Tax Court holds Tennessee charity founder liable for $1.3 million in excise taxes on $590,000 sent to his company
In a Sept. 24 opinion, the court found that the founder of Senecura signed a no-interest note for both sides when the money went to his real estate company, and did not pay it back in time. Most of the bill is the 200 percent tax on an excess benefit left uncorrected.
Washington. The U.S. Tax Court has held the founder of a Tennessee charity personally liable for $1,327,500 in excise taxes on $590,000 that went from the charity to his real estate company in 2016. Judge Christian N. Weiler issued the memorandum opinion Sept. 24.
Sitaraman Jagannath formed Senecura in September 2015 to help poor people with basic living needs, and the IRS recognized it as a 501(c)(3) public charity that month. In 2016 he was its president, his father its director and his daughter its treasurer. He was also the sole member of Pingala Group, a real estate company.
What the court found
On April 4, 2016, $590,000 was withdrawn over the counter from Senecura's bank account. Eleven days later Mr. Jagannath signed a no-interest promissory note as both Senecura's president and Pingala's sole member, under which Pingala received the $590,000. Nothing had been repaid by the trial in May.
He testified that the money came back in a $600,000 wire to Senecura that December, and that the note was only part of a plan, carried out in 2018, to help another nonprofit buy a building. The court did not find his explanation credible. Senecura's 2016 return reported the $600,000 as a contribution, and he said he was unsure who made it.
The court preferred the charity's own Forms 990 for 2016 and 2017, which listed the $590,000 as a loan to an officer or other insider, without the required Schedule L. No amended returns were offered.
“It is far more reasonable to conclude the Promissory Note reflects this withdrawal from Senecura to Pingala.”
How the tax adds up
Section 4958 of the tax code taxes the insider, not the charity. A disqualified person, someone in a position to exercise substantial influence over the organization, owes 25 percent of the amount by which a benefit exceeds what the charity received in return, here $147,500. If the benefit is not corrected before the IRS mails a notice of deficiency or assesses the tax, a second tax of 200 percent follows, here $1,180,000.
Correcting means repaying the charity with interest. In February 2020 the IRS told Mr. Jagannath to return the $590,000 plus $26,215.21 in interest or face the second tax; its notice of deficiency came in May 2022.
He is also liable for additions to tax for not filing Form 4720, the return every person who owes the tax must file, and for not paying. Before trial the IRS conceded a separate $20,000 tax on him as an organization manager. The parties will compute the final amounts before a decision is entered, and an appeal would go to the U.S. Court of Appeals for the Sixth Circuit, the opinion says.
About this story
501c3.help wrote this story from the sources listed with it, not from material an organization sent. Our editors approved it on Sept. 29, 2026. Stories in The Nonprofit Herald are free, and nothing is asked in return. Editorial rules.
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