GALE, Judge:
These cases were consolidated for trial, briefing, and opinion. Respondent determined excise tax deficiencies for petitioner Loren E. Parks and petitioner Parks Foundation (Foundation) as summarized in the following tables.
Mr. Parks, Docket No. 7043-07
Excise tax
Year Sec. 4945(a)(2) Sec. 4945(b)(2)
1997 $1,625 $10,000
1998 5,000 10,000
1999 825 10,000
2000 5,000 10,000
Excise tax
TYE 11/30 Sec. 4940(a) Sec. 4945(a)(1) Sec. 4945(b)(1)
1997 --- $6,500 $65,000
1998 $1,979 20,000 200,000
1999 --- 3,301 33,012
2000 --- 34,106 341,062
The issues for decision
These cases were submitted for decision without trial under Rule 122. The stipulation of facts and the accompanying exhibits are incorporated herein by this reference. At the time the petitions were filed Mr. Parks resided in Nevada and Foundation had its principal place of business in Nevada.
Foundation's predecessor was incorporated in Oregon in 1977.
In its taxable years ended November 30, 1997 through 2000,
The Oregon Constitution confers upon Oregon citizens the power of initiative, entitling them to propose statutes or amendments to their constitution (referred to as "measures") by petition, and to enact or reject them in elections, independent of the Oregon Legislative Assembly. Or. Const. art. IV, sec. 1. Amendments to the Oregon Constitution can also be proposed by the Legislative Assembly and referred to Oregon citizens for their approval or rejection at the next election. Id. art. XVII, sec. 1. Thus, measures come before Oregon citizens for approval or rejection in elections by "initiative" when originating from citizens' petitions and by "referral" when originating in the Legislative Assembly. See Or. Rev. Stat. Ann. sec. 250.005(3) (West 2015). Nine of the ten radio messages at issue in these cases were broadcast in the weeks or months preceding a statewide election in which Oregonians voted on measures proposed by initiative or referral.
During the years at issue the Oregon secretary of state was required to prepare a voters pamphlet
A committee of five citizens was tasked with preparing the explanatory statement for a measure, Or. Rev. Stat. sec. 251.205(1) (1995); id. sec. 251.205(2) (1999),
The committee was required to file the explanatory statement with the secretary of state, who then was charged with holding a hearing to receive suggested changes and other information relating to the explanatory statement. Or. Rev. Stat. Ann. sec. 251.215(1) and (2) (West 2015). The committee was required to consider the suggestions and other information submitted at the hearing and could file a revised statement with the secretary of state.
The content and context of each radio message at issue are described below, arranged by the year in which the expenditures for the messages were made.
On the ballot in a May 20, 1997, statewide special election was Measure 49. The explanatory statement for Measure 49
On March 10, 1997, Foundation paid $65,000 for the production and broadcast on Oregon radio stations from March 12 through 14, 1997, of a radio message which presented the following script in narrative format:
Foundation's tax counsel was not asked to review or approve the content of this radio message.
On September 25, 1998, Foundation paid $200,000 for the production and broadcast of four radio messages (in two sets of two) which aired on Oregon radio stations in October 1998. The first set of two radio messages expressly referred to Measure 61, a citizen-initiated measure on the ballot in Oregon's November 3, 1998, general election. The explanatory statement for Measure 61 described it as follows:
The financial impact statement for Measure 61 reported:
The first radio message referring to Measure 61, broadcast in October 1998, presented the following script in narrative format:
The second radio message referring to Measure 61, also broadcast in October 1998, presented the following script in narrative format:
Mr. Clapper provided drafts of the two Measure 61 radio messages to Foundation's tax counsel for his review and approval before their broadcast. With respect to the first message, the tax counsel sent Mr. Clapper a memorandum stating:
There is no evidence that Foundation's tax counsel provided any written response with respect to the content of the second message addressing Measure 61.
The remaining two Foundation-funded radio messages broadcast in October 1998 both referred to "administrative rules". Also on the ballot for approval in the November 3, 1998, general election was Measure 65, a citizen-initiated measure that would have amended the Oregon Constitution to establish a procedure under which certain administrative rules promulgated by State agencies would be required to be reviewed and approved by the State legislature.
The explanatory statement for Measure 65 described it as follows:
The first radio message referring to "administrative rules" presented the following script in narrative format:
The second radio message referring to "administrative rules" presented the following script in narrative format:
Mr. Clapper also provided drafts of the two radio messages referring to "administrative rules" to Foundation's tax counsel for his review and approval before their broadcast. In response, the tax counsel sent Mr. Clapper a memorandum which in full stated as follows: "We have reviewed the texts of spots labeled M65-1 and M65-2. They appear to comply with the `public education' purpose of the Parks Foundation. If you have further questions, please contact us."
In the November 5, 1996, general election, Oregon voters approved Measure 40, which granted victims of crime a variety of constitutional rights with respect to the prosecution of criminal defendants. In 1998, however, the Oregon Supreme Court found Measure 40 void in its entirety because it was not passed in compliance with article XVII, section 1 of the Oregon Constitution, which requires a separate vote for each distinct constitutional amendment. See Armatta v. Kitzhaber, 959 P.2d 49 (Or. 1998). In response, the elements of Measure 40 were divided by the Oregon Legislative Assembly into separate measures for referral to the voters for reapproval. Measures 69 through 75 were seven of the constituent parts of Measure 40 so referred, and they appeared on the ballot in Oregon's November 2, 1999, statewide special election.
The measures sought to make the following amendments to the Oregon Constitution: Measure 69 granted victims constitutional rights in criminal prosecutions and juvenile court delinquency proceedings; Measure 70 gave the public, through the prosecutor, the right to demand a jury trial in
On June 2, 1999, Foundation paid $10,963 for the production and broadcast of two radio messages and the production and publication of a print advertisement in two newspapers. Combined, the radio messages aired 222 times on Oregon radio stations. The first radio message presented the following script in narrative format:
The second radio message was identical to the first except that it substituted District 34 State Representative Lane Shetterly for Representative Hill.
Drafts of the three radio messages Foundation funded in 1999 were provided to Foundation's tax counsel for his review and approval, but there is no evidence that he provided any written response with respect to the content of the messages.
Foundation's tax counsel sent Mr. Parks a letter dated October 14, 1999. At that time, Foundation was the subject of an investigation by the Oregon attorney general concerning, inter alia, its expenditures for the broadcast of radio advertisements. The investigation had commenced sometime
After explaining the difference between direct and grass roots lobbying, the letter turned specifically to ballot measure initiatives, in the following excerpt.
In 2000 Foundation expended $341,062 to produce and broadcast two radio messages. The messages were broadcast before the Oregon general election held on November 7, 2000. Appearing on the ballot of that election was Measure 8, an initiative measure. The explanatory statement for Measure 8 described it as follows:
The first of the two radio messages, broadcast sometime before late August 2000, presented the following script in narrative format:
On August 25, 2000, Oregon's largest newspaper (by circulation) published an article addressing the claims made in the radio message. See James Mayer, "Ad's View of State Budget Disputed as Incomplete", Oregonian, August 25, 2000, at C1.
