Parks v. Comm'r

LOREN E. PARKS, PETITIONER v. COMMISSIONER

OF INTERNAL REVENUE, RESPONDENT

PARKS FOUNDATION, PETITIONER v. COMMISSIONER

OF INTERNAL REVENUE, RESPONDENT

Docket Nos. 7043–07, 7093–07. Filed November 17, 2015.

PF is a corporation exempt from income tax under I.R.C.

sec. 501(c)(3) and classified as a private foundation under

I.R.C. sec. 509(a). P is a foundation manager of PF as defined

in I.R.C. sec. 4946(b). During its taxable years ended Nov. 30,

1997 through 2000, PF made cumulative expenditures of

$639,073 to produce and broadcast 30- and 60-second radio

messages. As a foundation manager, P agreed to the making

of the expenditures. R determined that the foregoing expendi-

tures were ‘‘attempts to influence legislation and/or the

opinion of the general public’’ and therefore taxable expendi-

tures, rendering PF and P liable for excise taxes under I.R.C.

sec. 4945(a)(1) and (2), respectively. R further determined that

because the taxable expenditures were not timely corrected,

PF and P were also liable for excise taxes under I.R.C. sec.

4945(b)(1) and (2), respectively. Held: Pursuant to the regula-

278

(278) PARKS v. COMMISSIONER 279

tions interpreting I.R.C. sec. 4945(e), a communication refers

to a ballot measure if it either refers to the measure by name

or, without naming it, employs terms widely used in connec-

tion with the measure or describes the content or effect of the

measure. Held, further, PF’s expenditures for the radio mes-

sages were taxable expenditures under I.R.C. sec. 4945(d)(1)

or (5) to the extent redetermined herein; consequently PF is

liable for excise taxes under I.R.C. sec. 4945(a)(1) to the

extent redetermined herein. Held, further, P is liable for

excise taxes under I.R.C. sec. 4945(a)(2) to the extent redeter-

mined herein. Held, further, PF and P are liable for excise

taxes under I.R.C. sec. 4945(b)(1) and (2), respectively, to the

extent redetermined herein. Held, further, the application of

I.R.C. sec. 4945 and the regulations thereunder to PF and P

does not violate the First Amendment to the U.S. Constitu-

tion, and the regulations are not unconstitutionally vague.

Kevin O’Connell, Steven B. Hval, and Tara Lawrence, for

petitioners.

Mark Alan Weiner, for respondent.

OPINION

GALE, Judge: These cases were consolidated for trial,

briefing, and opinion. Respondent determined excise tax defi-

ciencies for petitioner Loren E. Parks and petitioner Parks

Foundation (Foundation) as summarized in the following

tables. 1

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

1 All section references are to the Internal Revenue Code of 1986 as in

effect for the years at issue, and all Rule references are to the Tax Court

Rules of Practice and Procedure. All dollar amounts are rounded to the

nearest dollar.

280 145 UNITED STATES TAX COURT REPORTS (278)

Foundation, Docket No. 7093–07

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 2 are: (1) whether expenditures by

Foundation during its years at issue for the production and

broadcast of 30- and 60-second radio messages were taxable

expenditures within the meaning of section 4945(d), making

Foundation liable for excise taxes imposed by section

4945(a)(1); and, if so, (2) whether Foundation is liable for

additional excise taxes imposed by section 4945(b)(1) for

failing to timely correct the expenditures; (3) whether Mr.

Parks is liable for excise taxes imposed by section 4945(a)(2)

because he knowingly agreed to the making of the expendi-

tures; (4) whether Mr. Parks is liable for additional excise

taxes imposed by section 4945(b)(2) for refusing to agree to

correction of the expenditures; and (5) whether section 4945

and the regulations thereunder as applied to petitioners vio-

late the First Amendment to the Constitution.

Background

These cases were submitted for decision without trial

under Rule 122. The stipulation of facts and the accom-

panying 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 Status, Organization, Support, and Expenditures

Foundation’s predecessor was incorporated in Oregon in

1977. 3 In 1979 the Internal Revenue Service (IRS) recog-

2 The parties stipulated that the $1,979 excise tax deficiency determined

under sec. 4940 for Foundation’s taxable year ended November 30, 1998,

is a computational adjustment dependent on our resolution of certain other

issues in these cases.

3 The predecessor’s name was changed to Parks Foundation in 1987 and

the Oregon-chartered entity was merged into a newly created Nevada non-

profit corporation in 2003.

(278) PARKS v. COMMISSIONER 281

nized Foundation as a tax-exempt organization described in

section 501(c)(3) and further classified it as a private founda-

tion as defined in section 509(a), a classification it retained

throughout the years at issue. Mr. Parks has been the sole

contributor to Foundation since its incorporation. 4 During

the years at issue Foundation was governed by a board of

directors consisting of Mr. Parks and two of his adult sons.

The primary purposes of Foundation, as set out in its

restated bylaws, include: (1) enhancing and promoting sport

fishing and sport hunting; (2) promoting education by

researching and presenting to the public issues of general

interest or concern and by supporting alternative educational

programs and institutions; and (3) supporting charitable

organizations and activities, the goals of which Foundation

wished to encourage and promote.

In its taxable years ended November 30, 1997 through

2000, 5 Foundation expended $65,000, $200,000, $33,011, and

$341,062, respectively, to produce 30- and 60-second radio

messages 6 and broadcast them on commercial radio stations

in Oregon (radio messages). Mr. Parks approved all the fore-

going expenditures. All were made to Gregg K. Clapper, the

Clapper Agency, or radio stations as Mr. Clapper directed. 7

Mr. Clapper or the Clapper Agency produced the radio mes-

sages and arranged for their broadcast. The parties have

stipulated that Mr. Clapper has a long history of involvement

with Oregon politics and that the Clapper Agency produces

and arranges for the broadcast of political advertisements.

4 Mr. Parks contributed $1 million to Foundation in its taxable year

ended November 30, 1999, and $200,000 in its taxable year ended Novem-

ber 30, 2000.

5 For Federal tax purposes, Foundation used a taxable year ending No-

vember 30. Hereinafter, references to a specified year or taxable year of

Foundation mean the 12-month period ended November 30 for the speci-

fied year. In the case of Mr. Parks, references to a specified year or taxable

year are to the calendar year.

6 Some portion of the 1999 expenditure was also for newspaper adver-

tisements, as discussed infra.

7 Foundation made the $65,000 expenditure in 1997 by means of a check

made out to the ‘‘Are you having Trouble Hearing What We’re Saying

Committee’’. As the parties have stipulated that this $65,000 was used by

Mr. Clapper or the Clapper Agency to produce the radio message and to

purchase broadcasting air time from radio stations during 1997, the fact

that a conduit was apparently employed to effect payment is not material.

282 145 UNITED STATES TAX COURT REPORTS (278)

Oregon Ballot Measure Procedures

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, inde-

pendent 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 ‘‘ini-

tiative’’ 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 8 for every general

and statewide special election and mail it to each mailing

address in Oregon no later than 15, and subsequently 20,

days before an election. 9 Id. secs. 251.026, 251.175(1). With

8 The parties have stipulated various excerpts from the voters pamphlets

prepared with respect to the ballot measures that respondent contends

were the subject of the radio messages at issue. The parties’ stipulations

do not provide an explanation, however, of the statutorily prescribed proce-

dures under which the contents of the voters pamphlets were prepared. In

the Court’s judgment, knowledge of these procedures is indispensable to

determining the relevance and probative weight to be given the voters

pamphlet excerpts that have been stipulated. Consequently, we have taken

judicial notice of the Oregon statutes that governed the ballot measures at

issue, including the statutorily prescribed procedures for developing the in-

formation that appeared in the voters pamphlets. The findings in this sec-

tion are based on such judicial notice in addition to the parties’ stipula-

tions.

9 For the elections at issue which occurred during 1997, 1998, and 1999,

the secretary of state was required to mail the voters pamphlets no less

than 15 days before the election. Or. Rev. Stat. sec. 251.175 (1995). For

the election at issue which occurred during 2000, the Oregon secretary of

state was required to mail the voters pamphlets no less than 20 days be-

fore the election. Id. (1999) (applicable for elections held after January 2,

2000).

(278) PARKS v. COMMISSIONER 283

respect to each initiative and referred measure on the ballot

in a given election, the voters pamphlet was required to con-

tain, inter alia, the ballot title of the measure, 10 an explana-

tory statement for the measure, and a statement estimating

the direct financial impact on the State and local govern-

ments if the measure were enacted. 11 Or. Rev. Stat. sec.

251.185 (1993); id. sec. 251.185(1) (1999). 12

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), 13 which was

required to be ‘‘impartial, simple and understandable’’ and

‘‘not exceed 500 words.’’ Or. Rev. Stat. Ann. sec. 251.215(1)

(West 2015). The proponents of a measure—the chief peti-

tioners in the case of an initiative measure and the president

of the senate and the speaker of the house of representatives

in the case of a referred measure—were entitled to appoint

10 A ballot title consisted of a caption that reasonably identified the sub-

ject matter of the measure; simple and understandable statements that de-

scribed, respectively, the result if the measure were approved or rejected;

and a concise and impartial summary of the measure and its major effect.

Or. Rev. Stat. Ann. sec. 250.035(2) (West 2015). The attorney general was

required to prepare the ballot title for initiative measures. Id. sec. 250.065.

The Legislative Assembly had the option of preparing the ballot title for

referred measures; and if it did not, the attorney general was required to

do so. Id. sec. 250.075.

11 During the years in issue, the financial impact statement was required

to be jointly prepared by the Oregon secretary of state, the state treasurer,

the director of the Oregon Department of Administrative Services, and the

director of the Department of Revenue. Or. Rev. Stat. sec. 250.125(1)

(1993); id. (1999). (The current statute is found at Or. Rev. Stat. Ann. sec.

250.125 (West 2015).) The Oregon secretary of state must also have con-

ducted a hearing (with reasonable notice) to receive suggested changes or

other information concerning a proposed financial impact statement, and

the Oregon secretary of state, the state treasurer, the director of the Or-

egon Department of Administrative Services, and the director of the De-

partment of Revenue must have considered the suggested changes or other

information submitted. Or. Rev. Stat. sec. 250.127(2) and (3) (1995); id.

(1999). (The current statute is found at Or. Rev. Stat. Ann. sec. 250.127(2)

and (3) (West 2015).)

12 The current statute is found at Or. Rev. Stat. Ann. sec. 251.185(1)(a)–

(c) (West 2015).

13 The current statute is found at Or. Rev. Stat. Ann. sec. 251.205(2)

(West 2015).

284 145 UNITED STATES TAX COURT REPORTS (278)

the first two members to the committee; 14 the secretary of

state appointed the next two members of the committee from

among the opponents of the measure; and the four appointed

committee members were to agree on the fifth member. Or.

Rev. Stat. sec. 251.205(2)–(4) and (6) (1995); id. sec.

251.205(1)–(5) (1999). 15 In the absence of agreement, the sec-

retary of state was authorized to appoint the fifth member.

Or. Rev. Stat. sec. 251.205(4) (1995); id. sec. 251.205(5)

(1999). 16

The committee was required to file the explanatory state-

ment 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 com-

mittee was required to consider the suggestions and other

information submitted at the hearing and could file a revised

statement with the secretary of state. 17 Id. sec. 251.215(3).

Any person dissatisfied with an explanatory statement for

which suggestions were offered at the secretary of state’s

hearing could petition the Oregon Supreme Court seeking a

different statement. 18 Id. sec. 251.235; see, e.g., Novick v.

Bradbury, 10 P.3d 254 (Or. 2000).

Content and Context of the Radio Messages

The content and context of each radio message at issue are

described below, arranged by the year in which the expendi-

tures for the messages were made.

14 The president of the senate was required to appoint a senator, and the

speaker of the house, a representative. Or. Rev. Stat. sec. 251.205(6)(b)

(1995); id. sec. 251.205(1)(b) (1999). (The current statute is found at Or.

