United Cancer Council Closing Agreement

United Cancer Council Closing Agreement

News story posted in U.S. Court of Appeals on 3 May 2000| comments
audience: National Publication | last updated: 18 May 2011
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Summary

On 02/12/99, the PGDC reported that the Seventh Circuit had reversed the Tax Court in United Cancer Council, Inc. ("UCC") holding the now defunct charity's net earnings did not inure to the benefit of its outside fundraiser, Watson & Hughey Company and, therefore, did not violate the prohibition against private inurement. UCC and the IRS have now entered into a closing agreement which provides, in part, (i) UCC's exempt status under Section 501(c) (3) of the Code is revoked effective January 1, 1986, (ii) the Service will not disallow the deductibility of any charitable contribution made to UCC during the period January 1, 1986 through December 31, 1989 on the ground that UCC was not a qualified recipient of charitable donations, and (iii) the Service has approved a new application for exempt status under Section 501(c)(3) of the Code for UCC effective January 1, 1990.

PGDC SUMMARY:

In United Cancer Council v. Commissioner (reported by the PGDC on 2/12/99), 165 F.3d 1173 (7th Cir. 1999), the court reversed and remanded litigation to the Tax Court. United Cancer Council, Inc. ("UCC") and the IRS have now entered into a closing agreement resolving all outstanding federal tax issues without further consideration by the Tax Court and which concludes the Service's examination of UCC for tax years 1984 through 1989 . The settlement provides, in part, (i) UCC's exempt status under Section 501(c)(3) of the Code is revoked effective January 1, 1986, (ii) the Service will not disallow the deductibility of any charitable contribution made to UCC during the period January 1, 1986 through December 31, 1989 on the ground that UCC was not a qualified recipient of charitable donations, and (iii) the Service has approved a new application for exempt status under Section 501(c)(3) of the Code for UCC effective January 1, 1990.

In its new application, UCC has stated that it will limit its activities to accepting charitable bequests and will transmit such bequests to local Section 501(c)(3) cancer councils for use solely to provide direct care for cancer patients. In addition, UCC will not engage in other fundraising from the general public. The settlement also requires that any assets remaining in UCC's bankruptcy estate, after payment of $70,000 to the IRS and for any other claims, will be transferred to tax-exempt local cancer councils for use in the care of cancer patients.

FULL TEXT:

CLOSING AGREEMENT ON FINAL DETERMINATION
COVERING SPECIFIC MATTERS

Under section 7121 of the Internal Revenue Code of 1986, as amended ("I.R.C."), United Cancer Council, Inc., EIN 35-1143755, c/o Mr. James W. Curtis, Jr., Esq., 8777 Purdue Road, Suite 124, Indianapolis, IN 46268 (317) 875-0222 ("UCC") and the Commissioner of Internal Revenue ("Commissioner") make the following closing Agreement ("Agreement"):

WHEREAS, on June 1, 1990, UCC filed a Voluntary Petition under Chapter 7 of the Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of Indiana, Indianapolis Division and UCC is still in a bankruptcy proceeding; and

WHEREAS, UCC and the Commissioner recognize that the Agreement is subject to the approval of the Trustee in Bankruptcy and the Bankruptcy Court; and

WHEREAS, the Commissioner filed an estimated proof of claim in the UCC bankruptcy proceeding for the total amount of $388,222.32; and

WHEREAS, on January 28, 1991, the Bankruptcy Court granted UCC's motion to lift the automatic stay, thus allowing suits to be pursued in the Tax Court; and

WHEREAS, on March 31, 1969, respondent determined that UCC was exempt from tax under I.R.C. section 501(c)(3); and

WHEREAS, the Commissioner conducted an examination of UCC for the years 1984-1989 and determined by final adverse notice dated November 2, 1990, to retroactively revoke recognition of UCC's exempt status under I.R.C. section 501(c)(3) effective June 11, 1984 due to UCC's having operated for the private benefit of its professional fundraisers, Watson & Hughey, contrary to the the requirements of I.R.C. section 501(c)(3); and

WHEREAS, UCC contested the retroactive revocation of its exempt status by filing Docket No. 2008-91 "X", a timely petition for declaratory judgment under I.R.C. section 7428 in the United States Tax Court; and

WHEREAS, the Commissioner raised inurement as an additional ground for revocation by his Answer filed in Docket No. 2008-91 "X"; and

WHEREAS, an January 30, 1998, the Tax Court entered judgment against UCC, retroactively revoking UCC's exempt status effective June 11, 1984 due to inurement to UCC's fundraisers. (See United Cancer Council, Inc. v. Commissioner, 100 T.C. 162 (1993) and 109 T.C. 326 (1997)); and

WHEREAS, on November 2, 1990, the Commissioner also issued UCC a statutory notice of deficiency for income taxes for the calendar years 1986 and 1987 based on revocation of UCC's tax exempt status for those years; and

