Bob Jones University v. Simon 8212 1470

Decision Date15 May 1974
Docket NumberNo. 72,72
Citation94 S.Ct. 2038,40 L.Ed.2d 496,416 U.S. 725
PartiesBOB JONES UNIVERSITY, Petitioner, v. William E. SIMON, Secretary of Treasury, et al. —1470
CourtU.S. Supreme Court

Petitioner, a private university, was notified by the Internal Revenue Service (IRS), pursuant to a newly announced policy of denying tax-exempt status for private schools with racially discriminatory admissions policies, that it was going to revoke a ruling letter declaring that petitioner qualified for tax-exempt status under § 501(c)(3) of the Internal Revenue Code of 1954 (Code). Petitioner sued for injunctive relief to prevent revocation, alleging irreparable injury in the form of income tax liability and loss of contributions and claiming that the revocation would violate petitioner's rights to free exercise of religion, to free association, and to due process and equal protection of the laws. The District Court granted relief despite § 7421(a) of the Code, which provides that 'no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court.' The Court of Appeals reversed, holding that § 7421(a), as construed in Enochs v. Williams Packing & Navigation Co., 370 U.S. 1, 82 S.Ct. 1125, 8 L.Ed.2d 292, foreclosed relief. Under that decision a pre-enforcement injunction against tax assessment or collection may be granted only if (1) 'it is clear that under no circumstances could the Government ultimately prevail . . .' and (2) 'if equity jurisdiction otherwise exists.' Held:

1. The suit is one 'for the purpose of restraining the assessment or collection of any tax' within the meaning of § 7421(a). Pp. 738—742.

(a) Petitioner's allegation that revocation of the ruling letter would subject it to 'substantial' income tax liability demonstrates that a primary purpose of the suit is to prevent the IRS from assessing and collecting income taxes; but even if no income tax liability resulted, the suit would still be one to restrain the assessment and collection of federal social security and unemployment taxes, as well as to restrain the collection of taxes from petitioner's donors. Pp. 738—739.

(b) Petitioner has not shown that the contemplated revocation of its ruling letter is not based on the IRS's good-faith effort to enforce the technical requirements of the Code. Pp. 739—741.

2. Petitioner's contention that § 7421(a) is subject to judicially created exceptions other than the Williams Packing test is without merit. That decision constitutes an all-encompassing reading of § 7421(a), and it rejected the contention, relied upon by petitioner, that irreparable injury alone is sufficient to lift the statutory bar. Pp. 742—746.

3. Denying injunctive relief to petitioner under the standards of Williams Packing, supra, will not, because of alleged irreparable injury pending resort to alternative remedies, deny petitioner due process of law, since this is not a case where an aggrieved party has no access at all to judicial review. The review procedures that are available are constitutionally adequate, even though involving serious delay. Pp. 746—748.

4. Petitioner has not met the standards of Williams Packing, supra, since its contentions are sufficiently debatable to foreclose any notion that 'under no circumstances could the Government ultimately prevail.' Pp. 748—750.

472 F.2d 903 and 476 F.2d 259, affirmed.

J. D. Todd, Jr., Greenville, S.C., for petitioner.

Scott P. Crampton, Washington, D.C., for respondents.

Mr. Justice POWELL delivered the opinion of the Court.

This case and Alexander v. 'Americans United' Inc., 416 U.S. 752, 94 S.Ct. 2053, 40 L.Ed.2d 518, involve the application of the Anti- -Injunction Act, § 7421(a) of the Internal Revenue Code of 1954 (the Code), 26 U.S.C. § 7421(a), to the ruling-letter program of the Internal Revenue Service (the Service) for organizations claiming tax-exempt status under Code § 501(c)(3), 26 U.S.C. § 501(c)(3). The question presented is whether, prior to the assessment and collection of any tax, a court may enjoin the Service from revoking a ruling letter declaring that petitioner qualifies for tax-exempt status and from withdrawing advance assurance to donors that contributions to petitioner will constitute charitable deductions under Code § 170(c)(2), 26 U.S.C. § 170(c) (2). We hold that it may not.


Section 501(a) of the Code exempts from federal income taxes organizations described in § 501(c)(3). The latter provision encompasses:

'Corporations, and any community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private shareholder or individual, no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation, and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of any candidate for public office.'

