SIMON v. EASTERN KY. WELFARE RIGHTS ORG.
Legal provision: Article 3, Section 2, Paragraph 1: Case or Controversy Requirement
Argument of Marilyn G. Rose
Chief Justice Warren E. Burger: At 1:00 pm, we will hear 74-1110.
Ms. Rose, you may proceed whenever you are ready.
Ms Marilyn G. Rose: Thank you, Mr. Chief Justice, and may it please the Court.
I am Marilyn Rose.
I represent the plaintiffs, petitioners in number 74-1110 and respondents in number 74-1124.
This case involves the legality of a Revenue Ruling, issued by the Internal Revenue Service in 1969.
This Revenue Ruling removed the long standing, decades old, free service requirement, which had always been required of charitable hospitals.
There was no notice given to anyone when this Ruling issued.
There was no opportunity given to anyone, to public at large or affected persons to comment upon it or to participate in its development.
The Ruling on its face relied solely upon statements in treatise writer for the law of trust that health per se is charitable.
Justice Potter Stewart: May I ask, Ms. Rose?
Is it not what you have told us about no hearing and no notice always true about the rulings of this kind?
Has it not historically always been true?
Ms Marilyn G. Rose: Well, when the Internal Revenue Service issues Revenue Rulings, they give no notice and opportunity for comment.
One of the issues is should this have been a Revenue Ruling?
Justice Potter Stewart: Yes, and whether or not the other rulings were rulings of this kind, that is what the question is.
Ms Marilyn G. Rose: Yes.
There were three substantive violations which plaintiffs charge from defendants.
First and foremost, plaintiffs charge that defendants exceeded their statutory authority and in affect amended the Internal Revenue Code when they permitted hospitals as charitable institutions to limit themselves to serving only the paying public.
If the Court decides this issue against plaintiffs, then our second issue is that this indeed, though it was called a Revenue Ruling, which should not have been a Revenue Ruling, it was a substantive rule and defendants were required to proceed in accordance with Section 553 of the Administrative Procedure Act.
Justice William H. Rehnquist: Ms. Rose, may I ask you a kind of a preliminary question as to how you plan to structure your argument?
Are you going to discuss a standing at the Anti-Injunction Act and sovereign immunity at the latter part of your argument?
Ms Marilyn G. Rose: Yes, Mr. Justice Rehnquist.
The, a third violation, and this again is if the Court rejects both our Internal Revenue Code and 553 Arguments, is that nevertheless there was a violation of Section 706 of the APA that this Ruling was arbitrary and capricious because the defendants would have to have considered factors which they did not consider in the face of the ruling.
And as Mr. Justice Rehnquist indicated, there are jurisdictional issues which the defendants have raised.
We believe these jurisdictional issues can be best considered and understood in context of the substantive issues, and for that reason we will address the substantive issues first.
Section 501 (c) (3) and 170 of the Internal Revenue Code has never accorded hospitals tax-exempt status or deduction to the donors to hospitals.
Unlike educational and religious institutions which have their own independent basis, hospitals have had to qualify as charitable institutions.
For decades, the IRS has required that these charitable hospitals provide either service exclusively to the poor or may provide service to all persons in the community, rich and poor alike, but they may not exclude the poor.
This is the consistent position of every Tax Court and Federal Court that has considered the issue in the past thirty-three years.
There is no case the defendants have cited where a hospital has been accorded 501 (c) (3) status, without there being a finding that a hospital gave free service.
This indeed is a similar position that IRS takes for all other organizations, which are eligible for these statutory benefits, solely by virtue of being charitable.
Every ruling which is cited in the defendant’s brief, every ruling which is cited in the amicus -- American Hospital Association’s brief, and every ruling which we have found and this goes to date till 1975, requires that Institutions which are solely charitable as distinct from being charitable and educational or religious or societies for the prevention of cruelty to children, also must serve all persons in the community rich and poor alike.
This is also the position of all state charitable cases or virtually all state charitable cases.
The defendants relied simply on a 30-year old statement from Scott on Trust.
In 1939 as of 1967, the Scott Treatise states that health is charitable per se, but all the cases that professor Scott cites, the tax cases and charitable trust cases, also have this rich and poor alike requirement.
Indeed the general law of charitable trust going back to England and more ancient times has always considered that there are four heads of the charity.
Charity is either for the relief of the poor, educational, religious, or there is a fourth head, and this fourth head of things beneficial to the community, but things beneficial to the community must provide service to all persons of the community, again rich and poor alike.
This beneficial to the community does not permit that the exclusion of the poor.
The defendants argue that the Treasury Regulation, which issued in 1959, permitted them to make this change; that is absolutely untrue.
The Treasury Regulation, which issued in 1959, is an expansion statement on what is the law on charitable, but it was brought in to include new purposes such as combating discrimination, juvenile delinquency.
But there is nothing on the face of the Ruling of the 1959 Regulation nor is there anything in its published history to indicate that there was a change and charitable organizations may serve only the paying public.
In 1969, the American Hospital Association appealed to Congress to make a change and give hospitals independent status.
This change was rejected, it was in the House Bill.
The Senate Finance Committee in October of 1969, considered the issue and the Senate Finance Committee deleted the House Amendment.
The statement for deleting this House Amendment took into account the fact that three weeks earlier, the Internal Revenue Service had issued to Revenue Ruling that is issue in this case.
But the Senate Finance Committee stated flatly that they were removing this provision, that the Revenue Ruling in issue in this case did not conform to the Internal Revenue Code, and they want to consider the proposal in context that is implications on health legislation.
