Other Developments

• Date: 01 November 2020
• Published date: 01 November 2020
• DOI: http://doi.org/10.1002/npc.30794

Bruce R. Hopkins’ NONPROFIT COUNSEL

November 2020 7

THE LAW OF TAX-EXEMP T ORGANIZATIONS MONTHLY

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

the utterances about this case do not disclose any spe-

cific individual’s tax return information or this individual’s

tax return in particular. Various “series of factual infer-

ences and conclusions” were found “too attenuated”

to constitute an improper disclosure. One statement by

the IRS commissioner (see the January 2020 issue) was

portrayed as “full of policy enforcement bravado.” Some

of the government’s statements were said to pertain to

the client’s tax returns, not the appraisers’ returns.

The “briefing and counterclaim verbiage currently

before the Court” was held “insufficient to provide the

foundation for the claims asserted.” Nonetheless, the

appraiser was granted leave to file an amended counter-

claim, directly addressing how the statements made by

the government disclose his tax return information or

how his identity and investigation of him personally are

linked to his tax return. ◆

APPELLATE COURT FINDS

FEC GIFT DISCLOSURE RULE

ANEMIC, UPHOLDS ITS

INVALIDATION

The US Court of Appeals for the District of Columbia

Circuit, by decision dated August 21, upheld invalida-

tion of a Federal Election Commission rule concerning

disclosure of contributions for independent expenditures

on the grounds that the scope of the rule is too narrow

in relation to the authorizing statute (Citizens for Re-

sponsibility and Ethics in Washington v. Federal Election

Commission).

This case involves two provisions of the Federal Elec-

tion Campaign Act, which require makers of independent

expenditures to disclose information about contributions

(52 USC § 30104(c)(1), (c)(2)(C)). (Independent expendi-

tures are outlays urging the election or defeat of identified

candidates without coordination with the candidates.)

These statutes require disclosure of contributors who

give more than $200. The FEC rule, however, requires

disclosure of these contributions only if they are ear-

marked to support a particular independent expenditure.

The appellate court applied the Chevron principles,

concluding that FECA’s terms on the point are unambig-

uous. It utilized a “plain meaning” approach, reflected

in an earlier court opinion on the point, which concluded

that the rule “shrinks the statutory duty to disclose

contributors,” thereby “squeez[ing] [FECA’s] explicit dis-

closure obligation beyond what the plain statutory text

can bear.” It rejected the argument that the scope of the

rule is necessary to avoid free speech issues. The court of

appeals thus held that the FECA “establishes a broader

disclosure mandate than the rule ostensibly implement-

ing it,” causing the rule to be “invalid.” ◆

OTHER RECENT IRS PRIVATE

LETTER RULINGS

• A nonprofit corporation was formed to create events

for the benefit of a group of independently owned

and operated bridal salons. Its primary activity is the

provision of advertising for these stores. It organizes

an annual event enabling the salons to offer sub-

stantial sales and discounts on wedding attire. The

IRS declined to recognize this entity as a tax-exempt

business league, on the grounds it is performing par-

ticular services for its members rather than improving

conditions within a line of business (Priv. Ltr. Rul.

202034010). [14.2(c)(i), (ii)]

• A nonprofit membership corporation has as its pur-

pose the promotion of American businesses operated

by individuals of a particular nationality. It is essen-

tially a networking organization. It conducts various

fundraising events for charitable purposes. The IRS

denied recognition of exemption as a charitable

organization in this case, concluding that the primary

purpose of this entity is the provision of business

opportunities for its members, which serves private

interests (Priv. Ltr. Rul. 202036008). Although this

organization engages in some charitable and edu-

cational activities, these efforts were insufficient to

offset the nonexempt purposes and functions, caus-

ing violation of the operational test. [4.5(a), 20.13(a)]

• A promissory note presently held in a decedent’s

estate is destined to be transferred to a charitable

lead trust. To avoid self-dealing, which would occur if

the note was distributed to the trust, the note is to be

contributed to a limited liability company, with non-

voting interests in the LLC contributed to the charita-

ble lead trust. The IRS concluded that the charitable

lead trust will not control the LLC, so that the trust’s

continuing ownership of the nonvoting interests will

not entail self-dealing (Priv. Ltr. Rul. 202037009). The

transferor of these interests is a trust; although other

beneficiaries of this trust may become disqualified

persons with respect to the charitable lead trust, they

will own voting interests in the LLC in their individual

capacities and not as managers of the charitable lead

trust. The holding of these interests by the lead trust

will not be excess business holdings, because more

than 95 percent of the LLC’s gross income will derive

from passive sources. [12.4(a), (c)] ◆

OTHER DEVELOPMENTS

◆The Department of the Treasury and the IRS, on

September 2, issued their fourth-quarter update to the

2019–2020 Priority Guidance Plan.

◆The IRS, on September 1, posted a draft of the Form

990-T. The principal proposed change involves the