Wednesday, July 31, 2019

The Worst Exempt Organization Case Award: Giving Hearts, Inc. v. Commissioner

Giving Hearts, Inc. v. Commissioner, a TCM opinion issued Monday wins the award for the worst exempt organizations case of the year, if not the decade.  Not because it was wrongly decided or the opinion is muddled or something like that.  But because it really makes you wonder whether some people just have extra time and money to burn!  The petitioner's position is so obviously ridiculous that it never should have been litigated!  I mean, does the Tax Court have authority to sanction extremely stupid positions?

So here are the facts.  A Window Replacement Company got most of its sales leads and customers using those irritating phone calls made by some auto-dialer right when you are sitting down to dinner or about to watch a good game.  After the "do not call" law came out, the  Window Company lost quite a bit of revenue because it could not longer make those unsolicited calls to people who had placed their name on the National Do Not Call registry.  The Do Not Call law does not apply to charitable solicitations.  Realizing this, the owner of the Window Company had the bright idea to establish a charity for the purpose of receiving donations and disbursing them to other bona fide charities.  Here is where it really gets good.  The charity, set up by the owner of the Window Replacement Company, enters into "sponsorship agreements."  The opinion indicates that the only sponsorship agreement was with the Window Company.  Remember, charitable solicitation is not covered by the Do Not Call law.  So in an effort to reach customers otherwise off limits because of the Do Not Call list, the Charity hires  the Window Company solicitors to conduct fundraising for the Charity.  And on top of that, the donors to be solicited under the sponsorship agreement were limited to people on the Do Not Call List that the Window Company was otherwise prohibited from calling.  Here is the fundraising script the commercial solicitors -- really, the only solicitor was the Window Company -- were to use.  

Hello this is _______________ calling on behalf of Giving Hearts. We are a non-profit organization helping to fund local children’s charities. We have sponsored the Window Plus company for the purpose of fund raising. For every home owner that accepts a product demonstration and free estimate our charity [Giving Heart] will receive a donation from Window Plus.   

Well, for a limited time Window Plus is offering a onetime special offer of 30% off their triple-pane insulated replacement window which is guaranteed in writing to save a minimum of 40% on your annual heating cost. 

Not only will you be helping a charity receive a donation, you’ll also be getting the right advice and the right price on energy efficient products that will help save the planet while saving money off your ever increasing monthly utility bills. A Window Plus representative will leave you with a free estimate that is good for one full year. Please understand that you are under no obligation to purchase anything. They just want to show you their products and get you that free estimate so in the future if you decide to replace any windows, you’ll get back in touch with them. So, with this in mind, I will have the representative stop by DAY and TIME.

Ok, do I really need to relate how the court ruled on the Service's revocation of the charity's tax exempt status (on private benefit grounds)?  A video short, I think, says it better than I can relate it, but you can read the opinion if you want the technical details:



Darryll K. Jones

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