COMMISSIONER v. "AMERICANS UNITED" INC.
Legal provision: Internal Revenue Code
Argument of Crampton
Chief Justice Warren E. Burger: We’ll hear arguments next in 72-1371, Alexander against “Americans United.”
Mr. Crampton, you may proceed whenever you’re ready.
Mr. Crampton: Mr. Chief Justice and may it please the Court.
The proceedings before Your Honor, is on a writ of certiorari to the United States Court of Appeals for the District of Columbia Circuit.
All taxes are involved and the basic issue is a procedural one, namely, do the Anti-injunction Act and the Declaratory Judgment Act prevent the maintenance of this action for injunctive relief?
This in turn requires consideration of the structure which Congress has provided for the litigation of tax controversies namely, proceedings to the Tax Court and then on appeal or first payment of the tax and then a refund suit either in the District Court or in the Court of Claims.
And this tax procedure is expressly protected as we view it by the Anti-injunction Act and the Declaratory Judgment Act.
I realize that when you’re in a position of deferring judicial consideration of certain questions that is not a popular position to take, but it seems to us, it’s required by the laws and by the need of the United States to protect its revenues.
The case is before the Court on a complaint and a motion to dismiss.
The motion to dismiss was sustained by the District Court and then reversed in part by the Circuit Court.
The respondent, Americans United is a nonprofit educational corporation organized in 1948 under the laws of the District of Columbia.
Its purpose as stated in its charter is to defend and maintain religious liberty in the United States by the dissemination of knowledge concerning the constitutional principle of the separation of church and State.
In 1950, Americans United asked the Internal Revenue Service for a determination that it was exempt from tax under comparable provisions to what is now effective in the Internal Revenue Code as Section 501 (c) (3).
The Revenue Act of 1954 in three sections provides for charitable deductible gifts.
One is 501 (c) (3) and then the actual deductions allowed in 170 (c) (2) and then 2055 (a) (2), the latter being the estate tax cases.
Each of this provisions limits a charitable deductible gift to an organization and I’m quoting, “No substantial part of the activities of which is carrying on propaganda or otherwise attempting to influence legislation, with minor exceptions no deduction is allowed to taxpayers for political contributions” and it seems to us that this quoted provision on the exempt organization simply carries out this general policy.
It may help the Court know the procedure that is followed in these cases.
An organization claiming to be exempt files with the Internal Revenue Service a Treasury Department Form 1023 which discloses considerable information about its organization and its form and the pertinent documents, whether it’s a successor to another corporation, a description of its activities, any financial information that it may have or financial information of predecessor, and it must show that there will be no return of assets to the organizers, a sort of built-in side principle.
If there are any problems arising after this is filed, as far as the Internal Revenue is concerned, there are opportunities for conference and the Internal Revenue Service is quite willing to discuss the situation with the organization, and tell them in what particulars they do not believe it complies and ultimately they frequently, generally work the situation out.
If the Internal Revenue Service is satisfied, it issues a ruling letter to the exempt organization saying that it finds that it has qualified under the statute.
The Internal Revenue Service of course reserves the right to look at the operation and the function of the organization in later years to see that it is operating as it represented it would and furthermore that there’s been no change in the situations that might require a further review of the matter.
This Court some years ago had a situation in the American Automobile Association cases where there was a revocation of a ruling that had been outstanding.
As far as the exempt organizations are concerned, there were 13,000 of these ruling letters issued in the last fiscal year.
Justice Potter Stewart: If the 13 -- if that number of exempt organizations, how is it possible for the Service to keep track of what each one does from year-to-year and as you point out sometimes withdraw the exemption?
Is that -- do informers bring this to your attention or what?
Mr. Crampton: I imagine some of it may be brought to our attention by other people bringing actions to withdraw the tax exempt status.
We have a number of those cases and of course, I suppose, informers do question.
Now, this is one of our complaints with these procedure is that I think outsiders use the Internal Revenue Provisions as sort of a club to accomplish, a purpose that they disagree with them and to a certain extent, the Service does from time-to-time examine this.
It's -- I suppose they have the same problem in determining --
Justice Potter Stewart: Annual reports are not required, are they?
As to the effect that the organization is continuing to be just what it was when it got its exemption or --
Mr. Crampton: I don’t believe so.
Justice Potter Stewart: I don’t think so.
Mr. Crampton: I don’t think they require any reaffirmation of that.
Justice Thurgood Marshall: Is it still true that many listed aren't even in existence anymore?
Mr. Crampton: That could very well be.
There are -- that’s my next point.
There are 120,000 of these organizations listed and when you do put an organization on the list of a cumulative list of organizations exempt from tax, donors may rely on that list and make a contribution to that organization with the complete knowledge that the Internal Revenue Service will not challenge the deduction and that’s why it’s so important.
Chief Justice Warren E. Burger: I suppose, even though these numbers are rather formidable, but the fact is that only a small, relatively small percentage of this 120,000 are organizations having significant amounts of money, and spending significant amounts of money?
Mr. Crampton: Oh, I’m not so sure Your Honor.
Some of these are churches and you take some of the main churches that have tremendous budgets and --
Chief Justice Warren E. Burger: Well, excluding churches for the moment?
Mr. Crampton: Well, Red Cross might be one.
Chief Justice Warren E. Burger: Red Cross has a great deal of money.
Mr. Crampton: Yes.
Chief Justice Warren E. Burger: I am just wondering, groping for whether this is a problem obviously you couldn’t conduct visitation of 120,000 or even 20,000.
But you can keep a pretty close idea of what -- you can have a pretty close idea what the large organizations are doing because if they’re doing a lot of the forbidden activities, then that becomes quite visible.
Mr. Crampton: I think that’s true and I think -- and the large organizations they would – they would just like that in order the Income Tax Returns they --
Justice Thurgood Marshall: But their concern is on returns, isn’t it, under congressional act?
Mr. Crampton: I’m not certain.
Justice Thurgood Marshall: Is it different from the others?
Mr. Crampton: I’m not certain about that, Your Honor.
I just mentioned this [Attempt to Laughter] as an organization came to mind having a substantial budget.
Chief Justice Warren E. Burger: But you don’t have great deal concern about whether local parish churches are conducting lobbying activities, do you?
Mr. Crampton: No.
Chief Justice Warren E. Burger: Individually?
Mr. Crampton: No.
Chief Justice Warren E. Burger: But the problem is, it’s concentrated in a relatively few of the total of 120,000.
By that, I mean maybe 10 or 15 or 20,000, but that’s relatively few of the total.
Mr. Crampton: Oh, I think the problem with the lobbying is relatively small in the exempt organization figure.
I agree with you, Your Honor, on that.
I might point out that this advanced ruling procedure that I’ve just been discussing in our view I think is unique in the United States.
It originally developed without any statutory sanction.
It was in aid to the Service.
It was in aid to the taxpayers and a convenience for all, but because the Service has been doing -- it doesn’t seem to us that it alters the litigation process.
Now, in 1968 the Internal Revenue Service did take a look at “Americans United.”
It reconsidered the situation and the revoked its prior letter.
In doing so, it set forth in number a respondent’s substantial political activities and invoiced the Americans United in part that by engaging in general legislative activities to implement your views and by urging the enactment or defeat of proposed legislation which you believe inamicable to your principles, you have ceased to function exclusively in the educator’s role of informant and thereby encroaching upon the proscribed legislative area.