I think it is clear that the Congress need not conform the statute to an administrative action, but administrators are bound to conform their actions to a legislative enactment.
The Court below recognized the judicial, administrative and legislative history are discussed, but they went further.
They said that this need not always be the case, that defendants could take into account socio-economic changes.
They also made a statement, that the so-called requirement of emergency service in the Revenue Ruling, maybe of greater beneficial value to the poor than general hospital services, including in-patient here.
That -- those socio-economic findings are legally infirm.
There is nothing on the face of the Revenue Ruling to indicate whatsoever that any of these matters were taken into account by defendants.
The Appellate counsel in this case in the Court of Appeals below, and in the Supreme Court, is making this proffering, this argument, but that is -- should be rejected as the Court of Appeal’s decision should be rejected.
I think there are many cases of this Court that have stated flatly, that the post-talk rationalization of Appellate counsel cannot substitute for the reason that the Administrative Agency used.
And the Administrative Agency used solely Scott on Trust, and Scott in Trust has said the same thing, I had this one sentence upon which they rely since 1939.
And in 1939 and through the 1940s, and through the 1950s, and through the 1960s, ye, in the summer of 1969 Internal Revenue Service was still going at the hospitals that refused to serve the poor and poor have to be served.
It is also factually infirm because of the limitations of time, I will not go into all the details.
Our brief in Chief, and the brief of the American Public Health Association extensively discussed as why it is factually infirm.
In some, HEW, which is the health expert agency in this country finds there are over twenty-three million people in this country with incomes of below the poverty guidelines, and at that time the poverty guidelines was something like $4,400 a year for a family of four.
That these upwards of twenty-three million people have neither private not public health insurance, and when we say that we are including Medicaid; Medicaid is a very limited program in terms of eligibility for income and services, it does not take care of the poor.
The health policy of the United States has continued to require the free service be given.
The Halliburton program of HEW requires a free service be given.
Title XVI of the new Health Planning Act, December 1974, Congress specifically said that until there is -- there will be a national, or if there will be national health insurance program there is still a need to serve everyone of the community to serve the poor.
The defendants have made a large argument that this Ruling does not deprive from the service to the poor that there is an emergency room requirement in the Ruling.
We disagree in several respects.
First, they argue as if the emergency room has now become like a private doctor’s office.
General physician services do not exist in emergency room.
The Ruling, secondly on its face talks not about general emergency room services, it talks about a dire emergency and that a hospital cannot turn away somebody in a dire emergency.
And thirdly, there is no requirement that people not be charged.
The most they can say for this Ruling is that people will not be required to put up money upfront to pay a pre-service admission if they come into an emergency room, they are in a dire emergency, maybe bleeding to death, there is no free service requirement.
Turning now to our Section 553 of the APA argument, which this Court need not reach if they accept our primary argument.
The Internal Revenue Service does not deny that it is an Agency subject to 553 and it cannot make such a denial.
It says this Ruling was interpretive.
We say that the Internal Revenue Service is mislabeling this Ruling.
This Ruling on its face has to be substantive.
In our principal brief, we have come up with what I would call a functional test, that the lower federal courts have increasing in recent areas looked behind the label and have said, is the rule a policy of an agency, general long standing, is it a revision of a long standing rule.
Is there a need for an agency to expedite -- to educate itself?
What is the impact upon an industry?
What is the impact upon the public?
In everyone of these cases, here is a major revision done without notice, without an opportunity for comment by an agency that knows virtually nothing about healthcare, ignoring what the healthcare agency of United States is doing, let alone what organizations like the American Public Health Association would do.
Chief Justice Warren E. Burger: Do they know of nothing about healthcare, now do we know more about it?
Ms Marilyn G. Rose: Well I do not think, I would Mr. Chief Justice, that I do not know if this Court knows more about it but -- and I also do not know if the Court of Appeals might know more about it, but these on -- what the Court of Appeals did is they made findings, they made findings without a record.
They have reached out and sustained this Ruling in the same way as if there was an attack on congressional statute for being unconstitutional.
The fact is this the Court of Appeals should have looked simply as to what reason that was used by the Agency, Scott on Trust.
If they did not looked at that, they have reached out and made socio-economic analysis, they were going beyond their power and or their -- so, with all this Court I think what this argument has to determine is that this is the kind of thing, there should have been hearing on.
The alternatively if the Court finds -- feels a definitial test is the proper one, an interpretive rule is one that is limited to determination of congressional purpose.
A substantive rule is one which augments congressional purpose and goes beyond the statute, it goes outside the statute.
In this test too, this is a substantive rule.
I will not go into our alternative Section 706 of the APA argument.
I think it is clear that the only way the defendants feel that the Ruling could be sustained is they had to make the socio-economic argument.
It is not on the rule -- it is not on the face of the rule.
The Agency did not consider it, and therefore, all relevant were not conceded and as citizens to preserve over to the park all over again.
I would like to turn to the jurisdictional arguments that defendants have proffered.
Defendants have not come up with what is a variety of jurisdictional barriers to plaintiffs sustaining -- maintaining this cause.
Their first argument is an attack upon the rules laid down by this court in Abbot Laboratories and all other cases like it.
It is an attack upon the presumptive reviewability of agency action.
I do not think that the IRS intended to attack that for any other agency of government, but itself.
It says it is somehow different, but it has proffered no justification for making the Internal Revenue Service different from any other governmental agency.
Justice William H. Rehnquist: Well, how about, you say very little in your reply brief about our decision last spring in Warth against Seldin.
Now, do you not think that has some bearing on the case?
