Parks v. Commissioner of Internal Revenue, 111715 FEDTAX, 7043-07

Docket Nº:7043-07, 7093-07
Opinion Judge:GALE, JUDGE
Party Name:LOREN E. PARKS, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent PARKS FOUNDATION, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Attorney:Kevin O'Connell, Steven B. Hval, and Tara Lawrence, for petitioners. Mark Alan Weiner, for respondent.
Case Date:November 17, 2015
Court:United States Tax Court
 
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145 T.C.No. 12

LOREN E. PARKS, Petitioner

v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

PARKS FOUNDATION, Petitioner

v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Nos. 7043-07, 7093-07

United States Tax Court

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 expenditures were "attempts to influence legislation and/or the opinion of the general public" and therefore taxable expenditures, 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 regulations 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 connection with the measure or describes the content or effect of the measure.

Held, further, PF's expenditures for the radio messages 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 redetermined 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. Constitution, 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 deficiencies 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

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 decision2 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 expenditures; (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 violate the First Amendment to the Constitution.

Background

These cases were submitted for decision without trial under Rule 122. The stipulation of facts and the accompanying exhibits are incorporated herein by this reference. At the time the petitions were filed Mr. Parks resided in Nevada and Foundation had its principal place of business in Nevada.

Foundation's Status, Organization, Support, and Expenditures

Foundation's predecessor was incorporated in Oregon in 1977.3 In 1979 the Internal Revenue Service (IRS) recognized Foundation as a tax-exempt organization described in section 501(c)(3) and further classified it as a private foundation 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 messages6 and broadcast them on commercial radio stations in Oregon (radio messages). Mr. Parks approved all the foregoing 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 messages 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.

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, independent of the Oregon Legislative Assembly. Or. Const. art. IV, sec. 1. Amendments to the Oregon Constitution can also be proposed by the Legislative Assembly and referred to Oregon citizens for their approval or rejection at the next election. Id. art. XVII, sec. 1. Thus, measures come before Oregon citizens for approval or rejection in elections by "initiative" when originating from citizens' petitions and by "referral" when originating in the Legislative Assembly. See Or. Rev. Stat. Ann. sec. 250.005(3) (West 2015). Nine of the ten radio messages at issue in these cases were broadcast in the weeks or months preceding a statewide election in which Oregonians voted on measures proposed by initiative or referral.

During the years at issue the Oregon secretary of state was required to prepare a voters pamphlet8 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 respect to each initiative and referred measure on the ballot in a given election, the voters pamphlet was required to contain, inter alia, the ballot title of the measure, 10 an explanatory statement for the measure, and a statement estimating the direct financial impact on the State and local governments if the measure were enacted.11Or. 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 petitioners 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 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 secretary 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 statement with the secretary of state, who then was charged with holding a hearing to receive suggested changes and other information relating to the explanatory statement. Or. Rev. Stat. Ann. sec. 251.215(1) and (2) (West 2015). The committee was required to consider the suggestions and other information submitted at the hearing and could file a revised statement with the secretary of state.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 expenditures for the messages were made. 1997

On the ballot in a May 20, 1997, statewide special election was Measure 49. The explanatory statement for Measure 4919 described it as follows:

EXPLANATORY STATEMENT

In 1994...

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