## Facts

- Raymond O. Sawyer and Evelyn A. Sawyer created the Roe Foundation Charitable Trust (the trust) in Washington State on or about January 1, 1983, initially funded with $10.
- The Sawyers’ wills provided that an estate of approximately $1 million would pass to the trust upon their deaths; no additional contributions had been made since formation at the time of the administrative record.
- The trust was recognized as exempt under I.R.C. § 501(c)(3), but the IRS classified it as a private foundation under § 509(a).
- The trust sought classification as a supporting organization under § 509(a)(3), which would treat it as a public charity rather than a private foundation.
- The trustees were the Sawyers, Stan A. Long (an accountant), and Maggie Ellis, who served as the annual president-elect of the Washington Community Action Agencies (WCAA).
- The trust instrument required that the annual WCAA president-elect serve as a trustee; that trustee held one of four votes on major operational decisions.
- WCAA was a publicly supported organization under § 509 and functioned as a consortium connected with local charities that assist needy elderly persons.
- The trust’s stated purpose was to provide funds, aid, and assistance to poor and distressed elderly residents of Washington State, with assistance to be provided in part based on referrals from churches, senior groups, and WCAA.
- The trust instrument also identified Washington State as among the trust’s beneficiaries.
- The governing instrument authorized the trustees to distribute income (and administer property) for the use of “charitable organizations” broadly defined as Washington charitable entities meeting specified § 501(c)(3)-type criteria, in amounts and for purposes the trustees selected.
- The instrument also permitted the trustees to make distributions from income directly for charitable purposes, without using any other charitable organization as an intermediary.
- The trust brought a declaratory judgment action in the Tax Court under I.R.C. § 7428 challenging the IRS determination; the case was submitted on the pleadings and the administrative record, with the recited facts assumed true for decision.

## Issues

1. Whether the trust qualified as a supporting organization described in I.R.C. § 509(a)(3) rather than a private foundation under § 509(a).
2. Whether the trust satisfied § 509(a)(3)’s organizational and operational requirements that it be organized and operated exclusively for the benefit of, to perform the functions of, or to carry out the purposes of one or more specified publicly supported organizations.
3. Whether the trust satisfied § 509(a)(3)’s relationship requirement that it be operated, supervised, or controlled by, or in connection with, one or more publicly supported organizations.
4. Whether the trust satisfied § 509(a)(3)(C)’s requirement that it not be controlled, directly or indirectly, by disqualified persons.

## Decision

- The Tax Court entered declaratory judgment for the Commissioner.
- The court held the trust was not an organization described in § 509(a)(3) and therefore remained classified as a private foundation under § 509(a).
- The court concluded the trust failed the organizational and operational tests because its governing instrument did not limit the trust to supporting one or more specified public charities; instead it allowed distributions to a broad class of Washington charitable organizations chosen by the trustees and also allowed direct charitable distributions without an intermediary organization.
- The court found the trust did not establish the required relationship with a publicly supported organization: WCAA’s connection—one trustee seat and a contemplated referral role—did not create the level of supervision, control, or connection required by § 509(a)(3).
- The court further found that effective control rested with the Sawyers and their accountant trustee (disqualified persons as substantial contributors/insiders), with the WCAA representative holding only one of four votes, so the trust failed § 509(a)(3)(C)’s anti-control rule.

## Legal Principles

- An organization qualifies under I.R.C. § 509(a)(3) only if it is organized and operated exclusively for the benefit of, to perform the functions of, or to carry out the purposes of one or more specified organizations described in § 170(b)(1)(A) (other than certain excluded categories).
- The organizational and operational tests are not met when a governing instrument permits the organization to support an undefined and trustee-selected class of charities, or to conduct charitable distributions directly, rather than limiting activities to the benefit of specified supported organization(s).
- To satisfy the relationship requirement (“operated, supervised, or controlled by” or “in connection with”), the supported organization(s) must have meaningful structural oversight or a defined connection; a single board seat and an informal or indirect role such as referrals does not, by itself, establish the required relationship.
- A § 509(a)(3) organization must not be controlled, directly or indirectly, by disqualified persons; where insiders hold a voting majority and can direct major decisions, the anti-control requirement is not satisfied.

## Conclusion

Because the Roe Foundation Charitable Trust’s governing instrument allowed distributions to broadly defined charitable recipients (and direct charitable payments) rather than limiting support to specified publicly supported organizations, because WCAA’s involvement did not create the statutory supervisory or control relationship, and because the trust’s voting control remained with the founders and their insider trustee, the Tax Court upheld the IRS determination that the trust was a private foundation and not a § 509(a)(3) supporting organization.


Roe Foundation Charitable Trust v. Commissioner, T.C. Memo. 1989-566 (1989)