                         T.C. Memo. 1999-166



                       UNITED STATES TAX COURT



                   TAMAKI FOUNDATION, Petitioner v.
             COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 23089-96X.                 Filed May 18, 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, and

he was retained by Donald Tamaki to form for him a tax-exempt

foundation.   Mr. Tully organized a corporation named "Tamaki

Foundation" (petitioner herein).   Petitioner's officers are Mr.

Tully (vice president), Mr. Tamaki (president), and Mr. Tamaki's

wife, Mary (secretary and treasurer).    These officers also 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

the corporation.   The articles state that petitioner's primary

purpose is "TO PROVIDE FINANCIAL ASSISTANCE TO THE NEEDY."   The

bylaws state that petitioner's primary 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."
                              - 3 -


     On April 7, 1994, 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) Supplying money,

goods or services to the poor, (2) providing services for the

aged, and (3) providing aid to the handicapped.        The information

that petitioner provided to the Commissioner on and with the

application was vague as to the specifics of these activities.

The application stated generally:

     The primary objective of the foundation is to be able
     to offer financial assistance, mostly in the form of
     actual credit for food or clothing, and/or cash where
     required, all on a professional approach, to those
     persons in immediate need. We define those in
     immediate need as those who are homeless, sick, or
     under severe financial hardship due to circumstances
     beyond their control.

          Further, we define the term immediate need as
     those who's [sic] need is temporary, as verses [sic]
     that of a more longer term need.

The application indicated that petitioner had not currently begun

any activity, except for organizational activities, and that

petitioner was not going to begin operating until after the

Commissioner recognized it as tax exempt.       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 * * *

                *    *    *    *      *     *      *
                               - 4 -


          (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

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

     On June 14, 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 or about August 5, 1994, petitioner mailed the

Commissioner a response to his letter.   The response 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.
                               - 5 -


     On September 20, 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

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

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

     "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 September 20, 1994.

This response was no more informative than the prior response as
                                - 6 -


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

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.    Approximately 1 month later, Mr. Tully, in his

capacity as petitioner's vice president, notified the

Commissioner that petitioner 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.

Shortly after this meeting, petitioner filed with the

Commissioner an amended Form 1023.      As amended, petitioner's Form

1023 stated:

     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 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.
                               - 7 -


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

operations, including the manner in which petitioner would effect

its amended primary purpose.   The amended 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 petitioner's vice president,

explaining that petitioner had not yet described its operations

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 amended Form 1023.

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

Commissioner's letter of April 9, 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.
                               - 8 -


          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):

          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
                                - 9 -


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

to carry its burden, respondent will prevail.      See   American Pipe

& Steel Corp. v. Commissioner, 243 F.2d 125, 126 (9th Cir. 1957),

affg. 25 T.C. 351 (1955); Rockwell v. Commissioner, 512 F.2d 882,

885 (9th Cir. 1975), affg. T.C. Memo. 1972-133; Estate of Gilford

v. Commissioner, supra at 51.

     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
                               - 10 -


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.

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
                               - 11 -


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

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
                              - 12 -


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

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 Larry D.

Bowen Family Found. v. Commissioner, T.C. Memo. 1999-149, wherein

we reached the same result based on an administrative record that

was virtually identical to the administrative record at hand; as



     1
       Petitioner's representative, Mr. Tully, is no stranger to
litigation. 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 -


is true with the case here, Mr. Tully also formed the corporation

in Larry D. Bowen Family Found. and was its representative before

this Court.   Accordingly,

                                        Decision will be entered

                                   for respondent.