Specifically, with respect to the radio message's claim that over the past 10 years Oregon State revenues had risen by more than 130% while personal income had risen by only 50%, the article states:
The article further explains that much of the increase in State spending over the past 10 years was attributable to a 1990 citizen-initiated measure that limited local property taxes, thereby shifting primary responsibility for financing public schools from localities to the State. The article concluded:
On August 24, 2000, the Oregon Department of Justice, Charitable Activities Section, filed a lawsuit against Foundation, alleging that Foundation had made expenditures from 1993 through 2000 that constituted taxable expenditures under section 4945, thereby violating Oregon's Nonprofit Corporation Act, Or. Rev. Stat. sec. 65.036(5) (1999). The Oregon attorney general's audit of Foundation, a principal focus of which was Foundation's expenditures for radio advertisements, had been ongoing since at least March 1998, and Foundation's tax counsel and the Oregon attorney general's office had made efforts to settle the matter in 1999. In October 1999, Foundation's tax counsel advised Mr. Parks in a letter that reaching a mutually agreeable settlement with
After the filing of the foregoing lawsuit, Foundation arranged for the production and broadcast of the second radio message at issue for 2000. The message presented the following script in narrative format:
Drafts of both radio messages were provided to Foundation's tax counsel for his review and approval, but there is no evidence that he provided a written response with respect to the content of the messages.
Neither Foundation nor Mr. Parks filed a Form 4720, Return of Certain Excise Taxes Under Chapters 41 and 42 of the Internal Revenue Code, for any of the years at issue. Respondent conducted an examination of Foundation's Forms 990-PF, Return of Private Foundation, for the years at issue, and on October 16, 2002, respondent's revenue agent sent a letter to Foundation's tax counsel advising of her conclusion that Foundation's expenditures for the radio messages were taxable expenditures within the meaning of section 4945(d) and of her intention to propose liabilities under section
In a notice of deficiency issued to Foundation on December 22, 2006, respondent determined that Foundation's expenditures for radio messages of $65,000, $200,000, $33,011, and $341,062 for its 1997-2000 taxable years, respectively, were taxable expenditures under section 4945, resulting in liability for excise tax deficiencies under section 4945(a)(1) and, because the taxable expenditures had not been corrected, under section 4945(b)(1) for each year.
Provisions exempting charitable organizations from taxation have been included in every income tax act since the adoption of the Sixteenth Amendment,
Consequently, in subchapter A of chapter 42 of the Internal Revenue Code, Congress imposed stricter rules on private foundations as compared to public charities generally, including excise taxes on self-dealing transactions and on failures to distribute income. See secs. 4941 and 4942. Of particular relevance to these cases, in contrast to public charities — which are allowed to engage in "carrying on propaganda, or otherwise attempting, to influence legislation" so long as the foregoing is not "a substantial part of the activities" of the organization, see sec. 501(c)(3), a private foundation is subject to excise taxes if it expends "any amount * * * to carry on propaganda, or otherwise to attempt, to
Congress also concluded that a different enforcement mechanism — the aforementioned excise taxes — was appropriate for private foundations. Whereas the principal enforcement mechanism for tax-exempt organizations at the time of enactment of the 1969 Act had been revocation of tax-exempt status (and the attendant forfeiture of eligibility to receive tax-deductible contributions), Congress believed that loss of exemption was an ineffective sanction in the case of private foundations. Instead, Congress chose to impose excise taxes on expenditures by private foundations that it determined should be proscribed, reasoning that such an approach would be both more effective and more proportionate to the infraction than loss of tax-exempt status. With respect to the excise taxes, the Finance Committee report states:
The Ways and Means Committee report contains substantially identical language and further observes that "the [excise tax] sanction will in most cases be far more proportional to the impropriety than is the case under present law [providing only the sanction of loss of tax-exempt status]." H.R. Rept. No. 91-413, at 31-36 (1969), 1969-3 C.B. 200, 221-223.
Section 4945 imposes four distinct excise taxes on "taxable expenditures" of private foundations. A "taxable expenditure" is any amount paid or incurred by a private foundation for any of the prohibited purposes listed in paragraphs (1) through (5) of section 4945(d). Those purposes include: "to carry on propaganda, or otherwise to attempt, to influence legislation" and "for any purpose other than one specified in section 170(c)(2)(B)". Sec. 4945(d)(1), (5).
Section 4945(a)(1) imposes a tax on the foundation itself equal to 10%
More severe "second tier" taxes are imposed by section 4945(b)(1) and (2) when taxable expenditures are not timely
Respondent determined that Foundation's payments for the production and broadcast of the radio messages were taxable expenditures.
We begin by considering the application of each excise tax.
Respondent determined excise tax deficiencies under section 4945(a)(1) for Foundation of $6,500, $20,000, $3,301, and $34,106 for its 1997, 1998, 1999, and 2000 taxable years, respectively. Respondent argues first that Foundation's expenditures for the radio messages (except Communication #8) were taxable expenditures under section 4945(d)(1) because the messages were attempts to influence legislation. He further argues in the alternative that all of the expenditures for the radio messages (including Communication #8) were taxable expenditures under section 4945(d)(5) because the expenditures were for nonexempt purposes.
Foundation bears the burden of proving the expenditures were not taxable expenditures. See Thorne v. Commissioner, 99 T.C. at 87; Larchmont Found., Inc. v. Commissioner, 72 T.C. 131, 136 (1979), vacated and remanded on other grounds, 659 F.2d 1085 (7th Cir. 1981).
Under section 4945(d)(1) any amount paid by a private foundation "to carry on propaganda, or otherwise to attempt, to influence legislation, within the meaning of subsection (e)" is a taxable expenditure. Section 4945(e) provides:
Section 53.4945-2(a)(1), Foundation Excise Tax Regs., further defines attempts to influence legislation for purposes of the section 4945 excise taxes by incorporating provisions of the regulations interpreting that phrase as used in section 4911(d), applicable to certain electing public charities. See
A "direct lobbying communication" is any attempt to influence any legislation through communication with:
Such a communication will be treated as an attempt to influence legislation only if it "refers to specific legislation" and "reflects a view on such legislation". Id. subdiv. (ii).
The regulations treat communications with the general public regarding ballot measures as "direct lobbying communications".
However, such a ballot measure does not become "specific legislation" under the regulations until the petition seeking its placement on the ballot is first circulated.
This special rule governing when ballot measures become "specific legislation" applies to measures "that * * * [are] placed on the ballot by petitions signed by a required number or percentage of voters". Id. The regulations are silent with
Thus, a communication to the general public which refers to a ballot measure that has become "specific legislation" and reflects a view on the measure is an attempt to influence legislation under section 4945(d)(1) and (e) unless it makes available the results of "nonpartisan analysis, study, or research" as defined in the regulations.
Petitioners argue that, except for the two radio messages that specifically refer to Measure 61 by name, the radio messages are not direct lobbying communications because they do not "refer to" the ballot measures — in that they do not mention any ballot measure by name.
