Madden v. Commissioner
This text of 1997 T.C. Memo. 395 (Madden v. Commissioner) is published on Counsel Stack Legal Research, covering United States Tax Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.
Opinion
*472 Decisions will be entered under
MEMORANDUM FINDINGS OF FACT AND OPINION
FAY,
Docket No. 6639-93. John W. Madden, Jr.:
| Year | Deficiency | First Tier Deficiency | Second Tier Deficiency |
| Secs. | Secs. 4941(a)(1) | Sec. 4941 | |
| 511-513 | and (2), 4945(a)(2) | (b)(1) and (2) | |
| 1983 | -- | $ 40 | -- |
| 1984 | -- | 2,192 | -- |
| 1985 | -- | 3,404 | -- |
| 1986 | -- | 4,397 | -- |
| 1987 | -- | 4,840 | -- |
| 1988 | -- | 6,005 | -- |
| 1989 | -- | 6,531 | -- |
| 1990 | -- | 6,531 | -- |
| 1991 | -- | 6,531 | -- |
| 1992 | -- | 6,531 | $ 159,179 |
*473 Docket No. 6696-93. Museum of Outdoor Arts:
| Year | Deficiency | First Tier Deficiency | Second Tier Deficiency |
| Secs. | Secs. 4941(a)(1) | Sec. 4941 | |
| 511-513 | and (2), 4945(a)(2) | (b)(1) and (2) | |
| 1984 | $ 8,088 | -- | -- |
| 1985 | 10,679 | -- | -- |
| 1986 | 7,596 | -- | -- |
| 1987 | 47,465 | -- | -- |
| 1988 | 43,565 | $ 300 | -- |
Docket No. 6697-93. Cynthia Madden Leitner:
| Year | Deficiency | First Tier Deficiency | Second Tier Deficiency | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Secs. | Secs. 4941(a)(1) | Sec. 4941 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Free access — add to your briefcase to read the full text and ask questions with AI JOHN W. MADDEN, JR., ET AL., 1 Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent Madden v. Commissioner Docket Nos. 6639-93, 6696-93, 6697-93, 6698-93, 6699-93 T.C. Memo 1997-395; 1997 Tax Ct. Memo LEXIS 472; 74 T.C.M. (CCH) 440; August 27, 1997, Filed *472 Decisions will be entered under FAY, Judge FAY MEMORANDUM FINDINGS OF FACT AND OPINION FAY, Docket No. 6639-93. John W. Madden, Jr.:
*473 Docket No. 6696-93. Museum of Outdoor Arts:
Docket No. 6697-93. Cynthia Madden Leitner:
Docket No. 6698-93. Plaza Developers Holdings, LLC, A Colorado Limited Liability Company:
*474 Docket No. 6699-93. Marjorie P. Madden:
All section references are to the Internal Revenue Code in effect for the taxable years in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure, unless otherwise indicated. The parties have made numerous concessions, including respondent's concession of the second tier deficiencies originally determined with respect to petitioner John W. Madden, Jr. (petitioner), Marjorie P. Madden (petitioner's wife), and Cynthia Madden Leitner (petitioner's daughter). The issues remaining for decision are: (1) Whether the Museum of Outdoor Arts (the Museum) is liable, as lessor, for unrelated business income tax (UBIT) on amounts received from 1984 through 1988 in connection with the leasing of office building spaces; (2) whether the Museum is liable, *475 as lessor, for UBIT on amounts received in 1987 and 1988 in connection with the leasing of Fiddler's Green Amphitheatre (FGA); (3) whether Greenwood Maintenance Co. 2 (GMC) is liable for the excise tax under (4) whether petitioner, petitioner's wife, and petitioner's daughter are liable for the excise tax under (5) whether petitioner, petitioner's wife, and petitioner's daughter are liable for the *476 FINDINGS OF FACT Some of the facts have been stipulated and are so found. The stipulation of facts and the attached exhibits are incorporated herein by this reference. Petitioner and petitioner's wife resided in Englewood, Colorado, at the time he filed his petition. 3 Petitioner formed the John Madden Co. (the Company) in 1969. The Company, which develops and manages commercial office buildings and office parks, played an integral role in developing Greenwood Plaza, a Denver, Colorado, office complex consisting of 49 commercial office buildings spread over 200 acres of land. The Company, via a number of different partnerships, owned nine of the buildings in the complex during the years at issue. The Museum, a private foundation incorporated in the*477 State of Colorado, is located in the Greenwood Plaza complex. Petitioner is one of the founders of the Museum and was a foundation manager of the Museum under section 4946(b) during the years at issue. Petitioner's wife served as treasurer of the Museum during 1985 and 1986, secretary/treasurer during 1987, and secretary during 1988 and 1989. Petitioner's daughter served on the board of directors of the Museum during all the years at issue. She was the secretary of the Museum from 1983 through 1985, president of the Museum during 1986, and president/vice president from 1987 through 1989. Both petitioner's wife and petitioner's daughter were foundation managers of the Museum under section 4946(b) during the years at issue. The Museum, an "outdoor" museum which can be best described as a "museum without walls", was granted its tax-exempt status under The Museum relies on the Company to provide most of its management facilities. Specifically, the John Madden Co. furnishes office space to the Museum, rent free, in one of the buildings owned by the Company. Further, the Company allows the Museum to use its accounting system free of charge. The Museum also relies on the building owners (including the Company) to provide spaces inside and outside their buildings free of charge to display its artwork. Periodically, members of the community hold special events, such as wedding receptions or bar mitzvahs, in the spaces provided by the building owners. In these instances, the Museum charges the community members a fee*479 for the use of the spaces furnished by the building owners. These special events were held at various times during the years at issue. The Museum recorded the following amounts as leasing revenue, and incurred the following expenses, in connection with the leasing of the office building spaces:
