A.7. Advice — Publication 5590 — Exempt Organizations

(1) The advice of counsel defense must have the following requirements:

a. A foundation manager must make a full disclosure of the factual situation to

legal counsel (including house counsel);

b. He/she relies on the advice of such counsel that an expenditure is not a

taxable expenditure under Section 4945;

c. The advice of legal counsel must be expressed in a reasoned written legal

opinion. A reasoned opinion addresses the facts, the applicable law, and, based upon the aforementioned, concludes the expenditure is not a taxable expenditure, even if this conclusion is subsequently determined to be incorrect. However, a written legal opinion is not "reasoned" if it does nothing more than recite the facts and express a conclusion. See Treas. Reg. 53.4945-1(a)(2)(vi).

(2) If these requirements are satisfied, even though such expenditure is subsequently

held to be a taxable expenditure, the foundation manager’s agreement to make such expenditure will not be considered "knowing" or "willful" and will be considered "due to reasonable cause" within the meaning of Section 4945(a)(2). See Treas. Reg. 53.4945-1(a)(2)(vi). See also Burruss Land and Lumber Co., Inc. v. United States, 349 F. Supp. 188 (W.D. Va. 1972), which held that reliance upon advice of legal counsel or accountant constituted reasonable cause for failure to file federal excise tax return.

(3) Absence of advice of counsel with respect to an expenditure will not, by itself,

give rise to any inference that a foundation manager’s agreement to making a

taxable expenditure is knowing, willful, or without reasonable cause. See Treas. Reg. 53.4945-1(a)(2)(vi).

(4) Parks v. Commissioner, 145 T.C. 278 (2015), aff'd sub nom., Parks Foundation v.

Commissioner, 717 F. App’x 712 (9th Cir. 2017), held that a foundation manager did not reasonably rely on advice of counsel in publishing certain radio messages in certain instances where counsel’s opinions did not address the facts and applicable law and merely expressed legal conclusions and thus were not reasoned.