U.S. DISTRICT COURT, DISTRICT OF COLUMBIA.
May 9, 1973.
Center on Corporate Responsibility, Inc. Plaintiff
George P. Schultz, and R. F. Harless, Defendants.
The opinion of the court was delivered by: RICHEY
Findings of Fact, Conclusions of Law, and Order
RICHEY, District Judge: This cause having come before the Court for oral hearing on the Plaintiff's Motion for a Restraining Order or an Injunction, and the Court having considered the oral arguments of the parties and the written memoranda in support of and in opposition to Plaintiff's Motion, the Court makes the following:
Findings of Fact
1. Plaintiff alleges that it is a non-profit, charitable and educational corporation organized under the laws of, and engaged in educational and charitable activities in, the District of Columbia.
2. Defendants George P. Schultz and R. F. Harless, as Secretary of the Treasury and Acting Commissioner of Internal Revenue, are charged with the overall responsibility for administering the Internal Revenue Code, including the issuance of rulings on exemption from income taxes under section 501(c) (3) of the Internal Revenue Code of 1954, as amended, 26 U.S.C. § 501(c) (3).
3. On September 3, 1970, and pursuant to the requirements of section 508(a) of the Internal Revenue Code, Plaintiff filed an "Application for Recognition of Exemption" (Internal Revenue Service Form 1023), under its then name, "Project on Corporate Responsibility, Inc.". Based on the information contained in the application and attachments, Plaintiff requested a ruling that it was exempt from federal income taxes under section 501(c) (3) of the Code, which provides that an organization is exempt from federal income taxes if it is "organized and operated exclusively for...charitable...or educational purposes," and provided that certain other conditions are met. The requested ruling would have enabled Plaintiff to receive deductible contributions under section 170(c) (2) of the Code, such contributions being the primary source upon which Plaintiff relied to carry out its activities.
4. Subsequent to the filing of the application, and upon certain informal representations made by representatives of the Defendants to the Plaintiff, Plaintiff altered its corporate charter in order to more nearly conform to the requirements for exempt status under section 501(c) (3) of the Code. Plaintiff's name was changed from the "Project on Corporate Responsibility, Inc." to the "Center on Corporate Responsibility, Inc."
5. As a result of this reorganization, Plaintiff, on August 18, 1972, filed an amended and superseding application for exemption. In its amended application, Plaintiff alleged that it had transferred to another organization certain of its activities, namely proxy contests, which had been questioned by representatives of the Defendants under Plaintiff's original application. The other organization is alleged by Plaintiff to be a wholly independent and self supporting entity.
6. The Internal Revenue Service has not to date ruled on Plaintiff's application, and counsel for the Defendants have alleged that the application is still the subject of analysis and study by the Service. As a result of the delay, Plaintiff alleges that its source of funds has dried up because in the absence of a ruling from the Defendants that Plaintiff is exempt from federal income taxes under section 501(c) (3), and qualifies to receive charitable contributions under section 170(c) (2), prospective donors are unwilling to contribute monies to Plaintiff for fear that their contributions might not be deductible for federal income tax purposes. If such funds are not immediately forthcoming, Plaintiff maintains that it will be forced to terminate its existence.
7. Plaintiff therefore seeks temporary relief in the form of an order requiring the Defendants to cease to fail and refuse to rule that Plaintiff is exempt from federal income taxes under section 501(c) (3) of the Internal Revenue Code, as amended, and qualified to receive deductible contributions under section 170(c) (2) of the Code, for the purpose of establishing Plaintiff's exempt status until such time as this Court shall render a final decision in this action, and qualifying as charitable contributions for federal income tax purposes that amount of funds sufficient to permit Plaintiff to pay its accrued liabilities, overhead and wages of its employees, and to maintain a bank balance of $1,000.00 until such time as this Court shall render a final decision in this action.
8. Plaintiff ultimately seeks a permanent injunction enjoining Defendants from failing or refusing to rule that Plaintiff is exempt from federal income taxes under section 501(c) (3) of the Code as amended and is qualified to receive deductible charitable contributions under section 170(c) (2) of the Code as amended. Alternatively, Plaintiff seeks a declaratory judgment to the same effect.
9. Counsel for the Defendants have asserted that the Internal Revenue Service has committed itself to act on Plaintiff's application by May 17, 1973.
Conclusion of Law
1. In order to obtain the Temporary Restraining Order or Preliminary Injunction which Plaintiff seeks, it must demonstrate each of the following conditions to the satisfaction of the Court: (1) that there is a strong probability that it will prevail on the merits of its case; (2) that there is an imminent danger of serious and irreparable harm by reason of the Defendants' actions; (3) that there is no adequate remedy at law; and (4) that the harm to the Plaintiff if an order is not issued outweighs the harm that will befall the Defendant if the Court issues the requested order, and that it will be in the general public interest for the Court to issue the order and thus immediately restrain the Defendants' actions. Virginia Petroleum Jobbers Ass'n v. FPC, 104 U.S. App. D.C. 106, 259 F.2d 921 (1958).
2. Plaintiff has failed to demonstrate a strong probability that it will prevail on the merits of its case. While it does not wish to rule on the issue of jurisdiction in its present posture, the Court notes that it may well lack jurisdiction over the subject matter of this case by virtue of section 7421 of the Internal Revenue Code of 1954, which expressly prohibits a taxpayer from bringing any suit to restrain or enjoin the assessment or collection of a tax, and by virtue of the Federal Declaratory Judgment Act, 28 U.S.C. § 2201, which prohibits federal courts from granting declaratory judgments in tax matters. It has been held that section 7421 of the Code prohibits a taxpayer from seeking adjudication compelling the Internal Revenue Service to issue a ruling recognizing an organization as tax exempt. Bob Jones University v. Connally, - F.2d - (C.A. 4, decided January 19, 1973) unofficially reported 472 F.2d 903, 31 AFTR 2d 604, rehearing denied on March 21, 1973, - F.2d -, 31 AFTR 2d 73-966; Jolles Foundation, Inc. v. Moysey, 250 F.2d 166 (C.A. 2, 1957); Crenshaw City Private School Foundation v. Connally, Jr., et al., - F.2d - (C.A. 5, decided March 14, 1973) unofficially reported at 31 AFTR 2d 73-1057. The same cases have held that 28 U.S.C. § 2201 prohibits a taxpayer from bringing an action for a declaratory judgment recognizing the plaintiff to be a tax exempt organization under section 501(c) (3) of the Code.
3. There is no imminent danger of serious and irreparable harm to the Plaintiff by virtue of the Defendants' actions or failure to act. This is particularly evident in view of the asserted intention of the Internal Revenue Service to rule on Plaintiff's application by May 17.
4. The interest of the public would not necessarily be served by the issuance of Plaintiff's requested order. Entry of the order sought by Plaintiff may mislead third party contributors into believing that they can rely on the advance assurance of deductibility of contributions made to Plaintiff. In the event the Government prevails in the instant suit, and Plaintiff is determined not to be exempt under section 501(c) (3) of the Code, the Service would most likely challenge the right of any third party to claim on its own tax returns any deductions from taxable income due to contributions to the Plaintiff.
In accordance with the aforegoing findings of fact and conclusions of law, it is, by the Court, this 8th day of May, 1973.
ORDERED, that Plaintiff's Motion for a Temporary Restraining Order or Preliminary Injunction will be and the same is hereby denied.
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