## Facts

- The organization that later became St. John’s Orphanage, Inc. (St. John) founded and operated a nonprofit orphanage beginning in 1905.
- In 1951, St. John stopped operating the orphanage and shifted to providing financial support for child-welfare projects carried out by other charitable organizations.
- From 1951 through 1967, St. John sold orphanage-related assets and placed the proceeds—along with funds from donor bequests and remaining real-estate holdings—into interest- and dividend-producing investments.
- Over time, dividends and interest from St. John’s investment holdings became the primary source of its income.
- St. John applied to the Internal Revenue Service (IRS) for recognition as (1) a tax-exempt organization under I.R.C. § 501(c)(3) and (2) a nonprivate foundation (public charity) under I.R.C. § 509(a)(1) (as read together with the public-support framework referenced in § 170(b)(1)(A)).
- The IRS recognized St. John as exempt under § 501(c)(3) but determined that St. John did not qualify as a § 509(a)(1) nonprivate foundation and therefore was a private foundation.
- St. John filed suit in the United States Claims Court seeking a declaratory judgment that it qualified as a nonprivate foundation under § 509(a)(1).

## Issues

1. Whether St. John—an organization no longer operating an orphanage and receiving most of its revenue from dividends and interest—qualified as a nonprivate foundation (public charity) under I.R.C. § 509(a)(1) (including the public-support test framework referenced in § 170(b)(1)(A)), rather than as a private foundation.
2. Whether St. John carried its burden to show it met the statutory and regulatory public-support requirements for § 509(a)(1) status, given that its support was largely investment income rather than contributions from a broad base of donors.

## Decision

- Judgment for the United States.
- The court upheld the IRS determination that St. John did not qualify as a nonprivate foundation under § 509(a)(1).
- St. John remained classified as a private foundation.

## Legal Principles

- Private-foundation status is the default classification for § 501(c)(3) organizations unless the organization proves it fits within one of the exclusions in § 509(a).
- To qualify under § 509(a)(1) (including the public-support test framework referenced in § 170(b)(1)(A)), an organization must show that it is publicly supported within the meaning of the statute and regulations; a charitable mission alone is not enough.
- In applying the public-support rules, the source of an organization’s support matters: heavy reliance on dividends and interest from invested assets indicates a funding pattern associated with private foundations, not publicly supported charities.
- An organization’s present method of operation and present sources of support control its foundation classification; prior years of direct charitable operations do not, by themselves, establish current § 509(a)(1) status.
- Making grants to other charitable organizations does not automatically convert a grant maker into a publicly supported organization; the grant maker must independently satisfy the statutory public-support requirements.

## Conclusion

St. John’s Orphanage, Inc., though exempt under § 501(c)(3), was not a § 509(a)(1) public charity because its support structure depended mainly on investment income after it stopped operating an orphanage, and it failed to meet the public-support requirements that would remove it from private-foundation status.


St. John's Orphanage, Inc. v. United States, 16 Cl. Ct. 299 (1989)