The Internal Revenue Service concluded that the respondent was an action organization and not entitled to an exempt status under 501 (c) (3) and the regulations there under and that therefore contributions to it would no longer be recognized as deductible.
Shortly thereafter, the Internal Revenue Service did rule that the respondent was an exempt under Section 501 (c) (4) as a “social welfare” organization.
So it as an organization owes no taxes, but found that this did not affect the contributions to it.
It did not entitle its donors to the charitable deduction and the exemption under 501 (c) (4) also required Americans United to pay employment taxes.
In July of 1970, the respondents brought this class action on behalf of “Americans United,” two individuals and all other federal taxpayers similarly situated and it was brought against the Commission of Internal Revenue.
It asked for a three-judge statutory court, a declaratory judgment and an injunction and alleging that the exemption clauses of Section 501 (c) (3) are unconstitutional under the First and Fifth Amendments.
The heart of the complaint as we view it, was the prayer to enjoin the Commissioner of Internal Revenue from enforcing the provisions of Section 170 (c) and 501 (c) 3.
Respondent asserts in his brief that the main thrust of the revocation here is undeniably the imposition of a significant burden on respondent’s fundraising capabilities.
We think that depends on how you look at it.
There’s no doubt that it did increase the burden, but it seems to us that the main thrust of this lawsuit is to prevent -- or the Commissioner’s action is to prevent the use of tax deductible dollars for lobbying which Congress has proscribed.
The complaint speaks of depriving Americans United of contributions.
The actual effect, however, would be to prevent the Commissioner of Internal Revenue from assessing taxes against individuals, corporations and the States who would be making contributions to Americans United after the Commissioner of Internal Revenue had determined that it no longer qualified.
It is primarily this obstruction of the authority of the Commissioner of Internal Revenue that Government believes is barred by the acts of Congress.
The Government filed a motion to dismiss in the District Court.
This was granted.
The lower court relying on the Anti-injunction Act and Declaratory Judgment Act.
The Circuit Court of Appeals reversed as to “Americans United,” but significantly it affirmed as to the two individuals.
The result it seems to us is to permit the litigants to have accomplished indirectly what the lower courts could said they could not do directly.
It stated in other way, the donors as individuals could not enjoin the Commissioner of Internal Revenue, but the donors by using the so called tax exempt organization as a party have, under the holding of the lower court, accomplished the same result.
I think it might help very --
Justice Potter Stewart: And the result is that the Commissioner cannot question the deductibility of contributions made by donors to this institution, is that it?
Mr. Crampton: Well, the result under the holding of the lower court would be that the injunction should -- the case was referred for a consideration of whether or not the injunction should be granted.
Justice Potter Stewart: Right.
Mr. Crampton: Now, this would open it up for hearing on the merits I think and the court said it was not expressing an opinion on it.
But we think that procedurally, there was no ground for an injunction here because of the provisions of the statute.
Justice Potter Stewart: But you said a little earlier what the practical effect would be upon the Commissioner and I want to be sure on what this is.
Mr. Crampton: The practical effect --
Justice Potter Stewart: You could not question the deductibility of contributions made to these organizations so long -- during the pendency of this injunction, is that it?
Mr. Crampton: That’s right.
That would be the effect of it.
Justice Harry A. Blackmun: Has the Service in effect conceded irreparable injury to “Americans United?”
Mr. Crampton: No.
We don’t --
Justice Harry A. Blackmun: You think you have not?
Mr. Crampton: No, we’re not conceding that.
Justice Harry A. Blackmun: And yet they’re deprived or they would be under your theory for a substantial period of time of donations?
Mr. Crampton: No, they’re not deprived.
They’re deprived of tax deductible donations.
Justice Harry A. Blackmun: But precisely and the donations are going to dry up, are they not?
Mr. Crampton: Well, that depends on I think on the attitude of the donors.
They are -- as far as the small donations are concerned, I think many people that give $10 to the college don’t care whether or not it’s deductible or not because they’re using the standard deduction.
The large donors, if they really are back of an organization like this would probably defer making the gift until such time as this was decided if the tax deduction was an important factor to them.
But we think there’s an additional burden here, but we don’t think that’s anymore of an irreparable injury than are many other situations where parties are forced to pay taxes and then litigate or wait a decision of a question of law or fact --
Justice Thurgood Marshall: They did allege that?
They did allege that it would be --
Mr. Crampton: Yes.
Justice Thurgood Marshall: -- more difficult and practically put them on the business?
Mr. Crampton: They did and --
Justice Thurgood Marshall: And that’s -- aren’t we obliged at this stage of the proceeding to recognize that?
All in all it's a hearing and attempt to prove it?
Mr. Crampton: That’s right.
But what they want is an injunction in the interim and we think that they’re not entitled to that under the Anti-injunction Act.
Justice Thurgood Marshall: Well, what do you have to offer that they will not be irreparably harmed, except your imagination?
Mr. Crampton: Well, I think that -- I’m not saying that there won’t be harmed, but I don’t think it’s irreparable.
I think --
Justice Thurgood Marshall: Well, what if they were?
Mr. Crampton: Well, that comes right back to Williams Packing case.
The Williams Packing case enforced the injunction even though there they said it would put them in bankruptcy.
Justice Byron R. White: What’s the purpose of the statute?
They might not need it.
Mr. Crampton: I think the purpose of the statute is just that and --
Justice Byron R. White: Because otherwise, I mean otherwise, there’s no need to bar an injunction unless there’s irreparable injury.
Mr. Crampton: That’s right.
But the --
Justice Thurgood Marshall: But the real problem as you say it’s an injunction against taxes, and they say it’s an injunction against their organization being able to operate and I recognize, I don’t know which way I come out, but I think there is a little difference there.
Mr. Crampton: Well, I -- there is a little difference.
If you can look at the organization but I think when you look, take it one step further, you are --
Justice Thurgood Marshall: Well when -- when were you given these tax deductions?
It was long after the Anti-injunction statute, wasn’t it?
Mr. Crampton: I am not sure I understand Your Honor’s question.
Justice Thurgood Marshall: Well, does the anti-injunction statute apply to tax-exempt corporations is the question I think?
You say it does --
Mr. Crampton: We say it does.
Justice Thurgood Marshall: -- or do you say it does not?
Mr. Crampton: That’s right.
Justice Thurgood Marshall: They say does not?
Mr. Crampton: Yes.
Justice Thurgood Marshall: Well, number one, the charitable organization exemption came later.
So clearly it wasn’t covered -- wasn’t intended to at that time?
Mr. Crampton: That’s right.
But the --
Justice Thurgood Marshall: And the relief here is no relief which says that you can’t collect taxes, is it?
Mr. Crampton: Oh, Yes.
The action right here says that he can’t collect from the donors.
And it could --
Justice Thurgood Marshall: I thought the donors were left out of this?
Mr. Crampton: No, there are two donors.
Justice Thurgood Marshall: I thought the Court of Appeals left the donors out?
Mr. Crampton: That’s right, it did.
Justice Thurgood Marshall: Well, that’s what I’m talking about.
What we have now two organizations and not the donors?
Mr. Crampton: Well, yes and no, Your Honor.
If the donors -- if the Commissioner is enjoined from enforcing the provisions under the statute, he can’t go after the donor.
