Madden v. Commissioner

74 T.C.M. (CCH) 440 (1997)

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Madden v. Commissioner

United States Tax Court
74 T.C.M. (CCH) 440 (1997)

SC

Facts

John Madden (plaintiff) owned John Madden Company, which managed a commercial-office complex. Madden formed a private foundation for the purpose of running an outdoor museum outside of the office complex (the museum foundation). Madden and his wife and daughter were managers of the museum foundation. Madden was also the majority owner of GMC, a maintenance company that provided maintenance services for the office complex. Due to Madden’s ownership of GMC, GMC was a disqualified person with respect to the museum foundation. The museum foundation hosted weddings and other special events and paid GMC for maintenance and janitorial services at those events. The Internal Revenue Service (IRS) (defendant) ruled that these payments constituted self-dealing and assessed excise taxes on GMC and the managers of the museum foundation. Madden appealed the decision in the United States Tax Court, arguing that the payments to GMC qualified for an exception to the application of the excise tax. Under this exception, excise taxes were not applied on payments to a disqualified person for personal services necessary to carry out exempt purposes. The IRS asserted that the personal-services exception was for only professional services such as legal services or banking services, which were explicitly enumerated in the statute.

Rule of Law

Issue

Holding and Reasoning (Fay, J.)

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