                        T.C. Memo. 2000-318



                      UNITED STATES TAX COURT



THE NATIONALIST FOUNDATION, A MISSISSIPPI NON-PROFIT CORPORATION,
   Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 14871-98X.                   Filed October 11, 2000.



     Richard Barrett, for petitioner.

     Joan Ronder Domike, for respondent.


                        MEMORANDUM OPINION

     COHEN, Judge:   Respondent determined that The Nationalist

Foundation (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 issues for decision
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are whether petitioner operates exclusively for charitable and/or

educational purposes and whether the Commissioner treated

petitioner differently from other similarly situated

organizations in violation of petitioner’s due process and equal

protection rights under the 5th and 14th Amendments to the

Constitution.   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

     The administrative record, which includes all of the facts

upon which the Commissioner made the final adverse determination,

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

incorporated herein by this reference.

     Petitioner is a nonprofit Mississippi corporation with its

principal office in Jackson, Mississippi.   Petitioner’s articles

of incorporation, filed on March 25, 1996, list Vince Thornton

and Dan Daniels as incorporators and Richard Barrett (Barrett) as

registered agent.   Barrett is also serving as counsel to

petitioner in this action.   Wendell Garner replaced Barrett as

registered agent on or around October 30, 1997.

     On Form 1023, Application for Recognition of Exemption Under

Section 501(c)(3) of the Internal Revenue Code, petitioner stated

that its principal activities are:
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     Conducting forums to discuss Constitutional rights’
     issues, stressing the First Amendment; conducting
     public access cable television and internet programs
     featuring guests, interviews and documentaries on
     current issues stressing the use of lawful, peaceful
     and positive means to achieve democratic ends.

     Conducting litigation (or amicus curiae) to lessen the
     burdens of government under the “private attorney
     general” method to secure and advance civil,
     constitutional and First Amendment rights.

According to petitioner, “private attorney general” means that

“citizens assist in enforcement of the laws, saving the

government time and expense of doing so, such as by private

litigation”.    Petitioner’s constitution states that it shall be a

nonprofit charitable and educational organization dedicated to

advancing American freedom, American democracy, and American

nationality.

     Petitioner seeks to become the legal and educational arm of

rightist and promajority Americans.     Petitioner states, in a

letter soliciting donations from the public, that it will use the

courts to bring “terrorists” who attack promajority demonstrators

to justice.    The letter cites two examples of events where

petitioner would bring litigation using the “private attorney

general” technique:

          In Simi Valley, self-described communists
     advertised in the newspaper that they would kill
     patriots assembled to thank the jury that acquitted
     Officers Koon and Powell (Police officers accused of
     beating Rodney King).
                               - 4 -


          In New Hampshire, avowed homosexuals advertised
     that they would attack patriots calling for abolishing
     the * * * [Martin Luther King, Jr.] Holiday. It took
     massive intervention by riot police to back them off.

Both of these events were assemblies organized by Barrett, in

which promajority demonstrators were attacked by

counterdemonstrators.   Petitioner also plans to file amicus

curiae briefs in cases involving the First Amendment rights of

promajority-minded Americans and to use 42 U.S.C. sec. 3604(e) as

an antiblockbusting law to “save” neighborhoods by suing incoming

minorities.

     Petitioner will use the internet to conduct seminars for

teaching skills for more effective social action.    The

administrative record contains a transcript from only one

seminar, which was conducted February 18, 1997.    The seminar,

recounted on the website of petitioner, gives students

instruction on how to advocate peacefully without violating laws

pertaining to hate crimes, housing violations, harassment, and

racketeering.   Petitioner’s home page also contains links to

other articles entitled “Constitutional Protection”, “Educational

Outreach”, “Nationalist Ideology”, “Private Attorney-General”,

“Pro-Democracy Methodology”, “Relief for the Poor”, and “Using

the First Amendment as Democracy’s Shield and Sword”.      The

administrative record, however, does not contain copies of these
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articles despite attempts by the Commissioner to obtain them from

petitioner.

     Petitioner allocates its time in the following manner:

     Internet seminars and preparation               15%
     Researching legal and educational issues        20%
     Website setup and maintenance                   25%
     Administration, correspondence,
        record keeping                               30%
     Meetings and conferences                        10%

The actions of petitioner are designed to counteract the work of

organizations such as the NAACP Legal Defense Fund, Inc., and the

American Civil Liberties Union.    Petitioner characterizes these

groups as “the leftist threat to our liberties”.

     Petitioner’s donation solicitation material contains several

distortions of fact.   Petitioner’s statement, in its solicitation

letter, that “avowed homosexuals advertised that they would

attack patriots” was fabricated from a newspaper article that

reads “Members of the National Peoples Campaign plan to shadow

Barrett outside the State House beginning at 8 a.m. to oppose his

ultra-conservative views.    And they are looking for all the

picketers they can get.”    (Emphasis added.)   The same

solicitation letter also claims that petitioner has in its

possession “actual photos of the terrorists in the act of

attacking the Anti-King Rally at the State Capitol.”       Petitioner,

however, has only one photograph of three individuals holding a

banner, which opposes the views of petitioner.     The individuals
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depicted in the photograph are not engaged in any kind of attack

on Barrett or his fellow demonstrators.