Ms Marilyn G. Rose: Yes, and I will -- if you like I will turn to Warth v. Seldin now, Your Honor, Mr. Justice Rehnquist.
Warth v. Seldin of course raises the question of standing to sue.
Plaintiffs are poor people who were denied healthcare, denied admission to hospitals by hospitals, which have been given 501 (c) (3) status.
And (Voice Overlap)
Justice William H. Rehnquist: Yours is kind of a house-of-jack bill type of causation.
The same is Warth as I see it, where it is not just a direct causation, but it is, if (a) had not done this, then (b) would have done this, then (c) would have done that and my people would have been okay.
It is a fairly attenuated kind of standing, is it not?
Ms Marilyn G. Rose: Mr. Justice Rehnquist, I disagree.
In Warth v. Seldin, in this Court found that the defendants there were not responsible for the inability of those people to find housing in Penfield, it was the marketplace that was at fault.
In this case, there is a federal statute, the charitable provision of the code, which is intended by Congress to meliorate the conditions of the marketplace, and what plaintiffs have said is, government you have aggravated our rights under that statute, it is very different.
Justice William H. Rehnquist: Was that statute intended to confer any discreet rights on your clients?
Ms Marilyn G. Rose: Oh! Yes, absolutely.
Justice William H. Rehnquist: Well, what is your authority for that?
Ms Marilyn G. Rose: I think the whole history of the reason for the charitable provision of the code, just as the charity in the charitable trust --
Justice William H. Rehnquist: Has this -- go ahead.
Ms Marilyn G. Rose: In fact, the defendants in their Treasury Regulation, when they start off to finding what is charitable, they say principally for the relief of the poor.
Justice William H. Rehnquist: Has this Court ever entertained an action of this kind where is that the claimed beneficiaries of a tax deduction as attenuated in situation as yours?
What is the closest case and point from this Court which you --
Ms Marilyn G. Rose: From this Court, I do not know of any case from this Court, there are lower Courts --
Justice William H. Rehnquist: I do not either.
Ms Marilyn G. Rose: Yes, the whole -- in 1930s there is a House report on the reason for the charitable provisions of the code, it is to lessen the burdens of government.
This is a classic statement.
It goes back to the charitable law of charitable trust where the reason, it goes back 1601, that charitable trust started was to take care of certain things for that the government, otherwise it will be obligated to do and the hear of the poor was always the primary consideration.
I think our plaintiffs are clearly within the zone of interest.
Justice Byron R. White: Well, that -- would that be in existent or without the letter from the Revenue Service, would these hospitals have served the poor?
Ms Marilyn G. Rose: Well, if, truly -- well, Your Honor, if the --
Justice Byron R. White: Suppose a hospital’s exemption have been revoked for failing to serve the poor --
Ms Marilyn G. Rose: Well, if a hospital --
Justice Byron R. White: How would that have helped you?
Ms Marilyn G. Rose: Well, well we are not seeking, this gets of course into the Americans, United and Bob Jones issues, we are not seeking whatsoever to have anything revoked with, except --
Justice Byron R. White: I understand that, I understand that.
Ms Marilyn G. Rose: If a hospital --
Justice Byron R. White: But you are saying -- you are saying that the modification of the rule permits the exemption despite the failure to serve charities?
Ms Marilyn G. Rose: Well, let me turn this around --
Justice Byron R. White: And if these hospitals have not served charities, they are, under the prior rule, their letters would have been revoked?
Ms Marilyn G. Rose: We presume that when the -- all through the years the Internal Revenue Service required service to the poor and hospitals would deem to be charitable, that they were obeying the law, the entire Internal Revenue Code --
Justice Byron R. White: But they were not required to do it?
They were not required under the law to do it?
It is just if they wanted to be a tax exempt, they did it?
Ms Marilyn G. Rose: If they wanted to be tax --
Justice Byron R. White: They did not break any law if they did not serve the poor?
Ms Marilyn G. Rose: If hospitals wanted to lose their tax exemption, but -- but that is mere -- that is a great degree of speculation.
There were thirty -- there are thirty-five hundred hospitals --
Justice Byron R. White: Upon whose side --?
Ms Marilyn G. Rose: Mr. Justice White, hospitals are tax-exempt, they not --
Justice Byron R. White: These days when the profit and loss statements of hospitals looks like different than they used to?
Ms Marilyn G. Rose: Well, Your Honor, may I state several different responses to that.
First, they would not only lose the power of how it be tax-exempt, but they would lose the contributions to them, and 60% of the construction money going into hospitals today is from charitable donations.
The American Hospital Association goes up to the hill, they make the statement.
It is in -- the appendix, the speech of the testimony of the American Hospital Association that charitable contributions to hospitals are what keeps hospitals going.
It makes the marginal difference.
Further, as amicus of Jackson County, Missouri, has pointed out in its brief that states follow what the federal government does.
And if a hospital decided it would rather not serve the poor, it could not be -- it would lose its tax-exemption, it would be paying thousands -- hundreds of thousands of dollars of taxes every year on the property on which it sits.
Justice Byron R. White: Well, I just thought you ought to be making the standing argument.
Ms Marilyn G. Rose: Okay, okay.
The standing and basically is -- the proposition is that poor, and I think in way, I have probably answered most of the standing argument.
We think Warth v. Seldin is not pertinent.
We think because this particular provision was designed to meliorate the conditions of the poor and it is the obligation of that statute that hospitals are not about to give up their tax-exempt status.
And three, the other, the last argument the government raised, well, I think they raised at first is this is prosecutorial and this is not prosecutorial, we are not seeking the prosecution of anybody.
