## Facts

- A nonprofit corporation was formed in 1962 to encourage interest in “good theatrical performances” and to arrange and present “theatrical productions, entertainments and performances of all kinds” in the Lynchburg, Virginia area.
- The organization did not own a theater and did not itself produce plays; it arranged for touring professional productions to appear locally.
- It contracted with a commercial booking agency to provide a season of professional productions, renewable at the organization’s option.
- Performances were offered only through season “membership” (subscription) arrangements; the contract barred single-admission ticket sales.
- The booking agency received a percentage of gross membership dues, while the organization handled local promotion and membership solicitation.
- Officers and directors were unpaid volunteers; no dividends were paid and no net earnings were formally distributed to insiders.
- The IRS denied the organization’s request for exemption under I.R.C. § 501(c)(3) and assessed income taxes, interest, and penalties for fiscal years ending April 30, 1963 and April 30, 1964.
- After paying and being denied an administrative refund, the organization sued for a refund under 28 U.S.C. § 1346(a)(1); both sides sought summary judgment on undisputed facts.

## Issues

1. Whether the organization was organized exclusively for charitable and educational purposes under I.R.C. § 501(c)(3) given charter language authorizing “performances of all kinds.”
2. Whether the organization was operated exclusively for exempt purposes or instead substantially operated as a members-only vehicle for presenting professional entertainment.
3. Whether the organization’s arrangements produced prohibited private inurement or substantial private benefit, particularly to the commercial booking agent and dues-paying members.

## Decision

- The court upheld the IRS’s denial of § 501(c)(3) status and entered judgment for the United States.
- The court concluded the charter purposes were not limited to exempt purposes because they broadly authorized entertainment activity for members.
- The court found operations centered on providing professional performances to paying members through a subscription model, reflecting a substantial non-exempt commercial purpose.
- The court determined the structure conferred substantial private benefit, including assuring compensation to the commercial booking agent through a percentage of membership dues.
- Because the taxpayer bore the burden to prove entitlement to exemption and could not satisfy the organizational and operational requirements, summary judgment for the United States was appropriate.

## Legal Principles

- A § 501(c)(3) claimant must show: (1) exclusive organization for charitable/educational purposes, (2) exclusive operation for those purposes, (3) no private inurement, and (4) no substantial legislative activity.
- The organizational test requires governing documents to limit purposes to exempt purposes and not authorize substantial non-exempt activities; broadly framed “entertainment” purposes can defeat exemption.
- The operational test is not met where an organization’s activities substantially resemble a commercial entertainment enterprise, even if incidental cultural or educational benefits exist.
- Compensation and structural arrangements that primarily serve private interests (including commercial counterparts and members) can constitute impermissible private benefit/inurement inconsistent with § 501(c)(3).
- In a tax refund suit seeking recognition of exemption, the taxpayer carries the burden of proving qualification for the claimed exemption.

## Conclusion

The court denied the refund because the organization’s broad charter purposes and members-only subscription operations, closely tied to a commercial booking agent compensated from dues, showed substantial non-exempt and private-benefit features inconsistent with § 501(c)(3).


Broadway Theatre League of Lynchburg, Va., Inc. v. United States, 293 F. Supp. 346 (W.D. Va. 1968)