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April 14, 1994


The opinion of the court was delivered by: STANLEY SPORKIN

 This matter is before the Court on defendants' motion to dismiss the complaint pursuant to Fed. R. Civ. P. 12(b). Defendants, Lloyd H. Bentsen, Secretary of the Treasury, Margaret M. Richardson, Commissioner of the Internal Revenue Service, and the United States of America, (the "United States"), assert as grounds for dismissal that this Court lacks subject matter jurisdiction over this action. As the Court finds no statutory basis for maintaining jurisdiction over this action, the United States' motion will be granted.

 This lawsuit is a challenge to the constitutionality of recently enacted provisions of the Internal Revenue Code ("Code") that have an impact on associations that engage in lobbying activities on behalf of their members. Plaintiffs, eleven trade associations and professional societies, seek a declaratory judgment that the Code provisions are unconstitutional and an injunction preventing the Internal Revenue Service ("IRS") from assessing or collecting taxes pursuant to those provisions. The challenged Code provisions, codified at 26 U.S.C. §§ 162(e)(3), 162(e)(5)(C), and 6033(e), were enacted by section 13222 of the Omnibus Budget Reconciliation Act of 1993 (H.R. 2264, 103d Cong., 1st Sess. (1993)) (the "Act").

 Prior to passage of the Act, section 162(e) of the Code allowed businesses to deduct direct lobbying expenses as business expenses. The Act amended the Code to withdraw the deduction for lobbying expenses incurred by businesses. It did not withdraw the charitable deduction. The Act also contains provisions specifically aimed at enforcing Congress' mandate against certain tax-exempt membership organizations that engage in lobbying. Those tax-exempt organizations previously had been able to deduct their lobbying expenses while their members could deduct their membership dues. Congress concluded that allowing such tax-exempt organizations to deduct their lobbying expenses amounted to a government subsidy of their lobbying activities.

 In addition to withdrawing the tax deduction, the Act also includes provisions designed to prevent the affected taxpayers from skirting Congress' intent. These "enforcement provisions" include the "flow through rule," the "allocation provision" and the "proxy tax." The flow through provision provides:

No deduction shall be allowed under subsection (a) for the portion of dues or other similar amounts paid by the taxpayer to an organization which is exempt from tax under this subtitle which the organization notifies the taxpayer under section 6033(e)(1)(A)(ii) is allocable to expenditures to which paragraph (1) applies.

 26 U.S.C. § 162(e)(3). This provision was designed to prevent taxpayers who use tax-exempt associations to lobby on their behalf from retaining a tax subsidy for their lobbying activities through the tax-deductible dues paid to such associations. Thus, lobbying expenses not otherwise deductible cannot be made deductible merely by conducting lobbying through a tax-exempt association. A member of such an association may not deduct that portion of the dues paid which is attributable to the association's lobbying expenses.

 The reporting requirements of section 6033(e)(1) work in conjunction with the flow through provision. Section 6033(e)(1) requires tax-exempt organizations to include on their annual tax returns the total amount of their lobbying expenses and the total amount of dues allocable to lobbying. 26 U.S.C. § 6033(e)(1)(A)(i). The organizations also are required under the section to notify their members of the non-deductible portion of the members' dues. 26 U.S.C. § 6033(e)(1)(A)(ii).

 The section also adds an "allocation provision" designed to prevent taxpayers from evading the withdrawal of the tax deduction for lobbying expenses. The provision requires that when calculating the percentage of dues attributable to lobbying, the association must treat the lobbying expenses as having been funded first by membership dues rather than from some other form of income. The provision states as follows:

For the purposes of this paragraph--
(i) In General--Expenditures to which section 162(e) applies shall be treated as paid out of dues or other similar amounts to the extent thereof.
(ii) Carryover of Lobbying Expenditures in Excess of Dues--If expenditures to which section 162(e)(1) applies exceed the dues or other similar amounts for any taxable year, such excess shall be treated as expenditures to which section 162(e)(1) applies which are paid or incurred by the organization in the following year.

 26 U.S.C. § 6033(e)(1)(C). This provision is justified on the basis that a restriction is necessary to avoid skirting Congress' intent. It is argued that without the rule, taxpayers could claim deductions for dues paid to tax-exempt organizations that engage in lobbying, with the organization allocating its lobbying expenses to non-dues income, which may be tax-exempt.

 Section 6033(e)(2) also gives tax-exempt associations the option of 1) placing the burden and responsibility of complying with the restriction on their members through a reporting requirement, or 2) paying the tax themselves in the form of a "proxy tax," which would not interfere with the members' right ...

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