instrument provides that the plaintiff shall be organized and operated "exclusively for charitable purposes, including the advancement of education within the meaning of Internal Revenue Code ("IRC") § 501(c)(3)." Complaint, P 18. The trust instrument further provides that plaintiff "shall fund the study, research and analysis of ideas and proposals to reform the nation's tax system and to spur economic growth in the United States by reducing the tax burden on individuals and businesses." Id. P 8. The trust instrument also provides that any net earning shall not benefit any private individual, nor shall any activities conducted pursuant to the trust agreement consist of promoting propaganda, or attempting to influence legislation or participate in any political campaign. Compl. P 27. The plaintiff is authorized to conduct nonpartisan studies and to research the nation's economic growth through tax reform, and to publicly disclose any results of such studies.
The Fund's primary purpose was to raise funds for the Commission's work. AR 20, 1741-43. The Commission solicited and received financial contributions for the Fund and reported them as donations to the IRS. AR 1806. In letters of solicitation, both Mr. Feulner and Mr. Kemp wrote to prospective contributors to the Fund and expressed the importance of the Fund's existence for the work of the Commission.
Mr. Kemp's letters to prospective donors on behalf of the Commission did not include a statement regarding the possibility of tax exempt status for deductibility purposes. AR 825-828. In fact, Mr. Kemp's letters announced the fact that the organization is "entirely dependent on voluntary contributions, with not a penny from the government to support our work.". AR 827.
B. Activities of the plaintiff Fund
The activities of the plaintiff Fund consisted of public hearings across the country, and various publications including the Final Report of the Commission.
The funded presentations focused on reforming the present tax system into a flat tax and how to achieve such a goal. AR 75-103. Much of the testimony at the earlier hearings was directed at mobilizing efforts to change the tax laws.
The Commission did not study alternatives to a complete revamping of the system such as making modifications to the present Code or retaining the current system of taxation. Discussions or presentations dedicated to views other than a flat tax are absent in the record.
Upon completion of its hearings, the Commission published its Final Report, which began with a Foreword written by Senator Dole and Speaker Gingrich and opening remarks from Jack Kemp. AR 1268. Mr. Kemp's remarks stated that the Commission was appointed to study the current tax code and "submit to Congress our recommendations for tax reform." AR 1270. The crux of the Final Report was a recommendation to Congress to repeal the tax code in its entirety. AR 1835.
C. Procedural context
On June 12, 1995, plaintiff applied to the IRS for tax-exempt status under IRC § 501(c)(3). In support of its application to the IRS for tax-exempt status, the plaintiff submitted newspaper accounts describing the activities of the Fund and reporting on the objectives of the Fund. AR 1348-1365. Consistently, these press reports identified the Commission as "Republican" or the "GOP Commission" or "GOP Panel".
After over a year of supplemental submissions to the IRS office in support of its exemption application, the defendant issued an "initial adverse ruling". The defendant found that plaintiff did not operate in a manner consistent with § 501(c)(3) because of the "private benefit conferred on the Republican Party and its candidates." Id.
After the denial of tax exempt status, and during the appeal process, the plaintiff Fund requested additional time to file its administrative protest because Mr. Kemp resigned as trustee and soon after was nominated as the Republican Vice-Presidential candidate for the 1996 election. AR 174. At a hearing on November 8, 1996, the plaintiff protested the adverse ruling by submitting more supplemental materials describing the activities of plaintiff. However, on January 27, 1997, the defendant issued a final adverse ruling with respect to plaintiff's application for exemption from federal income taxation under § 501(c)(3). AR 1834. The IRS based its decision on two grounds that: 1) plaintiff was operated for a substantial non-exempt purpose; and (2) plaintiff qualified as an "action organization" within the meaning of Treas. Reg. § 1.501(c)(3)-1 (c)(3)(iv) of the federal income tax regulations. AR 1834-1835.
