T.C. Mem o. 2 01 3- 28 3

UNITED STAT ES TAX COURT
THE COUNCIL FOR EDUCATION, Pet it io ne r v. COMM ISSI ONER OF INTERNAL REVENUE, Resp on de nt

Doc ke t No . 17 89 0- 11 X. File d Dec em be r 16 , 20 13
.
Haro ldR. Hug gi ns (anoff ic er), fo r pe ti ti on er. Vict or iaA. Ju ds on , KirkM. Pax so n, Pa tri ci a P. W an g, an d Eu ge ne Kim , for
res po nd en t.

MEMORANDUM OPINION GUY, Spec ia l Tri al Ju dg e: Res po nd en t d et erm in edth atth e Co un ci l fo r Edu cat io n (p et it io ne r) d oe s n otqu al ify for ex em pt io n fr om

Fed eral in co m e ta xa ti on pu rs ua ntto sec ti on 50 1( a) as anorg an iz at io n d es cri be d i n s ect io n-2
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[* 2] 50 1( c)(3 ). Pet it io ne r ch al le ng edres po nd en t’s d et erm in at io n b y ti m el y fil in g 1 a p et it io n fo r de cl arat ory

jud gm en t wi th th e Co urt p ur su an t t o s ect io n 7 42 8( a). At th e ti m e th e p et it io n was fil ed , pet it io ne r’s pr in ci pa l p la ce o f bu si ne ss was i n Cal ifo rn ia
. The pa rti es ag ree t ha t p et it io ne r ex haus te d t he adm in is tra ti ve rem ed ie s av ai labl e to itwithi n the Int ern al Rev enue Serv ic e (IR S). The pa rti es als o fi le d with the Co urt the en ti re adm in is tra ti ve reco rdinacco rd an ce wi th Ru le 21 7( b) (1 ). Fo r pu rp os es of t he in st an t p ro ceed in g, the fact s an d re pr es en ta ti on s co nt ai ne d i n th e adm in is tra ti ve reco rdare ac cep te d a s tru e an d a re i nc or po rat edhe rei n b y refe ren ce. See id . Peti ti on er b ears th e b ur de n o f pr ov in g t ha t re sp on de nt ’s de te rm in at io n i s i nc orrect . See Ca lh ou n Aca d. v . Comm is si on er, 9 4 T.C. 2 84 , 29 5 (1 99 0)
. Bac kg ro un d I. Haro ldHug gi ns Haro ldHug gi ns is pe ti ti on er’s p res id en t an d s ecre tary an d i ts so le off

ic er, di rect or , andem

pl oyee.
Unl es s o th erwi se in di cat ed , sec ti on refe ren ces are t o the Int ern al Rev enue 1 Co de (Co de ), as am en de d, an d R ul e refe ren ces are t o t he Tax C ou rt Rul es of Prac ti ce an d P ro cedur e.-3
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[* 3] A. Univ ers ity

of C al ifo rn iaat S an taBarb ara Mr. Hu gg in s was en ro ll edas astud en t atth e Uni ve rs ity of C al ifo rn iaat San taBarb ara ( UCSB) fro m 19 91 to 19 94 . By

all in di cat io ns , he d idno t g radua te fro m UCSB. He h as be enanact iv e an d v oc al cri ti c o f th e Uni ve rs ity of C al ifo rn ia (UC) u ni ve rs ity

syste m ge ne ral ly andUCSB s pe ci fic al ly. B. Mr. Hu gg in s’ Adm in is tra ti ve Co m pl ai nt s an d Laws ui ts 2 Between19 93 an d 2 00 2 M r. Hug gi ns fil ed(1) anadm in is tra ti ve co m pl ai nt with UC’s v ic e ch an cel lo r fo r stud en t af fai rs all eg in g a cad em ic frau d a ndciv il rig ht s v io la ti on s; (2) anadm in is tra ti ve co m pl ai ntwith the U.S. Departm en t o f Edu cat io n’s (DOE) Offi ce fo r Ci vi l Ri gh ts all eg in g t ha t UCS B adm in is tra to rs an d facu lty di sc riminat edag ai ns t Afri canAm eri canstud en ts by den y in g t he m “ co ur se rep eat s” , vi ol at edth e fac ul ty cod e o f co nduc t, an d d es tro y eddo cu m en ts to co nc eal
ev id en ce o f aca de m ic frau d; (3) a la wsu itinFed eral Dis tri ctCo urt ag ai ns t the UC bo ardof r eg en ts (bo ardof r eg en ts ) an d t he Cal ifo rn iaStu de ntAidCo m m is si on (CSAC ) al le gi ng th athi s Fe de ral stud en t l oa ns sh ou ldbe ex ti ng ui sh edbe cau se he
was gi ve n apo orgra de inanen gi ne eri ng co ur se at UCS B an d u ni ve rs ity off ic ia ls The admin is tra ti ve reco rddo es no t i nc lu de all of t he pl ead in gs an d/ orth e 2 fin al di sp os it io ns of l aws ui ts fil edby Mr. Hug gi ns (in di vi du al ly) andpe ti ti on er. Howev er, b ecau se th e la wsu it s ar e d is cu ss edan d d es cri be d t o v arying de gr ees in th e adm in is tra ti ve reco rd , we hav e ta ke n ju di ci al no ti ce o f certa in op in io ns an d or de rs is su edby the Fed eral co urts with juris di ct io n o ve r th os e act io ns .-4
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[* 4] vi ol at edth e Rac ke te er In flu en cedan d C orruptOrgani zat io ns Act (R ICO); 3 (4 ) a s eri es of t hr ee l aws ui ts inFed eral Dis tri ctCo urt ag ai ns t UCS B, nu m ero us UCSB o ffi ci al s, the bo ardof r eg en ts , andth e Weste rnAss oc ia ti onof S ch oo ls an d Co ll eg es (WASC), al le gi ng th atth e d efen da nt s co erce d h im in to withd rawi ng fro m UCSB, ex to rte d s tu de ntlo an s thr ou gh gra de frau d andin ti m id at io n, an d vi ol at edRICO an d the Fal se Cla im s Act
. 4 C. Pro po si ti on 20 9 Mr. Hu gg in s i s an op po ne ntof P ro po si ti on 20 9, a b al lo t i ni ti at iv e th atwas pa ss edby the vo te rs of t he Sta te of C al ifo rn iainNov em be r 19 96 . At th e ti m e, th enGov ern or

Pet e Wils on en do rs edPro po si ti on 20 9, an d WardCo nn erl y , a
m em be r of th e b oa rdof r eg en ts , act iv el y pro m ot edth e in it ia ti ve .

The laws ui t was di sm is se d o n t he gro un ds Mr. Hu gg in s fa il edto all eg e a 3 pa tt ernof r ack et eeri ng act iv ity an d fa il edto de m on st rat e a b as is fora cl as s ac ti on . See Hu gg in s v . Uni v. o f Cal . at Sa nt a Bar ba ra, 2 1 F ed . App x. 6 73 (9t h C ir. 2 00 1)
. The fir stlaws ui t, as si gn eddo ck etNo. SACV 0 2- 03 60 DOC, was s ho rt 4 li ve d i na sm

uc h a s the co urt d en ie d M r. Hug gi ns ’ reque stto pro ceedinform a paup eri s. Th e se co ndlaws ui t, as si gn eddo ck etNo. SACV 0 2- 06 10 DOC, was di sm is se d o n anu m

be r of gro un ds in cl ud in g fa il ur e to st at e a cl ai m forrel ie f. The th irdlaws ui t, as si gn eddo ck etNo. SACV 0 2- 08 10 DOC, was d is m is se d o n t he gr ou ndof r es jud ic at a. The Di st ric t Co urt g ran te d WASC’s m ot io n fo r sa nc ti on s an d asep arat e m ot io n t o d ecl are M r. Hug gi ns a ve xa ti ou s l it ig an t, an d t ho se act io ns were ei th er l eftun di sturbe d o r affi rm edon ap pe al . See Hu gg in s v . Hy ne s, 11 7 F ed . App x. 5 17 (9t h C ir. 2 00 4)
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[* 5] Pro po si ti on 20 9 a m en de d t he Cal ifo rn iaSta te co ns ti tu ti on , see Cal . Con st ., art . I, sec . 31 (a), t o p ro vi de inrel ev an t p art : “ The Sta te sh al l n otdi sc riminat e ag ai ns t, o r gr an t p refe ren ti al tre atm en t t o, an y in di vi du al or g ro up on th e b as is of
race , sex , col or , eth ni ci ty, orna ti on al ori gi n i n t he op erat io n o f publ ic
em pl oym en t, p ub li c educ at io n, o r publ ic co nt ract in g.” The p ract ic al effe ctof Pro po si ti on 20 9 was to eli m in at e rac e-b as edan d g en de r-b as edaffi rm at iv e act io n pr og ram s i n p ub li c em

