Reprinted From the U.S. Government Printing Office via GPO Access
Case #: 416US725
BOB JONES UNIVERSITY V. SIMON, SECRETARY OF THE TREASURY, ET
AL.
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE
FOURTH CIRCUIT
NO. 72 - 1470. ARGUED JANUARY 7, 1974--DECIDED MAY 15,
1974; (472 F. 2D 903 AND 476 F.2D 259, AFFIRMED.)
PETITIONER, A PRIVATE UNIVERSITY, WAS NOTIFIED BY THE INTERNAL
REVENUE SERVICE (IRS), PURSUANT TO A NEWLY ANNOUNCED POLICY OF
DENYING TAX-EXEMPT STATUS FOR PRIVATE SCHOOLS WITH RACIALLY
DISCRIMINATORY ADMISSIONS POLICIES, THAT IT WAS GOING TO REVOKE A
RULING LETTER DECLARING THAT PETITIONER QUALIFIED FOR TAX-EXEMPT
STATUS UNDER 501 (C) (3) OF THE INTERNAL REVENUE CODE OF 1954
(CODE). PETITIONER SUED FOR INJUNCTIVE RELIEF TO PREVENT
REVOCATION, ALLEGING IRREPARABLE INJURY IN THE FORM OF INCOME TAX
LIABILITY AND LOSS OF CONTRIBUTIONS AND CLAIMING THAT THE
REVOCATION WOULD VIOLATE PETITIONER'S RIGHTS TO FREE EXERCISE OF
RELIGION, TO FREE ASSOCIATION, AND TO DUE PROCESS AND EQUAL
PROTECTION OF THE LAWS. THE DISTRICT COURT GRANTED RELIEF
DESPITE 7421 (A) OF THE CODE, WHICH PROVIDES THAT "NO SUIT FOR
THE PURPOSE OF RESTRAINING THE ASSISSMENT OR COLLECTION OF ANY
TAX SHALL BE MAINTAINED IN ANY COURT." THE COURT OF APPEALS
REVERSED, HOLDING THAT 7421(A), AS CONSTRUED IN ENOCHS V.
WILLIAMS PACKING & NAVIGATION CO., 370 U.S. 1, FORECLOSED
RELIEF. UNDER THAT DECISION A PRE-ENFORCEMENT INJUNCTION AGAINST
TAX ASSESSMENT OR COLLECTION MAY BE GRANTED ONLY IF (1) "IT IS
CLEAR THAT UNDER NO CIRCUMSTANCES COULD THE GOVERNMENT ULTIMATELY
PREVAIL . . . ." AND (2) "IF EQUITY JURISDICTION OTHERWISE
EXISTS." HELD:
1. THE SUIT IS ONE "FOR THE PURPOSE OF RESTRAINING THE
ASSESSMENT OR COLLECTION OF ANY TAX" WITHIN THE MEANING OF
7421(A). PP. 738 - 742.
(A) PETITIONER'S ALLEGATION THAT REVOCATION OF THE RULING
LETTER WOULD SUBJECT IT TO "SUBSTANTIAL" INCOME TAX LIABILITY
DEMONSTRATES THAT A PRIMARY PURPOSE OF THE SUIT IS TO PREVENT THE
IRS FROM ASSESSING AND COLLECTING INCOME TAXES; BUT EVEN IF NO
INCOME TAX LIABILITY RESULTED, THE SUIT WOULD STILL BE ONE TO
RESTRAIN THE ASSESSMENT AND COLLECTION OF FEDERAL SOCIAL SECURITY
AND UNEMPLOYMENT TAXES, AS WELL AS TO RESTRIAN THE COLLECTION OF
TAXES FROM PETITIONER'S DONORS. PP. 738 - 739.
(B) PETITIONER HAS NOT SHOWN THAT THE CONTEMPLATED REVOCATION
OF ITS RULING LETTER IS NOT BASED ON THE IRS' GOOD-FAITH EFFORT
TO ENFORCE THE TECHNICAL REQUIREMENTS OF THE CODE. ##HC726 PP.
739 - 741.
2. PETITIONER'S CONTENTION THAT 7421 (A) IS SUBJECT TO
JUDICIALLY CREATED EXCEPTIONS OTHER THAN THE WILLIAMS PACKING
TEST IS WITHOUT MERIT. THAT DECISION CONSTITUTES AN
ALL-ENCOMPASSING READING OF 7421 (A), AND IT REJECTED THE
CONTENTION, RELIED UPON BY PETITIONER, THAT IRREPARABLE INJURY
ALONE IS SUFFICIENT TO LIFT THE STATUTORY BAR. PP. 742 - 746.
3. DENYING INJUNCTIVE RELIEF TO PETITIONER UNDER THE STANDARDS
OF WILLIAMS PACKING, SUPRA, WILL NOT, BECAUSE OF ALLEGED
IRREPARABLE INJURY PENDING RESORT TO ALTERNATIVE REMEDIES, DENY
PETITIONER DUE PROCESS OF LAW, SINCE THIS IS NOT A CASE WHERE AN
AGGRIEVED PARTY HAS NO ACCESS AT ALL TO JUDICIAL REVIEW. THE
REVIEW PROCEDURES THAT ARE AVAILABLE ARE CONSTITUTIONALLY
ADEQUATE, EVEN THOUGH INVOLVING SERIOUS DELAY. PP. 746 - 748.
4. PETITIONER HAS NOT MET THE STANDARDS OF WILLIAMS PACKING,
SUPRA, SINCE ITS CONTENTIONS ARE SUFFICIENTLY DEBATABLE TO
FORECLOSE ANY NOTION THAT "UNDER NO CIRCUMSTANCES COULD THE
GOVERNMENT ULTIMATELY PREVAIL." PP. 748 - 750.
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 AN OPINION
CONCURRING IN THE RESULT, POST, P. 750. DOUGLAS, J., TOOK NO
PART IN THE DECISION OF THE CASE.
MR. JUSTICE POWELL DELIVERED THE OPINION OF THE COURT.
THIS CASE AND ALEXANDER V. "AMERICAN UNITED" INC., POST, P. 752,
INVOLVE THE APPLICATION OF THE ANTI-INJUNCTION ACT, 7421 (A) OF THE
INTERNAL REVENUE CODE OF 1954 (THE CODE), 26 U.S.C. 7421 (A), TO THE
RULING LETTER PROGRAM OF THE INTERNAL REVENUE SERVICE (THE SERVICE) FOR
ORGANIZATIONS CLAIMING TAX-EXEMPT STATUS UNDER CODE 501 (C) (3), 26
U.S.C. 501(C)(3). THE QUESTION PRESENTED IS WHETHER, PRIOR TO THE
ASSESSMENT AND COLLECTION OF ANY TAX, A COURT MAY ENJOIN THE SERVICE
FROM REVOKING A RULING LETTER DECLARING THAT PETITIONER QUALIFIES FOR
TAX-EXEMPT STATUS AND FROM WITHDRAWING ADVANCE ASSURANCE TO DONORS THAT
CONTRIBUTIONS TO PETITIONER WILL CONSTITUTE CHARITABLE DEDUCTIONS UNDER
CODE 170 (C)(2), 26 U.S.C. 170 (C)(2). WE HOLD THAT IT MAY NOT.
I
ORGANIZATIONS DESCRIBED IN 501(C)(3). THE LATTER PROVISION
ENCOMPASSES:
"CORPORATIONS, AND ANY COMMUNITY CHEST, FUND, OR FOUNDATION,
ORGANIZED AND OPERATED EXCLUSIVELY FOR RELIGIOUS, CHARITABLE,
SCIENTIFIC, TESTING FOR PUBLIC SAFETY, LITERARY, OR EDUCATIONAL
PURPOSES, OR FOR THE PREVENTION OF CRUELTY TO CHILDREN OR
ANIMALS, NO PART OF THE NET EARNINGS OF WHICH INURES TO THE
BENEFIT OF ANY PRIVATE SHAREHOLDER OR INDIVIDUAL, NO SUBSTANTIAL
PART OF THE ACTIVITIES OF WHICH IS CARRYING ON PROPAGANDA, OR
OTHERWISE ATTEMPTING, TO INFLUENCE LEGISLATION, AND WHICH DOES
NOT PARTICIPATE IN, OR INTERVENE IN (INCLUDING THE PUBLISHING OR
DISTRIBUTING OF STATEMENTS), ANY POLITICAL CAMPAIGN ON BEHALF OF
ANY CANDIDATE FOR PUBLIC OFFICE."
SECURITY (FICA) TAXES BY VIRTUE OF CODE 3121 (B) (8) (B), 26 U.S.C.
3121 (B) (8) (B), AND FROM FEDERAL UNEMPLOYMENT (FUTA) TAXES BY VIRTUE
OF 330L (C)(8), 36 U.S.C. 3306 (C)(8). DONATIONS TO 501 (C)(3)
ORGANIZATIONS ARE TAX DEDUCTIBLE UNDER 170 (C)(2). /1/
AS A PRACTICAL MATTER, AN ORGANIZATION HOPING TO SOLICIT TAX
DEDUCTIBLE CONTRIBUTIONS MAY NOT RELY SOLELY ON TECHNICAL COMPLIANCE
WITH THE LANGUAGE OF 501 (C)(3) AND 170 (C)[(2). THE ORGANIZATION MUST
ALSO OBTAIN A RULING LETTER FROM THE SERVICE, PURSUANT TO REV. PROCS.
72 - 3 AND 72 - 4, 1972 - 1 CUM. BULL. 698, 706, DECLARING THAT IT
QUALIFIES UNDER 501 (C)(3). RECEIPT OF SUCH A RULING LETTER LEADS, IN
THE ORDINARY CASE, TO INCLUSION IN THE SERVICE'S PERIODICALLY UPDATED
PUBLICATION NO. 78, "CUMULATIVE LIST OF ORGANIZATIONS DESCRIBED IN
LIST). IN ESSENCE, THE CUMULATIVE LIST IS THE SERVICE'S OFFICIAL
ROSTER OF TAX-EXEMPT ORGANIZATIONS: "THE LISTING OF AN ORGANIZATION IN
(THE CUMULATIVE LIST) SIGNIFIES IT HAS RECEIVED A RULING OR
DETERMINATION LETTER . . . STATING THAT CONTRIBUTIONS BY DONORS TO THE
ORGANIZATION ARE DEDUCTIBLE AS PROVIDED IN SECTION 170 OF THE CODE."