We are seeking a revocation of a Ruling and the order of the District Court with which we would like reinstated is that this Ruling was invalid, hospitals have to give free service and that the notification be made to the public.
The Internal Revenue Service publishes its cumulative bulletin, and if hospitals in the future did not want to give free service, they could elect to be pulled-off that list, but until they are pulled-off the list, the public relies --
Justice William H. Rehnquist: How about immunity and the Anti-Injunction Act, you have come to those?
Ms Marilyn G. Rose: We -- the Anti-Injunction Act and the declaratory judgment provision are not pertinent.
This is not a case involving the assessment of collection of taxes of either the poor people themselves or of anybody else.
There is no other alternative for these people.
It is not a refund suit.
This is not like Americans, United trying to protect their contributors.
This has nothing to do whatsoever with the assessment.
And sovereign immunity, we believe has long been overruled in most respects, the government is arguing it that under Larson, this case is one exceeding statutory authority and this is clearly what the case is about.
Justice William H. Rehnquist: We do not rely on Scan, well, then you simply rely on Larson?
Ms Marilyn G. Rose: No we have the alternatives, if you dwell on Larson, if you find for some reason that the Larson does not apply them we are relying on Scamwel (ph) --
Justice William H. Rehnquist: Which is not a case in this Court.
Ms Marilyn G. Rose: No, the, it is the Court below, but basically we are saying that for cases that are APA cases, sovereign immunity no longer exists.
This does not mean there is not a sovereign immunity argument on property cases, damage cases, property held in the name of the United States, there is a still sovereign immunity argument, it just does not exist anymore, or Abbott Laboratories, Parlow (ph), Collins, and Data Processing are all overruled.
I think will save, thank you.
Chief Justice Warren E. Burger: Mr. Smith.
Argument of Stuart A. Smith
Mr. Stuart A. Smith: Mr. Chief Justice and may it please the Court.
The government’s position in this case simply is that published Revenue Rulings, such as the Revenue Ruling at issue here, do not present any issue for a Federal Court to review and in that holding to the contrary the decision of the Court of Appeals is erroneous.
And before discussing in detail, the various jurisdictional barriers that we think exist in this suit, I think it would be important for the Court to have before it what the essential nature of a Revenue Ruling is.
Because in our view that essential nature demonstrates that the jurisdictional holding of the District of Columbia Circuit in this case would require the Federal Courts to render judgments in the most abstract contexts.
Now, each year the Internal Revenue Service, pursuant to its statutory authority under Section 7805 of the code, issues some forty-thousand advanced letter rulings.
These advanced letter rulings set forth its opinion of the federal tax consequences of specific proposed transactions.
Justice Potter Stewart: And those are private --
Mr. Stuart A. Smith: And those are private.
Justice Potter Stewart: Sent to an individual, in response to an individual inquiry?
Mr. Stuart A. Smith: Exactly.
Justice Potter Stewart: And few of those are later published?
Mr. Stuart A. Smith: A few of those are later published anonymously.
And of those forty-thousand the service selects and edits several hundred for publication in its Internal Revenue Bulletin, in a more abstract and anonymous form.
Now, the introduction to the Internal Revenue Bulletin on the first page has long stated that such Rulings do not have the force and effect of law, but are informational in character only and represent the conclusion of the service as the application of the tax law to what is often an abbreviated set of facts.
Now, this Court in the Dixon case and many other cases has underscored and ratified that statement in a cumulative bulletin that these Rulings are simply guidelines for IRS personnel and to educate the public general, and it had --
Justice Potter Stewart: How are these disseminated and published --
Mr. Stuart A. Smith: Well, Mr. Justice Stewart --
Justice Potter Stewart: -- law officers have reached --
Mr. Stuart A. Smith: Every two weeks the Internal Revenue Service I think publishes a, something called the Internal Revenue Bulletin, and then every six months or so those are bound in what is known a cumulative bulletin, and those are distributed to people, officers of the Internal Revenue Service and people generally who are interested in the development of the tax law.
Justice Potter Stewart: And private tax lawyers can subscribe to it --
Mr. Stuart A. Smith: Private tax lawyers can subscribe, exactly and indeed anyone can subscribe (Voice Overlap)
Justice Potter Stewart: You pay a fee and you get it directly from the Internal Revenue Service?
Mr. Stuart A. Smith: Yes.
Now, these Rulings contribute to have a salutary aim.
They contribute to uniformity of interpretation because as I think the Court is well aware, it would be unfortunate of it two Revenue Agents in different districts were to apply the tax lax law according to their best likes but coming out with a different results on what is an identical set of facts.
Chief Justice Warren E. Burger: And they do that occasionally in spite of the bulletin --
Mr. Stuart A. Smith: Mr. Chief Justice, we try our best, the Internal Revenue Service tries its best, but often mistakes are made.
Chief Justice Warren E. Burger: Have a lot of them to deal with?
Mr. Stuart A. Smith: Yes, and that these Internal -- -this Revenue Rulings are an attempt to mitigate and minimize those unfortunate instances.
In any event, these Revenue Rulings, these contribute to uniformity of interpretation and in our view contribute to the stability of the tax law by reducing controversies between the Internal Revenue Service and taxpayers because as I think the Court is well aware, taxpayers, many taxpayers do not like to litigate with the Internal Revenue Service.
They would prefer to have an advance notice of what its position might be on a particular set of facts, and this educational program increases stability and reduces litigation and the intended burdens on the Federal Courts.
Now, the format of the Ruling, of a Revenue Ruling is essentially a statement of facts and it is often abbreviated with a brief conclusion as to what the federal tax consequences of those facts are.