Justice Thurgood Marshall: That’s right.
Justice Byron R. White: Furthermore, you couldn’t collect certain kinds of taxes from the organization itself?
Mr. Crampton: That’s right.
Federal unemployment taxes are --
Justice Byron R. White: Federal unemployment taxes --
Mr. Crampton: We say that they --
Justice Byron R. White: If the Commissioner’s action stands you can collect it -- federal unemployment taxes?
Mr. Crampton: That’s right and we are.
Justice Byron R. White: If the injunction stands, you cannot?
Mr. Crampton: That’s right.
We ask here --
Justice Byron R. White: From the organization itself?
Mr. Crampton: From the organization itself.
Now, the Anti-injunction Act as Your Honor suggested came in a long time ago, 1867, but -- and but the significant thing is we say is that this was reaffirmed by Congress when it re-enacted the Revenue Code or when it enacted the Revenue Code in 1954.
And the only exception to the Anti-injunction Act that we believe is pertinent is the one this Court announced in the Enochs versus Williams Packing Company case where the taxpayer alleged it would go into bankruptcy and the Court said well, still the statute had to be enforced.
Unless the taxpayer could show that under no circumstances could the Government prevail and second, that equity jurisdiction exists because of irreparable injury for which there was no adequate legal remedy.
The second statute, I’ve been talking so far primarily about the Anti-injunction Act, but we also rely equally on the Declaratory Judgment Act, and this Court may recall that that was originally passed in the early 1930s and was silent as to taxes.
There were several attempts made shortly thereafter to apply that statute to taxes and Congress in 1935 promptly amended the Act to provide that it should not apply to any suit with respect to federal taxes.
And it seems to us that this is again a congressional affirmance of the Anti-injunction Act, at least a philosophy that you can’t enjoin taxes.
The legislative history of this Amendment shows clearly that Congress thought the existing remedies provided -- existing procedures provided ample remedies for the correction of tax errors.
The basic complaint of the respondent is that the action of the Internal Revenue Service has materially deterred its contributors and I think this is true as I have mentioned.
But I think the same could be said for the failure of the Internal Revenue to issue the ruling in the first place.
But where there is a factual or legal controversy, the statutes just do not give a tax exempt status pendente lite and we believe it should not be the role of the courts to provide one.
The administration of the tax laws has been delegated to the Treasury and to the Internal Revenue Service and if the Internal Revenue Code is to be administered by injunctions it seems to us that nothing but chaos is going to be the end-result.
Justice Harry A. Blackmun: Yes, but chaos hasn’t resulted, has it from the Williams Packing Company case?
Mr. Crampton: No and we think we can live with the Williams Packing Company case.
The -- you see those two tests are not the ones they are meeting here.
And my thought on -- continuing my thought of chaos is we have 400 some district judges and a number of suits now pending where the -- which request the Commission of Internal Revenue to reserve -- to remove the tax exemption of such organizations as labor unions, fraternal clubs, and hospitals.
It’s quite conceivable that some organization which is opposing the views of the Americans United would bring a similar suit.
This might result in conflicting injunctions in different jurisdictions and complete confusion as we see it.
In our reply brief, we cited two of these cases.
One is the Cattle Feeders case out in Oklahoma and which the -- enjoins the Commissioner of Internal Revenue from applying a ruling that the Internal Revenue Service was to promulgate regarding year-end purchases of feed where in the view of the Internal Revenue Service, it distorted income.
The Internal Revenue Service has also been ordered to revoke the exemption of a hospital where it did not admit indigent patients.
It seems to us that the latter case is another example of the use of the tax laws anti-injunction procedure as a club and where there is primarily a fight between private parties.
It’s our view that the administration of the tax law should not be by injunction and that if the Internal Revenue Service is wrong in its determination regarding Americans United there are two adequate remedies at law.
The first as Mr. Justice White suggested is a suit to -- against the -- by the organization itself to recover the employment taxes that it’s been forced to pay.
In such a proceeding, it can come in, claim it’s exempt under Section 501 (c) (3) and argue the merits of that position.
A second proceeding, it would be the suit by what the briefs refer to as the friendly donor.
Usually, that’s the Secretary or somebody with a relatively simple return perhaps on the W-2 form.
They make a contribution to an organization such as this, file a claim for refund and then litigate it and that is a decision on the merits.
It’s a device that’s frequently used by corporations to test taxability of dividends.
Justice William H. Rehnquist: Because your opponents contend that it is a very small donor, the Service has on occasion simply made the refund and mooted the issue on the merits?
Mr. Crampton: That allegation is made and I think they do refer to a Church of Scientology case and that case in our view was not in point.
That was a question whether in that year, money enured to organizers and there was discovery proceeding as I understand it.
They were convinced that it did not enure in that year and they made them a refund and mooted it out.
But I believe the Service would welcome a chance to test this on the merits and certainly, insofar as those of us who are presently in the Department of Justice are concerned, we think this is the way to meet the situation and I have told a number of tax-exempt organizations that as far as I personally was concerned will meet them in Court anytime on this fact question and get it decided.
And I think the Internal Revenue Service shares that view and they would honor a finding like that assuming of course that the operations are conducted the same way in successive years.
The respondent speaks of itself as being a principle party but it seems to us here in legal effect it is acting as agent for its contributors.
They are also real parties and interests and as has been pointed out the Internal -- the injunction would prevent the Internal Revenue Service from asserting taxes against the donors. In the meantime, the statute of limitations may run.
It seems to us that the declaratory judgment isn’t independent reaffirmation of the anti-injunction case and that both of these simply bar the present type of an action.
Justice Byron R. White: Do you -- does the Government take a position that the Anti-injunction Act has the same impact as 28 U.S.C. 2201?
Mr. Crampton: Yes.
Justice Byron R. White: On declaratory judgments?
Mr. Crampton: Yes, we say --
Justice Byron R. White: You don’t think the prohibition against declaratory judgments is any broader or any narrower than the prohibition against injunction?
Mr. Crampton: Well, no, I think that the Declaratory Judgment Act would probably be a little bit broader because when you use the phrase with respect --
Justice Byron R. White: That's what I want to know -- I want to know what the Government’s position is with respect to that.
Mr. Crampton: I think it’s broader and it’s a more recent enactment.
It mentions the --
Justice Byron R. White: Well, don’t you have to have in effect the declaratory judgment before you can have an injunction?
Mr. Crampton: Well, I haven’t thought about that, [Attempt to Laughter] Your Honor.
Chief Justice Warren E. Burger: Suppose there are quite a number of injunctions added, but no declaratory judgment in the traditional sense, aren’t there?
Justice Byron R. White: But there has to be some legal basis, some legal basis for the injunction.
I mean some -- some right to the injunction --
Mr. Crampton: I would think you could have an injunction and then your declaratory judgment might not be.
Justice Byron R. White: Well, you may not have some --
Mr. Crampton: They are not quite the same.
Justice Byron R. White: Well, you many not have something called a declaratory judgment now, but --
Chief Justice Warren E. Burger: I suppose when the permanent injunction is entered the court has declared something, but it isn’t what we think of as a declaratory judgment case.
Mr. Crampton: No, I think the concepts at least to my thinking are somewhat different and I come back to Mr. Justice White's point, I think the declaratory judgment statute is even broader than the Anti-injunction Act.
