Ecclesiastical Order of the Ism of Am, Inc. v. Internal Revenue Service

725 F.2d 398

• Court: Court of Appeals for the Sixth Circuit
• Decided: January 18, 1984
• Docket: No. 82-1401
• Status: Published

Opinions

ALLEN, District Judge.

This is an appeal from the judgment of the district court dismissing the complaint, amended complaint and first amended complaint filed by the appellants in that court. The pleadings filed by the appellants allege, in substance, that jurisdiction is predicated on 28 U.S.C. §§ 1331(a), 1343(4), 1361, 2201, and 2202; 42 U.S.C. § 1985(3); 5 U.S.C. § 702, and the First and Fifth Amendments to the Constitution.

Appellant Ecclesiastical Order of the ISM of AM (Ism of Am) alleges that it is a Michigan Ecclesiastical corporation operated exclusively for religious purposes. The two individual appellants are alleged to be ministers of the appellant church.

The pleadings go on to state that the Internal Revenue Service (IRS) has issued notices to the individual appellants stating that the Ism of Am is not a church for federal income tax purposes and is not operated exclusively for religious purposes. It is also alleged that an individual appellant has been informed that his charitable contributions to the Ism of Am will be disallowed. That allegation is followed by one that the appellant organization is automatically exempt from taxation as a bona fide church. Appellants go on to allege that the disallowance of contributions to the church will jeopardize its ability to survive.

Then follows an allegation that appellants are being deprived of their right to free exercise of their religious belief by reason of the IRS’s disallowance of charitable contributions on the purported grounds that appellant and other mail order ministries are not eligible as religious organizations for tax exemption treatment. Appellants then allege that this characterization of their organization is a deprivation of their rights under the First and Fifth Amendments and also constitute an unconstitutional attempt by the IRS to establish a religion. Other allegations which appear in the pleadings add nothing except for an assertion that the appellees’ actions in wrongfully identifying the Ism of Am as a mail order ministry have acted as a “Bill of Attainder.”

In addition to these allegations made in the original complaint, the amended complaint and first amended complaint, allegations are made that unknown agents of the IRS designated as “John Doe” and “Mary Roe” have indulged in unconstitutional activities against the appellants to their damage in the amount of $5,000,000.

The prayer in the pleadings requests a declaratory, judgment that the conduct of the appellees violate the First and Fifth Amendment rights of the appellants and are beyond the authority of the IRS. In addition, the prayer requests a preliminary and permanent injunction enjoining appel-lees from engaging in activities declared to be unconstitutional and illegal. Next follows a prayer for $5,000,000 damages and one for attorneys’ fees. A request for mandamus relief was previously dismissed with the consent of the appellants.

District Judge Julian A. Cook, Jr., in an oral opinion, dismissed the pleadings upon three grounds. The first ground was that the Anti-Injunction Act, 26 U.S.C. § 7421(a), and the Declaratory Judgment Act, 28 U.S.C. § 2201, prohibit the granting of any relief to the appellants. The second ground was that the United States, acting through the IRS, was immune as a sovereign from any suit of this nature by taxpayers. The third ground was that the appellants had not named any specific individuals as defendants and that the failure to do so was fatal to any claims against these unknown defendants.

This Court agrees with Judge Cook’s decision which dismissed the claims of the appellants upon the grounds that to allow them would be to violate the Anti-Injunction Act and the Declaratory Judgment Act. Therefore, it is not necessary for the Court to reach the question of whether or not the appellees were entitled to a judgment of dismissal on the grounds of sovereign immunity, or otherwise.

Title 26 U.S.C. § 7421(a) provides as follows:

... no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person, whether or not such person is the person against whom such tax was assessed.

The Declaratory Judgment Act, 28 U.S.C. § 2201, provides:

In a case of actual controversy within its jurisdiction, except with respect to Federal taxes .. . any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration....