WHEREAS, UCC also contested the proposed assessment of income taxes for 1986 and 1987 by filing Docket No. 2009-91, a timely petition for redetermination of these deficiencies in the United States Tax Court; and

WHEREAS, UCC and the Commissioner agreed to pursue the revocation case, Docket No. 2008-91 "X", first and subsequently stipulated that the Tax Court could enter a decision for the full amount of the deficiency in Docket No. 2009-91 so that UCC could appeal both cases simultaneously; and

WHEREAS, UCC appealed the decisions of the Tax Court to the seventh Circuit Court of Appeals which, on February 10, 1999, reversed and remanded the cases to the Tax Court for consideration of the private benefit issue (see United Cancer Council v. Commissioner, 165 F.3d 1173 (7th Cir. 1999); and

WHEREAS, UCC and the Commissioner have agreed to settle the UCC cases in litigation and all related matters without further consideration by the Tax Court; and

WHEREAS, on November 15, 1999, UCC submitted an application for recognition of exempt status under I.R.C. section 501(c)(3), as a (non-private foundation for periods of time on and after January 1, 1990; and

WHEREAS, UCC has agreed to make certain changes in its operations, as set out below; and

WHEREAS, by letter dated April 7, 2000 the Commissioner has recognized UCC as exempt under I.R.C. section 501(c)(3) as an organization described in I.R.C. section 509(a)(3) for periods of time on and after January 1, 1990; and

WHEREAS, any successor organization to UCC would also be bound by the terms of this Agreement; and

WHEREAS, this Agreement is for settlement purposes only and is final and conclusive. NOW, THEREFORE, IT IS HEREBY DETERMINED AND AGREED for federal tax purposes:

1. UCC's exempt status is revoked effective January 1, 1986. A stipulated decision to that effect will be filed in the U.S. Tax Court in Docket No. 2008-91 "X" concurrently with the signing of this Agreement. UCC is recognized as exempt under I.R.C. sections 501(c)(3) and 509(a)(3) for periods of time on and after January 1, 1990.

2. A stipulated decision will be filed in Docket No. 2009- 91 for the full amounts of the deficiencies for 1986 and 1987, i.e., for $44,620.00 and $129,670.00, respectively. Said decision will be filed concurrently with the decision in Docket No. 2008-91 "X" and the signing of this Agreement.

3. The Commissioner agrees to settle his claim for income taxes filed in the bankruptcy proceeding by accepting $70,000 ("the settlement amount") as a priority claim. The settlement amount will satisfy all the Commissioner's claims against UCC for tax deficiencies, interest, and penalties for the years 1986 and 1987 and for any other tax claims related to UCC's bankruptcy proceeding.

4. The Commissioner will not require UCC to file income tax returns or other returns that might be due for the period January 1, 1986 through December 31, 1989. In addition, except as expressly set forth in Paragraph 3, above, the Commissioner will not require UCC to pay any additional taxes, penalties, or interest for the time period June 11, 1984 through December 31, 1989.

5. At the conclusion of the bankruptcy proceeding, UCC or its designee will immediately distribute any assets or funds remaining from UCC's bankruptcy estate (and any bequests or other funds as they may become available) solely for payment of expenses of direct care of cancer patients. Such amounts will only be distributed to bona fide organizations exempt under I.R.C. section 501(c)(3) that have never been associated with Watson & Hughey or its successors, agents, or other related entities.

6. From the date the decision is entered by the Tax Court in Docket No. 2008-91 "X", UCC will not solicit contributions from the general public. UCC, or its successor, may receive unsolicited contributions, e.g., bequests.

7. No part of any payment made by it to the U.S. Treasury pursuant to this Agreement is deductible on any federal tax return. UCC will not under any circumstances seek a refund or offset of the amounts paid pursuant to this Agreement. Further, UCC agrees that it cannot carry any net operating loss or other carryover into the years 1986 and 1987 in order to obtain a refund of any portion of the settlement amount.

8. The Commissioner may assess the taxes due under this Agreement and proceed to collect the settlement amount in accordance with the Bankruptcy Code.

9. The Commissioner will not disallow the deductibility of any charitable contributions made to UCC during the period January 1, 1986 through December 31, 1989 on the ground that UCC was not a qualified recipient of charitable donations. Provided that the statute of limitations is otherwise open, such donations could be challenged on other grounds, e.g., that contributions were not made in the year claimed or that property donated in- kind was overvalued by the donor.

10. The terms of this Agreement are confidential pursuant to I.R.C. section 6103 and may only be disclosed by the Commissioner as specifically provided in the Internal Revenue Code. However, as a term of this Agreement, UCC agrees to execute a consent meeting the requirements of section 6103(c) of the Code permitting the disclosures described below in Paragraph 11 of this Agreement. Such executed consent shall be attached hereto as Exhibit A.

