Tupper v. U.S.
| Decision Date | 10 October 1997 |
| Docket Number | No. 97-1587,97-1587 |
| Citation | 134 F.3d 444 |
| Parties | -430, 98-1 USTC P 50,148, 21 Employee Benefits Cas. 2509, Pens. Plan Guide (CCH) P 23939X John F. TUPPER, et al., Plaintiffs-Appellants, v. UNITED STATES of America, Defendant-Appellee. . Heard |
| Court | U.S. Court of Appeals — First Circuit |
Lawrence H. Lissitzyn, with whom Reid and Riege, P.C., Hartford, CT, Susan E. Stenger, Boston, MA, and Perkins, Smith & Cohen, LLP were on brief for appellants.
Robert W. Metzler, Attorney, Tax Division, U.S. Department of Justice, with whom Loretta C. Argrett, Assistant Attorney General, Washington, DC, Donald K. Stern, United States Attorney, Boston, MA, and Kenneth L. Greene, Attorney, Tax Division, U.S. Department of Justice, Washington, DC, were on brief for appellee.
Before TORRUELLA, Chief Judge, BOUDIN, Circuit Judge, and WOODLOCK, * District Judge.
The trustees of both a multiemployer pension plan trust and an annuity plan trust appeal a judgment from the district court. The court held that during 1986, 1987, and 1988, when the plans had failed to meet the requirements of the Employee Retirement Income Security Act ("ERISA") and Internal Revenue Code ("I.R.C.") § 401(a), the trusts could not qualify as exempt from taxation as "labor organizations" under I.R.C. § 501(c)(5). We affirm.
The Plumbing, Pipe Fitting and Heating Contractors Association of Brockton and Vicinity (the "Employers") and the Local Union 276 of the United Association of Journeymen and Apprentices of the Plumbing and Pipe Fitting Industry of the United States and Canada (the "Union") entered into collective bargaining agreements in 1959 and 1983 providing for the creation of a defined benefit pension plan and a money purchase annuity plan respectively (the "plans"). According to the plans, half of the trustees of each plan trust are appointed by the Employers and half by the Union. The trustees are currently John F. Tupper, Robert S. Norvish, Raymond F. Brierly, Louis M. Colombo, Edward F. Cruz, and Dennis J. Cruz (the "trustees"). The trusts are funded entirely by employer contributions and exist solely to provide pension and annuity benefits for plan participants and beneficiaries.
In 1974, after the pension plan had been in existence for fifteen years, ERISA was passed. See Pub.L. No. 93-406, 88 Stat. 829. ERISA resulted from a Congressional finding that pension benefits promised to employees were not being adequately protected. See ERISA § 2(a). Congress created a system An Internal Revenue Service ("IRS") audit for those three years revealed that the documents of the plans failed to meet the requirements of I.R.C. § 401(a) and found that the pension trust was not being operated in compliance with its plan. Consequently, the trustees paid over $450,000 in back taxes and then filed claims in federal court for refund, claiming entitlement to a tax exemption under various theories. All of those theories were eventually dismissed by the trustees' stipulation, save one somewhat novel claim which was the object of the district court's order and this appeal. The only question at issue in this case is whether the trusts, failing to meet ERISA standards, alternatively qualified for a tax exemption under I.R.C. § 501(c)(5) as "labor organizations."
of tax incentives and penalties in order to ensure protection of these funds. Pursuant to ERISA, a form containing certain information about a pension plan must be filed annually with the IRS in order to qualify the fund for tax exemption under I.R.C. § 401(a). See IRS Form 5500. The plans at issue in this case submitted these forms for 1986, 1987, and 1988.
The District Court of Massachusetts rejected a magistrate judge's recommendation that summary judgment be granted in favor of the trusts on this question, granting summary judgment in favor of the United States. This appeal followed.
An award of summary judgment is reviewed de novo. See United Nat'l Ins. Co. v. Penuche's, Inc., 128 F.3d 28, 30 (1st Cir.1997). We view the entire record in the light most hospitable to the party opposing summary judgment, indulging all reasonable inferences in that party's favor. See Ahern v. O'Donnell, 109 F.3d 809, 811 (1st Cir.1997). However, taxpayers must prove unambiguously that they are entitled to exemptions. See United States v. Wells Fargo Bank, 485 U.S. 351, 354, 108 S.Ct. 1179, 1181-82, 99 L.Ed.2d 368 (1988). Therefore, if "doubts are nicely balanced" regarding the applicability of a tax exemption, the exemption must be accorded its more limited interpretation. Trotter v. Tennessee, 290 U.S. 354, 356, 54 S.Ct. 138, 139, 78 L.Ed. 358 (1933). Thus, while factual doubts must be resolved in favor of the trustees in this case, legal ambiguities must be resolved in favor of the United States. We proceed with these standards in mind.
