The U.S. District Court for the District of Columbia rules that a Massachusetts pooled trust is not entitled to tax-exempt status because the trust has not shown that it is organized and operated exclusively for an exempt purpose and that its net earnings don't inure to the benefit of a private individual. Family Trust of Massachusetts, Inc. v. United States (D.D.C., No. 11-00680 (RBW), Sept. 24, 2012).
Massachusetts elder law attorney Peter M. Macy founded the Family Trust of Massachusetts, a pooled special needs trust, in 2003. Attorney Macy is the President, Treasurer and Executive Director of the trust, which has grown from 20 beneficiaries to more than 300, with annual revenues of $667,679 in 2009. In 2005, the trust filed a request for a determination from the IRS that it is a tax-exempt organization that falls under the provisions of Section 501(c)(3) of the Internal Revenue Code.
The IRS issued a proposed adverse determination in 2008 but never issued a final notice of determination, so the trust filed an action requesting declaratory relief from the U.S. District Court for the District of Columbia. Both parties filed motions for summary judgment, with the IRS taking the position that the trust was not entitled to tax-exempt status because the trust had not shown that it was being run solely for an exempt purpose. As evidence, the IRS pointed out that Attorney Macy's compensation from the trust grew in proportion to the size of the trust's revenue, and that the trust did not solicit charitable contributions to offset operating costs. The trust maintained that Attorney Macy's compensation was actually lower than average and that he had donated hundreds of hours of time to the trust without compensation. The trust also argued that it was not required to solicit charitable contributions in order to qualify as a tax-exempt organization.
The court grants the government's motion for summary judgment, finding that the trust has not proved that it is entitled to tax exempt status. The court states that the trust "does not actually offer authoritative comparability data for the Court to determine whether [Macy's] salary is, in fact, reasonable." The court also determines that the trust is not operated exclusively for an exempt purpose because its "profit margin begins to appear more a product of a growing commercial enterprise than a tool for expanding the pooled investments that might enable beneficiaries to reap a greater return or enjoy reduced fees."
To read the full text of this decision, go to:https://docs.justia.com/cases/federal/district-courts/district-of-columbia/dcdce/1:2011cv00680/147511/36/