Ass'n of the Bar of the City of New York v. Comm'r of Internal Revenue, Docket No. 6715-86X

• Citation: 89 T.C. No. 42,89 T.C. 599
• Decision Date: 17 September 1987
• Docket Number: Docket No. 6715-86X
• Parties: THE ASSOCIATION OF THE BAR OF THE CITY OF NEW YORK, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
• Court: United States Tax Court

89 T.C. 599

89 T.C. No. 42

THE ASSOCIATION OF THE BAR OF THE CITY OF NEW YORK, Petitioner

v.COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 6715-86X

United States Tax Court

Filed September 17, 1987.

Petitioner seeks a declaratory judgment from respondent's adverse final determination that petitioner is not an organization described in section 501(c)(3), I.R.C. 1954. Respondent determined that petitioner is an ‘action‘ organization, as defined in section 1.501(c)(3)-1(c)(3)(iii), Income Tax Regs., because petitioner's practice of rating candidates for elective judicial offices constitutes participation or intervention in any political campaign on behalf of any candidate for public office, within the meaning of section 501(c)(3).

HELD, the mere act of rating candidates for judicial office, without more, does not constitute prohibited political campaign activities, and therefore petitioner is an organization entitled to tax-exempt status under section 501(a) as an organization described in section 501(c)(3). M. Bernard Aidinoff and Karen L. Halby, for the petitioners.

Vincent J. Guiliano, for the respondent.

OPINION

STERRETT, CHIEF JUDGE:

Petitioner, the Association of the Bar of the City of New York, seeks a declaratory judgment pursuant to section 7428(a) ¹ that it is exempt from taxation under section 501(a) as an organization described in section 501(c)(3). The sole issue for decision is whether petitioner's practice of rating judicial candidates for public office constitutes participation or intervention in political campaigns on behalf of such candidates, which is prohibited by section 501(c)(3). ²

This case was submitted for decision on the stipulated administrative record under Rule 122. The facts and representations contained therein are assumed to be true for purposes of this proceeding and are incorporated herein by this reference. Rule 217(b)(1). Petitioner has exhausted its administrative remedies as required by section 7428(b)(2) and Rule 210(c)(4) and filed its Petition for Declaratory Judgment (Exempt Organization) in this case on March 14, 1986.

Petitioner, a bar association, was incorporated by a Special Act of the New York Legislature, passed on April 28, 1871, (Chapter 819, New York Laws of 1871, amended Chapter 134, New York Laws of 1924) —

for the purposes of cultivating the science of jurisprudence, promoting reforms in the law, facilitating the administration of justice, elevating the standard of integrity, honor and courtesy in the legal profession and cherishing the spirit of brotherhood among the members thereof.

At the time it filed its petition in this case, petitioner's principal place of business was located at 42 West 44th Street, New York, New York.

Petitioner has been recognized as exempt from Federal income tax under the Internal Revenue Code of 1939 as an organization described in the predecessor of current section 501(c)(6). ³ On May 25, 1982, petitioner filed an initial request with respondent's Office of the District Director in Manhattan for recognition as a tax-exempt charitable and educational organization, ‘Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code,‘ Form 1023 (the Application). In the Application, petitioner stated that it did not and will not engage in activities tending to influence legislation or intervene in any way with political campaigns.

The Court of Appeals for the Second Circuit, to which this case would be appealable, has held that, based upon its total operations, petitioner is a scientific, educational and charitable organization such that for Federal estate tax purposes, certain conveyances to petitioner constitute charitable bequests. Dulles v. Johnson, 273 F.2d 362, 367-368 (2d Cir. 1959). ¹¹ However, that case was decided under section 812(d) of the Internal Revenue Code of 1939, the predecessor of current section 2055, which had no express prohibition against political campaign activities. ¹² The parties agree that its decision is not dispositive of the issue presented here. ¹³ Nevertheless, petitioner maintains that the decision supports its position that its practice of rating judicial candidates is consistent with charitable and educational purposes, citing the following language therefrom:

Although the details of the process may vary from jurisdiction to jurisdiction, it does not appear that there is any doubt that, in New York, each of the judicial candidates who runs in the party primaries and then on party lines in the general election is (in the words of sec. 501(c)(3)) a ‘candidate for public office‘ and is conducting a ‘political campaign‘.

