Cockerline Memorial Fund v. Commissioner

Lois Cooley created the Cockerline Memorial Fund (fund) (plaintiff), an exempt organization under § 501 of the Internal Revenue Code (code), through her testamentary will. The fund’s purpose was to provide college scholarships to students in Oregon. The fund’s founding documents encouraged the fund to support students attending Northwest Christian College (Northwest), a publicly supported organization under § 509 of the code, although the documents did not legally bind the fund to do so. Cooley’s will required that one of the seven seats on the fund’s board of trustees go to Northwest’s president. The fund established a scholarship committee that recommended scholarship recipients for the board’s approval. The committee met and operated out of Northwest; a majority of the committee’s recommendations were Northwest students; over 90 percent of the fund’s expenditures went to Northwest; and approximately 9 percent of Northwest’s students were recipients of fund scholarships. The fund did not apply to the Internal Revenue Service (IRS) (defendant) to be categorized as a § 509 organization and so, by default, the IRS treated the fund as a private foundation. The IRS assessed deficiencies connected to the fund’s grant making. Because § 509 organizations were not subject to the requirements that led to these deficiencies, the fund applied to be recognized as a supporting organization under § 509(a)(3) of the code. The IRS denied status to the fund, and the fund filed a petition in the United States Tax Court.