Rev. Stat. Ann. sec. 251.205(1)(b) (West 2015).)

15 The current statute is found at Or. Rev. Stat. Ann. sec. 251.205(1)–

(5) (West 2015).

16 The current statute is found at Or. Rev. Stat. Ann. sec. 251.205(5).

17 The original and any revised explanatory statement was required to

be approved by at least three members of the committee. Or. Rev. Stat.

Ann. sec. 251.215(4) (West 2015). The explanatory statement was also re-

quired to indicate any dissenting member. Id.

18 Draft ballot titles were subject to similar procedures. Or. Rev. Stat.

Ann. secs. 250.067, 250.085 (West 2015).

(278) PARKS v. COMMISSIONER 285

1997

On the ballot in a May 20, 1997, statewide special election

was Measure 49. The explanatory statement for Measure

49 19 described it as follows:

EXPLANATORY STATEMENT

In 1994, voters approved an amendment to the Oregon Constitution

establishing requirements for work programs for state prison inmates.

These provisions in the Oregon Constitution require state corrections

officials to establish and operate work and on-the-job training programs

so that all eligible inmates are engaged in these programs 40 hours per

week. Due to a conflict between Oregon constitutional provisions and

federal law, the Department of Corrections has shut down some of its

most successful and productive prison industries programs.

This measure modifies existing state prison work program require-

ments in the Oregon Constitution. The measure does the following:

• Permits the state to continue to operate and expand Oregon’s most

successful prison industries in compliance with federal law. Allows

development of additional prison industries programs.

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 pre-

sented the following script in narrative format: 20

I’ll bet you thought Oregon prisoners would be working 40 hours a week

by now. Back in 1994, that’s what voters overwhelmingly told the politi-

cians to do.

But the governor and attorney general have said, NO, we’re not gonna

do it.

Attorney General Hardy Myers says the federal government doesn’t like

the way Oregon pays it’s [sic] prisoners. And so, he and the Governor

have decided to shut down the program entirely.

Some people just don’t think criminals should spend much time in jail.

They think they can be rehabilitated.

If they really wanted prisoners to work, they’d just change the way we

to [sic] pay them.

19 Incontrast to the explanatory statements for the other measures con-

sidered in this Opinion, which were prepared by five-citizen committees

pursuant to Or. Rev. Stat. Ann. sec. 251.215 (West 2015), the explanatory

statement for Measure 49 was drafted and enacted by the legislature.

20 The scripts of all radio messages have been reproduced herein as pre-

sented in the parties’ stipulations, with apparent errors noted.

286 145 UNITED STATES TAX COURT REPORTS (278)

When Hardy Myers was Speaker of the House, he took credit for

changing Oregon’s criminal statutes. Those changes resulted in the aver-

age convicted murderer spending less than 7 years in jail.

That’s why Oregon Voters had to step in and take control.

We said it loudly and clearly, ‘‘Put criminals in jail. Make ‘em do their

time, and work ‘em while they’re there.’’

What Oregon voters didn’t say was, ‘‘Make a bunch of whiney excuses

why you can’t do what we want done.’’

Foundation’s tax counsel was not asked to review or

approve the content of this radio message.

1998

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 explana-

tory statement for Measure 61 described it as follows:

EXPLANATORY STATEMENT

This measure creates a statute that sets minimum sentences for

‘‘major crimes,’’ as defined in this measure. In addition, the measure

requires the imposition of an additional sentence of one to three years

of imprisonment for any offender who is convicted of a ‘‘major crime’’ and

who was convicted of one or more ‘‘major crimes’’ within the previous 10

years.

The measure requires that a presumed sentence of at least 14 months

imprisonment be imposed for ‘‘major crimes’’ committed on or after

January 1, 1999. * * *

* * * * * * *

The mandatory additional sentence is one year if the offender has one

previous conviction for one of the specified crimes within that period, two

years if the offender has two previous convictions for the specified crimes

within that period and three years if the offender has three or more pre-

vious convictions for the specified crimes within that period.

The mandatory additional sentence for previous convictions may not

be reduced for any reason. * * *

The financial impact statement for Measure 61 reported:

ESTIMATE OF FINANCIAL IMPACT: The mandatory and presumptive

sentences imposed under this measure are estimated to require 4,300

new prison beds by 2006, with direct state expenditures for prison

construction and start-up of $470 million by 2006.

(278) PARKS v. COMMISSIONER 287

Direct state expenditures for prison operating costs and debt service are

estimated at $21 million in 1999–2000 and $40 million in 2000–2001,

growing to $125 million in 2005–2006. * * *

The first radio message referring to Measure 61, broadcast

in October 1998, presented the following script in narrative

format:

Back when John Kitzhaber was Senate President Legislation was passed

that resulted in a convicted murderer, given a life sentence, actually

serving less than 7 years in jail...

They said they didn’t have enough jail space.

But then came Measure 11.[21]

It required mandatory sentences for violent criminals with no possibility

of early release...and...it required the state to build enough jail space.

They said it would cost billions of dollars. But it didn’t.

And since Measure 11, violent crime in Oregon has gone down.

And now Measure 61’s on the ballot.

It requires mandatory sentences for criminals convicted of property

crimes.

You live in Portland. You get your car stolen or your house burglarized

there won’t be jail...just probation.

If Measure 61 passes, that criminal goes to jail. And they’ll have to build

enough jail space to keep ‘em... There’ll be no early release.

It’s Measure 61.

Paid for in the public interest by the Parks Foundation.

The second radio message referring to Measure 61, also

broadcast in October 1998, presented the following script in

narrative format:

The citizens, not the politicians, passed Measure 11 putting violent

criminals in jail.

Up ’till then, a convicted murderer with a life sentence served less than

7 years.

They said it would cost billions. But, it didn’t. And the crime rate went

down.

And now ... Measure 61.

You live in Portland, you get your car stolen ... your house burglarized

... there won’t be jail ... just probation.

21 Measure 11 was passed by Oregon voters in 1994. It established man-

datory minimum prison sentences for violent crimes.

288 145 UNITED STATES TAX COURT REPORTS (278)

With Measure 61, that criminal absolutely goes to jail ... and no early

release.

(Measure 61.)

Pd for by the Parks Foundation.

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:

We have reviewed the text of radio spot M61#1. The Foundation is not

permitted to support or oppose any political candidate or any ballot

measures. Its role is to ‘‘educate’’ the public about issues of the can-

didates and the ballot measures. The conclusion of this radio spot is

close to an endorsement of the ballot measure, but we do not think it

goes too far. Nevertheless, you should try to maintain an unbiased pos-

ture even though the thrust of the information emphasizes the ‘‘positive’’

aspects of the ballot measure. Let us know if there is any other informa-

tion you need.

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:

EXPLANATORY STATEMENT

This measure would amend the Oregon Constitution to create a review

and approval process of state agency administrative rules by the Legisla-

tive Assembly. Currently, no such process exists. This process is trig-

gered when a petition signed by a specified number of qualified voters

is filed with the Secretary of State.

Administrative rules are rules and regulations adopted by state agen-

cies, boards and commissions that generally have the full force and effect

of law.

The number of qualified voters who must sign the petition is equal to

two percent of the total number of votes cast for all candidates for Gov-

(278) PARKS v. COMMISSIONER 289

ernor at the last gubernatorial election. The petition must specify the

administrative rule or rules that the Legislative Assembly is required to

review.

Upon being notified by the Secretary of State that a petition meeting

the requirements of the measure has been filed, the President of the

Senate must prepare a bill that would approve the administrative rule

or rules specified in the petition. The President of the Senate must then

introduce that bill at the next following regular session of the Legislative

Assembly. If the petition is filed with the Secretary of State during a

regular session, the bill must be introduced at the next following regular

session.

After the introduction of the bill, the Legislative Assembly may amend

the bill to approve only part of a specified rule. If the petition specifies

more than one rule, the bill may be amended to approve fewer than all

of the specified rules. Any rule or part of a rule that is not approved by

the passage of a bill has no further force or effect after the session is

adjourned.

The first radio message referring to ‘‘administrative rules’’

presented the following script in narrative format:

Right now, without even knowing it, you’re being forced to live under

laws created not by elected officials but by non-elected government

bureaucrats.

They’re called administrative rules.

Here’s what happens:

The legislature passes a law to keep a watchful eye on growth and tells

its hired workforce to carry out that law.

So Jack and Bev Stewart turn 90 acres of Polk County brush piles into

a horse farm. Because horses are expensive and easily stolen, they want

to build a farmhouse so they can be there. But the government bureau-

crats say no, we’re not gonna let you until you earn $80,00 [sic] off the

property. The Stewarts say. We can’t do that until we get more

horses...the bureaucrats say tough, that’s your problem, not ours.

When a legislator’s asked how government can get away with this he

says we never intended for this to happen.

So the Stewarts are stuck...all they did was turn 90 acres of noxious

weeds into income producing, taxpaying farm acreage.

It’s called administrative rules...and you’re gonna hear a lot more about

‘em in the weeks to come.

The second radio message referring to ‘‘administrative rules’’

presented the following script in narrative format:

Right now, without even knowing it, you’re being forced to live under

laws created not by elected officials but by non-elected government

bureaucrats.

290 145 UNITED STATES TAX COURT REPORTS (278)

They’re called administrative rules.

Here’s what happens:

The Good Sheppard [sic] Church of Clackamas County purchased the

only available piece of land in the area to build a new church. It’s zoned

for farm use. But even though the elected legislature passed a state law

allowing churches to build on farmland, the nonelected bureaucrats

made up an administrative rule saying, we’re not going to let you do it.

And it doesn’t matter whether the land is any good or not.

So in the mean time [sic], the Good Shepherd Church has been denied

a building permit on their own land even though state law says it’s OK.

It’s called administrative rules ... and you’re gonna hear a lot more about

‘em in the weeks to come.

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.’’

1999

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 prosecu-

tion 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, state-

wide special election.

The measures sought to make the following amendments

to the Oregon Constitution: Measure 69 granted victims con-

stitutional 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

(278) PARKS v. COMMISSIONER 291

criminal cases; Measure 71 limited pretrial release of accused

persons to protect victims and the public; Measure 72

allowed murder convictions by 11 to 1 jury votes; Measure 73

limited immunity from criminal prosecutions for persons

ordered to testify about their conduct; Measure 74 required

that the terms of imprisonment announced in court be fully

served, with certain exceptions; and Measure 75 banned per-

sons convicted of certain crimes from serving on grand juries

and criminal trial juries.

On June 2, 1999, Foundation paid $10,963 for the produc-

tion 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 fol-

lowing script in narrative format:

District 5 State Representative Jim Hill is one of the very few Repub-

licans in the state house fighting against the victims of crime.

2 years ago, a wide majority of Oregonians voted to get tough on crimi-

nals by passing Measure 40.

But the liberal state Supreme Court threw it out saying it contained too

many subjects. The state house has just voted to split Measure 40 into

8 separate amendments to be reapproved by the voters.

Who would be against this?

The liberals and criminal defense lawyers.

Some Democrats joined with most of the Republicans to support victims’

rights . . . very few Republicans didn’t.

Your district 5 State Representative Jim Hill is one of them.

Many victims of crime urged the passage of Measure 40 because they

wanted the victims to be treated at least as well as the criminals.

But Jim Hill fought us all the way.

The Parks Foundation paid for this message because we want you to

know what your elected officials really do once they get to Salem.

The second radio message was identical to the first except

that it substituted District 34 State Representative Lane

Shetterly for Representative Hill. 22

22 A copy of the print advertisement is not in the record, but the parties

stipulated that it was similar to the radio messages. Consequently our

findings with respect to the expenditure for the radio messages apply

equally to any portion devoted to the print advertisements.

