631 F.2d 1030 (D.C. Cir. 1980), 79-1826, Big Mama Rag, Inc. v. United States

Docket Nº:79-1826.
Citation:631 F.2d 1030
Party Name:BIG MAMA RAG, INC., a Colorado nonprofit corporation, Appellant, v. UNITED STATES of America et al.
Case Date:September 15, 1980
Court:United States Courts of Appeals, Court of Appeals for the District of Columbia Circuit
 
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631 F.2d 1030 (D.C. Cir. 1980)

BIG MAMA RAG, INC., a Colorado nonprofit corporation, Appellant,

v.

UNITED STATES of America et al.

No. 79-1826.

United States Court of Appeals, District of Columbia Circuit

September 15, 1980

Argued June 9, 1980.

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[Copyrighted Material Omitted]

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Appeal from the United States District Court for the District of Columbia (Civil Action No. 77-1649).

Robert Jenkins, III, Washington, D. C., for appellant. Jeffrey L. Yablon, Washington, D. C., was on the brief for appellant. Harris Weinstein, Washington, D. C., also entered an appearance for appellant.

Robert A. Bernstein, Atty., Dept. of Justice, Washington, D. C., with whom M. Carr Ferguson, Asst. Atty. Gen., Carl S. Rauh, U. S. Atty., Washington, D. C., at the time the brief was filed, were on the brief, for appellee.

Before TAMM, ROBINSON, and MIKVA, Circuit Judges.

Opinion for the Court filed by Circuit Judge MIKVA.

MIKVA, Circuit Judge:

Plaintiff, Big Mama Rag, Inc. (BMR, Inc.), appeals from the order of the court below granting summary judgment to defendants 1 and upholding the IRS's rejection of plaintiff's application for tax-exempt status. Specifically, BMR, Inc. questions the finding that it is not entitled to tax exemption as an educational or charitable organization under section 501(c)(3) of the Internal Revenue Code, 26 U.S.C. § 501(c)(3) (1976), and Treas.Reg. § 1.501(c)(3)-1(d) (2) & (3) (1959). Appellant also challenges the constitutionality of the regulatory scheme, arguing that it violates the First Amendment and the equal protection component of the Fifth Amendment and that it unconstitutionally conditions tax-exempt status on the waiver of constitutional rights.

Because we find that the definition of "educational" contained in Treas. Reg. § 1.501(c)(3)-1(d)(3) is unconstitutionally vague in violation of the First Amendment, we reverse the order of the court below.

I. BACKGROUND

BMR, Inc. is a nonprofit organization with a feminist orientation. Its purpose is "to create a channel of communication for women that would educate and inform them on general issues of concern to them." App. 76. To this end, it publishes a monthly newspaper, Big Mama Rag (BMR), which prints articles, editorials, calendars of events, and other information of interest to women. BMR, Inc.'s primary activity is the production of that newspaper, but it also devotes a considerable minority of its time to promoting women's rights through workshops, seminars, lectures, a weekly radio program, and a free library.

BMR, Inc. has a predominantly volunteer staff and distributes free approximately 2100 of 2700 copies of Big Mama Rag's monthly issues. Moreover, the organization has severely limited the quantity and type of paid advertising. As the district court found, BMR, Inc. neither makes nor intends to make a profit and is dependent on contributions, grants, and funds raised by benefits for over fifty percent of its income. 494 F.Supp. 473, 476 (D.D.C.1979).

Because of its heavy reliance on charitable contributions, BMR, Inc. applied in 1974 for tax-exempt status as a charitable and educational institution. 2 That request was

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first denied by the IRS District Director in Austin, Texas, on the ground that the organization's newspaper was indistinguishable from an "ordinary commercial publishing practice." 3 After BMR, Inc. filed a protest and a hearing was held in the IRS National Office, the denial of tax-exempt status was affirmed on three separate grounds:

  1. the commercial nature of the newspaper;

  2. the political and legislative commentary found throughout; and

  3. the articles, lectures, editorials, etc., promoting lesbianism.

App. 1030.

To enable BMR, Inc. to obtain judicial review of the IRS decision, the IRS District Director issued a final determination letter, which denied tax-exempt status on the grounds that, inter alia, the content of BMR was not educational and the manner of distribution was that of ordinary commercial publishing organizations. 4

Appellant then brought a declaratory judgment action in the District Court for the District of Columbia. 5 On cross-motions for summary judgment, the judge granted appellees' motion. Although the court rejected appellees' argument that BMR, Inc. was not entitled to tax-exempt status because it was a commercial organization, it agreed that appellant did not satisfy the definitions of "educational" and "charitable" in Treas.Reg. § 1.501(c)(3)-1(d)(2) & (3). The court found no constitutional basis for disturbing the IRS's decision.