REV. PROC. 72 - 39, 1972 - 2 CUM. BULL. 818. AN ORGANIZATIONS'S
INCLUSION IN THE CUMULATIVE LIST ASSURES POTENTIAL DONORS IN ADVANCE
THAT CONTRIBUTIONS TO THE ORGANIZATION WILL QUALIFY AS CHARITABLE
DEDUCTIONS UNDER 170 (C)(2). THE SERVICE HAS ANNOUNCED THAT, WITH
NARROWLY LIMITED EXCEPTIONS, A DONOR MAY RELY ON THE CUMULATIVE LIST
FOR SO LONG AS THE BENEFICIARIES OF HIS LARGESSE MAINTAIN THEIR
LISTING, REGARDLESS OF THEIR ACTUAL TAX STATUS. /2/ FOR THIS REASON,
APPEARANCE ON THE CUMULATIVE LIST IS A PREREQUISITE TO SUCCESSFUL FUND
RAISING FOR MOST CHARITABLE ORGANIZATIONS. MANY CONTRIBUTORS SIMPLY
WILL NOT MAKE DONATIONS TO AN ORGANIZATION THAT DOES NOT APPEAR ON THE
CUMULATIVE LIST. /3/
BECAUSE OF THE IMPORTANCE OF INCLUSION IN THE CUMULATIVE LIST,
REVOCATION OF A 501 (C) (3) RULING LETTER AND CONSEQUENT REMOVAL FROM
THE CUMULATIVE LIST IS LIKELY TO RESULT IN SERIOUS DAMAGE TO A
CHARITABLE ORGANIZATION. /4/ REVOCATION NOT ONLY THREATENS THE FLOW
OF CONTRIBUTIONS, IT ALSO SUBJECTS THE AFFECTED ORGANIZATION TO FICA
AND FUTA TAXES AND, ASSUMING THAT THE ORGANIZATION HAS TAXABLE INCOME
AND DOES NOT QUALIFY AS TAX EXEMPT UNDER ANOTHER SUBSECTION OF 501, TO
FEDERAL INCOME TAXES. /5/ UPON THE ASSESSMENT AND ATTEMPTED
COLLECTION OF INCOME TAXES, THE ORGANIZATION MAY LITIGATE THE LEGALITY
OF THE SERVICE'S ACTION BY PETITIONING THE TAX COURT TO REVIEW A NOTICE
OF DEFICIENCY. SEE CODE 6212 AND 6213, 26 U.S.C. 6212 AND 6213. OR,
FOLLOWING THE COLLECTION OF ANY FEDRAL TAX AND THE DENIAL OF A REFUND
BY THE SERVICE, THE ORGANIZATION MAY BRING A REFUND SUIT IN A FEDERAL
DISTRICT COURT OR IN THE COURT OF CLAIMS. SEE CODE 7422, 26 U.S.C.
7422; 28 U.S.C. 1346 (A) (1) AND 1491. FINALLY, A DONOR TO THE
ORGANIZATION MAY BRING A REFUND SUIT TO CHALLENGE THE DENIAL OF A
CHARITABLE DEDUCTION UNDER 170 (C) (2). PRESUMABLY SUCH A "FRIENDLY
DONOR" WOULD BE ABLE TO ATTACK THE LEGALITY OF THE SERVICE'S REVOCATION
OF AN ORGANIZATION'S 501 (C) (3) STATUS. BUT THESE POST-REVOCATION
AVENUES OF REVIEW TAKE SUBSTANTIAL TIME, DURING WHICH THE ORGANIZATION
IS CERTAIN TO LOSE CONTRIBUTIONS FROM THOSE DONORS WHOSE GIFTS ARE
CONTINGENT ON ENTITLEMENT TO CHARITABLE DEDUCTIONS UNDER 170 (C)(2).
ACCORDINGLY, ANY ORGANIZATION THREATENED WITH REVOCATION OF A 501 (C)
(3) RULING LETTER HAS A POWERFUL INCENTIVE TO BRING A PRE-ENFORCEMENT
SUIT TO PREVENT THE SERVICE FROM TAKING ACTION IN THE FIRST INSTANCE.
THE PRESSURES OPERATING ON ORGANIZATIONS FACING REVOCATION OF 501
(C) (3) STATUS TO SEEK INJUNCTIVE RELIEF AGAINST THE SERVICE PENDING
JUDICIAL REVIEW OF THE PROPOSED ACTION CONFLICT DIRECTLY WITH A
CONGRESSIONAL PROHIBITION OF SUCH PRE-ENFORCEMENT TAX SUITS. IN FORCE
CONTINUOUSLY SINCE ITS ENACTMENT IN 1867, THE ANTI-INJUNCTION ACT, NOW
CODE 7421 (A), PROVIDES IN PERTINENT PART THAT "NO SUIT FOR THE PURPOSE
OF RESTRAINING THE ASSESSMENT OR COLLECTION OF ANY TAX SHALL BE
MAINTAINED IN ANY COURT . . . ." /6/ BECAUSE AN INJUNCTION PREVENTING
THE SERVICE FROM WITHDRAWING A 501 (C)(3) RULING LETTER WOULD
NECESSARILY PRECLUDE THE COLLECTION OF FICA, FUTA, AND POSSIBLY INCOME
TAXES FROM THE AFFECTED ORGANIZATION, AS WELL AS THE DENIAL OF 170
(C)(2) CHARITABLE DEDUCTIONS TO DONORS TO THE ORGANIZATION, A SUIT
SEEKING SUCH RELIEF FALLS SQUARELY WITHIN THE LITERAL SCOPE OF THE
ACT. /7/
THE CLASH BETWEEN THE LANGUAGE OF THE ANTI-INJUNCTION ACT AND THE
DESIRE OF 501 (C)(3) ORGANIZATIONS TO BLOCK THE SERVICE FROM
WITHDRAWING A RULING LETTER HAS BEEN RESOLVED AGAINST THE ORGANIZATIONS
IN MOST CASES. E.G., CRENSHAW COUNTY PRIVATE SCHOOL FOUNDATION V.
CONNALLY, 474 F.2D 1185 (CA5 1973), PET. FOR CERT. PENDING IN NO. 73 -
170; NATIONAL COUNCIL ON THE FACTS OF OVERPOPULATION V. CAPLIN, 224 F.
SUPP. 313 (DC 1963); ISRAELITE HOUSE OF DAVID V. HOLDEN, 14 F.2D 701
(WD MICH. 1926). /8/ BUT SEE, MCGLOTTEN V. CONNALLY, 338 F. SUPP. 448
(DC 1972) (THREE-JUDGE COURT). CF. GREEN V. CONNALLY, 330 F. SUPP.
1150 (DC), AFF-D PER CURIAM SUB NOM. COIT V. GREEN, 404 U.S. 997
(1971).
IN THE PRESENT CASE, THE COURT OF APPEALS FOR THE FOURTH CIRCUIT
FOLLOWED THE MAJORITY VIEW. BOB JONES UNIVERSITY V. CONNALLY, 472 F.2D
903, PETITION FOR REHEARING DENIED, 476 F.2D 259 (1973). IN LIGHT OF
THE CONTRARY RESULT REACHED BY THE COURT OF APPEALS FOR THE DISTRICT OF
COLUMBIA CIRCUIT IN "AMERICANS UNITED" INC. V. WALTERS, 155 U.S. APP.
D.C. 284, 477 F.2D 1169 (1973), REV'D SUB NOM. ALEXANDER V. "AMERICANS
UNITED" INC., POST, P. 752, WE GRANTED BOB JONES UNIVERSITY'S PETITION
FOR CERTIORARI. 414 U.S. 817 (1973).
II
PETITIONER REFERS TO ITSELF AS "THE WORLD'S MOST UNUSUAL
UNIVERSITY." FOUNDED IN 1927 AND NOW LOCATED IN GREENVILLE, SOUTH
CAROLINA, THE UNIVERSITY IS DEVOTED TO THE TEACHING AND PROPAGATION OF
ITS FUNDAMENTALIST RELIGIOUS BELIEFS. ALL CLASSES COMMENCE AND CLOSE
WITH PRAYER, AND COURSES IN RELIGION ARE COMPULSORY. STUDENTS AND
FACULTY ARE SCREENED FOR ADHERENCE TO CERTAIN RELIGIOUS PRECEPTS AND
MAY BE EXPELLED OR DISMISSED FOR LACK OF ALLEGIANCE TO THEM. ONE OF
THESE BELIEFS IS THAT GOD INTENDED SEGREGATION OF THE RACES AND THAT
THE SCRIPTURES FORBID INTERRACIAL MARRIAGE. ACCORDINGLY, PETITIONER
REFUSES TO ADMIT NEGROES AS STUDENTS. ON PAIN OF EXPULSION STUDENTS
ARE PROHIBITED FROM INTERRACIAL DATING, AND PETITIONER BELIEVES THAT IT
WOULD BE IMPOSSIBLE TO ENFORCE THIS PROHIBITION ABSENT THE EXCLUSION OF
NEGROES.
IN 1942, THE SERVICE ISSUED PETITIONER A RULING LETTER UNDER 101 (6)
OF THE INTERNAL REVENUE CODE OF 1939, THE PREDECESSOR OF 501 (C) (3).
IN 1970, HOWEVER, THE SERVICE ANNOUNCED THAT IT WOULD NO LONGER ALLOW
501 (C)(3) STATUS FOR PRIVATE SCHOOLS MAINTAINING RACIALLY
DISCRIMINATORY ADMISSIONS POLICIES AND THAT IT WOULD NO LONGER TREAT
CONTRIBUTIONS TO SUCH SCHOOLS AS TAX DEDUCTIBLE. SEE REV. RUL. 71 -
447, 1971 / 2 CUM. BULL. 230. THE SERVICE REQUESTED PROOF OF A
NONDISCRIMINATORY ADMISSIONS POLICY FROM ALL SUCH SCHOOLS AND WARNED
THAT TAX-EXEMPT RULING LETTERS WOULD BE REVIEWED IN LIGHT OF THE
INFORMATION PROVIDED. AT THE END OF 1970, PETITIONER ADVISED THE
SERVICE THAT IT DID NOT ADMIT NEGROES, AND IN SEPTEMBER 1971, FURTHER
STATED THAT IT HAD NO INTENTION OF ALTERING THIS POLICY. THE
COMMISSIONER OF INTERNAL REVENUE THEREFORE INSTRUCTED THE DISTRICT
DIRECTOR TO COMMENCE ADMINISTRATIVE PROCEDURES LEADING TO THE
REVOCATION OF PETITIONER'S 501 (C)(3) RULING LETTER.
PETITIONER BROUGHT THESE ADMINISTRATIVE PROCEEDINGS TO A HALT BY
FILING SUIT IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF
SOUTH CAROLINA FOR PRELIMINARY AND PERMANENT INJUNCTIVE RELIEF
PREVENTING THE SERVICE FROM REVOKING OR THREATENING TO REVOKE
PETITIONER'S TAX-EXEMPT STATUS. PETITIONER ALLEGED IRREPARABLE INJURY
IN THE FORM OF SUBSTANTIAL FEDERAL INCOME TAX LIABILITY AND THE LOSS OF
CONTRIBUTIONS. PETITIONER ASSERTED THAT THE SERVICE'S THREATENED
ACTION WAS OUTSIDE ITS LAWFUL AUTHORITY AND WOULD VIOLATE PETITIONER'S
RIGHTS TO THE FREE EXERCISE OF RELIGION, TO FREE ASSOCIATION, AND TO
DUE PROCESS AND EQUAL PROTECTION OF THE LAWS.