292 145 UNITED STATES TAX COURT REPORTS (278)

In addition, on July 23, 1999, Foundation paid $22,048 for

the production and broadcast of a third radio message

(Communication #8 23) which referred by name to Measure

11, a ballot measure that had been passed in 1994 enacting

a statute setting mandatory minimum sentences for certain

violent crimes. Several bills which sought to amend the

Measure 11 statute were introduced during the regular ses-

sion of the Oregon Legislative Assembly in the spring and

summer of 1999. The Communication #8 radio message pre-

sented the following script in narrative format:

Portland Police have just arrested 32-year-old Todd Reed for the grue-

some serial murders of 3 women.

But what about Todd Reed’s criminal history? In ’81 he was convicted

of burglary. In ’82, burglary. In ’87 convicted of 3 more burglaries. In ’92

he was arrested for 3 counts of rape, 2 counts of sodomy, 5 counts of kid-

naping, I [sic] count each sex abused [sic] and menacing.

After plea-bargaining he got a 17-year sentence. But this was Oregon

before Measure 11. He spent 2 years in jail. But if he was under

Measure 11, there’d be no early release; he’d still be in jail.

The State Senate just voted to allow some violent Measure 11 convicts

a 15% reduction in prison time.

Now, who would do that?

From the Portland area, Senators Kate Brown, Ginny Burdick and

Frank Shields.

And the one most responsible, Neil Bryant of Bend.

The Parks Foundation paid for this because we want you to know what

the politicians really do once they get to Salem.

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 pro-

vided 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 con-

cerning, inter alia, its expenditures for the broadcast of radio

advertisements. The investigation had commenced sometime

23 The parties refer to this radio message as Communication #8, and we

shall as well.

(278) PARKS v. COMMISSIONER 293

before March 12, 1998. 24 The letter referenced the Oregon

attorney general’s investigation and the poor prospects of

reaching any mutually agreeable settlement with that office.

The letter went on to specifically address Foundation’s prac-

tice of sponsoring ‘‘information ads on radio and in news-

papers’’ in the excerpts which follow.

Sponsoring your own public information ads has produced the most

ardent response from the Attorney General * * * . The law prohibits a

private foundation form engaging in any activities intended to ‘‘affect the

outcome of an election,’’ in other words, from lobbying. There are two

forms of political activity that meet the test. They should be clearly

distinguished in your mind when the ads are being produced and cir-

culated because each has a slightly difference compliance standard.

The two forms of lobbying are called ‘‘direct lobbying’’ and ‘‘grass roots

lobbying’’.

After explaining the difference between direct and grass

roots lobbying, the letter turned specifically to ballot measure

initiatives, in the following excerpt.

Until this year [1999], most of your activities have focused on the ini-

tiative process. The law takes the view that the voters are the legisla-

ture when deciding a [sic] initiative ballot issue. Thus, communicating

with the voters about an initiative issue is direct lobbying, rather than

grass roots lobbying. The requirement for urging a particular vote or to

contact a legislator is not required. This is why the Attorney General is

so adamant about condemning your activities; they believe you are

engaging in direct lobbying: you refer to a specific bill or act (even when

you don’t), and you are expressing a point of view. * * * a simple excep-

tion to these lobbying rules [exists] which permits the expression of a

point of view if the message is ‘‘educational’’. This is where the ‘‘gray

area’’ comes in, and it is the arena in which the main battle with the

Attorney General will be waged.

It is not possible to express a ‘‘general rule’’ for you to follow in your

political efforts. Instead, we urge you to simply stay focused on the facts.

Do not succumb to emotion or generalizations of ‘‘good’’ or ‘‘bad’’ or

‘‘conservative’’ or ‘‘liberal.’’ It is certainly acceptable to use humor, sar-

casm and imagery as long as they do not obscure the factual basis of

your message.

24 March 12, 1998, is the date of the earliest email in the record from

a financial investigator from the Oregon Department of Justice to Founda-

tion’s tax counsel. The subject of the email concerned the investigator’s ef-

forts to obtain the scripts of radio and newspaper advertisements prepared

for Foundation by Mr. Clapper, and the email reflected efforts to obtain

the scripts that had preceded the date of the email.

294 145 UNITED STATES TAX COURT REPORTS (278)

2000

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:

EXPLANATORY STATEMENT

Ballot Measure 8 would amend the Oregon Constitution by linking the

rate of growth of state government spending to the rate of growth of per-

sonal income in the state. The measure would limit all state spending,

regardless of the source of the funds, to no more than 15 percent of total

personal income of Oregonians earned in the two calendar years imme-

diately preceding the budget period (biennium).

If the state collects revenues in excess of the limit, the measure would

require that those excess revenues be distributed to Oregon taxpayers in

proportion to the income taxes they paid in the biennium. Excluded from

this distribution are earnings from dedicated investment funds, such as

retirement funds or the Common School Fund.

The Legislature could vote to increase spending beyond the limit, but

only if the Governor specifically declares an emergency, and three-

fourths of the elected members of both the House and the Senate vote

for the increased level of spending.

The limit covers state spending from all sources of funds, such as

taxes, fees, federal funds, and investment earnings. The measure would

exclude from the limit proceeds from state-issued bonds, although it does

include the funds appropriated to repay those bonds.

For comparison, the state has recently experienced a spending level of

about 18 percent of personal income. The estimated impact of the

measure on the 2001–2003 state budget would be to limit expenditures

to an amount $5.7 billion less than the projected spending of $32.4 bil-

lion.

The measure limits state spending. The measure does not cut state

taxes, nor does it direct the Legislature or Governor how state funds are

spent within the new limit.

The first of the two radio messages, broadcast sometime

before late August 2000, presented the following script in

narrative format:

Is Oregon State government really growing nearly 3 times faster than

the personal income of those who pay its bills?

Oregonians will soon be asked if they want to slow down the growth of

their State government.

Here are the facts. From 1989 to 91 State government grew by 21%, cit-

izen income grew less than 9%. In 93 State income up 20%, citizens’

(278) PARKS v. COMMISSIONER 295

income just 11%. In 95 State incomes up another 23%, private pay up

less than 11%. And in 97 the State income was up 14% and private pay

just 8%.

So what all this means is that over the last 10 years the State increased

its income by more than 130%, while private pay increased less than

50%.

Our Tax dollars to State government have increased nearly 3 times

faster than the personal income of its own citizens. And those are the

State’s own figures.

Paid for by the Parks Foundation.

On August 25, 2000, Oregon’s largest newspaper (by cir-

culation) 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. 25 The article reported on the radio message as

follows:

Summary: A radio spot paid for by the Parks Foundation says the state

tax has grown 3 times faster than residents’ personal income.[26]

Conservative businessman Loren Parks has thrown the first punch in

this year’s ballot fight about taxes and government spending, launching

a statewide radio ad that claims Oregon’s budget has grown three times

faster than personal income in the past decade.

But the 60-second spot, paid for by the Parks Foundation, fails to

account for inflation, population growth or the decade-long shift in school

finance from local property taxes to the state budget.

25 The newspaper article is a stipulated exhibit, and the parties stipu-

lated its authenticity. The parties stipulated that either had the right to

object to the admission of any stipulated exhibit ‘‘on the grounds of rel-

evancy and materiality, but not on other grounds unless expressly reserved

herein.’’ In the stipulations, petitioners reserved an objection to the article

on the basis of ‘‘evidentiary relevance’’ alone.

While statements in the article are hearsay, petitioners have not ob-

jected 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.

26 The article also reported that Mr. Clapper had advised in an interview

that the figures used in the radio message for State revenue and personal

income were from Oregon Tax Research, a think tank.

296 145 UNITED STATES TAX COURT REPORTS (278)

Considering those factors, growth in state spending has actually been

slower than personal income growth in the 1990s.

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 comparison is flawed, however, because one figure—personal

income—is adjusted for population, while the other—spending—is not.

Without adjusting for population, personal income grew by 87 percent in

the same period, which is closer to the 130 percent rise in the budget.

And by focusing on the general fund, the ad gives voters a misleading

picture of * * * [Measure 8], which limits total state spending, not just

the general fund. The state’s ‘‘all funds’’ budget, which includes federal

funds, the gas tax and licenses and other user fees, increased 108 per-

cent in the past 10 years.

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 con-

cluded:

Accounting for the shift in school funding by adding in all school prop-

erty taxes, adjusting for population growth and factoring in inflation

turns the claim in the Parks’ radio ad on its head.

Adjusted figures show that per capita state spending increased only 4

percent over the last decade, far less than the 18 percent increase in per

capita personal income.

On August 24, 2000, the Oregon Department of Justice,

Charitable Activities Section, filed a lawsuit against Founda-

tion, alleging that Foundation had made expenditures from

1993 through 2000 that constituted taxable expenditures

under section 4945, thereby violating Oregon’s Nonprofit Cor-

poration 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 gen-

eral’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

(278) PARKS v. COMMISSIONER 297

the attorney general’s office concerning the issues raised in

the audit was unlikely.

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:

A few weeks ago, the Parks Foundation revealed that, over the last 10

years, Oregon government income has grown by 130%, nearly 3 times

faster than the personal income of citizen’s who pay for it.

The state government didn’t like what we said. They filed a lawsuit

against us.

But, like it or not, the general fund budget has gone from $4 to $10 bil-

lion.

And where’s that money gone?

A big part of it goes to the Oregon Health plan that just paid a quarter

million dollars for a convicted child molester from Mexico to receive a

bone marrow transplant ... .

And 2 brain surgeries for an out of state man...

Gall bladder surgery for an out of state woman...And 2 knee replace-

ments for a skier who lives off a trust fund but said he had no income.

The state government is using taxpayers’ money to intimidate us from

revealing this kind of information.

Isn’t that what Richard Nixon did when he used the IRS to go after his

political enemies?

Paid for by the Parks Foundation.

Drafts of both radio messages were provided to Founda-

tion’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.

Examination and Request for Correction

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

298 145 UNITED STATES TAX COURT REPORTS (278)

4945(a)(1) for Foundation and under section 4945(a)(2) for

Mr. Parks as a foundation manager. The letter further

advised that the agent intended to propose liabilities under

section 4945(b)(1) for Foundation and under section

4945(b)(2) for Mr. Parks as foundation manager. Citing

Thorne v. Commissioner, 99 T.C. 67 (1992), the revenue

agent formally requested that Mr. Parks correct the expendi-

tures. 27 By letter dated November 11, 2002, Foundation’s tax

counsel advised the revenue agent that Mr. Parks refused to

make the requested correction.

Deficiency Determinations

In a notice of deficiency issued to Foundation on December

22, 2006, respondent determined that Foundation’s expendi-

tures 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 cor-

rected, under section 4945(b)(1) for each year. 28 In a notice

of deficiency issued to Mr. Parks that same day, respondent

determined that as a result of the foregoing expenditures,

Mr. Parks was liable for excise tax deficiencies under section

4945(a)(2) and, because the taxable expenditures had not

been corrected, under section 4945(b)(2) for each of the fore-

going years. Both petitioners timely petitioned for redeter-

mination, and their cases were consolidated.

Discussion

I. Private Foundations and Excise Tax Enforcement

Provisions exempting charitable organizations from tax-

ation have been included in every income tax act since the

adoption of the Sixteenth Amendment, 29 see Revenue Act of

27 The revenue agent proposed that, under the circumstances, correction

could be accomplished by Mr. Parks’ reimbursing Foundation for the tax-

able expenditures.

28 The notice of deficiency determined that Foundation’s excise tax liabil-

ity under sec. 4945(b)(1) for 1999 is $33,012, a figure that is $1 more than

the amount the parties have stipulated was Foundation’s total expenditure

for radio messages in that year.