The majority's findings make it clear that petitioner's ratings are attempts to influence the voters in these political campaigns to support ‘approved‘ candidates over ‘not approved‘ candidates. It is apparent, from the table in the majority's opinion (p. 604 ), that the ‘approved‘ rating is not routinely granted and that, in many cases petitioner provides and publishes ratings that prefer some candidates over others. ³

Thus, it seems to be clear that one of petitioner's ‘principal activities‘ is to participate in political campaigns on behalf of candidates for public office. For the past 33 years, the Congress has said that this is an impermissible activity for section 501(c)(3) organizations. It follows that petitioner fails one of the requirements for section 501(c)(3) status and our declaratory judgment, in the instant case, should be for respondent.

The majority point out that petitioner is already exempt under section 501(a) as an organization described in section 501(c)(6) (p. 600) and that respondent does not propose to change his favorable ruling on that score (p. 605), but the majority imply that petitioner's real objective in this litigation may be to achieve eligible contributing donee status under sections 170 (as to which we clearly have authority under sec. 7428(a)(1)(A) to render a declaratory judgment), 2055, 2106, and 2522. (P. 600.) As the majority also point out, for the past 18 years the Congress has said that the section 501(c)(3) anti-electioneering rules apply to the charitable contribution deduction provisions as well to section 501(c)(3) itself. (Pp. 607-608.)

IV. OTHER MATTERS

NONPARTISAN, NONPOLITICAL, OBJECTIVE

The majority seem to believe that it is relevant that ‘Petitioner does not base its ratings on partisan or political preferences‘ and that petitioner intends its standards to be ‘objective‘. (P. 611.)

The Congress has made the provision we deal with depend on participation in a ‘political campaign‘, and the judicial elections here involved clearly are political campaigns. Nothing in the statute suggests that participation in a political campaign is to be ignored if it proceeds from nonpartisan or ‘nonpolitical‘ preferences. Nor does anything in the statute suggest that ‘objective‘ determinations to urge voters to vote for certain candidates are permissible, that only nonobjective determinations are forbidden. Objectivity may be relevant in determining whether the organization is operating exclusively for educational purposes (see sec. 1.501(c)(3)- 1(d)(3)(i), Income Tax Regs.), but neither the statute nor the regulation draws this line with regard to the anti-electioneering requirement. See, e.g., Hancock Academy of Savannah, Inc. v. Commissioner, supra, to the effect that failure to satisfy any one of the requirements of paragraph (3) of section 501(c) will prevent exemption under that paragraph.

VOTER EDUCATION

The majority state that The narrow issue is whether ‘petitioner's rating activities do not constitute permissible voter education activities.‘ (P. 609)

Petitioner provides voters with little information explaining ‘not approved‘ ratings and no information at all explaining ‘approved‘ and ‘approved as highly qualified‘ ratings. (P. 611.) As a result, it hardly seems that petitioner's candidate rating activity could qualify as ‘educational‘. See sec. 1.501(c)(3)-1(d)(3)(i), Income Tax Regs., which provides in relevant part as follows:

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.

What petitioner did is far from what most would regard as voter education. Organizations that conduct voter education activities urge citizens to register to vote, they urge citizens to enroll in the party of their choice and vote in primary elections (where this is the procedure under their State's laws), they urge people to vote in general elections, and they explain why it is an obligation of citizens to do so in this Nation and a privilege that is nonexistent or not meaningful in much of the rest of the world. Voter education activities focus on giving voters and candidates access to each other on an impartial basis, i.e., access to and by all the candidates and not merely those favored by the organization's leaders or by a special rating committee.

PASSIVE ACTIVITY

The majority seem to believe that it is not only relevant, but ‘important to note that petitioner merely reports its ratings and does not actively seek to influence the outcome of elections, for example, by distributing statements or other campaign literature on behalf of or in opposition to any candidate.‘ (P. 611.)

Firstly, the majority have found that petitioner's ratings ‘are released to the general public in the form of press releases‘. (P. 603.) The majority acknowledge that ‘there obviously would be no point to making the ratings if they were kept secret and it is equally obvious that the ratings are published with the hope that they will have an impact on the voter.‘ (P. 610.) That petitioner, because of the prestige it enjoys, can achieve its desired effect in a dignified manner does not take away from the fact that...