2. Given the standard used by the court, can you think of an example of a charge that would not be considered a logical outgrowth provided that the appropriate notice is initially given?
The IRS proposed a rule concerning the allocation of membership dues paid to nonprofit organizations under which certain nondues revenue was to be treated as taxable revenue as determined by a seven-factor test. After the comment period, the IRS replaced the seven-factor test with a new three-factor method, which was published as a final rule without any additional comment period. This resulted in increased tax liability for AMA, a nonprofit corporation that chargers its members’ dues and they brought a lawsuit claiming that the new three-factor allocation regulation was invalid because the IRS had never given the proper public notice required by the APA when they departed from their original seven-factor test.