Corporation Challenges Revocation of Tax-Exempt Status

NATIONAL OUTREACH FOUNDATION, INC.,
Petitioner
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent

UNITED STATES TAX COURT

PETITION FOR DECLARATORY JUDGMENT (EXEMPT ORGANIZATION)

Petitioner, National Outreach Foundation, Inc., hereby petitions for declaratory judgment regarding Respondent's determination to revoke Petitioner's tax-exempt status as a section 501(c)(3) organization as set forth by Respondent in his notice of determination dated August 8, 2019, and as the basis for its case alleges as follows:

1. Petitioner is a corporation with its principal place of business at 5419 Breckenridge Ave., Banning, California 92220;

2. By letter dated June 28, 2012, Respondent issued a letter approving Petitioner's status as an organization exempt from federal income taxation under section 501(c)(3) of the Internal Revenue Code ("IRC");

3. Petitioner's continuing classification as a tax-exempt entity is at issue due to Respondent's determination to revoke that status retroactively;

4. Petitioner has exhausted its administrative remedies within the Internal Revenue Service ("IRS"), including but not limited to participating in the administrative appeals process;

5. The notice of determination (a copy of which is attached and marked Exhibit A hereto) mailed to Petitioner is dated August 8, 2019;

6. The determination in the above-referenced notice of determination is erroneous for the following reasons:

a. Respondent erred in determining that Petitioner's status as a tax-exempt entity should be revoked;

b. Respondent erred in determining that such revocation should be retroactive to June 28, 2012;

c. Respondent erred in determining that Petitioner operates as a sponsoring organization for donor advised funds in which it routinely accepts non-cash contributions of LLC interests;

d. Respondent erred in determining that the non-cash contributions accepted by Petitioner are substantially similar to the type of transaction described in IRS Notice 2004-30;

e. Respondent erred in determining that in conducting its activities, Petitioner used the services of an individual who is permanently enjoined by a federal district judge for promoting an abusive contribution scheme similar to contributions to Petitioner;

f. Respondent erred in determining that Petitioner's activities served purposes other than charitable purposes and benefited private interests;

g. Respondent erred in determining that Petitioner did not operate exclusively for tax-exempt purposes as is required for an organization described in section 501(c)(3) of the IRC; and

h. Respondent erred in determining that Petitioner operated in a manner materially different than Petitioner represented in its exemption application;

7. Petitioner relies on the following facts in support of its reasons why Respondent's determinations are erroneous:

a. Petitioner was organized as a California nonprofit public benefit corporation on April 28, 2011;

Petitioner's Founders

b. Gordon E. Young was the founder and incorporator of Petitioner, having signed Petitioner's Articles of Incorporation which were filed with the California Secretary of State;

c. At the time of Petitioner's formation, Mr. Young had been an ordained minister for over 50 years. He began his Christian ministry near Washington, DC, and eventually grew to oversee thirty churches. He also earned the Delta Epsilon Chi award for his accomplishments in founding churches in Virginia. He also ministered to churches in the District of Columbia, North Carolina, and California;

d. Mr. Young married his wife, Wanda Young in 1956. Mrs. Young is also heavily involved in religion, having served as the Women's Ministry Representative for the Southern California Assemblies of God during the 1980s and 1990s;

e. Upon Mr. Young's passing on June 2, 2019, Mrs. Young took over his role as Petitioner's Chief Executive Officer;

f. Previously, Mrs. Young had served as Petitioner's Secretary;

g. Mrs. Young has always prepared and maintained Petitioner's books and records;

h. The Youngs' decades of experience in ministering and promoting religion provided them with a keen understanding of the hardships and poverty faced by numerous families throughout the United States;

i. The Youngs created Petitioner with the aims of combatting poverty and simultaneously promoting religion;

j. As of December 31, 2018, Petitioner has donated $2,401,110 to other public charities in furtherance of the goals set by the Youngs;

k. To maximize the funds available for donation, the Youngs have never taken compensation from Petitioner since its inception;

l. In creating Petitioner, Mr. Young sought to build a public charity to hold assets that would generate income each year to allow for ongoing, annual charitable giving of such income.

m. Mr. Young believed that sustained giving year after year would increase Petitioner's effectiveness in satisfying its charitable purposes.

