Supreme Court Corner

• DOI: http://doi.org/10.1002/npc.30639
• Date: 01 September 2019
• Published date: 01 September 2019

Bruce R. Hopkins’ NONPROFIT COUNSEL

September 2019 7

THE LAW OF TAX-EXEMP T ORGANIZATIONS MONTHLY

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

beneficiary of the organization’s fundraising programs.

Indisputably true. The ruling adds, however, that private

benefit is further evidenced by the fact that the organiza-

tion’s name and that of the beneficiary are “very similar.”

Big error. Were that the law, most private foundations,

and some public charities, would not be tax-exempt. It is

common knowledge that this type of “benefit” is, at the

most, incidental. [6.3(a), 20.13(b)]

◆The IRS determined that the executive director of an

organization seeking recognizing of exemption made

material misstatements on its Form 1023 (Priv. Ltr. Rul.

201924018). The organization claimed to be engaging in

educational activities in connection with an undisclosed

issue. This individual executed a plea agreement admit-

ting to, and was convicted for, endeavors to obstruct

administration of the revenue laws; apparently, these

endeavors included preparation of the application. The

IRS also concluded that the entity was an action organi-

zation because of substantial lobbying. The IRS further

determined that this organization could not be exempt

because it was involved in illegal activities, presumably

those stated in the plea agreement. [6.3(i), 22.3(c)(i)]

◆Once again, the IRS had occasion to review an orga-

nization formed to provide education, training, and

refereeing or umpiring opportunities. This organization

functions on behalf of soccer referees serving a state’s

scholastic athletic associations. It serves, as its primary

activity, to schedule, assign, and pay member referees

for their officiating services. The IRS rejected this orga-

nization’s efforts to be recognized as a tax-exempt busi-

ness league because it provides particular services to its

members by arranging employment opportunities for

them, resulting in impermissible private benefit (Priv. Ltr.

Rul. 201924019). This service was ruled to provide its

members with a convenience they would not otherwise

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

◆The IRS revoked the tax-exempt status of a fraternity,

an organization established to promote intellectual, moral,

and social welfare of its members. The entity is accumu-

lating funds to build a chapter house. This organization

derives all its income from rental of real property. Thus, it

is not supported by member dues, fees, and member use

of the fraternity (Reg. § 1.501(c)(7)-1(a)). This organiza-

tion thus exceeded the 35 percent limitation on outside

gross receipts (Priv. Ltr. Rul. 201925020). [15.1(b), 15.3]

◆A nonprofit membership organization was formed

to foster the development of successful minority- and

women-owned business enterprises. It sponsors work-

shops, conferences, and networking events. This entity

failed to qualify as a tax-exempt charitable organization

for two reasons (Priv. Ltr. Rul. 201927022). One, it is pro-

viding too much assistance to its members in support of

their business, in violation of the private benefit doctrine.

Two, it goes beyond educational undertakings and sub-

stantially provides activities that promote the businesses,

a nonexempt function. [8.1, 20.13(a)]

◆An organization was recognized as a tax-exempt

social club by reason of being a fraternity. The IRS discov-

ered that this entity is merely renting property to a frater-

nity; its exemption was revoked (Priv. Ltr. Rul. 201927023).

The IRS observed that the organization is not functioning

in ways that satisfy the mingling requirement and all its

income is derived from the public. [15.1(b), 15.2] ◆

SUPREME COURT CORNER

◆The US Supreme Court, by decision dated June 26,

held (5-4) that the doctrine of judicial deference to

governmental agencies’ regulations articulated by it in

Auer v. Robbins (1997) should not be overturned, then

significantly retooled the contours of the doctrine (Kisor

v. Wilkie). Auer essentially requires courts to accept an

executive agency’s interpretation of its ambiguous regula-

tions, as long as its views are reasonable. The dissenting

opinion takes the position that the Auer doctrine is incon-

sistent with separation-of-powers principles, the concept

of due process, and the Administrative Procedure Act.

Chief Justice John Roberts, provider of the swing vote,

tried to smooth things over by writing separately that

the “distance between” the two dramatically contrast-

ing views in this case “is not as great as it may initially

appear.” The majority wrote that “[w]hat emerges is a

deference doctrine not quite so tame as some might

hope, but not nearly so menacing as they might fear.”

The dissent stated: “So the doctrine emerges maimed

and enfeebled—in truth, zombified.” The dissenter added

that he “hope[s] that our judicial colleagues on other

courts will take courage from today’s ruling and realize

that it has transformed Auer into a paper tiger.” [App. A]

◆The Court, by decision dated June 20, held (5-4) that

a monument in the shape of a cross, honoring World

War I soldiers, can be maintained on state property with-

out violating the Establishment Clause (American Legion

v. American Humanist Organization; Maryland-National

Capital Park and Planning Commission v. American

Humanist Association). Although this case drew seven

opinions, the essence of the outcome was that the

monument has a “secular meaning.” The dissent stated

that the “Latin cross” reflects the “foremost symbol

of the Christian faith” and that the cross at issue is an

endorsement of Christianity. [10.1(a)(ii)]

◆The Court, by decision dated June 21, unanimously

held that the mere presence of in-state beneficiaries is

insufficient to empower a state to tax trust income that

has not been distributed to them, where the beneficia-

ries lack the right to demand the income and are uncer-

tain to receive it (North Carolina Department of Revenue

v. Kimberly Rice Kaestner 1992 Family Trust). Due process

principles, the Court stated, demand some “minimum

connection” between a state and the person, property,

or transaction it seeks to tax. ◆