pl oym en t, educ at io n, an d c on tra ct in g i n t he Sta te of Cal ifo rn ia . The U.S. Co urt o f App eal s fo r th e Nin thCir cu itha s u ni fo rm ly rejected cl ai m s tha t Pr op os it io n 2 09 is un co ns ti tu ti on al . See Co al . to Defen d Aff irmativ e Acti on v. Br own , 67 4 F .3d11 28 (9t h C ir. 2 01 2) (up ho ld in g t he Co urt o f App eal s’ earl ie r op in io n C oa l. fo r Eco n. Equi ty v. W il so n, 1 22 F.3d69 2 (9 th Cir . 19 97 )). II. The Co un ci l fo r Edu cat io n A. Artic le s o f In co rp or at io n a ndBy laws InMay 200 6 M r. Hug gi ns org an iz edpe ti ti on er as a Cal ifo rn iano np ro fit
m utua l b en efi t co rp or at io n “ to in ve st ig at e aca de m ic frau d.” Pet it io ne r’s art ic le s o f in co rp or at io n wer e am en de d i n J un e 2 00 9 t o s ta te inrel ev an t p art : Thi s co rp or at io n i s a n onpr of itpubl ic be ne fitco rp or at io n andis no t or ga ni zedforth e p riv at e g ai n o f an y pe rs on . It i s o rg an iz edun de r th e Nonpr of itPubl ic Ben efi t Co rp or at io n Law fo r publ ic an d c ha rit ab le pu rp os es . The s pe ci fic pu rp os e o f th e co rp or at io n i s t o a dv oc at e fo r th e le ga l ri gh ts of a n unr ep res en te d c ha rit ab le cla ss of f ed eral stud en t-6
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[* 6] lo anreci pi en ts , andlen de rs of t he Fed eral Fam il y Edu cat io n Loan P ro gr am

(FFEL): 1.) In ve st ig at e St at e Adm in is te redStu de nt Loan P ro gr am s o n i m

pr op rie ti es un de r th e g ui de li ne s o f th e Hig he r Edu cat io n Act ; 2 .) Lit ig at e fo r co ll at eral res ti tu ti on ; 3 .) Co m mis si on 1 a p ub li c rep ort o n i ns ti tu ti on al m is co nduc t; 4.) R ei m burs e m em

be rs of th e ch ari tabl e cl as s, an d F FEL Lend ers un de r th e Nat io na l Len de rs ’ Ass ur an ce Pr og ram Cen te r (NLAPC). [ 5 ] Tit le 20 U.S.C. §§ 10 82 (o ) 1 The adm in is tra ti ve reco rdin cl ud es two set s o f bylaws forpe ti ti on er. The bylaws ge ne ral ly stat e th atpe ti ti on er wi ll in ve st ig at e an d re po rt f rau du le nt act iv it ie s re la ti ng to stud en t l oa n p ro gr am s, ad vo cat e fo r stud en t l oa n re ci pi en ts , an d e nf or ce DOE accr ed it at io n s tand ard s fo r al l s tu de nt s re ga rd le ss of r ace o r ethn ic ity . B. Pet it io ne r’s Adm in is tra ti ve Co m pl ai nt s an d Laws ui ts On Se pt em

be r 8, 2 00 6, p et it io ne r fi le d a n a dm in is tra ti ve co m pl ai ntwith the Dis tri ctof C ol um

bi a Dep art m en t o f Co ns um er an d R eg ul at ory Affai rs all eg in g th atth e Am eri canCiv il Rig ht s In st itut e (ACRI ) an d t he Am eri canCiv il Rig ht s

The Fed eral Fam il y

Edu cat io n Lo anPro gr am (FFELP), es tabl is he d u nd er 5 PartB of th e Hig he r Edu cat io n Actof 1 96 5, s ee 2 0 U.S.C. s ecs . 10 71 -1 08 7- 4 (2 00 6) , com

pr is es cert ai n s tu de ntlo anpro gr am s ad m in is te redby D OE, see 3 4 C.F.R. s ec. 6 82 (20 10 ). Fora de ta il edde sc rip ti on of t he rel at io ns hi ps be twee n DOE, pri va te len de rs , and“ Gua ran ty A ge nc ie s” , see Uni te d S ta te s ex rel . Vig il v. Neln et , Inc ., 63 9 F .3d79 1, 7 94 -7 95 (8t h C ir. 2 01 1)
.-7
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[* 7] Co al it io n (AC RC) fai le d t o c om pl y with c ert ai n re gu la ti on s g ov ern in g t ax 6
ex em ptorg an iz at io ns . The co m pl ai ntwas re ferr edto th e Offi ce o f th e Dis tri ct Att orne y forSacr am en to , Cal ifo rn ia . The d is tri ctatt orne y subs eque nt ly info rm ed pe ti ti on er tha t ACR I an d ACR C o ffi ci al s wer e g ui lty of n ot hi ng m or e th anan ov ers ig htinfai li ng to pa y requi redfees an d i n fi li ng do cu m en ts , andth ere was in su ffi ci en t ev id en ce t o warran t fi li ng a cri m in al co m pl ai nt . InDecem be r 20 06 pe ti ti on er fi le d a n a dm in is tra ti ve co m pl ai ntco nc ern in g ACRI an d ACR C wit h the IRS an d t he U.S. Departm en t o f Ju st ic e. The IR S in fo rm edpe ti ti on er tha t d is cl os ur e o f an y act io n tha t i t m ig httak e ag ai ns t ACR I or ACRC wo ul d b e p ro hi bi te d. 7 InFeb ru ary 20 07 pe ti ti on er fi le d areque stun de r th e Fre ed om of In fo rm at io n Actwith the U.S. Departm en t o f St at e reque st in g arep ort o n t he
nu m be r of stud en ts fro m

Can ad a, Ch in a, Hon g Ko ng , Sou th Kore a, Si ng ap or e, an d Taiwan tha t wer e is su edvi sa s b etween19 95 an d 2 00 5 t o att en d aco ll eg e o r un iv ers ity

inCal ifo rn ia . The Dep art m en t o f St at e in fo rm edpe ti ti on er b y let te r th at itdi d n otm ai nt ai n s tati st ic s fo r stud en t v is as by Stat e o r by acad em ic in st itut io n. The reco rdsu gg es ts th atMr. Co nn erl y org an iz edACRI an d ACR C in pa rt 6 to pro m ot e Pro po si ti on 20 9. The reco rddo es no t re fle ctwhet he r th e Dep art m en t o f Ju st ic e act edon 7 pe ti ti on er’s i nf

orm at io n.-8
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[* 8] InMarc h 2 00 7 p et it io ne r fi le d a n a dm in is tra ti ve co m pl ai ntwith t he UC Acad em ic Sen at e (UCAS) . UCAS’ att orne y wrot e a l et te r to pe ti ti on er s ta ti ng th at , m uc h l ik e a co m

pl ai ntth atMr. Hu gg in s h adfil edwith t he UCSB Aca de m ic Sen at e in 20 02 , pet it io ne r’s co m pl ai ntwas d efec ti ve be cau se itwas n otli m it ed
so le ly to UCAS m em

be rs an d i t d idno t s pe ci fy th e p ro vi si on s o f th e Fac ul ty Cod e of Co nduc t tha t ea chin di vi du al all eg ed ly vio la te d. InApri l 2 00 7 p et it io ne r au th or iz ed“ Sp eci al Co m mitte e 1 86 8” to ga th er

8
ev id en ce i n s up po rt o f a co m pl ai ntall eg in g t ha t M r. Co nn erl y (1) was a ct in g a s an un reg is te redfor ei gnag en t i n v io la ti on of 1 8 U.S.C. s ect io n 9 51 , (2) ab us edhi s po si ti onas am em

be r of th e b oa rdof r eg en ts by fail in g t o d is cl os e (a) th athe ha d a pe rs on al fin an ci al in te res t i n m at te rs pe nd in g b efo re the bo ard , and(b) th athe was affi li at edwith m em

be rs of t he Cal ifo rn iaCiv il Rig ht s In it ia ti ve , and(3) org an iz ed ACRC a ndACRI t o d ecei ve Cal ifo rn iavo te rs an d c au se th em to supp ort ac ti vi ti es of a fo rei gn Gov ern m en t. InOcto be r 20 07 Sp eci al Co m m it te e 1 86 8 a ll oc at ed fund s t o h ire att orne y s an d an e xp ertwitne ss .