Appellants argue that they do not seek to restrain the collection of a tax, that they seek instead to restrain the IRS from allowing deductions to persons contributing to “church-type” institutions. Examination of appellants’ amended complaint, however, compels us to conclude that, from the face of the complaint, appellants seek only to obtain tax-exempt status, and thus the restraint of the collection of taxes from contributors to the Ism of Am. In its complaint, appellant, Ism of Am, alleges that, contrary to the IRS’ contention, it owes no taxes since it falls within the exemption for organizations operated for religious purposes. It claims injury in that the IRS’ actions have deprived it of unknown sums of money by denying deductions to potential contributors. Appellants argue that the denial of tax-exempt status to the Ism of Am is unconstitutional, since “church-type” organizations are granted such status. See Complaint at Iffl 5, 8, 23, 24, 28, and 33. A later amendment to their complaint, however, seeks to have 26 U.S.C. § 170(b)(l)(A)(i) declared unconstitutional, and this is the basis for appellants’ assertion that they do not seek to enjoin the collection of taxes. Section 170(b)(l)(A)(i), however, provides only for a limitation on the percentage of a taxpayer’s income that may be deducted as a charitable contribution to a church.¹ It does not create the “church” deduction-contribution which is sought by appellant; if it were declared unconstitutional, this would merely result in there being no percentage limitation on the contributor’s deduction for the type of contribution defined in 26 U.S.C. § 170(c)(2)(B). Appellant in effect seeks restraint on limiting deductibility of a charitable contribution to a defined entity.

The clear effect of appellants’ action, however, is to enjoin IRS, directly or indirectly, from collecting federal taxes in respect to the operations of the Ism of Am, and from those who make contributions to that organization and seek to reduce their taxes by so doing. The trial judge was correct in denying relief accordingly on grounds of the Anti-Injunction Act as well as by way of denying Declaratory Judgment relief.²

In Bob Jones University v. Simon, 416 U.S. 725, 94 S.Ct. 2038, 40 L.Ed.2d 496 (1974), the question presented was “whether, prior to the assessment and collection of any tax, a court may enjoin the Service from revoking a ruling letter declaring that petitioner qualifies for tax-exempt status and from withdrawing advance assurance to donors that contributions to petitioner will constitute charitable deductions under §§ 170(c)(2), 26 U.S.C. § 170(c)(2).” See 727, 94 S.Ct. 2041. The Supreme Court held that a court may not enjoin the Service in such circumstance.

[t]he pressures operating on organizations facing revocation of § 501(c)(3) status to seek injunctive relief against the Service pending judicial review of the proposed action conflict directly with a congressional prohibition of such enforcement tax suits.

416 U.S. 731, 94 S.Ct. 2043. As the Supreme Court also pointed out 416 U.S. 736, 94 S.Ct. 2046, the- Anti-Injunction Act contains language that “could scarcely be more explicit....” Following that statement, the Court reiterated its opinion that only upon proof of two factors could the liberal terms of the Anti-Injunction Act be voided — irreparable injury and certainty of success on the merits. This determination would be made upon the basis of the information available to the government at the time of the suit; citing Enochs v. Williams Packing & Navigation Co., 370 U.S. 1, 82 S.Ct. 1125, 8 L.Ed.2d 292 (1962).

In Commissioner v. “Americans United” Inc., 416 U.S. 752, 94 S.Ct. 2053, 40 L.Ed.2d 518 (1974), the respondents were treated as a tax exempt organization under 26 U.S.C. § 501(c)(3) from 1950 until 1969, when the Service issued a ruling letter revoking the 1950 ruling. The effect of the letter was to render respondent liable for FUTA taxes and to destroy its eligibility for tax deductible contributions under 26 U.S.C. § 170(c)(2). The respondents and two of its benefactors thereupon sought a declaratory judgment that the Service’s determination was erroneous or unconstitutional, and in-junctive relief requiring reinstatement of the 1950 ruling letter. The Supreme Court held as it did in Bob Jones University v. Simon, supra, and noted that “.. . a suit to enjoin the assessment or collection of anyone’s taxes triggers the literal terms of § 7421(a). See 416 U.S. at 760, 94 S.Ct. at 2058. The Court also noted that “... the constitutional nature of a taxpayer’s claim, as distinct from its probability of success, is of no consequence under the Anti-Injunction Act.” See 416 U.S. at 759, 94 S.Ct. at 2058.