And the important thing is that the Internal Revenue Service does abbreviate a Revenue -- the facts in publishing a Revenue Ruling, because when a taxpayer makes a submission to the Internal Revenue Service, he makes a submission with a voluminous statement of facts.
But the Internal Revenue Service when it -- if it may select this particular letter ruling for publication, it will boil this down and essentially present the statement of facts which is designed to illustrate a particular legal principle that it feels as of general interest.
Justice Harry A. Blackmun: Is it not the, is it still true today as I think it was a hundred years ago (Inaudible) a revenue rule is maybe with an exception or two about the lowest form of animal life in the formal weight of the rulings --
Mr. Stuart A. Smith: I think that so, Mr. Justice Blackmun.
The Courts, of course this get into the argument about notice and hearing requirements, but they are not binding on the Courts.
In fact there are scores of cases which hold that it is simply a statement of what the Internal Revenue Service thinks the law is.
Justice Harry A. Blackmun: I know, we always hopefully look for a TD or something of a little --
Mr. Stuart A. Smith: Oh! Absolutely, that is a higher from of tax life, there is no doubt about that.
Justice Potter Stewart: And the one we are talking about here appears begins on 6A of the appendix to your brief, is it not?
Mr. Stuart A. Smith: Exactly, that is Revenue Ruling 69-545.
Now, this Ruling itself demonstrates the hypothetical quality of what the plaintiffs are seeking -- or hypothetical quality of the relief they are seeking, because as the Court can readily see in perusing this Revenue Ruling, it sets forth two polar situations, situation one and situation two dealing with two hospitals, hospital (a) and hospital (b).
Hospital (a) there are variety of facts in connection with -- hospital (a) has an open Board of Trustees.
It gives open staff privileges.
It is involved in research and educational activities.
It maintains a full-time emergency room and no one requiring emergency care is denied treatment.
To the contrary, hospital (b) is almost proprietary in nature.
It is owned by a small group of doctors.
They limit the staff of privileges to people they know and they comprise the medical committee generally to keep out qualified physicians, so etcetera-etcetera and it does not have -- it maintains an emergency room, but basically to treat the patients of its own doctors.
Now, these two polar examples were designed to educate the public generally and hospital administrators as to clear-cut situations.
Hospital (a) is a situation, if you like hospital (a), you will be -- you will be fairly certain of exemption, but of course the Ruling does conclude that you cannot be certain of that itself.
You have got to yourself submit an application for exemption to the Internal Revenue Service.
If you like hospital (b), which is a polar example of hospital that does not seem to provide any community benefits.
It seems to be run pretty much strictly for the private inurnment of its owner-doctors.
In those situation -- in that situation you are not going to get a tax exempt status.
Now, the important thing, which we emphasize, is that the Ruling does not even begin to attempt to deal with the hundreds of gradations in between hospital (a) and hospital (b).
Hospital (a) assuming for a moment that -- that it does not treat people -- that does not give free care to the indigents on a broad scale, although let us say it dropped its emergency room requirement -- emergency room completely for let us say the particular example that it may be engaged in treating cancer patients or a particular kind of decease.
Under those circumstances an emergency room would be relatively -- would be superfluous because such a hospital would rarely have need for an emergency room or for example a consortium of hospitals in a particularly community could get together and one could say, we will have the emergency room, you have the nursing school, and the third --
Justice Byron R. White: Mr. Smith, you are not suggesting that the issuance of this Revenue Ruling, it was not a rather substantial event?
Mr. Stuart A. Smith: It was a substantial event, Mr. Justice White --
Justice Byron R. White: I mean the day before the law was not that hospital like that.
Hospital in type (a) would --
Mr. Stuart A. Smith: I do not -- I am not sure that is right, because although the plaintiffs cite many cases for the preposition that the pre-care requirement was an absolute requirement, there is no reported decision and I have found one and there is no instance that I know about the Internal Revenue Service --
Justice Byron R. White: But I take it you are arguing the case is though, even assuming that that was the case?
Mr. Stuart A. Smith: Even assuming that was the case, that there was --
Justice Byron R. White: That the Revenue Service at the moment it issued that ruling was then applying the Revenue laws completely different than it had before.
Now, you are arguing the case on that basis, are you not?
Mr. Stuart A. Smith: That is right.
Now, it seems --
Justice Potter Stewart: And in fact that was the understanding of the tax bar pretty much, was it not?
Mr. Stuart A. Smith: It was the understanding of the -- it was the understanding (Voice Overlap)
Justice Potter Stewart: (Voice Overlap)
Mr. Stuart A. Smith: Although quite frankly, I think if the decisions that the plaintiffs cite of the Court of Appeals indicate that there really is, there was no instance in which the Internal Revenue Service revoked the tax exemption of a hospital solely because they denied free care to the indigent.
Justice Potter Stewart: May I ask, now that I have interrupted you, this involves the -- the tax benefit that a donor or a hospital as a donee or legatee as well as its hospitals own income, does it not --
Mr. Stuart A. Smith: That is right.
Justice Potter Stewart: Both (Voice Overlap)
Mr. Stuart A. Smith: That is right, the deductibility of contributions, or the state tax --
Justice Potter Stewart: They go together?
Mr. Stuart A. Smith: Yes, yes, they do.
Justice Potter Stewart: Thank you.
Mr. Stuart A. Smith: Now, given the fact that this Ruling that is under challenge here just presents these two hypothetical polar examples, I think it is important to point that if a particular hospital decided that it did not need an emergency room for a particular -- for particular reason because of its own mode of operation, it would not necessarily have been denied of tax exemption by the Internal Revenue Service, and that to us demonstrates the hypothetical quality of this suit because this Ruling came up, or was published on an abbreviated set of facts.