By contrast, section 56.4911-2(b)(4)(ii)(A), Example (4), Pub. Charity Excise Tax Regs., explains:
Finally, section 56.4911-2(d)(1)(iii), Example (1), Pub. Charity Excise Tax Regs., explains:
The lone radio message Parks Foundation funded in 1997 refers to Oregon voters having told "the politicians" in 1994 that prisoners ought to be working 40 hours a week and then describes Oregon's Governor and attorney general as having disregarded the voters' intent by shutting down the prisoner work program. The message reiterates that Oregon voters had insisted that prison inmates should work, by virtue of the earlier vote.
In referring to prisoners working and the shutdown of prisoner work programs, the message employed terms "widely used in connection with" Measure 49. Id. para. (b)(4)(ii)(B), Example (1). As the explanatory statement for Measure 49 makes clear, the reinstatement of prisoner work programs that had been shut down was the central purpose of the measure. On this record, we are persuaded that the use of various iterations of the term "prison inmate work program" in the explanatory statement for Measure 49 demonstrates that those and similar terms had been widely used in connection with Measure 49 at the time the radio message was broadcast. Petitioners have offered no evidence to support a contrary conclusion. In addition, we are persuaded that a comparison of the radio message and the explanatory statement demonstrates that the radio message described the general content of Measure 49. Consequently, the radio message "refers to" Measure 49 within the meaning of the regulations. Sec. 56.4911-2(b)(1)(ii)(A), Pub. Charity Excise Tax Regs. Moreover, considered in the context of the pendency of Measure 49 — which according to the explanatory statement was designed to make reinstatement of prisoner work programs possible — the radio message's emphatic endorsement of the desirability of prisoner work programs means that the message also "reflects a view on" Measure 49 within the meaning of the regulations. Id. subdiv. (ii)(B). Accordingly, the 1997 radio message is a "direct lobbying communication"
Measures 61 and 65 were on the ballot in Oregon's November 3, 1998, general election. Measure 61 would have enacted statutory provisions imposing minimum sentences for certain "major crimes" and mandatory additional sentences for certain repeat offenders. Measure 65 would have amended the Oregon Constitution to require Oregon Legislative Assembly approval of administrative rules adopted by State agencies when those rules are challenged in a petition signed by a specified number of qualified voters.
Foundation funded two radio messages that referred to Measure 61 by name and were broadcast in the month before the election. Each message "reflects a view on" Measure 61 because each posited that mandatory prison sentences for the crimes covered by Measure 61 would result in a reduction in crime in the same manner as had occurred after passage of an earlier measure (Measure 11) that established mandatory prison sentences for violent crimes. Accordingly, each of these radio messages "refers to" and "reflects a view on" Measure 61 within the meaning of the regulations. Each is thus a "direct lobbying communication" unless it constitutes "nonpartisan analysis, study, or research".
Foundation also paid for the production and broadcast of two additional radio messages in 1998, which also aired during the month before the November 3, 1998, general election, the subject of which was "administrative rules". Each message cites an example of a seemingly arbitrary and nonsensical government requirement imposed by "non-elected government bureaucrats" and equates it with "administrative rules" which — each message goes on to say — "you're gonna hear a lot more about * * * in the weeks to come." As noted, the radio messages were broadcast just weeks before the election where Measure 65 was on the ballot, and the explanatory statement for it referred extensively to administrative rules as the focus of the measure. On this record, we are persuaded that the use of the term "administrative rules" in the explanatory statement for Measure 65 demonstrates
Measures 69 through 75 were on the ballot in Oregon's November 2, 1999, statewide special election. The measures were placed on the ballot by action of the Oregon Legislative Assembly after a previously approved ballot measure — Measure 40, which proposed a panoply of changes to the Oregon Constitution affecting the criminal justice system, including constitutional rights for victims of crime — was found invalid by the Oregon Supreme Court because the ballot measure included multiple constitutional amendments. The Oregon Legislative Assembly responded by proposing the contents of Measure 40 as separate constitutional amendments, seven of which were denominated Measures 69 through 75, and referring them to the voters for reapproval.
On June 2, 1999, Foundation funded the production and broadcast of two radio messages. The messages were identical except in their reference to a specific member of the Oregon legislature. They described the passage of Measure 40, its invalidation by the Oregon Supreme Court, and the legislature's subsequent splitting of Measure 40 into separate ballot measures to be reapproved by the electorate. Because the foregoing describes the content and effect of Measures 69 through 75 (albeit without naming them), each radio message "refers to" Measures 69 through 75 within the meaning of the regulations. See sec. 56.4911-2(d)(1)(iii), Example (1), Pub. Charity Excise Tax Regs. Moreover, after describing the content and effect of Measures 69 through 75, each message
On the ballot for Oregon's general election on November 7, 2000, was Measure 8, which sought to amend the Oregon Constitution by limiting biennial State appropriations to no more than 15% of total personal income for the State in the two calendar years immediately preceding the budget period. During 2000, before the vote Foundation paid $341,062 for the production and broadcast of two radio messages.
The first message stated:
The message then provided data purporting to support the assertion that State government (as measured by its "income", or revenues) had grown nearly three times faster than personal income over the past decade.
The explanatory statement for Measure 8 described the measure as "linking the rate of growth of state government spending to the rate of growth of personal income in the state." Given the radio message's reference to the rate of growth of Oregon State government revenues as compared to the rate of growth of personal income, coupled with its reference to the fact that Oregonians would "soon be asked" whether they wanted to slow down the growth of their State government, we conclude that it "refers to" Measure 8 within the meaning of the regulations.
The message's contention that State revenues had been growing at nearly three times the rate of growth of personal income over the past decade — a growth rate that any reasonable observer would likely think unsustainable — constitutes near-explicit support for the idea that the growth of State expenditures needed to be reigned in by some effective cap, as Measure 8 would have done. Consequently, we find that the message also "reflects a view on" Measure 8 within the meaning of the regulations. It is therefore a "direct lobbying communication" unless it constitutes "nonpartisan analysis, study, or research".
The second radio message also asserted, like the first, that Oregon State government had grown three times faster than personal income over the past 10 years. But it otherwise differs from the first radio message in three respects. First, the message asserts that the State government had filed a lawsuit against Foundation in retaliation for its broadcast of the disclosures about State government growth in the first radio message. Second, it cited several examples of the seemingly inappropriate expenditure of State funds for the health care of nonresidents and wealthy individuals and cited as another example the lawsuit, characterized as the State's use of taxpayer money "to intimidate us from revealing this kind of information." Finally, in contrast to the first radio message, the second did not state that Oregon voters "will soon be asked" whether they wanted to slow down the growth of their State government.
The absence of the "will soon be asked" language tips the balance against a finding that the second radio message is a "direct lobbying communication" within the meaning of the
Foundation argues that even if the radio messages refer to and reflect a view on the various ballot measures, its expenditures for the messages were not "direct lobbying communications" or attempts to influence legislation under section 4945(d)(1) and the regulations because the radio messages qualify as "nonpartisan analysis, study, or research".
