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STICHTING PENSIOENFONDS VOOR DE GEZONDHEID v. UNIT

December 9, 1996

STICHTING PENSIOENFONDS VOOR DE GEZONDHEID, GEESTELIJKE EN MAATSCHAPPELIJKE BELANGEN, Plaintiff,
v.
UNITED STATES OF AMERICA, Defendant.



The opinion of the court was delivered by: RICHEY

 The plaintiff in the above-entitled cause, Stichting Pensioenfonds Voor De Gezondheid, Geestelijke En Maatschappelijke Belangen ("Health Worker's Fund" or the "Fund"), brought this action for a refund of taxes pursuant to Internal Revenue Code ("I.R.C.") § 7422 and 28 U.S.C. § 1346 paid for the taxable year 1993. The sole issue in dispute is whether the plaintiff is exempt from taxation for income earned in 1993 because it qualifies as a "labor organization" under I.R.C. § 501(c)(5). Currently pending before the Court are the parties' cross motions for summary judgment. Upon consideration thereof, the parties' oppositions thereto, the entire record in this case, and for the reasons set forth below, the Court shall deny the plaintiff's Motion for Summary Judgment, and shall grant the defendant's Motion for Summary Judgment.

 BACKGROUND

 In this action, the Health Worker's Fund, a Dutch multiemployer pension plan for health care workers, seeks a refund of 1993 U.S. income taxes in the approximate amount of $ 8.5 million, on the basis of its asserted exemption from U.S. income taxes under § 501(c)(5) of the Internal Revenue Code of 1986, as amended.

 The Fund was formed in June, 1969 as a result of negotiations between the Dutch National Hospital Employers' Association ("Hospital Association") and the three principal labor unions representing workers in the hospital industry (the "Unions"). At that time, the Association and the Unions adopted the Fund's articles of association, which established overall control of the Fund by a Board of Directors. Later that same year, the Association and the Unions jointly filed an application with the Dutch Minister of Social Affairs and Employment for compulsory treatment -- requiring participation in a pension fund by all employers and employees in a defined industry or industry sector -- which was granted. As of December 31, 1993, there were fourteen health and social welfare sectors subject to compulsory treatment under the Fund.

 The Fund collects pension fund contributions, which are paid by both employers and employees (although the employee share is collected from employers, who withhold such contributions from the workers' pay); manages its investments; and pays benefits to those participants who are entitled to receive them. The Funds investments include common stocks of United States companies and mutual funds, which are held by United States banks and other financial institutions acting as custodians for the Fund. For the 1993 taxable year, such custodial institutions timely withheld and paid to the U.S. Treasury $ 8,567,408.87 in U.S. income taxes on dividends paid on stocks and mutual funds held by such institutions for the Fund.

 The Fund is governed by a Board of Directors, which has the ultimate responsibility for the management of the Fund and for setting Fund policy. The Board has twelve voting directors. As required by Dutch law, half the voting directors are appointed by the three principal employer organizations representing employer institutions in the relevant industry sectors, and half are appointed by the three principal unions representing employees in the relevant industry sectors. All twelve directors have equal voting power. There is an independent non-voting Chairman. On all policy issues, the employer and union directors must reach an agreement, or no decision can be made by the Board.

 DISCUSSION

 I. SUMMARY JUDGMENT IS APPROPRIATE BECAUSE THERE IS NO GENUINE ISSUE AS TO ANY MATERIAL FACT.

 In order for the Court to grant summary judgment under Rule 56, the moving party must demonstrate that there is no genuine issue as to any material fact and that it is entitled to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 325, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986). In determining if summary judgment is appropriate, the Court must view all of the evidence in the light most favorable to the non-moving party. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587, 89 L. Ed. 2d 538, 106 S. Ct. 1348 (1986). That party, however, "must do more than simply show that there is some metaphysical doubt as to the material facts." Id. at 586. If no rational fact finder could find in the non-movant's favor, there is no material issue of fact and summary judgment is appropriate. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986).

 In this case, there are no material facts in dispute. By their Stipulation, filed with this Court on May 15, 1996, the parties have expressly stipulated to virtually all material facts. The remaining material facts, not set forth in the Stipulation, are not in dispute either. Therefore, because only matters involving issues of law are in dispute, summary judgment is appropriate.

 II. THE FUND IS NOT ENTITLED TO A REFUND FOR INCOME TAXES PAID FOR THE TAXABLE YEAR 1993 BECAUSE IT DOES NOT QUALIFY AS A LABOR ORGANIZATION UNDER I.R.C. § 501(c)(5).

 The Fund is not entitled to a refund of the income taxes it paid for 1993 because it has failed to prove unambiguously that it qualifies for the tax exemption as a "labor organization" under § 501(c)(5), which is the only basis it has asserted for a tax exemption. See United States v. Wells Fargo Bank, 485 U.S. 351, 354, 99 L. Ed. 2d 368, 108 S. Ct. 1179 (1988) (holding that organization must prove "unambiguously" that it qualifies for a tax exemption).

 
A. The Language and Legislative History of I 501(c)(5) Does Not Suggest That the Plaintiff Qualifies for Exemption as a "Labor Organization."

 Neither does the legislative history of § 501(c)(5) and other relevant tax statutes provide the Court much help in determining a useful definition of labor organizations for purposes of applying § 501(c)(5). Congress first exempted labor organizations from the general corporate tax levied by the Tariff Act of 1909. Tariff Act of 1909, ch. 6, § 38, 36 Stat. 113. The phrase "labor organization" was included in the bill sent to the Senate Finance Committee, but the bill emerged from committee without it. 44 Cong. Rec. 4148 (1909). The committee found the phrase to be unnecessary, because labor organizations were believed to be covered by the wording "fraternal beneficiary societies, ... operating under the lodge system and providing for the payment of life, sick, accident, and other benefits." 44 Cong. Rec. at 4148-49.

 Several labor unions, however, were concerned that the existing "beneficiary societies" language did not cover them since they did not provide life, sick, accident, and other benefits to their members. See e.g., 44 Cong. Rec. at 4154 (concern of the Brotherhood of Local Firemen that their organization would not be exempt). The phrase "labor organization" consequently was added to the statute to cover organizations that do not "make such provisions, and are not organized for those purposes." 44 Cong. Rec. at 4155. When the first income tax was instituted in 1913 under the Sixteenth Amendment, the phrase "labor organizations" was included with exempt entities. Tariff Act of 1913, ch. 16, § 11(G), 38 Stat. 172. This language has remained unchanged in every major revision since that time. See J. Thomas Nolan, Can a pension Plan be a Labor Organization, 47 Tax Law. 501, 512 n.20.

 While far from determinative, this legislative history provides no support for the Fund's claim that the phrase "labor organization" encompasses a pension fund that exists only to provide retirement benefits for its members. In fact, the legislative history shows that the term "labor organizations" was added to the 1909 Tariff Act to cover entities that did not provide monetary benefits, but served other functions concerning the welfare of workers. The drafters more likely found that the provision of monetary benefits was not a defining function of a labor organization, but, rather, was an activity engaged in by some labor organizations and not by others. On the other hand, the legislative history equally fails to prove that an association which only provides monetary benefits to its members cannot be a tax-exempt labor organization. The legislative history thus provides little help in defining "labor organizations."

 
B. The Regulation Promulgated by the IRS Under § 501(c)(5) Does Not Support the Plaintiff's Claim That it is a Tax-exempt Labor Organization.

 The regulation promulgated by the IRS under this statute provides a brief description of a labor organization. It states:

 
The organizations contemplated by section 501(c)(5) as entitled to exemption from income ...

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