting the claimed exemption it is not

sanctioning an abuse of the revenue laws. Bubbling Well Church of Universal

Love, Inc. v. Commissioner, 74 T.C. 531, 535 (1980), aff’d, 670 F.2d 104 (9th Cir.

1981); see Levy Family Tribe Found., Inc. v. Commissioner, 69 T.C. 615, 618-619

(1978). Where such 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). Bubbling Well Church of Universal Love, Inc. v. Commissioner, 74

T.C. at 535. As discussed below, many of petitioner’s responses to respondent’s

requests for information were less than open and candid, particularly responses

relating to its operations and finances, leading the Court to conclude that the
                                          -28-

[*28] undisclosed facts would show that petitioner fails to satisfy the requirements

of section 501(c)(3).

      Petitioner has not adopted an operating structure or procedures necessary to

ensure that its activities are properly focused to further its alleged charitable

purpose. Prominent among petitioner’s shortcomings are the lack of a formal

business plan and an independent board of directors to provide operational

guidance and oversight.14 See P.L.L. Scholarship Fund v. Commissioner, 82 T.C.

196, 200 (1984) (discussing the importance of an independent board of directors).

Mr. Huggins is not an attorney, and he appears to lack any formal training or

experience in either the practice of law, business administration, or the operation

of a charitable organization; yet he is acting as petitioner’s sole officer, director,

and employee. To be blunt, we are not persuaded that Mr. Huggins has

demonstrated the legal skills or business acumen needed to conduct petitioner’s

operations to achieve its charitable purpose or to further the public good.


      14
         Mr. Huggins informed respondent that petitioner would not appoint a
board of directors until it has the funds to pay the board members for their
services. There is no indication whether Mr. Huggins considered the possibility of
populating the board of directors with individuals willing to volunteer their
services. Moreover, although petitioner informed respondent that its litigation
activities were directed by Special Committee 1868, the administrative record
does not include any information regarding the composition of its membership,
their individual qualifications, or the group’s activities.
                                         -29-

[*29] The administrative record likewise is devoid of any evidence that petitioner

has adopted any formal policies governing its day-to-day operations including

such critical matters as proper financial and accounting controls, the amount of

Mr. Huggins’ compensation, acceptable compensation arrangements with outside

attorneys, and oversight of litigation practices and strategies. In the light of these

substantial deficiencies, we cannot say that petitioner will be operated in

furtherance of a charitable purpose within the meaning of section 501(c)(3).

      We also would be hard pressed to say that petitioner’s operations do not

more than incidentally further Mr. Huggins’ private interests. We note that the

lawsuit that petitioner and Mr. Huggins jointly filed against IRS and DOE not only

was substantially similar to the earlier lawsuits that Mr. Huggins filed in his

individual capacity, but also included a request for a court order directing DOE to

terminate its efforts to collect Mr. Huggins’ personal student loan debt. See

generally Nationalist Movement v. Commissioner, 102 T.C. 558, 574-575 (1994),

aff’d, 37 F.3d 216 (5th Cir. 1994).15


      15
         Insofar as petitioner contends that it will operate to serve an educational
purpose, we note that petitioner failed to provide respondent with any pamphlets,
flyers, or other written material representative of its educational activities. In
addition to the shortcoming discussed above, in the absence of such material we
are unable to evaluate petitioner’s claim that its educational activities achieve an
exempt purpose within the meaning of sec. 501(c)(3).
                                   -30-

[*30] To reflect the foregoing,


                                          Decision will be entered

                                  for respondent.
