Best of TaxLetter: John Marshall Law School

Downtown Atlanta's John Marshall Law School has lost its tax exempt status, retroactive to 1966. IRS found that the school's earnings accrued to the benefit of Theo and Martin Fenster who were officers, board members, and faculty members. This is prohibited of tax exempt organizations.

Theo Fenster made several loans from JMLS. In 1968, he borrowed $4,453, unsecured, interest-free and without any fixed repayment schedule. In April 1973, he purchased a condominium for $58,560, financed by a $29,108, 7-1/4% mortgage from a S & L and a $29,500 unsecured interest-free loan (without any fixed repayment schedule) from JMLS. In 1973, he exchanged his 1971 Pontiac for the school's 1972 Lincoln Mark IV and treated the $3,374 difference in fair market value as a loan.

JMLS paid for electrical fixtures and their installation in virtually every room in Theo's house. It bought bathroom fixtures and drapes (because the home was used for school-related entertaining), a television (to record educational programs after school hours), a washer and dryer (to repay them for damage done to their personal washer doing the school's drapes, curtains and team uniforms in prior years).

In 1972, the trustees established the John Marshall Faculty Scholarship Fund. Theo and Martin comprised the scholarship committee. They then selected their sons, Jeffrey and Kenneth, to each receive $4,000 scholarships to attend Emory and Western Kentucky Universities, respectively.

JMLS paid for the Fenster's vacations, personal automobile expenses, life and health insurance premiums, membership in European Health Spa (because in 1970 Theo "injured his back when he sneezed violently while getting out of his car on the JMLS parking lot"), two season tickets to the Flames and two for Hawks' games (to discuss school affairs informally with other faculty members).

The Court of Claims recently upheld the revocation of its exemption. (No. 22)