The admin is tra ti ve reco rddo es no t i nc lu de an y in fo rm at io n re ga rd in g 8 Sp eci al Co m

mitte e 1 86 8 s uc h a s the co m po si ti on of i ts m em

be rs hi p, the m em

be rs ’ in di vi du al qu al ifi cat io ns , or age ne ral de sc rip ti on of i ts op erat io ns .-9
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[* 9] InJan uary

20 08 pe ti ti on er’s at to rn ey , Alex an de r F. Ann et t, s en t a l et te r to th e IRS Whi st le bl owe r Offi ce i de nt ifyin g p ot en ti al di sc rep an ci es inres pe ctof
am ount s tha t ACR C, ACRI, an d ath irden ti ty, th e Am eri canCiv il Rig ht s Fo un da ti on (ACRF) , rep orte d tha t the y pa idto Mr. Co nn erl y

inFo rm s 9 90 , Return of Orga ni zat io n Ex em

ptFro m Inc om e Tax , for20 04 , 20 05 , and20 06 . At th e sa m e ti m e, Mr. An ne ttsen t a l et te r to th e Dis tri ctof C ol um bi a Offi ce o f Tax an d Rev enue st at in g tha t ACR C an d ACR I ap paren tl y fai le d t o app ly for ex em

pt io n fro m Dis tri ctof C ol um

bi a in co m e an d fr an ch is e ta x. 9 InJu ly 200 8 p et it io ne r’s at to rn ey , Lewis P. Rh od es , reque st edth atth e Cal ifo rn iaatt orne y

ge ne ral pro vi de acce ss to form er Go ve rn orPet e Wils on ’s
reco rd s o f m eet in gs with m em be rs of the bo ardof r eg en ts du rin g t he su m m er o f 19 95 an d “ al l d oc um en ts refl ect in g c omm un ic at io n b etweenW ardCo nn erl y an d ot he r m em

be rs of t he Reg en ts .” The a tt orne y ge ne ral ’s off

ic e in fo rm edpe ti ti on er th atan y su chreco rd s h adbe entra ns ferr edto th e St at e arc hi ve s an d wer e n ot
av ai labl e fo r di sc lo su re p ur su an t t o S ta te law. InJan uary

20 09 pe ti ti on er fi le d a n a dm in is tra ti ve co m pl ai ntwith t he Cal ifo rn iaFai r Po li ti cal Prac ti ces Co m m is si on (CFPP C) al le gi ng th atMr. The admin is tra ti ve reco rddo es no t re fle ctwhet he r th e IRS or t he Dis tri ct 9 of Co lu m bi a Offi ce o f Tax an d R ev enue act edon th e in fo rm at io n c on ta in edinMr. Ann et t’s l et te rs .-1 0-

[* 10 ] Co nn erl y

vi ol at edth e Cal ifo rn iaPo li ti cal Refo rm Act o f 19 74 by fail in g t o (1 ) reg is te r as a lo bb y is t i n c on ne ct io n wi th hi s ef fo rts to pro m ot e Pro po si ti on 20 9, (2 ) si gnACRC ca m

pa ig n s tate m en ts inhi s capa ci ty as “ ch ai rm an ”, an d (3 ) fi le a

“ st at em en t o f eco no m ic in te res ts ” wit h t he bo ardof r eg en ts be fo re i t v ot edon Ju ly 20, 1 99 5, t o am en d UC’s a dm is si on s p ol ic ie s. CFP PC i nf orm edpe ti ti on er th atth e al le ge d v io la ti on s d es cri be d i n i ts co m pl ai ntwere “be y on d t he fiv e-year st atut e o f li m it at io ns forco m m en ci ng anadm in is tra ti ve act io n a ndth ere a re n o fact s al le ge d o r ev id en ce p res en te d t ha t wo ul d a ll ow fo r th e to ll in g o f th e st atut e of li m it at io ns .” InJu ne 20 09 pe ti ti on er (a ct in g t hr ou gh Mr. Hu gg in s) fil eda la wsu itin Fed eral Dis tri ctCo urt, as si gn eddo ck etNo. 2 :0 9- CV-0 15 03 FCD (EFB) ag ai ns t th e Cal ifo rn iaatt orne y

ge ne ral , CFPPC , IRS, DOE, andCo nn erl y & Ass oc ia te s In c. The c om

pl ai ntst at edth atpe ti ti on er was rep res en ti ng th e in te res ts of F FELP
an d a ll eg edth atth e Cal ifo rn iaatt orne y ge ne ral was a ct in g a s a p riv at e at to rn ey for Mr. Co nn erl y

an d h adim

pr op erl y im pe de d p et it io ne r’s in ve st ig at io n i nt o M r. Co nn erl y ’s, ACRC’s, an d ACR I’s m is co nduc t. OnJu ly 28, 2 00 9, p et it io ne r (wit h Mr. Hu gg in s jo in in g the su itas apl ai nt iff inhi s i nd iv idua l capa ci ty) fil eda fi rs t
am en de d c om

pl ai ntid en ti fy in g o nl y

IRS an d DOE as de fen da nt s. Co ns eque nt ly, th e rem ai ni ng de fen da nt s wer e eff ect iv el y di sm is se d fr om

th e act io n. Th e-1 1-

[* 11 ] am en de d c om

pl ai ntin cl ud eda reque stth atth e co urt i ss ue anord er d ire ct in g DOE “ to rem ov e th e fed eral off se t ag ai ns t Har ol d Hu gg in s, an d c eas e an y an d a ll lo anco ll ect io n a ct iv it ie s” . In M arch 20 10 Ric ki e Iv ie en te redhi s ap pe aran ce as co un se l fo r pe ti ti on er an d M r. Hug gi ns , andinMay 201 0 t he pa rti es to th e su it
en te redin to a st ip ul at io n (app ro ve d b y th e co urt) t ha t, i n t he ev en t the pl ai nt iff s fai le d t o fi le anam en de d c om pl ai ntwithi n 3 0 d ay s, IR S an d DOE wou ldbe di sm is se d fr om

th e su itwith p reju di ce. The act io n e nd edwhen pe ti ti on er an d M r. Hug gi ns fai le d t o fi le a ti m el y am en de d c om

pl ai nt . III. Adm in is tra ti ve Pro ceed in gs A. Peti ti on er’s Ap pl ic at io n fo r Exe m pt io n On Au gu st11 , 20 08 , pet it io ne r fi le d wi th res po nd en t Fo rm 10 23 , App li cat io n fo r Rec og ni ti on of Ex em pt io n Un de r Sec ti on 50 1( c)(3 ) of th e In te rn al Rev enue Co de . Peti ti on er’s ap pl ic at io n i nc lu de s a n arra ti ve de sc rip ti onof i ts
va rio us adm in is tra ti ve co m pl ai nt s an d l it ig at io n a ct iv it ie s d es cri be d abo ve . Pet it io ne r di d n otatt ach any ne wsl et te rs , bro ch ur es , or s im il ar d oc um en ts de sc rib in g i ts ch ari tabl e p ur po se as d ire ct edinpa rt I V of Fo rm 10 23
. Pet it io ne r’s ap pl ic at io n i nc lu de d (1 ) a co ve r sh eetan d atab le of c on te nt s fo r a p ro po sa l fr om

EMS, In c., to pro vi de “ Inbo un d S up po rt S erv ic es ” fo r pe ti ti on er,
an d (2 ) se ve ral cert ifi cat es of r eg is tra ti on is su edby the U.S. Cop y rig htOffic e in-1 2-