The exception for "nonpartisan analysis, study, or research" requires in the first instance that there have been engagement in nonpartisan analysis, study, or research that is made available to others. Sec. 53.4945-2(d)(1)(i), Foundation Excise Tax Regs. With the exception of the first radio message broadcast in 2000,
More fundamentally, "nonpartisan analysis, study, or research" must be an independent and objective exposition of a particular subject matter. For purposes of section 4945(e), "nonpartisan analysis, study, or research" means "an independent and objective exposition of a particular subject matter, including any activity that is `educational' within the meaning of § 1.501(c)(3)-1(d)(3)." Sec. 53.4945-2(d)(1)(ii), Foundation Excise Tax Regs. While such an analysis may advocate a particular viewpoint, it must nonetheless present "a sufficiently full and fair exposition of the pertinent facts to enable the public or an individual to form an independent opinion or conclusion." Id.
As noted, the regulations provide that "nonpartisan analysis, study, or research" includes "any activity that is `educational' within the meaning of § 1.501(c)(3)-1(d)(3)." Petitioners contend that the radio messages qualify both as "nonpartisan analysis, study, or research" and as "educational" as used in the statute and the regulations. The definitions of "educational" in section 1.501(c)(3)-1(d)(3), Income Tax Regs., and "nonpartisan analysis, study, or research" in section 53.4945-2(d)(1)(ii), Foundation Excise Tax Regs., both employ the same requirement that any communication which advocates a particular position or viewpoint must present a sufficiently "full and fair exposition" of the pertinent facts to enable the public or an individual to form an independent opinion or conclusion.
Rev. Proc. 86-43, sec. 3.03, 1986-2 C.B. at 730, provides that the presence of any of the following factors indicates an organization's method of presenting its viewpoint is not educational:
Petitioners contend that the radio messages satisfy the criteria of Rev. Proc. 86-43, supra, and are therefore "educational" — making them "nonpartisan analysis, study, or research". We therefore must decide whether the radio messages we have found are "direct lobbying communications" are nonetheless "educational" and therefore "nonpartisan analysis, study, or research". In determining whether the radio messages contain factual distortions, we rely (except in the case of the radio messages broadcast in 2000) upon the explanatory statements for the relevant measures as a benchmark for impartial, objective analysis of the measures. Because the explanatory statements were, with one exception,
The 1997 radio message contains multiple factors that under Rev. Proc. 86-43, supra, are indicative that the
Second, the message makes substantial use of inflammatory language and disparaging terms and reaches its conclusion on the basis of strong feelings rather than objective evaluations. See id. sec. 3.03(3). The message indicates that the Governor and the attorney general responded to the voters who approved the constitutional amendment creating inmate work programs by saying "NO, we're not gonna do it." Further, it characterizes the State's failure to have the programs fully operational as "a bunch of whiney excuses". These statements are inflammatory, disparaging, and taken as a whole appear calculated to induce an emotional response in suggesting (falsely) that certain elected officials disregarded an overwhelming popular vote in favor of their personal policy preferences. For the foregoing reasons, we conclude the message is not "educational" within the meaning of section 1.501(c)(3)-1(d)(3), Income Tax Regs.
We likewise find that the two 1998 radio messages that refer to Measure 61 are not "educational". Each distorted facts in suggesting that a statute providing for certain
The second radio message referencing Measure 61 stated in part:
In asserting that past claims about the financial impact of mandatory minimum prison sentences were unfounded, and thereby implying that cost is an inconsequential factor in deciding whether to enact further mandatory minimum sentences, both messages distorted the available facts concerning Measure 61. The financial impact statement for
The two radio messages broadcast in 1998 that refer to Measure 65 also exhibit factors identified in Rev. Proc. 86-43, supra, as indicative of a presentation method that is not "educational". Both messages make substantial use of disparaging terms. Both characterize the administrative agency personnel as "non-elected government bureaucrats". The first goes on to describe them as the legislature's "hired workforce" and characterizes their attitude towards landowners adversely affected by an administrative rule as "tough, that's your problem, not ours." The second characterizes administrators as having "made up" an administrative rule. See id. sec. 3.03 (factor 3). Both messages' description of the circumstances surrounding the administrative actions attacked are skeletal and incomplete. They do not identify or even meaningfully describe the statutes and administrative rules being criticized. One could surmise from the skeletal descriptions that both involved zoning disputes, but the messages do not provide even the most rudimentary description of the countervailing considerations raised by the particular land use requests that were apparently denied. Thus, the radio messages fail to provide "a sufficiently full and fair exposition of the pertinent facts as to permit an individual or the public to form an independent opinion or conclusion." Id. sec. 2.01. Because neither message provides the listener with this basic information, the messages present "positions unsupported by facts", id. sec. 3.03 (factor 1), and are "not aimed at developing an understanding on the part of the intended audience * * * because * * * [they do] not consider * * * [the audience's] background or training in the subject
The two radio messages broadcast in 1999 that refer to Measures 69 through 75 are not "educational" because at least two of the criteria in Rev. Proc. 86-43, supra, are present. First, the messages offer no facts in support of the position that Measures 69 through 75 should be approved. Instead, each message summarily declares: "Who would be against this? The liberals and criminal defense lawyers." See id. sec. 3.03 (factor 1). Second, the messages express conclusions based more on strong feelings than on objective evaluations. The messages portray the two members of the Oregon legislature who opposed the referral of Measures 69 through 75 as "fighting against the victims of crime" in the victims' effort "to be treated at least as well as the criminals." See id. (factor 3). We conclude on the basis of the methods by which they presented their viewpoint that the messages were therefore not "educational".
The first radio message broadcast in 2000 that refers to Measure 8 asserted that the size of State government (as measured by revenues) had increased nearly three times faster than personal income over the preceding 10 years. We have already concluded that the message's statement that Oregon voters "would soon be asked" if they wanted to slow down the growth of their State government was a reference to Measure 8, which would have limited State spending to 15% of personal income. A contemporaneous newspaper article concerning this radio message asserted that the radio message's statistics were flawed and misleading, insofar as they suggested that the Oregon State government was growing nearly three times faster than personal income. The article contended that the statistics had at least three shortcomings: (1) the use of personal income figures that were adjusted for population when the State spending figures were not; (2) the use of the growth rate of the State's general fund spending, rather than that of "all funds" spending, which rose 108% over the 10-year period as compared to 130% for
Relying on the newspaper article, respondent contends that the radio message contains two of the factors in Rev. Proc. 86-43, supra, that indicate a communication is not educational. First, respondent argues, the message presents distorted facts, violating factor 2 of the revenue procedure. See Rev. Proc. 86-43, sec. 3.03 (factor 2).