Petitioner's Formation

n. Petitioner's Articles of Incorporation state the following:

i. the entity was organized and is to be operated exclusively for charitable purposes within the meaning of IRC section 501(c)(3);

ii. the entity assets are irrevocably dedicated to charitable purposes;

iii. no part of the net income or assets of the corporation shall ever inure to the benefit of any director, officer, member or private person;

iv. upon dissolution of the entity, the net assets shall be distributed to a nonprofit fund, foundation or corporation which is organized and operated exclusively for charitable purposes and which has established its tax-exempt status under IRC section 501(c)(3); and

v. no substantial part of the entity's activities shall include carrying on propaganda or otherwise attempting to influence legislation, and the entity shall not participate in any political campaign on behalf of any candidate for public office;

o. On or about August 17, 2011, Gordon Young signed and submitted IRS Form 1023 Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code on behalf of Petitioner;

p. By letter dated June 28, 2012, the IRS approved Petitioner's request to be treated as a tax-exempt entity under IRC section 501(c)(3);

q. The IRS letter also explained that contributions to Petitioner are deductible under IRC section 170;

r. Petitioner began accepting charitable contributions in 2012;

Petitioner's Donations & Operations

s. The type of donation that Petitioner primarily received consisted of interests in limited liability companies ("LLC"), though Petitioner has received nominal amounts of cash contributions as well;

t. With respect to each gift of an LLC interest, Mr. Young, along with advisors, reviewed and considered the proposed donation to ensure an alignment of interests between Petitioner and the donor, and ultimately approved or rejected the proposed donation;

u. Donors have gifted Petitioner LLC interests consisting of both voting and/or non-voting interests, as well as preferred and/or non-preferred interests;

v. Donors and Petitioner memorialized each gift of an LLC interest as follows:

a. The donor and the LLC manager signed an assignment of LLC interests which describes the nature and amount of the transferred interest; and

b. Mr. Young, on behalf of Petitioner, signed an acknowledgement of the gift of the LLC interest, which included an agreement to be bound by all terms, conditions and provisions of the LLC operating agreement;

w. The LLC interests typically hold passive, income-generating assets, such as real estate, securities, and/or intellectual property;

x. Petitioner receives income distributions from the LLCs, and then Petitioner uses those funds to make donations to other public charities and charitable causes;

y. Of the funds donated by Petitioner to others, in excess of 95 percent of such funds consist of distributions from the LLCs to Petitioner;

z. Petitioner will be entitled to its capital account balance upon sale of an interest in or dissolution of the LLC;

aa. Pursuant to the terms of Petitioner's articles of incorporation, Petitioner is bound to transfer the dissolution or sale proceeds to another section 501(c)(3) public charity;

bb. Since its inception, Petitioner has donated over $2 million in cash to a variety of public charities that combat poverty and advance religion as well as charitable causes, including churches, schools, hospitals, youth organizations, other qualified tax-exempt organizations, and impoverished families and individuals;

cc. Petitioner's net earnings are transferred solely to its designated charitable purposes and do not inure to the benefit of any private interest;

dd. Petitioner carries on no activities other than receiving donations and disbursing funds from such donations to other public charities and charitable causes;

ee. Petitioner has not operated for the benefit of any private interest;

WHEREFORE, Petitioner prays that the Court provide the following relief:

1. Determine that Respondent's determination to revoke Petitioner's tax-exempt status is incorrect;

2. Determine that Petitioner's status as an entity exempt from federal' income taxation under IRC section 501(c)(3) remains unchanged from the date first approved by the IRS; and

3. Any other relief that it deems just and proper.

Dated: November 5, 2019

CHAD D. NARDIELLO
Nardiello Law Firm, PLC
1880 Century Park East
Suite 716
Century City, CA 90067
Tel: (310) 201-0123
Email: Chad@NardielloLaw.com
Tax Court Bar No.: NC0134

Attorney for Petitioner