Federal Appellate Court Affirms Taxable Expenditures/Lobbying Decision Against Private Foundation

In an unpublished opinion, the U.S. Court of Appeals for the Ninth Circuit has affirmed the Tax Court decision against a private foundation that allegedly engaged in lobbying prohibited as a taxable expenditure under section 4945 of the Internal Revenue Code. The case of Parks Foundation v. Commissioner had attracted significant attention because of its potential ramifications for how attempting to influence legislation (i.e., lobbying) is defined for federal tax purposes, particularly with respect to private foundations and charities more generally, as previously noted in this space. Perhaps seeking to avoid those issues, the court instead limited its brief opinion to whether the communications at issue failed to qualify as educational because they did not satisfy the methodology test provided by Revenue Procedure 86-43. It found that the Tax Court did not err in concluding that the communications at issue did not satisfy that test. The Ninth Circuit also found that the Tax Court did not err in determining that the "cursory commentary" provided by the Foundation's tax counsel with respect to three of the communications was not reasoned and so did not provide a defense to the manager's tax provided by section 4945(a)(2). 

Because the opinion is unpublished, it has only very limited precedential value under the Ninth Circuit Rule 36-3(a) ("Unpublished dispositions and orders of this Court are not precedent, except when relevant under the doctrine of law of the case or rules of claim preclusion or issue preclusion."). What remains to be see therefore is to what extent the underlying Tax Court decision guides future decisions in that and other courts.

Lloyd Mayer