Goldsboro Art League v. Commissioner

Goldsboro Art League (Goldsboro) (plaintiff) was a nonprofit organization established to promote the visual arts. Goldsboro’s activities included sponsoring art classes at the local community college, offering art classes for children, sponsoring art demonstrations, giving lectures at the local high school, and giving tours of the North Carolina Museum of Art. Goldsboro also owned several pieces of art and displayed them in public buildings in Wayne County for the public’s enjoyment. In addition, Goldsboro operated two art galleries. These galleries sold artwork, with Goldsboro taking approximately 20 percent of sales as commission and the other 80 percent going to the artists. There were no other art galleries in the area, and Goldsboro chose art to display at the galleries not for its commercial appeal but to demonstrate a variety of modern art techniques and styles. Over the years relevant to this proceeding, Goldsboro’s gross receipts were never more than $6,500 per year, and net profit was never more than $750 per year. Goldsboro applied for tax-exempt status with the Internal Revenue Service (IRS) (defendant). The IRS found that Goldsboro was indistinguishable from a traditional commercial art gallery and denied the application. Specifically, the IRS found that Goldsboro’s operation of the art gallery and sales of private artists’ works for their benefit constituted a private, commercial purpose. Goldsboro appealed in the United States Tax Court.