## Facts

- AHW Corporation, a nonprofit Minnesota corporation, was wholly owned by the Amherst H. Wilder Foundation, a § 501(c)(3) charitable organization.
- AHW applied for recognition of exemption under I.R.C. § 501(c)(3).
- AHW’s stated purposes included (1) developing and managing a housing project for its parent foundation and (2) providing at-cost property-management and consulting services to other, unaffiliated tax-exempt organizations.
- The IRS indicated it intended to deny exemption because the proposed at-cost services to unaffiliated organizations would not be charitable under § 501(c)(3).
- AHW agreed it would not engage in the proposed at-cost service activity.
- The IRS then issued a favorable determination letter recognizing AHW as exempt under § 501(c)(3), explicitly conditioned on AHW’s agreement to forgo the disputed activity.
- Despite receiving the favorable determination, AHW petitioned the Tax Court under I.R.C. § 7428 seeking a declaratory judgment that the proposed at-cost services would be exclusively in furtherance of exempt purposes and would not jeopardize exemption.
- The Commissioner moved to dismiss for lack of jurisdiction.

## Issues

1. Whether the Tax Court had subject-matter jurisdiction under I.R.C. § 7428 to issue a declaratory judgment when the IRS issued a favorable exemption determination and there was no adverse final determination or qualifying failure to act.
2. If jurisdiction existed, whether providing at-cost property-management and consulting services to other, unaffiliated § 501(c)(3) organizations would be an activity exclusively in furtherance of charitable purposes under § 501(c)(3).

## Decision

- The Tax Court dismissed the case for lack of jurisdiction.
- The court held that § 7428 requires an “actual controversy” arising from an adverse IRS determination (or a statutory equivalent such as a qualifying failure to rule).
- Because the IRS issued a favorable determination letter recognizing AHW’s exemption, there was no adverse final determination and thus no actual controversy.
- The court did not reach the merits of whether AHW’s proposed at-cost services would be consistent with § 501(c)(3).

## Legal Principles

- Declaratory judgment jurisdiction under I.R.C. § 7428 is limited to disputes involving an actual controversy tied to an IRS determination regarding an organization’s qualification under § 501(c)(3).
- An organization generally must receive an adverse final determination (or satisfy a statutory substitute such as a qualifying failure to make a determination) before a court may exercise § 7428 jurisdiction.
- A favorable determination letter, even if conditioned on the organization’s agreement to refrain from certain activities, does not create an actual controversy for § 7428 purposes.
- Courts will not issue advisory opinions about hypothetical future activities that an organization has agreed not to undertake as part of obtaining a favorable determination.

## Conclusion

The Tax Court held it lacked jurisdiction under § 7428 because AHW received a favorable exemption determination and therefore could not seek a declaratory judgment to resolve disagreement with the IRS’s view of proposed activities absent an adverse final ruling or statutory equivalent.


AHW Corp. v. Comm’r of Internal Revenue, 79 T.C. 390 (1982)