[* 12 ] res pe ctof wri tt enwork s at tri bu te d t o p et it io ne r an d i de nt ifi edas “ Acad em ic Sen at e Co m

pl ai nt ”, “Non co m

pl ianc e Reg en ts Co m

pl ai nt ”, an d “ A Res ol ut io n be fo re the Reg en ts of t he Uni ve rs ity of C al ifo rn ia ”. B. Res po nd en t’s Fi rs t Re qu es t fo r In fo rm at io n On M arch 9, 2 00 9, re sp on de ntreque st edth atpe ti ti on er p ro vi de ad di ti on al in fo rm at io n i n s up po rt o f it s ap pl ic at io n i nc lu di ng a de ta il edde sc rip ti on of i ts act iv it ie s an d c ha rit ab le pu rp os e. Mr. Hu gg in s re sp on de d t o re sp on de nt ’s reque st by let te r da te d Ap ril 20 , 20 09 , st at in g i n re le vantpa rt: Res po ns e to Ques ti onNos . 1, 2 , 3 & 5 : As th e Dir ect orof t he Co un ci l fo r Edu cat io n (“ Co un ci l” ), m y ob jecti ve is to advo cat e fo r th e le ga l rig ht s o f anun rep res en te d c harit ab le cla ss of f ed eral stud en t ai d l oan reci pi en ts . Inv es ti ga te st at e adm in is te redfin an ci al stud en t ai d in st itut io ns , andto li ti ga te forco m pe ns at io n t he mis ap pr op ria ti on of th os e fed eral lo an s u se d o th er tha n fo r educ at io na l p ur po se s. (e .g. po li ti cal act iv it ie s)
. Inde sc rib in g p et it io ne r’s ch ari tabl e p ur po se , Mr. Hug gi ns li st edth e v ari ou s adm in is tra ti ve co m

pl ai nt s an d the laws ui t i t fi le d i n F ed eral Dis tri ctCo urt,
su m m ari zedab ov e. He als o m en ti on edth atpe ti ti on er re ta in ed(1) th e la w firm of Pat to n & Bo gg s, LLP, to pe rfo rm a fo ren si c ta x a na lysis of AC RC an d ACR I, an d (2 ) a wit ne ss with aPh .D. ineduc at io n t o d et erm in e whe th er UC fa cu lty m em be rs co ll ab or at edwith M r. Co nn erl y invi ol at io n o f th e aca de m ic cri te riast an da rd s o f WASC.-1 3-

[* 13 ] Mr. Hu gg in s fu rth er s ta te d: A. The pa ss ag e o f Cal ifo rn iaPro po si ti on 20 9 i n 1 99 6, an in it iati ve ch ai redby Rege ntW ardCo nn erl y (i.e
. Cal ifo rn iaCiv il Rig ht s In it ia ti ve ) am en dm en ts [si c] the Cal ifo rn iaCo ns ti tu ti on to in cl ud e th e p hr as e “pr efer en ti al tre atm en t,” a ndth ereb y is inco nf

li ctwith th e fed eral U.S. con st itut io n t o t he fou rte en th Am en dm en t. The am en de d s ta te co ns ti tu ti on rem ov ed U.S. Cit iz en [s ]. Afterpa ss ag e o f th e p ro po si ti on , th e st at e in crea se d the rat e o f Ch in es e an d S ou thKore an gr adua te [s ] in th e sc ie nt ifi c fi el ds of e ng in eeri ng fro m to p t ie redpubl ic sch oo ls inCal ifo rn iaan d M ic hi ga n. And , thus , an i nc reas e in th e num be r of Ch in es e gr adua te s fr om

U.S. Col le ge s & Uni ve rs it ie s i s the ob jecti ve of C hi ne se co ve rt u nd erco ve r op erat io ns inth e Uni te d S ta te s fa ci li ta te d b y th e act iv it ie s o f W ard Co nn erl y , andhi s t ax ex em ptorg an iz at io ns . B. St at is ti cal dataob ta in edfro m th e U.S. Sta te Depa rtment on th e num

be r of for ei gnstud en t ad m is si on s o f Ch in es e an d S ou th Kore anstud en t en ro lm en t [s ic ] supp orts m y th es is of adi sp ro po rti on al rat e in crea se as c om pa redto do m es ti c rat e adm is si on s. C. Doc um en ts an d a na lysis supp orti ng m y th es is is furth ered[si c] des cri be d i n a n u np ub li sh edm anus cri pt . Am on g the att ach m en ts to Mr. Hu gg in s’ res po ns e was anen ga ge m en t l et te r fro m Dorran ce Publ is hi ng Co ., Inc ., addres se d t o M r. Hug gi ns an d p et it io ne r, reg ard in g
anag reem en t t o p ub li sh Mr. Hu gg in s’ m anus cri pten ti tl ed“ Ch in a Rep ort: Und erco ve r Ope rat io ns inUS Co ll eg es an d Un iv ers it ie s.”-1 4-

[* 14 ] Mr. Hu gg in s i nd ic at edinhi s re sp on se th atth e o nl y expe ns es pe ti ti on er in cu rredan d e xp ect edto in cu r fo r 20 08 , 20 09 , and20 10 were p ro fes si on al fees (e.g ., li ti ga ti on ex pe ns es ) of $9 8,5 67 .08 , $1 08 ,33 0.2 1, an d $ 10 1,3 40 .69 , res pe ct iv el y . He als o s ta te d tha t p et it io ne r he lda “ lo anrece iv ab le ” o f $1 79 ,59 0.3 4 a ndin cl ud eda “ Lin e Of Cre di t Ag reem en t” in di cat in g t ha t p et it io ne r in te nd edto bo rro w $3 95 ,00 0 fr om ISISC OM, LLC. 1 0 C. Res po nd en t’s Se co ndReque stforInf orm at io n On M ay 29 , 20 09 , res po nd en t re qu es te d a dd it io na l d oc um en ts an d in fo rm at io n fr om

pe ti ti on er i nc lu di ng a cu rren t l is t o f pe ti ti on er’s o ffi cers an d bo ardm em

be rs an d aco py of p et it io ne r’s ret ai ne r ag reem en t wi th Pat to n & Bo gg s, LLP, al on g wi tha de ta il edde sc rip ti on of t he workth e la w firm co m pl et ed fo r pe ti ti on er. Mr. Hu gg in s re sp on de d b y let te r da te d J un e 8 , 20 09 , rep eat in g al le ga ti on s tha t M r. Co nn erl y was g ui lty

of m is co nduc t i n p ro m ot in g P ro po si ti on 20 9 a ndin fo rm in g re sp on de ntth atpe ti ti on er re cen tl y fil eda la wsu itinFed eral Dis tri ctCo urt.

The reco rdin di cat es th atpe ti ti on er an d IS ISCOM , LLC, sh are t he same 1 0 bu si ne ss ad dr es s an d tha t M r. Hug gi ns is th e m an ag in g m em be r of th e la tt er.-1 5-

[* 15 ] D. Resp on de nt ’s Thi rdReque stforInf orm at io n By let te r da te d J ul y

13 , 20 09 , res po nd en t re qu es te d t ha t p et it io ne r pr ov id e, in te r al ia , (1) anex pl an at io n wh ethe r Pro po si ti on20 9 i s the foc us of p et it io ne r’s act iv it ie s, (2 ) anex pl an at io n o f th e rel at io ns hi p b etweenpe ti ti on er’s ex em pt act iv it ie s an d M r. Co nn erl y , ACRI, an d ACR C, (3 ) ad di ti on al in fo rm at io n abo ut th e “un rep res en te d c harit ab le cla ss ” refe rredto inpe ti ti on er’s am en de d a rti cl es of in co rp or at io n, (4 ) ad di ti on al de ta il s re ga rd in g i ts pl an s t o e ng ag e in li ti ga ti on for

“ co ll at eral res ti tu ti on ” in cl ud in g wh ethe r th e la w firm s en ga ge d i n s uc h l it ig at io n wil l re cei ve a pe rcen ta ge of a ny m on et ary award s, an d (5 ) a d es cri pt io n o f pe ti ti on er’s p lans to rei m burs e m em

be rs of t he ch ari tabl e cl as s an d F FELP le nd ers un de r th e Nat io na l Len de rs ’ Ass ur an ce Pr og ram . Res po nd en t ag ai n re qu es te d tha t pe ti ti on er p ro vi de a cu rren t l is t o f it s o ffi cers an d b oa rdm em be rs . Mr. Hu gg in s re sp on de d b y let te r da te d Jul y

