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Timestamp: 2019-12-09 20:48:29
Document Index: 663179291

Matched Legal Cases: ['§ 7421', '§ 501', '§ 501', '§ 170', '§ 170', '§ 501', '§ 501', '§ 501', '§ 3301', '§ 3301', '§ 170', '§ 501', '§ 7421', '§ 501', '§ 501', '§ 170', '§ 501', '§ 501', '§ 501', '§ 1', '§ 501', '§ 170', '§ 170', '§ 501', '§ 3301', '§ 3301', '§ 501', '§ 501', '§ 3306', '§ 3306', '§ 501', '§ 501', '§ 7421', '§ 7421', '§ 7421', '§ 501', '§ 501', '§ 7421', '§ 7421', '§ 501', '§ 7422', '§ 7422', '§ 6532', '§ 7422']

ALEXANDER V. - Volume 416 - 1974 - Full Text - US Supreme Court Center - USSC Cases - Nolo
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ALEXANDER V. (1974)
(a) The constitutional nature of a taxpayer's claim, as distinct from its probability of success, is of no consequence under § 7421(a). Pp. 416 U. S. 759-760.
POWELL, J., delivered the opinion of the Court, in which BURGER, C.J., and BRENNAN, STEWART, WHITE, MARSHALL, and REHNQUIST, JJ., joined. BLACKMUN, J., filed a dissenting opinion, post, p. 416 U. S. 763. DOUGLAS, J., took no part in the decision of the case.
Respondent is a nonprofit educational corporation organized under the laws of the District of Columbia as "Protestants and Other Americans United for Separation of Church and State." Its purpose is to defend and maintain religious liberty in the United States by the dissemination of knowledge concerning the constitutional principle of the separation of church and State. In 1950, the Internal Revenue Service issued a ruling letter that respondent qualified as a tax-exempt organization under the predecessor provision to § 501(c)(3) of the Internal Revenue Code of 1954 (the Code), 26 U.S.C. § 501(c)(3). [Footnote 1] As a result, the Service treated contributions to respondent as charitable deductions under the predecessor provision of § 170(c)(2) of the Code, 26 U.S.C. § 170(c)(2). [Footnote 2] This situation continued unchanged until
April 25, 1969, when the Service issued a ruling letter revoking the 1950 ruling on the ground that respondent had violated §§ 501(c)(3) and 170(c)(2)(D) by devoting a substantial part of its activities to attempts to influence legislation. Shortly thereafter, the Service issued another ruling letter exempting respondent from income taxation as a "social welfare" organization under Code § 501(e)(4), 26 U.S.C. § 501(e)(4). [Footnote 3] The effect of this change in status was to render respondent liable for unemployment (FUTA) taxes under Code § 3301, [Footnote 4] 26 U.S.C. § 3301, and to destroy its eligibility for tax-deductible contributions under § 170.
Because the 1969 ruling letter caused a substantial decrease in its contributions, respondent and two of its benefactors initiated the instant action in the United States District Court for the District of Columbia on July 30, 1970. [Footnote 5] They sought a declaratory judgment that the Service's administration of the lobbying proscriptions of §§ 501(c)(3) and 170 was erroneous or unconstitutional [Footnote 6] and injunctive relief requiring reinstatement
The Service moved to dismiss the action, principally on the ground that the exception in the Declaratory Judgment Act for cases "with respect to Federal taxes," [Footnote 8] and the prohibition in the Anti-Injunction Act against suits "for the purpose of restraining the assessment or collection of any tax," [Footnote 9] ousted the court of subject
In the instant case, the Court of Appeals recognized Williams Packing as controlling precedent for respondent's individual co-plaintiffs, and affirmed the dismissal of the suit as to them. 155 U.S.App.D.C. at 292, 477 F.2d at 1177. The court held that the relief requested by the individual plaintiffs "relate[d] directly to the assessment and collection of taxes" and that the allegations of
infringements of constitutional rights were "to no avail" in overcoming the barrier of § 7421(a). Id. at 291, 477 F.2d at 1176. The court also recognized that respondent could not satisfy the Williams Packing criteria, id. at 298, 477 F.2d at 1183, but concluded that respondent's suit was without the scope of the Anti-Injunction Act, and therefore not subject to the Williams Packing test. [Footnote 10]
The court's conclusion with regard to respondent rested on the confluence of several factors. One was the constitutional nature of respondent's claims. As the court noted, the thrust of respondent's argument is not that it qualifies for a § 501(c)(3) exemption under existing law, but rather that that provision's "substantial part" test and proscription against efforts to influence legislation are unconstitutional. Id. at 293, 477 F.2d at 1178. Obviously, this observation could not have been dispositive to the Court of Appeals, for this factor does not differentiate respondent, which was allowed to sue, from the individual co-plaintiffs, who likewise pressed constitutional claims but who were dismissed from the action. Furthermore, decisions of this Court make it unmistakably clear that the constitutional nature of a taxpayer's claim, as distinct from its probability of success, is of no consequence under the Anti-Injunction Act. E.g.,
