Supreme Court Update

Date01 February 2021
Published date01 February 2021
February 2021 7
Bruce R. Hopkins’ Nonpr ofit Counsel DOI:10.10 02/n pc
using the standard. The IRS declined to recognize this
organization as a tax-exempt business league on the
ground it is engaged in a business ordinarily conducted
for profit and is performing particular services for a
“select group” of members, thereby providing them
a competitive edge over nonmembers (Priv. Ltr. Rul.
202050016). [14.2(b), (c)]
A nonprofit organization with a membership of golf
enthusiasts worldwide failed in its effort to secure
recognition of exemption as a charitable and educa-
tional entity (Priv. Ltr. Rul.202050017). The IRS noted
that some of this organization’s activities are educa-
tional in nature, such as mentoring to youth groups
and publishing information on the history of golf.
The IRS, however, relying on what it found on the
entity’s website, concluded that a substantial portion
of the activities of this organization are special and
recreational, in the form of promotion of “fellowship
and friendship” among its members, hosting of
meetings to exchange golf artifacts and memorabilia,
and facilitation of golf tournaments. [4.5(a)]
The US Supreme Court, by a 5-4 decision dated No-
vember 27, struck down a New York State executive
order imposing restrictions on the size of gatherings in
houses of worship, in an effort to control the spread of
the coronavirus (Roman Catholic Diocese of Brooklyn v.
Cuomo). The limits were found excessively strict and thus
a violation of the Free Exercise Clause, public health con-
cerns notwithstanding. Another aspect of this opinion is
that it, in the words of the New York Times on November
27, “said the state had treated secular businesses more
favorably than houses of worship.” The opinion stated
that the “list of ‘essential’ businesses includes things
such as acupuncture facilities, camp grounds, garages,
as well as many whose services are not limited to those
that can be regarded as essential.” [10.1(a)(i)]
A case concerning restrictions on church gatherings
during the pandemic, decided by the US District Court
for the Central District of California on September 2, was
remanded by the Court on December 3 for reconsidera-
tion in light of the Diocese of Brooklyn decision (Harvest
Rock Church v. Newsom). [10.1(a)(i)]
The Court, on December 1, heard arguments in a case
where a company is seeking to enjoin enforcement of an
IRS notice that identified a transaction as a transaction
of interest, principally on the ground that the notice was
promulgated in violation of the Administrative Procedure
Act (CIC Services, LLC v. United States). Both the district
court and the US Court of Appeals for the Sixth Circuit held
that the complaint is barred by the Anti-Injunction Act (the
latter holding summarized in the August 2019 issue).
The IRS’s Office of Chief Counsel opined that a part-
nership cannot deduct the cost of premiums paid for an
insurance policy that contemplates reimbursement of the
partners for an adjustment reducing the tax benefits they
are entitled to claim for a charitable contribution made by
the partnership (Chief Couns. Adv. Mem. 202050015).
This “tax insurance” policy will reimburse the partners for
any difference between the tax benefits they claimed and
the benefits they are entitled to receive.
Chief Counsel noted that whether a business expense
deduction (IRC § 162(a)) is available is determined at
the partnership level. The law is that, where an expense
involves a contractual arrangement for reimbursement in
the event of a contingency, the terms of the arrangement
determine whether the expense is sufficiently related to
business activities to support a deduction. In this instance,
the reimbursement is available irrespective of any business
activity of the partnership and thus, Chief Counsel ruled,
the premiums are not deductible as a business expense.
Chief Counsel also ruled that these premiums are not
sufficiently related to the partnership’s income-producing
activities to warrant a deduction as an ordinary and nec-
essary expense incurred for the production or collection of
income or for the management, conservation, or mainte-
nance of property held for the production of income (IRC
§ 212(1), (2)). It was further held that these premiums
are not deductible as an expense related to the determi-
nation, collection, or refund of a tax (IRC § 212(3)), inas-
much as the policy does not provide, fund, or reimburse
any services or materials related to preparing returns,
determining a tax liability, or contesting such a liability.
The IRS published the annual inflation adjustments for
tax provisions for 2021 (Rev. Proc. 2020-45). Here are the
pertinent items:
An exception from unrelated business income taxation
involving low-cost articles is applicable with respect to
articles with a cost of no more than $11.30. [25.2(j)]
$5, $25, and $50 guidelines for disregarding the value
of insubstantial benefits received from a donor in return
for a fully deductible income tax charitable contribution
are $11.30, $56.50, and $113. [Appendices D-F]
The annual per-person, -family, or -entity dues limita-
tion to qualify for the reporting exception regarding

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