416 U.S. 752 (1974), 72-1371, Alexander v. "Americans United," Inc.

Docket Nº:No. 72-1371
Citation:416 U.S. 752, 94 S.Ct. 2053, 40 L.Ed.2d 518
Party Name:Alexander v. "Americans United," Inc.
Case Date:May 15, 1974
Court:United States Supreme Court
 
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Page 752

416 U.S. 752 (1974)

94 S.Ct. 2053, 40 L.Ed.2d 518

Alexander

v.

"Americans United," Inc.

No. 72-1371

United States Supreme Court

May 15, 1974

Argued January 7, 1974

CERTIORARI TO THE UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Syllabus

Respondent, a nonprofit corporation, had a ruling letter assuring it of tax-exempt status under § 501(c)(3) of the Internal Revenue Code of 1954 (Code). The Internal Revenue Service (IRS) revoked the ruling letter on the ground that respondent had violated the lobbying proscriptions of §§ 501(c)(3) and 170 of the Code, the effect of which was to render it liable for federal unemployment taxes and to terminate its eligibility for tax-deductible contributions. Respondent and two of its benefactors brought this action seeking a declaratory judgment that the IRS' administration of the lobbying provisions of §§ 501(c)(3) and 170 was erroneous or unconstitutional and injunctive relief requiring reinstatement of its § 501(c)(3) tax-exempt status. The District Court dismissed the complaint on the ground, inter alia, that the action was barred by the prohibition in § 7421(a) of the Code against suits "for the purpose of restraining the assessment or collection of any tax." The Court of Appeals agreed that the action could not be maintained by the benefactors, but held that respondent's suit was not barred on the grounds that respondent raised constitutional allegations; that the primary design of the suit was not to enjoin the assessment or collection of respondent's own taxes; that restraining the assessment or collection of the taxes of respondent's contributors was only a "collateral effect" of this suit; and that, in the absence of injunctive relief, respondent would sustain irreparable injury for which there was no adequate legal remedy. The court consequently affirmed the dismissal as to the benefactors but reversed as to respondent.

Held: The action is barred by § 7421(a). Enochs v. Williams Packing & Navigation Co., 370 U.S. 1; Bob Jones University v. Simon, ante, p. 725. Pp. 758-763.

(a) The constitutional nature of a taxpayer's claim, as distinct from its probability of success, is of no consequence under § 7421(a). Pp. 759-760.

Page 753

(b) That respondent was not seeking to enjoin the assessment or collection of its own taxes is irrelevant, for § [94 S.Ct. 2055] 7421(a) bars a suit to enjoin the assessment or collection of anyone's taxes. P. 760.

(c) Under any reasonable construction of the statutory term "purpose," the objective of this action was to restrain the assessment and collection of taxes from respondent's contributors, the purpose being to restore advance assurance that donations to respondent would qualify as charitable deductions for respondent's donors. Pp. 760-761.

(d) An action for refund of unemployment taxes, even if successful, will not lead to the recovery of contributions lost in the interim between withdrawal of a § 501(c)(3) ruling letter and the final adjudication of entitlement to § 501(c)(3) status. This is, however, merely a form of irreparable injury, which, in itself, is insufficient to avoid the bar of § 7421(a). Pp. 761-762.

(e) An action for refund of unemployment taxes will afford respondent a full opportunity to litigate the legality of the IRS' withdrawal of its § 501(c)(3) ruling letter, since respondent's liability for such taxes hinges on precisely the same legal issue as does its eligibility for tax-deductible contributions under § 170, i.e., its entitlement to § 501(c)(3) status. P. 762.

155 U.S.App.D.C. 284, 477 F.2d 1169, reversed.

POWELL, J., delivered the opinion of the Court, in which BURGER, C.J., and BRENNAN, STEWART, WHITE, MARSHALL, and REHNQUIST, JJ., joined. BLACKMUN, J., filed a dissenting opinion, post, p. 763. DOUGLAS, J., took no part in the decision of the case.

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POWELL, J., lead opinion

MR. JUSTICE POWELL delivered the opinion of the Court.

