National Federation of Republican Assemblies v. United States, Civil Action 00-0759-RV-C (S.D. Ala. 8/27/2002)

• Decision Date: 27 August 2002
• Docket Number: Civil Action 00-0759-RV-C.
• Parties: NATIONAL FEDERATION OF REPUBLICAN ASSEMBLIES, et al., Plaintiffs, v. UNITED STATES OF AMERICA, et al., Defendants.
• Court: U.S. District Court — Southern District of Alabama

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NATIONAL FEDERATION OF REPUBLICAN ASSEMBLIES, et al., Plaintiffs, v. UNITED STATES OF AMERICA, et al., Defendants.

Civil Action 00-0759-RV-C.

United States District Court, S.D. Alabama, Southern Division.

August 27, 2002.

C. Johnston, James W. Zeigler, Mobile, AL, David B. Rivkin, Jr., Frederick W. Chockley, Lee A. Casey, E. Mark Braden, Baker & Hostetler, LLP, Washington, DC, J. Michael Druhan, Jr., Johnston Druhan, LLP, Mobile, AL, for Plaintiffs.

Ginny S. Granade, Charles Baer, U.S. Attorney's Office, Mobile, AL, Christopher M. Pietruszkiewicz, Trial Attorney, U.S. Dept. of Justice, Washington, DC, Robert L. Welsh, U.S. Dept. of Justice, Washington, DC, for Defendants.

ORDER

RICHARD W. VOLLMER, JR., Senior Judge.

This case presents a constitutional challenge to Public Law 106-230, codified at WestI.R.C. § 527(i) and (j). In its previous order addressing the defendants' motion to dismiss, the Court ruled that the plaintiffs' challenge to Section 527(i) is barred because: (1) Section 527(i) imposes a "tax" for purposes of the Anti-Injunction Act, I.R.C. § 7421; (2) the organizational plaintiffs do not satisfy any exception to the Anti-Injunction Act; and (3) the only individual plaintiff to challenge Section 527(i) lacks standing to do so. National Federation of Republican Assemblies v. United States, 148 F. Supp.2d 1273, 1283, 1285-87 (S.D. Ala. 2001). This case is now being prosecuted by seven plaintiffs as a challenge to Section 527(j).¹

The case is before the Court on the parties' competing motions for summary judgment. (Docs. 35, 41).² While the parties have submitted evidentiary materials in support of their respective positions, they have represented that no genuine issue of material fact exists and that the case may be resolved without an evidentiary hearing. (Doc. 34 at 3). After carefully considering the parties' arguments as expressed in their briefs on motion for summary judgment, (Docs. 35, 42, 44-46), in their briefs on motion for preliminary injunction, (Docs. 4, 17, 20), and in their briefs on motion to dismiss, (Docs. 16, 19, 23). as well as their submitted evidentiary materials and all other relevant materials in the file, the Court concludes that each motion for summary judgment is due to be granted in part and denied in part.³

BACKGROUND

In 1975, Congress added Section 527 to the Internal Revenue Code, which recognized "political organization" as a class of taxpayer. A "political organization" was defined as an organization "organized and operated primarily for the purpose of directly or indirectly accepting contributions or making expenditures, or both, for an exempt function." I.R.C. § 527(e)(1). An exempt function" was defined as "the function of influencing or attempting to influence the selection, nomination, election, or appointment of any individual to any Federal, State, or local public office or office in a political organization, or the election of Presidential or Vice-Presidential electors, whether or not such individual or electors are selected, nominated, elected, or appointed." Id. § 527(e)(2).

Section 527 established a "general rule" that a political organization is subject to income taxation, but only on its taxable income. I.R.C. §§ 527(a), (b)(1). West"Taxable income" was defined as an amount equal to the excess (if any) of . . . the gross income for the taxable year (excluding exempt function income), over . . . the deductions allowed by this chapter which are directly connected with the production of the gross income (excluding exempt function income)," subject to certain modifications. Id. § 527(e)(1). "Exempt function income" was defined as "any amount received as . . . (A) a contribution of money or other property, (B) membership dues, a membership fee or assessment from a member of the political organization, (C) proceeds from a political fundraising or entertainment event, or proceeds from the sale of political campaign materials, which are not received in the ordinary course of any trade or business, or (D) proceeds from the conducting of any bingo game (as defined in section 513(f)(2)), to the extent such amount is segregated for use only for the exempt function of the political organization." Id. § 527(c)(3). Thus, political organizations received a tax exemption with respect to certain income streams related to their principal purpose of influencing elections. As amended in 1978, Section 527 set the applicable tax rate on taxable income as the highest rate of tax applicable to corporations, id. § 527(b)(1), presently 35%. Id. § 11(b)(1)(D).