Respondent's reliance on a newspaper article to demonstrate factual distortions in the 2000 radio messages stands in contrast to the benchmarks used for assessing factual distortions in the radio messages at issue in earlier years; namely, the explanatory statements. Those statements were the consensus product of a committee composed of persons favoring and opposing the ballot measure described. As previously discussed, we conclude that such a drafting process provided reasonable assurance of the explanatory statements' impartiality. By contrast, the newspaper article is itself a piece of advocacy — quite clearly making the case against the conclusions urged by the radio message. Respondent presents as evidence of the radio message's distorted facts the newspaper article's assertion that the radio message's comparison of the rate of growth of personal income with the rate of growth of State spending was "flawed" because the former is adjusted for population and the latter is not. On this record, we are unable to conclude that the radio message presented distorted facts. It has not been shown that the actual figures for the respective growths of personal income and State spending cited in the radio message were distorted. Instead, the claim of distortion is that the straightforward comparison of those two growth rates is "flawed" and, presumably, misleading because one is adjusted for population and the other is not. With better evidence to support it, respondent's contention might raise a
Second, respondent contends, again relying on the newspaper article, that the radio message also violates factor 4 of Rev. Proc. 86-43, sec. 3.03 because "there is much background material that is missing from the presentation that would be necessary for the public to understand and evaluate the material." In this regard, respondent points to the newspaper article's assertion that the radio message's statistics failed to account for population growth, inflation, and the shift in school funding from local to State government. Respondent makes the further point in support of a factor 4 violation that "[t]he relationship between state spending and personal income is too complex to meaningfully be taught in a single minute as Foundation asserts it has done. Thus, the communication was not educational."
In Nationalist Movement v. Commissioner, 102 T.C. 558, we held that Rev. Proc. 86-43, supra, is not unconstitutionally vague on its face or as applied to the tax-exempt organization in that case. In so holding, we observed:
Factor 4 in Rev. Proc. 86-43, sec. 3.03 states that advocacy of a viewpoint may not be considered educational where "[t]he approach used in the organization's presentations is not aimed at developing an understanding on the part of the intended audience or readership because it does not consider their background or training in the subject matter." Respondent effectively argues that the radio message's omission of "background material" — which respondent identifies as the failure to adjust for population growth, inflation, or the shift in school funding from local to State government —
Because the first 2000 radio message provided facts and statistics to support its viewpoint that mandatory limits should be imposed on State spending, it has "provide[d] a factual foundation for the viewpoint or position being advocated", Rev. Proc. 86-43, sec. 3.02. The radio message did not violate factors 2 and 4 of Rev. Proc. 86-43, sec. 3.03 as contended
Respondent argues in the alternative that the expenditures for the radio messages are taxable expenditures under section 4945(d)(5) because they were for a nonexempt purpose. Any amount paid by a private foundation "for any purpose other than one specified in section 170(c)(2)(B)" is a taxable expenditure. Id. The specified purposes are religious, charitable, scientific, literary, and educational, as well as fostering amateur sports competition and preventing cruelty to children or animals. Sec. 170(c)(2)(B). Thus, an expenditure for an activity which, if it were a substantial part of the organization's total activities, would cause loss of tax exemption is a taxable expenditure under section 4945(d)(5). Sec. 53.4945-6(a), Foundation Excise Tax Regs.; see also sec. 1.501(c)(3)-1(c)(1), Income Tax Regs. Petitioners argue that the expenditures were not taxable expenditures under section 4945(d)(5) because they were "educational". Petitioners offer "educational" as the only exempt purpose of the expenditures.
We have already found, in considering petitioners' claim that the radio messages were "nonpartisan analysis, study, or research", that all but three of them were not "educational" within the meaning of section 1.501(c)(3)-1(d)(3), Income Tax Regs. They are therefore also taxable expenditures under section 4945(d)(5). We have concluded that the first 2000 radio message was "educational" within the meaning of section 501(c)(3) and section 1.501(c)(3)-1(d)(3), Income Tax Regs. Consequently, the expenditure for that radio message is not a taxable expenditure under section 4945(d)(5). That leaves two radio messages requiring further consideration: Communication #8 in 1999, which respondent has not contended is an attempt to influence legislation under section 4945(d)(1), and the second radio message in 2000, which we have concluded was not a "direct lobbying communication" though respondent so contended.
Communication #8 aired when several bills were before the Oregon Legislative Assembly in the spring and summer of 1999 that would have amended Measure 11, a citizen-initiated ballot measure passed in 1994 that established mandatory minimum sentences for certain crimes.
Communication #8 described a man recently arrested for "the gruesome serial murders of 3 women", documented his lengthy criminal history preceding that arrest, and noted the short prison sentence the man served for his past crimes. The message then contended that the man would still have been in jail had the mandatory minimum sentences of Measure 11 been in effect at the time and noted that the "State senate just voted to allow some violent Measure 11 convicts a 15% reduction in prison time." Asking rhetorically "Now, who would do that?", it identified four senators who had so voted.
Communication #8 contains two factors from Rev. Proc. 86-43, supra, indicating that it is not "educational". First, in failing to provide information concerning the circumstances under which the sentence reductions would apply, the radio message omits critical facts. See id. sec. 3.02 and 3.03(1). Without these facts, a listener could not evaluate whether the reductions were justified or whether they would have reduced the sentence of the accused serial murderer (had he been sentenced for his earlier convictions when Measure 11 was applicable). Second, in highlighting "gruesome serial murders" and the extensive criminal background of a single individual, without disclosing the nature of the reductions in the legislation supported by the named senators, the presentation expresses a conclusion — namely, that the four named senators acted reprehensibly — "more on the basis of strong emotional feelings than of objective evaluations." Id. sec. 3.03(3). Communication #8 is therefore not "educational" within the meaning of section 1.501(c)(3)-1(d)(3), Income Tax Regs., and Foundation's expenditure for it is a taxable expenditure under section 4549(d)(5).
The second 2000 radio message repeated the claim of the first that State government revenue had grown nearly three
Foundation's expenditures for all of the radio messages during its years at issue, except Communication #8 and the first and second 2000 radio messages, were taxable expenditures under section 4945(d)(1) because they were attempts to influence legislation as defined in section 4945(e) and the regulations thereunder. In addition, all of the expenditures, except the first 2000 radio message, were taxable expenditures under section 4945(d)(5) because they were not for an exempt purpose specified in section 170(c)(2)(B). The first
Respondent determined excise tax deficiencies under section 4945(a)(2) for Mr. Parks of $1,625, $5,000, $825, and $5,000 for 1997, 1998, 1999, and 2000, respectively. Section 4945(a)(2) imposes a 2.5% tax on "the agreement of any foundation manager to the making of an expenditure, knowing that it is a taxable expenditure, * * * unless such agreement is not willful and is due to reasonable cause." The tax is limited to $5,000 per taxable expenditure and payable by the foundation manager.
Section 53.4945-1(a)(2)(vi), Foundation Excise Tax Regs., provides in part as follows:
A written legal opinion will be considered "reasoned" even if it reaches a conclusion that is subsequently determined to be incorrect so long as it "addresses itself to the facts and applicable law." Id. A written legal opinion that "does nothing more than recite the facts and express a conclusion" is not "reasoned". Id.
