American Soc. of Travel Agents, Inc. v. Blumenthal

• Decision Date: 01 November 1977
• Docket Number: No. 75-1782,75-1782
• Citation: 566 F.2d 145
• Parties: , 77-2 USTC P 9649 AMERICAN SOCIETY OF TRAVEL AGENTS, INC., et al., Appellants, v. Michael BLUMENTHAL, Secretary of Treasury, et al.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 145

566 F.2d 145

184 U.S.App.D.C. 253, 77-2 USTC P 9649

AMERICAN SOCIETY OF TRAVEL AGENTS, INC., et al., Appellants, v. Michael BLUMENTHAL, Secretary of Treasury, et al.

No. 75-1782.

United States Court of Appeals, District of Columbia Circuit.

Argued Oct. 20, 1976.

Decided Sept. 15, 1977.

Rehearing Denied Nov. 1, 1977.

Thomas J. Bacas, Washington, D. C., with whom Paul S. Quinn, Washington, D. C., was on the brief, for appellants.

Leonard J. Henzke, Jr., Atty., Tax Div., Dept. of Justice, Washington, D. C., with whom Scott P. Crampton, Asst. Atty. Gen., Earl J. Silbert, U. S. Atty., and Ann B. Durney, Atty., Tax Div., Dept. of Justice, Washington, D. C., were on the brief, for appellees.

Before BAZELON, Chief Judge, and McGOWAN and ROBB, Circuit Judges.

Opinion for the court filed by McGOWAN, Circuit Judge.

Dissenting opinion filed by BAZELON, ^* Chief Judge.

McGOWAN, Circuit Judge:

This is an appeal from the District Court's dismissal of a complaint challenging the administration of the federal tax laws, not in relation to the tax liabilities of plaintiffs-appellants, but as to third parties not before the court. It thus presents a threshold issue of standing to sue reminiscent of Justice Stewart's observation, concurring in Simon v. Eastern Kentucky Welfare Rights Organization, et al., 426 U.S. 26, 46, 96 S.Ct. 1917, 1928, 48 L.Ed.2d 450 (1975), that he could not "imagine a case, at least outside the First Amendment area, where a person whose own tax liability was not affected ever could have standing to litigate the federal tax liability of someone else." Because Eastern Kentucky an obviously relevant case was pending before the Supreme Court at the time this appeal was first scheduled for oral argument, we deferred our consideration to await the Supreme Court's outcome. We now hold, by reference to the Supreme Court's disposition of Eastern Kentucky, that there was a fatal want of standing here; and we affirm the District Court's judgment for that reason.

I

Appellants, the American Society of Travel Agents (ASTA) and several individual travel agencies, complain of the failure of the federal tax authorities to assess taxes upon certain income received by the American Jewish Congress (AJC) and other organizations enjoying tax exemptions under § 501(c) (3) of the Internal Revenue Code. ¹ In particular, they object to the tax-exempt treatment accorded to income derived from the operation of travel programs by § 501(c)(3) organizations. Appellants assert that such income should be taxed as so-called unrelated business income, i. e., income obtained from a business the conduct of which is "not substantially related . . . to the exercise of performance . . . (of the) purpose or function constituting the basis" for an organization's § 501 exemption. See I.R.C. § 513(a). Alternatively, appellants contend that the AJC and other exempt organizations have become so heavily involved in the travel business that their § 501(c)(3) exemptions should be eliminated altogether.

By memorandum order, the District Court decided that neither count of appellants' complaint stated a claim upon which relief could be granted. 36 A.F.T.R.2d 75-5142 (D.D.C. May 23, 1975). It observed that allegations like those raised by plaintiffs would necessitate "careful consideration of the particular facts and circumstances of each case." Unwilling to embark upon such an enterprise, the court declared that its jurisdiction could "not be invoked to undertake continuing supervision of IRS's administration of the Internal Revenue Code."

The District Court's reluctance to become embroiled, at the instance of taxpayers not directly involved, in the intricacies of tax law enforcement is both understandable and far from irrational in terms of jurisdictional principles. However, we believe that, looking to the Supreme Court's opinion in Eastern Kentucky, dismissal of appellants' action should be accomplished by resolution of the preliminary question of standing. We conclude that appellants have failed to demonstrate any actual injury resulting from appellees' administration, with respect to third parties, of the statutory provisions governing tax-exempt organizations. We find that appellants here, like the complainants in Eastern Kentucky, "have failed to carry (the) burden" of establishing "that, in fact, the asserted injury was the consequence of the defendants' actions, or that prospective relief will remove the harm." 426 U.S. at 45, 96 S.Ct. at 1927, quoting Warth v. Seldin, 422 U.S. 490, 505, 95 S.Ct. 2197, 45 L.Ed.2d 343 (1975).