Except for $ 425 in 1988, all of the expenses listed for the years 1986, 1987, and 1988 relate to payments made by the Museum to GMC for services furnished by GMC in connection with the special events. Prior to 1983, GMC did not charge the Museum any fee for its services. In the early 1980's, the Company hired Dr. Sherry Manning as its new chief executive officer. Prior to being hired by the Company, Dr. Manning had been the president of Colorado Women's College. Dr. Manning told petitioner's daughter that GMC could charge the Museum for the services it provided to the Museum, so long as the charge was not higher than the fair market rate for the services rendered. As indicated above, GMC began charging the Museum for the services that it provided in connection with the special*480 events. Petitioner owns a 75-percent stake in GMC, a maintenance and janitorial company. Thus, GMC is defined as a disqualified person under section 4946(a)(1) with respect to the Museum. During the years at issue, GMC performed maintenance functions for approximately 20 of the buildings in Greenwood Plaza, including all of the buildings owned by the Company. Throughout the years at issue, the Museum contracted with GMC to perform janitorial and related services. Depending on the job requirements, GMC would either perform the work itself or subcontract with third parties to have the work performed. On August 26, 1986, Greenwood Plaza South, a partnership in which petitioner was a partner, donated FGA to the Museum. Concurrent with the FGA donation, a 3-acre park contiguous to the amphitheater, known as Samson Park, was also donated to the Museum. FGA is an outdoor amphitheater built in 1982 as an earth sculpture. From the time of its development until it was donated to the Museum in August 1986, the Museum used FGA approximately five times each year for performing arts events. On July 17, 1986, 3 weeks prior*481 to the donation, the Museum executed the FGA long-term facility lease agreement (the First Lease) with MCA Concerts, Inc. (MCA), for the lease of FGA. After entering into the First Lease, the Museum sent a copy of the First Lease to the New Yorklaw firm of Baer Marks & Upham for advice regarding any issues that might affect the Museum's tax-exempt status. By a letter dated February 2, 1987, Baer Marks & Upham replied to the Museum's inquiry and made a number of suggestions for changes in the lease. Thereafter, on August 7, 1987, the Museum executed the first amended and restated FGA long-term facility lease agreement (the Second Lease). Pursuant to their agreement, after entering into the First Lease, MCA installed individual seats, constructed a sound wall, and made other improvements to FGA. After the renovations, FGA could accommodate an audience of 18,000 people, and many popular performers could, and did, put on shows at FGA. The Second Lease provides that the Museum will collect rent from MCA based on a fixed percentage of gross receipts, but that, in any event, the rent will not be less than $ 120,000 per year. The Second Lease also imposes certain obligations on the Museum. *482 First, the Museum is required to use its best efforts with respect to obtaining any necessary permits. Second, the Museum is required to maintain the property and secure it from damage. Third, the Museum is obligated to arrange for 5,000 parking spaces. In order to arrange for the parking spaces, the Museum entered into parking license agreements with building owners in the Greenwood Plaza complex. Pursuant to these licenses, the building owners agreed to make their buildings' parking spaces available to concert patrons, and in return the Museum agreed to arrange for security and cleanup of the parking areas. Finally, the Second Lease contains a sublease clause. Under this clause, MCA must remit 25 percent of the sublease rentals to the Museum. The sublease rentals are defined as the gross receipts received by MCA from the sublessees less any out-of-pocket expenses incurred by MCA in connection with the subleases. Petitioner is a disqualified person, as defined by section 4946(a)(1), with respect to the Museum. Petitioner admits that on June 5, 1985, the Museum and petitioner engaged in a self-dealing transaction. He also admits that, on July 12, *483 1985, he and the Museum engaged in a self-dealing transaction. Petitioner concedes that he owes the first tier excise tax under The