The parties stipulated that drafts of the radio messages created after November 30, 1997, were provided to Foundation's tax counsel for his review and approval. However, the record contains only two written responses from the attorney that address whether specific radio messages would give rise to a taxable expenditure, and a letter from him that could be construed as providing guidelines for taxable expenditures.
The first written response that opined that a specific radio message would not give rise to a taxable expenditure concerned the first 1998 radio message that referred to Measure
Thus, the conclusion effectively reached is that the radio message did not "reflect[] a view on" Measure 61 as provided in the regulations. See sec. 56.4911-2(b)(1), Pub. Charity Excise Tax Regs. However, nowhere does the written response address the facts of the radio message or the substance of the applicable law, such as describing how the statements in the message are similar to, or distinguishable from, the regulatory examples that delineate what constitutes "reflect[ing] a view on" a ballot measure for purposes of defining a "direct lobbying communication". Consequently, this written response provided by Foundation's tax counsel does not qualify as a "reasoned written legal opinion" under the regulations.
The second written response that opined that a specific radio message would not give rise to a taxable expenditure concerned the two 1998 radio messages that we have concluded referred to Measure 65. That written response stated in full: "We have reviewed the texts of spots labeled M65-1 and M65-2. They appear to comply with the `public education' purpose of the Parks Foundation. If you have further questions, please contact us." This statement "does nothing more than recite the facts and express a conclusion", sec. 53.4945-1(a)(2)(vi), Foundation Excise Tax Regs., and is therefore not a "reasoned written legal opinion" under the regulations.
Finally, an October 14, 1999, letter from Foundation's tax counsel to Mr. Parks advised him of the exception for lobbying communications that express a point of view so long as the message is "educational". As pertinent to the "educational"
To the extent this October 14, 1999, letter may constitute guidelines as contemplated in the regulations, it could provide a basis for relief only with respect to the expenditures for the two radio messages prepared and broadcast in 2000.
Respondent contends that the letter does not constitute advisory guidelines for purposes of the regulation because it does not cite specified language from the regulations and Rev. Proc. 86-43, supra, and therefore does not "address itself to the * * * applicable law" concerning what is "educational". We disagree. The letter explains, as respondent concedes on brief, that an expenditure for a lobbying communication that qualifies as "educational" is not a taxable expenditure. The letter further points out that even where the communication expresses a point of view, it is not lobbying if it "stay[s] focused on the facts" and avoids emotion and conclusory generalizations. The foregoing material reasonably approximates the substance of the definition of "educational" in section 53.4945-2(d)(1)(ii), Foundation Excise Tax Regs., as delineated in Rev. Proc. 86-43, supra. We note in this regard the letter's reference to a "point of view" being allowable and the emphasis on sticking to facts, which approximate the regulation.
The question remains whether Mr. Parks in fact relied on Foundation's tax counsel's advice; that is, whether the second radio message he approved in 2000 adhered to the letter's guidelines so that Mr. Parks' reliance could be said to have been based on that adherence.
As previously noted, the second 2000 radio message repeated the claim of the first about the growth rate of the Oregon State government but made the additional claim that the State government had filed a lawsuit against Foundation in retaliation for the disclosures about the growth rate that Foundation made in the first radio message. Mr. Parks necessarily knew when he agreed to the expenditure for the second message that the assertion about the lawsuit's having been filed as retaliation was a factual distortion. At that time, he knew — by virtue of the October 14, 1999, letter to him from Foundation's tax counsel — that Foundation's funding of radio advertisements had been under active investigation by State authorities and was unlikely to be resolved by settlement, well before the broadcast of the first radio message in 2000. Thus Mr. Parks knew that the second message did not adhere to the letter's guideline to "stay focused on the facts"; he knew that the second message contained a significant distortion of fact. Consequently, he did not agree to the expenditure in reliance on legal counsel's advice that conforming the expenditure to stated guidelines would prevent it from being held to be a taxable expenditure. As a result, Mr. Parks has not established that his agreement to the expenditure for the second radio message in 2000 was based on advice of counsel as described in section 53.4549-1(a)(2)(vi), Foundation Excise Tax Regs.
Respondent also determined excise tax deficiencies under section 4945(b)(1) for Foundation of $65,000, $200,000, $33,012, and $341,062 for its 1997, 1998, 1999, and 2000 taxable years, respectively. Section 4945(b)(1) imposes a tax equal to 100% of the amount of a taxable expenditure, payable by the private foundation, when tax is imposed under section 4945(a)(1) and the taxable expenditure is "not corrected within the taxable period". The "taxable period" begins on the date the taxable expenditure is made and ends on the earlier of: (1) the date a notice of deficiency with respect to the tax imposed by section 4945(a)(1) is mailed; or (2) the date on which such tax is assessed. Sec. 4945(i)(2).
"Correction" of a taxable expenditure occurs when all or part of the expenditure is recovered and, if full recovery is not possible, corrective action prescribed by the Secretary is taken. Sec. 4945(i)(1).
The "taxable period" for Foundation ended on December 22, 2006, when respondent mailed a notice of deficiency to it determining deficiencies under section 4945(a)(1). The taxable expenditures were not corrected within the taxable period.
Petitioners contend that they should not be held liable for the second tier excise taxes (both Foundation's under section 4549(b)(1) and Mr. Parks' under section 4549(b)(2), discussed below) because they could still correct the taxable expenditures under the "correction period" provided under sections 4961(a) and 4963(e). While it is true that petitioners may still avoid liability for the second tier excise taxes by correcting the taxable expenditures during the "correction period" provided in section 4963(e) — which in general extends
Because Foundation's taxable expenditures were not corrected within the "taxable period" provided in section 4945(i)(2), we sustain respondent's determination of deficiencies under section 4945(b)(1) for its taxable years at issue, except with respect to the failure to correct the expenditure for the first 2000 radio message, which was not a taxable expenditure.
Respondent determined excise tax deficiencies under section 4945(b)(2) for Mr. Parks of $10,000 each year for 1997, 1998, 1999, and 2000. When tax is imposed by section 4945(b)(1), section 4945(b)(2) imposes a tax equal to 50% of the amount of the taxable expenditure on any foundation manager who "refused to agree to part or all of the correction". The tax is limited, however, to $10,000 per expenditure. Sec. 4945(c)(2).
Respondent's revenue agent made a formal request that Mr. Parks correct the taxable expenditures at issue in a letter sent to Foundation's tax counsel on October 16, 2002. Foundation's tax counsel replied with a letter on November 11, 2002, informing the revenue agent that Mr. Parks refused to make the requested correction. Accordingly, we sustain respondent's deficiency determinations under section 4945(b)(2) for Mr. Parks for his years at issue, except with respect to the failure to correct the expenditure for the first 2000 radio message, which was not a taxable expenditure.