In late June 2000, without producing any committee report and after only brief floor debate, Congress passed Public Law 106-230, which in pertinent part added subsections (i) and (j) to Section 527. President Clinton signed the bill into law on July 1, 2000.

Section 527(i) provides that a political organization "shall not be treated as an organization described in this section" until and unless it provides a specified notice to the Secretary disclosing its name, address, purpose, and certain related individuals and entities. I.R.C. § 527(i)(1) — (3),⁴ Those political organizations reasonably anticipating gross receipts of under $25,000 in a taxable year, or subject to the disclosure requirements of the Federal Election Campaign Act of 1971 ("FECA"), need not provide notice. Id. § 527(i)(5)(6). "In the case of an organization failing to meet the requirements of paragraph (1) for any period, the taxable income of such organization shall be computed by taking into account any exempt function income (and any deductions directly connected with the production of such income)." Id. § 527(i)(4).

Under Section 527(1), "[a] political organization which accepts a contribution, or makes an expenditure, for an exempt function during any calendar year shall file" periodic reports with the Secretary. I.R.C. § 527(j)(2).⁵ The reports "shall" disclose: "(A) The amount of each expenditure made to a person if the aggregate amount of expenditures to such person during the calendar year equals or exceeds $500 and the name and address of the person (in the case of an individual, including the occupation and name of employer of such individual)"; and "(B) The name and address (in the case of an individual, including the occupation and name of employer of such individual) of all contributors which contributed an aggregate amount of $200 or more to the organization during the calendar year and the amount of the contribution." Id. § 527(j)(3). For purposes of the disclosure provision, "a person shall be treated as having made an Westexpenditure or contribution if the person has contracted or is otherwise obligated to make the expenditure or contribution." Id. § 527(j)(4). Disclosures are not required of organizations not required to give notice under Section 527(i), of "any State or local committee of a political party or political committee of a State or local candidate," or "with respect to any expenditure which is an independent expenditure (as defined in section 301 of [FECA])." Id. § 527(j)(5). For "failure to make the required disclosures" or to include complete, correct information, "there shall be paid by the organization an amount equal to the rate of tax specified in subsection (b)(1) multiplied by the amount to which the failure relates." Id. § 527(j)(1).

The plaintiffs allege that Section 527(j) violates the free speech and free association prongs of the First Amendment, the equal protection component of the Due Process clause of the Fifth Amendment, and the Tenth Amendment. In addition to challenging the merits of the plaintiffs' claims, the defendants argue that the plaintiffs lack standing to pursue a challenge to Section 527(j).⁶

DETERMINATIONS OF UNCONTROVERTED FACT

The Assembly plaintiffs are all "political organizations" as defined in Section 527(e). None of the Assembly plaintiffs has given the notice specified by Section 527(i). (Doc. 35, Exhibit A). The Assembly plaintiffs have experienced a decline in contributions due to contributors' concerns that their identities may be disclosed pursuant to Section 527(j). (Doc. 4, Declarations of Stephen Frank, Elaine Little and Owen McDonnell, Jr.).

CONCLUSIONS OF LAW

The Court has subject matter jurisdiction over this matter pursuant to 28 U.S.C. § 1331. Venue is proper in this Court pursuant to 28 U.S.C. § 1391(e).

Summary judgment should be granted only if "there is no issue as to any material fact and the moving party is entitled to a judgment as a matter of law." Federal Rule of Civil Procedure 56(c). The party seeking summary judgment bears "the initial burden to show the district court, by reference to materials on file, that there are no genuine issues of material fact that should be decided at trial." Clark v. Coats & Clark, Inc., 929 F.2d 604, 608 (11th Cir. 1991). Once the moving party has satisfied its responsibility, the burden shifts to the nonmoving party to show the existence of a genuine issue of material fact. Id. "If the nonmoving party fails to make `a sufficient showing on an essential element of her case with respect to which she has the burden of proof;' the moving party is entitled to summary judgment." Id. (quoting Celotex Corp. v. Catrett, 477 U.S. 317 (1986)) (footnote omitted). "In reviewing whether the nonmoving party has met its burden, Westthe court must stop short of weighing the evidence and making credibility determinations of the truth of the matter. Instead, the evidence of the non-movant is to be believed, and all justifiable inferences are to be drawn in his favor." Tipton v. Bergrohr GMBH-Siegen, 965 F.2d 994, 999 (11th Cir. 1992) (internal citations and quotations omitted).

I. Standing.

The "irreducible constitutional minimum of standing" is three-fold: (1) "the plaintiff must have suffered an injury in fact — an invasion of a legally protected interest which is (a) concrete and particularized, . . . and (b) actual or...