United States Tax Court

“ Petitioner argues that each section imposes an additional excise tax upon a foundation manager only when that manager refuses a request from a fellow foundation manager to remove part or all of an investment from jeopardy or to correct a taxable expenditure. ”

“ The 1980 amendments, in relevant portion, substituted the term "taxable period" for the term "correction period" in sections 4944 (b) (1) and 4945 (b) (1) . "Taxable period" is now defined in section 4944 (e) (1) as beginning when the jeopardizing investment is made and ending on the earliest of the date of mailing of a notice of deficiency, the date on which the first-level tax is assessed, or the date on which the amount is removed from jeopardy. ”

“ As respondent correctly points out, if petitioner's contention were correct, then an individual who is the sole manager of a private foundation could never incur liability under subsections (b) (2) .
In drafting the provisions under subchapter C, Congress intended to stop abuses that were occurring within private foundations. Mannheimer Charitable Trust v. Commissioner, 93 T.C. at 39. One of Congress' means was to provide an incentive for alleviation of the second-tier taxes upon voluntary compliance with the statute. ”

“ When the Trust made a grant to an exempt organization, petitioner always requested a copy of its exemption letter. If the donation was made to an individual or a nonexempt organization, petitioner sent the recipient a copy of a letter prepared by Mr. Margolis explaining expenditure responsibility and that expenditure responsibility reports were required. The Trust never sought approval of its grant-making procedures from the Internal Revenue Service before it made grants to individuals. ”

“ In explaining identical language in section 4941 (a) and (b) , concerning the remedies for self-dealing, the Senate Report states:
The second level of tax applies if the self-dealing is not "undone" or (if undoing is not possible) the foundation is not made whole or given the benefit of the bargain within 90 days after the mailing of the deficiency notice with respect to the first level of tax. * * * A second-level tax is also imposed on the foundation manager if he refuses to agree to any part of the correction. ”

“ Fraud cases involve a split burden of proof. The taxpayer must prove any error in the deficiency determination by a preponderance of the evidence, and the Commissioner must prove fraud by clear and convincing evidence. ”

“ Therefore, we do not believe that Larchmont II stands for the proposition that failure to correct a taxable expenditure is sufficient to give rise to liability under section 4945 (b) (2) , without a prior request that such correction be made. ”

“ On August 27, 1981, petitioner arranged for a transfer of $750,000 from the Trust's account with Barclay's Bank of California to the account of Island Bank at Barclay's Bank International, Tortola, British Virgin Islands. On September 15, 1981, the Trust transferred $45,000 from its account at Barclay's Bank of California to the Erhard Foundation for EST (Erhard Foundation) , Zurich, Switzerland. On December 17, 1981, the Trust transferred $250,000 from its account at Barclay's Bank of California to the account of Island Bank at the First National Bank of Boston, Panama Branch. ”

“ Mr. Wright died on November 11, 1969. Under the terms of the Will, the residue and remainder of the decedent's estate, after specific bequests, was to be set aside for charitable, educational, and other worthy purposes to be determined by the decedent's attorneys and executors. Petitioner, as executor named in the Will, filed the Will with the Superior Court of California, County of Santa Clara, on November 18, 1969. Also on that date, petitioner filed a petition for Probate of Will and for Letters Testamentary. ”

“ If a court decision holding that a foundation or foundation manager is liable for a second-tier tax becomes final, the issue of whether correction has occurred, and, thus, whether the assessment should be abated, is to be resolved in a supplemental proceeding by that same court. Sec. 4961 (b) . For the years now at issue, the first-tier taxes are mandatory and cannot be avoided by subsequent remedial action of the foundation or a manager. Mannheimer Charitable Trust v. ”

“ The regulations provide, in addition, that: [A] "willful and flagrant act (or failure to act) " is one which is voluntarily, consciously, and knowingly committed in violation of any provision of chapter 42 * * * and which appears to a reasonable man to be a gross violation of any such provision. ”

“ Becky Neff (#458) ......... 1,000 Marxist Study Series (#420) ... 2,000 Marxist Study Series (#449) ... 2,000 Marxist Study Series .......... 2,000 Although the record does not include at least two of the checks written to Mr. Durham and the MSS during 1981, petitioner does not dispute that the above amounts were paid to those recipients during that year. As indicated by the Trust's returns for 1980 and 1981, neither the MSS nor the National Alliance Against Racist and Political Repression was an exempt organization.
Mr. Durham, Ms. Drexel, and Ms. Neff are all individuals. ”

“ Arthur Kinoy (#241) .................................... 3,500 During 1977, the Trust made the following grants now in issue: Recipient and (check number) Amount American Indian Movement (#209) ........................................ $200 American Indian Treaty Council Information Center (#263) ............... 2,000 National Lawyer's Guild (#264) ......................................... 1,000 American Civil Liberties Union Foundation of Southern California (#270) 1,000 Marxist Study Series (#271) ............................................ ”