Pace v. Commissioner, T.C. Memo. 2010-272 (Dec. 13, 2010):

[Dean F. Pace is] one man in three parts. As Dean Pace, Esq., he has practiced law for over 50 years and become an unusually successful attorney specializing in qui tam litigation — as he himself testified: “I don’t think anyone is equal to me in qui tam actions.” Whistleblowers are rewarded handsomely in qui tam litigation, and Pace takes home about half of the reward via contingency fees. But the flow of income is uneven — sowing seeds in years of famine for reaping in years of plenty. Pace feasted in 2001 — he recovered over $2 million in legal settlements and took home over $1 million in contingency fees.

As Mr. Dean Pace, Pace is also a bon vivant. He frequents the Bel Air Country Club, drives a Jaguar, visits France regularly, and enjoys $10,000 bottles of wine and bespoke shirts. He has numerous friendships, here and in Europe, that he has sustained over the decades — people with whom he shares an interest in fine wine and dining, plus many professional contacts and former clients.

And, finally, there is Sir Dean Pace, a man of faith and a Knight in Obedience in the Sovereign Military Hospitaller Order of St. John of Jerusalem, of Rhodes, and of Malta. As a Knight in Obedience, Pace is required to participate in an annual pilgrimage to Lourdes and contribute time, talent, and treasure to the Order. He contributes to the Order’s U.S. affiliate, which the IRS recognizes as a charitable organization.

Pace’s confusion of business, personal, and charitable expenses is what prompted the IRS to issue a notice of deficiency. …

In the best of all possible worlds, perhaps, Pace’s pursuit of the unified life would be recognized and rewarded. See, e.g., Pope Paul VI, Pastoral Constitution on the Church in the Modern World — Gaudium et Spes sec. 43 (December 7, 1965). But the Code imposes a more exact and less merciful accounting: business expenses, charitable contributions, and the costs of everyday life must be identified, segregated, and substantiated by reliable documents and credible testimony.

For the Tax Court’s detailed description of the Sovereign Military Hospitaller Order of St. John of Jerusalem, of Rhodes, and of Malta, see below the fold:

The Sovereign Military Hospitaller Order of St. John of Jerusalem, of Rhodes, and of Malta was established in the mid-eleventh century, when merchants from Amalfi founded the Benedictine Abbey of St. Mary of the Latins in Jerusalem. By 1080 the abbey built St. John’s hospital — located on the traditional site of the angel’s announcement of John the Baptist’s conception — which provided a place of refuge for poor and sick pilgrims visiting the Holy Land. Under the leadership of Brother Gerard, the Hospital of St. John grew to include several ancillary hospices in Palestine along the pilgrimage route. Pope Paschal II officially recognized the hospital in 1113, establishing the Order of St. John.

As the twelfth century wore on, the Hospitallers of St. John expanded their medical mission to preventive care by providing armed escort to pilgrims traveling the hostile route to Jerusalem. Crusading knights who stayed in Jerusalem began to join the Order, and by 1148 — the time of the Second Crusade — the Hospitallers of St. John were recognized as an essential part of the Holy Land’s defense. Specialization crept in and the Order became divided into knights and nurses, but the Order stayed true to its original calling by rebuilding the original hospital. John of Würzburg, a German pilgrim, described the place in 1160:

Over against the Church of the Holy Sepulchre * * * on the opposite side (of the way), towards the south, is a beautiful church built in honour of John the Baptist, annexed to which is a hospital, wherein in various rooms is collected together an enormous multitude of sick people, both men and women, who are tended and restored to health daily at a very great expense. When I was there I learned that the whole number of these sick people amounted to two thousand, of whom sometimes in the course of one day and night more than fifty are carried out dead, while many other fresh ones keep continually arriving.

John of Würzburg, Description of the Holy Land, in 5 Palestine Pilgrims’ Text Society: Publications 44 (Aubrey Stewart trans., London 1896).

The next several centuries did not go as well. The Order was forced out of Palestine by 1291, when Muslim forces took its last stronghold in Acre. The knights took refuge in Cyprus, and then established a sovereign territory in Rhodes in 1309. They were under constant pressure, and were besieged by the Ottoman Navy in 1480. About 600 knights and 1,500 to 2,000 soldiers repelled it, but the Turks returned with a large army in July 1522. By December the knights’ position had become desperate; supplies were running low and there was little hope of reinforcements. L’Isle Adam — the Grand Master of the Knights of Rhodes — surrendered and withdrew with his brethren on January 1, 1523.

By 1530 the Order had settled in Malta. Charles V of Spain gave the island to the knights in perpetual fiefdom in exchange for an annual tribute of one Maltese falcon. The original goal was to retake Rhodes, but when this didn’t work out the Order stayed in Malta for 268 years and became known as the Knights of Malta. They continued their naval mission of patrolling the Mediterranean to check Ottoman power. And perhaps the most famous moment in the Order’s history happened in 1565 when an Ottoman force again laid siege against them. Their successful resistance was of enormous moral importance to Europe and was celebrated throughout the West. Even more than two hundred years later Voltaire would state: “Rien n’est plus connu que le siege de Malte” (nothing is better known than the siege of Malta). European monarchs showed their support for the Order by sending funds to rebuild. The knights built another great hospital, churches, and even a university on their island.

The Order, however, could not withstand Napoleon, who took Malta in 1798. Disarmed, disisled, and dispersed, the knights entered what looked to be a long decline. They needed a new mission and, in 1834, they took their current name of the Sovereign Military Hospitaller Order of Saint John of Jerusalem, of Rhodes, and of Malta which is, however, in neither Jerusalem, nor Rhodes, nor Malta, but in Rome. They returned to hospital service and greatly expanded their humanitarian work during the first and second World Wars. As the end of the second millennium neared the Order had become a major global organization with a medical-aid, emergency-relief, and humanitarian mission. One commentator described their modern rise:

The age of software, economists and pocket calculators has been caught napping; that of chivalry has crept up behind it and taken it unawares. A hundred years ago the Order of Malta appeared a mere honorific memory of the crusades * * * Today the Order exchanges ambassadors with nearly sixty governments; it has more than ten thousand knights in thirty-nine national associations throughout the world; its decorations have been proudly accepted by republican heads of state from Africa to the United States; and above all it conducts an international Hospitaller activity with few equals in size, modernity and efficiency.

Sire, The Knights of Malta, at xi (Yale University Press 1994).

(Hat Tip: Bob Kamman.)

Update: Tax Update Blog, IRS Lays Siege to Knight of Malta