National Taxpayers Union, Inc. v. U.S.

• Court: U.S. Court of Appeals — District of Columbia Circuit
• Writing for the Court: HARRY T. EDWARDS
• Citation: National Taxpayers Union, Inc. v. U.S., 68 F.3d 1428, 314 U.S. App. D.C. 377 (D.C. Cir. 1995)
• Decision Date: 03 November 1995
• Docket Number: No. 94-5285,94-5285
• Parties: , 76 A.F.T.R.2d 95-7340, 95-2 USTC P 60,219 NATIONAL TAXPAYERS UNION, INC., Appellant, v. UNITED STATES of America, Appellee.

Page 1428

68 F.3d 1428

314 U.S.App.D.C. 377, 76 A.F.T.R.2d 95-7340,

95-2 USTC P 60,219

NATIONAL TAXPAYERS UNION, INC., Appellant, v. UNITED STATES of America, Appellee.

No. 94-5285.

United States Court of Appeals District of Columbia Circuit.

Argued Sept. 28, 1995.

Decided Nov. 3, 1995.

Appeal from the United States District Court for the District of Columbia (No. 93cv01796).

Charles F. Rule argued the cause for appellant, with whom Allan B. Moore, Mark R. Levin, Jerald L. Hill, Mark J. Bredemeier and Richard P. Hutchison were on the briefs. Jackson R. Sharman, III entered an appearance for appellant.

Edward T. Perelmuter, pro hac vice, Attorney, United States Department of Justice, argued the cause for appellee, with whom Loretta C. Argrett, Assistant Attorney General, Eric H. Holder, Jr., United States Attorney, and Gary R. Allen and Teresa E. McLaughlin, Attorneys, United States Department of Justice, were on the brief.

Before: EDWARDS, Chief Judge, WALD and RANDOLPH, Circuit Judges.

Opinion for the Court filed by Chief Judge HARRY T. EDWARDS.

HARRY T. EDWARDS, Chief Judge:

Section 13208 of the Omnibus Budget Reconciliation Act of 1993, Pub.L. No. 103-66, 107 Stat. 312 (1993) ("Section 13208" of "OBRA '93"), approved by President Clinton in August 1993, set the maximum federal estate and gift tax rates at 53% and 55%, effective January 1, 1993. See I.R.C. Sec. 2001(c)(1) (Supp. V 1993). National Taxpayers Union ("NTU"), a nonprofit organization formed to promote fair, responsible, and legal revenue-raising practices by the United States government, filed a complaint in the District Court seeking an injunction against enforcement of Section 13208. NTU asserted that it had standing to bring its complaint, both as a representative of its members, and in its own right as an organization injured by Section 13208. On the merits, NTU contended that Section 13208's retroactive rate increase is a direct tax on property gifted or devised, and that such a tax is unconstitutional.

The District Court held that it did not have subject matter jurisdiction over NTU's complaint because of the Anti-Injunction Act, I.R.C. Sec. 7421(a) (1988) ("AIA"), and the Declaratory Judgment Act, 28 U.S.C. Sec. 2201(a) (1988) ("DJA"), which operate coextensively to bar most suits relating to federal taxes, except for actions brought under specific provisions of the Internal Revenue Code. National Taxpayers Union, Inc. v. United States, 862 F.Supp. 531, 533 (D.D.C.1994).

We affirm the judgment of the District Court. As an initial matter, we review the threshold issue of NTU's standing, and find that, although it lacks standing to challenge Section 13208 on its own behalf, NTU does have standing to challenge the statute on behalf of its members. However, we agree with the District Court that the AIA and DJA bar NTU's complaint.

I. Background

NTU is a nonprofit, tax-exempt organization that was founded in 1969. One of its "principal aims is to promote fair, responsible, and legal revenue-raising practices by the United States government." Aff. of David L. Keating p 5 ("Keating Aff.") reprinted in Appendix ("App.") G. There are over 250,000 members in the organization, including both individuals and corporations. Some NTU members pay federal taxes, and others "do not but are otherwise affected by them." Brief for Appellant at 6. NTU claims that it is "recognized throughout the country as a preeminent authority on federal tax law and tax policy." Keating Aff. p 4, reprinted in App. G.

NTU opposed the first budget bill of the Clinton Administration, OBRA '93, signed by the President on August 10, 1993, focusing in particular on the bill's retroactive revision of federal estate and gift tax rates. Section 13208 of OBRA '93 increased the highest federal estate and gift tax rates to 53% and 55% on a permanent basis, effective January 1, 1993. See I.R.C. Sec. 2001(c)(1) (Supp. V 1993). This change was consistent with the maximum federal estate and gift tax rates in effect for most of the decade preceding the enactment of OBRA '93, but it represented an increase of the 50% maximum rate in effect on January 1, 1993. See I.R.C. Sec. 2001(c) (1988), amended by I.R.C. Sec. 2001(c) (Supp. V 1993). ¹