Justice William J. Brennan: I gather, I gather the basis of the Court of Appeals' decision below, I gather also in the next case, the court in that case was that really neither a declaratory judgment nor any restraint against the collection of taxes has been sought, but that we have to read these proceedings as an attack upon the constitutionality of the substantiality exception.
And that that involves Ninth -- and an injunction against its enforcement, but that such an injunction involves neither a declaratory judgment under the Declaratory Judgment Act nor an injunction within 74 whatever that.
It’s not that -- that’s in effect what they held, didn’t it?
Do I read the opinions well?
Mr. Crampton: Well, I am not quite sure.
Justice William J. Brennan: Oh, I see.
Mr. Crampton: I had trouble just reading how they were getting around those myself but --
Justice William J. Brennan: But, but surely I’m right that they are trying to get around both.
Mr. Crampton: Yes.
Justice William J. Brennan: And they say that this was neither?
Mr. Crampton: That’s right.
Justice William J. Brennan: Didn’t they?
Mr. Crampton: Yes.
Justice William J. Brennan: And I gather that’s [Attempt to Laughter] -- isn't that the rather narrow question that we have to decide?
Mr. Crampton: Well, I think, yes.
Whether they can get around them because I think what the Court has tried to construct is sort of a detour around these two statutes and I’d like to touch briefly on this question that you raise as of substantial.
The theory or the claim is that a large organization spending “X” percent of its budget can do more permissible lobbying than a smaller organization spending the same percent of its budget.
I think it’s significant on our procedural problem here that the lower court didn’t hold that under no circumstance could the Government prevail.
It simply said, they thought this might -- ought to go to hearing on the merits.
It’s our view that the word substantial must be related to the person involved.
The tax laws are full of such arbitrary lines.
One man may get a larger charitable or medical deduction than another.
One man may get a deferral of a larger amount on his installment sale than another because it’s a bigger transaction.
Justice William H. Rehnquist: Mr. Crampton, what’s your interpretation of how the Court of Appeals finding that the Government at least had an arguable case on the merits.
How did they get around the Williams Packing statement that only if the Government clearly can’t prevail or an injunction to be allowed?
I don’t mean, what’s the Government position, but what’s your interpretation of what the Court of Appeals did?
Mr. Crampton: That’s in my judgment is a rough question because I read that thing and I tried to see where he came out on it and I have had difficulty.
He simply seem to think that this was a question that ought to be – raise a constitutional point perhaps because there was an allegation of constitutional issues, this shouldn’t be --
Justice William H. Rehnquist: But many -- many of our cases have held the fact that constitutional questions raised doesn’t affect the applicability of the Anti-injunction Act?
Mr. Crampton: That’s right and we’ve cited them in our brief and I say I have had trouble reading the Court of Appeals’ opinion to see where he just avoids the statutes.
Justice William J. Brennan: I notice that the concurrence of this opinion was a model of lucidity?
Mr. Crampton: Well, [Laughter] they’ll have an opportunity in just a minute to explain that and maybe they can answer the question of Mr. Justice Rehnquist better than I can.
I might --
Justice William H. Rehnquist: It’s really been a burden.
Mr. Crampton: I think so.
Justice William J. Brennan: But I gather on the substantiality point, in a practical world it’s true, isn’t it?
Organizations opposed to the point of view of this one, not by reason of their greater means of -- are not devoting a substantial part of their time and effort to lobbying, but it may be if not a substantial part but in the aggregate get it so much greater part.
Mr. Crampton: That’s true.
Justice William J. Brennan: Then is this -- what this organization --
Mr. Crampton: And you wonder what the test might be, if you put a dollar amount in then an organization under the dollar amount might devote a hundred percent to it whereas a bigger organization would be only devoting a fraction and it seems to us that this is about the best test Congress could device.
I might close, I’m concerned about my time, I haven’t seen the light, but we’d like to say that while we’re not unsympathetic with the problem of the Americans United has, we believe the solution is on legislation.
We believe that solution is coming.
Their judicial review of this type of a problem is presently being considered in the field of pension plans.
In HR 4200, 93rd Congress, the First Session in Section 601, they are providing for or al least proposed to provide for an appeal to the Tax Court from rulings in the pension field.
I understand this Act has passed both Houses and is in conference, but not on this point.
The Section -- a committee of the Section of Taxation is considering a similar --
It wouldn’t affect this case.
No, but it will affect future if this is enacted.
It will be in effect the exempt organization.
But a committee of the Section of Taxation in American Bar Association is presently considering whether a similar recommendation should be made in the field of exempt organizations.
That isn't cited in our briefs, but you can find a reference to that in 26 the Tax Lawyer at page 628.
It seems to us that it’s clearly the scope of this legislation is to be determined by Congress and we submit that that’s where the relief, if any, should be and not by seeking a judicial remedy here which in our view the statutes just did not provide and the judgment should be reversed.
Chief Justice Warren E. Burger: I have been puzzled about your time problem.
I have just been informed that the electronic system has failed and due process requires that we allow you some additional time.
Anyway, we’ll give you three more minutes and enlarge your friend’s time.
Mr. Crampton: Thank you.
Chief Justice Warren E. Burger: Your time is actually --
Mr. Crampton: I thought of it.
Chief Justice Warren E. Burger: Mr. Morrison, we’ll enlarge the time on your side of the table by three minutes.
Argument of Alan B. Morrison
Mr. Alan B. Morrison: Thank you, Your Honor.
Mr. Chief Justice, may it please the Court.
Americans United is before this Court today largely because the decisions made by the Internal Revenue Service, relating to the administration of the Internal Revenue Codes' provisions regarding charities.
The Service has decided to administer these provisions by a system of advanced rulings.
This system is unique to the Internal Revenue Service under the charitable area and does not apply with near the force in this area as it does in other areas where rulings are issued.
The result of this decision by the Service is that a ruling that an organization is tax exempt is not merely useful, but it’s essential.
The ruling has become the sine qua non of effective fundraising for charitable organization and the denial of a ruling or the revocation of a ruling requires immediate action on behalf of the charity if it is to continue without serious financial difficulties.
As Mr. Crampton explained, there are two aspects of a charitable ruling.
First, that the charity is exempt from income taxation.
This is relatively unimportant for the small organizations, but to a large university with a significant endowment, the exemption from income taxation can be important.
But the second feature and by far the more important because it is essential to all kinds of charities, is that donations are deductible from the income of the donor and particularly from the income tax of the donor with a large income.
The question of whether or not an organization qualifies under Section 501 (c) (3) is ultimately one for the courts to decide under the test laid down by the Congress.
Now, the Service could have decided to administer these provisions without a system of advanced rulings.
Income tax matters would be handled like other income tax matters.
Deductions could have depended upon opinions of counsel for either the charity or for the donor.
But the Service decided long ago that a system of issuing advance rulings would be useful both to the Service and to the taxpayers to let everyone know where they stand and they have been issuing these rulings for years.
In fact, in 1969 in the tax reform act, the Congress enacted a new section, Section 508 which requires any organization seeking a 501 (c) (3) status to notify the Service in advance that they are going to claim that they are exempt, so the Service can begin considering the question.
In addition to the issuance of rulings, the Service has also prepared a document known as the Cumulative List of Exempt Organizations.