transactions involve payments made by the Museum for repairs to artwork owned by petitioner. In each case, petitioner was out of town when the transactions occurred. As noted A third transaction at issue involves a $ 3,000 payment made by the Museum to Form, Inc. Form, Inc., is an association of artists who create large stone sculptures. The payment relates to art exhibition expenditures made pursuant to a contract with Form, Inc. However, the Company is the named party in the contract with Form, Inc., not the Museum. OPINION The first issue for decision involves whether the income received*484 from the Museum's leasing of building spaces to members of the community constitutes unrelated business taxable income (UBTI). Respondent determined in the notice of deficiency that the leasing 4 revenues received by the Museum constitute income from a trade or business, regularly carried on for profit and not substantially related to the exempt function of the Museum. Therefore, respondent contends the leasing income is UBTI under The income of organizations classified under The regulations and case law specify three elements necessary for income to be UBTI: (1) The activity being conducted must rise to the level of a trade or business, (2) the trade or business must be regularly carried on by the organization, and (3) the conduct of the trade or business must not be substantially related to the organization's tax-exempt purpose. An activity is substantially related to an organization's exempt purposes where the performance of the activity has a substantial*487 causal relationship to the achievement of the exempt purposes. In evaluating the substantial relationship, we focus our inquiry on the manner in which the Museum conducts its activities. At this point, we recall the stated purposes of the Museum. The Museum was created to expose people to the outdoor arts and to promote interest in outdoor objects as art forms. By offering the building spaces for special events, the Museum argues that it effectively exhibited the artwork to an audience who normally would not have come to the Greenwood Plaza and viewed the exhibits. This rationale is consistent with the Museum's stated purposes. Accordingly, we conclude that the Museum's leasing of building spaces to members of the public was substantially related to its exempt purpose. Therefore, the revenue generated by this activity is not UBTI. *490 The second issue for decision concerns whether the Museum realized UBTI from leasing FGA to MCA. In the notice of deficiency, respondent determined that revenues from the lease with MCA constitute income from a trade or business, regularly carried on for profit and not substantially related to the exempt function*491 of the Museum, thereby resulting in UBTI under The Museum contends that the leasing activity did not rise to the level of a trade or business, and, even if it did, it was not regularly carried on. In making this determination, the size of the property and the taxpayer's activities with respect to the property are important factors. See generally Next, the Museum contends that the leasing activity is substantially related to its exempt purpose, because the Museum was established to promote live shows and performing arts events. The Museum asserts that it could*493 have put on these productions itself. Therefore, the Museum argues that it did not generate UBTI by merely leasing FGA and having MCA arrange for the performances. As discussed The Museum argues that, even if the lease proceeds represent unrelated business income, they fall within the passive real-estate exception to UBTI. Respondent contends the Museum rendered substantial*495 services solely for the convenience of MCA. Specifically, respondent directs our attention to three lease provisions: The requirement that the Museum arrange for parking; the requirement that the Museum maintain the FGA grounds and arrange for security; and the requirement that the Museum use its best efforts with respect to obtaining the necessary permits and licenses (e.g., a liquor license). We will deal with each of these in turn. Respondent argues that the parking arrangements under the lease constitute substantial services not typically rendered to tenants. The Museum responds that, just as the Museum is without walls, FGA is an amphitheater without parking spaces. Therefore, the Museum had no choice but to arrange for parking spaces, because otherwise it would be impractical to hold concerts at FGA. We agree with the Museum that arranging for the parking spaces was not an impermissible service provided to MCA. The regulations proscribe services rendered to the tenant if they are "primarily for his convenience and are other than those usually or customarily rendered in connection with the rental of rooms or other space for occupancy only." Typically, a complex such as FGA is built with parking areas surrounding the structure. Any lease of the building necessarily contemplates that the lessee will be able to use the surrounding parking spaces. Here, the Museum was required to undertake unique measures in order to provide the