In light of the Supreme Court’s holdings in Bob Jones University v. Simon, supra, and Commissioner v. “Americans United” Inc., supra, and the similarity between the pleadings of the appellants in those cases to those of the case before us, we reach the conclusion that the district court correctly dismissed the action for lack of jurisdiction under the Anti-Injunction Act, as well as under the Declaratory Judgment Act. “The federal tax exception to the Declaratory Judgment Act is at least as broad as the Anti-Injunction Act.” Bob Jones University, supra, 416 U.S. at 733, n. 7, 94 S.Ct. at 2044, n. 7. See also “Americans United” Inc. v. Walters, 477 F.2d 1169 (D.C.Cir. 1973), reversed on other grounds, 416 U.S. 752, 94 S.Ct. 2053, 40 L.Ed.2d 518 (1974). It should be added that the appellants’ pleadings fall short of meeting the criteria set out in Enochs v. Williams Packing & Navigation Co., supra.

We have recently been furnished with an opinion by the Tax Court of the United States specifically holding that the Ism of Am, Inc. is not an organization which qualifies as a church for federal income tax purposes. See The Ecclesiastical Order of the Ism of Am, Inc. v. Commissioner, 80 T.C. No. 43 (May 2, 1983). Judge Tannen-wald has held in that Declaratory Judgment action that the Ism of Am is not operated exclusively for exempt purposes under § 501(c)(3) of the Internal Revenue Code, because it principally emphasizes and “advocates belief in the God of Tax Avoidance.” 80 T.C. No. 43, p. 3200. Such action in case of other claimed “religious” organizations has been affirmed. Parker v. Commissioner, IRS, 365 F.2d 792 (8th Cir.1966).

Finally, as to the unnamed appellees, it is observed that Bivens v. Six Unknown Named Agents of the Federal Bureau of Narcotics, 403 U.S. 388, 91 S.Ct. 1999, 29 L.Ed.2d 619 (1971), on remand, 456 F.2d 1339 (2d Cir.1972), authorizes a suit against unknown agents of the United States for acts which are in violation of the constitutional rights of a citizen. In light of that holding, and in light of the qualified immunity which agents of the IRS enjoy, see Butz v. Economou, 438 U.S. 478, 98 S.Ct. 2894, 57 L.Ed.2d 895 (1978), it would be improper to dismiss the case as to the individual unknown agents at this stage of the proceedings despite the vague allegations made against them in the pleadings.

For the reasons stated above, we Affirm the decision of the district court, except as to the damage claims against unknown agents which are hereby Remanded for further proceedings.

1 . 26 U.S.C. § 170(b)(l)(A)(i) provides:

(b) Percentage limitations.—

(1) Individuals. — In the case of an individual, the deduction provided in subsection (a) shall be limited as provided in the succeeding subparagraphs.

(A) General Rule. — Any charitable contribution to—

(i) a church or a convention or association of churches,

* * * * * if!

shall be allowed to the extent that the aggregate of such contributions does not exceed 50 percent of the taxpayer’s contribution base for the taxable year.

2 . The dissent contends that the Anti-Injunction Act and the Declaratory Judgment Act are inapplicable because declaring 26 U.S.C. § 170(b)(l)(A)(i) unconstitutional would result in the reduction of all deductions and a consequent increase in taxable revenues; thus, the prohibition against suit “for the purpose of restraining the assessment or collection of any tax” would not apply.

All cases cited by the dissent concern suits that would not, if successful, deny tax revenues to the government. That is not the situation in the instant case. Consequently, the premise of the dissenting opinion is incorrect, and the cases relied on by the dissent for that premise are inapposite to the issue presented in the case at bar.

In the instant case, if § 170(b)(l)(A)(i) were declared unconstitutional, it would result in restraining the government from collecting taxes on that portion of a contribution that exceeded 50% of the taxpayer’s contribution to a church for the taxable year. The dissenting opinion that invalidation of § 170(b)(l)(A)(i) would result in the denial of exemptions for all contributions to churches indicates confusion of this section, which only limits the deduction of such charitable contributions, with 26 U.S.C. § 170(c)(2)(B), which defines charitable contributions in relation to religious organizations.