Court Opinion

ID: 4485645
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:33:51.334525+00
Date Added: 2024-06-11T14:54:07.164505
License: Public Domain

WHITAKER, J., concurring: For the reasons set forth herein, I believe the majority in this case have reached the right result on jurisdiction but on an incorrect rationale. There Eire two aspects to our jurisdiction in cases under section 7428. As we recognized in Friends of the Society of Servants of God v. Commissioner, 75 T.C. 209, 215 (1980), there must be Em “actual controversy.” An actual controversy exists when an exempt organization receives a favorable ruling, but upon a basis which is different from and less advantageous to the organization than that which the organization requested. CREATE, Inc. v. Commissioner, 634 F.2d 803 (5th Cir. 1981); Friends of the Society of Servants of God v. Commissioner, supra. I agree with the majority that an actual controversy exists in this case. The second aspect of our jurisdiction is based solely upon the provisions of section 7428(a). That Code section grants jurisdiction to this Court under section 7428(a)(1)(A) as to the initial or continuing qualification of an organization described in section 501(c)(3) or in section 170(c)(2), and under section 7428(a)(1)(B) and (C) with respect to the initial or continuing classification of an organization as a private foundation or as a private operating foundation. The real issue with which we are wrestling is whether under section 7428(a)(1)(A) we are limited to determining only whether the orgEmization is or is not exempt or whether we CEm go beyond that basic qualification question and determine the nature of the organization Emd its basis for exemption, i.e., its status under section 501(c)(3). The majority have struggled to find jurisdiction under section 7428(a)(1)(B), based upon the reference therein to section 509(a) and the reference in section 509(a) to section 170(b)(1)(A). I disagree with this approach. I conclude that the jurisdiction granted to us in section 7428(a)(1)(B) and (C) is very narrow — to determine only private foundation or private operating foundation status. It is section 501(c)(3) which contains the broad based grant of jurisdiction.1  Section 501(c)(3) exempts organizations which are organized and operated “exclusively for religious, chEiritable, scientific, testing for public safety, literary, or educational purposes, or to foster” amateur sports competitions or for the prevention of cruelty to children or animals. A number of these categories of exempt organizations have special tax attributes or burdens or both under various other provisions of the Internal Revenue Code, regulations, and rulings. For example, hospitals and educational institutions both differ from each other and from other charitable organizations in important respects. Also, there are various categories of religious organizations all of which are a special category of tax-exempt organizations. But of all exempt organizations under section 501(c)(3) a church has by far the greatest number of significant preferences. There is, thus, a singular advantage in exempt status predicated upon being a church. There is nothing in section 7428(a) or in its legislative history which explicitly or implicitly limits our authority to determine simply that the organization is exempt or nonexempt. H. Rept. 94-658 (1975), 1976-3 C.B. (Vol. 2) 284, states that: “Accordingly, your committee has agreed to provide in this bill for a declaratory judgment procedure under which an organization can obtain a judicial determination of its own status as a charitable, etc., organization.” (Emphasis added; fn. ref. omitted.) The Senate report uses almost identical language. S. Rept. 94-938 (1976), 1976-3 C.B. (Vol. 3) 587. Both reports also state in their respective explanations of the proposed legislation that the new jurisdiction arises in the case of an actual controversy involving a determination “with respect to the initial or continuing qualification or classification of an organization” as exempt under section 501(c)(3). Both reports also state flatly that the designated courts “Eire to have jurisdiction to make a declaration with respect to the status of the organization.” A declaration that a specific organization is exempt or nonexempt is a declaration with respect to “status” but so is a declaration that an organization is exempt as a church. True, there is nothing explicit in the statute or legislative history which grants us jurisdiction to go beyond the bare determination of exempt status to the determination of the basis for the exemption. While we are a court of limited jurisdiction, there is no policy reason why, within a specific grant of jurisdiction by the Congress, we should not construe the grant broadly instead of narrowly, especially where, as in this case, this declaratory judgment legislation was intended to be remedial, responding to the problems described by the Supreme Court in the Americans United and Bob Jones cases.2  The majority falls into error in predicating our jurisdiction in this case on section 7428(a)(1)(B), that is on sections 509(a)(1)(A) and 170(b)(l)(A)(i), instead of upon section 7428(a)(1)(A) or upon the section 501(c)(3) determination.3 The fact that the ruling was apparently requested under section 509(a) does not limit this Court in its jurisdiction.4  It does not appear that any court has heretofore focused upon this analysis of our jurisdiction under section 7428(a)(1)(A). In Friends, the application requested a ruling under section 509(a)(1) on the basis that the organization was a church described in section 170(b)(l)(A)(i). We held that “petitioner may not ask for; a declaratory judgment that it is a church under section 170(b)(l)(A)(i) unless qualification as a church has a direct bearing on petitioner’s foundation status under section 509(a).” Friends of Society of Servants of God v. Commissioner, supra at 215-216. Finding that status as a church “directly