Hospital (a) indeed no other hospital is before this Court to present its own set of facts, and indeed each hospital continues to remain free to litigate its own right through exemption on its own facts.
Justice William H. Rehnquist: No hospitals were parties to this action at all?
Mr. Stuart A. Smith: No hospitals were parties to this action at all, Mr. Justice Rehnquist, and to us this demonstrates an important point --
Justice William H. Rehnquist: Well, do the government ever move to dismiss the action on the basis of failure to join indispensable party?
Mr. Stuart A. Smith: No we do not regard the hospital as an indispensable party within the technical meaning of the Federal Rules of Civil Procedure, but --
Justice William H. Rehnquist: Well, why do you not?
Mr. Stuart A. Smith: Well, simply because -- well, I do not think -- I think that if a hospital had been joined as a party, then I think we would essentially be faced here with whether a particular -- that particular hospital’s exemption should be -- should continue to stand on.
I think the important thing--
Justice William H. Rehnquist: Well, but now that-that -- that is not --
Justice Thurgood Marshall: (Voice Overlap) hurt is the hospital?
Mr. Stuart A. Smith: The only person that might get hurt -- the only entity that might get hurt is the hospital --
Justice Thurgood Marshall: And that does not make them a indispensable party?
Mr. Stuart A. Smith: It makes them an indispensable -- it makes them an indispensable party, but the jointer of one, two, three or indeed a dozen hospitals would not -- would not solve the tag -- would not create a broad rule, which would be applicable to the hospitals generally because each hospital continues to remain free to litigate its own right to an exemption on its own particular facts.
And to us that demonstrates that this suit really is tantamount to asking a Federal Court to render an advisory opinion, because if Federal Court says the emergency room requirement is no good, reinstate the old ruling, what would left -- what essentially you are left with is a pronouncement which has no pertinence to any particular hospital --
Justice Byron R. White: What you are saying is it is not a case of controversy?
Mr. Stuart A. Smith: Essentially, it is not -- it is not a concrete case, which wants a decision by a Federal Court.
Justice Potter Stewart: What motions did you file?
Mr. Stuart A. Smith: What did you say?
Justice Potter Stewart: What motions did you file, did you --
Mr. Stuart A. Smith: We filed the motion, essentially the position that we advance here was advanced in the lower courts, we moved to dismiss for a lack of standing, for because --
Justice Byron R. White: Because the state has cause of action --
Mr. Stuart A. Smith: -- state cause of action for that this suit comes within tax exemption of the Declaratory Judgment Act that is not appropriate for judicial resolution.
Justice Byron R. White: So you filed motions to dismiss, basically?
Mr. Stuart A. Smith: Yes and the District Court denied the motions to -- the motion to dismiss --
Justice Byron R. White: Then you filed a motion for judgment on the --
Mr. Stuart A. Smith: Yes.
Justice Byron R. White: -- for judgment?
Mr. Stuart A. Smith: Yes, and the District Court -- essentially the District Court decided that it had jurisdiction, held the Ruling invalid, and granted broad -- you know the broad declaratory relief that the plaintiffs seek.
The Court of Appeals held that the Federal Court had jurisdiction, but held the Ruling to be valid.
Justice William H. Rehnquist: Supposing the District Court had been affirmed by the Court of Appeals, would that have had financial consequences to hospitals?
Mr. Stuart A. Smith: It may had have financial consequences to some hospitals, but it is entirely unclear as to how many.
If any hospitals would have -- would have had -- would have been -- would have suffered detriment.
The point is that each hospital continues to remain free to litigate its own, its own right to a tax exemption.
Indeed in hospital (a) in this case, as the ruling demonstrates, was involved in education and research activities.
It may well be that if it decided to drop its emergency room, as I have said for one reason or another for because it was inappropriate to its activities, it still would have a right to an exemption and it could have pressed its case before the commissioner and before a federal court, either the tax court or a district court.
Justice William H. Rehnquist: So from the indispensable parties’ point of view, the only answer that would have been to enjoin to every single hospital that pays taxes in the country?
Mr. Stuart A. Smith: Exactly, and that to us demonstrates, you know, the hypothetical and abstract quality of this suit.
It does not attempt to solve anything of general import, and a revenue ruling does not attempt to solve anything of general import.
It simply a published statement on abbreviated facts of the Internal Revenue Service, boiled down which attempts to educate the public about general Internal Revenue Service positions.
Now, I think the point about joining every hospital in the country is important because essentially Congress has the determined that the tax jurisdiction of the Federal Courts is limited to deficiency suits and refund suits.
And the reason for that essentially, is because the Court’s cannot decide cases, much less tax cases, on anything but a full presentation of all the facts.
Here we have an abbreviated set of facts, and essentially for a court to render judgment about hospital (a) and other similarly situated hospitals may not in fact very many if any hospitals at all.
Justice Thurgood Marshall: Mr. Smith, one thing that is not clear to me, if this letter is declared out, what does it change if anything?
Mr. Stuart A. Smith: If this letter is declared out, it change -- I do not -- it change, it seems --
Justice Thurgood Marshall: What would it change, it would not change anything, would it?
Mr. Stuart A. Smith: It would not change a tax liability of any hospital.
Chief Justice Warren E. Burger: I suppose that is why you are saying it should have not -- no judgment would have entered in the first place?
Mr. Stuart A. Smith: Exactly, exactly, this is really an, you know, a request for an abstract decision on an abstract set of facts.