THE DISTRICT COURT REJECTED A MOTION TO DISMISS FOR LACK OF
JURISDICTION, AND IT PRELIMINARILY ENJOINED THE SERVICE FROM REVOKING
OR THREATENING TO REVOKE PETITIONER'S TAX-EXEMPT STATUS AND FROM
WITHDRAWING ADVANCE ASSURANCE OF THE DEDUCTIBILITY OF CONTRIBUTIONS
MADE TO PETITIONER. BOB JONES UNIVERSITY V. CONNALLY, 341 F. SUPP. 277
(SC 1971). THE COURT OF APPEALS FOR THE FOURTH CIRCUIT REVERSED, WITH
ONE JUDGE DISSENTING. 472 F.2D 903, REH. DEN., 476 F.2D 259 (1973).
THAT COURT HELD THAT PETITIONER'S SUIT WAS BARRED BY THE ANTI
INJUNCTION ACT AS INTERPRETED BY THIS COURT IN ENOCHS V. WILLIAMS
PACKING & NAVIGATION CO., 370 U.S. 1. (1962).
III
THE ANTI-INJUNCTION ACT APPARENTLY HAS NO RECORDED LEGISLATIVE
HISTORY, /9/ BUT ITS LANGUAGE COULD SCARCELY BE MORE EXPLICIT--"NO
SUIT FOR THE PURPOSE OF RESTRAINING THE ASSESSMENT OR COLLECTION OF ANY
TAX SHALL BE MAINTAINED IN ANY COURT . . . ." THE COURT HAS
INTERPRETED THE PRINCIPAL PURPOSE OF THIS LANGUAGE TO BE THE PROTECTION
OF THE GOVERNMENT'S NEED TO ASSESS AND COLLECT TAXES AS EXPEDITIOUSLY
AS POSSIBLE WITH A MINIMUM OF PRE-ENFORCEMENT JUDICIAL INTERFERENCE,
"AND TO REQUIRE THAT THE LEGAL RIGHT TO THE DISPUTED SUMS BE DETERMINED
IN A SUIT FOR REFUND." ENOCHS V. WILLIAMS PACKING & NAVIGATION CO.,
SUPRA, AT 7. SEE ALSO, E.G., STATE RAILROAD TAX CASES, 92 U.S. 575,
613 - 614 (1876). CF. CHEATHAM V. UNITED STATES, 92 U.S. 85, 88 - 89
(1876). THE COURT HAS ALSO IDENTIFIED "A COLLATERAL OBJECTIVE OF THE
ACT--PROTECTION OF THE COLLECTOR FROM LITIGATION PENDING A SUIT FOR
REFUND." WILLIAMS PACKING, SUPRA, AT 7 - 8.
IN FURTHERANCE OF THESE GOALS, THE COURT IN ITS MOST RECENT READING
GAVE THE ACT ALMOST LITERAL EFFECT. IN WILLIAMS PACKING, AN EMPLOYER
SOUGHT TO ENJOIN THE COLLECTION OF FICA AND FUTA TAXES THAT THE
EMPLOYER ALLEGED WERE NOT OWED AND WOULD DESTROY ITS BUSINESS. THE
COURT HELD UNANIMOUSLY THAT THE SUIT WAS BARRED BY THE ACT. ONLY UPON
PROOF OF THE PRESENCE OF TWO FACTORS COULD THE LITERAL TERMS OF 7421
(A) BE AVOIDED: FIRST, IRREPARABLE INJURY, THE ESSENTIAL PREREQUISITE
FOR INJUNCTIVE RELIEF IN ANY CASE; AND SECOND, CERTAINTY OF SUCCESS ON
THE MERITS. ID., AT 6 - 7. AN INJUNCTION COULD ISSUE ONLY "IF IT IS
CLEAR THAT UNDER NO CIRCUMSTANCES COULD THE GOVERNMENT ULTIMATELY
PREVAIL . . . ." ID., AT 7. AND THIS DETERMINATION WOULD BE MADE ON
THE BASIS OF THE INFORMATION AVAILABLE TO THE GOVERNMENT AT THE TIME OF
THE SUIT. "ONLY IF IT IS THEN APPARRENT THAT, UNDER THE MOST LIBERAL
VIEW OF THE LAW AND THE FACTS, THE UNITED STATES CANNOT ESTABLISH ITS
CLAIM, MAY THE SUIT FOR AN INJUNCTION BE MAINTAINED." IBID.
PERHAPS IN RECOGNITION OF THE STRINGENT NATURE OF THE WILLIAMS
PACKING STANDARD AND ITS IMPLICATIONS FOR THIS CASE, PETITIONER MAKES
LITTLE EFFORT TO ARGUE THAT IT CAN MEET THAT TEST. RATHER, IT ASSERTS
THAT THE ANTI-INJUNCTION ACT, PROPERLY CONSTRUED, IS NOT APPLICABLE,
THAT WILLIAMS PACKING IS NOT THE CONTROLLING READING OF THE ACT, AND
THAT REJECTION OF BOTH THESE CONTENTIONS WOULD WORK A DENIAL OF DUE
PROCESS OF LAW. WE FIND THESE ARGUMENTS UNPERSUASIVE. A
FIRST, PETITIONER CONTENDS THAT THE ACT IS INAPPLICABLE BECUASE THIS
IS NOT A SUIT "FOR THE PURPOSE OF RESTRAINING THE ASSESSMENT OR
COLLECTION OF ANY TAX . . . ." UNDER PETITIONER'S THEORY, ITS SUIT IS
INTENDED SOLELY TO COMPEL THE SERVICE TO REFRAIN FROM WITHDRAWING
PETITIONER'S 501 (C) (3) RULING LETTER AND FROM DEPRIVING PETITIONER'S
DONORS OF ADVANCE ASSURANCE OF DEDUCTIBILITY. PETITIONER DESCRIBES ITS
GOAL AS THE MAINTENANCE OF THE FLOW OF CONTRIBUTIONS, NOT THE
OBSTRUCTION OF REVENUE.
PETITIONER'S COMPLAINT AND SUPPORTING DOCUMENTS FILED IN THE
DISTRICT COURT BELIE ANY NOTION THAT THIS IS NOT A SUIT TO ENJOIN THE
ASSESSMENT OR COLLECTION OF FEDERAL TAXES FROM PETITIONER. IN SUPPORT
OF ITS CLAIM OF IRREPARABLE INJURY, PETITIONER ALLEGED IN PART THAT IT
WOULD BE SUBJECT TO "SUBSTANTIAL" FEDERAL INCOME TAX LIABILITY IF THE
SERVICE WERE ALLOWED TO CARRY OUT ITS THREATENED ACTION. APP. 6.
PETITIONER BUTTRESSED THIS CONTENTION WITH SWORN AFFIDAVITS ALLEGING
FEDERAL INCOME TAX LIABILITY OF THREE-QUARTERS OF A MILLION DOLLARS FOR
ONE YEAR AND IN EXCESS OF HALF A MILLION DOLLARS FOR ANOTHER AND
STRESSING THE DETRIMENTAL EFFECT SUCH TAX LIABLILITY WOULD HAVE ON
PETITIONER'S CAPACITY TO OPERATE ITS INSTITUTION, TO SUPPORT ITS
PERSONNEL, AND TO CONTINUE WITH ITS EXPANSION PLANS. ID., AT 10 - 11,
43 - 44. THESE ALLEGATIONS LEAVE LITTLE DOUBT THAT A PRIMARY PURPOSE
OF THIS LAWSUIT IS TO PREVENT THE SERVICE FROM ASSESSING AND COLLECTING
INCOME TAXES FROM PETITIONER.
WE RECOGNIZE THAT PETITIONER'S ASSERTIONS THAT IT WILL OWE FEDERAL
INCOME TAXES SHOULD ITS 501 (C)(3) STATUS BE REVOKED ARE OPEN TO
DEBATE, BECAUSE THEY ARE BASED IN PART ON A FAILURE TO TAKE INTO
ACCOUNT POSSIBLE DEDUCTIONS FOR DEPRECIATION OF PLANT AND EQUIPMENT.
EVEN IF IT COULD BE SHOWN, HOWEVER, THAT PETITIONER WOULD OWE NO
FEDERAL INCOME TAXES IF ITS 501 (C)(3) STATUS WERE REVOKED, THIS WOULD
STILL BE A SUIT TO RESTRAIN THE ASSESSMENT OR COLLECTION OF TAXES
BECAUSE PETITIONER WOULD ALSO BE LIABLE FOR FICA AND FUTA TAXES.
FEDERAL INCOME TAXES OR FICA OR FUTA TAXES. SEE, E.G., WILLIAMS
PACKING, SUPRA. MOREOVER, PETITIONER SEEKS TO RESTRAIN THE COLLECTION
OF TAXES FROM ITS DONORS--TO FORCE THE SERVICE TO CONTINUE TO PROVIDE
ADVANCE ASSURANCE TO THOSE DONORS THAT CONTRIBUTIONS TO PETITIONER WILL
BE RECOGNIZED AS TAX DEDUCTIBLE, THEREBY REDUCING THEIR TAX LIABILITY.
ALTHOUGH IN THIS REGARD PETITIONER SEEKS TO LOWER THE TAXES OF THOSE
OTHER THAN ITSELF, THE ACT IS NONETHELESS CONTROLLING. /10/ THUS IN
ANY OF ITS IMPLICATIONS, THIS CASE FALLS WITHIN THE LITERAL SCOPE AND
THE PURPOSES OF THE ACT.
PETITIONER FURTHER CONTENDS THAT THE SERVICE'S ACTIONS DO NOT
REPRESENT AN EFFORT TO PROTECT THE REVENUES BUT AN ATTEMPT TO REGULATE
THE ADMISSIONS POLICIES OF PRIVATE UNIVERSITIES. UNDER THIS LINE OF
ARGUMENT, THE ANTI-INJUNCTION ACT IS SAID TO BE INAPPLICABLE BECAUSE
THE CASE DOES NOT TRULY INVOLVE TAXES. WE DISAGREE.
THE SERVICE BASES ITS PRESENT POSITION WITH REGARD TO THE TAX STATUS
OF SEGREGATIVE PRIVATE SCHOOLS ON ITS INTERPRETATION OF THE CODE. /11/
THERE IS NO EVIDENCE THAT THAT POSITION DOES NOT REPRESENT A GOOD
FAITH EFFORT TO ENFORCE THE TECHNICAL REQUIREMENTS OF THE TAX LAWS,
AND, WITHOUT INDICATING A VIEW AS TO WHETHER THE SERVICE'S
INTERPRETATION IS CORRECT, WE CANNOT SAY THAT ITS POSITION HAS NO LEGAL
BASIS OR IS UNRELATED TO THE PROTECTION OF THE REVENUES. THE ACT IS
THEREFORE APPLICABLE. PETITIONER'S ATTRIBUTION OF NON-TAX-RELATED
MOTIVES TO THE SERVICE IGNORES THE FACT THAT PETITIONER HAS NOT SHOWN
THAT THE SERVICE'S ACTION IS WITHOUT AN INDEPENDENT BASIS IN THE
REQUIREMENTS OF THE CODE. MOREOVER, PETITIONER'S ARGUMENT FAILS TO
GIVE APPROPRIATE WEIGHT TO BAILEY V. GEORGE, 259 U.S. 16 (1922). IN
THAT CASE, THE COURT HELD THAT THE ACT BLOCKED A PRE-ENFORCEMENT SUIT
TO ENJOIN THE FEDERAL CHILD LABOR TAX, ALTHOUGH THE TAX WAS CHALLENGED
AS A REGULATORY MEASURE BEYOND THE TAXING POWER OF CONGRESS.