29 The Act of August 27, 1894, ch. 349, sec. 32, 28 Stat. at 556–557, also

(278) PARKS v. COMMISSIONER 299

1913, ch. 16, sec. II(G), 38 Stat. at 172; see also Bob Jones

Univ. v. United States, 461 U.S. 574, 589 n.14 (1983), and

since 1917 individual taxpayers have been allowed a deduc-

tion for contributions to certain charitable organizations, 30

see War Revenue Act of 1917, ch. 63, sec. 1201(2), 40 Stat.

at 330. However, in the Tax Reform Act of 1969 (1969 Act),

Pub. L. No. 91–172, 83 Stat. 487, Congress enacted a new

statutory regime for a subset of section 501(c)(3) organiza-

tions, designated ‘‘private foundations’’ and defined for the

first time in that legislation as, generally speaking, all

organizations exempt from tax under section 501(c)(3) except

churches, schools, hospitals and medical research organiza-

tions, or other charitable organizations receiving a substan-

tial portion of their support from the general public or

governmental sources (public charities). Sec. 509(a). Congress

concluded that private foundations, typically subject to the

control of a single individual, family, or small group of per-

sons, were especially susceptible to having their resources

diverted to serve private rather than charitable purposes,

thereby subverting the rationale for according them tax-

exempt status and the benefits of being eligible to receive

tax-deductible contributions. See S. Rept. No. 91–552, at 57

(1969), 1969–3 C.B. 423, 460.

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 char-

ities—which are allowed to engage in ‘‘carrying on propa-

ganda, or otherwise attempting, to influence legislation’’ so

long as the foregoing is not ‘‘a substantial part of the activi-

ties’’ of the organization, see sec. 501(c)(3), a private founda-

tion is subject to excise taxes if it expends ‘‘any amount

* * * to carry on propaganda, or otherwise to attempt, to

included a provision exempting charitable organizations from tax, but the

income tax system provided for in the Act was declared unconstitutional.

Pollock v. Farmers’ Loan & Tr. Co., 158 U.S. 601 (1895).

30 During the years at issue (and currently), sec. 170(a) allowed a deduc-

tion, subject to certain limitations and verification requirements, for con-

tributions to domestic sec. 501(c)(3) organizations (except organizations

testing for public safety) paid during the taxable year.

300 145 UNITED STATES TAX COURT REPORTS (278)

influence legislation’’, sec. 4945(d)(1); 31 see sec. 4945(a) and

(b). Of further relevance to these cases, these excise taxes

also apply if a private foundation expends any amount for

‘‘any purpose other than one specified in section 170(c)(2)(B)’’;

namely, ‘‘religious, charitable, scientific, literary, or edu-

cational purposes, or to foster national or international ama-

teur sports competition * * * or for the prevention of cruelty

to children or animals’’. Sec. 4945(d)(5).

Congress also concluded that a different enforcement

mechanism—the aforementioned excise taxes—was appro-

priate for private foundations. Whereas the principal enforce-

ment 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 infrac-

tion than loss of tax-exempt status. With respect to the

excise taxes, the Finance Committee report states:

The committee has concluded that more effective limitations [than loss

of tax exemption and denial of charitable contribution deduction status]

must be placed on the extent to which tax-deductible and tax-exempt

funds can be dispensed by private persons and that these limitations

must involve more effective sanctions. Accordingly, the committee has

determined that a tax should be imposed upon expenditures by private

foundations for activities that should not be carried on by exempt

organizations (such as lobbying, electioneering, and ‘‘grass roots’’ cam-

paigning). * * * [S. Rept. No. 91–552, supra at 48, 1969–3 C.B. at 455.]

The Ways and Means Committee report contains substan-

tially identical language and further observes that ‘‘the

[excise tax] sanction will in most cases be far more propor-

tional 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. 32 Public charities were excepted from the stricter

31 As will be discussed in greater depth hereinafter, the provisions appli-

cable to private foundations further define what constitutes an ‘‘attempt to

influence legislation’’. See sec. 4945(e).

32 The House version of the legislation would have imposed an excise tax

(278) PARKS v. COMMISSIONER 301

rules and excise taxes ‘‘on the theory that their exposure to

public scrutiny and their dependence on public support would

keep them from the abuses to which private foundations

were subject.’’ Quarrie Charitable Fund v. Commissioner, 603

F.2d 1274, 1277 (7th Cir. 1979), aff ’g 70 T.C. 182 (1978); see

also H.R. Rept. No. 91–413, supra at 39–42, 1969–3 C.B. at

226–227.

II. Petitioners’ Liability for Excise Taxes Under Section 4945

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% 33 of the amount of each taxable expenditure

made by the foundation. Section 4945(a)(2) imposes a tax

equal to 2.5% of a taxable expenditure on any ‘‘foundation

manager’’ who agrees ‘‘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.’’ 34

A ‘‘foundation manager’’ for this purpose includes an officer,

director, or trustee of the foundation (or an individual having

powers or responsibilities similar to those of the foregoing).

Sec. 4946(b). The subsection (a)(1) and (2) taxes are des-

ignated as ‘‘first tier’’ taxes. Sec. 4963(a).

More severe ‘‘second tier’’ taxes are imposed by section

4945(b)(1) and (2) when taxable expenditures are not timely

on a private foundation equal to 100% of the prohibited expenditure and

an excise tax equal to 50% of the prohibited expenditure on the foundation

manager. The two-tiered excise taxes in current law originated in the Sen-

ate version and were adopted in the conference version of the legislation.

See H.R. Conf. Rept. No. 91–782, at 286 (1969), 1969–3 C.B. 644, 649.

33 The rate of tax imposed by sec. 4945(a)(1) increased to 20% for taxable

expenditures in years beginning after August 17, 2006. Pension Protection

Act of 2006 (PPA), Pub. L. No. 109–280, sec. 1212(e)(1)(A), (f), 120 Stat.

at 1074–1075.

34 The rate of tax imposed by sec. 4945(a)(2) increased to 5% for expendi-

tures in taxable years beginning after August 17, 2006. PPA sec.

1212(e)(1)(B), (f), 120 Stat. at 1074–1075.

302 145 UNITED STATES TAX COURT REPORTS (278)

‘‘corrected’’. 35 The second tier tax on the private foundation

is equal to 100% of the amount of the taxable expenditure.

Sec. 4945(b)(1). When a second tier tax is imposed on the

foundation, a second tier tax, equal to 50% of the taxable

expenditure, is likewise imposed on any foundation manager

who ‘‘refused to agree to part or all of the correction’’. Sec.

4945(b)(2).

Respondent determined that Foundation’s payments for

the production and broadcast of the radio messages were tax-

able expenditures. 36 He further determined that Foundation

and Mr. Parks were both liable for first and second tier

excise taxes on the expenditures. Petitioners argue that they

are not liable for excise taxes because the expenditures for

the radio messages were not taxable expenditures. They also

argue that section 4945 and the regulations thereunder, as

applied to them, are unconstitutionally vague and violate

their First Amendment rights.

We begin by considering the application of each excise tax.

35 ‘‘Correction’’ for this purpose means recovery of the expenditure to the

extent possible or, where recovery is not possible, such additional correc-

tive action as is prescribed by regulations. Sec. 4945(i). A correction will

prevent the imposition of the second tier tax if it is made before the earlier

of the date on which a notice of deficiency determining the first tier tax

is mailed or the first tier tax is assessed. Sec. 4945(b)(1) and (2), (i)(2).

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 ex-

penditure 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 cred-

ited 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).

36 On brief respondent explains that because Foundation’s records did

not permit him to segregate the costs attributable to the individual radio

messages in years when multiple messages were produced, he treated

Foundation’s aggregate payments for the messages in each year as a single

expenditure. Accordingly, respondent determined Foundation made four

taxable expenditures, one in each of its taxable years at issue.

(278) PARKS v. COMMISSIONER 303

A. Section 4945(a)(1)

Respondent determined excise tax deficiencies under sec-

tion 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 expendi-

tures 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).

1. Attempts To Influence Legislation

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:

SEC. 4945(e). ACTIVITIES WITHIN SUBSECTION (d)(1).—For purposes of

subsection (d)(1), the term ‘‘taxable expenditure’’ means any amount

paid or incurred by a private foundation for—

(1) any attempt to influence any legislation through an attempt to

affect the opinion of the general public or any segment thereof, and

(2) any attempt to influence legislation through communication with

any member or employee of a legislative body, or with any other

government official or employee who may participate in the formula-

tion of the legislation (except technical advice or assistance provided

to a governmental body or to a committee or other subdivision thereof

in response to a written request by such body or subdivision, as the

case may be),

other than through making available the results of nonpartisan analysis,

study, or research. * * *

Section 53.4945–2(a)(1), Foundation Excise Tax Regs., fur-

ther 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

304 145 UNITED STATES TAX COURT REPORTS (278)

secs. 501(h), 4911. 37 Section 53.4945–2(a)(1), Foundation

Excise Tax Regs., generally provides that an expenditure is

an attempt to influence legislation if it is for a ‘‘direct or

grass roots lobbying communication, as defined in § 56.4911–

2 (without reference to §§ 56.4911–2(b)(3) and 56.4911–2(c))

and § 56.4911–3’’, unless it constitutes nonpartisan analysis,

study, or research, or technical advice given to a govern-

mental body in response to a written request.

A ‘‘direct lobbying communication’’ is any attempt to influ-

ence any legislation through communication with:

(A) Any member or employee of a legislative body; or

(B) Any government official or employee (other than a member or

employee of a legislative body) who may participate in the formulation

of the legislation, but only if the principal purpose of the communication

is to influence legislation.

[Sec. 56.4911–2(b)(1)(i), Pub. Charity Excise Tax Regs.]

Such a communication will be treated as an attempt to influ-

ence legislation only if it ‘‘refers to specific legislation’’ and

‘‘reflects a view on such legislation’’. Id. subdiv. (ii). 38 ‘‘Legis-

lation’’ is defined in the regulations as including ‘‘action by

* * * any state legislature * * * or by the public in a ref-

erendum, ballot initiative, constitutional amendment, or

similar procedure.’’ 39 Id. para. (d)(1)(i). For this purpose,

‘‘ ‘specific legislation’ includes both legislation that has

already been introduced * * * and a specific legislative pro-

posal that the organization either supports or opposes.’’ Id.

37 The regulatory definitions of expenditures that are attempts to influ-

ence legislation—so-called lobbying expenditures—were made the same for

public charities electing under sec. 501(h) and private foundations subject

to excise taxes under sec. 4945 because of ‘‘the similarity of the statutory

schemes’’ governing lobbying by each. T.D. 8308, 1990–2 C.B. 112, 114; cf.

secs. 4945(e), 4911(d).

38 A ‘‘grass roots lobbying communication’’ is ‘‘any attempt to influence

any legislation through an attempt to affect the opinions of the general

public or any segment thereof.’’ Sec. 56.4911–2(b)(2)(i), Pub. Charity Excise

Tax Regs. A communication will be considered a grass roots lobbying com-

munication only if it refers to and reflects a view on specific legislation or

a specific legislative proposal and in addition encourages the recipient of

the communication to take action with respect to such legislation. Id.

paras. (b)(2)(ii), (d)(1)(ii).

39 The term ‘‘action’’ in para. (d)(1)(i) of the regulation ‘‘is limited to the

introduction, amendment, enactment, defeat or repeal of acts, bills, resolu-

tions, or similar items.’’ Sec. 56.4911–2(d)(2), Pub. Charity Excise Tax

Regs.

(278) PARKS v. COMMISSIONER 305

subdiv. (ii). Thus, as the regulations clarify, a ‘‘specific legis-

lative proposal’’ may be ‘‘specific legislation’’ for this purpose

even though it has not actually been introduced in the legis-

lative body for the jurisdiction where the communication is

made. 40

The regulations treat communications with the general

public regarding ballot measures as ‘‘direct lobbying commu-

nications’’.

(iii) Special rule for referenda, ballot initiatives or similar proce-

dures.—Solely for purposes of this section 4911 [of the regulations],

where a communication refers to and reflects a view on a measure that

is the subject of a referendum, ballot initiative or similar procedure, the

general public in the state or locality where the vote will take place con-

stitutes the legislative body, and individual members of the general

public are, for purposes of this paragraph (b)(1), legislators. Accordingly,

if such a communication is made to one or more members of the general

public in that state or locality, the communication is a direct lobbying

communication (unless it is nonpartisan analysis, study or research

* * * ). [Sec. 56.4911–2(b)(1)(iii), Pub. Charity Excise Tax Regs.]