Once an organization has a ruling that it is exempt under 501 (c) (3), it’s name is added to the list and the Service no longer can challenge the deductibility of gifts added to that for an organization on that list.
If the organization is not on that list, it creates enormous fundraising problems particularly with regard to the large donors for there are after all a limited number of funds available.
And the absence of the name of an organization from that list puts that organization at a serious competitive disadvantage in seeking to attract funds.
In effect, the ruling is a license that operates seriously in the fundraising areas.
As the courts below, the court below here, the court in Bob Jones and as former Commissioner Thrower indicated these are very serious matters.
And thus, when Americans United had its 501 (c) (3) status revoked in 1969, it caused serious financial problems.
Now, it was still and is today still exempt from income taxation under 501 (c) (4).
Therefore, it pays no income taxes.
It can’t go to the Tax Court to seek a claim for refund on the income taxes.
The only other tax consequence to Americans United itself as a result of the ruling revocation was a requirement that it begin to pay unemployment taxes commonly referred to as FUTA which in the four years between the revocation and today has never amounted to more than $1,200, a really trifling amount when considered in the light of the real consequences which is the lost contributions.
In fact, these FUTA taxes are so small that Americans United has paid those taxes and will continue to pay those taxes through the end of this case however, long it takes but that’s not really what we’re concerned about here.
The prayer for relief specifically says, the complaint specifically says we are not seeking to enjoin any taxes payable by --
Justice Byron R. White: What if you sued for refund of the ones you paid?
Mr. Alan B. Morrison: I’m sorry, Your Honor?
Justice Byron R. White: What if you sued for refund of your FUTA taxes?
Mr. Alan B. Morrison: We could do that Your Honor.
I mean --
Justice Byron R. White: And you could raise this for issue?
Mr. Alan B. Morrison: Your Honor, it could have been done.
First, let me say, the notion that we could raise this was not suggested by anyone until the reply brief states --
Justice Byron R. White: Well, whether -- whether that is so or not, is it so?
Mr. Alan B. Morrison: The refund suit could have been brought Your Honor, but it is fraught with difficulties.
Justice Byron R. White: Then you could have raised this very issue as to whether or not your FUTA taxes were validly collected?
Mr. Alan B. Morrison: That is correct, Your Honor.
The legal issue is in most cases the same as the deductibility issue, in most cases I say, but it is the remedy which is uncertain albeit not for Americans United perhaps but for a number of other organizations which are in the very similar position.
First, because Your Honor, there are exemptions from FUTA tax.
It does not apply to any organization which does not have $1,500 a year in wages paid.
There are others exemptions for small organizations.
Justice William H. Rehnquist: But if those -- Mr. Morrison applied to other organizations but not to “Americans United.”
How does that bear on the adequacy of Americans United's remedy at law?
Mr. Alan B. Morrison: Well, we first say, Your Honor, that we’re asking this Court to establish an exception to the Anti-injunction Act to construe it as non-applicable in a series of cases and we believe it would be counterproductive for the Court to establish rules depending upon the peculiarities of or otherwise very similar organizations.
But moreover, beyond that Your Honor, our real problem is not whether the remedy is available, but whether the remedy is available, but whether the remedy is truly adequate.
For the refund suit biggest problem as is the suit by a donor is that it does nothing to stop the Service in continuing the position --
Justice Byron R. White: I thought the trouble is that’s the very purpose of the anti-injunction statute is not as to put off to refund suits the decisions of questions like these?
Mr. Alan B. Morrison: Your Honor, in 1876, this Court in the State Railroad Tax Cases referred to the Anti-injunction action Act in connection with the refund provisions as a complete system of corrective justice.
And in those days where the only questions involved were the questions of, would the taxpayer get back the taxes plus interest that he paid, it was a complete system.
And as in Williams Packing it was a complete system of corrective justice where the only thing, anybody was seeking a refund of is the taxes that were paid.
Those taxes in this case are irrelevant.
Justice Byron R. White: But what if the -- don’t you think the absence of any alternative remedy was an important part of the Court of Appeals' decision?
Mr. Alan B. Morrison: Your Honor, the Court of Appeals did place great emphasis on -- upon that.
Justice Byron R. White: No, I don’t know what it would have done if the issue have been before it about the FUTA taxes?
Mr. Alan B. Morrison: It was before it, Your Honor and it was dismissed in the footnote as being so far from the mainstream of the litigation as not to be --
Justice Byron R. White: Well, that’s rather odd, isn’t it?
I mean, isn’t it because you could have had that decision, you could have this very issue decided in the refund actually?
Mr. Alan B. Morrison: Your Honor, I believe Americans United probably could have on the assumption that first it was not mooted out and we take a different view of the Scientology case.
We don’t think --
Justice Byron R. White: I thought you said a while ago that the issue hadn’t been -- wasn’t raised until --
Mr. Alan B. Morrison: It was put in very briefly by the Government in the second reply brief in the Court of Appeals.
Justice Byron R. White: In the Court of Appeals?
Mr. Alan B. Morrison: In the Court of Appeals. Yes, Your Honor.
But not in the District Court and that was some three-and-a-half years after the ruling was revoked.
Justice William J. Brennan: Is this question involved in Bob case?
Did Bob Jones University also have available --
Mr. Alan B. Morrison: I believe they did, yes, Your Honor.
And I believe, there’s also a possibility, I’m not thoroughly familiar with the record but as I read the Government’s brief, it’s alleged that Bob Jones may have some income tax liability since it was held not to be a C-4 organization as was our organization.
Justice Thurgood Marshall: Mr. Morrison, you said your exception, you came on, you wanted us to establish an exception to merit the injunction statute?
Mr. Alan B. Morrison: Yes, Your Honor.
If that’s what I said it wasn’t precisely what I meant.
Although the Anti-injunction statute is absolute on its face with certain specific exceptions largely relating to the Tax Court proceedings --
Justice Thurgood Marshall: Well, maybe I ought to warn you.
The answer I’d like to get is how we do it without rewriting the statute?
Mr. Alan B. Morrison: The same way that this Court has been doing it for 50 years without rewriting the statute, Your Honor.
Justice Thurgood Marshall: Which case did we rewrite the Anti-injunction statute?
Mr. Alan B. Morrison: Well, to begin --
Justice Thurgood Marshall: Why?
Mr. Alan B. Morrison: The Standard --
Justice Thurgood Marshall: Let's start all over again.
Mr. Alan B. Morrison: The Standard Nut Margarine case, Lipke versus Lederer, Hill versus Wallace, and the case we rely upon most Allen against the Regents of Georgia case.
Justice Thurgood Marshall: Now, how do you want us do this one?
Mr. Alan B. Morrison: We want you to say, Your Honor that it is the outside the purposes of the Anti-injunction action since as Your Honor quite correctly pointed out earlier, Congress obviously did not have charitable organizations in mind in 1867 when it wrote this provision.
Justice Thurgood Marshall: It didn’t have Automobiles in mind either?
Mr. Alan B. Morrison: No, sir, Your Honor.
It didn’t have a great many things in mind.
Justice Thurgood Marshall: But it did have taxes in mind?
Mr. Alan B. Morrison: It did, Your Honor.
Chief Justice Warren E. Burger: And this has quite an impact on taxes?
Mr. Alan B. Morrison: Your Honor, I don’t believe it does have quite an impact.