Because we find petitioners are liable for excise taxes pursuant to section 4945, we must address petitioners' claim that imposition of the excise taxes at issue is unconstitutional. Petitioners argue that section 4945 and the regulations thereunder, as applied to Foundation's expenditures for the radio messages, impermissibly burden their First Amendment right to freedom of speech. Petitioners also argue that the regulatory provisions that define a direct lobbying communication are unconstitutionally vague. We will address these arguments in turn.
Petitioners, relying on the U.S. Supreme Court's decision in Fed. Election Comm'n v. Wis. Right to Life (WRTL), 551 U.S. 449 (2007), contend that to the extent the radio messages may be found to constitute lobbying, they are "political speech", and governmental restrictions on the political speech of nonprofit corporations are subject to strict scrutiny. Under that well-recognized standard of review, the government must show that application of the governmental restriction "furthers a compelling interest and is narrowly tailored to achieve that interest". Id. at 464. Petitioners suggest that the Supreme Court's decision in Citizens United v. Fed. Election Comm'n (Citizens United), 558 U.S. 310 (2010), also subjecting to strict scrutiny a Federal election law prohibition on a corporation's use of general treasury funds to make independent expenditures for electioneering communications, reinforces that exacting standard for any restrictions on the political speech of nonprofit corporations.
Petitioners also argue that the implementing regulations fail to pass muster under WRTL because they depend upon a "contextual analysis" in determining whether an expenditure
Petitioners' arguments are misplaced. WRTL and Citizens United involved outright bans on expenditures for certain political speech of nonprofit (and for-profit) corporations under Federal election law. In each case the Supreme Court concluded that strict scrutiny applied. See Citizens United, 558 U.S. at 340; WRTL, 551 U.S. at 464. At issue here is Congress' imposition of a tax on an otherwise tax-exempt private foundation as a sanction to deter its use of tax-deductible contributions for lobbying expenditures. The applicable Supreme Court precedent concerning whether the First Amendment prohibits restrictions on lobbying by tax-exempt organizations eligible to receive tax-deductible contributions is Regan v. Taxation With Representation of Wash. (Regan), 461 U.S. 540 (1983). In that case, the Commissioner had denied section 501(c)(3) tax-exempt status to Taxation With Representation of Washington (TWR), a nonprofit corporation, because it intended to engage in substantial lobbying activities (i.e., a greater amount than permitted under the standard in section 501(c)(3) limiting tax exemption to corporations "no substantial part of the activities of which is * * * attempting * * * to influence legislation"). TWR argued that Congress' denial of tax-exempt status on the basis of the corporation's engagement in greater-than-insubstantial lobbying activities violated the First Amendment.
The Court also rejected the proposition that Congress' decision to deny a subsidy for lobbying by section 501(c)(3) organizations is subject to the strict scrutiny standard of review. "We have held in several contexts that a legislature's decision not to subsidize the exercise of a fundamental right does not infringe the right, and thus is not subject to strict
It follows that if Congress may, consistent with the First Amendment, deny outright the tax exemption and eligibility to receive tax-deductible contributions for a section 501(c)(3) organization that engages in substantial lobbying — in order to deprive the organization of any tax subsidy for lobbying — it may also impose on the subset of section 501(c)(3) organizations classified as private foundations the less onerous sanction of excise taxes that are proportionate to the lobbying expenditures and likewise designed to deter the use of any tax subsidy for lobbying. Furthermore, because legislative acts of this nature are treated as the denial of a subsidy for speech, subject to rational basis rather than strict scrutiny review, it is clear that Congress or a State government can employ a range of methods to reduce or eliminate a governmental subsidy for speech, such as outright denial of tax exemption and eligibility to receive tax-deductible contributions (Regan), a proxy tax to recapture the benefit of tax-deductible contributions (Am. Soc'y of Ass'n Execs.), or a State prohibition on local governments' withholding from wages any union dues to support political activities (Pocatello Educ. Ass'n). The excise taxes at issue are in this respect quite similar to the proxy tax upheld in Am. Soc'y of Ass'n
Thus, the excise taxes at issue readily pass rational basis scrutiny.
Moreover, as with the taxpayer in Regan, Mr. Parks could readily avoid the excise taxes for himself and the Foundation by establishing a separate section 501(c)(4) tax-exempt entity to make lobbying expenditures, albeit without using tax-deductible contributions to fund those expenditures. See id. at 544, 552-553. Thus, consistent with the alternate channel doctrine espoused in Regan, because Foundation could undertake lobbying through an affiliated section 501(c)(4) organization without incurring these excise taxes, the taxes do not
Apparently recognizing the difficulties presented by Regan for their constitutional claims, petitioners contend that the Supreme Court decision in WRTL, which reflects a greater degree of First Amendment protection for the political speech of nonprofit corporations, has superseded Regan.
There are significant distinctions between Regan and these two more recent Supreme Court decisions. Both WRTL and Citizens United involved Federal election law and outright bans on speech, backed by criminal sanctions. See Citizens United, 558 U.S. at 337; WRTL, 551 U.S. at 457. The excise taxes at issue here are, in accordance with the Regan analysis, designed to discourage the use of a tax subsidy and, where the subsidy has been used in a manner not intended by Congress, they have the effect of recapturing a portion of it. In this regard, we also note that the more onerous second tier excise taxes can be avoided by correction, even after judicial review that sustains their imposition. Such limitations on a tax subsidy would not trigger strict scrutiny under Regan. Neither WRTL nor Citizens United discussed or even cited Regan, which at least suggests that its principle that the denial of a tax subsidy for speech does not abridge First Amendment rights is unaffected by those cases. Moreover, two years after the WRTL decision, the Supreme Court relied heavily on Regan in holding that a State's ban on payroll deductions to support a public employee union's political activities did not abridge the union's First Amendment rights because the State was merely declining to subsidize such rights. Pocatello Educ. Ass'n, 555 U.S. at 358-359. Pocatello Educ. Ass'n would suggest, contrary to petitioners' contentions, that Regan retains full vitality after WRTL.
In any event, even if one believed that WRTL or Citizens United casts some doubt on the reasoning in Regan, the Supreme Court has made clear that it is not the province of a lower Federal court to overrule a Supreme Court precedent that applies to the case before it. "If a precedent of this Court has direct application in a case, yet appears to rest on reasons rejected in some other line of decisions, the Court of Appeals should follow the case which directly controls, leaving to this Court the prerogative of overruling its own decisions." Rodriquez de Quijas v. Shearson/Am. Express, Inc., 490 U.S. 477, 484 (1989). The issue in these cases concerns the constitutionality of Congress' imposition of an excise tax to limit the use of tax-deductible funds for lobbying by a tax-exempt entity. Because Regan resolved the same question where Congress used denial of tax-exempt status to the same end, that case directly controls and we must follow it, notwithstanding any suggestion that some of its reasoning may have been undermined in later Supreme Court decisions in another area — the constitutionality of Federal election law restrictions on the political speech of corporate entities.
