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Federal Tax ADVISORY n
MARCH 1, 2016
Private Foundations and Lobbying
Loren E. Parks v. Commissioner, 145 T.C. No. 12 (2015)
The Tax Court mostly ruled against a private foundation and its main contributor and foundation manager by
approving the assessment of the private foundation excise tax on lobbying expenditures. However, the court
gave them a partial victory as to one set of expenditures. The reasoning of the court for that victory could
prove to be useful to private foundations.
A private foundation is a Section 501(c)(3) organization that is not a “public charity.” In general terms, it is
an organization with qualifying purposes and activities but is funded by a person who controls it. While it is
subject to the limits on lobbying and political activities that apply to all charities, it and its managers also can
be subject to excise taxes on expenditures for such purposes.
The Parks Foundation was a private foundation that ran radio ads in several years opposing or supporting
several voter initiatives (referenda) in Oregon. The three tests for the taxable expenditures are:
• The communication addresses “specific legislation.”
• The communication “refers to” that legislation.
• It “reflected a view on” the legislation.
The court ruled that the initiatives were legislation (which was not disputed) and that the ads referred to them.
It also ruled that most of the ads reflected a view, although that was done in an indirect way. But in two ads,
the foundation did not reflect a view.
Those two ads appeared to state facts that were generally true, though incomplete and possibly misleading.
In other words, they showed one side of the story. The IRS asserted that the foundation was required to be
“educational” by stating both sides so that the hearer could decide for herself.
This advisory is published by Alston & Bird LLP to provide a summary of significant developments to our clients and friends. It is intended
to be informational and does not constitute legal advice regarding any specific situation. This material may also be considered attorney
advertising under court rules of certain jurisdictions.
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There was a basis in the regulation for the two-sided discussion requirement. However, the IRS also had issued
other guidance that did not contain that requirement as a specific element of an educational “full and fair
exposition.” Based on that other guidance, the court ruled for the foundation.
The IRS may appeal the issue it lost, but if it does, the foundation is likely to appeal the rulings against it, which
it may do in any event. But if the decision is not reversed on appeal, it stands for the proposition that a private
foundation may be able to avoid the excise tax for lobbying communications if it states true facts for its side
of the debate. It also should avoid doing so in an “inflammatory” manner.
It should be observed that Mr. Parks was not denied his charitable contribution deduction, even for the
spending that was subject to the excise tax.
For additional information, call Jack Cummings at 919.862.2302.
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Sam K. Kaywood, Jr.
Co-Chair
404.881.7481
sam.kaywood@alston.com
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212.210.9425
edward.tanenbaum@alston.com
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704.444.1440
clay.littlefield@alston.com
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john.baron@alston.com
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404.881.4491
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202.239.3319
henry.birnkrant@alston.com
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andy.immerman@alston.com
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matthew.moseley@alston.com
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jim.croker@alston.com
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202.239.3914
stefanie.kavanagh@alston.com
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704.444.1272
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Jasper L. Cummings, Jr.
919.862.2302
jack.cummings@alston.com
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brian.lebowitz@alston.com
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212.210.9549
heather.ripley@alston.com
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