II. THE REGULATORY SCHEME

Tax exemptions are granted under section 501(c) of the Internal Revenue Code to a variety of socially useful organizations, including the charitable and the educational. 6 The Code forbids exemption of an organization

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if any part of its net earnings inures to the benefit of private persons or if it is an "action organization"-one that attempts to influence legislation or participates in any political campaign. Treasury regulations impose additional requirements: exempt status is accorded only to applicants whose articles of organization limit their activities to furtherance of exempt purposes (the "organizational test") or whose activities are in fact aimed at accomplishment of exempt purposes (the "operational test"). Treas.Reg. § 1.501(c)(3)-1(b) & (c) (1959).

The Treasury regulations also define some of the exempt purposes listed in section 501(c)(3) of the Code, including "charitable" and "educational." The definition of "educational" is the one at issue here:

The term "educational," as used in section 501(c)(3), relates to-

(a) The instruction or training of the individual for the purpose of improving or developing his capabilities; or

(b) The instruction of the public on subjects useful to the individual and beneficial to the community.

An organization may be educational even though it advocates a particular position or viewpoint so long as it presents a sufficiently full and fair exposition of the pertinent facts as to permit an individual or the public to form an independent opinion or conclusion. On the other hand, an organization is not educational if its principal function is the mere presentation of unsupported opinion.

Treas.Reg. § 1.501(c)(3)-1(d)(3)(i) (1959).

The district court found that BMR, Inc. was not entitled to tax-exempt status because it had "adopted a stance so doctrinaire" that it could not meet the "full and fair exposition" standard articulated in the definition quoted above. Appellant's response is threefold. First, it argues, the "full and fair exposition" hurdle is not applicable at all here because BMR, Inc. is not an organization whose primary activity or principal function is advocacy of change. Second, BMR, Inc. contends that its publication does satisfy the requirements of the "full and fair exposition" standard. Finally, appellant maintains that denial of its application for tax-exempt status on the basis of the "full and fair exposition" standard is unconstitutional for a number of reasons.

Even though tax exemptions are a matter of legislative grace, the denial of which is not usually considered to implicate constitutional values, tax law and constitutional law are not completely distinct entities. In fact, the First Amendment was partly aimed at the so-called "taxes on knowledge," which were intended to limit the circulation of newspapers and therefore the public's opportunity to acquire information about governmental affairs. See Grosjean v. American Press Co., 297 U.S. 233, 246-49, 56 S.Ct. 444, 447-48, 80 L.Ed. 660 (1936). In light of their experience with such taxes, the framers realized, in the words of Mr. Justice Douglas, that "(t)he power to tax the exercise of a privilege is the power to control or suppress its enjoyment." Murdock v. Pennsylvania, 319 U.S. 105, 112, 63 S.Ct. 870, 874, 87 L.Ed. 1292 (1943). Thus, although First Amendment activities need not be subsidized by the state, the discriminatory denial of tax exemptions can impermissibly infringe free speech. Speiser v. Randall, 357 U.S. 513, 518, 78 S.Ct. 1332, 1338, 2 L.Ed. 1460 (1958). Similarly, regulations authorizing tax exemptions may not be so unclear as to afford latitude for subjective application by IRS officials. 7 We find that the definition of "educational," and in particular its "full and fair exposition" requirement, is so vague as to violate the First Amendment

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and to defy our attempts to review its application in this case. 8

III. VAGUENESS ANALYSIS

Vague laws are not tolerated for a number of reasons, and the Supreme Court has fashioned the constitutional standards of specificity with these policies in mind. First, the vagueness doctrine incorporates the idea of notice-informing those subject to the law of its meaning. Smith v. Goguen, 415 U.S. 566, 572, 94 S.Ct. 1242, 1246, 39 L.Ed.2d 605 (1974); Grayned v. City of Rockford, 408 U.S. 104, 108, 92 S.Ct. 2294, 2298, 33 L.Ed.2d 222 (1972). A law must therefore be struck down if " 'men of common intelligence must necessarily guess at its meaning.' " Hynes v. Mayor of Oradell, 425 U.S. 610, 620, 96 S.Ct. 1755, 1760, 48 L.Ed.2d 243 (1976) (quoting Connally v. General Constr. Co., 269 U.S. 385, 391, 46 S.Ct. 126, 127, 70 L.Ed. 322 (1926)). See also Baggett v. Bullitt, 377 U.S. 360, 367, 84 S.Ct. 1316, 1320, 12 L.Ed.2d 377 (1964).

Second, the doctrine is concerned with providing officials with explicit guidelines in order to avoid arbitrary and discriminatory enforcement. Hynes, 425 U.S. at 622, 96 S.Ct. at 1761; Goguen, 415 U.S. at 572-73, 94 S.Ct. at 1246-47; Papachristou v. City of Jacksonville, 405 U.S. 156, 170, 92 S.Ct. 839...

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