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.

In the case of a referendum, ballot initiative, constitutional amendment,

or other measure that is placed on the ballot by petitions signed by a

required number or percentage of voters, an item becomes ‘‘specific legis-

lation’’ when the petition is first circulated among voters for signature.

[Id. para. (d)(1)(ii).]

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

40 A regulatory example illustrates that a ‘‘specific legislation proposal’’

can be ‘‘specific legislation’’, capable of being influenced by a lobbying com-

munication, notwithstanding that it has not been introduced in the legisla-

tive body where the communication is made.

An organization based in State A notes in its newsletter that State Z has

passed a bill to accomplish a stated purpose and then says that State

A should pass such a bill. The organization urges readers to write their

legislators in favor of such a bill. No such bill has been introduced into

the State A legislature. The organization has referred to and reflected

a view on a specific legislative proposal and has also encouraged readers

to take action thereon. [Sec. 56.4911–2(d)(1)(iii), Example (2), Pub. Char-

ity Excise Tax Regs.]

306 145 UNITED STATES TAX COURT REPORTS (278)

respect to a referendum, ballot initiative, constitutional

amendment, or similar measure that is placed on the ballot

by action of a legislature. 41

41 The regulations’ treatment of a petition-initiated ballot measure as be-

coming ‘‘specific legislation’’ when the petition is first circulated is thus a

temporal standard. In finalizing these same regulations, however, the Sec-

retary expressly rejected a temporal standard for determining when legis-

lation (other than petition-initiated ballot measures) becomes ‘‘specific leg-

islation’’, finding that such a standard would be underinclusive by failing

to cover legislation not yet introduced. See T.D. 8308, 1990–2 C.B. at 114.

Given the regulations’ silence concerning the standard to be applied in de-

termining when ballot measures initiated by a legislature become ‘‘specific

legislation’’, difficult questions of interpretation could arise.

The radio messages at issue for 1998 and 2000 were (according to re-

spondent’s position) addressed to petition-initiated ballot measures; name-

ly, 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 Founda-

tion and its tax counsel before broadcast of the second set of radio mes-

sages 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 contem-

poraneous 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 (ac-

cording 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 leg-

islation’’ within the meaning of the regulations at the time the expendi-

tures were made or the radio messages were broadcast. They have also not

challenged the validity of the regulation that defines members of the gen-

eral public as ‘‘legislators’’ in the case of a referendum, ballot initiative, or

similar measures. Consequently, petitioners have waived any such argu-

ments, 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.

(278) PARKS v. COMMISSIONER 307

Under the regulations, a communication is not a ‘‘direct

lobbying communication’’ if it constitutes ‘‘engaging in non-

partisan analysis, study or research and making available to

the general public or a segment or members thereof or to

governmental bodies, officials, or employees the results of

such work.’’ Sec. 53.4945–2(d)(1)(i), Foundation Excise Tax

Regs. The regulations define ‘‘nonpartisan analysis, study, or

research’’ as follows:

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). Thus, ‘‘nonpartisan analysis, study, or

research’’ may advocate a particular position or viewpoint so long as

there is a sufficiently full and fair exposition of the pertinent facts to

enable the public or an individual to form an independent opinion or

conclusion. On the other hand, the mere presentation of unsupported

opinion does not qualify as ‘‘nonpartisan analysis, study, or research’’.

[Id. subdiv. (ii).]

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 mes-

sages 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. 42 Respondent argues

that a communication can ‘‘refer to’’ a ballot measure without

identifying it by name. We agree with respondent.

42 Petitioners also argue that the radio messages ‘‘do not encourage the

recipient to take action in any of the ways described in Treasury Regula-

tion § 56.4911–2(d)(1)(ii).’’ However, the regulation petitioners cite makes

no reference to any encouragement to take action. Petitioners are appar-

ently referring to the regulations’ definition of a grass roots lobbying com-

munication, which requires that the communication encourage the recipi-

ent to take action with respect to the legislation at issue. See sec. 56.4911–

2(b)(2)(ii)(C), Pub. Charity Excise Tax Regs. But respondent does not con-

tend that the radio messages are grass roots lobbying communications; he

contends that they are direct lobbying communications for which there is

no requirement that the recipient be encouraged to take action.

308 145 UNITED STATES TAX COURT REPORTS (278)

The regulations do not provide a definition of the term

‘‘refers to’’ but instead elucidate its meaning through illus-

trative examples. See T.D. 8308, 1990–2 C.B. at 14. The

pertinent examples address grass roots lobbying but are

equally applicable in the case of direct lobbying. 43 Section

56.4911–2(b)(4)(ii)(B), Example (1), Pub. Charity Excise Tax

Regs., explains:

A pamphlet distributed by organization Y states that the ‘‘President’s

plan for a drug-free America,’’ which will establish a drug control pro-

gram, should be passed. The pamphlet encourages readers to ‘‘write or

call your senators and representatives and tell them to vote for the

President’s plan.’’ No legislative proposal formally bears the name

‘‘President’s plan for a drug-free America,’’ but that and similar terms

have been widely used in connection with specific legislation pending in

Congress that was initially proposed by the President. Thus, the pam-

phlet refers to specific legislation, reflects a view on the legislation, and

encourages readers to take action with respect to the legislation. The

pamphlet is a grass roots lobbying communication.

By contrast, section 56.4911–2(b)(4)(ii)(A), Example (4), Pub.

Charity Excise Tax Regs., explains:

A pamphlet distributed by organization Z discusses the dangers of drugs

and encourages the public to send their legislators a coupon, printed

with the statement ‘‘I support a drug-free America.’’ The term ‘‘drug-free

America’’ is not widely identified with any of the many specific pending

legislative proposals regarding drug issues. The pamphlet does not refer

to any of the numerous pending legislative proposals, nor does the

organization support or oppose a specific legislative proposal. The pam-

phlet is not a grass roots lobbying communication.

Finally, section 56.4911–2(d)(1)(iii), Example (1), Pub.

Charity Excise Tax Regs., explains:

A nonmembership organization includes in its newsletter an article

about problems with the use of pesticide X that states in part: ‘‘Legisla-

tion that is pending in Congress would prohibit the use of this very dan-

gerous pesticide. Fortunately, the legislation will probably be passed.

Write your congressional representatives about this important issue.’’

This is a grass roots lobbying communication that refers to and reflects

a view on specific legislation and that encourages recipients to take

action with respect to that legislation.

43 Under the regulations, a required element of both a direct lobbying

communication and a grass roots lobbying communication is that each ‘‘re-

fers to specific legislation’’. Sec. 56.4911–2(b)(1)(ii)(A), (2)(ii)(A), Pub. Char-

ity Excise Tax Regs.

(278) PARKS v. COMMISSIONER 309

On the basis of the principles illustrated in the regulatory

examples, we hold that a communication ‘‘refers to’’ a ballot

measure within the meaning of the regulations if it either

refers to the measure by name or, without naming it,

employs terms widely used in connection with the measure

or describes the content or effect of the measure.

a. 1997

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 pris-

oner 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 connec-

tion 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 state-

ment demonstrates that the radio message described the gen-

eral 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 pro-

grams 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’’

310 145 UNITED STATES TAX COURT REPORTS (278)

under section 56.4911–2(b)(1), Pub. Charity Excise Tax Regs.

unless it constitutes ‘‘nonpartisan analysis, study, or

research’’ as defined in section 53.4945–2(d)(1)(ii), Founda-

tion Excise Tax Regs., discussed infra.

b. 1998

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 sen-

tences for certain repeat offenders. Measure 65 would have

amended the Oregon Constitution to require Oregon Legisla-

tive 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 elec-

tion, 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 adminis-

trative 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

(278) PARKS v. COMMISSIONER 311

that the term had been widely used in connection with

Measure 65 at the time the radio messages were broadcast.

Petitioners have offered no evidence to support a contrary

conclusion. Consequently, we find that the term ‘‘administra-

tive rules’’ was ‘‘widely used in connection with’’ Measure 65.

Therefore each message ‘‘refers to’’ Measure 65 within the

meaning of the regulations. Moreover, each message ‘‘reflects

a view on’’ Measure 65 because each alleges an instance

where an administrative rule was both unwarranted and con-

trary to legislative intent, strongly suggesting the desir-

ability of the greater legislative oversight provided for in

Measure 65. Therefore each radio message is a ‘‘direct lob-

bying communication’’ unless it constitutes ‘‘nonpartisan

analysis, study, or research’’.

c. 1999

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 bal-

lot measure included multiple constitutional amendments.

The Oregon Legislative Assembly responded by proposing the

contents of Measure 40 as separate constitutional amend-

ments, 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 iden-

tical 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 mes-

sage ‘‘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

312 145 UNITED STATES TAX COURT REPORTS (278)

posed the rhetorical question ‘‘Who would be against this?’’

and suggested that only ‘‘The liberals and criminal defense

lawyers’’ would be. Consequently, we conclude that each

radio message ‘‘reflects a view on’’ Measures 69 through 75

within the meaning of the regulations. Thus, each is a ‘‘direct

lobbying communication’’ unless it constitutes ‘‘nonpartisan

analysis, study, or research’’.

d. 2000

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:

Is Oregon State government really growing nearly 3 times faster than

the personal income of those who pay its bills?

Oregonians will soon be asked if they want to slow down the growth of

their State government.

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 ref-

erence 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. 44 It both employs terms

44 We are mindful of that fact that the radio message equates State gov-

ernment growth with revenue growth, whereas Measure 8 would have lim-

ited State government growth by limiting spending growth. However, be-

cause Measure 8 directed that any revenue collected above its mandated

spending limit be refunded to Oregon taxpayers, we are persuaded on this

record that spending growth and revenue growth were treated inter-

(278) PARKS v. COMMISSIONER 313

‘‘widely used in connection with’’ 45 Measure 8 and describes

its effect.

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 reason-

able 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 dif-

fers from the first radio message in three respects. First, the

message asserts that the State government had filed a law-

suit 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 tax-

payer 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

changeably as equivalent indicators of government growth in discussions

of Measure 8.

45 Consistent with our analysis of the previous radio messages, we are

persuaded that the explanatory statement’s use of terms that linked the

‘‘rate of growth of state government’’ to the ‘‘rate of growth of personal in-

come’’ demonstrates that those terms were widely used in connection with

Measure 8 at the time the radio messages were broadcast. Petitioners have

offered no evidence to support a contrary conclusion.

314 145 UNITED STATES TAX COURT REPORTS (278)

regulations. 46 While the second message, in comparing the

rates of growth of State revenues and personal income,

employs ‘‘terms widely used in connection with’’ Measure 8,

the message is more accurately characterized as direct criti-

cism of the Oregon State government without a suggestion of

a remedy. The message’s central thrust is no longer advocacy

for Measure 8 but instead an attack on the Oregon State

government as wasteful and as retaliatory with respect to its

critics. Section 56.4911–2(b)(4)(ii)(B), Example (1), Pub. Char-

ities Excise Tax Regs., describes a scenario where a pamphlet

employs terms widely used in connection with a piece of

legislation (without naming it) but the pamphlet also states

that the legislation ‘‘should be passed’’. Against that bench-

mark, the second radio message falls short of ‘‘reflect[ing] a

view on’’ Measure 8. It is therefore not a ‘‘direct lobbying

communication’’.

2. Nonpartisan Analysis, Study, or Research

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 mes-

sages 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), Founda-

tion Excise Tax Regs. With the exception of the first radio

message broadcast in 2000, 47 Foundation presented no evi-

46 Respondent argues on brief that the second radio message’s reference

to the first effectively incorporates the ‘‘will soon be asked’’ language. We

disagree.

47 The first 2000 radio message satisfies one element of the regulatory

requirements for the ‘‘nonpartisan analysis, study, or research’’ exception;

namely, making available to the public the results of research. Sec.