It is tautological that, when asked to interpret a statute, a court first looks to the text of that statute. See Strickland v. Commissioner, Maine Dep't of Human Services, 48 F.3d 12, 17 (1st Cir.1995). If our query is not answered by the text, we skeptically examine legislative history in search of an "unmistakable expression of congressional intent" before considering agency interpretations or other devices of construction. See id.
Thus, we begin our analysis with I.R.C. § 501(c)(5), which provides a tax exemption for "labor organizations." However, this term is not defined in the statute. 1 Furthermore We next turn to the Treasury Department's Regulations that have been adopted in order to elaborate upon the definition of the term "labor organization" in 501(c)(5). These regulations provide as follows:
the legislative history regarding this provision offers no insights into whether a pension trust established pursuant to collective bargaining and controlled jointly by the union and the employers was meant to be exempt from taxation. See Stichting Pensioenfonds Voor de Gezondheid v. United States, 129 F.3d 195, 198 (D.C.Cir.1997)("Stichting ")(noting that the text and legislative history of I.R.C. § 501(c)(5) provide "little help" in understanding the scope of the term "labor organization"). 2 In their briefs, both the United States and the trustees candidly acknowledge that we must look beyond the I.R.C. for guidance in this case. 3
The organizations contemplated by section 501(c)(5) as entitled to exemption from income taxation are those which:
(1) Have no net earnings inuring to the benefit of any member, and
(2) Have as their objects the betterment of the conditions of those engaged in such pursuits [i.e., labor], the improvement of the grade of their products, and the development of a higher degree of efficiency in their respective occupations.
26 C.F.R. § 1.501(c)(5)-1(a) (1997). If these regulations were applied consistently by the IRS, this case could be decided on the definition provided therein. Clearly the pension funds do not improve the grade of the workers' products or develop a higher degree of efficiency in the plumbing and pipefitting professions. However, while we accord due deference to all reasonable agency interpretations of a statute, see Strickland, 48 F.3d at 17, the IRS's interpretation of the I.R.C. is reflected in Treasury Regulations together with Revenue Rulings. See 26 C.F.R. § 1.6661-3 (1997). An examination of the IRS Revenue Rulings interpreting § 501(c)(5) reveals that these regulations are routinely applied so liberally as to render them virtually useless in the present case.
In its Revenue Rulings, the IRS has held that "[a]n organization which is engaged in activities appropriate to a labor union, even though technically not a labor union itself, may qualify for exemption under § 501(c)(5)." Rev. Rul. 75-473, 1975-2 C.B. 213; see also Rev. Rul. 67-7, 1967-1 C.B. 137, 138 (same). Over the years, pursuant to § 501(c)(5), the IRS has exempted a union stewardship trust, a union dispatch hall, and a union newspaper. See, respectively, Rev. Rul. 77-5, 1977-1 C.B. 145; Rev. Rul. 75-473, 1975-2; Rev. Rul. 68-534, 1968-2 C.B. 217. Much like the trusts at issue, it is difficult indeed to see how these entities "improved the grade of workers' products" and "developed a higher degree of efficiency in their respective occupations" in accordance with the Treasury Regulations. The plan trusts, like the examples above, have no net earnings The trustees urge this court to consider General Counsel Memoranda ("GCMs") in order to establish that, pursuant to § 501(c)(5), the IRS has exempted entities similar to the plan trusts. GCMs are legal memoranda from the Office of Chief Counsel to the IRS prepared in response to a formal request for legal advice from the Assistant Commissioner (Technical). See Taxation With Representation Fund v. Internal Revenue Service, 646 F.2d 666, 669 (D.C.Cir.1981). Completed GCMs are distributed to key officials within the IRS. See id. at 670. The Office of Chief Counsel retains GCMs, and indexes and digests them as an in-house research tool. See id. While the Internal Revenue Manual instructs IRS personnel not to use GCMs as precedents in the disposition of other cases, they may refer to GCMs for guidance in negotiations and in formulating a district office position on an issue. See id. (citing Internal Revenue Manual § 4245.3). Furthermore, GCMs are extensively cross-referenced and updated to reflect current agency policy. See id. at 682. As the D.C. Circuit has recognized, GCMs constitute the "working law" of the agency, and are thus of use to courts and taxpayers as a research tool providing a substantially consistent interpretation of the I.R.C. See id. at 683.
inuring to the benefit of any member, and, in a sense, have as their objects the betterment of the conditions of the union members participating in the plans. 4 Against these background interpretations of the applicable Treasury Regulations, we must look elsewhere for
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