     On December 9, 1996, petitioner submitted its Form 1023,

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

of the Internal Revenue Code.   Respondent issued an initial

adverse determination on August 4, 1997.   Petitioner appealed to

the Internal Revenue Service Office of Appeals, which gave a

final adverse determination on June 19, 1998, denying tax-exempt

status to petitioner under section 501(c)(3).   The Commissioner’s

reasons for denial stemmed from the determination that petitioner

has failed to establish that it is operated exclusively for

exempt purposes, that net earnings will not inure to the benefit

of private individuals, and that petitioner will not serve

private interests.   Petitioner challenges that determination in

this action for declaratory judgment.

                             Discussion

     Petitioner bears the burden of proving that it is a section

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

petitioner to meet this burden, 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.    See Nationalist Movement v. Commissioner, 102

T.C. 558 (1994), affd. 37 F.3d 216 (5th Cir. 1994); Church in

Boston v. Commissioner, 71 T.C. 102, 105 (1978).
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     During the administrative proceeding, petitioner attempted

to countermand and withdraw several of its comments, practices,

and activities after the Commissioner determined that these items

would preclude petitioner from qualifying as a section 501(c)(3)

organization.   However, we review the administrative record in

its entirety.

     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, * * *
     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.

Contributions to organizations described in section 501(c)(3) are

generally deductible to donors.   See sec. 170(a)(1).

     To come within the terms of section 501(c)(3), an

organization must be both “organized” and “operated” exclusively

for tax-exempt purposes.   Sec. 1.501(c)(3)-1(a)(1), Income Tax

Regs.   The presence of a single substantial nonexempt purpose

precludes exempt status for the organization, regardless of the

number or importance of exempt purposes.   See Better Bus. Bureau
                               - 8 -


v. United States, 326 U.S. 279, 283 (1945).   The actual purposes

of the organization, not necessarily limited to those purposes

stated in the organizing documents, are the appropriate focus.

See American Campaign Academy v. Commissioner, 92 T.C. 1053, 1064

(1989).

      As stated in the regulations, the “operational test” is as

follows:

      An organization will be regarded as “operated
      exclusively” for one or more exempt purposes only if it
      engages primarily in activities which accomplish one or
      more of such exempt purposes specified in section
      501(c)(3). An organization will not be so regarded if
      more than an insubstantial part of its activities is
      not in furtherance of an exempt purpose. [Sec.
      1.501(c)(3)-1(c)(1), Income Tax Regs.]

Of the exempt purposes listed in section 501(c)(3), petitioner

maintains that it operates for charitable and educational

purposes.

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

generally accepted legal sense and includes, but is not limited

to:

      Relief of the poor and distressed or of the
      underprivileged; advancement of religion; advancement
      of education or science; erection or maintenance of
      public buildings, monuments, or works; lessening of the
      burdens of Government; and promotion of social welfare
      by organizations designed to accomplish any of the
      above purposes, or (i) to lessen neighborhood tensions;
      (ii) to eliminate prejudice and discrimination;
      (iii) to defend human and civil rights secured by law;
      or (iv) to combat community deterioration and juvenile
      delinquency. * * * [Sec. 1.501(c)(3)-1(d)(2), Income
      Tax Regs.]
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     The term “educational” as used in section 501(c)(3) is

defined as the instruction or training of the individual for the

purpose of improving or developing his capabilities or the

instruction of the public on subjects useful to the individual

and beneficial to the community.   An organization may be

educational even though it advocates a particular position or

viewpoint.   See sec. 1.501(c)(3)-1(d)(3)(i), Income Tax Regs.

     Petitioner argues that its activities, which promote free

speech and create forums for the exchange of ideas and

information, are charitable and educational by nature.    The

rationale of petitioner is that freedom of speech is the highest

national priority, and, if freedom is extended to even one group

or individual, all Americans benefit.   Respondent claims that

petitioner has failed to prove that its activities are charitable

and educational within the meaning of section 501(c)(3).

