Friday, October 10th [11th] 1996
Internal Revenue Service
Department of the Treasury
P.O. Box 1680 GPO
Brooklyn, NY 11202
attn: Cesar Sabando
Re: Amended protest of denial dated 7/26/96 of application for 501(c)(3) status for Montauk Friends of Olmsted Parks, inc., a not-for-profit corporation established under the laws of the State of New York. EO# 7321 EIN# 11-3195781
The IRS denial letter of the MFOP application for recognition as a not-for-profit charitable corporation dated July 26th, 1996, states that "Your organization [MFOP] is an action organization established for the private benefit of Montauk property owners and is primarily formed to protect the rights of the landowners. To be exempt pursuant to IRC 501(c)(3) an organization must be engaged in activities that substantially further public interest rather than private interests."
This amended protest is submitted to show that the Montauk Friends of Olmsted Parks, inc., is established exclusively for tax-exempt purposes wholly consistent with section 501(c)(3) of the IRS code. These purposes include functions and activities which are both civic and charitable in nature and which will serve both the Montauk community and the public at large. We are established wholly for the benefit of the Montauk community and are not engaged in activities which substantially further private interests.
Montauk "freeholders" (property owners) have significant corporate rights over the lands in Montauk which are the functional legal equivalent to public rights under current law. These rights include the constitutionally protected power to govern Montauk through a colonial charter and an act of the NYS Assembly. Additionally, the New York State Supreme Court has recently upheld the freeholders' rights over properties reserved to them through the estate of Arthur W. Benson precipitating this application.
The Montauk Friends of Olmsted Parks, inc., (MFOP) was established to care for extensive properties which were reserved by the Benson estate to be for the common use of the Montauk property owners. These rights have been fully upheld by the New York State Supreme Court (see attached). The purposes of the corporation are shown on the face of the certificate of incorporation approved April 13th, 1994, by the State of New York.
Since that time we have acquired a significantly expanded knowledge of the rights of Montauk's property owners. While the MFOP is established as purely civic and charitable in nature, it is now realized that the rights of the "freeholders" (property owners) will require the revitalization of a second, separate municipal corporation to enable the fullest exercise of our corporate rights. Because the MFOP and this proposed municipal corporation are intended to divide responsibilities in a legal manner between them, an understanding of this intended relationship is necessary to the reviewers of this application.
Montauk was first incorporated under a Royal charter confirming the purchases of the lands at East Hampton and Montauk from the native indians. This charter, issued in the form of a "pattent" in 1686 by Governor Thomas Dongan, established a "body politique" the controlling body of which was given the name "Trustees of the Freeholders and Commonalty of the Town of East Hampton." Under English, New York State and Federal law, the Dongan Pattent of 1686 created a municipalcorporation.
In 1851 a court order split Montauk from the Town of East Hampton. This left Montauk without government and caused the New York State Assembly to incorporate Montauk's freeholders at chapter 139 of the Laws of 1852. This act reaffirmed the freeholders right to govern Montauk.
In 1879 Arthur W. Benson purchased Montauk from the freeholders. The previously established corporate rights were included as part of the conveyance. The Dongan Pattent rights run with the land. The Benson heirs, with full knowledge of these rights, established deeded reservations which they covenanted in perpetuity to be for the common use of Montauk's freeholders. These rights were recently affirmed by the New York State Supreme Court.
The MFOP was established as a democratic not-for-profit corporation to care for the Benson reservations as trustee for the freeholders. Current statute, however, allows such a corporation to care for some, but not all, of the functions of the prior incorporation (a not-for-profit corporation cannot exercise municipal powers under current law).(1) This situation has necessitated a two corporation solution.
The MFOP is to remain scrupulously non-activist and nonpolitical as defined in the law, and will serve in the exclusive role of an important administrative assistant to the municipal corporation, the keeper of our park lands, the steward of our environment, and a provider for the welfare of the community.
In support of this assertion of not-for-profit purposes on behalf of the Montauk Friends of Olmsted Parks corporation, I make the following affirmation.
1. It is our intent that the MFOP and Montauk's municipal Trustee corporation will have the same twelve directors, to be known as the "Trustees of the Freeholders and Commonalty of Montauk" (Trustees), who will be elected annually by each of twelve Associations. All memberswho are landowners or residents will belong to an Association (analogous to a precinct) and will have a vote for their Trustee ("a majority of the voices of the freeholders and freemen.." - Dongan Pattent of 1686, emphasis added).
2. The officers of the Municipal Corporation shall be formed exclusively from the Assemblypersons of the Montauk Assembly, annually elected.