16 , 20 09 , att ach in g s om e o f th e pl ead in gs an d o th er d oc um en ts th athe an d p et it io ne r fi le d i n C ou nc il forEdu c. v. Cal . Att ’y Gen., No . 2: 09 -CV-1 50 3 (E.D. Cal . fil edJu ne 1, 2 00 9) , a co py of a le tt er fro m

Pat to n & Bo gg s, LLP, in di cat in g tha t the firm wou ldno lo ng er rep res en t p et it io ne r un ti l i ts ou ts tand in g l eg al fees were p ai d i n fu ll , anda co py of a le tt er fro m

th e Cal ifo rn iaGov ern m en t Cl ai m s Pr og ram ad dr es se d t o p et it io ne r’s at to rn ey , Mr. Iv ie , ackno wled gi ng rece ip t o f pe ti ti on er’s ap pl ic at io n fo r a-1 6-

[* 16 ] “ Gov ern m en t Cl ai m ”. Fin al ly, Mr. Hu gg in s re ferr edres po nd en t t o a 1 1 pr ov is io n i n p et it io ne r’s bylaws st at in g: “ The ap po in tm en t o f a Bo ardof Di rect or s sh al l co m m en ce n in ety

90 da y s af

te r th e Co rp or at io n i s fu ll y fun de d andis ab le to pa y each bo ardm em

be r anan nu al sal ary to be de te rm in edth ro ug h n eg ot ia ti on s b y th e ap po in te d Di rect or .” E. Resp on de nt ’s Fou rth Reque stforInf orm at io n By let te r da te d J ul y

31 , 20 09 , res po nd en t re qu es te d a dd it io na l i nf orm at io n fro m pe ti ti on er i nc lu di ng a de ta il edde sc rip ti on of i ts pl an s t o i nv es ti ga te an d rep ort i ns tanc es of a cad em ic frau d re la te d t o fe de ral ly gua ran te edstud en t l oa ns . Res po nd en t al so reque st edco pi es of a ny bro ch ur es , pam ph le ts , news le tt ers , adve rti se m en ts , or any oth er l it eratur e reg ard in g p et it io ne r. On Au gu st3, 2 00 9, M r. Hug gi ns sen t a s eri es of f acs im il e tr an sm is si on s t o res po nd en t an d i nc lu de d aco py of th e Fo rm 10 24 , App li cat io n fo r Rec og ni ti on of Exe m pt io n Un de r Sec ti on 50 1( a), an d re la te d d oc um en ts , th atACRC s ub m it te d t o th e IRS in19 97 . By

let te r da te d Au gu st11 , 20 09 , Mr. Hug gi ns in fo rm ed
res po nd en t tha t, i n a cco rd an ce wi th it s m is si on st at em en t, p et it io ne r co m m is si on ed a rep ort o n the pra ct ic al effe ct s o f Pro po si ti on 20 9, fo cu si ng onadm is si on an d
The adm in is tra ti ve reco rddo es no t d is cl os e th e d is po si ti on of p et it io ne r’s 1 1
“ Gov ern m en t Cl ai m ”.-1 7-

[* 17 ] gr adua ti on rat es for Afric anAm eri canstud en ts en ro ll edat UC. Th e le tt er
was acco m

pa ni edby (1) a re po rt p rep aredby D r. Dawn P ers on , dat edJu ne 26 , 20 08 , di sc us si ng th e im

pa ctof P ro po si ti on 20 9 o n Afr ic anAm eri canstud en ts an d (2 ) a wri tt enex ch an ge be twee n M r. Hug gi ns an d Ry anAzle in of S tubb s, Ald ers to n & Mark il es , LLP, regard in g apro po se d re ta in er ag reem en t u nd er wh ic h Mr. Azl ei n wo ul d a ss is t wi th anot he rwis e uni de nt ifi edpri va te off eri ng of
se cu rit ie s. F. Res po nd en t’s Fi fth Reque stforInf orm at io n On Au gu st12 , 20 09 , res po nd en t re qu es te d t ha t p et it io ne r pr ov id e th e fo ll owi ng in fo rm at io n: 1. Pl eas e p ro vi de a de ta il edbu si ne ss pl anforth e n ex t 2 y ears . 2. Pl eas e ex pl ai n h ow you wi ll ga th er p ub li c supp ort fo r y our advo cacy pro gr am s. 3. How wi ll th e p op ul at io n youin te ndto serve be m ad e aware of your se rv ic es ? Ple as e ex pl ai n a ndpro vi de sp eci fic ex am

pl es . 4. Pl eas e ex pl ai n your rel at io ns hi p wi th Ise co m LLC. 5. Pl eas e p ro vi de a co m pl et e co py of th e rep ort co m m is si on edby y ouin20 08
. 6. How m an y

are re pr es en te d i n the cla ss act io n?-1 8-

[* 18 ] 7. Doc um en ts subm it te d Au gu st3, 2 00 9 i nd ic at e “ th e

pe ti ti on er m ov es th e co urt t o o rd er the U.S. Departm en t of Edu cat io n t o re m ov e th e fed eral off se t ag ai ns t Har ol d Hug gi ns an d c eas e an y

an d a ll lo anco ll ect io ns act iv it ie s.” Ex pl ai n h ow thi s ac ti vi ty is ex em ptun de r Sect io n 5 01 (c)( 3)
. 8. The in stru ct io n o f th e p ub li c b y reco gn iz ededuc at io na l m etho ds on co nt ro ve rs ia l s ub jects m ay qu al ify for ex em ptst atus . On th e o th er h an d, the m ere p res en ta ti on of un supp orte d o pi ni on is no t “ educ at io na l.” (1 .50 1( c)(3 )- 1 (d )(3 ) of

th e In co m e Tax Reg ul at io ns ). Usi ng en cl os edrev enue rul in g, ex pl ai n your or ga ni zat io n is educ at io na l wi th in th e m ean in g o f 50 1( c)(3 ). (See en cl os edRev enue Ru li ng 68 -2 63 ). 9. Pro vi de de ta il edex am pl es of s tu de ntlo anfrau d t ha t you wil l i nv es ti ga te . Ina le tt er t o re sp on de ntda te d S ep te m be r 14 , 20 09 , Mr. Hug gi ns st at edth at
m an y of r es po nd en t’s que st io ns sh ou ldbe rev ie wed“ in co ns en su s wi th th e Ass is tantUni te d S ta te s At to rn ey s” , cit in g que st io ns 2, 3 , 6 an d 9 , qu ot edab ov e. Mr. Hu gg in s al so st at edth atpe ti ti on er wo ul d m od ify its W eb si te “ to refl ectth at th e Co un ci l fo r Edu cat io n i s a n onpr of it , li ti ga ti on , org an iz at io n, co nt rib ut io ns rece iv edwil l b e u se d fo r pr of es si on al att orne y

fees , res earc h c on su lt an ts , and pr of es si on al st aff i n s up po rt t he reo f en fo rci ng th e au di t p ro vi si on s o f th e Hig he r Edu cat io n Actby m ean s o f jud ic ia l o pi ni onrev ie w.”-1 9-

[* 19 ] On Oct ob er 2 , 20 09 , Mr. Hug gi ns subm it te d afurth er re sp on se to
res po nd en t’s l et te r da te d Au gu st3, 2 00 9, as fol lo ws: 1. Res po ns e to Ques ti on No. 1 : Cf or Ed i s i n t he pro ces s o f ret ai ni ng anou ts id e co ns ul tantto writ e a Bu si ne ss Pla n; 2. Res po ns e to Ques ti on No. 2 : Cf or Ed wi ll ga th er p ub li c supp ort thr ou gh th e fi li ng s o f le ga l p le ad in gs infed eral co urts de si gn edto en fo rce t he acad em ic cri te ria st an dard s m an da te d b y

