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December 20, 1973

Eastern Kentucky Welfare Rights Organization, et al., Plaintiffs
George P. Shultz, et al., Defendants

The opinion of the court was delivered by: PARKER

 In this class action against the Secretary of the Treasury and the Commissioner of Internal Revenue declaratory and injunctive relief is sought by the plaintiffs, comprising various health and welfare organizations and several private citizens, all alleging indigency and an inability to pay for hospital services. Called into question is the validity of an Internal Revenue Service (IRS or Service) policy, implemented by a revenue ruling, allowing private nonprofit hospitals to qualify as "charitable" institutions under the Internal Revenue Code of 1954 (Code) without requiring them to admit and provide free or reduced rate services to persons unable to pay. Jurisdiction of this action lies under 28 U.S.C. §§ 1331, 1340 and 1361; 28 U.S.C. §§ 2201 and 2202; and, 5 U.S.C. §§ 702 and 703.

 Plaintiffs seek a declaratory judgment that the defendants have acted unlawfully in granting tax exempt status to private nonprofit hospitals as "charitable" institutions under the Code and not requiring them to admit and provide free services to indigents. They also seek an injunction prohibiting the IRS from granting or continuing to extend tax benefits to such hospitals; to compel defendants to revoke their tax exempt status and to revoke the revenue ruling. *fn1"

 The defendants initially moved to dismiss the complaint on the grounds that: the "Federal taxes" exemption to the Declaratory Judgment Act prevents the grant of such relief; the plaintiffs lack standing to sue; the issuance of revenue rulings may not be reviewed; the doctrine of sovereign immunity bars the suit, and; the ruling was interpretive in nature, therefore rendering the Administrative Procedure Act, 5 U.S.C. § 553 (APA), inapplicable. The motion was denied without opinion.

 The matter is now presented on the plaintiffs' motion for summary judgment and the defendants' cross motion for summary judgment. The Court having considered the memoranda of points and authorities of the parties, the supporting affidavits, and the argument of counsel denies the defendants' motion and enters summary judgment on behalf of the plaintiffs.

 The Statutory Background

 Section 501(a) and (c) (3) *fn2" of the Internal Revenue Code grants tax exempt status to charitable organizations; § 170(a) to (c) *fn3" permits individual and corporate donors to deduct from their income tax returns contributions to certain entities organized and operated for charitable purposes. Hospitals as such have never been specifically listed in either §§ 501 or 170 as institutions to be accorded favorable tax consideration and they were able to do so only by qualifying as "charities" under the Code. Under § 7805(a) of the Code the Commissioner of Internal Revenue is empowered to promulgate necessary rules and regulations to implement the statute. These rulings set forth the official policy of the Service and are designed to guide taxpayers, the interested public and IRS officials in tax matters. *fn4"

 Earlier IRS policy, as expressed inRevenue Ruling 56-185, which complemented § 501, provided in substance that hospitals could qualify as charities upon showing that, in addition to satisfying the other requirements of § 501, and even though permitted to assess full charges to patients capable of paying, they did not refuse treatment to indigent patients. *fn5" The current position of IRS which gives rise to this litigation is represented byRevenue Ruling 69-545 (Ruling). The striking feature of the 1969 ruling is the removal of that condition:

"Revenue Ruling 56-185 is hereby modified to remove therefrom the requirements relating to caring for patients without charge or at rates below cost . . . ." *fn6"

 Allegedly suffering detrimental effects from the Ruling, plaintiffs have leveled what can be fairly categorized as a two-pronged attack upon its validity. They assert that the promulgation of the Ruling was an ultra vires act in that it constituted an improper administrative alteration of Internal Revenue Code provisions, in contradiction of long standing tax policy and judicial interpretation. Alternatively, assuming arguendo that the defendants could have validly effectuated such a substantive change, they assert that the failure to grant them and other interested parties the opportunities to express their views, as required by the APA and the Fifth Amendment to the Constitution, demands that the ruling be vacated and its policy abandoned.