SIGNIFICANTLY, THE COURT ANNOUNCED BAILEY V. GEORGE ON THE SAME DAY
THAT IT ISSUED BAILEY V. DREXEL FURNITURE CO., 259 U.S. 20 (1922), A
TAX-REFUND CASE IN WHICH THE COURT STRUCK DOWN THE CHILD LABOR TAX AS
UNCONSTITUTIONAL ON THE GROUNDS THAT THE TAXPAYER ATTEMPTED TO RAISE
PREMATURELY IN BAILEY V. GEORGE. /12/
PETITIONER ALSO ARGUES THAT 7421 (A) IS NOT CONTROLLING BECAUSE WHEN
THE ACT WAS PASSED IN 1867 CONGRESS COULD NOT POSSIBLY HAVE FORESEEN
SOMETHING AS SOPHISTICATED AS THE COMPARATIVELY RECENT RULING-LETTER
PROGRAM /13/ AND THE SPECIAL IMPORTANCE OF THAT PROGRAM FOR 501 (C)(3)
ORGANIZATIONS. THIS ARGUMENT PROVES TOO MUCH, HOWEVER, SINCE THE SAME
CONGRESS ALSO COULD NOT HAVE FORSEEN, FOR EXAMPLE, FICA OR FUTA TAXES,
TO WHICH THE PROHIBITORY COMMAND OF 7421 (A) INDISPUTABLY APPLIES.
SEE, E.G., WILLIAMS PACKING, 370 U.S. 1 (1970). MOREOVER, THROUGH THE
YEARS CONGRESS HAS REPEATEDLY REENACTED THE ANTI-INJUNCTION ACT /14/
AT TIMES WHEN IT WAS OBVIOUSLY AWARE OF THE CONTINUOUSLY INCREASING
COMPLEXITY OF THE FEDERAL TAX SYSTEM. /15/
PETITIONER NEXT ARGUES THAT ENOCHS V. WILLIAMS PACKING & NAVIGATION
CO., SUPRA, DOES NOT CONSTITUTE AN ALL-ENCOMPASSING READING OF THE
ACT. PETITIONER CONTENDS, ON THE BASIS OF PRIOR PRECEDENTS, THAT 7421
(A) IS SUBJECT TO JUDICIALLY CREATED EXCEPTIONS OTHER THAN THE "UNDER
NO CIRCUMSTANCES" TEST ANNOUNCED IN WILLIAMS PACKING. BUT THE COURT'S
UNANIMOUS OPINION IN WILLIAMS PACKING INDICATES THAT THE CASE WAS MEANT
TO BE THE CAPSTONE TO JUDICIAL CONSTRUCTION OF THE ACT. IT SPELLS AN
END TO A CYCLICAL PATTERN OF ALLEGIANCE TO THE PLAIN MEANING OF THE
ACT, FOLLOWED BY PERIODS OF UNCERTAINTY CAUSED BY A JUDICIAL DEPARTURE
FROM THAT MEANING, AND FOLLOWED IN TURN BY THE COURT'S REDISCOVERY OF
THE ACT'S PURPOSE.
DURING THE FIRST HALF CENTURY OF THE ACT'S EXISTENCE, THE COURT GAVE
IT LITERAL FORCE, WITHOUT REGARD TO THE CHARACTER OF THE TAX, THE
NATURE OF THE PRE-ENFORCEMENT CHALLENGE TO IT, OR THE STATUS OF THE
PLAINTIFF. SEE STATE RAILROAD TAX CASES, 92 U.S., AT 613 - 614; SNYDER
V. MARKS, 109 U.S. 189 (1883); PACIFIC STEAM WHALING CO. V. UNITED
STATES, 187 U.S. 447 (1903); DODGE V. OSBORN, 240 U.S. 118 (1916);
BAILEY V. GEORGE, 259 U.S. 16 (1922). /16/ OCCASIONALLY, HOWEVER, THE
COURT NOTED IN DICTUM THAT UNSPECIFIED EXTRAORDINARY AND EXCEPTIONAL
CIRCUMSTANCES MIGHT JUSTIFY AN INJUNCTION DESPITE THE ACT. I.G., DODGE
V. OSBORN, SUPRA, AT 122; BAILEY V. GEORGE, SUPRA, AT 20. IN 1922, THE
COURT SEIZED UPON THESE DICTA AND PERMITTED PRE-ENFORCEMENT INJUNCTIVE
SUITS AGAINST TAX STATUTES THAT WERE VIEWED AS PENALTIES OR AS ADJUNCTS
TO THE CRIMINAL LAW. HILL V. WALLACE, 259 U.S. 44 (1922); LIPKE V.
LEDERER, 259 U.S. 557 (1922); REGAL DRUG CORP. V. WARDELL, 260 U.S. 386
(1922). SHORTLY THEREAFTER, HOWEVER, THE COURT MADE CLEAR THAT HILL,
LIPKE, AND REGAL DRUG WERE OF NARROW SCOPE AND HAD NO APPLICATION TO
PRE-ENFORCEMENT CHALLENGES TO TRULY REVENUE-RAISING TAX STATUTES.
GRAHAM V. DU PONT, 262 U.S. 234 (1923). /17/ THUUS, THE COURT'S FIRST
DEPARTURE FROM A LITERAL READING OF THE ACT PRODUCED A PROMPT
CORRECTION IN COURSE.
IN THE 1930'S THE COURT DECIDED MILLER V. STANDARD NUT MARGARINE
CO., 284 U.S. 498 (1932), AND ALLEN V. REGENTS OF THE UNIVERSITY SYSTEM
OF GEORGIA, 304 U.S. 139 (1938), THE CASES RELIED ON MOST HEAVILY BY
PETITIONER. STANDARD NUT SET FORTH A NEW DEFINITION OF THE
EXTRAORDINARY AND EXCEPTIONAL CIRCUMSTANCES TEST, WHICH WAS FOLLOWED IN
REGENTS. IN STANDARD NUT THE COURT STATED THAT THE ACT IS MERELY
"DECLARATORY OF THE PRINCIPLE" OF CASES PRIOR TO ITS PASSAGE THAT
EQUITY USUALLY, BUT NOT ALWAYS, DISAVOWS INTERFERENCE WITH TAX
COLLECTION; THUS, THE ACT WAS TO BE CONSTURED "AS NEAR AS MAY BE IN
HARMONY WITH (EQUITY DOCTRINE) AND THE REASONS UPON WHICH IT REST."
284 U.S., AT 509. THROUGH THIS INTERPRETATION, THE CONCEPT OF
EXTRAORDINARY AND EXCEPTIONAL CIRCUMSTANCES WAS REDUCED TO THE
TRADITIONAL EQUITABLE REQUIREMENTS FOR ISSUANCE OF AN INJUNCTION.
STANDARD NUT WAS SUCH A SIGNIFICANT DEVIATION FROM PRECEDENT THAT IT
WAS REFERRED TO BY A COMMENTATOR AT THE TIME AS "A TRIBUTE TO THE
TENACITY OF THE AMERICAN TAXPAYER" AND "LITTLE SHORT OF PHENOMENAL."
/18/ READ LITERALLY, THE COURT'S OPINION EFFECTIVELY REPEALED THE ACT,
SINCE THE ACT WAS VIEWED AS REQUIRING NOTHING MORE THAN EQUITY DOCTRINE
HAD DEMANDED BEFORE THE ACT'S PASSAGE. THE INCONGRUITY OF THIS
POSITION HAS NOT ESCAPED NOTICE. /19/ IT UNDOUBTEDLY LED DIRECTLY TO
THE COURT'S REEXAMINATION OF THE REQUIREMENTS OF THE ACT IN WILLIAMS
PACKING, THE SECOND TIME THE COURT HAS UNDERTAKEN TO REHABILITATE THE
ACT FOLLOWING DEBILITATING DEPARTURES FROM ITS EXPLICIT LANGUAGE. SEE
GRAHAM V. DU PONT, SUPRA.
WILLIAMS PACKING SWITCHED THE FOCUS OF THE EXTRAORDINARY AND
EXCEPTIONAL CIRCUMSTANCES TEST FROM A SHOWING OF THE DEGREE OF HARM TO
THE PLAINTIFF ABSENT AN INJUNCTION TO THE REQUIREMENT THAT IT BE
ESTABLISHED THAT THE SERVICE'S ACTION IS PLAINLY WITHOUT A LEGAL
BASIS. THE COURT IN ESSENCE READ STANDARD NUT NOT AS AN INSTANCE OF
IRREPARABLE UNJURY BUT AS A CASE WHERE THE SERVICE HAD NO CHANCE OF
SUCCESS ON THE MERITS. 370 U.S., AT 7. AND THE COURT EXPLICITLY HELD
THAT THE ACT MAY NOT BE EVADED "MERELY BECAUSE COLLECTION WOULD CAUSE
AN IRREPARABLE INJURY, SUCH AS THE RUINATION OF THE TAXPAYER'S
ENTERPRISE." ID., AT 6. YET PETITIONER'S ARGUMENT THAT WE SHOULD FIND
WILLIAMS PACKING INAPPLICABLE TURNS, IN THE LAST ANALYSIS, ON ITS CLAIM
THAT TO DO OTHERWISE WOULD SUBJECT IT TO GREAT HARM. THE COURT
REJECTED THAT CONSIDERATION IN WILLIAMS PACKING ITSELF, AND WE REJECT
IT AS A REASON FOR FINDING THAT CASE NOT CONTROLLING. UNDER THE
LANGUAGE OF THE ACT, THE DEGREE OF HARM IS NOT A FACTOR, AND AS A
MATTER OF JUDICIAL CONSTRUCTION, IT DOES NOT PROVIDE A MEANINGFUL
STOPPING POINT BETWEEN STANDARD NUT AND WILLIAMS PACKING. ACCEPTANCE
OF PETITIONER'S IRREPARABLE INJURY ARGUMENT WOULD SIMPLY REVIVE THE
EVISCERATION OF THE ACT INHERENT IN STANDARD NUT.
C
ASSUMING, ARGUENDO, THE APPLICABILITY OF 7421 (A) AND WILLIAMS
PACKING, PETITIONER CONTENDS THAT FORCING IT TO MEET THE STANDARDS OF
THOSE AUTHORITIES WILL DENY IT DUE PROCESS OF LAW IN LIGHT OF THE
IRREPARABLE INJURY IT WILL SUFFER PENDING RESORT TO ALTERNATIVE
PROCEDURES FOR REVIEW AND OF THE ALLEGED INADEQUACIES OF THOSE REMEDIES
AT LAW. THE COURT DISMISSED OUT OF HAND SIMILAR CONTENTIONS NEARLY 60
YEARS AGO, /20/ AND WE FIND SUCH ARGUMENTS NO MORE COMPELLING NOW THAN
THEN.
