- 113 -
92 T.C. at 648; Mailman v. Commissioner, 91 T.C. 1079, 1084
(1988); Pulver Roofing Co. v. Commissioner, 70 T.C. 1001,
1011 (1978). Taxpayers are required to clearly show that
the Commissioner’s action was arbitrary, capricious, or
without sound basis in fact. Knight-Ridder Newspapers v.
United States, 743 F.2d 781, 788 (11th Cir. 1984); Mailman
v. Commissioner, 91 T.C. at 1084; Drazen v. Commissioner, 34
T.C. 1070, 1076 (1960). [Capital Federal Savings & Loan v.
Commissioner, 96 T.C. 204, 213 (1991).]
The Contract caused the inurement violation. It is not
“arbitrary, capricious, or without sound basis in fact” for
respondent to determine that the revocation of the favorable
ruling letter should relate back to the start of the Contract.
Neither the parties nor the amici refer to section
601.201(n)(6), Statement of Procedural Rules, nor to Rev. Proc.
90-27, 1990-1 C.B. 514, both of which provide, in pertinent part,
that “The revocation [of an exemption ruling] * * * may be
retroactive if the organization * * * operated in a manner
materially different from that originally represented”. The
start of the Contract marked a substantial change in petitioner’s
operations. This change was material with respect to inurement.
Petitioner has not suggested that there was any event after the
start of the Contract which marked a change in W&H’s actions, or
W&H’s rights under the Contract, such that there was an inurement
after that event or change but not before that event or change.
If the revocation, which occurred after the Contract expired, had
been made prospective only, then the revocation would have been a
meaningless act.
We conclude that (1) the retroactivity of the revocation to
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