December 10, 2011
EOs & Political Activities: Just Can't Seem to Get Their Day in Court (9th Circuit & 11th Circuit)
In the past six months, two prominent cases involving tax-exempt organizations challenging the IRS with respect to political activities have quietly died, although at least one has a faint hope of revival. Together, they reinforce the impression that the IRS is carefully avoiding litigating close or even semi-close cases involving the limitations on political activities for tax-exempt organizations.
Last June, the U.S. Court of Appeals for the 9th Circuit rejected the appeal of Catholic Answers from a district court's dismissal of its tax refund suit for mootness. Catholic Answers was challenging the IRS' decision to revoke its tax-exempt status under IRC § 501(c)(3) on the grounds that the standard for what constitutes prohibited political campaign intervention for C3 groups is void for vagueness. Catholic Answers has filed a petition seeking certiorari with the Supreme Court, but I believe the chances of success for that petition are slim to none for the reasons stated here.
More recently, the Christian Coalition of Florida (remember them? so 1990s) lost its appeal to the U.S. Court of Appeals for the 11th Circuit challenging the dismissal of its tax refund suit for mootness after the IRS refunded the disputed taxes. The IRS had imposed those taxes based on the assertion that the organization did not qualify for IRC § 501(c)(4) because of excessive political activity. Here is the court's summary of the case:
Christian Coalition of Fla. (“CC-FL”) appeals the district court’s dismissal of its tax refund suit for mootness. Shortly after the litigation began, the Internal Revenue Service (“IRS”) refunded the disputed taxes in full. CC-FL claims, however, that a live controversy still exists because it is also seeking declaratory and injunctive relief in order to obtain a favorable determination of its tax-exempt status. CC-FL claims that the failure of the IRS to recognize CC-FL as a tax-exempt organization has collateral consequences that prevent the tax refund from rendering this case moot.
After thorough review, we AFFIRM the judgment of the district court. Filing a claim for a tax refund suit is not simply a procedural hurdle that, once leapt over, allows a party to seek other forward-looking relief against the IRS after the refund has been granted. Without a live refund claim, there is no way to distinguish this case from the kind of pre-enforcement suits that Congress, through the Anti-Injunction Act and the federal tax exemption to the Declaratory Judgment Act, has expressly forbidden taxpayers from bringing.
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