 The defendants on the other hand contend first, that the plaintiffs lack standing to sue and fail to demonstrate a sufficient nexus between the action complained of and any alleged resulting injuries, and second, that the contested promulgation is outside the scope of judicial review. As to the merits, the Service maintains that the Ruling is rationally based and must be upheld.


 Under § 10 of the APA, 5 U.S.C. § 702, "[a] person suffering legal wrong because of agency action, or adversely affected or aggrieved by agency action within the meaning of a relevant statute, is entitled to judicial review thereof." This provision has been most recently interpreted in United States v. Students Challenging Regulatory Agency Procedures (SCRAP), 412 U.S. 669, 93 S. Ct. 2405, 37 L. Ed. 2d 254 (1973). In that proceeding plaintiff organization, comprised of four law students, challenged the propriety of an Interstate Commerce Commission decision regarding an increase in railroad freight rates without having first prepared and considered an environmental impact statement in accordance with the National Environmental Policy Act. The Supreme Court found that the requirements of § 10 of the APA were satisfied by the litigants' allegations that the agency action would have adverse economic, recreational, environmental and aesthetic effects upon its individual members. In its ruling the Court reaffirmed and expounded upon Sierra Club v. Morton, 405 U.S. 727, 31 L. Ed. 2d 636, 92 S. Ct. 1361 (1972), which established that a person could meet the APA standing requirements only when "the challenged action had caused them 'injury in fact,' and where the alleged injury was to an interest 'arguably within the zone of interests to be protected or regulated' by the statutes that the agencies were claimed to have violated." 405 U.S. at 733. By way of clarification, the SCRAP Court ruled that "[a] plaintiff must allege that he has been or will in fact be perceptibly harmed by challenged agency action, not that he can imagine circumstances in which he could be affected by the agency's action." 412 U.S. at 688, 37 L. Ed. 2d at 279. *fn7"

 Plaintiffs, therefore, are confronted with a dual threshold test requiring of them a satisfactory demonstration that on basis of the pleadings first, they were injured as a result of the agency action, referred to as "injury in fact," and second, any such injury was to an interest protected by the law allegedly violated by the administrative action.

 Injury In Fact

 This Court has little difficulty in finding that under the SCRAP guidelines the plaintiffs have adequately demonstrated sufficient injury flowing from the issuance ofRevenue Ruling 69-545 to afford them their day in Court.

 Prior to that Ruling the policy of the Service, in a very real sense, conferred a cognizable interest to indigents by requiring hospitals seeking tax advantages under the Code to give them special consideration. It simply defies common sense to contend that the plaintiffs have remained, or will remain, unaffected by a decision which all but strips from them basic and substantial benefits which had been previously nurtured by the government. Plaintiffs and other individuals have supplied affidavits *fn8" recounting incidents subsequent to the present Ruling where they were denied needed hospital attention because of indigency by institutions benefiting from the applicable Code provisions and Ruling.

 The government points out, and the Court is not unmindful of the fact, that plaintiffs are hard pressed to demonstrate indisputably that their inability to secure medical services was a direct consequence of the Ruling. The circumstances surrounding this litigation, however, suggest that the defendants' view of standing may be far too restrictive and unrealistic. It is obvious that while the poignant representations in the plaintiffs' affidavits do indeed reveal the severe health care crisis confronting the nation's poor, iron-clad documentation of a nexus between their tragic situation and hospital behavior towards indigents, as affected by the new Ruling, has not been and, in all probability, cannot be provided to the satisfaction of the criteria urged by the government. That observation notwithstanding, in light of the crucial significance with which hospitals regard their status as charities, *fn9" the Court does not consider itself engaged in wild speculation by assuming or recognizing that the relaxation of the requirements for charitable classification would necessarily effect hospital policy, in this case care for indigents, upon which such a status had been earlier dependent. *fn10"

 The Court finds the correlation between agency action and injury to plaintiffs to be at least as demonstrable as that which was accepted by the SCRAP Court and accordingly concludes that the initial ...

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