Other Developments

• DOI: http://doi.org/10.1002/npc.30455
• Date: 01 April 2018
• Published date: 01 April 2018

Bruce R. Hopkins’ NONPROFIT COUNSEL

April 20188THE LAW OF TAX-EXEMPT ORGANIZATIONS MONTHLY

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

rules do not have economic effect because any economic

impact is attributable to the underlying statutory law.

The Senate Committee on Homeland Security and

Governmental Affairs has decided to examine the extent

to which federal agencies conduct their rulemaking. In a

letter to the IRS acting commissioner, dated February 13,

the chairman of the committee and the chairman of the

Subcommittee on Regulatory Affairs and Federal Manage-

ment requested information about the IRS’s “justification

for not producing economic analyses during its rulemaking

process and urge[d] the agency to reconsider its policy.”

This letter requests various items of information,

including an explanation of the “process by which a

determination is made as to whether the agency will

or will not conduct an economic impact analysis on a

proved regulation.”

Commentary: The IRS (and Treasury) position has some

logic where the proposed regulation wholly or largely

is reflective of the contents of a statute. It is a different

matter when the IRS sails off into a regulatory realm

where there is no statutory underpinning (e.g., gover-

nance) or when Treasury issues proposed regulations

that, at least in part, do not have any counterpart in an

Internal Revenue Code provision (e.g., the forthcoming

regulations concerning donor-advised funds; see the

article beginning on p. 6). ◆

OTHER DEVELOPMENTS

◆The US Tax Court, on February 5, held that a non-

profit organization does not qualify for tax exemption

as a scientific research organization and is operating to

pursue its founder’s “intellectual and commercial goals”

as a form of private benefit (David Muresan Scientific

Research Foundation v. Commissioner). The organiza-

tion’s case was thwarted by the fact that its founder is

not a physician and was not forthcoming in providing

information to the IRS, and its lack of scientific facilities

or equipment. [9.2, 20.12(a)]

◆The Department of Justice announced, on February 1,

that it settled the case with Z Street, a nonprofit orga-

nization that educates the public about various issues

related to Israel and the Middle East. Z Street alleged

that the IRS has a policy of applying heightened scrutiny

to applications for recognition of tax-exempt status

filed by organizations connected to Israel and applied

that policy to Z Street’s application, resulting in delay.

“Tax exemption eligibility should be based on whether

an organization’s activities fulfill requirements of the

law, not a group’s policy positions or the name chosen

to reflect those views,” said Principal Deputy Assistant

Attorney General Richard Zuckerman. A consent order

is under consideration at the US District Court for the

District of Columbia (Z Street v. Kautter). [26.1(j), 26.15]

(See the Quote of the Month.)

◆The president and CEO of the Independent Com-

munity Bankers of America, by letter dated February

20, advised Senate Finance Committee Chairman Orrin

Hatch (R-Utah) that the credit-union “tax subsidy is the

elephant in the room.” This tax exemption, it was said,

has “outlived its purpose.” “[T]oday’s credit unions are

virtually indistinguishable from taxpaying community

and regional banks,” the letter read. Exempt credit

unions are “seeking the power to raise outside, supple-

mental capital and further leverage their tax subsidy,

subverting their cooperative status, which is among key

justifications for their tax exemption.” Chairman Hatch

was urged to hold a hearing to “examine the evolution

of the credit union industry and the threat it poses to the

American tax base.” [19.7] ◆

Quote of the Month: Paragraph 48 of the consent

order in the Z Street case (see above) states: “The Court

hereby declares that it is wrong to apply the United

States tax laws, including any and all tax rules, regula-

tions, policies, procedures, and standards of review,

to any tax-exempt applicant or entity based solely on

any lawful positions it espouses on any issues or its

associations or perceived associations with a particular

political movement, position, or viewpoint.” Paragraph

49 states that the foregoing declaration “does not con-

stitute a finding by the Court that the IRS committed

any violation of law or otherwise acted in bad faith in

this case.” ◆

Each article in the newsletter on a tax-exempt organizations law topic ends with a citation to the appropriate chapter(s) or

subchapter(s) in Hopkins, The Law of Tax-Exempt Organizations, Eleventh Edition (Wiley, 2017 cumulative supplement). This is done

to provide ready access to additional and background information concerning these articles. For example, underlying information

concerning the second article in this issue is available in Chapter 28 § 1(b); thus, the citation is referenced as [28.1(b)]. Likewise,

each article in the newsletter on a charitable giving law topic ends with a citation to the appropriate chapter(s) or subchapter(s) in

Hopkins, The Tax Law of Charitable Giving, Fifth Edition (Wiley, 2017 cumulative supplement).

This newsletter is a stand-alone publication. An inventory of articles in the newsletter since its inception in 1983, and a subject mat-

ter index, as well as an index of the court opinions, IRS revenue rulings and procedures, IRS technical advice memoranda, and IRS

private letter rulings discussed in the newsletter, are available at www.brucerhopkinslaw.com. For those who have the books, the

newsletter also provides monthly updates. Both books are annually supplemented. Questions concerning nonprofit law develop-

ments in general may be sent to brucerhopkins@brucerhopkinslaw.com. Also, a comprehensive summary of nonprofit law is avail-

able in the Bruce R. Hopkins Nonprofit Law Library, an e-book published by Wiley. Follow BRHopkins_NPLaw on Twitter.

The newsletter has a dedicated website. Please visit www.hopkinsnonprofitcounsel.com.