53.4945–2(d)(1)(vii), Example (4), Foundation Excise Tax Regs., illustrating

the requirements of the ‘‘nonpartisan analysis, study, or research’’ excep-

tion, makes clear that the analysis, study, or research being made avail-

able to the general public may be the private foundation’s own work or re-

search and the like collected from others and disseminated. The record es-

tablishes that some of the statistics reported in the first 2000 radio mes-

sage were obtained from Oregon Tax Research.

(278) PARKS v. COMMISSIONER 315

dence that the information contained in any of the radio mes-

sages was the result of any study or research it conducted or

collected from others, which gives rise to the presumption

that Foundation did not conduct or collect any such study or

research. See Wichita Terminal Elevator Co. v. Commis-

sioner, 6 T.C. 1158 (1946), aff ’d, 162 F.2d 513 (10th Cir.

1947). Moreover, the parties have stipulated that the radio

messages were all produced at an agency that ‘‘produces and

arranges for the broadcast of political advertisements’’, sug-

gesting a source that was not nonpartisan.

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 inde-

pendent 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 anal-

ysis, study, or research’’ includes ‘‘any activity that is ‘edu-

cational’ within the meaning of § 1.501(c)(3)–1(d)(3).’’ Peti-

tioners contend that the radio messages qualify both as ‘‘non-

partisan 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. 48

48 The requirement is stated in sec. 53.4945–2(d)(1)(ii), Foundation Ex-

cise Tax Regs., as allowing advocacy of ‘‘a particular position or viewpoint

so long as there is a sufficiently full and fair exposition of the pertinent

facts to enable the public or an individual to form an independent opinion

or conclusion.’’ The requirement is stated in sec. 1.501(c)(3)–1(d)(3), Income

Continued

316 145 UNITED STATES TAX COURT REPORTS (278)

The Commissioner has published the criteria he uses for

determining whether the ‘‘full and fair exposition’’ require-

ment is satisfied such that advocacy will be treated as ‘‘edu-

cational’’ within the meaning of section 501(c)(3) and section

1.501(c)(3)–1(d)(3), Income Tax Regs., in Rev. Proc. 86–43,

1986–2 C.B. 729. 49 The criteria focus on the method an

organization uses to communicate its viewpoint rather than

the viewpoint itself. See Nationalist Movement v. Commis-

sioner, 102 T.C. 558, 581–583 (1994), aff ’d on other grounds,

37 F.3d 216 (5th Cir. 1994). A method is not considered edu-

cational ‘‘if it fails to provide a factual foundation for the

viewpoint or position being advocated, or if it fails to provide

a development from the relevant facts that would materially

aid a listener or reader in a learning process.’’ Rev. Proc. 86–

43, sec. 3.02, 1986–2 C.B. at 729–730.

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 edu-

cational:

1 The presentation of viewpoints or positions unsupported by facts is a

significant portion of the organization’s communications.

2 The facts that purport to support the viewpoints or positions are dis-

torted.

3 The organization’s presentations make substantial use of inflam-

matory and disparaging terms and express conclusions more on the basis

of strong emotional feelings than of objective evaluations.

4 The approach used in the organization’s presentations is not aimed at

developing an understanding on the part of the intended audience or

Tax Regs., as allowing advocacy of ‘‘a particular position or viewpoint so

long as it presents a sufficiently full and fair exposition of the pertinent

facts as to permit an individual or the public to form an independent opin-

ion or conclusion.’’ The differences are solely stylistic.

49 Rev. Proc. 86–43, 1986–2 C.B. 729, was issued in response to the deci-

sion of the Court of Appeals for the D.C. Circuit holding that the definition

of ‘‘educational’’ in sec. 1.501(c)(3)–1(d)(3), Income Tax Regs., was unconsti-

tutionally vague in articulating the substantive requirements of the ‘‘full

and fair exposition’’ standard because it allowed ‘‘subjective application’’ by

IRS officials. See Big Mama Rag, Inc. v. United States, 631 F.2d 1030,

1037 (D.C. Cir. 1980). Petitioners have not challenged the sec. 1.501(c)(3)–

1(d)(3), Income Tax Regs., definition of ‘‘educational’’ as unconstitutionally

vague. They instead argue that the radio messages satisfy the criteria

identified in Rev. Proc. 86–43, supra, and are therefore ‘‘educational’’.

(278) PARKS v. COMMISSIONER 317

readership because it does not consider their background or training in

the subject matter.

Petitioners contend that the radio messages satisfy the cri-

teria of Rev. Proc. 86–43, supra, and are therefore ‘‘edu-

cational’’—making them ‘‘nonpartisan analysis, study, or

research’’. We therefore must decide whether the radio mes-

sages 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, 50 prepared pursuant to statutory requirements

designed to ensure that they were impartial—most notably

that the five-person drafting committee consist of two pro-

ponents, two opponents, and a fifth member agreed upon by

the preceding four—we are satisfied that the explanatory

statements provide a benchmark of impartiality against

which the radio messages can be measured to assess whether

they contain distortions. The financial impact statements

published in the voters pamphlets are prepared under

similar statutorily prescribed procedures designed to ensure

their impartiality.

a. 1997

The 1997 radio message contains multiple factors that

under Rev. Proc. 86–43, supra, are indicative that the

50 The one exception is the explanatory statement for Measure 49. In

that instance, the Oregon legislature overrode the ordinarily applicable

statutory provisions (Or. Rev. Stat. Ann. secs. 251.205 and 251.215 (West

2015) providing for the five-person drafting committee) and statutorily pre-

scribed the wording of the explanatory statement. Nonetheless, we con-

clude that the explanatory statement for Measure 49 likewise provides a

reasonable benchmark of impartiality in describing Measure 49. That is

because, as discussed infra, the key distortion in the radio message refer-

ring to Measure 49 was the omission of the role played by the conflict be-

tween Federal law and the Oregon provisions for inmate work programs

in causing the cessation of the Oregon inmate work programs. That con-

flict, pointed out in the explanatory statement, is an objective factor. Con-

sequently, we do not believe the explanatory statement itself engaged in

any distortion in pointing out the existence of the conflict.

318 145 UNITED STATES TAX COURT REPORTS (278)

method used to communicate the position is not educational.

First, the message distorts the facts which led to Oregon’s

shutting down a number of its inmate work programs. See

Rev. Proc. 86–43, sec. 3.03 (factor 2). The message suggests

that Oregon’s Governor and attorney general could have pre-

vented the programs from being shut down but did not

because of their personal views of the criminal justice

system, i.e., they ‘‘just don’t think criminals should spend

much time in jail’’ and ‘‘think * * * [criminals] can be

rehabilitated’’. However, the explanatory statement for

Measure 49 indicates that the department of corrections shut

the programs down because of a conflict with Federal law

and explains further that the constitutional amendments

proposed in Measure 49 were designed in part to make the

constitutionally mandated inmate work programs comply

with Federal law. The radio message’s implication that

Oregon’s Governor and attorney general discontinued the

inmate work programs because of their personal policy views

ignores the role of the Federal law conflict in the shutdown

and the fact that Measure 49 was proposed in part to cure

that conflict. The radio message therefore distorts the facts.

Second, the message makes substantial use of inflam-

matory language and disparaging terms and reaches its

conclusion on the basis of strong feelings rather than objec-

tive 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 pro-

grams 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 dis-

regarded an overwhelming popular vote in favor of their per-

sonal policy preferences. For the foregoing reasons, we con-

clude the message is not ‘‘educational’’ within the meaning of

section 1.501(c)(3)–1(d)(3), Income Tax Regs.

b. 1998

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

(278) PARKS v. COMMISSIONER 319

mandatory minimum sentences and certain additional sen-

tences for repeat offenders could be implemented without

significant cost. The first of the two messages contained the

following statement concerning an earlier enactment

(Measure 11) requiring minimum sentences:

Back when John Kitzhaber was Senate President Legislation was passed

that resulted in a convicted murderer, given a life sentence, actually

serving less than 7 years in jail...

They said they didn’t have enough jail space.

But then came Measure 11.

It required mandatory sentences for violent criminals with no possibility

of early release...and...it required the state to build enough jail space.

They said it would cost billions of dollars. But it didn’t.

* * * * * * *

And now Measure 61’s on the ballot.

It requires mandatory sentences for criminals convicted of property

crimes.

* * * * * * *

If Measure 61 passes, that criminal goes to jail. And they’ll have to build

enough jail space to keep ‘em... There’ll be no early release.

The second radio message referencing Measure 61 stated in

part:

The citizens, not the politicians, passed Measure 11 putting violent

criminals in jail.

* * * * * * *

They said it would cost billions. But, it didn’t. And the crime rate went

down.

And now ... Measure 61.

* * * * * * *

With Measure 61, that criminal absolutely goes to jail ... and no early

release.

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 sen-

tences, both messages distorted the available facts con-

cerning Measure 61. The financial impact statement for

320 145 UNITED STATES TAX COURT REPORTS (278)

Measure 61 estimated that the mandatory and presumptive

sentences imposed by the measure would require 4,300 new

prison beds by 2006, with additional direct State expendi-

tures for prison construction and startup of $470 million by

2006. Direct State expenditures for prison operating costs

and debt service were estimated at $21 million in the first

two years after passage and $40 million in the following two

years. By omitting and seeking to discredit these public esti-

mates, the radio messages presented distortions of the facts

in support of the position they advocated. See Rev. Proc. 86–

43, sec. 3.03 (factor 2). They are thus not ‘‘educational’’

within the meaning of section 1.501(c)(3)–1(d)(3), Income Tax

Regs.

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 dispar-

aging 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 land-

owners adversely affected by an administrative rule as

‘‘tough, that’s your problem, not ours.’’ The second character-

izes 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 mes-

sages 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

(278) PARKS v. COMMISSIONER 321

matter’’, id. (factor 4). These radio messages are thus not

‘‘educational’’ within the meaning of section 1.501(c)(3)–

1(d)(3), Income Tax Regs.

c. 1999

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 conclu-

sions based more on strong feelings than on objective evalua-

tions. 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 there-

fore not ‘‘educational’’.

d. 2000

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 short-

comings: (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

322 145 UNITED STATES TAX COURT REPORTS (278)

the general fund; and (3) a failure to account for the shift in

spending on education from local governments to the State

government resulting from a 1990 citizen-initiated measure

that limited local property taxes. The article concluded by

asserting that when adjustments were made to account for

the foregoing flaws plus inflation, the rate of growth of State

government (as measured by per capita State spending) was

less than that of personal income; specifically, a 4% increase

in State spending as compared to an 18% increase in per-

sonal income over the past decade.

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 edu-

cational. First, respondent argues, the message presents dis-

torted 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 dem-

onstrate factual distortions in the 2000 radio messages

stands in contrast to the benchmarks used for assessing fac-

tual 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 per-

sons 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 dis-

torted 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 evi-

dence to support it, respondent’s contention might raise a

(278) PARKS v. COMMISSIONER 323

close question regarding where to draw the line between

permissible advocacy and factual distortion. However, given

the dubious evidence respondent has proffered—a newspaper

article that is only in the record for lack of a hearsay objec-

tion, the author of which cannot be cross-examined—we are

not persuaded that the radio message presented distorted

facts.

Second, respondent contends, again relying on the news-

paper article, that the radio message also violates factor 4 of

Rev. Proc. 86–43, sec. 3.03 because ‘‘there is much back-

ground 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 news-

paper 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 unconstitution-

ally vague on its face or as applied to the tax-exempt

organization in that case. In so holding, we observed:

Petitioner apparently reads the revenue procedure [Rev. Proc. 86–43,

supra,] to require organizations to present and rebut opposing views

* * * . * * * The revenue procedure, however, does not by its terms

require this type of presentation * * * . Because the IRS does not condi-

tion educational status under the revenue procedure on the presentation

of opposing views, the IRS is not called upon to evaluate how accurately

or completely an organization presents such views. [Id. at 586–587.]