Plaintiff's complaint requests this court to review the defendant's decision to deny tax exempt status for the plaintiff trust and declare that plaintiff qualifies as a tax exempt organization under § 501(c)(3). Compl. P 12. Also, plaintiff requests that the court declare plaintiff a publicly supported organization under IRC § 509(a)(1), rather that an "action organization" as determined by the IRS. Id. Consequently, the plaintiff filed a motion for summary judgment pursuant to 26 U.S.C. § 7428. Additionally, plaintiff filed a motion to strike material outside the administrative record. The court addresses each motion in turn.
A. Scope of Review
An action for declaratory judgment under 26 U.S.C. § 7428 confers concurrent jurisdiction to the Court for Federal Claims, the United States Tax Court and the District Court to review a final determination by the Secretary of Treasury regarding the tax exempt status of an organization under § 501(c)(3). The standard of review is de novo and the scope of review is limited to the administrative record unless good cause is shown. Basic Unit Ministry of Alma Karl Schurig v. United States, 511 F. Supp. 166, 167-168 (D.D.C. 1981), affd 216 U.S. App. D.C. 391, 670 F.2d 1210 (D.C. Cir. 1982). "The court, however, may make findings of fact which differ from the administrative record. Airlie Foundation, Inc. v. United States, 826 F. Supp. 537, 547 (D.D.C. 1993). Courts reviewing a final determination of tax exempt status by the IRS are to consider the overall picture presented by the administrative record. Dumaine Farms v. Commissioner, 73 T.C. 650 (1980).
B. Defendant's Motion to Strike
Defendant initially moves this court to strike certain appendices (Nos. 1-8, 11-16) included in plaintiff's opposition to defendant's motion for summary judgment as extraneous and irrelevant evidence. These appendices contain the following information not contained in the Stipulated Administrative Record including: (1) information about other organizations that are exempt under 501(c)(3); (2) information about certain individuals related to the Commission; and (3) Internet media reports.
The court grants defendant's motion to strike material outside the record. See Schurig v. United States, 511 F. Supp. 166 (D.D.C. 1981). Tax Court Rule 217(a) provides that "only with the permission of the court, upon good cause shown, will any party be permitted to introduce any evidence other than that presented before the IRS and contained in the administrative record as so defined." Nationalist Movement v. Commissioner, 37 F.3d 216 (5th Cir. 1994). The plaintiff has failed to show good cause by attempting to introduce items solely for purposes of offering a broader context for the court's decision. Plaintiff's Opposition to Defendant's Motion to Strike, pg. 4. The Administrative Record (over 1800 pages) is more than sufficient to assist the court in its decision. Therefore, because the parties have stipulated to the Administrative Record, and plaintiff has not met its burden to show good cause why the court should expand its review of the record, the defendant's motion to strike is granted.
C. Motion for Summary Judgment
When considering a motion for summary judgment, "the movant bears the burden of establishing that there is no material fact in dispute and that it is entitled to judgment as a matter of law." Airlie, 826 F. Supp. at 547, quoting Celotex v. Catrett, 477 U.S. 317, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986). The party opposing the motion has the burden of showing that there is a genuine issue of material fact in dispute. Id. Moreover, in reviewing § 7428 actions, the court's focus should be on whether the IRS's administrative determination was proper in light of the law and facts in the record. Houston Lawyer Referral Service v. IRS, 69 T.C. 570 (1978). Further, the taxpayer, in this case the plaintiff Fund, maintains the burden of proof to show that it is entitled to the tax exempt status and therefore that the Internal Revenue Service's determination was incorrect. Airlie, 826 F. Supp. at 547. Thus, while the court must review the IRS's determination de novo, the organization still carries the burden of demonstrating that it has met the requirement of the statute under which it claims tax exemption. Church of the Visible Intelligence that Governs the Universe v. United States, 4 Cl. Ct. 55, 60 (1983).
The IRS's final determination to deny the Fund tax exempt status was based on the following two grounds:
1) the Fund is not operated exclusively for charitable purposes within the meaning of section 501(c)(3). It is operated for a substantial nonexempt purpose.
2) The Fund is an "action" organization within the meaning of section 1.501(c)(3)-(c)(3)(iv) of the Federal income tax regulation.