11. UCC and the Commissioner agree to the Public Statement attached as Exhibit B to this Agreement, which UCC shall transmit via facsimile or hand delivery to daily tax news services, e.g., Tax Notes Today and the Bureau of National Affairs, no later than the fifth business day following the entry of decisions by the Tax Court in both Docket Nos. 2008-91 "X" and 2009-91.

UCC shall provide a copy of such transmittal to the Commissioner. The Commissioner may disclose a copy of the Public Statement agreed to by the Commissioner and the UCC and may verify and confirm the accuracy and statements made in the Public Statement to any person without prior notice to UCC. The parties further agree that any request to the Commissioner for information about this Agreement may be directed to the office of Mr. James W. Curtis, Jr., Esq., Counsel for United Cancer Council, Inc., 8777 Purdue Road, suite 124, Indianapolis, IN 46268 (317) 875- 0222.

12. Notwithstanding the statements above in Paragraphs 10 and 11 of this Agreement, UCC acknowledges the possibility that as a result of litigation concerning the status of closing agreements under section 6103 of the Code, the Commissioner may be required to disclose this Agreement consistent with the disposition of any such litigation.

13. Nothing in the Agreement precludes UCC from disclosing the terms of this Agreement as it deems necessary.

14. UCC may elect or appoint such officers, directors, and employees as are necessary to carry out this Agreement. THIS CLOSING AGREEMENT is final and conclusive except:

(A) The matter to which it relates may be reopened in the event of fraud, malfeasance, non- compliance, or misrepresentation of material fact upon which the Agreement is based;

(B) It is subject to the Internal Revenue Code sections that expressly provide that effect be given to their provisions (including any stated exception for Code section 7122) notwithstanding any other law or rule of law; and

(C) If it relates to a tax period ending after the date of this agreement, it is subject to any law, enacted after the agreement date, that applies to that tax period. By signing below the parties certify that they have read and agreed to the terms of the Agreement.

UNITED CANCER COUNCIL, INC.
Date: 02/15/00

                     By: LEONARD J. HENZKE, JR., ESQ.
                         Counsel for United Cancer Council, Inc.
                         Powell, Goldstein, Frazer & Murphy
                         1001 Pennsylvania Ave. N.W.
                         Washington, DC 2004
                         (202) 624-7289
Date: 02/09/00
                     By: JAMES W. CURTIS, JR.
                         Council for United Cancer Council, Inc.
                         8777 Purdue Road
                         Suite 124
                         Indianapolis, IN 46268
                         (317) 875-0222
COMMISSIONERS OF INTERNAL REVENUE Date: 04/07/00
                     By: STEVEN T. MILLER
                         Director, Exempt Organizations
cc: Mr. Greg Fehribach, Bankruptcy Trustee, 50 South Meridian Street, Suite 700 Indianapolis, IN 46204

CONSENT TO DISCLOSE TAX INFORMATION

I hereby consent, pursuant to subsection 6103(c) of the Internal Revenue Code of 1986 (as amended) ("I.R.C.") , to the disclosure of return information (as defined in I.R.C. section 6103(b)(2)) relating to the Closing Agreement (Agreement) between United Cancer Council, Inc. ("Taxpayer") and the Commissioner of Internal Revenue ("Commissioner"), executed by the parties on April 7, 2000, as follows:

The internal Revenue Service may disclose a copy of the Public Statement agreed to by the Commissioner and the Taxpayer (attached pursuant to the terms of Paragraphs 10-13 of the Agreement as Exhibit B) and may verify and confirm the accuracy of statements made in the Public Statement to any person without prior notice to the Taxpayer.

I certify that I have authority to execute this consent on behalf of the Taxpayer.

Taxpayer Name:      United Cancer Council, Inc.
Taxpayer EIN:       35-1143755
Taxpayer Address:   c/o Mr. James W. Curtis, Jr.
                    8777 Purdue Road
                    Suite 124
                    Indianapolis, IN 46268
By:                 Mr. James Briggs
Title:              Secretary, United Cancer Council, Inc.
Signature:
Date: 2-10-2000
UCC PUBLIC STATEMENT

United Cancer Council, Inc. of Indianapolis, Indiana ("UCC") announced today that it has reached an agreement with the Internal Revenue Service ("the Service") resolving all outstanding federal tax issues. This concludes the Service's examination of UCC for tax years 1984 through 1989.

Under the settlement, UCC's internal Revenue Code section 501(c)(3) exempt status is revoked effective January 1, 1986. The Service has approved a new application for section 501(c)(3) exempt status for UCC effective January 1, 1990. In its new application, UCC has stated that it will limit its activities to accepting charitable bequests and will transmit such bequests to local section 501(c)(3) cancer councils for use solely to provide direct care for cancer patients. UCC also stated that it will not engage in other fundraising from the general public.

The settlement also requires that any assets remaining in UCC's bankruptcy estate, after payment of an agreed amount to the Internal Revenue Service and after payment of other claims, will be transferred to tax-exempt local cancer councils for use in the care of cancer patients.

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