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 omis-

sion 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—

324 145 UNITED STATES TAX COURT REPORTS (278)

is a violation of factor 4. We disagree. We conclude instead

that respondent’s treatment of the omissions as a violation of

factor 4 interprets Rev. Proc. 86–43, sec. 3.03 too expansively

to require presentation of opposing views. For example,

whether some portion of the sharp increase in State spending

purportedly identified in the radio message could be

accounted for by the shift in school funding responsibility to

the State is a matter about which advocates for and against

limitations on State spending could be expected to take

opposing views. 51 But to require Foundation’s advocacy for

State spending limitations to disclose that argument lest it

violate factor 4 goes too far. We specifically rejected that

interpretation of Rev. Proc. 86–43, supra, in Nationalist

Movement because it would require the IRS ‘‘to evaluate how

accurately or completely an organization presents * * *

[opposing] views.’’ Nationalist Movement v. Commissioner,

102 T.C. at 587. We reject it here as well, and conclude that

the first radio message in 2000 did not violate factor 4 of

Rev. Proc. 86–43, sec. 3.03. Finally, for similar reasons, we

reject respondent’s contention that a factor 4 violation has

occurred because the relationship between State spending

and personal income is too complex to meaningfully be

taught in a single minute. Accepting such an argument

would disqualify most radio and television advertisements

where the IRS deemed the subject matter ‘‘complex’’—raising

again the specter of subjective application that Rev. Proc.

86–43, supra, was intended to mitigate—or it would require

the IRS to evaluate communications for accuracy and

completeness in a manner proscribed by Nationalist Move-

ment.

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 advo-

cated’’, 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 con-

51 We cite the school funding shift because the newspaper article does

not explain how inflation should have been accounted for in its critique of

Foundation’s radio message or even whether one or both of the State rev-

enue and personal income figures had been adjusted for inflation. We have

considered the omission of the population growth adjustment in our discus-

sion of whether the radio message presented distorted facts.

(278) PARKS v. COMMISSIONER 325

tended by respondent. Consequently, the radio message is

‘‘educational’’ and therefore ‘‘nonpartisan analysis, study, or

research’’.

3. Nonexempt Purpose

Respondent argues in the alternative that the expenditures

for the radio messages are taxable expenditures under sec-

tion 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, chari-

table, scientific, literary, and educational, as well as fostering

amateur sports competition and preventing cruelty to chil-

dren 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 exemp-

tion 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 sec-

tion 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 ‘‘edu-

cational’’ within the meaning of section 1.501(c)(3)–1(d)(3),

Income Tax Regs. They are therefore also taxable expendi-

tures 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.

326 145 UNITED STATES TAX COURT REPORTS (278)

a. Communication #8

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-initi-

ated ballot measure passed in 1994 that established manda-

tory 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 presen-

tation 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).

b. Second Radio Message in 2000

The second 2000 radio message repeated the claim of the

first that State government revenue had grown nearly three

(278) PARKS v. COMMISSIONER 327

times faster than personal income but also made a new and

different assertion; namely, that the State of Oregon had

filed a lawsuit against Foundation in retaliation for its

disclosures in the first 2000 radio message about the growth

rate of State revenue. In making the assertion about retalia-

tion, the radio message did not disclose that Foundation had

been under audit by the Oregon attorney general’s office con-

cerning its expenditures for radio advertisements for (at a

minimum) more than two years before the first 2000 radio

message was broadcast—a material fact of substantial rel-

evance to the claim of retaliation. Petitioners have offered no

additional evidence to support the radio message’s claim

about retaliation, and the evidence in the record—concerning

the length and seriousness of the attorney general’s inves-

tigation and the unlikely prospects of settlement—tends to

rebut the claim of retaliation. We conclude that the failure

to disclose the investigation, given the material nature of

that fact to the claim of retaliation, rendered the radio mes-

sage’s assertion concerning the retaliatory nature of the law-

suit a factual distortion. See Rev. Proc. 86–43, sec. 3.03

(factor 2). Moreover, the radio message went on to charac-

terize the State’s filing of the lawsuit as follows: ‘‘Isn’t that

what Richard Nixon did when he used the IRS to go after his

political enemies?’’ These are obviously inflammatory and

disparaging terms, causing the radio message to violate

factor 3 of Rev. Proc. 86–43, sec. 3.03 as well. Given the pres-

ence of factors 2 and 3, we conclude that the second 2000

radio message’s presentation is 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).

4. Conclusion

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 expendi-

tures 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 expendi-

tures under section 4945(d)(5) because they were not for an

exempt purpose specified in section 170(c)(2)(B). The first

328 145 UNITED STATES TAX COURT REPORTS (278)

2000 radio message was ‘‘educational’’ within the meaning of

section 1.501(c)(3)–1(d)(3), Income Tax Regs., as applied in

Rev. Proc. 86–43, supra. Consequently, the amounts Founda-

tion paid 52 for the first 2000 radio message are not a taxable

expenditure under either section 4945(d)(1) or (5), as deter-

mined by respondent. Except with respect to the expenditure

for the first 2000 radio message, we sustain respondent’s

determination of the section 4945(a)(1) excise tax deficiencies

for Foundation for its years at issue.

B. Section 4945(a)(2)

Respondent determined excise tax deficiencies under sec-

tion 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. 53 Sec. 4945(a)(2), (c)(2). The par-

ties stipulated that to the extent Foundation is found liable

for tax under section 4945(a)(1), ‘‘Mr. Parks shall be deemed

liable pursuant to I.R.C. § 4549(a)(2), subject to the $5,000

limitation contained in I.R.C. § 4945(c)(2), unless Mr. Parks

establishes that he agreed to the expenditures based on

advice of counsel as described in Treas. Reg. § 53.4945–

1(a)(2)(vi).’’ 54

52 As noted, respondent represents on brief that Foundation’s records did

not establish what portion of the $341,062 Foundation spent during its

2000 taxable year was allocable to the first and second radio messages, re-

spectively. Such an allocation now becomes necessary in view of our hold-

ing that the expenditure for the first was not a taxable expenditure while

the expenditure for the second was. We expect the parties to resolve this

issue as part of their computations under Rule 155. We note in this regard

that Foundation bears the burden of establishing that an expenditure is

not a taxable expenditure.

53 The limit increased to $10,000 per taxable expenditure for taxable

years beginning after August 17, 2006. PPA sec. 1212(e)(2)(A), (f), 120

Stat. at 1075.

54 We find implicit in this stipulation the proposition that Mr. Parks was

a ‘‘foundation manager’’ within the meaning of sec. 4946(b). The parties

also stipulated that Mr. Parks was a member of the board of directors of

Foundation and that he approved all of the taxable expenditures at issue.

(278) PARKS v. COMMISSIONER 329

We note as a preliminary matter that section 53.4945–

1(a)(2)(vi), Foundation Excise Tax Regs., provides that ‘‘the

absence of advice of counsel with respect to an expenditure

shall not, by itself, give rise to any inference that a founda-

tion manager agreed to the making of the expenditure know-

ingly, willfully, or without reasonable cause.’’ The parties’

stipulation, however, has narrowed Mr. Parks’ defense to one

of reliance on advice of counsel; pursuant to the stipulation,

Mr. Parks will incur the section 4945(a)(2) excise taxes (to

the extent Foundation is found liable for the related section

4945(a)(1) taxes) unless he affirmatively establishes that he

agreed to the making of the expenditures ‘‘based on the

advice of counsel’’ as that advice is described in the regula-

tion.

Section 53.4945–1(a)(2)(vi), Foundation Excise Tax Regs.,

provides in part as follows:

(vi) Advice of counsel.—If a foundation manager, after full disclosure

of the factual situation to legal counsel * * * , relies on the advice of

such counsel expressed in a reasoned written legal opinion that an

expenditure is not a taxable expenditure under section 4945 (or that

expenditures conforming to certain guidelines are not taxable expendi-

tures), although such expenditure is subsequently held to be a taxable

expenditure * * * , the foundation manager’s agreement to such

expenditure * * * will ordinarily not be considered ‘‘knowing’’ or ‘‘will-

ful’’ and will ordinarily be considered ‘‘due to reasonable cause’’ within

the meaning of section 4945(a)(2). * * *

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 Founda-

tion’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 con-

cerned the first 1998 radio message that referred to Measure

330 145 UNITED STATES TAX COURT REPORTS (278)

61. The response is reproduced in full in our findings. As

pertinent here, the response states:

We have reviewed the text of radio spot M61#1. The Foundation is not

permitted to support or oppose any political candidate or any ballot

measures. * * * The conclusion of this radio spot is close to an endorse-

ment of the ballot measure, but we do not think it goes too far. * * *

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 sub-

stance 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 con-

stitutes ‘‘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. 55

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 con-

cluded 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 edu-

cation’ 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 lob-

bying communications that express a point of view so long as

the message is ‘‘educational’’. As pertinent to the ‘‘edu-

55 Even if one were to construe the written response’s conclusion that the

radio message ‘‘does not go too far’’ as premised on the proposition that

the message constituted ‘‘nonpartisan research, analysis, or study’’ or was

‘‘educational’’ within the meaning of the regulations, there is likewise no

discussion of the requirements of those regulatory exceptions or how the

message met those requirements.

(278) PARKS v. COMMISSIONER 331

cational’’ exception for lobbying communications, the letter

stated:

It is not possible to express a ‘‘general rule’’ for you to follow in your

political efforts. Instead, we urge you to simply stay focused on the facts.

Do not succumb to emotion or generalizations of ‘‘good’’ or ‘‘bad’’ or

‘‘conservative’’ or ‘‘liberal.’’ It is certainly acceptable to use humor, sar-

casm and imagery as long as they do not obscure the factual basis of

your message.

To the extent this October 14, 1999, letter may constitute

guidelines as contemplated in the regulations, it could pro-

vide a basis for relief only with respect to the expenditures

for the two radio messages prepared and broadcast in

2000. 56 The expenditures for the 1999 radio messages were

made in June and July of 1999; thus Mr. Parks could not

have relied on this letter in making those expenditures or

any earlier ones.

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 ‘‘edu-

cational’’. We disagree. The letter explains, as respondent

concedes on brief, that an expenditure for a lobbying commu-

nication 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 lob-

bying 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. 57 In addition, the letter’s

56 Since we have concluded that Foundation’s expenditure for the first

2000 radio message was not a taxable expenditure, we need not decide

whether Mr. Parks had reasonable cause based on advice of counsel in

agreeing to the expenditure.

57 As noted, sec. 53.4945–2(d)(1)(ii), Foundation Excise Tax Regs., pro-

vides that a communication is ‘‘educational’’ even though it ‘‘advocate[s] a

particular position or viewpoint so long as there is a sufficiently full and

Continued

332 145 UNITED STATES TAX COURT REPORTS (278)

instructions to avoid emotion and generalizations reflect fac-

tors identified in Rev. Proc. 86–43, supra, to be avoided;

namely, ‘‘express[ing] conclusions more on the basis of strong

emotional feelings than of objective evidence’’ and ‘‘view-

points * * * unsupported by facts’’. While the letter’s anal-

ysis is far from a perfect distillation of the applicable law

defining an ‘‘educational’’ communication, we conclude that it

discussed the applicable law with sufficient accuracy to

qualify as a ‘‘reasoned written legal opinion’’ under section

53.4945–1(a)(2)(vi), Foundation Excise Tax Regs.

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 nec-

essarily 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 inves-

tigation 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 mes-

sage 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 pre-

vent 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.

fair exposition of the pertinent facts’’.

(278) PARKS v. COMMISSIONER 333

Mr. Parks has offered no evidence of any other written

legal opinion addressing the radio messages at issue. There-

fore, he has failed to establish, as stated in the parties’ stipu-

lations, that he agreed to the taxable expenditures on advice

of counsel as described in section 53.4945–1(a)(2)(vi),

Foundation Excise Tax Regs. Accordingly, we sustain

respondent’s determination that Mr. Parks has deficiencies

in excise tax under section 4945(a)(2) for his years at issue,

except with respect to Foundation’s expenditure for the first

2000 radio message.

