The opinion of the court was delivered by: GEORGE L. HART, JR.
This case comes before the Court on Defendants' Motion to Dismiss the Complaint and Opposition thereto. Plaintiffs filed their original complaint on June 17, 1974 and their amended complaint on August 13, 1974. The amendment was generated by one plaintiff's acquisition of the entire working interest in a domestic oil well. Both complaints seek a declaratory judgment that published and private rulings of the Internal Revenue Service allowing tax credits for payments made to foreign countries in connection with oil extraction and production and which are calculated on a fixed per barrel basis are unlawful since they are contrary to the Internal Revenue Code, 26 U.S.C. §§ 901(b), 903. Plaintiffs also seek in both complaints a permanent injunction requiring the Internal Revenue Service to withdraw these Rulings; restraining the IRS from permitting income tax credits for payments made to foreign countries in connection with oil extraction and production which are calculated on a fixed per barrel basis and requiring Defendants to assess and collect taxes from oil companies for all periods not barred by the statute of limitations in those cases where foreign tax credits were taken pursuant to these Rulings. Jurisdiction is alleged under 28 U.S.C. §§ 1340, 2201, 2202 and 5 U.S.C. §§ 702, 703.
Plaintiff Tax Analysts and Advocates (TAA) is a non-profit corporation organized under the laws of the District of Columbia in 1970 for the purpose of promoting tax reform through educating the public in federal tax matters and conducting a public interest legal practice concerned with federal tax matters. TAA represents over one hundred seventy-five individual supporters, each of whom has contributed financially to TAA so that they could obtain legal representation to ensure that the Internal Revenue Service properly applies the Internal Revenue Code and does not grant special interest groups favorable treatment beyond that which the IRS can lawfully provide. The complaint alleges that each of these individuals, as a United States taxpayer, has a personal pecuniary interest in requiring that the IRS assess and collect taxes owed by other taxpayers to the fullest possible extent under the Internal Revenue Code.
Plaintiff Thomas F. Field is the Executive Director of TAA. In the original complaint, Field asserts that he is an American citizen and federal taxpayer who has a personal pecuniary interest in requiring that the IRS assess and collect taxes owed by other taxpayers to the fullest possible extent under the provisions of the IRC. In the interim between the filing of the original complaint and the filing of the amended complaint, Plaintiff Field purchased the entire working interest in a currently producing oil well in Pennsylvania. Thus the amended complaint asserts an additional basis for this suit, namely that Plaintiff Field has a personal pecuniary interest in seeing that other persons also producing oil do not receive unjustifiably preferential tax treatment with respect to their oil production income which would permit them to sell their oil at a lower price than would be possible without the preferential treatment, thus adversely affecting Field's income from his oil production.
Field's oil well currently produces three barrels of crude oil per month and future production is anticipated at that level. The most recent price of that oil is $ 10.28 per barrel and future prices are expected to remain at this level. Projected operating costs for the oil well are $ 120 per year. Gross receipts from the sale of the well's production are estimated to be $ 370.08 per year for the next five years. Pursuant to the purchase agreement of August 13, 1974, the owners of the land on which the well is located (Hickman Lumber Company) and the operator of the well (David H. Melot) together will receive a royalty of one-eighth of the proceeds of all oil produced from the well. These royalty payments are expected to amount to $ 46.32 per year for the next five years. Field's anticipated net profits before taxes are approximately $ 203.76 per year for the next five years. The term "entire working interest" in the oil well means that Mr. Field will own all the rights to operate the well and that he will receive the entire amount of the proceeds derived from the sale of the well's production reduced only by the royalty he must pay to the owners of the land (Hickman Lumber Company) and the operator of the well (David H. Melot). During the period commencing with his purchase of the working interest in the well on August 13, 1974 and terminating on October 31, 1974, Field earned $ 42.47, which constitutes the total proceeds from the sale of all oil produced between August 13 and October 31, 1974, reduced by the one-eighth royalty and the operating costs.
Defendant William E. Simon is Secretary of the Treasury of the United States. Defendant Donald C. Alexander is Commissioner of Internal Revenue. Under 26 U.S.C. §§ 7801, 7802, the Internal Revenue Code charges these Defendants with the responsibility to administer and enforce the Code, including the provisions concerning the foreign tax credit, 26 U.S.C. §§ 901(b), 903.
The relevant provisions of the Internal Revenue Code are sections 901(b) and 903, 26 U.S.C. §§ 901(b), 903 (1954). Section 901(b) allows qualified citizens of the United States and domestic corporations to claim a tax credit for "the amount of any income, war profits, and excess profits taxes paid or accrued during the taxable year to any foreign country . . ." Section 903 states that "the term 'income, war profits, and excess profits taxes' shall include a tax paid in lieu of a tax on income, war profits, or excess profits otherwise generally imposed by any foreign country . . ."