Shortly after the enactment of OBRA '93, NTU filed a complaint asking the District Court to declare Section 13208 unconstitutional and enjoin its enforcement. In its complaint, NTU asserts that the retroactive estate and gift tax rate increase in Section 13208 is illegal because the increased tax rate upon affected gifts or bequests made between January 1 and August 10, 1993 could not be determined until after the donee's or legatee's rights to the property had been established. ² Thus, according to NTU, the retroactive tax increase constitutes a direct tax on the property in the hands of the recipient, in violation of the constitutional requirement that direct taxes be apportioned based on the population of the states. See U.S. CONST. art. I, Sec. 2, cl. 3 ("[D]irect Taxes shall be apportioned among the several States ... according to their respective Numbers...."); U.S. CONST. art. 1, Sec. 9, cl. 4 (No direct tax "shall be laid, unless in Proportion to the Census...."). NTU also asserts that, because the estate and gift tax is not an income tax, Section 13208's retroactive rate change cannot survive under the Sixteenth Amendment's provision permitting Congress "to lay and collect taxes on incomes ... without apportionment." And, in NTU's view, Section 13208 also violates the Due Process and Takings Clauses.

NTU asserts that Section 13208's enactment has had a detrimental effect on both NTU's income and expenses, because

[b]oth as written and as it would be enforced, [Section 13208] frustrates Plaintiff's founding objectives and its substantial practical efforts to assist taxpayers and to promote sound, lawful, and fair revenue practices by the United States government, and it has caused and will continue to cause Plaintiff to devote substantial resources to counteract unfair and unconstitutional revenue-raising practices by Defendant.

Compl. for Declaratory and Injunctive Relief p 24, reprinted in App. B. This charge is supported by an affidavit from David L. Keating, Executive Vice President of NTU, declaring

[a]t least one member of NTU who is adversely affected by Section 13208 has stated to me personally that he does not expect that he can or will give as much financial support to NTU in the future as he would if Section 13208 had not been passed. This member explained to me in no uncertain terms that the new estate and gift tax rates will "absolutely" affect his donations to NTU because they will diminish the funds that he can devote to philanthropic purposes and public interest organizations.

Keating Aff. p 16, reprinted in App. G. Keating's affidavit also states that Section 13208 will have the effect of undercutting NTU's fundraising initiatives, including its "Jefferson Club" program, through which donors of $1,000 or more receive special membership benefits, and another program under development that NTU hopes will encourage members "to bequeath contributions to the organization." Id. p 17, reprinted in App. G.

In addition, NTU asserts that Section 13208 has drained its coffers because "NTU has been forced to expend substantial funds and energy fighting for its repeal," including the cost of participation "in an unsuccessful effort to enact a Senate amendment that would have revoked Section 13208." Id. p 18, reprinted in App. G. NTU "has also found itself expending substantial efforts to educate its inquisitive members and others about the effects of the provision." Id., reprinted in App. G.

Rather than address the merits of NTU's complaint, the District Court focused on whether it had jurisdiction over NTU's claim in light of two statutory provisions that specifically limit suits involving the imposition of federal taxes, the AIA and the DJA. ³ These statutes provide a virtually exclusive list of the Internal Revenue Code sections under which tax-related suits may be pursued. Although NTU's complaint was not based on any of the enumerated sections, NTU asserted that, because it and some of its members are directly and adversely affected by Section 13208, its complaint should be considered under one of the judicially-created exceptions to the strictures of the AIA and the DJA.

The District Court disagreed, and found that it could not assert jurisdiction over NTU's claim. The trial court first considered whether, under South Carolina v. Regan, 465 U.S. 367, 104 S.Ct. 1107, 79 L.Ed.2d 372 (1984), NTU met the exception to the AIA for "a plaintiff [who] has no recourse to any alternative legal remedies." National Taxpayers Union, 862 F.Supp. at 533. On this point, the District Court decided that NTU is the type of organization specifically excluded from the South Carolina exception to the AIA. Id. at 534-35.

Next, the District Court found that NTU did not qualify for the other judicially-recognized exception to the AIA set forth in Enochs v. Williams Packing & Navigation Co., 370 U.S. 1, 82 S.Ct. 1125, 8 L.Ed.2d 292 (1962). The District Court noted that under Williams Packing, the AIA would not apply if the claimant " '(1) was certain to succeed on the merits, and (2) could demonstrate that collection [of the tax] would cause him irreparable harm.' " National Taxpayers Union, 862 F.Supp. at 536 (quoting South Carolina, 465 U.S. at 374, 104 S.Ct. at 1112). The District Court found NTU's alleged harms--"the drying up of its donations, the costs of NTU's anti-Section 13028 [sic] education and lobbying efforts, and NTU's moral despair at seeing its goals frustrated"--insufficient to show irreparable injury. Id. Finally, the District Court dismissed NTU's proposal that there should be an AIA exception "for the sake of litigation efficiency," on the ground that such a remedy would have to be fashioned by Congress. Id. at 537....