Plumstead Theatre Society, Inc. v. Commissioner

Plumstead Theatre Society, Inc. (Plumstead) (plaintiff) was founded as a nonprofit organization in California. Under its articles of incorporation, Plumstead was organized with the purpose of cultivating and advancing the arts, primarily theater, by commissioning new and original works, among other activities. The articles of incorporation provided that Plumstead would not operate for financial gain, and its earnings would not go to the benefit of any private individual. In 1977, Plumstead contracted with another nonprofit theater to jointly sponsor a season of three plays in Pasadena, California, with the aim of bringing the arts to an area that lacked a community theater. Also in 1977, Plumstead contracted with the nonprofit Kennedy Center in Washington, D.C., to jointly produce an original play called First Monday in October (First Monday), with each organization providing half the capitalization costs at the outset. Plumstead could not meet its obligation, so it raised money by selling a portion of its rights in First Monday to private investors in exchange for a share of the profits or losses from the play. The production was advertised, tickets were sold, and professionals were cast. The play opened in December 1977 and ran through February 1978. First Monday was the only play Plumstead had actually produced at the time when the commissioner of internal revenue (defendant) determined that Plumstead did not qualify for tax-exempt status under Internal Revenue Code § 501(c)(3). Plumstead petitioned the tax court for review.