Airlie Foundation v. Internal Revenue Service

Airlie Foundation (foundation) (plaintiff) was recognized by the United States Internal Revenue Service (IRS) (defendant) as a tax-exempt organization beginning in 1963. The foundation was organized for educational purposes, and its primary operations involved organizing, hosting, and sponsoring educational conferences at a conference facility the foundation owned. The conferences were focused on a diverse range of topics, including civil and human rights, international relations, the environment, and medical education. The foundation also sponsored events, such as lectures, concerts, and art shows, and provided meeting space for nonprofit entities. Most of the foundation’s conference patrons were exempt organizations, but 30 to 40 percent were not, as the foundation hosted weddings and other special events and competed with both commercial and noncommercial enterprises for that business. The foundation also maintained a commercial website and paid significant advertising and promotional expenses. The foundation hosted an average of 600 events per year and derived about 85 percent of its operating revenue from fees paid by clients. The IRS requested a list of patrons who had used the foundation’s facilities in 1999. Data the foundation furnished in response showed that approximately 17 percent of the 651 events hosted that year were provided for fees covering less than the foundation’s total costs. The IRS found that the foundation had operated its conference center for a nonexempt, commercial purpose and revoked the foundation’s tax-exempt status. The foundation sought a declaratory judgment that it was entitled to the tax exemption, and the parties filed cross-motions for summary judgment.