Perhaps the real point of the court's observation about respondent's taxes was to set the stage for its more pertinent conclusion that restraining the assessment or collection of taxes was, "at best, a collateral effect" of respondent's action, and that this suit arose "in a posture removed from a restraint on assessment or collection." 155 U.S.App.D.C. at 294, 477 F.2d at 1179. We disagree. Under any reasonable construction of the statutory term "purpose," the objective of this suit was to restrain the assessment and collection of taxes from respondent's contributors. The obvious
Id. at 294 n. 13, 477 F.2d at 1179 n. 13. The import of these comments is unclear. If they are taken to mean that a refund action is, as a practical matter, inadequate to avoid the decrease in respondent's contributions for the interim between the withdrawal of § 501(c)(3) status and the final adjudication of its entitlement
If, on the other hand, the court's comments about the inadequacy of a refund action for FUTA taxes are interpreted to mean that respondent lacks an opportunity to have its claims finally adjudicated by a court of law, we think they are inaccurate. Respondent's liability for FUTA taxes hinges on precisely the same legal issue as does its eligibility for tax-deductible contributions under § 170, namely its entitlement to § 501(c)(3) status. And respondent will have a full opportunity to litigate the legality of the Service's withdrawal of respondent's § 501(c)(3) ruling letter in a refund suit following the payment of FUTA taxes. E.g., Christian Echoes National Ministry, Inc. v. United States, 470 F.2d 849 (CA10 1972), cert. denied, 414 U.S. 864 (1973). [Footnote 13]
Finding myself in solitary dissent in this "tax" case, I am somewhat diffident about expressing views contrary to those the Court apparently has reached so easily. I do so only because I am disturbingly aware of the overwhelming power of the Internal Revenue Service. This power is such that its mere exercise often freezes tax status so as to endanger the existence of philanthropic organizations and the public benefits they secure merely because the path to judicial review is so discouragingly long and expensive. I write primarily, therefore, to express what I feel is a needed word of caution about governmental power where the means to challenge that power are unfavorable and unsatisfactory, at best.
On April 25, 1968, however, the Commissioner of Internal Revenue revoked AU's letter ruling exemption on the ground that the organization no longer met the requirements of § 501(c)(3) and, instead, was an "action" organization, within the definition of Treasury Regulations §§ 1.501(c)(3)-1(c)(3)(i) and (iv), in that a substantial part of its activities was devoted to the pursuit of objectives to influence legislation. App. 7-10. The loss of its § 501(c)(3) status, however, did not result
The result, nevertheless, was distinctly adverse to AU in two respects. A contribution to the organization no longer was deductible by the donor under §§ 170(a)(1) and (c)(2)(D) of the 1954 Code, 26 U.S.C. §§ 170(a)(1) and (c)(2)(D), the latter of which closely parallels but is not identical with § 501(c)(3). As a matter of much less concern, AU also became subject to federal unemployment tax under § 3301 of the Code, 26 U.S.C. § 3301, for exemption therefrom for § 501 organizations is limited to those that qualify under § 501(c)(3). § 3306(c)(8) of the 1954 Code, 26 U.S.C. § 3306(c)(8). [Footnote 2/3] AU has paid federal unemployment taxes, [Footnote 2/4] and has stipulated that it will continue to do so.
As a result of the revocation of its § 501(c)(3) status, contributions by donors to AU declined sharply, so that, for the first time, the organization was not able to raise enough funds to cover its expenses. AU and two of its benefactors then sought relief by the present suit. [Footnote 2/5] They have alleged that the substantiality test of §§ 501(c)(3) and 170(c)(2)(D) created an unconstitutional disparity between large and small organizations; that the Commissioner revoked AU's exemption ruling punitively; that
It is in the context of this fixed and certain status as to all these federal taxes -- income, unemployment, FICA -- that "the purpose" of the present litigation, within the meaning of § 7421(a), must be ascertained. AU asserts that the purpose is to determine its charitable status so far as benefactors are concerned. Indeed, one
155 U.S.App.D.C. 284, 293-294, 477 F.2d 1169, 1178-1179. In this view, applicability of the statute depends on the direct effect the relief sought would have on the, plaintiff and not on the system as a whole.
