College Admissions Fairness Act Introduced

• Date: 01 August 2019
• DOI: http://doi.org/10.1002/npc.30628
• Published date: 01 August 2019

Bruce R. Hopkins’ NONPROFIT COUNSEL

6 August 2019 THE LAW OF TAX-EXEMP T ORGANIZATIONS MONTHLY

Bruce R. Hopkins’ Nonpr ofit Counsel DOI:10.10 02/n pc

6671(a)). That fact caused it to hold that a reporting

requirement that is enforced by a tax is shielded from

pre-enforcement judicial review pursuant to the AIA.

That is, the court of appeals majority rejected the argu-

ment that even where a penalty is a tax, the case is

not within the purview of the AIA because the plaintiff

was seeking relief not from the penalty but from the

underlying regulatory mandate. The concept that the

regulatory mandate exists “separate and apart” from

the assessment or collection of tax was dismissed as

“nifty wordplay.” The majority quoted a Supreme Court

opinion stating that a “taxpayer could almost always

characterize a challenge to a regulatory tax as a chal-

lenge to [only] the regulatory component of the tax,”

which, if that approach were accepted, “would reduce

the [AIA] to dust in the context of challenges to regula-

tory taxes.”

The court majority concluded: “A challenge to a

regulatory tax comes within the scope of the AIA, even if

the plaintiff claims to be targeting the regulatory aspect

of the regulatory tax, because a challenge to the regula-

tory aspect of a regulatory tax is necessarily also a chal-

lenge to the tax aspect of a regulatory tax. Invalidating

the former would necessarily invalidate the latter.”

The dissent stressed the difference between, not the

attenuation of, reporting and collection and assessment.

The dissenting judge asserted that “[e]njoining a report-

ing requirement enforced by a tax does not necessarily

bar the assessment or collection of that tax.” This is

because the tax does not result from the requirement per

se. The only way for the IRS to assess and collect the tax

in this case, the dissent noted, is for a party to violate the

requirement. The dissent reasoned that “enjoining the

requirement only stops the assessment and collection of

the tax in the sense that a party cannot first violate the

requirement and then become liable for the tax.” Surely,

the judge mused, this cannot be the intent underlying

the AIA.

The dissent faulted reliance on cases in the tax-

exempt organizations setting, such as Bob Jones Univer-

sity v. Simon (Sup. Ct. 1974) and Alexander v. “Americans

United,” Inc. (Sup. Ct. 1974). There, the dissent noted,

the challenges to IRS rulings revoking tax-exempt status

were “inextricably linked” to assessment and collection

of taxes because loss of exempt status meant liability for

federal income and employment taxes.

The dissent observed that the plaintiff in this case is

not disputing taxes but “tak[ing] issue with the hundreds

of hours of labor and tens of thousands of dollars the

requirement will cost to comply with.” “And all so that,”

the plaintiff argued, the IRS “can unfairly and publicly

portray its ‘industry as one filled with crooked operators

and tax scammers.’”

The dissent stated: “Ordinarily, administrative law

does not intend to leave regulated parties caught

between a hammer and an anvil. That is why the

Supreme Court has recognized a norm in favor of

pre-enforcement judicial review of final agency action.

Judicial review obviates the dilemma of either complying

with potential unlawful (and onerous) regulations or risk-

ing prosecution. But that is not the choice [the plaintiff]

is left with today. The majority holds that the [AIA] bars

us from reviewing [the plaintiff’s] pre-enforcement chal-

lenge of an Internal Revenue Service reporting require-

ment. I disagree.” ◆

Commentary: If the Sixth Circuit majority is correct

(and, from here, it is not), there cannot be any challenge

to the legality of any IRS notices concerning any report-

able transactions, including listed transactions. Tax-

exempt organizations can be caught up in these types of

transactions. Recall, for example, the IRS notice causing

certain syndications of charitable gifts of conservation

easements to be listed transactions (summarized in the

March 2017 issue).

The 2019 supplement to The Law of Tax-Exempt Orga-

nizations, Twelfth Edition, will include a new chapter

(Chapter 28A) exploring the intersections of the fed-

eral tax laws concerning exempt organizations and tax

shelters.

COLLEGE ADMISSIONS

FAIRNESS ACT INTRODUCED

The ranking member of the Senate Finance Com-

mittee, Ron Wyden (D-OR), on June 5, introduced the

College Admissions Fairness Act (S. 1732), a bill to, in

the words of an accompanying press release, “make the

college admissions process fairer by ending tax breaks

for donations made to influence admissions decisions.”

Essentially, under this legislation, which would enact IRC

§ 170(f)(19), for a contribution to a tax-exempt college

or university to be fully deductible, the institution would

have to establish a policy that prohibits consideration of

family members’ gifts or ability to contribute as a factor

in admissions.

This legislation would introduce the concept of the

restricted contributor, the definition of which would

entail new terminology in the tax-law context or defi-

nitions as to a specified contribution, a disallowed

amount, a specified college or university, a related

organization, and an applicable period, plus apply an

existing definition of an applicable child. Thus, the term

restricted contributor would mean an individual who

made a specified contribution to a specified college or

university or to a related organization during the appli-

cable period and who has an applicable child enrolled in

the educational institution.

If a college or university does not implement the req-

uisite admissions policy, charitable deductions would —

in accordance with the rules pertaining to the disallowed