Justice William H. Rehnquist: Well but if, if it turns on your answer to Mr. Justice Marshall’s question, then if the ruling would have changed the liability of some hospital, would your answer then be different?
Mr. Stuart A. Smith: No, my answer would not be different, simply because as we have point out at great length in our brief, we do not think that third parties -- we do not think that the Internal Revenue Code confers a private right of action on non-taxpayers to contest the tax liability of any particular -- of any particular person.
And I think that is important here because I think essentially that is what -- that is what is lurking behind this suit.
The plaintiffs have said that this suit essentially, simply involves the editing and the rewriting of a Revenue Ruling of general application and they trust the system to alter hospital conduct.
Now, we -- taking that at face value I think that the simple answer to that is that really makes this an abstract case.
Simple because of the internal -- if they are not interested in Internal Revenue enforcement, with respect to any particular hospital or group of hospitals, then essentially they are asking the federal courts to rewrite Revenue Rulings which are the province -- which is the province of the commissioner where there may be no effect at all, or they proffer interest in that effect.
Justice Byron R. White: You would not let them into any suit at anything with respect to whether a hospital was exempt or not?
Mr. Stuart A. Smith: I would not let -- that is right, we do not think --
Justice Byron R. White: So that this particular group or poor people generally who would like free service cannot litigate, as far as you are concerned, the exemption or non-exemption of hospitals?
Mr. Stuart A. Smith: Exactly, anymore than (a) cannot litigate the propriety of a ruling given to (b) if he does like (b) if he thinks (b) is a competitor of his, if he thinks that for one abstract reason or another that the Ruling was incorrect.
The Internal Revenue simply does not confer private rights of action on citizens generally to challenge the packs consequences that the Internal Revenue Service conferred on a private party.
I think that is -- I think that is absolutely well settled.
I think that the Court if there is a decision, which is in point on this -- of this Court, it seems to us that it is Louisiana versus McAdoo, which the plaintiffs here had dismissed as overruled.
That decision has not been overruled, there the State of Louisiana, which was itself engaged in the production of sugar, brought a suit against the -- filed a motion for leave to file a bill of complaint in this court in an original action to force the Secretary of the Treasury to increase the quotas, the duties on imported sugar.
It as a producer of domestic sugar felt pampered and fina -- that -- that, those Rulings were operated to its financial determent, and the Court simply said that that kind of action, it dismissed it without considering the merits, would operate and disturb the whole revenue system of the government, and that the Court’s role in such a case would be to interfere with the very function of government.
And if another decision which we think is virtually on point is the Dorsheimer case which was rendered by this Court over --
Justice Byron R. White: Can anybody, can any person that you know of challenge the, an exemption letter?
I am sure if you cancel one, the fellow who letter has canceled can litigate with you, but how about the other way?
Mr. Stuart A. Smith: No.
Justice Byron R. White: So that if you want to grant an exemption letter, whether it conforms to the statute or not you are home free?
Mr. Stuart A. Smith: Well, Mr. Justice White --
Justice Byron R. White: No, yes or no, is the (Voice Overlap)
Mr. Stuart A. Smith: The answer is yes, but the -- but that has been a decision of Congress to confer this, the power to administer the tax laws and the commissioner of Internal Revenue, and --
Chief Justice Warren E. Burger: Some Congressman becomes aware of this, gets exited or not he could embark on some kind of an investigation or inquiry, could he not?
Mr. Stuart A. Smith: Indeed, Mr. Chief Justice, a simple letter to the Internal Revenue Service, I have found by member of Congress elicited a very prompt response.
Chief Justice Warren E. Burger: And if it does not then they can go on with congressional inquiry?
Mr. Stuart A. Smith: Absolutely, and they can enact legislation.
And if particular public officials have acted in a way that the Congress thinks is improper, the Congress can seek to call in before investigating committees, indeed you know recent --
Chief Justice Warren E. Burger: They do not sometimes, do they not?
Mr. Stuart A. Smith: They do that, in fact the present incumbent commissioner of Internal Revenue has been before Congress some twenty-nine times in the last year.
Congress has exhibited a very detailed interest in both substantive tax law and in the administration of the revenue laws.
It seems to us there was just some things that the Courts do not get into, and one of them is the administration of the tax laws as the commissioner sees fit.
This to us dates back to the Second Congress when -- when in 1792, Congress enacted a provision saying that the Secretary of the Treasury shall enact, shall direct the collection of taxes, which were then internal taxes, as he shall judge best.
And that the present code follows through on that, grants a number wide discretionary powers to the Secretary of the Treasury and his delegate, the Commissioner of Internal Revenue, to publish rules, make assessments, bring civil actions and those -- that authority is explicitly and solely conferred in these public officials.
The Internal Revenue code does not confer any private rights of action in those -- in those cases.
And indeed, as I was saying, the Dorsheimer case, it seems to us is another case, which a hundred years ago this Court was faced with a situation where a collector of the Internal Revenue and they -- and two informants brought a suit against the United States urging that the Secretary of the Treasury improperly waived the penalty in a particular liquor tax violation case.
And they were indeed hurt because at that time, they had it then, they had an existing right to a -- to part of the -- part of the proceeds of the penalty.
They felt that they should -- that penalty should have been enforced and they would have gotten more money and the --
Chief Justice Warren E. Burger: Would the Dorsheimer case would go of on standing or on --place of controversy?
Mr. Stuart A. Smith: Mr. Chief Justice, it is very hard to know how that case went off.
The Court simply said with respect to the digression of the Commission -- of the Secretary of the Treasury it was the exercise of his discretion in matter and trusted to him alone, and from which there could be no appeal.
