Parks v. Commissioner of Internal Revenue

In a long-awaited decision in the case of Parks v. Commissioner of Internal Revenue, the United States Tax Court recently examined a series of radio messages created and funded by a private foundation and determined that the messages constituted taxable expenditures under the Internal Revenue Code (IRC). The messages, which contained information and commentary regarding a variety of issues relevant to upcoming state ballot measure elections, were each around 30-60 seconds long. Although several of the ads did not mention specific ballot measures by name, the Court decided that both the foundation and its manager were liable for excise taxes.

So what happened?

In order to answer this question, we must first understand when a private foundation’s activities subject it to taxable expenditures. We know that under the IRC, a 501(c)(3) private foundation makes taxable expenditures when it attempts to influence legislation, which includes attempts to influence the public vote in a ballot measure campaign. More specifically, an attempt to influence legislation via direct lobbying occurs when a communication with a legislator (or the public in the ballot measure context) “refers to specific legislation and reflects a view on such legislation” (emphasis added). In this case, the Court was forced to examine that language and determine whether a ballot measure must be mentioned by name in a communication in order for that communication to “refer to” specific legislation and further, whether certain statements made by the foundation constituted a viewpoint on specific legislation–making this case one of the rare occasions for the Court to examine, in depth, when a private foundation’s statements regarding the subject of upcoming ballot measure votes cross the line into lobbying.

Ultimately, the Court held that a reference to a ballot measure by name is not the only way to trigger a lobbying communication in the ballot measure context. Rather, even if a communication does not specifically name a ballot measure but instead “employs terms widely used in connection with the measure or describes the content or effect of the measure” it will be deemed to refer to specific legislation. As such, any communications made by a private foundation that describe the content of a measure or use terms common to the measure can create a taxable expenditure if those communications also reflect a viewpoint on the measure itself. The court then highlighted examples from the foundation’s messages that it determined were indications of the foundation’s viewpoint on the ballot measures at issue, broadly interpreting the “reflects a view” language to include instances where the messages did not explicitly state that individuals should vote “for” or “against” a measure. In combination, these two decisions by the Court to take such an expansive approach to interpreting the definition of what it means to “attempt to influence legislation” in the ballot measure context create a situation where a wide variety of communications can be considered direct lobbying communications even if they fall short of naming specific legislation and telling people how to vote.

In this case, the Court found that the majority of the messages released by the private foundation were lobbying communications, that they didn’t fall under a lobbying exception for nonpartisan analysis, study or research, and that they were therefore subject to excise taxes. To illustrate the Court’s reasoning, here are a couple of examples:

1. In a 1997 radio communication, the Foundation criticized the Oregon governor and attorney general for shutting down a prisoner work program. In doing so, it referenced the public’s 1994 vote in support of the program. It then went further to explain that what Oregon voters didn’t say in 1994 was that government officials should “Make a bunch of whiney excuses why you can’t do what we want done.”

Here, although the ad itself did not specifically name a measure on the ballot, the central purpose of an upcoming ballot measure focused on the reinstatement of the prisoner work program. The Court determined that the foundation’s use of terms “widely used in connection with” a measure constituted a reference to the measure itself. In addition, the communication expressed a viewpoint on the measure by ardently explaining the benefits of prisoner work programs. According to the Court, absent the application of a lobbying exception, the ad should be considered a taxable expenditure under the IRC.

2. In two separate 1999 radio messages, the foundation spoke about the previous passage of Measure 40 in Oregon. That measure, which increased the rights of crime victims, was later invalidated by the state Supreme Court. In response to this development, the provisions of that measure were divided into several new measures that were the subject of an upcoming vote. In the ad, the foundation stated that “the liberal Supreme Court” threw out Measure 40 and that the Measure was split into separate amendments “to be reapproved by the voters.” It then posed the question: “Who would be against this?” And answered: “the liberals and criminal defense lawyers.”

In this instance, the Court decided that absent the application of a lobbying exception, the communications—despite not identifying the proposed ballot measures by name—constitute a taxable lobbying expenditure for the private foundation. In doing so, the Court acknowledged that the message “described the content and effect” of the upcoming election’s proposed ballot measures and therefore “referred to” the measures. In addition, the rhetorical question asked regarding those who would be in favor of deviating from Measure 40’s tough on crime provisions, was a clear expression of the foundation’s viewpoint regarding the measures at issue.

The moral of the story: context and wording are critical components to determining whether a private foundation’s communications delve into the realm of lobbying. If your foundation has questions regarding how to properly take a stand on important issues, please feel free to reach out to our Bolder Advocacy coaches.