NY AG Seeking Dissolution of NRA, Removal of and Restitution From Directors

• Published date: 01 October 2020
• DOI: http://doi.org/10.1002/npc.30781
• Date: 01 October 2020

Bruce R. Hopkins’ NONPROFIT COUNSEL

6 October 2020 THE LAW OF TAX-EXEMP T ORGANIZATIONS MONTHLY

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

than some prior grants, there are no relationships

between the two charities and their managers.

The IRS determined that this grant will be from a

disinterested party, was attracted by reason of the

grantee’s publicly supported nature, and will (if taken

into account in determining public charity status)

adversely affect the grantee’s public support ratio

(Reg. §§ 1.170A-9(f)(6)(ii), 1.509(a)-3(c)(4)). The IRS

found this proposed grant to be an unusual grant

because the foundation is winding down its opera-

tions and setting up the endowed funds (Priv. Ltr. Rul.

202031009). [12.3(b)(i), (iv)]

• A nonprofit corporation sought recognition of tax

exemption as a charitable and educational entity,

with its objective being continuation of the “long-

standing tradition” of the “Western Way” of life.

The organization sponsors “rough-stock” events,

such as barrel racing, rodeo, greased pig and goat

races, and dummy roping. Expenses are primarily

for operations, primarily prizes. The IRS declined to

recognize exemption in this instance, concluding

that this organization is organized and operating

principally for social and recreational purposes (Priv.

Ltr. Rul. 202031011). [4.5(a)] ◆

THE DIFFICULTIES OF

LITIGATING PROPERTY TAX

EXEMPTION IN FEDERAL

COURT

The Legion of Christ, a tax-exempt religious corpora-

tion, in late 1996, purchased two parcels of real estate

within the town of Mount Pleasant, New York. The Le-

gion applied for a real property tax exemption for one of

these parcels, which was denied by the town’s assessor.

Litigation in state court ensued, which has lasted many

years. This lawsuit was filed in 2018 in state court; the

defendants removed the action to federal court.

The Legion asserted several claims, including dep-

rivation of due process and equal protection rights,

stemming from the town’s alleged abuse of its taxing

authority. The defendants claimed that these causes

of action are barred from federal court review because

they pertain to state tax proceedings and plaintiffs have

adequate means for seeking legal redress in state court.

They invoked the Tax Injunction Act and the principle

of comity. The Legion claimed the federal court has

jurisdiction because it is “asking for monetary damages

for years of discriminatory practices by the Town and its

officials.” The court sided with the defendants, finding

that it does not have subject matter jurisdiction over the

Legion’s federal claims (The Legion of Christ, Inc. v. Town

of Mount Pleasant (S.D.N.Y. (July 27)).

The court recited the Tax Injunction Act, which pro-

vides that the district courts “shall not enjoin, suspend

or restrain the assessment, levy or collection of any tax

under State law where a plain, speedy and efficient

remedy may be had in the courts of such State.” The

court quoted a Second Circuit opinion that this law “has

its roots in equity practice, in principles of federalism,

and in recognition of the imperative need of a State to

administer its own fiscal operations.” A US Supreme

Court opinion states that the “comity doctrine applica-

ble in state taxation cases restrains federal courts from

entertaining claims for relief that risk disrupting state tax

administration.”

The court noted that, while the Legion is not asking

it to order the defendants to refund the Legion’s tax

payments, it seeks a “ruling passing judgment on the

constitutionality of the town’s applications of its taxing

authority.” This, wrote the court, is “precisely the type

of determination that would ‘disrupt’ New York State’s

tax administration.” The court ruled that the relief the

Legion is pursuing is barred by the principle of comity

and the Act inasmuch as there is a “procedurally ade-

quate state alternative procedure for challenging the

assessment.”

The court also declined to exercise supplemen-

tal jurisdiction over the Legion’s remaining state law

claim. ◆

NY AG SEEKING DISSOLUTION

OF NRA, REMOVAL OF

AND RESTITUTION FROM

DIRECTORS

The attorney general of New York, on August 6, filed

a lawsuit in the Supreme Court of New York, seeking

removal of certain executives of the National Rifle As-

sociation and restitution by them, as well as dissolution

of the NRA (People of the State of New York v. National

Rifle Association et al.).

The complaint states that the NRA has operated as

a New York not-for-profit “charitable membership cor-

poration” for 149 years, is a “New York charity,” and is

“legally required to serve the interests of its membership

and advance its charitable mission.” (In fact, the NRA

is tax-exempt as a social welfare organization (an IRC §

501(c)(4) entity).)

The complaint further states that, for nearly three

decades, Wayne LaPierre has served as the NRA’s chief

executive officer, and in doing so has “exploited the

organization for his financial benefit, and the benefit of a

close circle of NRA staff, board members, and vendors.”

It is said that he has “undertaken a series of actions to

consolidate his position; to exploit that position for his