Lapham Foundation, Inc. (2002)

T.C. Memo. 2002-293

UNITED STATES TAX COURT LAPHAM FOUNDATION, INC., Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent Docket No. 3881-01X. Filed November 27, 2002.

P is a nonprofit corporation described in sec. 501(c)(3), I.R.C., and exempt from taxation under sec. 501(a), I.R.C. P's articles of incorporation, as filed in conjunction with its application for exempt status, provide that it is to operate exclusively for the benefit of the American Endowment Foundation, a publicly supported charitable organization. The Commissioner determined that P was a private foundation and not a supporting organization as defined in section 509(a)(3), I.R.C.

Held: P is to be classified as a private foundation on account of failure to satisfy the integral part test of sec. 1.509(a)-4(i)(3), Income Tax Regs.

Nancy Ortmeyer Kuhn, for petitioner.

Helen F. Rogers, for respondent.

MEMORANDUM OPINION NIMS, Judge: The Lapham Foundation, Inc. (petitioner), is an organization described in section 501(c)(3) and exempt from taxation under section 501(a). Respondent determined that petitioner is a private foundation as defined in section 509(a), and petitioner brought this action, pursuant to section 7428, for a declaratory judgment that it is a supporting organization within the meaning of section 509(a)(3) and therefore not a private foundation. The case was submitted on the basis of the pleadings and the facts recited in the administrative record, the latter of which are assumed to be true for purposes of this opinion. See Rules 122(a), 217. The principal office of petitioner at the time of filing the petition herein was located in Northville, Michigan.

Unless otherwise indicated, all section references are to sections of the Internal Revenue Code, as amended, and all Rule references are to the Tax Court Rules of Practice and Procedure.

Background The Laphams and Estate Storage Charles P. Lapham was born on September 22, 1933, and Maxine V. Lapham was born on October 14, 1934 (hereinafter individually Mr. Lapham and Mrs. Lapham and collectively the Laphams). By 1991, the Laphams were involved in an enterprise known as Estate Storage, Inc., a Michigan corporation. At that time, Estate Storage was owned 50 percent by the Laphams1 and 50 percent by an unrelated shareholder. During 1991, the Laphams lent $806,000 to Estate Storage. Monthly payments of principal and interest at the rate of 10 percent were made until 1993, at which time the balance was renegotiated with interest at 8 percent.

In 1994...

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