THIS IS NOT A CASE IN WHICH AN AGGRIEVED PARTY HAS NO ACCESS AT ALL
TO JUDICIAL REVIEW. WERE THAT TRUE, OUR CONCLUSION MIGHT WELL BE
DIFFERENT. IF, AS ALLEGED IN ITS COMPLAINT, PETITIONER WILL HAVE
TAXABLE INCOME UPON THE WITHDRAWAL OF ITS 501 (C)(3) STATUS, IT MAY IN
ACCORDANCE WITH PRESCRIBED PROCEDURES PETITION THE TAX COURT TO REVIEW
THE ASSESSMENT OF INCOME TAXES. ALTERNATIVELY, PETITIONER MAY PAY
INCOME TAXES, OR, IN THEIR ABSENCE, AN INSTALLMENT OF FICA OR FUTA
TAXES, EXHAUST THE SERVICE'S INTERNAL REFUND PROCEDURES, AND THEN BRING
SUIT FOR A REFUND. THESE REVIEW PROCEDURES OFFER PETITIONER A FULL,
ALBEIT DELAYED, OPPORTUNITY TO LITIGATE THE LEGALITY OF THE SERVICE'S
REVOCATION OF TAX-EXEMPT STATUS AND WITHDRAWAL OF ADVANCE ASSURANCE OF
DEDUCTIBILITY. SEE, E.G., CHRISTIAN ECHOES NATIONAL MINISTRY, INC. V.
UNITED STATES, 470 F.2D 849 (CA10 1972), CERT. DENIED, 414 U.S. 864
(1973); CENTER ON CORPORATE RESPONSIBILITY, INC. V. SHULTZ, 368 F.
SUPP. 863 (DC 1972). /21/
WE DO NOT SAY THAT THESE AVENUES OF REVIEW ARE THE BEST THAT CAN BE
DEVISED. THEY PRESENT SERIOUS PROBLEMS OF DELAY, DURING WHICH THE FLOW
OF DONATIONS TO AN ORGANIZATION WILL BE IMPAIRED AND IN SOME CASES
PERHAPS EVEN TERMINATED. BUT, AS THE SERVICE NOTES, SOME DELAY MAY BE
AN INEVITABLE CONSEQUENCE OF THE FACT THAT DISPUTES BETWEEN THE SERVICE
AND A PARTY CHALLENGING THE SERVICE'S ACTIONS ARE NOT SUSCEPTIBLE OF
INSTANT RESOLUTION THROUGH LITIGATION. AND ALTHOUGH THE CONGRESSIONAL
RESTRICTION TO POSTENFORCEMENT REVIEW MAY PLACE AN ORGANIZATION
CLAIMING TAX-EXEMPT STATUS IN A PRECARIOUS FINANCIAL POSITION, THE
PROBLEMS PRESENTED DO NOT RISE TO THE LEVEL OF CONSTITUTIONAL
INFIRMITIES, IN LIGHT OF THE POWERFRUL GOVERNMENTAL INTERESTS IN
PROTECTING THE ADMINISTRATION OF THE TAX SYSTEM FROM PREMATURE JUDICIAL
INTERFERENCE, E.G., CHEATHAM V. UNITED STATES, 92 U.S., AT 88 - 89;
STATE RAILROAD TAX CASES, 92 U.S., AT 613 - 614, AND OF THE
OPPORTUNITIES FOR REVIEW THAT ARE AVAILABLE. /22/
IV
SINCE WE HOLD THAT WILLIAMS PACKING, SUPRA, GOVERNS THIS CASE, THE
REMAINING ISSUE IS WHETHER PETITIONER HAS MET THE STANDARDS OF THAT
CASE. WITHOUT DECIDING THE MERITS, WE THINK THAT PETITIONER'S FIRST
AMENDMENT, DUE PROCESS, AND EQUAL PROTECTION CONTENTIONS ARE
SUFFICIENTLY DEBATABLE TO FORECLOSE ANY NOTION THAT "UNDER NO
CIRCUMSTANCES COULD THE GOVERNMENT ULTIMATELY PREVAIL . . . ." 370
U.S., AT 7. SEE, E.G., GREEN V. CONNALLY, 330 F. SUPP. 1150 (DC),
AFF'D PER CURIAM SUB NOM. COIT V. GREEN, 404 U.S. 997 (1971).
ACCORDINGLY, THE COURT OF APPEALS DID NOT ERR IN HOLDING THAT 7421 (A)
DEPRIVED THE DISTRICT COURT OF JURISDICTION TO ISSUE THE INJUNCTIVE
RELIEF PETITIONER SOUGHT.
IN HOLDING THAT 7421 (A) BLOCKS THE PRESENT SUIT, WE ARE NOT UNAWARE
THAT CONGRESS HAS IMPOSED AN ESPECIALLY HARSH REGIME ON 501 (C)(3)
ORGANIZATIONS THREATENED WITH LOSS OF TAX-EXEMPT STATUS AND WITH
WITHDRAWAL OF ADVANCE ASSURANCE OF DEDUCTIBILITY OF CONTRIBUTIONS. A
FORMER COMMISSIONER OF THE INTERNAL REVENUE SERVICE HAS SHARPLY
CRITICIZED THE SYSTEM APPLICABLE TO SUCH ORGANIZATIONS. /23/ THE
DEGREE OF BUREAUCRATIC CONTROL THAT, PRACTICALLY SPEAKING, HAS BEEN
PLACED IN THE SERVICE OVER THOSE IN PETITIONER'S POSITION IS
SUSCEPTIBLE OF ABUSE, REGARDLESS OF HOW CONSCIENTIOUSLY THE SERVICE MAY
ATTEMPT TO CARRY OUT ITS RESPONSIBILITIES. SPECIFIC TREATMENT OF NOT
FOR-PROFIT ORGANIZATIONS TO ALLOW THEM TO SEEK PRE-ENFORCEMENT REVIEW
MAY WELL MERIT CONSIDERATION. BUT THIS MATTER IS FOR CONGRESS, WHICH
IS THE APPROPRIATE BODY TO WEIGH THE RELEVANT, POLICY-LADEN
CONSIDERATIONS, SUCH AS THE HARSHNESS OF THE PRESENT LAW, THE
CONSEQUENCES OF AN UNJUSTIFIED REVOCATION OF 501 (C)(3) STATUS, THE
NUMBER OF ORGANIZATIONS IN ANY YEAR THREATENED WITH SUCH REVOCATION,
THE COMPARABILITY OF THOSE ORGANIZATIONS TO OTHERS WHICH RELY ON THE
SERVICE'S RULING-LETTER PROGRAM, AND THE LITIGATION BURDEN ON THE
SERVICE AND THE EFFECT ON THE ASSESSMENT AND COLLECTION OF FEDERAL
TAXES IF THE LAW WERE TO BE CHANGED.
THE JUDGMENT IS AFFIRMED.
IT IS SO ORDERED.
/1/ SECTION 170 (A) OF THE CODE PROVIDES THAT "(THERE SHALL BE
ALLOWED AS A DEDUCTION ANY CHARITABLE CONTRIBUTION (AS DEFINED IN
SUBSECTION (C)) PAYMENT OF WHICH IS MADE WITHIN THE TAXABLE YEAR. . .
." SECTION 170 (C)(2) DECLARES:
"CHARITABLE CONTRIBUTION DEFINED.--FOR PURPOSES OF THIS SECTION, THE
TERM 'CHARITABLE CONTRIBUTION' MEANS A CONTRIBUTION OR GIFT TO OR FOR
THE USE OF--
. . . . .
"(2) A CORPORATION, TRUST, OR COMMUNITY CHEST, FUND, OR FOUNDATION-
"(A) CREATED OR ORGANIZED IN THE UNITED STATES OR IN ANY POSSESSION
THEREOF, OR UNDER THE LAW OF THE UNITED STATES, ANY STATE, THE DISTRICT
OF COLUMBIA, OR ANY POSSESSION OF THE UNITED STATES;
"(B) ORGANIZED AND OPERATED EXCLUSIVELY FOR RELIGIOUS, CHARITABLE,
SCIENTIFIC, LITERARY, OR EDUCATIONAL PURPOSE OR FOR THE PREVENTION OF
CRUELTY TO CHILDREN OR ANIMALS;
"(C) NO PART OF THE NET EARNINGS OF WHICH INURES TO THE BENEFIT OF ANY
PRIVATE SHAREHOLDER OR INDIVIDUAL; AND
"(D) NO SUBSTANTIAL PART OF THE ACTIVITIES OF WHICH IS CARRYING ON
PROPAGANDA, OR OTHERWISE ATTEMPTING, TO INFLUENCE LEGISLATION, AND
WHICH DOES NOT PARTICIPATE IN, OR INTERVENE IN (INCLUDING THE
PUBLISHING OR DISTRIBUTING OF STATEMENTS), ANY POLITICAL CAMPAIGN ON
BEHALF OF ANY CANDIDATE FOR PUBLIC OFFICE." THE ORGANIZATIONS SET
FORTH IN 170 (C)(2) ARE, BUT FOR A FEW UNIMPORTANT EXCEPTIONS, THE SAME
AS THOSE DESCRIBED IN 501 (C)(3). ANALOGOUS DEDUCTIONS FOR
CONTRIBUTIONS TO 501 (C)(3) ORGANIZATIONS ARE PROVIDED FOR FEDERAL
ESTATE AND GIFT TAX PURPOSES. SEE CODE 2055 (A)(2) AND 2522 (A)(2), 26
U.S.C. 2055 (A)(2) AND 2522 (A)(2).
/2/ SECTION 3.01 OF REV. PROC. 72 - 39, 1972 - 2 CUM. BULL. 818,
PROVIDES:
"WHERE AN ORGANIZATION LISTED IN (THE CUMULATIVE LIST) CEASES TO
QUALIFY AS AN ORGANIZATION CONSTIBUTIONS TO WHICH ARE DEDUCTIBLE TO
QUALIFY AS AN ORGANIZATION CONSTRIBUTIONS TO WHICH ARE DEDUCTIBLE UNDER
OR A DETERMINATION LETTER PREVIOUSLY ISSUED TO IT, CONTRIBUTIONS MADE
TO THE ORGANIZATION BY PERSONS UNAWARE OF TE CHANGES IN THE STATUS OF
THE ORGANIZATION GENERALLY WILL BE CONSIDERED ALLOWABLE IF MADE ON OR
BEFORE THE DATE OF PUBLICATION OF THE INTERNAL REVENUE BULLETIN
ANNOUNCING THAT CONTRIBUTIONS ARE NO LONGER DEDUCTIBLE. HOWEVER, THE
SERVICE IS NOT PRECLUDED FROM DISALLOWING A DEDUCTION FOR ANY
CONTRIBUTION MADE AFTER AN ORGANIZATION CEASES TO QUALIFY UNDER SECTION
170, WHERE THE CONTRIBUTOR (1) HAD KNOWLEDGE OF THE REVOCATION OF THE
RULING OR DETERMINATION LETTER, (2) WAS AWARE THAT SUCH REVOCATION WAS
IMMINENT, OR (3) WAS IN PART RESPONSIBLE FOR, OR WAS AWARE OF, THE
ACTIVITIES OR DEFICIENCIES ON THE PART OF THE ORGANIZATION THAT GAVE
RISE TO THE LOSS OF QUALIFICATION."