Respondent is a nonprofit educational corporation organized under the laws of the District of Columbia as "Protestants and Other Americans United for Separation of Church and State." Its purpose is to defend and maintain religious liberty in the United States by the dissemination of knowledge concerning the constitutional principle of the separation of church and State. In 1950, the Internal Revenue Service issued a ruling letter that respondent qualified as a tax-exempt organization under the predecessor provision to § 501(c)(3) of the Internal Revenue Code of 1954 (the Code), 26 U.S.C. § 501(c)(3).1 As a result, the Service treated contributions to respondent as charitable deductions under the predecessor provision of § 170(c)(2) of the Code, 26 U.S.C. § 170(c)(2).2 This [94 S.Ct. 2056] situation continued unchanged until

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April 25, 1969, when the Service issued a ruling letter revoking the 1950 ruling on the ground that respondent had violated §§ 501(c)(3) and 170(c)(2)(D) by devoting a substantial part of its activities to attempts to influence legislation. Shortly thereafter, the Service issued another ruling letter exempting respondent from income taxation as a "social welfare" organization under Code § 501(e)(4), 26 U.S.C. § 501(e)(4).3 The effect of this change in status was to render respondent liable for unemployment (FUTA) taxes under Code § 3301,4 26 U.S.C. § 3301, and to destroy its eligibility for tax-deductible contributions under § 170.

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Because the 1969 ruling letter caused a substantial decrease in its contributions, respondent and two of its benefactors initiated the instant action in the United States District Court for the District of Columbia on July 30, 1970.5 They sought a declaratory judgment that the Service's administration of the lobbying proscriptions of §§ 501(c)(3) and 170 was erroneous or unconstitutional6 and injunctive relief requiring reinstatement

Page 757

of respondent's § 501(c)(3) ruling letter. Because their objections to the Service's action included [94 S.Ct. 2057] a facial challenge to the constitutionality of federal statutes,7 they also requested the convening of a three-judge district court pursuant to 28 U.S.C. § 2282.

The Service moved to dismiss the action, principally on the ground that the exception in the Declaratory Judgment Act for cases "with respect to Federal taxes,"8 and the prohibition in the Anti-Injunction Act against suits "for the purpose of restraining the assessment or collection of any tax,"9 ousted the court of subject

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matter jurisdiction. The District Court accepted this argument, refused to convene a three-judge court, and dismissed the complaint in an unpublished order filed March 9, 1971. The United States Court of Appeals for the District of Columbia Circuit affirmed the dismissal insofar as it pertained to the individual plaintiffs, but it reversed as to respondent and remanded the case to the District Court with instructions to convene a three-judge court. "Americans United" Inc. v. Walters, 155 U.S.App.D.C. 284, 477 F.2d 1169 (1973). The Service petitioned for review, and we granted certiorari. 412 U.S. 927 (1973). We reverse.

In our opinion in Bob Jones University v. Simon, ante, p. 725, we examined the meaning of the Anti-Injunction Act and its interpretation in prior opinions of this Court, and we reaffirmed our adherence to the two-part test announced in Enochs v. Williams Packing & Navigation Co., 370 U.S. 1 (1962). To reiterate, the Court in Williams Packing unanimously held that a pre-enforcement injunction against the assessment or collection of taxes may be granted only (i) "if it is clear that under no circumstances could the Government ultimately prevail . . . ," id. at 7, and (ii) "if equity jurisdiction otherwise exists." Ibid. Unless both conditions are met, a suit for preventive injunctive relief must be dismissed.

In the instant case, the Court of Appeals recognized Williams Packing as controlling precedent for respondent's individual co-plaintiffs, and affirmed the dismissal of the suit as to them. 155 U.S.App.D.C. at 292, 477 F.2d at 1177. The court held that the relief requested by the individual plaintiffs "relate[d] directly to the assessment and collection of taxes" and that the allegations of

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infringements of constitutional rights were "to no avail" in overcoming the barrier of § 7421(a). Id. at 291, 477 F.2d at 1176. The court also recognized that respondent could not satisfy the Williams Packing criteria, id. at 298, 477 F.2d at 1183, but concluded that respondent's suit was without the scope of the Anti-Injunction Act, and therefore not subject to the Williams Packing test.10

[94 S.Ct. 2058] The court's conclusion with regard to respondent rested on the confluence of several factors. One was the constitutional nature of respondent's claims. As the court noted, the thrust of respondent's argument is not that it qualifies for a § 501(c)(3) exemption under existing law, but rather that that provision's "substantial part" test and proscription against efforts to influence legislation are unconstitutional. Id. at 293, 477 F.2d at 1178. Obviously, this observation could not have been dispositive to the Court of Appeals, for this factor does not differentiate respondent, which was allowed to sue, from the individual co-plaintiffs, who likewise pressed constitutional claims but who were dismissed from the action. Furthermore, decisions of this Court make it unmistakably clear that the constitutional nature of a taxpayer's claim, as distinct from its probability of success, is of no consequence under the Anti-Injunction Act. E.g.,

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Bailey v George, 259 U.S. 16 (1922); Dodge v. Osborn, 240 U.S. 118 (1916).

The other three factors identified by the Court of Appeals are equally...

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