Co ng res s u nd er the pro vi si on s o f th e Hig he r Edu cat io n Actwhi chis en fo rcedby tho se acad em ic in st itut io ns ; 3. Res po ns e to Ques ti on No. 3 : Th e p ub li c wil l b en efi t th ro ug h g reat er tran sp aren cy of t ho se acad em ic in st itut io ns . Accor di ng to a U.S. Depa rtment o f Edu cat io n s tu dy, 41 p erce ntof l ow- in co m e stud en ts en te rin g apo stsec on da ry co ll eg e m an ag edto gra du at e withi n fi ve y ears as c om

pa red[to ] 66 pe rcen t o f hi gh
in co m e stud en ts . Cfo rEd i s an advo cat e fo r un iv ers al ly reco gn iz edbl in d a cad em ic ev al ua ti on s thr ou ghth e u se of ele ctro ni c m ach in es , rathe r th anin di vi du al gra de r; 4. Res po ns e to Ques ti on No. 4 : Is is Co m , LLC., is Cf or Ed’s un de rwri te r. I pr es en tl y

serve as I SISC OM, LLC., m an ag er, 5. Res po ns e to Ques ti on No. 5 : Re adhe rei n e nc lo se d at ta ch m en t Ex hi bi t “ A”; 6. Res po ns e to Ques ti on No. 6 : Th e co m m is si on ed res earc he d a ndfed eral co urt s y st em wil l d et erm in e th e li ke ly clas s ac ti on st atus ;-2 0-

[* 20 ] 7. Res po ns e to Ques ti on No. 7 : Th e g oa l o f th e le ga l

pr oc eed in gs inCo un ci l v U S Depa rtment o f Edu cat io n, etal., i s t o p ro vi de tem

po rary deb t re li ef u nt il th e fi na l di sp os it io n o f anadm in is tra ti ve rev ie w pro ces s; 8. Res po ns e to Ques ti on No. 8 : Un supp orte d o pi ni on s ar e th os e co urt p le ad in gs (i.e . Rev enue Ru li ng 68 -2 63 , 19 68
- 1 C B 2 56 ) fi le d b efo re a ju di ci al jud ge for rev ie w, thus , th e uns up po rte d o pi ni on be co m es a supp orte d ju di ci al op in io n upo n re vi ew th erea fte r by the fed eral jud ge ; an d 9. Res po ns e to Ques ti on No. 9 : Anex am pl e o f stud en t lo anfrau d i s the award in g o f stud en t g rad es on th e ba se s o f so ci al eco no m ic s ra th er than a cad em ic st an dard s as reco gn iz edby tho se acad em ic accr ed it at io n in st itut io ns (i.e . W es te rnAss oc ia ti on of S ch oo ls an d Co ll eg es , andCo un ci l fo r Hig he r Edu cat io n Accre di ta ti on ). a. Eth ic vi ol at io ns of c ol lu si on reg ard in g aco nf li ctof in te res t b etweena stud en t an d fa cu lty m em be r, whe re sa idfacu lty

m em be r ha s a f

in an ci al , qu idqu o p ro , eco no m ic be ne fit(i.e . fai lu re t o re m ov e o ne sel f fro m th e d eci si on pro ces s co ns ti tu te s a v io la ti on ); b. A v io lati on of astud en t’s l eg al rig htto anacad em ic ap pe al reg ard in g a n i ns tru ct or ’s eva lu at io n t he refo re co ns ti tu te s a v io lati on . IV. Res po nd en t’s Pre li m in ary Dete rm in at io n a ndth e App eal s Pr oc es s On M ay 25 , 20 10 , res po nd en t i ss ue d apre li m in ary de te rm in at io n co nc lu di ng th atpe ti ti on er (1 ) was no t o rg an iz edor o pe rat edex cl us iv el y foran ex em ptpu rp os e wit hi n the m ean in g o f se ct io n 5 01 (c)( 3) , and(2) was o pe rat ed-2 1-

[* 21 ] pr im ari ly to s erv e Mr. Hu gg in s’ pri va te in te res ts . Peti ti on er ap pe al ed
res po nd en t’s p rel im in ary de te rm in at io n, as se rti ng th atitwas e ng ag edineduc at io n act iv it ie s tha t s erv edanex em ptpu rp os e wit hi n t he m ean in g o f se ct io n 5 01 (c)( 3)
. Dur in g the ap pe al pro ces s, M r. Hug gi ns sen t a l et te r to th e App eal s Off ic e st at in g tha t p et it io ne r pr ov id es educ at io na l m at eri al s t o c ol le ge ap pl ic an ts in fo rm in g the m

of c ol le ge s an d u ni ve rs it ie s wi thhi gh stud en t at tri ti on rat es , with th e ai m of r educ in g the ris k o f de fau lton Fed eral stud en t l oa ns , andth atpe ti ti on er advo cat es on be ha lf o f Fed eral stud en t l oa n re ci pi en ts th ro ug h l it ig at io n i nt en de d to pro te ctin di vi du al civ il rig ht s. Mr . Hug gi ns di d n otpro du ce an y educ at io na l
m at eri al s s uc h a s p am

ph le ts or n ews le tt ers . The Ap pe al s Off ic e co nc lu de d t ha t pe ti ti on er was no t o pe rat edforanex em ptpurp os e. V. Resp on de nt ’s Fin al Dete rm in at io n As i nd ic at ed , res po nd en t i ss ue d t o p et it io ne r a fi na l n ot ic e o f de te rm in at io n de nyin g i ts ap pl ic at io n fo r ex em pt io n u nd er s ect io n 5 01 (c)( 3) . The n ot ic e st at es th atpe ti ti on er fa il edto sh ow tha t (1 ) it s ac ti vi ti es are educ at io na l wi th in th e
m ean in g o f se ct io n 1 .50 1( c)(3 )-1 (d )(3 )(1 ), In co m e Tax Reg s., an d (2 ) itis op erat edex cl us iv el y

for anex em ptpu rp os e.-2 2-

[* 22 ] Dis cu ss io n Sect io n 5 01 (a) p ro vi de s i n re le va ntpa rt t ha t an org an iz at io n d es cri be d i n se ct io n 5 01 (c)( 3) (in cl ud in g aco rp or at io n) sh al l b e ex em ptfro m Fed eral in co m e ta x u nl es s ex em

pt io n i s d en ie d u nd er s ect io n 5 02 or 5 03 . To qu al ify as anex em pt
or ga ni zat io n d es cri be d i n s ect io n 5 01 (c)( 3) , a co rp or at io n g en eral ly m us t de m on st rat e th at(1) itis org an iz edan d wi ll op erat e ex cl us iv el y forrel ig io us , ch ari tabl e, sc ie nt ifi c, educ at io na l, o r ot he r sp eci fie d e xe m ptpu rp os es ; (2 ) no pa rt of it s n etearn in gs wil l i nure t o the be ne fitof apri va te sh areh ol de r orin di vi du al ; (3 ) no pa rt o f it s ac ti vi ti es co ns ti tu te s i nt erv en ti on or p art ic ip at io n i n any po li ti cal
cam pa ig n o n b eh al f of

an y can di da te forpubl ic off

ic e; an d (4 ) no subs tant ia l p art of it s ac ti vi ti es co ns is ts of p ol it ic al or l ob byin g a ct iv it ie s. Am . Cam pa ig n Aca d. v
. Co m m is si on er, 9 2 T.C. 1 05 3, 1 06 2 (1 98 9)
. Qua li fic at io n a s a c or

po rat io n d es cri be d i n s ect io n 5 01 (c)( 3) no t o nl y pr ov id es anex em

pt io n fr om

Fed eral in co m e ta x, b utals o g en eral ly perm it s the
co rp or at io n t o s ol ic itan d a ccep t d on at io ns whi chno rm al ly are de du ct ib le by the do no r ag ai ns t h is or h er Fe de ral in co m e ta x. Se e se c. 17 0( c); Bo b J on es Uni v. v . Uni te d S tate s, 4 61 U.S. 57 4, 5 78 (19 83 ). Sect io n 1 .50 1( c)(3 )-1 (b )(1 )(i ), In co m e Tax Reg s., p ro vi de s tha t an
or ga ni zat io n i s “ or ga ni zedex cl us iv el y ” fo r on e o r m or e ex em ptpu rp os es on ly if-2 3-