/3/ THIS IS PARTICULARLY SO WITH RESPECT TO TAX-EXEMPT PRIVATE
FOUNDATIONS, BECAUSE THEY ARE SUBJECT TO TAX LIABILITY IF THEY
CONTRIBUTE FUNDS TO AN ORGANIZATION THAT DOES NOT QUALIFY UNDER
170(C)(2). SEE CODE 4945 (D)(5), 26 U.S.C. 4945(D)(5).
/4/ IN RECOGNITION OF THE SIGNIFICANCE OF SUCH A CHANGE IN STATUS,
THE SERVICE PROVIDES SEVERAL STAGES OF INTERNAL ADMINISTRATIVE REVIEW.
IF THE SERVICE INDICATES, PURSUANT TO PRESCRIBED PROCEDURES, THAT CAUSE
FOR REVOCATION EXISTS, THE AFFECTED ORGANIZATION IS ENTITLED TO SUBMIT
WRITTEN PROTESTS AND TO CONFERENCES AT BOTH THE DISTRICT DIRECTOR AND
NATIONAL OFFICE LEVEL. SECTION 11, REV. PROC. 72 - 4, 1972 - 1 CUM.
BULL., AT 709; SECTION 4, REV. PROC. 72 - 39, 1972 - 2 CUM. BULL., AT
818 - 819.
/5/ AN ORGANIZATION MAY LOSE ITS 501 (C)(3) STATUS BUT STILL BE
EXEMPT FROM FEDERAL INCOME TAXES IF IT QUALIFIES, FOR EXAMPLE, AS A 501
(C) (4) SOCIAL WELFARE ORGANIZATION. BUT THE LOSS OF 501 (C)(3) STATUS
INEVITABLY MEANS THAT THE EXEMPTIONS FROM FICA AND FUTA TAXES NO LONGER
APPLY, SINCE THOSE EXEMPTIONS ARE KEYED TO 501 (C)(3). SEE CODE 3121
(B)(8)(B) AND 3306 (C)(8).
/6/ SEE ACT OF MAR. 2, 1867, 10, 14 STAT. 475; REV. STAT 3224
(1874); INT. REV. CODE OF 1939, 3653. SECTION 7421 (A) OF THE CODE
STATES:
"EXCEPT AS PROVIDED IN SECTIONS 6212 (A) AND (C), 6213 (A), AND 7426
(A) AND (B)(1), NO SUIT FOR THE PURPOSE OF RESTRAINING THE ASSESSMENT
OR COLLECTION OF ANY TAX SHALL BE MAINTAINED IN ANY COURT BY ANY
PERSON, WHETHER OR NOT SUCH PERSON IS THE PERSON AGAINST WHOM SUCH TAX
WAS ASSESSED." (EMPHASIS ADDED.) THE ITALICIZED PORTION OF 7421 (A)
IS IDENTICAL TO LANGUAGE IN 10 OF THE ACT OF MAR. 2, 1867, BUT FOR THE
FIRST "ANY," WHICH THE REVISERS ADDED TO THE REVISED STATUTES VERSION.
SEE SNYDER V. MARKS, 109 U.S. 189, 192 (1883). NONE OF THE EXCEPTIONS
IN 7421(A) IS RELEVANT TO THIS CASE. THE PHRASE COMMENCING WITH "BY
ANY PERSON . . ." WAS ADDED BY 110(C) OF THE FEDERAL TAX LIEN ACT OF
1966, PUB. L. 89 - 719, 80 STAT. 1144. THE MAIN PURPOSE OF THE
ADDITION OF THIS LANGUAGE WAS TO DEAL WITH CASES WHERE THIRD PARTIES
WHO ARE NOT THEMSELVES SUBJECT TO TAX LIABILITY HOLD PROPERTY LIENS
THAT COMPETE WITH FEDERAL TAX LIENS. DUE TO THE LITERAL MEANING OF THE
ANTI-INJUNCTION ACT, SUCH PERSONS WERE PRIOR TO 1966, OFTEN UNABLE TO
PROTECT THEIR LEGITIMATE PROPERTY INTERESTS WHEN THE SERVICE FORECLOSED
ON PROPERTY ON WHICH IT HELD A TAX LIEN. SEE H.R. REP. NO. 1884, 89TH
CONG., 2D SESS., 27 - 28 (1966). SUCH PERSONS ARE NOW GIVEN A RIGHT OF
ACTION UNDER CODE 7426, 26 U.S.C. 7426, AND THE LANGUAGE OF 7421(A), AS
AMENDED, RENDERS THAT ACTION EXCLUSIVE. THE "BY ANY PERSON" PHRASE IS,
HOWEVER, ALSO A REAFFIRMATION OF THE PLAIN MEANING OF THE EMPHASIZED
PORTION OF 7421(A). IN THIS RESPECT, IT IS DECLARATORY, NOT
INNOVATIVE. CF. BITTKER & KAUFMAN, TAXES AND CIVIL RIGHTS:
"CONSTITUTIONALIZING" THE INTERNAL REVENUE CODE, 82 YALE L. J. 51, 57,
N 22 (1972). WE ARE AWARE OF THE CONTRARY READING OF THE "BY THE
PERSON" PHRASE IN MCGLOTTEN V. CONNALLY, 338 F.SUPP. 448, 453 N. 25
(DC 1972) (THREE-JUDGE COURT), BUT WE ARE OF A DIFFERENT VIEW.
/7/ THE CONGRESSIONAL ANTIPATHY FOR PREMATURE INTERFERENCE WITH THE
ASSESSMENT OR COLLECTION OF ANY FEDERAL TAX ALSO EXTENDS TO DECLARATORY
JUDGMENT ACT, 48 STAT. 955, NOW 28 U.S.C. 2201 - 2202, CONGRESS AMENDED
THAT ACT TO EXCLUDE SUITS "WITH RESPECT TO FEDERAL TAXES . . . ," 405
OF THE REVENUE ACT OF 1935, C. 829, 49 STAT. 1027, THUS REAFFIRMING THE
RESTRICTIONS SET OUT IN THE ANTI-INJUNCTION ACT. THE DECLARATORY
JUDGMENT ACT NOW READS: "2201. CREATION OF REMEDY.
"IN A CASE OF ACTUAL CONTROVERSY WITHIN ITS JURISDICTION, EXCEPT
WITH RESPECT TO FEDERAL TAXES, ANY COURT OF THE UNITED STATES, UPON THE
FILING OF AN APPROPRIATE PLEADING, MAY DECLARE THE RIGHTS AND OTHER
LEGAL RELATIONS OF ANY INTERESTED PARTY SEEKING SUCH DECLARATION,
WHETHER OR NOT FURTHER RELIEF IS OR COULD BE SOUGHT. ANY SUCH
DECLARATION SHALL HAVE THE FORCE AND EFFECT OF A FINAL JUDGMENT OR
DECREE AND SHALL BE REVIEWABLE AS SUCH." (EMPHASIS ADDED.) "2202.
FURTHER RELIEF.
"FURTHER NECESSARY OR PROPER RELIEF BASED ON A DECLARATORY JUDGMENT
OR DECREE MAY BE GRANTED, AFTER REASONABLE NOTICE AND HEARING, AGAINST
ANY ADVERSE PARTY WHOSE RIGHTS HAVE BEEN DETERMINED BY SUCH JUDGMENT."
SOME HAVE NOTED THAT THE FEDERAL TAX EXCEPTION TO THE DECLARATORY
JUDGMENT ACT MAY BE MORE SWEEPING THAN THE ANTI-INJUNCTION ACT. E.G.,
E. BORCHARD, DECLARATORY JUDGMENTS 855 (2D ED. 1941); BITTKER &
KAUFMAN, SUPRA, N. 6, AT 58. SEE S. REP. NO. 1240, 74TH CONG., 1ST
SESS., 11 (1935). THE SERVICE TAKES THAT POSITION IN THIS CASE,
ARGUING THAT ANY SUIT FOR AN INJUNCTION IS ALSO AN ACTION FOR A
DECLARATORY JUDGMENT AND THUS IS BARRED BY THE LITERAL TERMS OF THE
DECLARATORY JUDGMENT ACT, WITHOUT REGARD TO THE INDEPENDENT FORCE OF
7421(A). A NUMBER OF COURTS, ON THE OTHER HAND, HAVE HELD THAT THE
FEDERAL TAX EXCEPTION TO THE DECLARATORY JUDGMENT ACT AND THE ANTI
INJUNCTION ACT HAVE COTERMINOUS APPLICATION. E.G., "AMERICANS UNITED"
INC. V. WALTERS, 155 U.S. APP. D.C. 284, 291, 477 F.2D 1169, 1176
(1973), REV'D SUB NOM. ALEXANDER V. "AMERICANS UNITED" INC., POST, P.
852; TOMLINSON V. SMITH, 128 F.2D 808 (CA7 1942); MCGLOTTEN V.
CONNALLY, SUPRA; JULES HAIRSTYLISTS OF MARYLAND, INC. V. UNITED STATES,
268 F. SUPP. 511 (CD. 1967), AFF'D, 389 F.2D 389 (CA4), CERT. DENIED,
391 U.S. 934 (1968). PETITIONER CITES THESE CASES IN RESPONSE TO THE
SERVICE'S RELIANCE ON THE DECLARATORY JUDGMENT ACT. THERE IS NO
DISPUTE, HOWEVER, THAT THE FEDERAL TAX EXCEPTION TO THE DECLARATORY
JUDGMENT ACT IS AT LEAST AS BROAD AS THE ANTI-INJUNCTION ACT. BECAUSE
WE HOLD THAT THE INSTANT CASE IS BARRED BY THE LATTER PROVISION, THERE
IS NO OCCASION TO RESOLVE WHETHER THE FORMER IS EVEN MORE PRECLUSIVE.
NOR NEED WE DECIDE WHETHER ANY ACTION FOR AN INJUNCTION IS OF NECESSITY
A REQUEST FOR A DECLARATION OF RIGHTS THAT TRIGGERS THE TERMS OF THE
DECLARATORY JUDGMENT ACT.
/8/ SEVERAL COURTS HAVE REACHED THE SAME RESULT UNDER THE FEDERAL
TAX EXCEPTION TO THE DECLARATORY JUDGMENT ACT, SET FORTH IN N. 7,
SUPRA. E.G., LIBERTY AMENDMENT COMMITTEE OF THE U.S.A. V. UNITED
STATES, CIVIL ACTION NO. 70 - 721 (CD CAL. JUNE 19, 1970)
(UNPUBLISHED), AFF'D PER CURIAM, NO. 26507 (CA9 JULY 7, 1972)
(UNPUBLISHED), CERT. DENIED, 409 U.S. 1076 (1972); MITCHELL V. RIDDELL,
402 F.2D 842 (CA9 1968), APPEL DISMISSED AND CERT. DENIED, 394 U.S. 456
(1969); JOLLES FOUNDATION, INC. V. MOYSEY, 250 F.2D 166 (CA2 1967);
KYRON FOUNDATION, INC. V. MOYSEY, 250 F. 2D 166 (CA2 1957); DYRON
FOUNDATION V. DUNLAP, 110 F. SUPP. 428 (DC 1952).
