## Facts

- The Home for Aged Women (the Home) was incorporated in Massachusetts in 1869 and began with an endowment fund donated by the public.
- The Home operated a residential facility that provided lifetime care to elderly women.
- Upon admission, residents paid an administrative fee and assigned their property and their Social Security and private pension benefits to the Home instead of paying periodic charges.
- The Home sought charitable gifts and bequests, including asking estate-planning attorneys to raise the possibility of bequests to the Home with their clients.
- In 1972, the IRS recognized the Home as tax-exempt under I.R.C. § 501(c)(3) but determined under § 509(a) that it was a private foundation.
- Because it was treated as a private foundation, the IRS assessed the excise tax on net investment income under I.R.C. § 4940.
- The Home paid the assessed § 4940 excise taxes for tax years 1971 through 1977 while disputing its classification as a private foundation.
- During the years at issue, at least 10% of the Home’s total support came from public contributions.
- The Home filed a refund action against the United States seeking recovery of the excise taxes, arguing it qualified as a publicly supported charity rather than a private foundation.

## Issues

1. Whether the Home qualified as a publicly supported organization under I.R.C. § 509(a)(1) (by reference to § 170(b)(1)(A)(vi)) for 1971–1977, rather than as a private foundation subject to § 4940.
2. Whether, in measuring public support and total support, the Home’s receipts from residents (including assigned property and benefit payments) should be treated in a way that prevented public-charity status.
3. Whether the Home’s charitable giving and solicitation activities showed the kind of public support required to avoid private-foundation classification.

## Decision

- The court determined the Home was not properly treated as a private foundation for the years at issue.
- The court concluded the Home met the requirements to be treated as a publicly supported organization under the applicable statutory and regulatory public-support standards.
- Because the Home was not a private foundation, it was not liable for the § 4940 excise tax for 1971–1977.
- The court granted relief consistent with that conclusion, allowing recovery of the disputed excise taxes paid for those years.

## Legal Principles

- An organization exempt under I.R.C. § 501(c)(3) is generally treated as a private foundation unless it comes within one of the exceptions in I.R.C. § 509(a).
- One exception applies to organizations described in I.R.C. § 509(a)(1), including those that qualify under § 170(b)(1)(A)(vi) as “publicly supported” based on the sources of their support.
- Public-support status depends on quantitative and regulatory measures of “public support” and “total support,” and may be established through a percentage test and, where applicable, a facts-and-circumstances showing once a minimum level of public contributions is met.
- In applying the public-support rules, courts look to the character of an organization’s support and whether its charitable receipts reflect support from the general public rather than reliance on a small number of sources.
- Amounts received from persons who benefit from an organization’s services (including resident-related receipts) must be examined under the governing definitions and classifications used to compute public support and total support.

## Conclusion

Trustees for the Home for Aged Women v. United States held that, despite the Home’s resident-payment structure and the IRS’s private-foundation designation, the Home’s level and character of public contributions during 1971–1977 supported classification as a publicly supported charity under § 509(a)(1)/§ 170(b)(1)(A)(vi), so the § 4940 excise tax assessments for those years were not owed and the Home was entitled to a refund.


Trustees for the Home for Aged Women v. United States, 1986 U.S. Dist. LEXIS 28089 (1986)