## Facts

- Quincy Cole’s will created the Windsor Foundation (the foundation), a nonprofit recognized under IRC § 501(c)(3).
- Cole devised his family home, “Windsor,” to the foundation, with instructions that the home be open for public use and enjoyment after his death.
- Cole’s will also created a testamentary trust to fund the maintenance and operation of Windsor.
- Trust income was first applied to the house’s upkeep; any income not needed for maintenance was to be distributed to religious, scientific, educational, medical, charitable, or artistic endeavors in Richmond, Virginia, as directed by the foundation’s board.
- The foundation distributed up to roughly $115,000 per year to such causes.
- Neither Cole’s will nor the foundation’s articles of incorporation named any particular organization as a beneficiary of the surplus income.
- The foundation had no historical or institutional relationship with the organizations it selected, and the beneficiaries changed over time; recipients included both publicly supported organizations and private organizations.
- Beneficiary organizations had no control over the trust’s investments, and the foundation did not participate in the beneficiaries’ operations.
- The IRS treated the foundation and the trust together as a single functional entity and determined the entity was a “private foundation” under IRC § 509.
- The IRS assessed the IRC § 4940 excise tax on net investment income for tax years 1971–1976; the foundation paid and sued for a refund, claiming it should be treated as a public charity as a § 509(a)(3) supporting organization.

## Issues

1. Whether the trust and the foundation could be evaluated together as a single functional entity for classification under IRC § 509.  
2. Whether the entity qualified as a § 509(a)(3) supporting organization, rather than a private foundation, where it made discretionary distributions to a changing set of Richmond-area organizations not identified in the governing instruments.  
3. Whether, if properly classified as a private foundation, the entity was subject to the § 4940 excise tax and therefore not entitled to a refund.

## Decision

- Judgment for the United States; the refund claim was denied.
- The court accepted the IRS’s approach of analyzing the trust and foundation together as one functional arrangement carrying out Cole’s charitable plan.
- The court held the entity did not qualify as a § 509(a)(3) supporting organization because it was not organized and operated for the benefit of one or more specified publicly supported organizations in the manner § 509(a)(3) and its regulations require.
- The court emphasized the absence of named or otherwise clearly identified supported organizations and the absence of structural accountability to any publicly supported charity (including no governance role and no control over investments or grant decisions by beneficiaries).
- As a private foundation, the entity was liable for the § 4940 excise tax on net investment income for the years at issue.

## Legal Principles

- For IRC § 509 classification, the government and the court may look to how related entities function in practice and may analyze a trust and affiliated charity together when they operate as one arrangement carrying out the same charitable program.
- A § 509(a)(3) supporting organization must be organized and operated exclusively to support or benefit one or more specified publicly supported organizations, not merely a broad and shifting group of potential recipients.
- Supporting-organization status requires a qualifying relationship between the supporting organization and the supported public charity or charities (Type I, II, or III), including regulatory requirements showing accountability and responsiveness by the supporting organization to the supported organization(s).
- Discretionary grantmaking to unrelated charities—without named supported organizations and without governance or other mechanisms giving supported charities a real voice—does not satisfy § 509(a)(3).
- An organization that does not meet § 509(a)(1), § 509(a)(2), or § 509(a)(3) is a private foundation and is subject to Chapter 42 excise taxes, including the § 4940 tax on net investment income.

## Conclusion

Windsor Foundation, funded through a testamentary trust that maintained a historic house and distributed surplus income to various Richmond-area causes chosen by the foundation’s board, was properly treated (together with the trust) as a private foundation because it lacked the required organized-and-operated relationship to specified publicly supported organizations; accordingly, the court upheld the IRS’s § 4940 excise tax assessments and denied a refund.


Windsor Foundation v. United States, 1977 U.S. Dist. LEXIS 13643 (1977)