Id. at 370 U. S. 5 and 370 U. S. 7. There undoubtedly is appropriate concern about the underlying danger that a multitude of spurious suits, or even of suits with possible merit, would so interrupt the free flow of revenues as to jeopardize the Nation's fiscal stability. See, e.g., State Railroad Tax Cases, 92 U. S. 575, 92 U. S. 613-614 (1876); Cheatham v. United States, 92 U. S. 85, 92 U. S. 89 (1876). Certainly, pre-collection suits could threaten planning and budgeting. But I do not perceive how the injunction desired in this case interferes with the area of concern that is the subject of § 7421(a). Any potential
Williams Packing, of course, on its facts, is clearly distinguishable from this case. There, the purpose of the suit was directly to restrain the collection of social security and unemployment taxes allegedly past due from that taxpayer. Here, the avowed purpose is not to restrain tax collection, but to assure AU's restoration to the Cumulative List. In Williams Packing, it was the incidence of taxation that was challenged, and the irreparable
There is a further consideration. Arguably, where the challenged governmental action is not one intended to produce revenue but rather is one to accomplish a broad-based policy objective through the medium of federal taxation, the application of § 7421(a) is inappropriate. [Footnote 2/6]
Obviously, § 501(c)(3) is not designed to raise money. [Footnote 2/7] Its purpose, rather, is to assure the existence of truly philanthropic organizations and the continuation of the important public benefits they bestow. [Footnote 2/8]
AU has charged unconstitutional treatment pursuant to an unconstitutional provision. These are claims peculiarly within the province of courts and not of the Executive's administrative officers. The Court's opinion makes clear that a claim of this kind is now precluded from judicial determination until such time as the Court concludes that the Government could not ultimately prevail on the merits. Unless and until that conclusion is reached, the philanthropic organization is at the mercy of the Commissioner for the period of time -- usually a
The Court in Bob Jones University, ante at 416 U. S. 729-730, acknowledges that "appearance on the Cumulative List is a prerequisite to successful fund raising for most charitable organizations." The program of exemption by letter ruling, therefore, is tantamount to a licensing procedure. If the Commissioner's authority were limited by a clear statutory definition of § 501(c)(3)'s requirement of "no substantial part," or by an objective definition of what is "charitable," there would be less concern about possible administrative abuse. [Footnote 2/10] But where the philanthropic organization is concerned, there appears to be little to circumscribe the almost unfettered power of the Commissioner. [Footnote 2/11] This may be very well so long
Concluding, as I have, that § 7421(a) is not a bar to an injunction by AU, the traditional equitable considerations
of irreparable injury and adequate alternative remedy must determine whether injunctive relief is appropriate. This is an inquiry independent of the question whether the Anti-Injunction Act applies, and is no different from the inquiry as to when injunctive relief is appropriate outside the tax field. See, for example, Public Service Comm'n v. Wycoff Co., 344 U. S. 237, 344 U. S. 240-241 (1952); Beacon Theatres, Inc. v. Westover, 359 U. S. 500, 359 U. S. 506-507 (1959). AU makes a vigorous and pressing claim that it is and will be irreparably injured by the loss of contributions since donors no longer receive an income tax deduction, and that this loss is completely unrecoverable even were AU ultimately to prevail on the merits. The Court in its opinion, ante at 416 U. S. 761-762, seems to accept the fact of irreparable injury here, just as the Court of Appeals recognized its presence as virtually inevitable. 155 U.S. pp. D.C. at 292, 477 F.2d at 1177. Even where it has been found that § 7421(a) bars a suit, it has been recognized that revocation of exempt status is an irreparable injury that otherwise satisfies the condition for the granting of injunctive relief. See, for example, Bob Jones University v. Connally, 472 F.2d at 906.
In AU's case the Commissioner, of course, cannot and does not contend that the income tax refund suit alternative is available. AU received § 501(c)(4) status upon
A suit for refund of federal unemployment tax, authorized under § 7422 of the Code, 26 U.S.C. § 7422, and with a period of limitations imposed by § 6532(a), is directly geared to a determination of the technical
The suit for refund may not be maintained until a claim for refund has been filed. § 7422. The federal unemployment tax is imposed on an annual basis; thus no refund can be claimed until the expiration of the year for which the tax is paid. Section 6532(a)(1), as usual, precludes the suit until the claim is denied or six months have passed from the date of filing. Once suit is instituted, the Government has at least 60 days to answer the complaint. Under optimum conditions and with cooperation, the minimum period of time required to achieve the objective through the refund suit is one to two years from the time of revocation. [Footnote 2/14] This is the delay if the
There are still other hazards. When small sums are at issue, as with AU's FUTA liability, the Government inadvertently or intentionally may concede the refund. This is not unlikely, for sound administration may not warrant the time and expense necessary to contest a claim of small amount when vital issues and conceivably profound precedents are at stake. Church of Scientology v. United States, 485 F.2d 313 (CA9 1973), illustrates the Government's effort to win dismissal of a case when a refund had been made. See also Mitchell v. Riddell, 402 F.2d 842 (CA9 1968), appeal dismissed and cert. denied, 394 U. S. 456 (1969). There is little doubt that the Commissioner possesses the authority to make the refund and moot the suit if he chooses not to litigate the underlying issues. Although I agree with the Commissioner
Department of Treasury, Internal Revenue Manual, Part XI, c.(11) 671, � 270. Whatever the internal practice may be, the published procedures cast serious doubt on the adequacy of the refund suit to resolve the organization's urgent problem. The revenue ruling has prospective application, whereas a court determination operates retrospectively to the extent the pleadings and proof and the applicable statute of limitations permit. [Footnote 2/15] Thus, the scope of relief available in a refund suit is also uncertain. The organization
I conclude that neither course is an adequate remedy for an irreparably harmed organization to vindicate its claims. [Footnote 2/16] Thus, equitable relief in the form of an injunction is not inappropriate.
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