Supreme Court Corner

Date01 September 2019
Published date01 September 2019
September 2019 7
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]
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.

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