For in our view, most donors and particularly large donors who are considering making a sizable gift to a charitable organization, if the organization is not on the list as Americans United has not been.
Most of these or many of these persons will simply deflect the contribution to another organization which is on the list.
Chief Justice Warren E. Burger: Well, I think all of us, everyone on this bench has had that experience as a lawyer, but that’s not the heart of the case, is it, or do you think it is?
Mr. Alan B. Morrison: Well, it is important because we think it’s indicative of fact that this case is not dealing primarily with the orderly process of the collection of revenue as has been true in other cases.
And as the Government’s brief says, and as the Supreme Court has said in Enochs, the manifest purpose is to ensure the orderly process of the collection of revenue.
And we suggest that this is far from the mainstream of that kind of problem.
And its particularly important because of the great need that this taxpayer has to have his ruling of equal importance is the fact that not only does it not have its ruling during this period of time, but that throughout the entire period of the refund litigation, there will be no revenue coming in because of the laws of the ruling.
And this is important because even if we win the refund suit at the District Court level after having waited until the end of the year so that an annual tax could be paid, waited to file a claim for refund, waiting six months after that, thereafter filing the complaint, the Government answering 60 days later, discovery beginning and perhaps the Government discovering an issue in the case that will enable it to prevail for reasons other than the reason that was given for the denial of deduction.
After that happens and even if we win the case in the District Court, the ruling does not come back yet for according to the Government’s theory that even where the refund suit is won, there is still no right to have the ruling restored.
Justice William J. Brennan: How do you look down on such as in the exclusion rather than the Declarative Judgments Act?
Mr. Alan B. Morrison: I view that as co-terminus, Your Honor.
Justice William J. Brennan: Co-terminus?
Mr. Alan B. Morrison: Yes, Your Honor.
It was enacted --
Justice William J. Brennan: That language, it certainly seems broader, doesn’t it?
Mr. Alan B. Morrison: It does seem broader Your Honor, but it was enacted specifically to fill a loophole that had been created that some of the courts have started to permit declaratory judgments to do that which the Anti-Injunction Act could not do and it was intended specifically for that purpose and with no other purpose --
Justice William J. Brennan: I guess you have to take that position, don’t you because with respect to taxes, that’s the word --
Mr. Alan B. Morrison: It would be very much broader.
I would point out Your Honor that Section 1340 the jurisdictional section uses the phrase giving the District Court’s jurisdiction to matters arising under the tax law which might even seem broader.
But I think that all of the Courts have considered them to be in the same general area.
It was enacted, that is the exception to Declaratory Judgment Act was enacted to fill a specific need to prevent the end run, if you will, around the -- in the anti-injunction action and therefore we consider it to be the same.
Justice Byron R. White: Have there been any judicial constructions of it to that effect?
Mr. Alan B. Morrison: Yes, Your Honor.
Justice Byron R. White: In this Court?
Mr. Alan B. Morrison: Not in this Court.
No, Your Honor.
There are certain cases referred to --
Justice Byron R. White: But Government apparently thinks that it’s broader.
It doesn’t concede that it’s co-terminus with the --
Mr. Alan B. Morrison: That’s right Your Honor.
We have -- the legislative history, we quote, I believe it’s in footnote in our brief.
Justice Byron R. White: Well, that’s alright I’ll get it.
Mr. Alan B. Morrison: Footnote 6 -- footnote 5 on page 6, Your Honor.
Justice Byron R. White: Yes.
Mr. Alan B. Morrison: And it makes references to Judge Thame's discussion of the legislative history in the Court of Appeals and I think that it does indicate that that is the case.
As I said, the real loss to Americans United in this case is the lost contributions and the refunding of $1,200 plus interest is not going to do anything about getting that back.
And we think that this case comes within this Court’s exception in Allen against the Regents where in that case, the plaintiff was, like this case, not the taxpayer, that is not the person against whom the taxes were sought to be collected.
And that -- in that case this Court held that where the plaintiff had no plain speedy and adequate remedy at law and I emphasize the word “adequate” because that is in our view the touchstone here, that the remedy suggested by the Government is not adequate.
But the Court had jurisdiction not withstanding the literal language of the Anti-injunction Act.
We believe that that case applies here.
The Government contends that Allen was overruled in effect by Williams Packing Company.
That Williams Packing is a substitute for a whole long line of cases which are not discussed at all and which the Allen decision is indicated only as a see also footnote.
The decisions in Allen and Williams Packing are irreconcilable for one very important reason.
The Williams Packing decision predicates jurisdiction upon a finding that under no view of the facts or law could the Government prevail, but in Allen, not only could the Government not prevail but in the very same opinion, this Court upheld the determination that the statute challenged by the University of Georgia Regents was constitutional.
Therefore, the decisions are irreconcilable and the Government must contend that Allen was overruled.
We see no reason to believe that this Court overruled Allen.
The cases are different.
The facts are different and we suggest that the decision in Allen against the Regents is still good law and supports this case as do other cases such as Lipke against Lederer, which dealt primarily with the problem of a penalty being imposed in the form of a tax, or cases involving essentially regulatory matters, Hill against Wallace.
Justice William H. Rehnquist: Are you really saying that they are irreconcilable or that they deal with two different things?
Mr. Alan B. Morrison: Well, I say that they are irreconcilable if the Government statement that there is a substitute that Enochs was a substitute for all of the prior decisions.
It becomes irreconcilable, but I view that there are -- they really deal with two different kinds of exceptions.
There are, if you will, parallel different classes of exceptions and that the Allen case supports the decision we’re asking this Court to affirm here.
Justice William H. Rehnquist: If they are irreconcilable, I suppose the latest in time would prevail?
Mr. Alan B. Morrison: That is correct Your Honor, but we believe.
I misspoke perhaps, that they are irreconcilable only if you accept the Government’s proposition that won this a substitute for the other.
We believe they are not irreconcilable and that they simply dealt with different situation.
The Williams Packing case being the classic case of a taxpayer seeking to enjoin the collection of its own taxes claiming verifiably or not that there was irreparable harm.
This Court said, no, in that situation, irreparable harm and the adequacy of remedy is not enough.
You must show more and that’s what 7421 says and we agree 100%, but we don’t think that deals with this case where there are different problems involved than in that situation.
All that we are seeking here is an opportunity to litigate the question of whether or not our ruling was properly revoked during the course of the litigation.
All we want is a chance to obtain an injunction so that we will not have to wait years until the refund suit is concluded.
We are not as the Government suggests in its reply brief at page 38, asking for an automatic right to retain the ruling regardless of the merits.
We are fully aware of the standards both at the preliminary injunction stage and what we must do with the merits in order to retain the ruling which we have been without for almost four years now. But at least, it’s a chance and it’s a chance for organization such as this, an equally important for fledgling organizations which have no financial backing to rely against -- to rely on.
Just recently, a decision of the United States District Court for the District of Columbia in the case of Center on Corporate Responsibility against Schultz, a decision which the Government referred to in its initial brief in this case, but did not refer to in its most recent brief, an unreported decision, but now appears in the 1974 CCH Reporter at paragraph 9118, where this Court or that court upheld the plaintiff and held that the Service had illegally ruled that it was not entitled to a deduction.
Chief Justice Warren E. Burger: Mr. Morrison, may I help you if I alert you in the absence of our lights.