3. The Trustees, acting in their municipal capacity, under the Dongan Pattent and Chapter 139 of the laws of 1852 will have full power of superintendence of the land, and the power, by majority vote among them, to establish rules and regulations for managing, using or improving Montauk lands, as long as they are not in conflict with the charter of the corporation, with established covenants over real property, or with the laws established by majority vote of the membership assembled and promulgated through the chamber of delegates at the Montauk Assembly.
4. The Trustees, acting in their not-for-profit capacity, as directors of a 501(c)(3) corporation, will act as the hosts of the caucuses and of the assembly, have full power of superintendence of the Benson Reservation lands and roadways, and the power, by majority vote among them, to establish rules and regulations for managing, using or improving them, as long as they are not in conflict with the charter of the MFOP corporation, the covenants attached to the land, or with the laws established by majority vote of the membership assembled and promulgated through the chamber of delegates at the Montauk Assembly. They will also retain all rights of a Board of Directors of a not-for-profit corporation under State and Federal laws pursuant to the purposes for which the corporation was established.
5. The officers and staff of the MFOP will be separate from the municipal corporation, will administer our park lands, will be responsible for assisting in the functioning of the assembly process, and will maintain separate funds and budgets for the accomplishing of all charitable purposes devised for it by the community through the Montauk Assembly.
6. The president of the MFOP will work on a four-year contract as established by the Trustees, subject to ratification by a majority vote of the entire membership. The president is strictly a managerial/administrative position and will retain no political powers whatsoever.
7. Due to the nature of our underlying rights, only landowners or certified proxies may vote for the delegates or upon resolutions establishing the rules and regulations for using or improving Montauk lands. This is a concern for the municipal corporation, has a substantial basis in constitutional law and in equity, but does not impact the instant application for tax-exempt status for the MFOP.
8. As per above, the freeholders' rights over lands at Montauk must be considered to be municipal rights. These rights appear to extend to cover all of Montauk's bottom lands, beaches, foreshores and harbors in addition to those upheld over the Benson reservations. We also appear to have a claim of equitable title over thousands of acres of State and County parklands. The use and enjoyment of these lands are now and will continue to be extended to the general public as our guests subject to the rules and regulations which are adopted.
9. Membership in the MFOP will remain open to the general public, although caucus participation privileges will be exclusively reserved to Montauk residents and property owners. The MFOP reserves the right to offer discounts and advantages to the membership to the extent that they are not exclusionary to the public in the use and enjoyment of our lands.
10. The bylaws of the MFOP will be amended to reflect this affirmation and to accommodate any and all concerns of the IRS reviewers.
The Appendix attached hereto contains a summary treatment of the history of the Montauk community and other documents of interest to the IRS reviewers. These documents will give the IRS a sense of the recent activities which I have undertaken in order to protect and enable the communities' rights. I ask that you read this appendix carefully before continuing to the next section.
A. Declaration of Rights and Trusteeship of the MFOP dated 5/11/96
B. Letter to Ms. Pamela Coles, NYS Bureau of Corporations dated 8/25/96
C. Address to the membership and friends of the MFOP dated 8/21/96
D. East Hampton Patent of 1686 (Dongan Patent)
E. Indian deed of 1661 (as a sample)
F. Chapter 139 of the Laws of 1852.
G. NYS Supreme Court, Summary Judgment of Justice William L. Underwood, J.S.P.
H. NYS Supreme Court : Appellate division decision
I. NYS Court of Appeals decision.
J. 1995 tax returns of the MFOP corporation.
< please read Appendix before proceeding >
*** End of Statement of Facts ***
Arguments of Law
The Montauk Friends of Olmsted Parks, inc., is a not-for-profit corporation established under the laws of the State of New York exclusively for tax-exempt civic and charitable purposes.
The IRS denial letter of the MFOP application for recognition as a not-for-profit charitable corporation dated July 26th, 1996, states that "Your organization [MFOP] is an action organization established for the private benefit of Montauk property owners and is primarily formed to protect the rights of the landowners. To be exempt pursuant to IRC 501(c)(3) an organization must be engaged in activities that substantially further public interest rather than private interests." The denial letter supports this determination with the citations of law, each of which will be addressed as they are presented.
MFOP is organized for exclusively for purposes specified under IRC 501(c)(3).