[* 23 ] it s arti cl es of o rg an iz at io n (1 ) li m itth e p ur po se s o f su chorg an iz at io n t o o ne
orm or e ex em

ptpurp os es an d (2 ) do no t ex pr es sl y em po wer the org an iz at io n t o en ga ge , othe rwis e th anas a n i ns ub st an ti al pa rt o f it s ac ti vi ti es , inact iv it ie s wh ic h in th em se lv es are n otinfurth eran ce o f on e o r m or e ex em ptpu rp os es . Res po nd en t’s n ot ic e o f de te rm in at io n d oe s n otrefe r to whet he r pe ti ti on er i s or ga ni zedex cl us iv el y

foranex em

ptpu rp os e, an d t he m at te r is no t ad dr es se d i n res po nd en t’s an swe r to th e p et it io n a s amend ed . Und er the cir cum st an ces , res po nd en t i s d eem edto ha ve co nc ed edth atpe ti ti on er was org an iz edex cl us iv el y fo r anex em

ptpu rp os e. An o rg an iz at io n wi ll be reg ard edas “ op erat edex cl us iv el y ” fo r on e o r m or e ex em ptpu rp os es on ly if iten ga ge s p rimaril y inact iv it ie s wh ic h a cco m pl is h o ne or
m or e o f th e ex em

ptpu rp os es sp eci fie d i n s ect io n 5 01 (c)( 3) (i.e ., reli gi ou s, ch ari tabl e, sc ie nt ifi c, te st in g fo r publ ic saf ety , li te rary, or educ at io na l p ur po se s)
. Sec. 1 .50 1( c)(3 )-1 (c)( 1) , Inc om e Tax Reg s. Anorg an iz at io n wi ll no t b e so reg ard edif m or e th ananin subs tant ia l p artof i ts act iv it ie s i s n otinfurth eran ce o f
anex em ptpurp os e, se e id ., or i f th e o rg an iz at io n o pe rat es forth e b en efi t o f pr iv at e in te res ts su chas d es ig na te d i nd iv idua ls or t he crea to r of th e o rg an iz at io n, s ee s ec. 1.5 01 (c)( 3) -1 (d )(1 )(i i), In co m e Tax Reg s.-2 4-

[* 24 ] Res po nd en t as se rts th atpe ti ti on er fai le d t o s ho w th atitis op erat ed
ex cl us iv el y

infurth eran ce o f a ch ari tabl e o r educ at io na l p ur po se an d t ha t, i n fa ct , it s ac ti vi ti es serve Mr. Hu gg in s’ pri va te in te res ts . Peti ti on er m ai nt ai ns th atit s li ti ga ti on act iv it ie s ac co m pl is h ach ari tabl e p ur

po se --p ro m ot in g s oc ia l wel fare --b y de fen di ng hu m anan d c iv il rig ht s s ecu redby law. The term “ ch ari tabl e” i n s ect io n 5 01 (c)( 3) is us edinit s g en eral ly accep te d le ga l s en se an d i nc lu de s ac ti vi ti es su chas r el ie f of th e p oo r orth e und erp riv il eg ed ; adva nc em en t o f rel ig io n, educ at io n, o r sc ie nc e; les se ni ng th e b ur de ns of Gov ern m en t; an d p ro m ot io n o f so ci al welf are, i nc lu di ng eli m in at in g p reju di ce an d di sc riminat io n a ndde fen di ng hu m anan d c iv il rig ht s. Sec . 1.5 01 (c)( 3) -1 (d )(2 ), In co m e Tax Reg s. Th e fac t tha t an org an iz at io n, i n c arrying ou t i ts pri m ary pu rp os e, advo cat es so ci al or c iv ic ch an ge s o r pr es en ts op in io n o n c on tro ve rs ia l is su es do es no t p recl ud e th e o rg an iz at io n fr om qu al ifyin g u nd er s ect io n 5 01 (c)( 3)
so lo ng as i t i s n otanact io n o rg an iz at io n o f any on e o f th e types de sc rib edin pa rag rap h (c )(3 ) of

sec ti on 1.5 01 (c)( 3) -1 , Inc om e Tax Reg s. Id
. 1 2 The Co m m is si on er re co gn iz es th atso m e o rg an iz at io ns th atpro vi de leg al
se rv ic es or e ng ag e in li ti ga ti onm ay serve a ch ari tabl e p ur

po se withi n t he m ean in g Res po nd en t d oe s n otco nt en d t ha t p et it io ne r is anact io n o rg an iz at io n (i .e., 1 2 anorg an iz at io n tha t at te m pt s t o i nf lu en ce l eg is la ti on or p art ic ip at es ina po li ti cal cam pa ig n) withi n the m ean in g o f se c. 1.5 01 (c)( 3) -1 (c)( 3) , Inc om e Tax Reg s.-2 5-

[* 25 ] of s ect io n 5 01 (c)( 3) . A revi ew of IRS ad m in is tra ti ve rul in gs sh ows th atth e Co m m is si on er h as gra nt edtax -ex em ptst atus to leg al servi ces org an iz at io ns in cl ud in g: (1) leg al aidso ci et ie s tha t p ro vi de free or s ub si di zedleg al servi ces to in di ge ntor l ow- in co m e p ers on s, s ee Re v. Ru l. 6 9- 16 1, 1 96 9- 1 C .B. 14 9; (2)
or ga ni zat io ns th atass is t i nd iv idua ls or g ro up s i n l it ig at io n t o p ro te cthu m anan d ci vi l ri gh ts , see Rev . Rul . 73 -2 85 , 19 73 -2 C.B. 1 74 (di sc us si ng th e ex em ptst atus of anorg an iz at io n tha t p ro vi de d fu nd s t o d efen d m em be rs of arel ig io us sec t i n le ga l ac ti on s i nv ol vi ng subs tant ia l co ns ti tu ti on al is su es ); (3) so -cal le d p ub li c 1 3 in te res t l aw fi rm s- -o rg an iz at io ns th atem pl oy in- ho us e at to rn ey s t o p ro vi de leg al rep res en ta ti on to in di vi du al s o r gr oups inres pe ctof m at te rs of b ro adpubl ic in te res t, s ee Re v. Pr oc . 92 -5 9, 1 99 2- 2 C .B. 41 1 (p ro vi di ng ge ne ral gu id el in es for publ ic in te res t l aw fi rm s) ; an d (4 ) or ga ni zat io ns th atactas the party-pl ai nt iff in adm in is tra ti ve an d ju di ci al pro ceed in gs to en fo rce F ed eral an d S ta te laws forth e be ne fitof t he ge ne ral publ ic , see Rev . Rul . 80 -2 78 , 19 80 -2 C.B. 1 75 (di sc us si ng th e ex em ptst atus of a n o rg an iz at io n t ha t fi le d s ui t ag ai ns t a l oc al m anuf actur er
an d the Sta te en vi ro nm en ta l p ro te ct io n a ge nc y for th e p ur po se of e njo in in g t he

To the same effect , see Rev . Rul . 68 -4 38 , 19 68 -2 C.B. 2 09 , di sc us si ng th e 1 3 ex em ptst atus of a n o rg an iz at io n t ha t wo rk edwith trad e as so ci at io ns forth e pu rp os e o f en co ur ag in g c om pl ianc e wit h c iv il rig ht s l aws .-2 6-

[* 26 ] m anuf

actur er fro m

co nt in ui ng to em itcert ai n a ir c on ta m in an ts an d t o re qu ire th e St at e ag en cy

to en fo rce app li cab le laws ). Pet it io ne r co nt en ds th atitwil l ac t as anadvo cat e fo r Fed eral stud en t l oa n reci pi en ts an d fo r FFELP l en de rs , in ve st ig at e St at e-ad m in is te redstud en t l oa n pr og ram s fo r im

pr op rie ti es , see k re st itut io n thr ou gh li ti ga ti on , comm is si on a publ ic rep ort o n i ns ti tu ti on al mis co nduc t, an d re im bu rs e “ m em

be rs of t he ch ari tabl e cl as s” . Alth ou gh th es e o bjec ti ve s ar e m at te rs th atwou lden ge nd er a br oa d p ub li c in te res t, we ca nn otsay onth e b as is of t hi s re co rdth atpe ti ti on er h as be enor wi ll be op erat edina m an ne r th atwil l fu rth er a ch ari tabl e p ur po se . Mr. Hu gg in s u nd oubt ed ly bel ie ve s h e was m is tre at edby facul ty andot he r of fic ia ls at UCS B an d tha t h is in ab il ity to co m pl et e h is stud ie s atUCSB i s at tri bu tabl e in lar ge pa rt t o M r. Co nn erl y an d h is effo rts insupp ort o f Pro po si ti on 20 9. Se ek in g re dr es s, M r. Hug gi ns em ba rk edonwhatis be stde sc rib edas a qu ix ot ic qu es t fo r rel ie f, fil in g n um ero us laws ui ts , witho utth e as si st an ce o f an at to rn ey . As pr ev io us ly dis cu ss ed , th os e la wsu it s wer e d is m is se d p rimaril y as a res ul t o f hi s fa il ur e to st at e a cl ai m . Man y of h is fil in gs were fri vo lo us or gr ou nd le ss , lea di ng th e Fed eral Dis tri ctCo urt t o d ecl are h im a ve xa ti ou s l it ig an t. Und et erre d, M r. Hug gi ns org an iz edpe ti ti on er an d fi le d a no th er l aws ui t, si mil ar i n m an y

res pe ct s t o tho se th atpre ced edit , tar ge ti ng no t o nl y Mr. Co nn erl y ,-2 7-

