Monday, August 26, 2013
In November 2012, the Freedom From Religion Foundation filed suit against the IRS seeking an injunction to make the IRS enforce the 501(c)(3) political activity limitation against churches (a lot of folks, including me, have commented in the past on the IRS's lack of enforcement of this prohibition, which apparently is at least partly related to the IRS's failure to designate an appropriately-high-level official to institute church audits per Section 7611 of the Code after having lost litigation over this issue in 2009).
But this time I'm not commenting about the substance of all this. Instead, the interesting part of this case so far is that the federal district court refused to dismiss the case for lack of standing. Last March, I posted on the general rules for standing in tax cases in the context of a different lawsuit (one filed by Citizens for Responsibility and Ethics in Washington and David Gill) dealing with IRS enforcement of its exemption standards under 501(c)(4). The FFRF suit, however, raised the question of enforcement in the 501(c)(3) context.
FFRF's complaint is available here. In essence, FFRF claims that the IRS's non-enforcement of the political campaign prohibition in 501(c)(3) constitutes both an illegal "establishment" of religion and also discriminates against FFRF (which is not a religious organization) in violation of its constitutional rights of equal protection. Predictably, the IRS moved to dismiss the complaint for lack of standing (the motion to dismiss is available here). In its motion, the IRS argued (correctly, in my view) that FFRF lacked standing because it failed to allege any particularized injury - in essence, FFRF was complaining about the IRS's treatment of other taxpayers, not its treatment of FFRF. For example, FFRF did not allege that the IRS had enforced the political campaign limit against FFRF, thereby putting it at a disadvantage vis-a-vis churches. Instead, FFRF simply asserted that it complies with the law, churches don't, churches don't get hammered for noncompliance and that state of affairs is an equal-protection violation.
If you had asked me about the chances of FFRF surviving a motion to dismiss based on standing when the complaint was filed, I wouldn't have given a wooden nickel for such chances. Shows what I know - because in an opinion released last week, the district court upheld FFRF's standing to sue and permitted the case to proceed. I find the opinion curious in many respects, not the least of which is that it doesn't discuss or cite Abortion Rights Mobilization v. U.S. Conference of Catholic Bishops, 885 F.2d 1020 (2d Cir. 1989), which presented a very similar claim (and in which the Second Circuit denied standing). Nor does the opinion reference the Supreme Court's decision in DiamlerChrysler v. Cuno, 547 U.S. 332 (2006) which discussed the taxpayer standing doctrine at some length. But I should note that the IRS brief on its motion to dismiss didn't cite these cases either, so maybe this is yet another case of poor lawyering leading to bad judicial decisions.
While I certainly sympathize with FFRF's substantive position on this matter, I believe the district court got the standing issue wrong. I suspect an appeal is forthcoming (though one of my colleagues who specializes in standing issues tells me that an interlocutory appeal on this issue would be difficult). I'm going to go out on a limb and predict that FFRF eventually will lose the standing issue (but I'd just note that I was also one of many who pooh-pooh-ed commerce clause objections to Obamacare, so don't go betting your house, or even a beer, on my predictive capabilities).
(Hat tip to Ellen Aprill)