As shown in our application, the activities in which the MFOP will be principally involved are 1.) community recreational facilities (IRS activity code #297); and, 2.) preservation of natural resources (IRS AC #350); and, area redevelopment (IRS AC #400). Because these activities will be undertaken by and for the Montauk community as a whole, and are of substantial benefit to the general public which enjoys our beaches and parks, they can only be considered to substantially further the public interest.
MFOP is both organized and operated exclusively for these purposes. The caucus/assembly process of the corporation is intended to enjoin the community in order to be effective in these purposes, to educate it about the fragile Montauk environment and enable its protection, and to provide a clearinghouse for funds for charitable purposes and the public welfare. Nothing in the organization or operation of the MFOP is contrary to these purposes. IRS Regs. 1.501(c)(3)-1(a)(1).
As a Parks corporation environmental sciences, education and stewardship will be significant in our activities. Community events emphasizing these aspects of our mission will be frequent and significant.
The MFOP is established exclusively for tax-exempt purposes.
The IRS reviewer considers that the MFOP, in acting to "protect the rights of the property owners" is engaging in a nonexempt purpose to "further... private interests." Regs. 1.501(c)(3)-1(c)(1). However, none of the activities or purposes of the MFOP are nonexempt in character. It is axiomatic that the public interest in also the private interest of the members of the public. Such is the case here.
The rights which the community enjoys to the control and stewardship of Montauk's rich natural resources derive from the Dongan Pattent of 1686. These rights, later established specifially for Montauk at Chapter 139 of the Laws of 1852, are municipal in character and are enforceable today. The Benson reservations were covenanted to the same underlying interested parties: Montauk property owners (freeholders). These lawful corparate rights are tax exempt, and are based upon the underlying claim of ownership of the land. The public purposes of the both the intended municipal corporation and the MFOP, therefore, derive from private property rights and a royal charter - but are for public purposes.
Better Business Bureau v. U.S., 326 U.S. 279 (1945) was cited to note that "the presence of even one nonexempt purpose, if more than insubstantial in nature, will defeat exemption under Section 501(c)(3) of the Code." No such nonexempt purpose - insubstantial or otherwise - exists in this case. The denial of our application for recognition under chapter 501(c)(3) on the ground that the MFOP is engaged in, or intends to be engaged in, nonexempt activities of is therefore without merit. [Section 1.501(c)(3)-1(c)(1)
The MFOP is not an "action" organization under the IRS code.
Sections 1.501.(c)(3)-1(c)(3)(i), (ii), and (iii) deal with "action" organizations which either
i.) are not operated exclusively for one or more exempt purposes, or
ii.) a substantial part of its activities is attempting to "influence legislation by propaganda or otherwise", or
(iii) "participates directly or indirectly in any campaign on behalf of or in opposition to any candidate for public office."
As per above, the MFOP is operated exclusively for exempt purposes.
No substantial part of the activities of the corporation is to influence legislation.
The MFOP is chartered as nonpartisan and there is nothing in its organizational structure or process which could be construed as for the purpose of electoral campaigning for any candidate for public office.
Given the organizational nature and purposes of the corporation it cannot be considered an "action organization" within the meaning of the IRS code.
The MFOP is not operated for the benefit of private individuals.
Section 1.501.(c)(3) - 1(d)(1)(ii) raises the question of whether the corporation is operated for the benefit of a public or a private interest, and states that "an organization may not be exempt if it is operated for the benefit of private individuals." The IRS reviewer claims that the MFOP serves private interests. This will be refuted in two parts.
1.) Two of the founding directors of the Montauk Friends of Olmsted Parks corporation, Helen Ficalora and Louise Nielsen, were either individually or through their corporation among the plaintiffs in the litigation which resulted in the protection of the Benson Reservations.
The Reservation property which was the subject of the litigation is directly across from Helen and Louise's properties, and they have enjoyed private - almost exclusive - use of these beaches for over thirty years. Selfish interests would dictate that they would not support the publication and promotion of the fact that these beaches are community property. Instead, they would be content to let the matter lie as determined by the court and keep this legal fact secret.
In forming the MFOP to care for these lands, Helen and Louise are opening them up to the community for their use and control. There cannot be construed any private interest in this action other than that we understand that the common interest is our interest, and that our assertion of our community interests gives us the ability to protect Montauk for posterity.
2.) It stands to reason that the "community" of Montauk residents and landowners is a public of over 4,000 private individuals. Even were the MFOP to assert exclusivity of use of Montauk lands for them, which it doesn't, it would raise the question of whether or not this was a "public purpose."
The IRS reviewers must understand that the full breadth of the properties at issue are at least two hundred acres of water front properties, many miles of beaches and scenic roadways, and possibly thousands of acres of State and County parkland. Furthermore, our harbor and downtown areas are suffering from neglect and are in need of community attention.
