Parks Foundation v. Cir
16-72572
| 9th Cir. | Dec 15, 2017Background
- Parks Foundation (Foundation) produced and broadcast nine radio ads; IRS/Tax Court found the expenditures taxable under 26 U.S.C. § 4945 as non-educational/non‑charitable expenditures.
- § 4945 imposes an excise tax on private foundation expenditures that are propaganda, attempts to influence legislation, or not for purposes listed in § 170(c)(2)(B) (religious, charitable, scientific, literary, or educational).
- The Internal Revenue Service’s Methodology Test (Rev. Proc. 86-43) evaluates whether communications are ‘‘educational’’ by examining presentation methods: factual support, distortion/omission, inflammatory language, emotional appeals, and audience context.
- The Tax Court applied the Methodology Test and concluded the Foundation’s communications distorted or omitted facts and used inflammatory, disparaging, or emotional rhetoric, rendering them non‑educational under § 4945(d)(5).
- Loren E. Parks, Foundation manager, stipulated he would be personally liable under § 4945(a)(2) unless he reasonably relied on a written, reasoned legal opinion; counsel provided only cursory, conclusory responses for three communications.
- The court held counsel’s opinions were not ‘‘reasoned written legal opinions’’ as required by 26 C.F.R. § 53.4945‑1(a)(2)(vi), so Parks could not avoid personal liability; the Ninth Circuit affirmed.
Issues
| Issue | Parks/Foundation's Argument | IRS/Respondent's Argument | Held |
|---|---|---|---|
| Whether the radio ads were "educational" under § 4945(d)(5) | Ads were educational speech exempt under § 4945; Methodology Test misapplied | Ads distorted/omitted facts and used inflammatory, emotional language, failing the Methodology Test | Ads were non‑educational; expenditures taxable under § 4945(d)(5) |
| Whether expenditures were for purposes listed in § 170(c)(2)(B) | Expenditures served charitable/educational purposes | Expenditures did not serve § 170(c)(2)(B) purposes | Court found expenditures not for § 170(c)(2)(B) purposes (no need to decide related legislative‑influence claim) |
| Whether Parks is personally liable under § 4945(a)(2) | Parks relied on counsel and thus is protected from personal liability | Counsel’s notes were conclusory and not a ‘‘reasoned written legal opinion’’ per regulation | Parks is personally liable; he failed to show reasonable reliance on a reasoned opinion |
| Constitutional challenge to the Methodology Test | Test is unconstitutional (raised on appeal) | Test valid and properly applied | Challenge forfeited (not raised before Tax Court); court declined to address merits |
Key Cases Cited
- Nat’l Alliance v. United States, 710 F.2d 868 (D.C. Cir.) (discussing vagueness of regulatory definition of "educational")
- Big Mama Rag, Inc. v. United States, 631 F.2d 1030 (D.C. Cir.) (same context regarding "educational" standard)
- Cold Mountain v. Garber, 375 F.3d 884 (9th Cir.) (issues raised for the first time on appeal are generally forfeited)