Section 501(c)(3) organizations are also exempt from federal social security (FICA) taxes by virtue of Code § 3121(b)(8)(B), 26 U.S.C. § 3121(b)(8)(B), and from federal unemployment (FUTA) taxes by virtue of § 3306(c)(8), 26 U.S.C. § 3306(c)(8). Dona- tions to § 501(c)(3) organizations are tax deductible under § 170(c)(2).1

As a practical matter, an organization hoping to solicit tax-deductible contributions may not rely solely on technical compliance with the language of §§ 501(c)(3) and 170(c)(2). The organization must also obtain a ruling letter from the Service, pursuant to Rev.Procs. 72—3 and 72—4, 1972—1 Cum.Bull. 698, 706, declaring that it qualifies under § 501(c)(3). Receipt of such a ruling letter leads, in the ordinary case, to inclusion in the Service's periodically undated Publication No. 78, 'Cumulative List of Organizations described in Section 170(c) of the Internal Revenue Code of 1954' (the Cumulative List). In essence, the Cumulative List is the Service's official roster of tax-exempt organizations: 'The listing of an organization in (the Cumulative List) signifies it has received a ruling or determination letter . . . stating that contributions by donors to the organization are deductible as provided in section 170 of the Code.' Rev.Proc. 72 39, 1972—2 Cum.Bull. 818. An organization's inclusion in the Cumulative List assures potential donors in advance that contributions to the organization will qualify as charitable deductions under § 170(c)(2).

The Service has announced that, with narrowly limited exceptions, a donor may rely on the Cumulative List for so long as the beneficiaries of his largesse maintain their listing, regardless of their actual tax status.2 For this reason, appearance on the Cumulative List is a prerequisite to successful fund raising for most charitable organizations. Many contributors simply will not make donations to an organization that does not appear on the Cumulative List. 3

Because of the importance of inclusion in the Cumulative List, revocation of a § 501(c)(3) ruling letter and consequent removal from the Cumulative List is likely to result in serious damage to a charitable organization.4 Revocation not only threatens the flow of contributions, it also subjects the affected organization to FICA and FUTA taxes and, assuming that the organization has taxable income and does not qualify as tax exempt under another subsection of § 501, to federal incoem taxes.5 Upon the assessment and attempted collection of income taxes, the organization may litigate the legality of the Service's action by petitioning the Tax Court to review a notice of deficiency. See Code §§ 6212 and 6213, 26 U.S.C. §§ 6212 and 6213. Or, following the collection of any federal tax and the denial of a refund by the Service, the organization may bring a refund suit in a federal district court or in the Court of Claims. See Code § 7422, 26 U.S.C. § 7422; 28 U.S.C. §§ 1346(a)(1) and 1491. Finally, a donor to the organization may bring a refund suit to challenge the denial of a charitable deduction under § 170(c) (2). Presumably such a 'friendly donor' would be able to attack the legality of the Service's revocation of an organization's § 501(c)(3) status. But these postrevocation avenues of review take substantial time, during which the organization is certain to lose contributions from those donors whose gifts are contingent on entitlement to charitable deductions under § 170(c)(2). Accordingly, any organization threatened with revocation of a § 501(c)(3) ruling letter has a powerful incentive to bring a pre-enforcement suit to prevent the Service from taking action in the first instance.

The pressures operating on organizations facing revocation of § 501(c)(3) status to seek injunctive relief against the Service pending judicial review of the proposed action conflict directly with a congressional prohibition of such pre-enforcement tax suits. In force continuously since its enactment in 1867, the Anti-Injunction Act, now Code § 7421(a), provides in pertinent part that 'no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court . . ..'6 Because an injunction preventing the Service from withdrawing a § 501(c)(3) ruling letter would necessarily preclude the collection of FICA, FUTA, and possibly income taxes from the affected organization, as well as the denial of § 170(c)(2) charitable deductions to donors to the organization, a suit seeking such relief falls squarely within the literal scope of the Act.7

The clash between the language of the Anti-Injunction Act and the desire of § 501(c)(3) organizations to block the Service from withdrawing a ruling letter has been resolved against the organizations in most cases. E.g. Crenshaw County Private School Foundation v....

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