Atty. McDonald’s Opinion on Charity Status – a Good Brief for the Wrong Side!

Background: For the past two years, our Board has shut down all operations while spending most of our treasury on attorneys. The Board’s reason given for the spending and service denial is that we cannot continue to function (after 30 years) because we hold a charity status with the IRS (under 501(c)(3) of the Internal Revenue Code).  The Board has used this as an argument to dissolve the organization, to liquidate its assets, and to completely rewrite our founding documents, even in ways that have nothing to do with the status.

Thus, one might think that the Board would have been delighted, if not at least interested in the theory that the charity status was perhaps automatically resolved by what the Board called their “huge win” in court over public status of our roads.  You might think, therefore that we would get immediate feedback and discussion from the email and blog entry about this concept, namely that the “huge win” puts us squarely in compliance with the “black letter” law of the IRS charity definition – resolving our problem (https://kloudcraft.com/blog/2026/07/08/the-dissolution-lawsuit-is-overcome-by-events-it-should-be-dismissed-immediately/

So, did the Board:

• Write back to the members about how happy they were that there was a possible path ahead?
• Reach out the membership and hold a meeting quickly as they had promised?
• Investigate quickly how to apply the fruits of their “huge win”?
• Start performing the mission of the organization – such as maintenance and charity?
• Seek dismissal of the lawsuit against us over 501(c)(3) status?

Unfortunately, no. The Board spent over a month getting a 60-page opinion from their attorney to reply to the short blog post.  I should characterize Atty. McDonald’s work as high quality, but for the wrong client!  It would be a good brief for our opponents (those seeking our dissolution), but not for his client (us, SAEPOA), and it is incomplete and biased in the way that I would expect our opponents to be — not us!  Our Board and attorney now even filed an objection to a motion to dismiss the case against us.  In other words, our board wants to be sued!

Because of these things, it is important to address the logic that was given by Atty McDonald, the SAEPOA attorney, supposedly our attorney, quietly posted over a month after the Board was made aware of the benefits of their “huge win”.

Let’s get into it.

The Big points: Atty. McDonald’s 60-page document fails to represent our situation properly because:

1. The arguments against SAEPOA “lessening government burden” fail the
   logic test, and they are also legally incomplete.
2. Atty. McDonald largely, if not completely, did not address the plain language about maintaining public works.
3. SAEPOA members should not reasonably expect penalties –  that is a scare tactic.

Atty. McDonald’s argument is that the IRS will disagree with its own law.  In other words, we can read the plain language Treasury Regulation 501(c)(3)-1(d)(2).

• Charitable defined. The term charitable is used in section 501(c)(3) in its generally accepted legal sense and is, therefore, not to be construed as limited by the separate enumeration in section 501(c)(3) of other tax-exempt purposes which may fall within the broad outlines of charity as developed by judicial decisions. Such term includes: Relief of the poor and distressed or of the underprivileged; advancement of religion; advancement of education or science; erection or maintenance of public buildings, monuments, or works; lessening of the burdens of Government; 

We can clearly see that we comply, but Atty. McDonald claims that the IRS will disagree and interpret the law in their own way – and use that against us.  To do this, he cites 4 IRS rulings (administrative), one tax court case, and one New Mexico supreme court case.  As mentioned, he did a good job of preparing the argument for our opponents, picking cases in which he could make some points.  He did not, however, point out other cases that could support our position.  He also did not look at the flaws in the application of these cases, namely the three points I raise above.

1. “Lessening of the burdens of Government” is one IRS category of charity.  This is what Atty. McDonald says that we fail to do, and therefore we are not really qualified as a 501(c)(3) organization.  I had highlighted this in my email and Blog post of 8 July.  We now maintain a public road, even under court order.  Nevertheless, Atty. McDonald argues that we fail because:

• The Town never had the burden previously, so we aren’t “lessening” any burden.  This fails a basic logic test – dissolve the HOA and suddenly the Town will have the burden!  The proper legal test is not whether there was a burden in the past, but rather whether we relieve the Government of a burden that it would otherwise have (we do).
• Although the roads are public, we are the primary beneficiaries of maintenance – so the benefit is private.  This is an interesting argument because nowhere in the IRS definition does it say what the proper ratio must be (do we have not not benefit at all?)  For example, can I visit a public library if I donate to it? He only has one case where this could be debatable and it is a limited ruling where a block association was ruled to no longer qualify because the public benefit was deemed to be too small.  In another case (not cited by McDonald, even though the reference is in the block association ruling), the IRS held that an association that cared for a small public park that largely served a nearby community could keep its status because it was open to the public.  Sandia Airpark’s roads are indeed open to the public, and the public uses them!  They also serve as taxiways for transiting aircraft.  The stretches of Rainbow Road and Meadowlark Road in the Airpark are also access for non-members.  The community is not gated.  (One of the cases cited by McDonald is for a gated community – thus the reasonable argument that their case [not ours] was really for private benefit only.)  McDonald is asking us to look at ourselves in the most unfavorable light possible, and thus agree with those who seek the destruction of our HOA.
• He presents a flip-flop position (legal term: judicial estoppel): Atty. McDonald argues that the Town has never accepted responsibility for road maintenance, thus we can’t “lessen” a burden they never accepted.
  This is a strange argument – hear me out.  During the road’s lawsuit, SAEPOA (really the Board and the attorney) cited NMSA 1978 Section 3-20-11 and stated that the roads were public for two reasons:
  – The plat document contained “dedication” language specified to transfer them to the public.
  – The county accepted ownership when it accepted the plat (per the statute)
  They also argued that the Town of Edgewood then owned the roads because all of this territory was transferred during town creation.  What was previously Santa Fe property (and not ours), was now Town of Edgewood property.  SAEPOA is now essentially arguing the opposite of what it just said in court and won.  This is not just improper – it’s actually not allowed legally under a concept called judicial estoppel, which prevents prevailing parties from flip-flopping positions to gain an advantage.
  Regardless, we should take the court at its word.  The Town now owns the roads.  Not “accepting” maintenance responsibility would not really change this.  If SAEPOA is gone, there is presently no one but the Town who would be responsible.
  Finally, the actions of our Board Vice President, Mr. Powers, when he was Town Commissioner also contradict Atty McDonald’s argument about lessening government burden.  Powers led the Commission to vote twice to approve paving a 400 foot section of Rainbow Road in the Airpark.  The fact that the Town backed down (only because of the roads lawsuit litigation) does not change the fact that the Town had accepted a role of maintenance through its decision at that time.