     In order to gain section 501(c)(3) status, a taxpayer must

openly and candidly disclose all facts bearing upon the

organization, its operations, and its finances so that the Court

may be assured that it is not sanctioning an abuse of the revenue

laws by granting a claimed exemption.   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 v. Commissioner, 74

T.C. 531, 535 (1980), affd. 670 F.2d 104 (9th Cir. 1981).
                              - 10 -


     The record is vague and inconsistent concerning the

purported activities of petitioner.    Petitioner has produced only

one transcript of a seminar conducted from its website.    The home

page of petitioner has links to articles entitled “Constitutional

Protection”, “Educational Outreach”, “Nationalist Ideology”,

“Private Attorney-General”, “Pro-Democracy Methodology”, “Relief

for the Poor”, and “Using the First Amendment as Democracy’s

Shield and Sword”, which petitioner has refused to place in the

administrative record.   Also, petitioner has attempted to

countermand and withdraw much of the administrative record, such

that only a skeletal description of its activities would remain

for the Court to examine if we were to allow petitioner to modify

the administrative record.   The reasonable inference from the

record is that petitioner does not meet the requirements of

section 501(c)(3).

     The few activities of petitioner that have been disclosed

fall outside of the definitions of “charitable” and “educational”

under section 501(c)(3).   Section 1.501(c)(3)-1(d)(2), Income Tax

Regs., specifically states that examples of charitable activities

are ones designed “to lessen neighborhood tension” and “to

eliminate prejudice and discrimination.”   Petitioner’s actions

serve the purpose of increasing social activism of promajority

and rightist beliefs and are antithetical to these examples.
                               - 11 -


     In addition, some of petitioner’s materials contain

distortions of fact.    Distortion of facts is the second negative

factor of the methodology test of Rev. Proc. 86-43, 1986-2 C.B.

729, applied by the Commissioner during the administrative

process.    The methodology test is applied to resolve whether a

taxpayer is operated exclusively for educational purposes and

includes:

     1.    Whether or not the presentation of viewpoints

unsupported by a relevant factual basis constitutes a significant

portion of the organization’s communications.

     2.    To the extent viewpoints purport to be supported by a

factual basis, are the facts distorted.

     3.    Whether or not the organization makes substantial use of

particularly inflammatory and disparaging terms, expressing

conclusions based on strong emotional feelings rather than

objective factual evaluations.

     4.    Whether or not the approach to a subject matter is aimed

at developing an understanding on the part of the addressees, by

reflecting consideration of the extent to which they have prior

background or training.

     In Nationalist Movement v. Commissioner, 102 T.C. 558

(1994), affd. 37 F.3d 216 (5th Cir. 1994), this Court addressed

the issue of whether Rev. Proc. 86-43, supra, is constitutional,

which is raised by petitioner in this case.    The taxpayer in
                              - 12 -


Nationalist Movement was an organization whose activities are

very similar to the activities of petitioner.   Barrett served as

the taxpayer’s chairman, treasurer, and attorney in that case.

This Court held that Rev. Proc. 86-43, supra, is not overbroad

and does not violate the 1st and 14th Amendments to the

Constitution.   See id. at 583-589.

     Citing the 5th and 14th Amendments to the Constitution,

petitioner argues that respondent has treated it differently from

other organizations similarly situated, thereby violating its due

process and equal protection rights.    The 14th Amendment provides

that no State shall deny to any person the equal protection of

the laws.   The Fifth Amendment, as applicable to the Federal

Government, has no equal protection clause, but its due process

guarantees incorporate similar principles.   See Regan v. Taxation

with Representation, 461 U.S. 540, 542 n.2 (1983); Bolling v.

Sharpe, 347 U.S. 497, 499 (1954).

     Petitioner moved to compel discovery relating to these

constitutional arguments after the parties had filed the

administrative record with the Court.   Only in very unusual

circumstances and upon good cause shown will the Court permit

either party to supplement the administrative record.   See Rule

217(a); Nationalist Movement v. Commissioner, 37 F.3d 216,

218-219 (5th Cir. 1994), affg. T.C. Memo. 1992-698.   In response

to petitioner’s motion, this Court concluded that good cause had
                              - 13 -


not been shown for submission of evidence in addition to the

administrative record, and, therefore, the motion was denied.

What is contained in the administrative record, in terms of

petitioner’s factual foundation, is wholly unpersuasive.

     Using as a source an IRS publication, “Cumulative List of

Organizations described in Section 170(c) of the Internal Revenue

Code of 1986", revised to September 30, 1989, petitioner points

out that there are many listed organizations whose names begin

with words of apparent ethnic, racial, or sexual partiality, such

as “Black”, “Hispanic”, “Jewish”, and “Gay”.    An important

disparity, according to petitioner, is the conspicuous absence of

“White” organizations.

     This issue has already been addressed by this Court in

Nationalist Movement v. Commissioner, 102 T.C. at 594-596, in

which we held that there was no evidence of a constitutional

violation.   Petitioner’s arguments are identical to those of the

taxpayer in Nationalist Movement.   Therefore, there is no reason

to change the analysis or the result reached in that opinion.

     For the reasons stated, we conclude that petitioner is not

operated as a section 501(c)(3) organization.    We have considered
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the remaining arguments of petitioner, and they are either

irrelevant or otherwise lack merit.

                                           Decision will be entered

                                      upholding respondent’s

                                      determination.