I suppose the Court said that there really was not the case for the Court to consider.
This was something that Congress had given this public official sole discretion to do and you cannot appeal from that sort of thing.
And today and indeed the Internal Revenue Code provides for discretion of the Commissioner of Internal Revenue to settle cases.
If a case is settled and some third party does not like the way it was settled, there is no course of action to come into the federal courts --
Justice Byron R. White: Instead audit somebody and allow the depreciation deduction and nobody can really challenge it?
Mr. Stuart A. Smith: Exactly, exactly.
And it seems to us that Congress has made a decision that these particular public officials, they may make mistakes from time to time, but the presumption is that they are upgrading sincerely in accordance with their best likes.
The tax law is hard, but the Internal Revenue Service is staffed by people who have a good deal of expertise in this matter and the Courts are not going to second guess them in this context.
Justice William J. Brennan: Mr. Smith, these Rulings are subject, are they not at any time of revocation?
Mr. Stuart A. Smith: Of course.
Justice William J. Brennan: And even when revocation may affect a given taxpayer?
Mr. Stuart A. Smith: Indeed, the Internal Revenue Service reserves the right to revoke something retroactively and it generally only does it when there is an omission of the material fact, but he can do in this Court and Dixon and American Automobile Association has said that he can do it.
And Mr. Justice Brennan, that brings up another point about --
Justice Thurgood Marshall: That can be tested in the chartable case by the contributor, can he?
Mr. Stuart A. Smith: That can be tested in the charitable -- yes, as the Court have indicated in Bob Jones.
Justice Thurgood Marshall: But in the other case where a guy is in some corporation or foundation has violated his exemption, nobody can do anything about that, but the Commissioner?
Mr. Stuart A. Smith: Exactly, of course the public has a right to bring the matter to the attention of the Commissioner.
Justice Thurgood Marshall: But no legal action could reach it?
Mr. Stuart A. Smith: Absolutely, in the same way that as we point out in our brief.
If somebody feels somebody is involved in an unfair labor practice and contacts the general counsel of the Labor Board and he disagrees, that is the end of the matter.
You cannot sue to compel the general counsel of the Labor Board or the Federal Trade Commission or may other agencies and ask them to commence proceedings against private parties.
Congress has vested discretion in these officials alone to enforce those statutes.
I want to mention one other thing, and sort of as a concomitant to what my discussion with Mr. Justice Brennan, and that is these injunction -- the -- the difficulties engendered by this kind of injunctive actions could sue in this case are illustrated by what happened after the District Court’s judgment came down.
The District Court voided the Revenue Ruling and enjoined the Commissioner from taking any action consistent with it then of course the government appealed.
Of course, during that -- of course during that time, too many hospitals were anxious to have their tax status clarified.
Contributors who are anxious to have their deductions clarified.
Municipal bond issues were pending as to whether exempt -- hospitals were tax exempt.
The government applied for a stay to the District Court of its decision in order to allow at least until the matter was resolved throughout the courts to have its policy continued to be extent.
The District Court denied the stay, the Court of Appeals denied the stay.
Essentially for six or eight months the matter was in complete limbo.
The Commissioner had no idea how to enforce the law at all and it seems to us that really demonstrates how these injunctive actions undermine the whole very salutary nature of the Revenue -- published Revenue Ruling Program which is to educate the public and if the public is in disarray, does not know what the answer is going to be, and the Commissioner is time being by Court orders in a normal case where a ruling is once -- if let us say a ruling is approved by a District Court as it was ultimately by the Court of Appeals here and let us say for one reason or the another the Commissioner wants to modify it as he --
Justice William H. Rehnquist: Mr. Smith, can the Commissioner or the secretary be sued in any one of the ninety-three judicial districts?
Mr. Stuart A. Smith: I think so simply because he has -- you know the Internal Revenue District office is there, so I would think that he could --
Justice William H. Rehnquist: So you know, it is not just a question of litigation in the District of Columbia Circuit I think?
Mr. Stuart A. Smith: I think that is probably right --
Justice William H. Rehnquist: Bob Jones came up out of the Fourth Circuit, did he not?
Mr. Stuart A. Smith: Right, yes, Bob Jones came up through the District Courts, yes.
Right, the point I was -- the final point that I was going to make was essentially if a ruling were approved and the Commissioner wanted to modify it in some way, presumably would have to go back to the District Court that approved it by an injunctive order to get permission to modify it otherwise he would be in contempt to that court order.
The tax law simply cannot be administered that way, we submit, and [Laughter]
Justice Byron R. White: It did not came out of this?
Mr. Stuart A. Smith: The reasons we have set forth probably at two greater length than our brief --
Justice Byron R. White: Can you say that again [Laughter]
Mr. Stuart A. Smith: We submit that the judgment of the Court of Appeals be reversed and remanded to the District Court for an entry of judgment dismissing the complaint for lack of jurisdiction.
Chief Justice Warren E. Burger: Thank your Mr. Smith, and Ms. Rose, your time is up Ms. Rose.
Rebuttal of Marilyn G. Rose
Ms Marilyn G. Rose: My time is up?
Chief Justice Warren E. Burger: Do you have something factually to raise other than the argument, we will give you a moment.
Ms Marilyn G. Rose: May I make one statement of fact.
There are over twelve-thousand lawsuits that are brought every year involving Revenue Rulings by -- on refund and deficiency situations, and that is where uncertainty may lay if there is uncertainty.
The half a dozen suits in five years do not brace uncertainty.
Chief Justice Warren E. Burger: Thank you Ms. Rose.
The case is submitted.