Zagfly, Inc. v. Commissioner of Internal Revenue

NOT FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
ZAGFLY, INC.,
Petitioner - Appellant,
v.
COMMISSIONER OF INTERNAL
REVENUE,
Respondent - Appellee.
No. 13-71566
Tax Ct. No. 1494-12X
MEMORANDUM*
Appeal from a Decision of the
Tax Court
Argued and Submitted May 6, 2015
Pasadena, California
Before: FISHER, BEA and FRIEDLAND, Circuit Judges.
Zagfly, Inc., appeals the Tax Court’s denial of its petition for a declaration
of tax-exempt status under I.R.C. § 501(c)(3). Reviewing the Tax Court’s
nonexemption determination de novo and its underlying factual findings for clear
error, see Johanson v. Comm’r, 541 F.3d 973, 976 (9th Cir. 2008), we affirm.
FILED
MAY 18 2015
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
*This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.

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The Tax Court correctly applied the “operational test” under Treasury
Regulation § 1.501(c)(3)-1(c)(1), determining Zagfly would not be “operated
exclusively for one or more exempt purposes.” It based this conclusion on the
factual finding that Zagfly would not be engaged primarily in activities which
accomplish one or more of the exempt purposes specified in section 501(c)(3) of
the tax code. Based on its filings with the Internal Revenue Service (IRS),
Zagfly’s main activity would be to operate a website through which its customers
could purchase flowers at market prices. After establishing the flower website’s
viability, Zagfly would expand to market other goods and services. Although
Zagfly planned to donate its business profits to charitable organizations, the Tax
Court did not err in concluding the donation of business profits was not an exempt
purpose. See Riker v. Comm’r, 244 F.2d 220, 227-28 (9th Cir. 1957).1
AFFIRMED.
1 Because we affirm the Tax Court’s nonexemption determination under
Treasury Regulation § 1.501(c)(3)-1(c)(1), we decline to address the court’s
“unrelated trade or business” analysis under § l.50l(c)(3)-l(e)(l) and the
Commissioner’s alternative argument that Zagfly would not qualify for exemption
because it would be a “feeder organization.”
2

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