II

Appellants' basic grievance may be simply stated. Private travel agents earn their livelihood, primarily on a commission basis, through the sale of transportation and travel-related services in both domestic and foreign markets. One especially common function performed by travel agents is the arrangement of so-called tour packages, consisting of transportation, accommodations, meals, and a variety of other features. Such packages are sold together at one price, a portion of which the agent retains as a commission.

Appellants allege that, in recent years, a number of tax-exempt organizations, including the AJC, have become increasingly involved in preparing tour packages and offering such packages to their members. Appellants further allege that the tax-exempt status of these organizations has enabled them to sell tour packages at prices lower than those which private travel agents must charge in order to earn a reasonable profit. Thus, so it is said, the AJC and other unspecified organizations have improperly used their tax exemptions to obtain an unfair competitive advantage in the sale of tour packages.

Operation of an extensive travel program is, in appellants' view, substantially unrelated to the religious, charitable, scientific, or educational purposes which justify many § 501(c)(3) exemptions, including that enjoyed by the AJC. Consequently, appellants urge that income from such a travel program should be subjected to the same tax treatment accorded to income earned by ordinary ASTA members. Somewhat less vigorously, appellants maintain that if the § 501(c)(3) organizations at issue conduct travel businesses of significant size, then those organizations are no longer operated "exclusively" for religious, charitable, scientific, or educational purposes, and thereby forfeit their § 501(c)(3) exemptions.

We do not reach the merits, because we believe appellants have not alleged any judicially cognizable "injury in fact," and thus have failed to establish their standing to bring this suit. "Injury in fact" has long been regarded as the foremost standing prerequisite, and the only one of constitutional dimension. See, e. g., United States v. SCRAP, 412 U.S. 669, 686-89 & n. 14, 93 S.Ct. 2405, 37 L.Ed.2d 254 (1973); Sierra Club v. Morton, 405 U.S. 727, 733, 92 S.Ct. 1361, 31 L.Ed.2d 636 (1972), and Flast v. Cohen, 392 U.S. 83, 99-101, 88 S.Ct. 1942, 20 L.Ed.2d 947 (1968). Under Article III of the Constitution, federal courts are limited to the adjudication of cases and controversies. In order to guarantee the adversarial litigation posture demanded by this constitutional language, plaintiffs seeking to invoke federal court jurisdiction have been required to demonstrate that they have suffered some actual injury attributable to defendants.

Here, appellants claim to have been injured by appellees' improper administration of the Internal Revenue Code, and seek injunctive relief. However, appellants have not indicated with sufficient specificity either the manner in which their alleged injury occurred or the nature of that injury. Appellants point to no prospective customers who spurned the services of ASTA members because of appellees' allegedly inequitable tax treatment of § 501(c) (3) organizations. Nor do appellants identify tour package purchasers who in fact patronized the AJC or some other tax-exempt organization, but who might legitimately be expected to do business with a private travel agent in the event appellees enforced the relevant tax code provisions according to appellants' recommendations. Instead, appellants complain in more abstract terms, alleging injury arising from appellees' creation of an unfair competitive atmosphere, and seeking relief in the form of the more congenial competitive environment which would supposedly result from proper tax enforcement policy. We regard this sort of injury claim as too speculative to support standing under the circumstances presented here.

We conceive that this disposition is not only sustained, but also largely mandated, by Eastern Kentucky. In that case, several indigents and organizations composed of indigents attacked a 1969 Revenue Ruling which revised the criteria under which non-profit hospitals might qualify for tax-exempt status as charitable institutions. In particular, the challenged ruling eliminated the requirement contained in a 1956 ruling to the effect that a non-profit hospital desirous of charitable classification "must be operated to the extent of its financial ability for those not able to pay for the services rendered." Deletion of this language, argued the Eastern Kentucky plaintiffs, was directly responsible for several refusals by tax-exempt hospitals to provide needed services to individuals unable to pay a deposit or advance fee. Plaintiffs further alleged that similar refusals could be expected in the future if the offending Revenue Ruling was not changed.

As indicated above, the Supreme Court held that "(s)peculative inferences are necessary to connect (plaintiffs') injury to the challenged actions . . . ," and "(m)oreover, the complaint suggests no substantial likelihood that victory in this suit would result" in receipt of the hospital treatment desired. 426 U.S. at 45-46, 96 S.Ct. at 1927-1928. The Court explained its conclusion by commenting upon what it perceived as the tenuous connection between the...