[* 27 ] bu t al so th e Cal ifo rn iaatt orne y ge ne ral , CFPPC , IRS, an d DOE. Mu chli ke Mr. Hu gg in s’ earl ie r la wsu it s, thi s ac ti on was d is m is se d wh enpe ti ti on er fa il edto fil e a p ro pe r am en de d c om pl ai ntwithi n t he ti m e p res cri be d i n ast ip ul at io n ap pr ov edby the co urt. Thi s C ou rt h as pre vi ou sl y he ldth at , wher e anin di vi du al crea te s an d
co nt ro ls th e aff

ai rs of an o rg an iz at io n s eek in g t ax -ex em ptst atus , th ere i s an ob vi ou s o pp ortuni ty for ab us e, whi chne ces si tate s an op enan d c an di d d is cl os ur e of all fact s b eari ng up on th e o rg an iz at io n a ndit s o pe rat io ns an d fi na nc es so th at th e Co urt ca n b e as su redth atby gran ti ng th e cl ai m edex em pt io n i t i s n ot
sa nc ti on in g a n abu se of t he rev enue laws . Bub bl in g Well Chur chof Un iv ers al Lov e, In c. v. Co m

m is si on er, 7 4 T.C. 5 31 , 53 5 (1 98 0) , aff’d, 6 70 F.2d10 4 (9 th Cir
. 19 81 ); s ee Lev y

Fam il y Trib e Fo un d., In c. v. Co m mis si on er, 6 9 T.C. 6 15 , 61 8- 61 9 (1 97 8) . Whe re s uc h d is cl os ur e is no t m ad e, th e lo gi cal in fere nc e is th atth e fac ts , if d is cl os ed , wou ldsh ow tha t the tax pa y er fa il s t o m eetth e requi rem en ts of s ect io n 50 1( c)(3 ). Bubb li ng W el l Ch ur chof Un iv ers al Lov e, In c. v. Co m m is si on er, 7 4 T.C. at 5 35 . As di sc us se d b el ow, m an y of p et it io ne r’s res po ns es to res po nd en t’s reque st s fo r in fo rm at io n wer e le ss th anop enan d c an di d, p art ic ul arl y res po ns es rel at in g t o i ts op erat io ns an d fi na nc es , lea di ng th e Co urt t o c on cl ud e th atth e-2 8-

[* 28 ] un di sc lo se d fa ct s wo ul d s ho w th atpe ti ti on er fa il s t o s at is fy th e requi rem en ts of sec ti on 50 1( c)(3 ). Pet it io ne r ha s n otad op te d a n o pe rat in g s tru ctur e o r pr oc edur es ne ces sa ry to
en su re tha t i ts act iv it ie s ar e p ro pe rly focu se d t o fu rth er i ts all eg edch ari tabl e pu rp os e. Pro m in en t am on g p et it io ne r’s sh ortc om in gs are the lac k o f a fo rm al bu si ne ss pl anan d a n i nd ep en de ntbo ardof d ire ct or s t o p ro vi de op erat io na l gu id an ce an d o ve rs ig ht
. See P.L.L. Sch ol ars hi p F un d v . Comm is si on er, 8 2 T.C. 1 4 19 6, 2 00 (19 84 ) (d is cu ss in g the im po rta nc e o f anin de pe nd en t b oa rdof d ire ct or s)
. Mr. Hu gg in s i s n otanatt orne y , andhe ap pe ars to lac k a ny form al tra in in g o r ex pe rie nc e in eit he r th e p ract ic e o f la w, bu si ne ss adm in is tra ti on , or the op erat io n of a ch ari tabl e o rg an iz at io n; y ethe is act in g a s p et it io ne r’s so le off ic er, d ire ct or , an d e m pl oyee. To b e b lu nt , we are n otpe rs ua de d t ha t M r. Hug gi ns ha s de m on st rat edth e le ga l s ki ll s o r bu si ne ss acu m enne ed edto co nduc t p et it io ne r’s op erat io ns to ach ie ve it s ch ari tabl e p ur po se or t o fu rth er the publ ic go od
.
Mr. Hu gg in s i nf

orm edres po nd en t tha t p et it io ne r wou ldno t ap po in t a 1 4 bo ardof d ire ct or s unt il itha s the fun ds to pa y th e b oardm em

be rs forth ei r se rv ic es . There is no in di cat io n wh ethe r Mr. Hu gg in s co ns id eredth e p os si bi li ty of po pu la ti ng th e b oa rdof d ire ct or s wi th in di vi du al s wi ll in g t o v ol un te er the ir se rv ic es . Mor eo ve r, al th ou gh pe ti ti on er i nf orm edres po nd en t tha t i ts li ti ga ti on act iv it ie s wer e d ire ct edby Speci al Co m m it te e 1 86 8, the adm in is tra ti ve reco rd do es no t i nc lu de an y

in fo rm at io n re ga rd in g t he co m po si ti on of i ts m em

be rs hi p, th ei r in di vi du al qu al ifi cat io ns , or the gro up ’s act iv it ie s.-2 9-

[* 29 ] The adm in is tra ti ve reco rdli ke wis e is de vo idof a ny evi de nc e th atpe ti ti on er ha s ad op te d a ny form al po li ci es go ve rn in g i ts da y -to -d ay op erat io ns in cl ud in g su chcri ti cal m atte rs as p ro pe r fi na nc ia l an d a cco un ti ng co nt ro ls , th e am ou ntof Mr. Hu gg in s’ com

pe ns at io n, ac cep tabl e co m pe ns at io n a rran ge m en ts with o ut si de at to rn ey s, an d o ve rs ig htof l it ig at io n p ract ic es an d s tra te gi es . In the li gh t o f th es e subs tant ia l d efi ci en ci es , we can no t s ay th atpe ti ti on er wi ll be op erat edin furth eran ce o f a ch ari tabl e p ur po se withi n t he m ean in g o f se ct io n 5 01 (c)( 3)
. W e al so wou ldbe ha rdpre ss edto say tha t p et it io ne r’s op erat io ns do no t
m or e th anin ci de nt al ly furthe r Mr. Hu gg in s’ pri va te in te res ts . W e n ot e th atth e lawsu itth atpe ti ti on er an d M r. Hug gi ns joi nt ly file d a ga in stIRS an d DOE n oton ly
was subs tant ia ll y

si m il ar t o the earl ie r la wsu it s tha t M r. Hug gi ns fil edinhi s in di vi du al cap aci ty, bu t al so in cl ud eda reque stfora co urt o rd er d ire ct in g DOE to te rm in at e it s ef

fo rts to co ll ectMr. Hu gg in s’ per so na l s tu de ntlo ande bt . See ge ne ral ly N at io na li stMo ve m en t v . Comm is si on er, 1 02 T.C. 55 8, 5 74 -5 75 (19 94 ), aff’d, 3 7 F .3d21 6 (5 th Cir . 19 94 ). 1 5

In so far a s p et it io ne r co nt en ds th atitwil l o pe rat e to serve aneduc at io na l 1 5 pu rp os e, we no te th atpe ti ti on er fa il edto pro vi de res po nd en t wi th any pa m ph le ts , flyers, o r ot he r writ te n m at eri al rep res en ta ti ve of i ts educ at io na l ac ti vi ti es . In ad di ti on to th e sh ortc om in g d is cu ss edab ov e, in th e ab se nc e o f su chm at eri al we are u nabl e to ev al ua te pe ti ti on er’s cl ai m th atit s educ at io na l ac ti vi ti es ach ie ve an ex em ptpu rp os e wit hi n the m ean in g o f se c. 50 1( c)(3 ).-3 0-

[* 30 ] To re fle ctth e fo reg oi ng , Deci si on wil l b e en te red fo r res po nd en t.