                                                                            FILED
                           NOT FOR PUBLICATION
                                                                            DEC 15 2017
                    UNITED STATES COURT OF APPEALS                       MOLLY C. DWYER, CLERK
                                                                          U.S. COURT OF APPEALS


                            FOR THE NINTH CIRCUIT


PARKS FOUNDATION,                                No.   16-72572

              Petitioner-Appellant,              Tax Ct. No. 7093-07

 v.
                                                 MEMORANDUM*
COMMISSIONER OF INTERNAL
REVENUE,

              Respondent-Appellee.



LOREN E. PARKS,                                  No.   16-73236

              Petitioner-Appellant,              Tax Ct. No. 7043-07

 v.

COMMISSIONER OF INTERNAL
REVENUE,

              Respondent-Appellee.


                           Appeal from a Decision of the
                             United States Tax Court

                    Argued and Submitted November 13, 2017

      *
             This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
                             William S. Boyd School of Law
                             University of Nevada, Las Vegas
                                   Las Vegas, Nevada

Before: RAWLINSON and BYBEE, Circuit Judges, and MENDOZA,** District
Judge.

       Petitioners-Appellants Parks Foundation (Foundation) and Foundation’s

manager Loren E. Parks (Parks) appeal the decision of the United States Tax Court

finding that expenditures made by Foundation for the production and broadcast of

nine radio advertisements were taxable events.

       When an otherwise tax-exempt private foundation operates beyond the

purposes enumerated in 26 U.S.C. § 501(c)(3), the tax code provides for an excise

tax on non-exempt expenditures. See 26 U.S.C. § 4945(a), (d)(5).1

       As relevant to this appeal, taxable expenditures include: “any amount

paid . . . to carry on propaganda, or otherwise to attempt, to influence legislation,”

unless “making available the results of nonpartisan analysis, study, or research,” §

4945(d)(1) and (e); or “for any purpose other than one specified in section

170(c)(2)(B).” § 4945(d)(5). Section 170(c)(2)(B) concerns expenditures for

“religious, charitable, scientific, literary, or educational purposes . . .” §


       **
             The Honorable Salvador Mendoza, Jr., United States District Judge
for the Eastern District of Washington, sitting by designation.
       1
           All further references are to Chapter 26 of the United States Code.
                                             2
170(c)(2)(B). To determine whether the advocacy of a particular viewpoint serves

an educational purpose, the Internal Revenue Service “will [l]ook to the method

used by the organization to develop and present its views” (the Methodology Test).

Rev. Proc. 86-43, Sec. 3.02, 1986-2 C.B. 729 (1986), 1986 WL 297205.

Specifically, the I.R.S. will consider whether: the positions advocated are

unsupported by facts; the supporting facts presented are distorted; the presentation

uses “inflammatory and disparaging terms and express[es] conclusions more on the

basis of strong emotional feelings than of objective evaluations”; and the

presentation does not consider the background of the audience to better develop

listeners’ understanding of the subject matter. Id. Sec. 3.03.

      The Tax Court did not err in rejecting the communications at issue as non-

educational2 for purposes of § 4945(d)(5). Each communication funded by

Foundation reflected in varying degrees the factors contemplated by the

Methodology Test as indicative of non-educational advocacy.3



      2
       Parks and Foundation advance the expenditures as exempt only for
“educational” purposes.
      3
        Parks and Foundation challenge the constitutionality of the Methodology
Test. However, because this claim was not raised before the Tax Court, we decline
to address it on appeal. See Cold Mountain v. Garber, 375 F.3d 884, 891 (9th Cir.
2004), as amended (“In general, we do not consider an issue raised for the first
time on appeal. . . .”) (citation omitted).
                                           3
       As noted by the Tax Court, communications from the Foundation distorted

the facts presented to the public or omitted supporting facts entirely. Many of the

communications also used inflammatory or disparaging terms seemingly directed

at producing an emotional response to the messages’ content, rather than

promoting an objective assessment of issues of public concern. Applying the

Methodology Test to the communications, the Tax Court properly determined that

Foundation’s expenditures to produce and broadcast the messages were not for

“educational” purposes.4

       Further, the Tax Court did not err in determining that Parks incurred tax

liability in his capacity as Foundation’s manager because he approved the

nonexempt expenditures. Parks stipulated before the Tax Court that if Foundation

incurred liability for excise taxes under § 4945(a)(1), Parks would be personally

liable for excise taxes under § 4945(a)(2), unless he could establish that he relied

on the advice of counsel when making the expenditures. “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




       4
       Because the expenditures were not made for a purpose enumerated in §
170(c)(2)(B), we need not consider whether the communications also constituted
attempts to influence legislation under § 4945(d)(1).
                                              4
expenditure is not a taxable expenditure under section 4945,” the manager will not

incur liability for approving the expenditure. 26 C.F.R. § 53.4945-1(a)(2)(vi).

      Foundation’s tax counsel provided written responses regarding only three of

the proposed communications. Counsel supplied cursory commentary, without

addressing his opinion “to the facts and applicable law.” Id. Because counsel’s

messages did “nothing more than . . . express a conclusion,” the legal opinion was

not “reasoned” within the meaning of the regulation. Id. We therefore agree with

the Tax Court and hold that Parks failed to demonstrate that he reasonably relied

on the advice of counsel as contemplated in the governing regulation. Accordingly,

the Tax Court properly assessed tax liability pursuant to § 4945(a)(2).

      AFFIRMED.




                                          5
                                                                              FILED
Parks Foundation v. CIR, No. 16-72572+
                                                                               DEC 15 2017
BYBEE, Circuit Judge, concurring:                                        MOLLY C. DWYER, CLERK
                                                                             U.S. COURT OF APPEALS


      I join the Memorandum Disposition in full and write separately only to

question whether the Methodology Test is well adapted to the context of assessing

excise taxes under 26 U.S.C. § 4945(d)(5). The Test was originally designed to

supplement and remedy the regulatory definition of “educational,” which had been

found unconstitutionally vague. See Nat’l Alliance v. United States, 710 F.2d 868,

870–71 (D.C. Cir. 1983); Big Mama Rag, Inc. v. United States, 631 F.2d 1030,

1039–40 (D.C. Cir. 1980). In that context it was used as a means to determine

whether tax-exempt status should be granted in the first instance, by surveying the

methods used throughout the entire body of an organization’s communications, not

as a means to identify specific noneducational expenditures for the purpose of

assessing excise taxes. This is an easy case, as there is nothing remotely

educational about the method, content, form, or function of these communications,

and because appellants’ arguments about the Test’s constitutionality and

application have been forfeited. But the Methodology Test may someday require a

closer look.