/9/ SEE NOTE, ENJOINING THE ASSESSMENT AND COLLECTION OF FEDERAL
TAXES DESPITE STATUTORRY PROHIBITION, 49 HARV. L. REV. 109 N. 9 (1935);
GOROVITZ, FEDERAL TAX INJUNCTIONS AND THE STANDARD NUT CASES, 10 TAXES
446 N. 9 (1932).
/10/ SEE N. 6, SUPRA. PETITIONER ARGUES THAT THE REVENUES WILL BE
UNAFFECTED BY THE LOSS OF ITS 501(C)(3) STATUS, SINCE IF PETITIONER
LOSES ITS RULING LETTER, DONORS WILL SIMPLY REDIRECT THEIR GIFTS TO
ORGANIZATIONS WHOSE TAX-EXEMPT STATUS IS SECURE, THUS OBTAINING THE
SAME 170 (C)(2) CHARITABLE DEDUCTIONS THEY PRESENTLY ENJOY WHEN THEY
MAKE CONTRIBUTIONS TO PETITIONER. IT FOLLOWS, ACCORDING TO PETITIONER,
THAT THE ACT'S PRINCIPLE PURPOSE OF PROTECTING THE REVENUES IS NOT
THREATENED BY AN INJUNCTION PRESERVING PETITIONER'S 501 (C)(3) STATUS.
THUS, THE ACT SHOULD BE FOUND INAPPLICABLE.
THE ARGUMENT IS TOO SPECULATIVE TO BE PERSUASIVE. IT PRESUMES THAT
ALL DONORS WHO TAKE 170 (C)(2) DEDUCTIONS WILL DESERT PETITIONER IF THE
RULING LETTER IS WITHDRAWN AND THAT ALL SUCH DONORS WILL MAKE GIFTS IN
EQUIVALENT AMOUNTS TO OTHER TAX-EXEMPT ORGANIZATIONS. WE DEEM IT
UNLIKELY THAT EITHER PREMISE IS WHOLLY TRUE. TO THE EXTENT THAT EITHER
PREMISE IS INACCURATE, AN INJUNCTION PRESERVING PETITIONER'S 501(C)(3)
RULING LETTER WILL INTERRUPT THE ASSESSMENT AND COLLECTION OF TAXES.
/11/ SEE REV. RUL. 71 - 447, 1971 - 2 CUM. BULL. 230. THE
QUESTION OF WHETHER A SEGREGATIVE PRIVATE SCHOOL QUALIFIES UNDER
501(C)(3) HAS NOT RECEIVED PLENARY REVIEW IN THIS COURT, AND WE DO NOT
REACH THAT QUESTION TODAY. SUCH SCHOOLS HAVE BEEN HELD NOT TO QUALIFY
UNDER 501(C)(3) IN GREEN V. CONNALLY, 330 F. SUPP. 1150 (DC) (THREE
JUDGE COURT), AFF'D PER CURIAM SUB NOM. COIT V. GREEN, 404 U.S. 997
(1971). AS A DEFENDANT IN GREEN, THE SERVICE INITIALLY TOOK THE
POSITION THAT SEGREGATIVE PRIVATE SCHOOLS WERE ENTITLED TO TAX-EXEMPT
STATUS UNDER 501(C)(3), BUT IT REVERSED ITS POSITION WHILE THE CASE WAS
ON AP PEAL TO THIS COURT. THUS, THE COURT'S AFFIRMANCE IN GREEN LACKS
THE PRECEDENTIAL WEIGHT OF A CASE INVOLVING A TRULY ADVERSARY
CONTROVERSY.
/12/ IN SUPPORT OF ITS ARGUMENT THAT THIS CASE DOES NOT INVOLVE A
"TAX" WITHIN THE MEANING OF 7421(A), PETITIONER CITES SUCH CASES AS
HILL V. WALLACE, 259 U.S. 44 (1922) (TAX ON UNREGULATED SALES OF
COMMODITIES FUTURES), AND LIPKE V. LEDERER, 259 U.S. 557 (1922) (TAX ON
UNLAWFUL SALES OF LIQUOR). IT IS TRUE THAT THE COURT IN THOSE CASES
DREW WHAT IT SAW AT THE TIME AS DISTINCTIONS BETWEEN REGULATORY AND
REVENUE-RAISING TAXES. BUT THE COURT HAS SUBSEQUENTLY ABANDONED SUCH
DISTINCTIONS. E.G., SONZINSKY V. UNITED STATES, 300 U.S. 506, 513
(1937). EVEN IF SUCH DISTINCTIONS HAVE MERIT, IT WOULD NOT ASSIST
PETITIONER, SINCE HIS CHALLENGE IS AIMED AT THE IMPOSITION OF FEDERAL
INCOME, FICA, AND FUTA TAXES WHICH CLEARLY ARE INTENDED TO RAISE
REVENUE.
/13/ THE CURRENTLY PREVAILING RULING-LETTER PROGRAM OF THE SERVICE
COMMENCED IN 1940, SEE CAPLIN, TAXPAYER RULINGS POLICY OF THE INTERNAL
REVENUE SERVICE: A STATEMENT OF PRINCIPLES, NYU 20TH INST. ON FED.
TAX 1, 2, 4 - 5 (1962), ALTHOUGH ITS FORMAL ANNOUNCEMENT DID NOT TAKE
PLACE UNTIL 1953. REV. RUL. 10, 1953 - 1 CUM. BULL. 488.
/14/ THE MOST RECENT RE-ENACTMENT, IN THE INTERNAL REVENUE CODE OF
1954, POSTDATES BOTH THE ACTUAL AND THE FORMAL COMMENCEMENT OF THE
SERVICE'S RULING LETTER PROGRAM FOR 501(C)(3) ORGANIZATIONS. SEE N.
13, SUPRA.
/15/ IN ADDITION TO REPEATEDLY RE-ENACTING THE ANTI-INJUNCTION ACT,
CONGRESS AFFIRMED THE ACT'S PURPOSE BY ADDING THE FEDERAL TAX EXCEPTION
TO THE DECLARATORY JUDGMENT ACT. SEE N. 7, SUPRA. /16/ THE ANTI
INJUNCTION ACT WAS WRITTEN AGAINST THE BACKGROUND OF GENERAL EQUITABLE
PRINCIPLES DISFAVORING THE ISSUANCE OF FEDERAL INJUNCTIONS AGAINST
TAXES, ABSENT CLEAR PROOF THAT AVAILABLE REMEDIES AT LAW WERE
INADEQUATE. E.G., DOWS V. CITY OF CHICAGO, 11 WALL. 108, 109 - 110
(1871); SHELTON V. PLATT, 139 U.S. 591 (1891); PITTSBURGH & C.R. CO. V.
BD. OF PUB. WORKS, 172 U.S. 32 (1898). SEE CALIFORNIA V. LATIMER, 305
U.S. 255, 261 - 262 (1938) (BRANDEIS, J., FOR A UNANIMOUS COURT):
"(THE DELAY INHERENT IN PURSUING REMEDIES AT LAW), IT IS URGED, IS A
SPECIAL CIRCUMSTANCE WHICH JUSTIFIES RESORT TO A SUIT FOR AN INJUNCTION
IN ORDER THAT THE QUESTION OF LIABILITY MAY BE PROMPTLY DETERMINED. IF
THE DELAY INCIDENT TO SUCH PROCEEDINGS JUSTIFIED REFUSAL TO PAY A TAX,
THE FEDERAL RULE THAT A SUIT IN EQUITY WILL NOT LIE TO RESTRAIN
COLLECTION ON THE SOLE GROUND THAT THE TAX IS ILLEGAL, COULD HAVE
LITTLE APPLICATION. FOR POSSIBLE DELAY OF THAT CHARACTER IS THE COMMON
INCIDENT OF PRACTICALLY EVERY CONTEST OVER THE VALIDITY OF A FEDERAL
TAX." (FOOTNOTE OMITTED.)
SINCE EQUITABLE PRINCIPLES MILITATING AGAINST THE ISSUANCE OF
FEDERAL INJUNCTIONS IN TAX CASES IXISTED INDEPENDENTLY OF THE ANTI
INJUNCTION ACT, IT IS MOST UNLIKELY THAT CONGRESS WOULD HAVE CHOSEN THE
STRINGENT LANGUAGE OF THE ACT IF ITS PURPOSE WAS MERELY TO RESTATE
EXISTING LAW AND NOT TO COMPEL LITIGANTS TO MAKE USE SOLELY OF THE
AVENUES OF REVIEW OPENED BY CONGRESS. FOR THIS REASON, IT IS NOT
SURPRISING THAT THE EARLY CASES INTERPRETING THE ACT READ IT AT FACE
VALUE.
/17/ AS NOTED EARLIER, THE COURT HAS ALSO ABANDONED THE VIEW THAT
BRIGHT-LINE DISTINCTIONS EXIST BETWEEN REGULATORY AND REVENUE-RAISING
TAXES. SEE N. 12, SUPRA.
/18/ GOROVITZ, FEDERAL TAX INJUNCTIONS AND THE STANDARD NUT CASES,
10 TAXES 446 (1932). MR. JUSTICE STONE, JOINED IN DISSENT BY MR.
JUSTICE GRANDEIS, UNDERLINED THE TENSION BETWEEN STANDARD NUT AND PRIOR
PRECEDENT: "ENACTED IN 1867, (THE ANTI-INJUNCTION ACT), FOR MORE THAN
SIXTY YEARS, HAS BEEN CONSISTENTLY APPLIED AS PRECLUDING RELIEF,
WHATEVER THE EQUITIES ALLEGED." 284 U.S. 498, 511.
/19/ E.G., LENOIR, CONGRESSIONAL CONTROL OVER SUITS TO RESTRAIN THE
ASSESSMENT OR COLLECTION OF FEDERAL TAXES, 3 ARIZ. L. REV. 177, 195
(1961). "IN EFFECT (STANDARD NUT) SAYS THAT IF SPECIAL CIRCUMSTANCES
EXIST WHICH BRING THE CASE WITHIN SOME ACKNOWLEDGED HEAD OF EQUITY
JURISDICTION, (THE ANTI-INJUNCTION ACT) DOES NOT APPLY, AND THE COURT
MAY ISSUE AN INJUNCTION. BUT IN THE ABSENCE OF SUCH CIRCUMSTANCES THE
COURT WILL LACK EQUITY JURISDICTION BECAUSE THERE WILL BE NO BASIS FOR
SUCH JURISDICTION. TO SAY THAT (THE ACT) APPLIES ONLY IN SUCH CASES
SEEMS A LITTLE ABSURD. IT IS TANTAMOUNT TO SAYING THAT (THE ACT)
FORBIDS THE COURTS TO ISSUE INJUNCTIONS ONLY WHEN THEY WOULD NOT HAVE
THE AUTHORITY TO ISSUE THEM ANYWAY] IT DENIES ANY FORCE WHATEVER TO
(THE ACT) EXCEPT AS DELARATORY OF AN EQUITABLE RULE PREVIOUSLY FOLLOWED
BY THE COURTS."