The MFOP is not established to engage in "political activity."
As mentioned above, the municipal corporation of the Freeholders of Montauk has sweeping political powers. The underlying Dongan Pattent of 1686 had granted us the political liberties which were finally won for all through the War of Independence, and were specifically protected under the subsequent constitution of the State of New York. These rights were further protected under the Federal constitution.
The MFOP is expected to share the same directors with this municipal corporation and oversee and assist in the Assembly process, should my foregoing affirmation bear out. The activities of the officers of the MFOP, however, and their activities will be strictly administrative and managerial in the manner advocated by Frederic Law Olmsted during his lifetime. It will be a stewardship corporation with all of the charitable, educational, and scientific purposes which this entails.
Administering organizational process for municipal events is not considered "political activity." Not-for-profit corporations are continually sponsoring "candidate forums", or candidate debates, or presentations by our elected officials. The Central Park Conservancy in New York City manages the park for the City government. Not-for-profit corporations have become critical as watchdogs of land-use issues. Civic organizations can lead voter registration drives, a function important to citizen involvement and the purposes of government. In performing these functions we are upholding our civic duty. The role that not-for-profit corporations play in these matters has become very significant in our society.
I do not believe that any of the activities of the MFOP can be construed as "Political activity" as intended in that section.
Montauk is a "community" as defined in Section 501(c)(4) of the IRS code.
The Dongan Pattent of 1686 and Chapter 139 of the laws of 1852 were essentially municipal incorporations of the proprietors (owners) first of East Hampton including Montauk, and then specifically of Montauk. They establish, therefore, a community as defined in Section 501(c)(4) within "a geographical unit recognizable as a governmental subdivision, unit or district thereof." (IRS Publication 557, Chapter 4, page 34). Even without recognition of the political incorporation of Montauk, it remains a distinct and remote geographical community. It is the clear intent of the MFOP to benefit this community.
We firmly believe that the purposes of the MFOP exceed those of 501(c)(4) corporation and require approval under 501(c)(3) to be effective. We make this citation to show the tax exempt status of this portion of the MFOP's purposes.
The MFOP is established exclusively for civic betterment, social improvement and to further the common good and the general welfare of the people of Montauk.
The MFOP is established as a "nonpartisan, democratic caucus-process membership organization of Montauk residents to discuss and resolve issues, oversee and allocate funds, and build community..." The MFOP, therefore, will provide assistance and oversight of the assembly process.
An organized, well informed community is the best protection of the common good and the general welfare. That the community may also be able to exercise municipal powers through its assembly only strengthens the position that the MFOP is acting for civic betterment, social improvement, and to further the common good and general welfare.
Notice of offer to appear
Should the information supplied herewith prove insufficient to satisfy the Office of the Regional Director of Appeals of the IRS, or should other affirmations, understandings or guarantees be sought of the corporation, I will present myself upon reasonable notice to you. Please be aware that my schedule is restricted and I request that any such hearing be scheduled before October 30th, 1996, if possible.
It is respectfully submitted that the Montauk Friends of Olmsted Parks, inc., a not-for-profit corporation established and active under the laws of the State of New York, meets all of the qualifications of a Federal tax-exempt corporation under section 501(c)(3) of the IRS code. It is not "an action organization established for the private benefit of Montauk property owners" nor is it formed "to protect the rights of the landowners" per se. The rights of the landowners in Montauk are the municipal rights of the community as a whole, and must be construed as the public interest.
In witness whereof, I make this appeal to the initial adverse determination of the Internal Revenue Service of the Department of the Treasury of the United States of America dated July 26th, 1996 in the application of Montauk Friends of Olmsted Parks, inc., for tax exempt status under section 501(c)(3) of the IRS code. This appeal has been prepared exclusively by Robert A. Ficalora, acting president of the Montauk Friends of Olmsted Parks corporation. I herewith declare under penalty of perjury that that I have examined the statement of facts presented in this appeal and in the accompanying appendices and, to the best of my knowledge and belief, they are true, correct and complete. For Montauk, I am
Robert A. Ficalora
Montauk Friends of Olmsted Parks, inc.
State of New York )
County of Suffolk ) ss:
Town of East Hampton )
Sworn to me this 12th day of October, 1996 _____________________________
1.The Dongan Pattent gave the trustees the full power of governance. These powers were used to administer and protect our lands, order and dispose of issues, and provide charitable relief for the community, including the keeping of the poor-house.