Other Recent IRS Private Letter Rulings

Published date01 December 2019
Date01 December 2019
Bruce R. Hopkins’ Nonpr ofit Counsel DOI:10.10 02/n pc
drafting regulations, or whether the same group engages
in ‘providing political information‘ or any candidate for
office or any ballot issue or legislation up for vote in the
Legislature, or on any regulation being considered by the
Assembly or a state agency, whether that political infor-
mation is a fact or an opinion held by the organization.”
The court then considered the phrase “providing
political information.” This phraseology was held to
improperly “[corral] into the [law’s] disclosure regime any
political information from independent groups spending
more than $3,000 a year that contains either a fact or
an opinion pertaining to any candidate for public office
or ‘any public question.’” The court was likewise critical
of the sweep of the phrase “influencing or attempting
to influence.” The scorecard was held to trigger the law’s
disclosure obligations by being characterized as “influ-
encing or attempting to influence” the “chances of each
and every candidate mentioned.”
The court concluded that there is “no practical dif-
ference” in whether the law is interpreted narrowly (the
defendants’ view), read broadly (the plaintiff’s view), or
solely by the plain language of the “final product.” The
conclusion, it wrote, is the same: The “provision of any
fact or opinion on any candidate or public question,
legislation or regulation by an independent group that
raises or expends more than $3,000 for that purpose
annually must disclose the identities of donors who
have contributed more than $10,000 annually and must
disclose their expenditures.” Again, this is the case irre-
spective of whether the independent group intended to
provide political information, intended to “influence or
attempt to influence,” or intended to engage in “elec-
tioneering communications” that promote or oppose a
candidate for office or a “public question.”
As the motion for the preliminary injunction, and the
question as to whether the plaintiff is likely to prevail on
the merits, the court pointed to the US Supreme Court’s
declaration in its opinion in Buckley that the compelled
identification of contributors to independent groups that
expend money on political causes “can seriously infringe”
the rights to “privacy of association and to belief guar-
anteed by the First Amendment.” Thus, the standard of
“exacting scrutiny” is to be applied, meaning that the
law “can be sustained only if it furthers a vital govern-
mental interest . . . That is achieved by a means which
does not unfairly or unnecessarily burden either a minor-
ity party’s or independent candidate’s equally important
interest in the continued availability of political opportu-
nity.” The court concluded that the “plain text” of the
New Jersey law does not reveal the requisite “substantial
relation between the disclosure requirement and a suf-
ficiently important governmental interest.”
Again, the sweep of the state’s law was noted by the
court. It was said by the court to “[ignore] the teachings
of Citizens United.” And, again, “[m]ost constitution-
ally troubling” to the court “is the way . . . the [law]
brings communications of purely factual political infor-
mation into a disclosure and financial-reporting regime
historically limited to electioneering communications.”
One of the fundamental problems of this law is that it,
for purposes of the disclosure requirements, makes the
phrase “providing political information” as “effectively
synonymous” with the law’s definition of “electioneer-
ing communications.”
The court concluded that AFP met its burden of
“demonstrating it has a reasonable probability of win-
ning on the merits at trial on its claim that the [law] is
facially unconstitutional.” The court observed that the
grant of the injunction would prevent the state legisla-
ture from approving legislation required to “correct the
unconstitutional weaknesses” in the law. Nor, the court
also noted, would an injunction preclude the state’s
election commission from engaging in rulemaking that
might “bring clarity” to the law’s language.
Having reached that conclusion, the court held that it
is “axiomatic” that AFP has met the other three factors
for granting a preliminary injunction. [28.11(i)]
An organization was formed to operate a “holistic
medicine establishment” selling medicinal marijuana
products to patients with prescriptions from licensed
physicians. It conducts a storefront business, being
licensed by a state as a retailer of recreational-use can-
nabis. The IRS denied recognition of exemption as a
social welfare organization to this entity, on the grounds
that its primary activity is carrying on a business with
the public in a manner similar to for-profit organizations
(Reg. § 1.501(c)(4)-1(a)(2)(ii)).
The IRS applied the commerciality doctrine in reach-
ing this conclusion, finding that the organization “use[s]
promotional policies to enhance sales,” “advertises
goods and services,” sets margins at a level that “enables
[it] to replace merchandise inventory,” and “maintain[s]
a retail outlet with hours of operation that are com-
petitive with other retail establishments” (Priv. Ltr. Rul.
201941028). The IRS did not deploy the arguments that
it uses in the charitable setting — namely, that the activ-
ity is illegal under federal law and is contrary to federal
public policy (see below). [4.9(g), 13.3]
A nonprofit organization, with a program of fund-
raising and dissemination of funds to patients in a state

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