/20/ SEE DODGE V. OSBORN, 240 U.S. 118, 122 (1916):
"THERE IS A CONTENTION THAT THE PROVISIONS REQUIRING AN APPEAL TO
THE COMMISSIONER OF INTERNAL REVENUE AFTER PAYMENT OF THE TAXES AND
GIVING A RIGHT TO SUE IN CASE OF HIS REFUSAL TO REFUND ARE WANTING IN
DUE PROCESS AND THEREFORE THERE IS JURISDICTION (TO ISSUE INJUNCTIVE
RELIEF PRIOR TO THE ASSESSMENT OR COLLECTION OF ANY TAX). BUT WE THINK
IT SUFFICES TO STATE THAT CONTENTION TO DEMONSTRATE ITS ENTIRE WANT OF
MERIT."
/21/ BECAUSE OF THE AVAILABILITY OF FICA AND FUTA REFUND ACTIONS,
WE NEED NOT ADDRESS THE ADEQUACT OF ANOTHER POSSIBLE MEANS OF SEEKING
POSTENFORCEMENT JUDICIAL REVIEW--THE "FRIENDLY DONOR" REFUND SUIT.
UNDER THIS APPROACH, THERE MUST BE A DONOR WILLING TO FILE A REFUND
ACTION CLAIMING A 170 (C)(2) CHARITABLE DEDUCTION FOR A CONTRIBUTION TO
AN ORGANIZATION AFTER THE SERVICE HAS REVOKED THE ORGANIZATION'S RULING
LETTER AND WITHDRAWN ADVANCE ASSURANCE OF DEDUCTIBILITY. TO UTILIZE
THIS APPROACH, THE ORGANIZATION MUST FIRST BE ABLE TO FIND A DONOW
WILLING TO SUBJECT HIMSELF TO THE RIGORS OF LITIGATION AGAINST THE
SERVICE AND THEN MUST RELY ON THE DONOR TO PRESENT THE RELEVANT
ARGUMENTS ON THE ORGANIZATION'S BEHALF. THESE AND OTHER POSSIBLE
DIFFERENCES BETWEEN A DONOR REFUND SUIT AND AN ACTION BROUGHT DIRECTLY
BY AN ORGANIZATION LEAVE OPEN THE QUESTION WHETHER A DONOR'S REFUND
FUIT CONSTITUTES AN ADEQUATE LEGAL REMEDY FOR CORRECTING ILLEGAL
ACTIONS ON THE PART OF THE SERVICE. WE RESERVE THIS QUESTION FOR A
CASE THAT TURNS UPON ITS RESOLUTION.
/22/ PETITIONER DID NOT BRING THIS CASE AS A REFUND ACTION.
ACCORDINGLY, WE HAVE NO OCCASSION TO DECIDE WHETHER THE SERVICE IS
CORRECT IN ASSERTING THAT A DISTRICT COURT MAY NOT ISSUE AN INJUNCTION
IN SUCH A SUIT, BUT IS RESTRICTED IN ANY TAX CASE TO THE ISSUANCE OF
MONEY JUDGMENTS AGAINST THE UNITED STATES. BRIEF FOR RESPONDENTS 37 N.
35. WE NOTE, HOWEVER, THAT THE SERVICE'S POSITION WITH REGARD TO THE
RANGE OF RELIEF AVAILABLE IN A REFUND SUIT RAISES SEVERAL
CONSIDERATIONS NOT PRESENTED BY A PRE-ENFORCEMENT SUIT FOR AN
INJUNCTION. FOR EXAMPLE, IT MAY BE POSSIBLE TO CONCLUDE THAT A SUIT
FOR A REFUND IS NOT "FOR THE PURPOSE OF RESTRAINING THE ASSESSMENT OR
COLLECTION OF ANY TAX . . . ," AND THUS THAT NEITHER THE LITERAL TERMS
NOR THE PRINCIPAL PURPOSE OF 7421(A) IS APPLICABLE. MOREOVER, SUCH A
SUIT OBVIOUSLY DOES NOT CLASH WITH WHAT THE COURT REFERRED TO IN
WILLIAMS PACKING, SUPRA, AS A "COLLATERAL OBJECTIVE OF THE ACT-
PROTECTION OF THE COLLECTOR FROM LITIGATION PENDING A SUIT FOR
REFUND." 370 U.S., AT 7 - 8. AND THERE WOULD BE SERIOUS QUESTION
ABOUT THE REASONABLENESS OF A SYSTEM THAT FORCED A 501(C)(3)
ORGANIZATION TO BRING A SERIES OF BACKWARD-LOOKING REFUND SUITS IN
ORDER TO ESTABLISH REPEATEDLY THE LEGALITY OF ITS CLAIM TO TAX-EXEMPT
STATUS AND THAT PRECLUDED SUCH AN ORGANIZATION FROM OBTAINING
PROSPECTIVE RELIEF EVEN THOUGH IT UTILIZED AN AVENUE OF REVIEW MANDATED
BY CONGRESS.
THE SERVICE INDICATES THAT "ITS NORMAL PRACTICE IS TO ISSUE A
FAVORABLE RULING UPON THE APPLICATION OF AN ORGANIZATION WHICH HAS
PREVAILED IN A COURT SUIT." BRIEF FOR RESPONDENTS 35 N. 31, WHEN THE
SERVICE ADHERES TO THAT POSITION FOLLOWING A REFUND SUIT DECIDED IN
FAVOR OF THE PLAINTIFF, THERE IS OF COURSE LITTLE LIKELIHOOD THAT
INJUNCTIVE RELIEF WOULD BE NECESSARY OR APPROPRIATE. BUT OUR DECISION
TODAY THAT 7421(A) BARS PRE-ENFORCEMENT INJUNCTIVE SUITS BY
ORGANIZATIONS CLAIMING 501(C)(3) STATUS UNLESS THE STANDARDS OF
WILLIAMS PACKING ARE MET SHOULD NOT BE INTERPRETED AS DECIDING WHETHER
INJUNCTIVE RELIEF IS POSSIBLE IN A REFUND SUIT IN A DISTRICT COURT.
/23/ SEE THROWER, IRS IS CONSIDERING FAR REACHING CHANGES IN RULING
ON EXEMPT ORGANIZATIONS, 34 J. TAXATION 168 (1971):
"THERE IS NO PRACTICAL POSSIBILITY OF QUICK JUDICIAL APPEAL AT THE
PRESENT. IF WE DENY TAX EXEMPTION OR THE BENEFIT TO THE ORGANIZATION
OF ITS DONORS HAVING THE ASSURANCE OF DEDUCTIBILITY OF CONTRIBUTIONS,
THE ORGANIZATION MUST EITHER CREATE NET TAXABLE INCOME OR OTHER TAX
LIBILITY FOR ITSELF AS A LITIGABLE ISSUE, OR FIND A DONOR WHO AS A
GUINEA PIG IS WILLING TO MAKE A CONTRIBUTION, HAVE IT DISALLOWED, AND
LITIGATE THE DISALLOWANCE. ASSUMING THE READINESS OF THE ORGANIZATION
OR DONOR TO LITIGATE, THE ISSUE UNDER THE BEST OF CIRCUMSTANCES COULD
HARDLY COME BEFORE A COURT UNTIL AT LEAST A YEAR AFTER THE TAX YEAR IN
WHICH THE ISSUE ARISES. ORDINARILY, IT WOULD TAKE MUCH LONGER THE
ORGANIZATION'S STATUS TO BE TRIED . . . WHILE ALL OF THIS TIME IS
PASSING, THE ORGANIZATION IS DORMANT FOR LACK OF CONTRIBUTIONS AND
THOSE OTHERWISE INTERESTED IN ITS PROGRAM LOSE THEIR INTEREST AND MOVE
ON TO OTHER ORGANIZATIONS BLESSED WITH THE INTERNAL REVENUE SERVICE
IMPRIMATUR; AND THE RIGHT TO JUDICIAL REVIEW IS NOT PURSUED.
"THIS IS AN EXTREMELY UNFORTUNATE SITUATION FOR SEVERAL REASONS.
FIRST, IT OFFENDS MY SENSE OF JUSTICE FOR UNDUE DELY TO BE IMPOSED ON
ONE WHO NEEDS A PROMPT DECISION. SECOND, IN PRACTICAL EFFECT IT GIVES
A GREATER FINALITY TO IRS DECISIONS THAN WE WOULD WANT OR CONGRESS
INTENDED. THIRD, IT INHIBITS THE GROWTH OF A BODY OF CASE LAW
INTERPRETATIVE OF THE EXEMPT ORGANIZATION PROVISIONS THAT COULD GUIDE
THE IRS IN ITS FURTHER DELIBERATIONS."
MR. JUSTICE DOUGLAS TOOK NO PART IN THE DECISION OF THIS CASE.
MR. JUSTICE BLACKMUN, CONCURRING IN THE RESULT. I CONCUR IN THE
COURT'S JUDGMENT AND AGREE WITH MUCH OF THE REASONING IN ITS OPINION
FOR THIS CASE. AS THE COURT NOTES, ANTE, AT 738, THE UNIVERSITY'S
OBTAINING AN INJUNCTION WOULD DIRECTLY PREVENT THE COLLECTION OF WHAT
IT SAYS ARE $750,000 IN INCOME TAXES FOR 1971 AND OF OVER $500,000 FOR
1972. ON THE BASIS OF THIS FACT ALONE, THE "PURPOSE" OF THE SUIT IS
INDEED TO RESTRAIN "THE ASSESSMENT OR COLLECTION OF A TAX," AND BRINGS
26 U.S.C. 7421 (A) INTO PLAY. U.S.C. 7421 (A) INTO PLAY.
SINCE THE ANTI-INJUNCTION STATUTE IS APPLICABLE, WE MUST CONSIDER
WHETHER THE UNIVERSITY COMES WITHIN THE STATUTE'S EXCEPTION RECOGNIZED
IN ENOCHS V. WILLIAMS PACKING & NAVIGATION CO., 370 U.S. 1 (1962). AS
TO THIS, I JOIN PART IV OF THE COURT'S OPINION TO THE EFFECT THAT IT
HAS NOT BEEN SHOWN T8AT "UNDER NO CIRCUMSTANCES COULD THE GOVERNMENT
ULTIMATELY PREVAIL." "ID., AT 7.
J.D. TODD, JR., ARGUED THE CAUSE FOR PETITIONER. WITH HIM ON THE
BRIEFS WERE WESLEY M. WALKER AND OSCAR JACKSON TAYLOR, JR.
ASSISTANT ATTORNEY GENERAL CRAMPTON ARGUED THE CAUSE FOR
RESPONDENTS. WITH HIM ON THE BRIEF WERE SOLICITOR GENERAL BORK, STUART
A. SMITH, GRANT W. WIPRUD, AND LEONARD J. HENZKE, JR.
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