Best tax news of the year

Kathleen Kerrigan, Chief Justice of the United States Tax Court order and decision recognize Aegis For Dreams Foundation as a 501(c)(3) organization effective July 2, 2022 is the best tax news I’ve heard this year. Matthew Ryan, currently the sole administrator of the foundation, has the idea of ​​raising at least 30 million dollars to make a very precise film on the relationship between George Washington and Alexander Hamilton during the American Revolution. The idea is that the film will be commercially viable, because that’s how it will be ensured that it will have a substantial audience in a community setting. Unlike movies “based on” or “inspired by” a true story, accuracy will be paramount with Aegis that’s what sets it apart. Much of the dialogue consists of words likely spoken by the characters.


Theirs denied the foundation request because it failed the “operational test”. All net proceeds from the film will be donated to charities that support soldiers and young people. However, you cannot qualify an organization that runs a business, even though the profits will all go to charity. What he essentially does must be an exempt function.

The disclaimer noted that Aegis’ plan was to use traditional broadcast and print media and introduce the film to mass audiences on a wide and extensive basis. The concern was that Aegis would compete unduly with other commercial films, regardless of its educational content. There were also concerns that the agreement between the foundation and Mr. Ryan on derivative screenplay rights could create a private advantage.

In November 2021, the foundation has filed a petition with the Tax Court to reverse the IRS denial.

The commentators intervene

I covered the story in this piece. A blog from the Chicago-based law firm Wagenmaker & Oberly’s presented a very good analysis concluding that the IRS could be wrong.

The IRS’ denial shows questionable legal reasoning. Importantly, the stated purpose of the Foundation falls squarely within the IRS definition of “educational.” The Treasury Regulations define “educational” as either (1) “the instruction and training of the individual for the purpose of improving or developing his abilities” or (2) “the instruction of the public in matters useful to the individual and beneficial”. to the community”.[4] The Foundation fits into the second stream because it aims to educate the public about American history.

The TEGE Exempt Organizations Council devoted part of its March meeting to the issues raised in the case.

The real intense coverage came from Paul Streckfus in his EO tax journal. Paul mentioned the case no less than seven times in the eight months leading up to his settlement. Paul thought it was a close case. He indicated that he thinks the IRS should settle rather than potentially lose.

In the case of Aegis, if you accept the advice available, all relevant facts and circumstances must be taken into account. Whether profits are made and who benefits seem to be important considerations. Does the organization have for-profit competitors, which may be a factor?

Considering all of these factors, I consider the Aegis matter to be closed. The IRS may want to settle rather than lose the case and have it as a precedent. Of course, I always want cases to come to a decision so that we can all benefit from the implicit guidance of a court case.

As the case progressed, he reported that sources within the IRS had shifted from emphasizing overly commercial activity to private engagement with the founder. I suspect Paul’s cover was helpful in getting the IRS involved in this case. They read Streckfus to the taxman.

Changes lead to the stipulated order

In the revised narrative description of the activities of Aegis For Dreams, published in EO Tax Logsl there is a change in the conditions for awarding the scenario to the Foundation.

On July 2, 2022, the Donor granted the Foundation a “Modified and Completely Restated Exclusive License Grant,” enhancing the Foundation’s rights granted under the original license. See license and federal copyright certificate in Appendix “A”. Specifically, the donor granted the Foundation “perpetual rights”

Presumably this, along with other assurances, assuaged the inurement issues the IRS was having.

Mr. Ryan commented:

The Foundation’s wish is that Americans be immersed, for two hours in a dark theater, in the sacrifices and triumphs that led to the founding of our country. Whether a person is a Mayflower descendant or a refugee from Haiti, that is their legacy as Americans: an imperfect legacy of honor and sacrifice. In this regard, I wholeheartedly agree with Sony Pictures Chairman and CEO Tom Rothman that feature films can have a unique “cultural impact”.

No tax advisor

Judge Kerrigan issued an order just before the decision which may seem a bit pedantic. “Aegis For Dreams Foundation, Matthew W. Ryan Trustee” was listed as a petitioner in the case. Well, that’s not true. Only the organization can be the petitioner in a case like this, so they let us know that henceforth the case will be known as “Aegis for Dreams Foundation, Petitioner v. Commissioner of Internal Revenue, Respondent”.

It’s a bit of an indication of something extraordinary about the case. Mr. Ryan handled it without the help of a tax adviser on a pro se basis as sole trustee of the foundation. He was a fiduciary attorney, working for a private bank for many years. As someone who has seen too many tax returns, I can tell you that the trustee’s name goes under the trust’s name on the form 1041, the declaration of trust, but it doesn’t go under the entity on Form 990 which is which nonprofit record.

Really good news

Now that the field is clear for the Foundation to begin fundraising (specifically conditional pledges), Mr. Ryan provides the following additional comments:

This case fills a long-standing void in the filmography of our country. Aegis for Dreams will fill this void. The foundation’s charitable status creates the unique opportunity to put the story itself first, not the financial profit considerations of investors. In this amazing story, truth is undoubtedly better than fiction.

Now that the foundation has obtained its tax exemption, it is officially owned by the people of the United States. It’s time for individuals, institutions and artists who recognize the importance of this story to step forward and make this film a reality..

I can’t wait to see Aegis for dreams, though I realize that its ultimate production and release is facing a lot of hurdles. Mr. Ryan rounding up the IRS on exempt status without resorting to tax lawyers shows he is someone who can overcome formidable odds, so there is cause for optimism.