Ninth Circuit Affirms Parks Case

• Date: 01 February 2018
• DOI: http://doi.org/10.1002/npc.30426
• Published date: 01 February 2018

Bruce R. Hopkins’ NONPROFIT COUNSEL

February 20184THE LAW OF TAX-EXEMPT ORGANIZATIONS MONTHLY

Bruce R. Hopkins’ Nonprofit Counsel DOI:10.1002/npc

JOINT COMMITTEE ESTIMATES

BUDGET EFFECTS OF TAX

CUTS AND JOBS ACT

The Joint Committee on Taxation has estimated the

budget effects of the tax-reform act over 2018–2027

(JCX-67-17 (December 18)). Here are the relevant num-

bers:

• Subjection of exempt organizations’ unrelated busi-

ness income calculation to a “bucketing” rule—$3.5

billion.

• Repeal of deduction in connection with college ath-

letic event seating rights—$2 billion.

• Excise tax on investment income of colleges and uni-

versities—$1.8 billion.

• Excise tax on exempt organizations paying executive

compensation in excess of $1 million—$1.8 billion.

• Partnership rule concerning losses—$1.2 billion.

• Repeal of deduction for local lobbying expenses—$0.8

billion.

• 529 plan withdrawals up to $10,000—$–0.5 bil-

lion. ◆

NINTH CIRCUIT AFFIRMS

PARKS

CASE

The US Court of Appeals for the Ninth Circuit, on

December 15, affirmed the US Tax Court in its finding

that the Parks Foundation engaged in advocacy commu-

nications, leading to imposition of taxable expenditures

taxes on the Foundation and its manager (Parks v. Com-

missioner). A summary of the Tax Court’s opinion is in

the January 2016 issue.

The Tax Court found that nine radio advertisements

produced by and broadcast on behalf of the Founda-

tion were not educational communications, applying

the methodology test. The court of appeals agreed,

stating that these communications “distorted the facts

presented to the public or omitted supporting facts

entirely.” It added that “[m]any of the communications

also used inflammatory or disparaging terms seemingly

directed at producing an emotional response to the

messages’ content, rather than promoting an objective

assessment of issues of public concern.”

The taxes on the manager were upheld because his

lawyer responded in connection with only three of the

communications; in doing so, he supplied “cursory com-

mentary,” and thus the opinion failed to qualify as “rea-

soned.” (See the Quote of the Month.) [8.2, 22.3(d)]. ◆

TREASURY, IRS SEEKING

COMMENTS ON PROPOSED

DONOR-ADVISED FUND RULES

The IRS, on December 5, issued a summary of

approaches that are under consideration at the Depart-

ment of the Treasury and the IRS in connection with

various issues regarding donor-advised funds, from the

perspective of development of proposed regulations to

accompany IRC § 4967 (Notice 2017-73). Comments are

requested on these and other issues. The due date for

comments is March 5.

Public Support Considerations

The Treasury and the IRS, of course, are aware of the

issue of use of donor-advised funds as “intermediaries,”

in that some are being used by donors and distributee

charities to convert contributions and grants to monies

that (ostensibly) qualify in their entirety as public sup-

port for the ultimate recipients. Under current law, the

test essentially is whether the fund is a mere conduit or

has independent discretion and control over the monies

involved. If the latter, the total distributions from the

donor-advised fund are forms of public support.

This latter concept is built into the statutory law. IRC

§ 170(b)(1)(A)(vi) references organizations that receive a

substantial portion of their support “from direct or indirect

contributions from the general public.” A grant from one

IRC § 170(b)(1)(A)(vi) organization to another IRC § 170(b)

(1)(A)(vi) organization (or an entity that is trying to gain that

classification) is a form of indirect contribution from the

public. Sponsoring organizations usually have their publicly

supported status predicated on IRC § 170(b)(1)(A)(vi).

Because of this “potential for abuse,” Treasury and the

IRS are considering jettisoning of the current-law approach

and treating, solely for purposes of determining whether

the distributee charity is publicly supported, a distribution

from a donor-advised fund as an indirect contribution from

the donor or donors that funded the fund. This approach,

of course, would subject the contribution to the applicable

public support limitation. That is, the distribution would not

be regarded as a grant from the sponsoring organization.

This treatment, it is said, “would better reflect the degree

to which the distributee charity receives broad support from

a representative number of persons.”

Also, the proposed regulations will likely provide that

anonymous contributions received by a charity, including

a donor-advised fund distribution for which the sponsor-

ing organization fails to identify the donor that funded

the fund, are treated as made by one person.

Nonetheless, a recipient charity will be able to treat

distributions from a sponsoring organization as public

support in their entirety if the sponsoring organization

specifies that the distribution is not from a donor-advised