parking necessary for MCA to use FGA. These arrangements were necessary to put FGA on equal footing with similar complexes and do not represent impermissible services under the regulation. The evidence at trial indicates that, once the spaces were made available, MCA took on the primary responsibility of managing the parking spaces during the concerts, although the Museum retained some responsibility for security and cleanup. In effect, instead of building a parking garage, the Museum created parking spaces through these license arrangements. Once the arrangements were complete, however, the Museum turned over the *497 primary operating duties to MCA for the duration of the concerts. These arrangements do not constitute impermissible services. Respondent also argues that the maintenance and security services furnished by the Museum are impermissible services provided to the tenant. The Second Lease requires the Museum to maintain or provide for the maintenance of all existing structures at the outset of the Second Lease and to arrange for security on days that MCA is not using FGA. MCA agreed to pay the Museum $ 15,000 a year to help defray the Museum's expenses incurred in arranging for these services. Respondent argues that the maintenance of FGA was a service rendered for the benefit of the lessee. We cannot agree with respondent's contention that the maintenance services went beyond what a landlord would normally furnish in a lease for occupancy. In fulfilling this obligation, the Museum simply contracted with a landscaping company to maintain the grounds surrounding the amphitheater. Further, the evidence indicates that, after MCA took possession of the structure in 1988, the Museum did not provide, nor contract with a third party to provide, security services for FGA. Maintaining the grounds*498 surrounding a building is a service customarily rendered by lessors and is not an impermissible service for purposes of the regulation. Finally, respondent argues that the "best efforts" clause in the Second Lease is an impermissible service for the benefit of the lessee. The clause states that the Museum will use its "best efforts" to assist MCA in obtaining any permits or licenses, such as those necessary for the sale of beer, wine, and spirits at FGA. Upon the advice of Baer Marks & Upham, a clause was added to the Second Lease which specified that the Museum was required to lend only such assistance as is usually and customarily rendered by landlords to tenants. No evidence was adduced at trial concerning what actions, if any, the Museum actually took with regard to the "best efforts" clause. The Museum argues that it is not obligated under this clause to render a service primarily for the benefit of the lessee. Rather, the Museum asserts that this clause was inserted to ensure that the Museum would sign any application which required the landlord's signature. While the term "best efforts" connotes more than merely signing an application for a license, the evidence at trial *499 supports petitioner's assertion. No evidence was presented at trial to contradict the Museum's assertions in this regard. Consequently, we find that no impermissible services were performed pursuant to the best efforts clause. On the basis of the foregoing discussion, we conclude that the Museum did not render substantial services for the benefit of MCA that go beyond those services usually rendered in connection with the rental of real estate. Next, we shall address respondent's argument that the rental income was based, in part, on MCA's net income or profits. Respondent contends that the sublease provision of the Second Lease requires MCA to remit to the Museum 25 percent of its profits derived from any sublease of FGA, and thus the rent is being calculated, in part, based on a percentage of MCA's profits from FGA. *500 Moreover, respondent asserts that, in 1988, amounts were remitted to the Museum as a result of a Budweiser-sponsored event, and those amounts were in fact calculated under the sublease provisions of the Second Lease. At the outset, we note that certain rules related to real estate investment trusts are made applicable to the determination of what amounts constitute rent from real property. As outlined MCA shall pay the Museum a lease fee equal to twenty-five percent (25%) of all Sublease Rentals. As used in this Agreement, "Sublease Rentals" means all receipts realized by MCA from the subletting of the Amphitheatre, less all out-of-pocket expenses (including, but not limited to, supplies, utilities and personnel costs) incurred by MCA as a direct result of the subletting * * *. *502 The statutory language upon which respondent relies is very clear. The Museum principally argues that we should recognize a de minimis exception to the above-quoted language. We refuse to do so. The statute explicitly contemplates that, as is the case here, proscribed rental payments may constitute only a portion of the total rents received. It is axiomatic that an unambiguous statute should be given effect according to its plain and obvious meaning. See The Museum contends that the