Opinion ID: 184731
Heading Depth: 2
Heading Rank: 2

Heading: Review of District Court's Findings

Text: 13 Given our deferential standard of review, and given the fact that the burden is on the taxpayer seeking exemption to demonstrate that it is in fact entitled to tax-exempt status, see Granzow v. Commissioner, 739 F.2d 265, 268 (7th Cir.1984) (per curiam) (Exemption from income taxation is a matter of legislative grace. A taxpayer requesting an exemption must demonstrate compliance with the specific requirements set forth in the statute granting the exemption.... The party claiming the exemption bears the burden of proof of entitlement), we have no difficulty in upholding the district court's conclusion that the Fund advocated and hence does not qualify for tax exempt status under 501(c)(3). 14 The regulations define an action organization as one that advocates, or campaigns for, the attainment of [legislation] ... as distinguished from engaging in nonpartisan analysis, study, or research and making the results thereof available to the public. Treas. Reg. § 1.501(c)(3)-1(c)(3)(iv)(b). While there is no bright line distinguishing an organization which advocates from an organization which engages in nonpartisan analysis, study or research--and we do not attempt to draw one here--we can in this case easily conclude that the district court did not clearly err in finding that the Fund crossed over the line into advocacy. 8 The Commission existed for one year--the year before the 1996 Presidential elections. It studied one issue, an issue that was at the time a very central and controversial political one. With great fanfare, the Commission published a final report wherein it extolled the benefits of the flat tax and recommend[ed] to the Congress and to the President of the United States that the current Internal Revenue Code be repealed in its entirety. J.A. at 354. Moreover, the district court did not clearly err in concluding that the Commission's activities were not mere nonpartisan analysis, study, or research and making the results thereof available to the public. Treas. Reg. § 1.501(c)(3)-1(c)(3)(iv)(b). Based on the record before us, the court could reasonably conclude that the Commission had not set out to study tax reform generally and only later concluded that a flat tax was preferable to the present system of taxation. 9 Rather, the indications are that the Commission assumed a conclusion--the preferability of a flat tax--and then tried to sell this conclusion both to Congress and the President, and to the public more broadly. Of course, the Commission is free to conclude that a flat tax is preferable to the present system of taxation; and it is free to argue this position vigorously to the Congress, to the President and to the American public. However, as the Supreme Court has noted, controversies such as these  'must be conducted without public subvention; the Treasury stands aside from them.'  Cammarano v. United States, 358 U.S. 498, 512, 79 S.Ct. 524, 3 L.Ed.2d 462 (1959) (quoting Slee v. Commissioner, 42 F.2d 184, 185 (2d Cir.1930) (L. Hand, J.)). The Fund has failed in this case to meet its burden of demonstrating that it is entitled to tax exemption under 501(c)(3) and the district court did not err in finding that it was not so entitled. Accordingly, the decision of the district court is affirmed. 15 So ordered.