The published Revenue Rulings at issue here were published in 1955 and 1968. Rev. Rul. 55-296, 1955-1 Cum. Bull. 386, allowed a foreign tax credit for income taxes paid to Saudi Arabia by virtue of Saudi Arabian Royal Decrees of November 4 and December 27, 1950. Rev. Rul. 68-552, 1968-2 Cum. Bull. 306, allowed a foreign tax credit for income taxes imposed by Article 14(1)(a) of Libyan Petroleum Law No. 25 of 1955, as amended through November 20, 1965. The private/unpublished rulings at issue were promulgated by the Internal Revenue Service to allow foreign tax credits under section 901(b) for income taxes imposed by Iran, Kuwait and Venezuela in connection with oil production in those countries.
Plaintiffs' position is that neither section 901(b) nor section 903 nor any other section of the Internal Revenue Code permits foreign income tax credits for the payments of excise taxes, severance taxes, mineral royalties, or similar payments made by American companies to foreign countries in which they extract and produce oil. Specifically, Plaintiffs allege that the Treasury Department, in the late 1940's and early 1950's, decided that certain payments denominated as income taxes and collected by foreign countries from companies owned and controlled by United States citizens in connection with the production of oil in those foreign countries would qualify for the foreign tax credit under section 901(b). Plaintiffs assert further that, as a result of these Treasury Department decisions, a pattern developed among the principal oil exporting nations (Saudi Arabia, Kuwait, Libya, Iran and Venezuela), whereby these nations promulgated laws which purported to impose income taxes on American companies extracting and producing oil in their countries. Plaintiffs argue that these income taxes are one of the components of a fixed per barrel "government take" collected by these nations from the companies extracting and producing oil within their boundaries. The "government take" is allegedly calculated on a fixed per barrel basis and is totally independent of the actual gross or net income which the companies derive from their oil extraction and production. Although denominated as income taxes, in Plaintiffs' view these payments are, in substance, either royalties paid far the right to extract oil from land owned by these five nations or excise, severance or similar taxes which are not creditable under section 901(b) of the Code; nor do Plaintiffs see any basis for finding that these payments constitute taxes "in lieu of" foreign income taxes creditable against United States taxes under section 903 of the Code. Plaintiffs complain that, as a result of these published and private Rulings of the Internal Revenue Service, American oil companies operating abroad pay no tax to the United States Treasury on income derived from the extraction and production of oil, resulting in a revenue loss to the United States Treasury in 1974 of $ 3 billion.
Plaintiff Field asserts, furthermore, that, as an oil producer extracting and producing oil from a domestic well, he must pay to the owner of the land on which his well is located, a one-eighth interest in the well's production and must treat that royalty payment as an expense which he deducts from his gross income rather than crediting it against his tax due, while the American oil companies operating abroad may credit the purported income taxes which they pay to the sovereign owners of the land from which they extract and produce oil. Plaintiff Field sees these payments as substantially similar operating rights. Plaintiff's injury is allegedly incurred because a substantial portion of the oil produced in these five countries by American companies is exported to the United States where the prices charged by these companies largely determine the market price for uncontrolled crude oil. Their resulting lower United States taxes permit the American companies operating abroad to sell their foreign oil at a lower price than would prevail if those companies could only deduct their oil production-related foreign income tax payments as expenses and not credit them against their United States taxes.
Essentially, then, Plaintiff Field complains that he is unable to credit against his United States tax liability payments which he makes to his landowner as a result of his oil production, while American companies producing oil abroad can obtain tax credits for similar payments which they sake to the sovereign nations owning the land from which their oil is extracted and produced. Field alleges that the Revenue Rulings permitting this system are discriminatory and cause him threefold injury: first, he is injured since the Rulings result in his receiving lower prices than he would obtain otherwise; second, that the value of foreign oil well investments is increased since it yields higher returns, while the value of similar domestic investments is decreased, thus depressing the value of his operating interest in a domestic oil well; and third, that due to these Rulings Defendants do not tax the foreign oil extraction and production income of American companies, causing Plaintiff Field to pay higher federal income taxes. TAA asserts the similar injury of its financial supporters, namely that they have suffered and are continuing to suffer the same burden of higher federal income taxes as a result of Defendants' failure to tax this foreign oil production income.
Defendants raise five objections to the instant suit in their Motion to Dismiss: that Plaintiff's lack standing to sue; that subject matter jurisdiction over this suit is barred by the Anti-Injunction Act, 26 U.S.C. § 7421 and by the tax exception to the Declaratory Judgment Act, 18 U.S.C. § 2201; that personal jurisdiction is barred by the doctrine of sovereign immunity; that this suit is barred by 26 U.S.C. § 7401, which entrusts the civil prosecution of federal tax liabilities exclusively to the Commissioner of Internal Revenue and the Attorney General; and that strong considerations of public policy militate against the suit. Since the Court finds that Plaintiffs do not have standing to bring this suit, it is unnecessary to consider Defendants' other defenses.