arrangement with Budweiser did not amount to a sublease, and therefore the proceeds*504 from the event do not taint the remaining rental income under the Second Lease. The Museum misconstrues respondent's argument. The Museum's contention is premised on the belief that respondent is assailing the arrangement with MCA based upon the payment of compensation (and the payment or reimbursement of expenses) by a private foundation to a disqualified person for personal services which are reasonable and necessary to carrying out the exempt purpose of the private foundation shall not be an act of self-dealing if the compensation (or payment or reimbursement) is not excessive * * * Throughout the years at issue, the Museum contracted with GMC to perform general maintenance, janitorial, and custodial functions. Respondent maintains that payments to GMC for services performed are self-dealing transactions within the ambit of The resolution of this issue depends solely on whether or not the functions that GMC performed fall within the definition of "personal services" of Prior to 1969, Nevertheless, Congress noted that abuses involving tax-exempt organizations continued. Congress believed the abuses resulted from the significant enforcement problems posed by the arm's-length*507 standards. One of the stated goals of the 1969 Act was to minimize the need for an arm's-length standard by generally prohibiting self-dealing transactions. Specifically, the 1969 Act prohibited the following transactions between a foundation and a disqualified person: (1) The sale, exchange or lease of property; (2) the lending of money; (3) the furnishing of goods, services or facilities; (4) the payment of compensation to a disqualified person; (5) the transfer or use of foundation property by a disqualified person; and (6) payments to Government officials. S. Rept. 91-552, at 29 (1969), The question before us is whether the functions performed by GMC qualify as "personal services" under Respondent argues that the character of the services performed by GMC, namely maintenance, janitorial, and security, are different than those outlined in the regulations. We agree. The services in the regulations are essentially professional and managerial in nature. These types of services contrast with the nature of the services rendered by GMC. GMC contends any activity is a service where capital is not a major factor in the production of income. Under this interpretation, as set out in the brief, "the sale of goods is not the rendering of personal services, but certainly all other services which assist the private foundation in carrying on its legitimate business are personal services." We cannot agree with GMC's interpretation of the statute. First, this*509 position would nullify the prohibition against furnishing services contained in Second, GMC's interpretation of the term "personal services" contravenes congressional intent, as expressed in the above legislative history. We think it is clear that Congress intended to prohibit self-dealing. Consequently, any exceptions to the self-dealing transactions rules should be construed narrowly. We therefore reject GMC's broad interpretation of the term "personal services" and conclude that the janitorial services provided by GMC do not meet the definition of "personal services". Accordingly, we find that the payments made by the Museum to GMC constitute "self-dealing" within the meaning of We shall next turn our attention to whether petitioner, petitioner's wife, and petitioner's daughter (the foundation managers) 8 are liable under In any case in which a tax is imposed by *512 We first turn to the regulations to provide the initial guidance in applying a person shall be considered to have participated in a transaction "knowing" that it is an act of self-dealing only if-- (i) He has actual knowledge of sufficient facts so that, based solely upon such facts, such transaction would be an act of self-dealing, (ii) He is aware that such an act under these circumstances may violate the provisions of federal tax law governing self-dealing, and (iii) He negligently fails to make reasonable attempts to ascertain whether the transaction is an act of self-dealing, or he is in fact aware that it is such an act. We have found no other cases that have analyzed the foundation manager excise tax under The parties have stipulated that the foundation*514 managers were aware both that GMC was a disqualified person vis-a-vis the Museum, and that some transactions between a private foundation and a disqualified person are considered "self-dealing" under Respondent has satisfied both the first and second requirements of The regulations define "willful" participation by the foundation manager as conduct that is "voluntary, conscious, and intentional." Sec. 53.4941(a)-1(b)(4), Foundation Excise Tax Regs. On the basis of the facts, we conclude the foundation managers voluntarily and intentionally caused the Museum to enter into the transactions with GMC. Accordingly, we sustain respondent's determination that the participation of the foundation managers was willful. Additionally, the