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Zagfly, Inc. v. Commissioner

T.C. Memo. 2013-29 (2013)

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Zagfly, Inc. v. Commissioner

United States Tax Court
T.C. Memo. 2013-29 (2013)

Facts

Zagfly, Inc. (plaintiff) was incorporated in California as a nonprofit corporation. Zagfly’s stated purpose was to create internet businesses that would allow consumers to support charities with their everyday purchases. To accomplish this goal, Zagfly intended to allow consumers to designate a portion of the profits from each purchase. That portion would be set aside, and Zagfly would donate these funds to outside charities selected by its users. Zagfly’s first proposed commercial venture was to run an online flower shop that brokered flower deliveries for customers at market rates. Customers would be able to designate 1 to 2 percent of each purchase price (which represented 10 to 20 percent of Zagfly’s profits for each purchase) to be donated to the outside charities. Other than that, Zagfly’s flower business would run like an ordinary commercial online flower brokerage. Zagfly also intended to solicit donations to cover the administrative expenses of managing the charitable donations. Zagfly applied for federal tax-exempt status under § 501(c)(3), contending it was organized and operated exclusively for charitable purposes. The Internal Revenue Service (IRS) (defendant) rejected the application. Zagfly filed a petition in the Tax Court seeking a determination that it qualified as tax exempt.

Rule of Law

Issue

Holding and Reasoning (Guy, J.)

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