Plaintiffs assert two distinct bases for standing to bring this action: that of Plaintiffs Field and TAA as federal taxpayers; and that of Plaintiff Field as the owner of the working interest in a domestic oil well. The first base, federal taxpayer standing, has two aspects. Plaintiff Field and Plaintiff Tax Analysts and Advocates assert standing as federal taxpayers and pose the issue to the Court whether a federal taxpayer, who does not assert the unconstitutionality of the rulings he challenges or the statutes interpreted by the rulings, may challenge rulings which, in effect, give up revenues Field and TAA allege the some injury, namely that they are required to bear a proportionately heavier tax burden due to the billions of dollars of income taxes that are not collected because of the rulings. TAA asserts that it is suing on behalf of its supporters who are federal taxpayers, and thus derives its standing from that of its supporters who must bear the same burden as Plaintiff Field. This first aspect of Plaintiffs' federal taxpayer standing argument is grounded in United States v. SCRAP, 412 U.S. 669, 93 S. Ct. 2405, 37 L. Ed. 2d 254 (1973), from which Plaintiff's derive their claim that standing is satisfied so long as a clear causal relationship is alleged between the challenged rulings and their injuries as taxpayers. The second aspect of Plaintiffs' federal taxpayer basis for standing is section 10 of the Administrative Procedure Act, 5 U.S.C. § 702 (1970). Plaintiffs allege that they have suffered the above mentioned tax burden which has caused injury in fact as a result of administrative rulings which, though not unconstitutional, are inconsistent with the Defendants' statutory authority. Plaintiffs further argue that they are within the zone of interests protected by the Internal Revenue Code since it has as one of its goals the equitable administration of tax laws.
The second basis claimed to provide standing originated with Plaintiff Field's ownership of the working interest in the domestic oil well. Since the challenged rulings have allegedly caused Field economic injury in fact, he asserts section 10 of the Administrative Procedure Act, supra, as his statutory basis for standing and further argues that, while the zone of interests test need not and should not be applied, as an investor challenging the favorable IRS treatment received by others, he is within one of the fundamental goals of the Internal Revenue Code of 1954, that of removing existing inequities from the tax system.
The Court rejects Plaintiffs' assertion of federal taxpayer standing because neither Field nor TAA on behalf of its taxpayer members meets the rigors of the nexus required by the Flast v. Cohen, 392 U.S. 83, 20 L. Ed. 2d 947, 88 S. Ct. 1942 (1968), re-examination of Frothingham v. Mellon, 262 U.S. 447, 67 L. Ed. 1078, 43 S. Ct. 597 (1923), as set out in United States v. Richardson, 418 U.S. 166, 94 S. Ct 2940, 41 L. Ed. 2d 678 (1974) and Schlesinger v. Reservists Committee To Stop The War, 418 U.S. 208, 94 S. Ct. 2925, 41 L. Ed. 2d 706 (1974). Furthermore, section 10 of the Administrative Procedure Act has not been held applicable to persons who have no other basis for standing to seek judicial review than their status as federal taxpayers. While federal courts may entertain the complaints of persons who allege that government action causes them private competitive injury, as in Association of Data Processing Service Organizations, Inc. v. Camp, 397 U.S. 150, 25 L. Ed. 2d 184, 90 S. Ct. 827 (1970), (ADAPSCO), or the complaints of individuals whose enjoyment of economic, recreational and aesthetic opportunities is impaired by government action as in United States v. SCRAP, supra, these types of claims are different from those advanced by Plaintiffs as taxpayers. Both ADAPSCO and SCRAP alleged particularized injury to an interest protected by a specific statutory provision of the enactment on which the suits were grounded. In ADAPSCO the relevant enactment was section 4 of the Bank Service Corporation Act of 1962, 12 U.S.C. § 1864, which provided that no bank service corporation could engage in any activity other than the performance of bank services for banks. In the SCRAP case, it was section 102(2)(c) of the National Environmental Policy Act of 1969, 42 U.S.C. § 4332(2)(c), which required an environmental impact statement for major Federal actions which would significantly affect the quality of the environment. Such a context does not exist in the suit presently before the Court, since no specific provision of the Internal Revenue Code or any other statute provides support for Plaintiffs' standing as taxpayers. Succinctly stated, as the Supreme Court said in Ex parte Levitt, 302 U.S. 633, 634, 82 L. Ed. 493, 58 S. Ct. 1 (1937), a case in which a taxpayer challenged the validity of a Supreme Court Justice's commission on the ground that he had been nominated and confirmed while a member of the United States Senate, where he had voted for an increase in judicial enoluments:
"It is an established principle that to entitle a private individual to invoke the judicial power to determine the validity of executive or legislative action, he must show that he has sustained or is immediately in danger of sustaining a direct injury as the result of that action and it is not sufficient that he has merely a general interest common to all members of the public."
And in Sierra Club v. Morton, 405 U.S. 727, 739, 31 L. Ed. 2d 636, 92 S. Ct. 1361 (1972), the Court discounted the adequacy of ...