Family Trust of Massachusetts, Inc. v. United States

Peter Macy, an elder-law attorney, founded and managed the Family Trust of Massachusetts (trust) (plaintiff), a special-needs trust program that allowed disabled individuals or their families to establish trust accounts to supplement their income received from government benefit programs. Macy was the trust’s president, treasurer, and executive director and spent an average of 260 hours per year working on trust matters. Macy’s salary was set by disinterested directors, but the trust did not identify specific comparability data to establish the value of Macy’s services. Macy’s annual salary increased from $9,000 in 2004 to $70,000 in 2009. For most years, Macy’s salary from the trust was less than he would have earned at his regular billing rate for legal services of $250 per hour. During the same period, the trust’s annual excess revenues increased from $5,197 to $362,524. The trust also asserted that Macy contributed $100,000 in unpaid services during the relevant period. The trust applied for tax-exempt status under § 501(c)(3) of the Internal Revenue Code. The United States Internal Revenue Service (IRS) (defendant) acknowledged receipt of the application, and for more than two years, the trust responded to the IRS’s requests for information. The IRS then issued a proposed adverse-determination letter, to which the trust responded. Eventually, not having received a final determination, the trust initiated an action for declaratory relief, seeking a declaration of exemption from federal income taxation. Both parties filed motions for summary judgment.