foundation managers' participation in these transactions must not be due to reasonable cause. The regulations explain that "A foundation manager's participation is due to reasonable cause if he has exercised his responsibility on behalf of the foundation with ordinary business care and prudence." Sec. 53.4941(a)-1(b)(5), Foundation Excise Tax Regs. The foundation managers were aware that GMC was a disqualified person with respect to the Museum, and they were aware that tax laws prohibited self-dealing transactions. *516 Nevertheless, they proceeded to contract with GMC to provide services to the Museum without first attempting to get advice from their counsel concerning the implications of these arrangements. This demonstrates a failure to exercise their responsibilities with ordinary business care and prudence. The foundation managers argue that they acted on the advice of Dr. Sherry Manning. Dr. Manning, a former president of a women's college, has experience with nonprofit organizations. Thus, the foundation managers claim that they exercised ordinary prudence in relying on Dr. Manning's advice. We cannot agree. Dr. Manning is not a lawyer, and she does not otherwise have any special expertise in foundation tax law. Further, although she had been the president of a college, there is no indication in the record that Dr. Manning gained any experience in running foundations. Clearly, the foundation managers were aware of the potential problems with paying fees to GMC, as prior to the hiring of Dr. Manning, GMC had simply rendered the services for free. We conclude the foundation managers did not exercise ordinary prudence by relying on the advice of Dr. Manning and not seeking the advice of counsel*517 regarding these payments. Accordingly, we hold that the foundation managers are liable for the foundation manager excise tax under Respondent determined that the foundation managers are liable for the foundation manager excise tax under The foundation managers have conceded that each of these payments constitutes self-dealing under As noted Far from having actual knowledge of sufficient facts about the two transactions, the evidence indicates that the foundation managers lacked any knowledge concerning these transactions. Immediately upon learning of the payments*519 a few days after they were made, petitioner's daughter corrected both of the transactions, and petitioner reimbursed the Museum for the expense. Under these circumstances, we conclude respondent erred in imposing the foundation manager excise tax on these two transactions. The record is less than complete regarding the $ 3,000 payment made for the benefit of the Company. 9 The payment was made by the Museum on behalf of the Company, a disqualified person. The Company has not reimbursed the Museum. Respondent, again, must prove by clear and convincing evidence that the foundation managers participated knowingly in this transaction. Sec. 7454(b), Rule 142(c). Respondent has failed to carry this burden. First, respondent has not shown that petitioner or petitioner's wife had any knowledge of this transaction. We refuse to presume that, because the transaction occurred, petitioner or petitioner's wife must have known about it. Consequently, we do not sustain respondent's determination with respect to petitioner or petitioner's wife as it relates to this transaction. *520 As for petitioner's daughter, the facts must be examined more closely. The $ 3,000 payment related to a contract with Form, Inc., for the creation of an outdoor art exhibit. The subject matter of the contract comports directly with the Museum's exempt purpose, and the contract was signed by petitioner's daughter as a director of the Museum. However, the John Madden Co. is the named party in the contract, not the Museum. The payment by the Museum for setting up the outdoor exhibit satisfied a financial obligation of the Company under the contract with Form, Inc., and the parties agree that it is a self-dealing payment to the Company. Petitioner's daughter testified that she was aware of the payment made by the Museum. As evidenced by this testimony, she was knowledgeable about the subject matter of the contract. However, based on the testimony and surrounding facts, we conclude that her actions do not constitute knowing participation in a self-dealing transaction. Petitioner's daughter testified that the foundation managers intended to have the Museum shoulder the responsibility for the exhibit, not the Company. 10 She believed, at the time of the payment, that responsibility for*521 the financial obligation rested with the Museum. As a consequence, petitioner's daughter did not view this payment as benefiting the Company. Given these circumstances, we conclude respondent has failed to prove by clear and convincing evidence that petitioner's daughter knowingly entered into a self-dealing transaction. Accordingly, we do not sustain respondent's determination with respect to petitioner's daughter as it relates to this $ 3,000 transaction. To reflect the foregoing, Footnotes
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