C. Section 4945(b)(1)

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 tax-

able years, respectively. Section 4945(b)(1) imposes a tax

equal to 100% of the amount of a taxable expenditure, pay-

able by the private foundation, when tax is imposed under

section 4945(a)(1) and the taxable expenditure is ‘‘not cor-

rected 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 tax-

able 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 expendi-

tures 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 cor-

recting the taxable expenditures during the ‘‘correction

period’’ provided in section 4963(e)—which in general extends

334 145 UNITED STATES TAX COURT REPORTS (278)

through any period during which the excise tax deficiencies

cannot be assessed under section 6213(a)—sections 4961(a)

and 4963(e) do not impair our jurisdiction to redetermine the

deficiencies as determined by respondent. Indeed, the scheme

of those sections is designed to enable Tax Court jurisdiction

to review section 4549(b) excise tax deficiency determina-

tions. See Thorne v. Commissioner, 99 T.C. at 95–96; H.R.

Rept. No. 96–912, at 1–3 (1980), 1980–2 C.B. 657, 657–658.

Because Foundation’s taxable expenditures were not cor-

rected within the ‘‘taxable period’’ provided in section

4945(i)(2), we sustain respondent’s determination of defi-

ciencies 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.

D. Section 4945(b)(2)

Respondent determined excise tax deficiencies under sec-

tion 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 correc-

tion’’. The tax is limited, however, to $10,000 per expendi-

ture. Sec. 4945(c)(2). 58 The Commissioner must formally

request correction in order for the tax to be imposed. Thorne

v. Commissioner, 99 T.C. at 97.

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.

58 The limit increased to $20,000 per taxable expenditure for taxable

years beginning after August 17, 2006. See PPA sec. 1212(e)(2)(B), (f), 120

Stat. at 1075.

(278) PARKS v. COMMISSIONER 335

III. Petitioners’ Constitutional Challenges

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 unconstitu-

tional. Petitioners argue that section 4945 and the regula-

tions thereunder, as applied to Foundation’s expenditures for

the radio messages, impermissibly burden their First Amend-

ment 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.

A. First Amendment

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 mes-

sages 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 sub-

jecting to strict scrutiny a Federal election law prohibition on

a corporation’s use of general treasury funds to make inde-

pendent expenditures for electioneering communications,

reinforces that exacting standard for any restrictions on the

political speech of nonprofit corporations. 59 Respondent, peti-

tioners argue, has failed to make the required showing with

respect to the excise taxes imposed on account of Founda-

tion’s expenditures for the radio messages.

Petitioners also argue that the implementing regulations

fail to pass muster under WRTL because they depend upon

a ‘‘contextual analysis’’ in determining whether an expendi-

59 In Citizens United v. Fed. Election Comm’n, 558 U.S. 310, 365 (2010),

the Supreme Court held that the First Amendment prohibits restrictions

on political speech based on the speaker’s identity as a corporation, observ-

ing: ‘‘No sufficient governmental interest justifies limits on the political

speech of nonprofit or for-profit corporations.’’

336 145 UNITED STATES TAX COURT REPORTS (278)

ture is a ‘‘direct lobbying communication’’, an approach which

WRTL proscribes. While petitioners’ articulation of this latter

argument is sketchy, they presumably are contending that

the regulations’ use of context 60 to conclude that a commu-

nication refers to a specific ballot measure, even when the

communication does not name the measure, is impermissible

under WRTL. The Supreme Court in WRTL held that the

standard for a restriction on political speech ‘‘must be objec-

tive, focusing on the substance of the communication rather

than amorphous considerations of intent and effect’’, 551 U.S.

at 469, and that ‘‘contextual factors * * * should seldom play

a significant role in the inquiry’’, id. at 473–474.

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 pri-

vate foundation as a sanction to deter its use of tax-deduct-

ible 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 corpora-

tion, 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 cor-

porations ‘‘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 Amend-

ment.

60 As illustrations of this use of context, we have found that the exam-

ples in the regulations demonstrate that a communication ‘‘refers to’’ a bal-

lot measure, notwithstanding a failure to cite it by name, when it employs

terms widely used in connection with the measure or describes its general

content or effect.

(278) PARKS v. COMMISSIONER 337

The Supreme Court disagreed, reasoning that ‘‘[b]oth tax

exemptions and tax-deductibility are a form of subsidy that

is administered through the tax system’’ and that Congress

may, consistent with the First Amendment, choose not to

subsidize lobbying by prohibiting the expenditure of tax-

deductible contributions for it. Regan, 461 U.S. at 544–545.

The Court rejected TWR’s claim that the prohibition against

substantial lobbying by section 501(c)(3) organizations

imposed an ‘‘unconstitutional condition’’ on the receipt of tax-

deductible contributions—as proscribed by Speiser v. Ran-

dall, 357 U.S. 513 (1958). Instead, the Court reasoned, since

TWR could employ (as it had in the past) a dual structure

of a section 501(c)(4) tax-exempt entity to conduct its lob-

bying activities (without using deductible contributions for

that purpose) and a section 501(c)(3) tax-exempt entity

receiving deductible contributions to conduct nonlobbying

charitable activities, the Internal Revenue Code did not deny

TWR the right to receive deductible contributions to support

its nonlobbying activities, nor deny it any independent ben-

efit on account of its intention to lobby; Congress was merely

refusing to pay for the lobbying out of public moneys. Regan,

461 U.S. at 545. 61 Rejecting TWR’s First Amendment claim

outright, the Court reaffirmed its earlier holding in

Cammarano v. United States, 358 U.S. 498 (1959), that

Congress is not required by the First Amendment to subsidize lobbying.

In these cases, as in Cammarano, Congress has not infringed any First

Amendment rights or regulated any First Amendment activity. Congress

has simply chosen not to pay for TWR’s lobbying. We again reject the

‘‘notion that First Amendment rights are somehow not fully realized

unless they are subsidized by the State.’’ [Regan, 461 U.S. at 546; cita-

tions omitted.]

The Court also rejected the proposition that Congress’ deci-

sion 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

61 This aspect of the Supreme Court’s reasoning in Regan concerning a

sec. 501(c)(3) organization’s ability to use an affiliated sec. 501(c)(4) entity

for the conduct of lobbying has become known as the ‘‘alternate channel

doctrine’’. See Miriam Galston, ‘‘Campaign Speech and Contextual Anal-

ysis’’, 6 First Amend. L. Rev. 100 (2007).

338 145 UNITED STATES TAX COURT REPORTS (278)

scrutiny.’’ Id. at 549. A higher level of scrutiny is appropriate

only if a subsidy-allocating statute ‘‘employ[s] a suspect

classification, such as race’’, id. at 547, or ‘‘discriminate[s]

invidiously in its subsidies in such a way as to ‘[aim] at the

suppression of dangerous ideas’ ’’, id. at 548 (quoting

Cammarano, 358 U.S. at 513). Absent the foregoing, the

government need only show a rational basis for the decision

not to extend a subsidy for speech by allowing tax-deductible

contributions to support it. Id. at 546–551; see also Ysursa v.

Pocatello Educ. Ass’n, 555 U.S. 353 (2009) (reaffirming Regan

holding in finding strict scrutiny inapplicable in assessing

First Amendment restrictions on State’s prohibition on local

government’s withholding of union dues from wages to sup-

port political activities); Am. Soc’y of Ass’n Execs. v. United

States, 195 F.3d 47 (D.C. Cir. 1999) (finding strict scrutiny

review inapplicable in assessing First Amendment restric-

tions on denial of Federal income tax deduction for portion

of dues paid to tax-exempt trade association engaged in lob-

bying, citing Regan).

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 legisla-

tive acts of this nature are treated as the denial of a subsidy

for speech, subject to rational basis rather than strict scru-

tiny 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 con-

tributions (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

(278) PARKS v. COMMISSIONER 339

Execs.: Both taxes serve to recapture some of the benefit of

the tax-deductible source of the funds.

Thus, the excise taxes at issue readily pass rational basis

scrutiny. 62 As previously noted, Congress chose to impose

excise taxes on private foundations because it concluded that

such taxes would be a more effective and proportionate sanc-

tion (as compared to revocation of tax-exempt status) for

discouraging private foundation expenditures of tax-exempt

and tax-deductible funds for lobbying or other nonexempt

purposes. See S. Rept. No. 91–552, supra at 48, 1969–3 C.B.

at 455; H.R. Rept. No. 91–413, supra at 31–36, 1969–3 C.B.

at 221–223. Thus, the excise taxes at issue were intended as

a more effective means of limiting the use of the subsidy. As

in Regan, the excise taxes thus bear ‘‘a rational relation to

a legitimate governmental purpose’’ of limiting the tax sub-

sidization of lobbying. Regan, 461 U.S. at 547. 63

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 under-

take lobbying through an affiliated section 501(c)(4) organiza-

tion without incurring these excise taxes, the taxes do not

62 We note petitioners do not contend that sec. 4945 and the imple-

menting regulations employ any suspect classifications or seek to suppress

any particular idea or ideology such that heightened scrutiny would be

triggered on that basis. See Regan v. Taxation With Representation of

Wash., 461 U.S. 540, 547–548 (1983). Indeed, the excise taxes are triggered

when a communication refers to ‘‘specific legislation’’ and ‘‘reflects a view

on such legislation’’, sec. 56.4911–2(b)(1), Pub. Charity Excise Tax Regs.,

without regard to the content of either.

63 Indeed, in Regan the Supreme Court expressly endorsed as legitimate

and rational the denial of tax-exempt status as a means of preventing the

subsidization of lobbying that served a private interest.

It appears that Congress was concerned that exempt organizations

might use tax-deductible contributions to lobby to promote the private

interests of their members. It is not irrational for Congress to decide

that tax exempt charities such as TWR should not further benefit at the

expense of taxpayers at large by obtaining a further subsidy for lob-

bying. [Regan, 461 U.S. at 550; citations omitted.]

The excise taxes at issue are a less onerous means towards the same end.

340 145 UNITED STATES TAX COURT REPORTS (278)

burden lobbying, but instead only operate to limit its sub-

sidization. In sum, Regan and its progeny make clear that

the First Amendment does not prohibit the imposition of the

excise taxes at issue in these cases.

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. 64 Con-

sequently, petitioners argue, the excise taxes at issue can no

longer pass muster under the heightened First Amendment

protection for corporate speech reflected in the more recent

Supreme Court jurisprudence.

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 anal-

ysis, 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 limita-

tions 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’ conten-

tions, that Regan retains full vitality after WRTL.

64 Petitioners also cite Citizens United v. Fed. Election Comm’n, 558 U.S.

310 (2000), as reflecting the heightened First Amendment protections ac-

corded to the political speech of incorporated entities.

(278) PARKS v. COMMISSIONER 341

On the other hand, both WRTL and Citizens United

undoubtedly result in a more enhanced level of First Amend-

ment protection for the political speech of incorporated enti-

ties than had existed before those decisions. In particular,

the identity of the speaker as a corporate entity was justifica-

tion for certain restrictions on political speech under Austin

v. Mich. Chamber of Commerce, 494 U.S. 652 (1990), a deci-

sion overruled in Citizens United, 558 U.S. at 365. In so

doing, the Supreme Court reasoned in quite broad terms:

‘‘[T]he government may not suppress political speech on the

basis of the speaker’s corporate identity. No sufficient

government interest justifies limits on the political speech of

nonprofit or for-profit corporations.’’ Id. Citizens United, 558

U.S. at 337–339, also casts some doubt on the alternate

channel doctrine by rejecting the argument that a corpora-

tion’s ability to establish a political action committee for

engaging in electioneering communications alleviated the

First Amendment problem with restrictions on the corpora-

tion’s entitlement to make these communications directly.

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 b

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