June 17, 1999 | Read Time: 1 minute
The U.S. Tax Court has ruled that three organizations, which were created with the help of a “promoter of tax-exempt entities,” have failed to qualify as charitable groups under federal law.
In one case, Larry D. Bowen and his wife, Virginia Bowen, attended a seminar held by the promoter William J. Tully. The couple later paid Mr. Tully to form a tax-exempt family foundation for them. The officers were the Bowens, one of their sons, and Mr. Tully.
The newly created Larry D. Bowen Family Foundation then applied to the I.R.S. for tax-exempt status and said it planned to help poor, aged, and disabled people. The revenue service eventually rejected the request because it said the organization did not describe its plans for charity work in sufficient detail.
The Tax Court agreed. “We have previously observed that the opportunity for abuse is present when the affairs of an organization are controlled by its creators,” the court said. “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.”
The court concluded that the Bowen fund provided “extremely vague” answers about its grant making to avoid disclosing key details about the way it would operate and thus “completely failed to establish its entitlement to receive tax-exempt status.”
The Tax Court reached the same conclusion in the two other cases involving Mr. Tully that were brought against the Commissioner of Internal Revenue by the Tate Family Foundation and the Tamaki Foundation.