Since you got about two minutes left before you impinge on Mr. Salisbury’s time.
Mr. Alan B. Morrison: Thank you, Your Honor.
In that very case, the Service contended that in spite of the allegations of political influence and no basis at all for denying the deduction, the Court had no jurisdiction whatsoever.
And we submit that 7421 was not intended to apply in those situations, that it was not intended to act where there was no complete system of corrective justice.
We see no reason to this to apply the statute which was obviously not intended to reach charitable organizations and there’s every reason and not to apply it.
Accordingly, we ask this Court to affirm the decision below.
Chief Justice Warren E. Burger: Very well, Mr. Morrison.
Argument of Franklin C. Salisbury
Mr. Franklin C. Salisbury: May it please the Court and Mr. Chief Justice Burger.
As the former House counsel and litigation attorney for Americans United for separation of church and State, I appear before you to argue that the decision of the a United States Court of Appeals for the District of Columbia upholding the right of Americans United to its day in court was correct and should be upheld.
My share in the oral argument is to emphasize just a few points which makes clear that opinion of the Court of Appeals below which holds that this case does raise a substantial constitutional question should be upheld.
I fear that the Commissioner’s counsel have misstated inadvertently the legal question presented where in their brief they say the question presented is “whether the respondent is barred by the Anti-injunction Act and the Declaratory Judgment Act or otherwise from obtaining injunctive or declaratory relief requiring the Commissioner to issue a ruling that respondent is exempt from Section 501 (c) (3) and therefore the contributions to it are deductible under Code Section 170 (c) (2).
Americans United has never argued that the Commissioner should rule that it is exempt under 501 (c) (3).
Americans United has sought to have the substantiality clause of 501 (c) (3) ruled unconstitutional expunged as it were from 501 (c) (3).
Thus, directed the Commissioner could and should exercise his discretion and determine the eligibility of Americans United for continuing treatment under 501 (c) (3).
Unknown Speaker: (Inaudible) what then would the Commissioner determine?
Mr. Franklin C. Salisbury: The clause has many other qualifications for 501 (c) (3) status is very complicated and we feel that we could qualify on all of them.
We can’t qualify and don’t want to qualify if it means we can’t either come to this Court to present cases or we can’t go to Congress and say that well the Constitution is great and we want it kept that way.
The existence --
Chief Justice Warren E. Burger: Mr. Salisbury, while you stop for a moment, let me, it seems to me that at least at one focal point in the Court of Appeals’ opinion is the statement at the end, it's on page 40 of the petition for the writ that the possibility of success is not so certain as to merit the Enochs exception with respect to 7421 (a) yet not so frivolous or foreclosed as to merit the denial of the 2282 motion.
I’m not exactly sure what that means but do you think it’s a correct statement of how the issue should be resolved?
Mr. Franklin C. Salisbury: Well, insofar as it states that we have -- that I think means that we have a substantial constitutional question involved and because the --
Chief Justice Warren E. Burger: Because they considered the matter in some stage of judicial act requires that it might be either way, isn’t that about that?
Mr. Franklin C. Salisbury: Yes, I think it might be either way.
Chief Justice Warren E. Burger: Well, because either way, doesn’t anti-injunction statute control?
Mr. Franklin C. Salisbury: I think the case that held that under no circumstances could the Government prevail in a lawsuit is not good law and not applicable to us because anybody can prevail.
It is not a good standard.
The Enochs case, the organization --
Chief Justice Warren E. Burger: Well, it was the standard that some judges thought at the time was the way they implement the anti-injunction statute, wasn’t it?
Mr. Franklin C. Salisbury: Yes, I’m hoping that judges at this time will not so feel.
Chief Justice Warren E. Burger: Well, are you asking Enochs to be overruled?
Mr. Franklin C. Salisbury: No, in Enochs, the organization owed a tax.
Now, we agree that if Americans United owed a tax, that we should have paid the tax and then gone into the Tax Court and sued to have it refunded, but we don’t have any such tax owed.
Now, way at the end of the whole proceedings it was suggested we could in effect deprive our employees of their rights under FUTA, the Unemployment Compensation Act, sue to get the money back and then go in and not argue about that, argue about our First Amendment rights.
Chief Justice Warren E. Burger: Well, have you paid that tax before this episode?
Mr. Franklin C. Salisbury: No, no.
We weren’t --
Chief Justice Warren E. Burger: You wouldn’t be depriving on something you have in --
Mr. Franklin C. Salisbury: But from that day on we’ve paid -- we’ve paid their unemployment tax and we would continue paying that tax even if we win this case because that’s a benefit to our employees.
If -- they are likely to lose their jobs because of the impact of this ruling, and they need that unemployment tax.
Justice Byron R. White: You can’t say there’s no other remedy available to you?
Mr. Franklin C. Salisbury: Well, it is I think if Your Honors will consider the remedy that we should not pay a tax which we want to pay.
Justice Byron R. White: Well, you didn’t used to?
Mr. Franklin C. Salisbury: No, but I don’t think we will.
Justice Byron R. White: Until the Commissioner forced you to confer this to employees, you weren’t?
Mr. Franklin C. Salisbury: I’m not quite certain, but I don’t think we were eligible to pay it before.
Once we changed our status then our employees could obtain unemployment compensation under this Act.
Chief Justice Warren E. Burger: And if you win -- if you win therefore, you won’t be eligible to pay it?
Mr. Franklin C. Salisbury: This could very well be true.
Now the Commissioner of Internal Revenue revoked the privilege of Americans United to continue soliciting donors who in turn could make their donations out of pretext income and the reason given is that Americans United total activity is one of legislative effort.
If we file our brief amicus with this -- before this Court which we do quite -- which we used to do anyway quite frequently, they say it’s an intent to influence the legislation because we take a stand.
If we pray as agreed opinion like Everson versus the Board of Education it isn’t according to IRS an attempt to influence legislation because we favor the opinion.
If we republished James Madison’s Memorial and Remonstrance, it is an attempt to influence legislation.
Everything we do according to the letters we have from IRS is an attempt to influence legislation.
The result is a penalty for the exercise of our First Amendment rights.
We remain tax exempt.
That’s not a right.
That’s a privilege but we are denied the support of our donors which is not a privilege but a right.
These donors are still free to make tax-exempt donations to other charities and other causes but not to the one of the greatest causes of all, the preservation of the principal separation of church and State and the cause dear to our donors and a cause dear the merits of this Court.
It must be remembered also that in our argument, Americans United actually is arguing that no organization, not even the Roman Catholic Church with its unlimited resources constantly used for lobbying should be put to the test of the substantiality clause of 501 (c) (3).
Justice Potter Stewart: It sounds pretty -- did I understand you to say that the Internal Revenue Service takes the position that an organization that files an amicus brief in this Court is attempting to influence legislation?
Mr. Franklin C. Salisbury: As I read the revocation letters.
One of the -- we’ve had a whole series.
Justice Potter Stewart: This Court of course has been accused of being a -- [Laughter]
-- but, it is very interesting --
Mr. Franklin C. Salisbury: I was shocked when we got the letter.
I was the attorney that had to try to keep compliance, but I gave up on trying to see that absolutely no legislative efforts were made.
When they came back to me and said that everything you do is -- it influences legislation.
I presume that this case will be reported and that will influence legislation.
That is a deprivation of our First Amendment rights.