affects” qualification as a nonprivate foundation, we concluded that we had jurisdiction under section 7428(a)(1)(B). Friends of the Society of Servants of God v. Commissioner, supra at 220. The question as to the scope of section 7428(a)(1)(A) was not raised in Friends. The decision in CREATE is not to the contrary. There the petitioner had received a favorable ruling under section 509(a); hence, there was no controversy as to nonprivate foundation status. In many of the decided cases, the issue has been as to the existence of an actual controversy. For example, in Urantia Foundation v. Commissioner, 77 T.C. 507 (1981), affd. 684 F.2d 521 (7th Cir. 1982), we reviewed the distinctions we had made in Gladstone5 and New Community6 and again held that we have no jurisdiction unless there is a controversy with respect to a determination dealing directly with the exemption or classification of the organization. Urantia Foundation v. Commissioner, 77 T.C. 507 (1981), affd. 684 F.2d 521 (7th Cir. 1982). The Court of Appeals summarized our jurisdiction in this language: In summary, §7428(a)(l) authorizes judicial review of IRS determinations that directly affect the tax status of a charitable organization, New Community. The determination must directly put in issue the organization’s classification or qualification under the sections listed in §7428(a)(l)(A)-(C), and must cause sufficient adverse consequences to that organization to create an actual controversy, CREATE, Friends of Society of Servants of God v. Commissioner, 75 T.C. 209 (1980). [Urantia Foundation v. Commissioner, 684 F.2d 521, 525 (7th Cir. 1982).[7] Eiry Trust v. Commissioner, 77 T.C. 1263 (1981), holds that we lack jurisdiction to determine whether the organization’s income is exempt under section 115, although we concluded that we could determine whether it was a trust under section 4947(a)(1) since that issue was “inextricably related to the issues of whether the organization is qualified under section 501(c)(3) or classified as a private foundation under section 509(a).” Eiry Trust v. Commissioner, supra at 1267. Some support for this broad interpretation of section 7428(a)(1)(A) is found in Church of the New Testament, Its Members and Friends v. United States, 783 F.2d 771 (9th Cir. 1986), in that the Court of Appeals stated that declaratory judgments may be brought under section 7428 concerning the status of an organization under section 501(c)(3) and that the appellant church was a potential petitioner in a section 7428 action because its qualification or classification was at issue. More direct authority for a broad interpretation of our jurisdiction is found in our Court-reviewed opinion in Associated Hospital Services, Inc. v. Commissioner, 74 T.C. 213 (1980). The petition sought a declaration of exemption under section 501(c)(3). We discussed the scope of section 501(c) and extensively analyzed section 502, concluding that the petitioner was a feeder organization under section 502 and, therefore, not exempt under section 501(c)(3). Thus, in the course of determining nonexempt status, we clearly classified the organization under the Internal Revenue Code. Arguably, as Judge Williams points out in his dissent, Ohio County & Independent Agriculture Societies v. Commissioner, 610 F.2d 448 (6th Cir. 1979), disapproves the majority’s analysis, since the Sixth Circuit affirmed our conclusion (in an unreported order) that we would not determine whether the organization was described in section 170(b)(l)(A)(6), i.e., a governmental unit. Respondent had long recognized the organization to be exempt under section 501(c)(3) as an educational organization. I would reach the same conclusion as we and the Court of Appeals, since governmental organizations^- are not described in section 501(c)(3). See sec. 170(c)(1) and (2). But that decision did not undertake to interpret the scope of our section 501(c)(3) jurisdiction. Where, as in this case, a determination of exempt status under section 501(c)(3) is only a part of the story, and the nature or type of organization which has requested the ruling is significant, I conclude that we have the jurisdiction under section 7428(a)(1)(A) to make a complete determination. That this approach , may require us to distinguish between a church and a church auxiliary or between a church and a hospital is simply responding to the underlying purpose of the Congress in its grant of declaratory judgment jurisdiction to this Court. This is the clear, direct, and understandable solution to the case at bar. KORNER and COHEN, JJ., agree with this concurring opinion.  For present purposes I ignore the reference to sec. 170(c)(2), simply noting that a foreign organization can be exempt from tax under sec. 501(c)(3) although by reason of sec. 170(c)(2) contributions thereto would not be deductible.    Alexander v. "Americans United," Inc., 416 U.S. 752 (1974); Bob Jones University v. Simon, 416 U.S. 725 (1974).    Parenthetically, the reference to sec. 170(b)(l)(A)(i) nowhere appears in sec. 7428. Sec. 509(a) uses the sec. 170(b)(1)(A) cross-reference simply as a shorthand way to refer to various types of organizations. It has no bearing upon our jurisdiction.   Conceivably, we might have dismissed the petition here because the petitioner sought classification as a church under sec. 509(a) instead of under sec. 501(c)(3), but that would not be a jurisdictional matter.   J. David Gladstone Foundation v. Commissioner, 77 T.C. 221 (1981).   New Community Sr, Citizens Housing Corp. v. Commissioner, 72 T.C. 372 (1979).   An argument can be made on the basis of this language as well as similar language in the legislative history that we can under sec. 7428(a)(1)(A) determine both “qualification” and “classification,” i.e., classify various types of exempt organizations. However, I prefer my broad analysis of sec. 501(c)(3). It is also worth noting that respondent’s determinations of exempt status normally include a classification determination.