Focus on Courts

IRS’s Appellate Brief in Ocean Pines Ass’n v. Commissioner

1 – Sandy Deja’s Latest Auto-Rev Report

2 – “Mootness” Continues to Deny Christian Coalition of Florida Its Day in Court

Will an EO Case Hurt Obama in 2012?

In my opinion, a Petition for a Writ of Certiorari recently filed by Jim Bopp on behalf of Catholic Answers could be granted and could have a significant impact on the 2012 elections (for an article and the Petition, see below). Bopp is accusing the IRS of silencing “core political speech by trickery” and asserts that if Catholic Answers does continue to exercise its right to speak, it will be “placed on the rack once again” by the IRS.

1 – The EOTJ Mailbag

In response to my comments Friday on the letter to the IRS from the Chairman of the House Oversight Subcommittee, Dean Zerbe, National Managing Director for the alliantgroup, LP, Washington, D.C., has this to say:

“Paul — the House Oversight letter is first-rate. EO and the charitable sector greatly benefit from oversight — and it is an often-forgotten responsibility of Congress. I see nothing other than straightforward common sense questions from the Chairman. You should be thrilled.”

2 – Latest Challenge to Section 107 Parsonage Allowance

Earlier this year, an article appeared in the New York Times, “IRS Takes on Tax Abuse by Charity Support Groups,” Feb. 14, 2011, which noted the revocation of 72 supporting organizations by the IRS. In addition, the article noted that 59 supporting organizations were reclassified as private foundations.

The article stated that “Several supporting organizations that have lost tax exemptions in the last several years, for example, were involved with Merrill Scott & Associates Ltd. of Utah. Merrill Scott is in receivership after a Securities and Exchange Commission investigation that claimed it had operated a Ponzi scheme. (In 2008, Merrill Scott’s principals were charged, among other things, with tax evasion and money laundering.)”

I don’t know if the following case, filed in Tax Court earlier this year, is a product of Merrill Scott & Associates. In any event, I think it is a case worth watching. The supporting organization (SO) was set up and received its exemption in 2002, but not a dime for its supported charities in the period under audit (2002 – 2005). The sole contribution of $1,064,000 to the SO was invested in a limited parnership — so much for diversification and cash reserves. The designated “primary charity” is the Wishes Are Forever Foundation of Salt Lake City, Utah, which has been deleted from the IRS’s Cumulative List of Organizations Contributions to Which are Deductible under Section 170.

As I’ve noted, the Tax Court makes it difficult for the press and the public to follow what is going on in its docketed cases, almost all of which contain public information, but because of the Tax Court’s Rule 27, access is severely limited.

As a result, I can only obtain information about current cases at great difficulty and expense. Today’s case is Capital Gymnastics Booster Club, Inc. v. Commissioner. The case is fully briefed and went to trial in November 2010 before Judge David Gustafson. The Pretrial Memorandum for Respondent, reprinted below, lays out the issues. The case file contains a copy of the IRS Exempt Organizations Continuing Professional Education Technical Institute Program textbook chapter from FY 1993 that is directly on point, which is also reprinted below.

Once again, I have to ask (as I have with the Bartels and Polm cases), why? Why is the taxpayer going to court with, in my opinion, little or no chance of winning? Then again, you have the recent Driscoll case, so I suppose anything’s possible.

Weekend reading while waiting to see if Animal Kingdom can win the Preakness (of course, if tomorrow is truly Judgment Day, we may not have a Preakness). The Viralam case, reprinted below, seems to have escaped notice for a number of reasons, but I think it makes for interesting reading.

EO Litigation Developments – Part 2

Last week I mentioned in email update 2011-80 that I had gone to the D.C. Bar luncheon program on “Litigation Developments for Exempt Organizations.” I’m hoping to have a transcript of this program in the near future — as opposed to “soon.”

In the meantime, I’ve been doing my own research into what is going on at the Tax Court, egged on by the Tax Court’s efforts to keep us all in the dark. I’m sending along today information that I have collected on cases that are currently active. I expect to have additonal information as my requests for documents are fulfilled.

1 – Update on Joint Ventures

Attorney outlines implication of section 501(r) for joint ventures — healthcare tax practitioners may want to take note.

2 – Tax Court Holds Deductions for Facade Easement Not Properly Substantiated under Section 170

Am I the only one who thinks we could balance the federal budget by getting the IRS to audit every taxpayer claiming a facade easement? In the case reprinted below, if it were me and I planned on deducting a total of $705,000 as a charitable contribution for a facade easement, I’d be super careful. Sounds like the taxpayer in this case was anything but, neglecting to provide on Form 8283 the necessary information to satisfy section 170(f), and paid the price in Tax Court. Appeal, anyone?

I see one of my jobs as telling readers what not to read. I’d put the Asmark Institute case, released on Monday by the Tax Court, in that category. (Because I know some of you will still want to read it, I’m reprinting it below.) It’s very factual and the result is what I think most of us would expect.

What’s less than satisfying is the sketchy rationale for the court’s decision.

First, let me once again blast the IRS Office of Chief Counsel for not releasing its Tax Court briefs. Since the judge mentions the IRS’ brief in passing, it would be of value to know exactly what the IRS said in its brief. Let me repeat — there is absolutely no reason why the IRS should not be routinely releasing its briefs filed in litigation. Unless a court were to seal all records in a case, there is no bar to the IRS releasing what are public documents.

I suppose I could track down this case in Tax Court — not always immediately available — and pay the court 50 cents a page to copy the IRS brief. Why can’t the IRS simply make an extra copy of all its briefs available to the tax services? I believe the IRS charges the tax services for its PLRs, so it could do the same for its legal briefs if cost is an issue.

Second, lest I forget, the case under consideration. The Tax Court in Asmark Institute cites as precedent B.S.W. Group, Inc., v. Commissioner:

“Under the operational test * * * the critical inquiry is whether * * * [an organization’s] primary purpose for engaging in its * * * activity is an exempt purpose, or whether its primary purpose is the nonexempt one of operating a commercial business producing net profits * * *.”

That appears to be the Tax Court’s rationale in a nutshell. I will just note that section 501(c)(3) does not specifically prohibit “operating a commercial business producing net profits.” While the regulations do allow commercial activities — in recognizing the possible imposition of the unrelated business income tax — business activities may not be the organization’s primary purpose.