Justice Thurgood Marshall: But that letter is not in the record, is it?
Mr. Franklin C. Salisbury: We haven’t had a big enough record because we haven’t had a chance to get into the Court, but that is what we will prove in the --
Justice Thurgood Marshall: You will prove that IRS sends you a letter and says, if you file a brief amicus in this Court you are influencing legislation?
Mr. Franklin C. Salisbury: I am --
Justice Thurgood Marshall: Do you want to show us that letter?
Mr. Franklin C. Salisbury: I will prove that the effect of their letters --
Justice Thurgood Marshall: All, all of the letters.
Mr. Franklin C. Salisbury: The counsel would be because they say that’s an action organization.
Now, they are changing their position on that particular point, I think, due to various pressures.
But they still indicate that if we were to be -- as we’re constantly doing -- going before the Congress at the request of the Congress to say what we think about the First Amendment.
They say that influences legislation and it probably does.
But we say we have a First Amendment right to influence legislation.
Now, I notice that the time --
Chief Justice Warren E. Burger: We will resume the case after lunch.[Luncheon Recess]
Mr. Salisbury, you have about two minutes left and the electronics are still not functioning and so we’ll let you know when your two minutes is up.
Mr. Franklin C. Salisbury: Thank you.
Chief Justice Warren E. Burger: Perhaps you can keep an eye on the clock too while you are arguing.
Mr. Franklin C. Salisbury: I will just take two minutes to sort of finish what I would have finished before lunch.
It’s more of a peroration, but when we have our day in court on the merits of this case, we will show that the 501 (c) (3) as presently written with its substantiality cast in its propaganda bar permit the Commissioner of Internal Revenue, in fact, invite him to tear out the heart of unpopular causes, unpopular to him or unpopular to the particular personnel on the IRS handling the case.
And it does tear out the heart of our organization, Americans United for the separation for church and state and we have suffered irreparable damage already.
A $90,000 loss in 1972, over $200,000 loss in 1973, the backlog of gifts which we had which permitted our appearance before this Court so many times will soon be decapitated.
Already, the staff has been cut from 43 to 28.
Our mailing list, when we sent out the educational materials explaining to the people what this Court holds on separation of church and State, has been cut from 200,000 to a 132,000.
No longer has Americans United a full time counsel for litigation.
This litigation is handled on an uncompensated basis by Mr. Morrison and myself.
Surely, a substantial constitutional question is raised when a statute is interpreted to permit and indeed to invite the stifle free speech to stop those seeking a redress of grievances before Congress and before the Courts.
No briefs amicus had been filed with this Court by Americans United since the revocation.
No litigation has taken place bearing our name as plaintiffs before the federal court.
Our abilities to preserve the principle of separation of church and State through education and litigation and perhaps bringing our points to Congress has been cut out.
We asked that the opinion of the Court of Appeals below be upheld and on behalf of those who dedicate their lives to religious liberty, both Catholics and Protestants alike, we thank you for this opportunity to present our views to you in whose hands religious liberty has faired so well in this county.
Chief Justice Warren E. Burger: Thank you Mr. Salisbury.
Do you have anything further Mr. Crampton, you have about three minutes left.
Rebuttal of Crampton
Mr. Crampton: Mr. Chief Justice, may it please the Court.
I would like to answer with a little -- in a little more detail the question which Mr. Justice Marshall asked me about whether or not returns are required.
I knew that annual returns were required, but I wasn’t concerned -- I didn’t, my recollection wasn’t too clear on just what was required in those returns as to the continuing of material relating to continued tax exemption.
I am now advised that you are required to state whether or not you have made any change in your activities, but other than that, the return is one of financial information and of course, it would not catch a situation or trigger a situation where perhaps the Commissioner has changed his view as to situations such that might have here.
I’d like to reply very briefly to counsel suggestion that the size of the employment taxes has some factor.
I don’t think it has anything to do with it at all.
He can sue for $10 and in that proceeding argued that he is an exempt -- he represents an organization exempt under 501 (c) (3) and I think had he done so, this question would have been decided by and now and has been decided on its merits.
Justice Byron R. White: But is it true that he wants something more than get a refund of that unemployment tax?
Mr. Crampton: Well, he wants a determination that he is an exempt organization and I think he would have gotten it in the proceeding.
Justice Byron R. White: Which has many -- much broader tax implication than just the refund of the employment taxes?
Mr. Crampton: No, because I think to get the refund of employment taxes the court would there to determine --
Justice Byron R. White: Oh, I understand that.
Mr. Crampton: -- that the an organization is exempt under 501 (c) (3).
Now to the extent that he may say -- be saying, “I want to do something for other organizations,” our position is that’s not the case here.
We’re talking about “Americans United.”
Justice Thurgood Marshall: Would IRS be required to follow that as to their contributors?
Mr. Crampton: Well, as to future --
Justice Thurgood Marshall: I thought IRS could go along with what the court said about it, whichever way it chose?
Mr. Crampton: I think they would and I think that’s their policy and we certainly would -- assuming the organization continued to operate the same way in later years that it was in the time of the test case, I think that would be a complete answer and they put their name back.
They do require them to file an application.
Justice Thurgood Marshall: That case was -- do you mean that IRS is required to follow that as to contributors?
The IRS says you don’t have to pay these taxes.
Can IRS also say, but we will still deny tax exemption to the contributors?
Mr. Crampton: Well, the way the procedure that they have is the IRS after case like that ask you to submit an application referring to the case as the reason for that you’re now qualified as tax-exempt organization.
Justice Thurgood Marshall: Well, let me put it --
Mr. Crampton: And they would then put your name back on the list.
Justice Thurgood Marshall: There’s no requirement though?
That would be up to IRS, wouldn’t it?
Mr. Crampton: Well, I think that’s right, Your Honor, but I think you could assume a good faith with the Government in a situation like that.
Justice William J. Brennan: Unemployment taxes, if they were exempt would they be able to pay those voluntarily and cover their employees?
If they were exempt in Section 3, organization?
Mr. Crampton: I am not sure of that question, Your Honor.
I know they can under Social Security taxes, whether they can under employment taxes, I don’t know.
I would like to comment just briefly on the Allen case.
In that situation, the University of Georgia was a collector of taxes.
It was not a taxpayer and so it had not means of independent judicial review and I think that completely distinguishes that case.
And if all that the respondent wants is a determination of the word “substantial” should be read out of Section 501 (c) (3), we think they could have had that holding if their right made in a refund suit and that’s the place to do it.
Chief Justice Warren E. Burger: Thank --
Justice William J. Brennan: Maybe I -- you answered this and I haven’t followed you.
A refund suit on the FUTA taxes would not answer the 501 (c) (3) issue, would it?
Mr. Crampton: It’s our view that it would because that suit would be based on the theory that we are an exempt organization under Section 501 (c) (3) and therefore we don’t have to pay the FUTA taxes and if the Court agreed with them, you’d have a determination that it was an exempt organization.
Justice Byron R. White: Until this revocation Americans United did not pay FUTA taxes?
Mr. Crampton: That’s right.
Justice Byron R. White: And that’s what triggered the payment of FUTA taxes?
Mr. Crampton: That’s right.
Chief Justice Warren E. Burger: Thank you Mr. Crampton.
Thank you gentlemen.
The case is submitted.