2. “Maintenance of public buildings, monuments, or works” is largely, if not completely unaddressed by Atty. McDonald’s response.  It’s important to note that we can be covered under either item – “lessening burdens”, or “maintenance of public works”.  Whether you argue that we didn’t lessen the burden because of the past (a poor argument), you cannot argue that we don’t maintain public works:

• The roads are public – public works
• Maintaining them is … maintenance.

This is hard to argue against, so if I were trying to damage SAEPOA, I wouldn’t talk very much about it – and the Board and our attorney didn’t address it directly.  The closest they came was the letter ruling example that involved the block association beautifying their area.  In this case, the ruling against them was primarily because the IRS saw the ratio of public/private benefit as too small, and the area too small (one block).

It is interesting to note that a counterpoint is given in the very text cited by McDonald. Page 20 includes reference to another case, Revenue Ruling 75-85 where the IRS allowed the exempt status to a similar organization (small organization, maintaining a small public park, but the park was seen as “public” enough).  (I was unable to get the original letter, but discussions of this ruling are available online.)

This brings up the question of how much private benefit can be allowed? How big does it have to be? Maybe improving the entire superhighway system is good, but improving one block is bad.  Between these two extremes, where is the dividing line? Is our Airpark big enough?  How much is enough good to the general public?  Is providing road/taxi support to a public use airport with visiting aircraft and commercial aircraft services using the roads suitably beneficial? If we wished, we could seek a ruling – something our board and attorney don’t seem to want to do. Nothing about size or relative benefit is spelled out in the law (Internal Revenue Code), but is rather the judgment of the IRS.  In our case, we should not forget that we were awarded the status by the IRS over 30 years ago, and we still operate under that agreement.  Some of us have contacted the IRS informally, and no IRS agen has ever told us that we are in violation.  We meet the “black letter” definition of the law.  We should approach this question from the position that we are compliant and then determine if there is a reason to change – not the other way around.

3. Penalties from the IRS: To his credit, Atty. McDonald does not attempt any scare tactics regarding penalties, but the Board and allies have often resorted to them to motivate members to modify our governing documents or to dissolve the entire organization.   It is important to note that none of the cases mentioned in McDonald’s analyses discussed penalties, and likely none were involved.  Keep in mind the following:

• Penalties must survive tax court, and the IRS cannot rule against the IRC and hold up reasonably in court.
• We have been operating under the IRS determination since 1995.  Although our documents could be read as having multiple purposes ( “exclusive charity” paragraph and an HOA functions paragraph), all of this was present in the documents approved by the IRS.
• Even if penalties were assessed, reasonably, they could only attach to the treasury, or at most require payment of tax by members who declared deductions (an extremely unlikely scenario).
• Only board members are subject to scrutiny for misdeeds from the IRS and from a fiduciary standpoint in other legal matters.
• In this sense, the Board spending our entire treasury on legal fees and none of it on the mission of the organization might arouse scrutiny.

In Conclusion:

• The brief from Atty. McDonald paints a worst-case picture, putting SAEPOA in the worst light rather than defending a very reasonable position that we meet IRS guidelines for a bona fide charity.
• His argument that what we do is not “lessening of the burdens of the Government” is easily countered.  He provides none of those counterarguments, and he completely ignores the logical destination of his argument: if SAEPOA is not there, who other than the Government would be responsible?
• He does not address the very straightforward language – we provide “maintenance” of “public works”.
• No penalties were involved in the cases we’re discussing, and that would be expected. If we operate in good faith regarding our status (we do), we should expect no harm from the IRS.

In short, if we are going to revoke our 501(c)(3) status, we should do it with our eyes wide open as to the consequences and cost.  We should also do something really revolutionary, like actually meet together, it can even include our Board, and not with Zoom and a mute button – but with real people!  The attorney could be there, too, and we could talk with OUR attorney about OUR problems.  Most importantly, we should approach our 30-year-old IRS determination form the position of compliance – not from the position of someone trying to lose.  I invite all to come to the informal meeting after the formal SAEPOA meeting – 7pm, 8/28 Suddarth hangar, 40 Blanco Drive, Edgewood, NM 87015.