Petitioners also argue that the regulations defining a direct lobbying communication as one that "refers to" specific legislation, see sec. 56.4911-2(b)(1)(ii)(A), Pub. Charity Excise Tax Regs., are unconstitutionally vague because they fail to give notice of the conduct proscribed and enable discriminatory enforcement. Petitioners contend that the regulations' use of illustrative examples to elucidate the meaning of "refers to", see, e.g., sec. 56.4911-2(b)(4)(ii)(A) and (B), (d)(1)(iii), Pub. Charity Excise Tax Regs., fails to give the required notice of proscribed conduct. Petitioners further contend that the regulatory examples' extension of the meaning of "refers to" beyond communications that make specific reference by name to legislation constitutes the use of a multifactor test for distinguishing permissible from impermissible speech that was proscribed in WRTL, 551 U.S. at 469 (the standard for distinguishing permissible from impermissible speech "must eschew `the open-ended rough-and-tumble of factors,' which `invit[es] complex argument in a trial court and a virtually inevitable appeal." (quoting Jerome B. Grubart, Inc. v. Great Lakes Dredge & Dock Co., 513 U.S. 527, 547 (1995))).
The vagueness doctrine is grounded in the Due Process Clause of the Fifth Amendment. See United States v. Williams, 553 U.S. 285, 304 (2008). A law is unconstitutionally vague if it fails to provide a person of ordinary intelligence fair notice of what is prohibited or if it is so standardless that it authorizes discriminatory enforcement. Id. "But `perfect clarity and precise guidance have never been required even of regulations that restrict expressive activity.'" Id. (quoting Ward v. Rock Against Racism, 491 U.S. 781, 794 (1989)).
Petitioners' reliance on WRTL as providing the standard of specificity that the regulations must meet is again misplaced — that standard flows from the strict scrutiny standard of review, which is not the standard of review we must use here. As the Supreme Court emphasized in WRTL, the statute there at issue banned certain political speech outright and provided criminal sanctions. WRTL, 551 U.S. at 455, 457. Where instead the government is allocating subsidies, the Supreme Court has indicated that the criteria that may be used are less exacting than those required when
As we concluded earlier, the regulatory examples cited above that the Secretary has promulgated to elucidate the meaning of "refers to" extend the phrase's reach beyond communications that actually cite legislation (or a ballot measure) by name and extend the phrase to cover communications that employ terms widely used in connection with the legislation or that reference its general content or effect. Under Regan, the imposition of the excise taxes at issue constitutes congressional allocation of a tax subsidy, rather than the direct regulation — indeed, criminal sanctioning — of speech at issue in WRTL. Consequently, the criteria for imposing the excise taxes need not meet the standard delineated in WRTL.
While undoubtedly the regulatory definition of "refers to" at issue here may give rise to more disputes at the margins
We conclude, and hold, that Foundation's expenditures for the production and broadcast of the radio messages at issue, except Communication #8 and the first and second radio messages in 2000, were attempts to influence legislation and thus taxable expenditures under section 4945(d)(1). We further conclude that all of Foundation's expenditures at issue except the expenditure for the first 2000 radio message were taxable expenditures under section 4945(d)(5). Accordingly, Foundation is liable for excise taxes under section 4945(a)(1) for its years at issue except with respect to the expenditure for the first 2000 radio message. Because the taxable expenditures we have sustained were not corrected within the taxable period, Foundation is liable for additional taxes under section 4945(b)(1) for its taxable years at issue with respect to those taxable expenditures. Mr. Parks is liable for excise taxes under section 4945(a)(2) for his knowing and willful agreement, as a foundation manager, to the making of the expenditures sustained as taxable expenditures. Mr. Parks is also liable for additional taxes under section 4945(b)(2) for his refusal to agree to correction of the sustained taxable expenditures. Finally, section 4945 and the regulations thereunder are constitutional as applied to petitioners.
To reflect the foregoing,
Decisions will be entered pursuant to Rule 155.
While statements in the article are hearsay, petitioners have not objected on that ground and have therefore waived any such objection. See Fed. R. Evid. 103(a)(1); United States v. Jamerson, 549 F.2d 1263, 1266-1267 (9th Cir. 1977); Feder v. Commissioner, T.C. Memo. 2012-10; Estate of Smith v. Commissioner, T.C. Memo. 2001-303, aff'd, 54 F. App'x 413 (5th Cir. 2002). Statements in newspaper articles that have been admitted without a hearsay objection may be considered for their probative value. Garcia v. Commissioner, T.C. Memo. 1989-106; Kenerly v. Commissioner, T.C. Memo. 1984-117. We overrule petitioners' relevancy objection.
If the second tier tax is imposed, a correction may still be made during a correction period that in general runs from the date of the taxable expenditure until 90 days after the date of mailing of a notice of deficiency, extended by any period during which the deficiency cannot be assessed under sec. 6213(a). See secs. 4961(a), 4963(e). If correction occurs within the correction period, then the second tier tax shall not be assessed; if it is assessed, the assessment shall be abated, and if collected shall be credited or refunded as an overpayment. Sec. 4961(a). The correction period provided in sec. 4963(e) enables a taxpayer to obtain Tax Court review of the determination to impose the first and second tier taxes before making the correction (and thereby avoiding liability for the second tier tax). See Thorne v. Commissioner, 99 T.C. 67, 95 (1992).
The radio messages at issue for 1998 and 2000 were (according to respondent's position) addressed to petition-initiated ballot measures; namely, Measures 61 and 65 in 1998 and Measure 8 in 2000. On the stipulated facts, it is beyond dispute that the expenditures at issue were made, and the radio messages were broadcast, after petitions were first circulated to place the ballot measures on the ballot. Thus, the ballot measures were "specific legislation" within the meaning of the regulations at that time. (With respect to Measure 61 in 1998, the radio messages referred to it by name, which obviously meant the petition effort had not only started by then but had been successful. Similarly, correspondence between Foundation and its tax counsel before broadcast of the second set of radio messages in 1998 referred to them as "M65-1" and "M65-2", which persuades us that successful petitions to place Measure 65 on the ballot had already circulated at that time. With respect to Measure 8 in 2000, the contemporaneous newspaper account in the record persuades us that Measure 8 had been placed on the ballot at the time the 2000 radio messages were paid for and broadcast, demonstrating that the petitions to place Measure 8 on the ballot had already been circulated at that time.)
The radio message at issue for 1997 and two of them for 1999 were (according to respondent's position) addressed to legislatively initiated ballot measures; namely, Measure 49 in 1997 and Measures 69 through 75 in 1999. Determining these ballot measures' status as "specific legislation" is less clear under the regulations. However, petitioners have not argued that these ballot measures (or the petition-initiated ones) were not "specific legislation" within the meaning of the regulations at the time the expenditures were made or the radio messages were broadcast. They have also not challenged the validity of the regulation that defines members of the general public as "legislators" in the case of a referendum, ballot initiative, or similar measures. Consequently, petitioners have waived any such arguments, and we assume for purposes of deciding these cases that the ballot measures at issue were "specific legislation" within the meaning of sec. 56.4911-2(d)(1), Pub. Charity Excise Tax Regs., when the radio messages were broadcast.
The excise taxes at issue are a less onerous means towards the same end.
