[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR TH E ELEV ENTH C IRCUIT FILED
________________________
U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
No. 02-16283 December 24, 2003
________________________ THOMAS K. KAHN
D. C. Docket No. 00-00759-CV -RV-C CLERK
MO BILE REP UBL ICAN ASS EMB LY,
NATIONAL FEDERATION OF REPUBLICAN
ASS EMB LIES , et al.,
Plaintiffs -App ellees,
versus
UNI TED STA TES OF A MER ICA,
DAV ID P. Y ORK , et al.,
Defen dants-A ppellants ,
________________________
Appeal from the United States District Court
for the Southern District of Alabama
_________________________
(December 24, 2003)
Before AN DERS ON, BA RKET T and RO NEY, C ircuit Judges.
BARKE TT, Circuit Judge:
The United States appeals from a district court decision holding
unconstitutional section 527(j) of the Internal Revenue Code. This section
establishes strict disclosure requirements for any organization that declares itself a
“political or ganizatio n” und er section 527(i) in order to exemp t large po rtions of its
campaig n-related income from tax ation. Be cause w e believe th at section 5 27(j)
merely imposes conditions upon the receipt of a voluntary tax subsidy, we treat
that section as part of the overall tax scheme, subject to the Anti-Injunction Act, 26
U.S.C . § 7421 (a). We therefor e vacate th e decision of the dis trict court.
Cong ress enac ted 26 U .S.C. § 5 27 in 19 75 in or der to sh ield contr ibutions to
political or ganizatio ns from taxation a s incom e. See S. Rep. No. 93-1357 at 7501-
03 (1974). Under this section, a political organization need not declare
contribu tions, du es, or fun d-raising proceed s as incom e if the org anization uses this
money for the “influencing or attempting to influence the selection, nomination or
appointment of any individual to any Federal, State or local public office.” 26
U.S.C . § 527( e)(2). A s origina lly enacted , Section 527 did not con tain separ ate
disclosure requirements, apparently in large part because the Federal Election
Campaign Act (FCA), 2 U.S.C. §§ 431 et seq., already established disclosure
requirem ents for e xpend itures by “p olitical com mittees.” 1 The following year,
1
As Senator Carl Levin later remarked,
At the time Congress established the [section 527] tax exemption, it assumed that such
organizations would be filing with the FEC under the campaign finance laws for the
obvious reason that the language for both coverage by the IRS and coverage by the FEC
were the same–‘influencing an election’. Consequently it was assumed that section 527
didn't need to require disclosure with the IRS, since the FEC disclosure was considerably
more complete.
2
howe ver, the S uprem e Cour t constru ed “expe nditures ” under FCA to includ e only
“express advocacy” that explicitly called for the election or defeat of a particular
candida te within a specific e lection. Buckle y v. Vale , 424 U .S. 1, 79 -80 (19 76).
This ruling effectively eliminated disclosure requirements for anything other than
express advoca cy. See also 146 Cong. Rec. S5994 at S5995-96 (June 28, 2000)
(statement of Sen. Lieberman) (describing successful attempts by section 527
organizations to evade disclosure as a result of this ruling).
In response to the spectacular increase in the use of section 527
organizations for tax-exempt political expenditures w ith limited public scrutiny,
Cong ress add ed section s 527(i) and 52 7(j) in 20 00. See Pub. L . 106-2 30, 114 Stat.
477 (July 1, 2000). Under section 527(i), an organization must give formal notice
to the Secretary of the Treasury in order to receive tax-exempt treatment for
campaign-related income. 26 U.S.C. § 527(i)(1). Under section 527(j), such an
organization must disclose the name, address and occupation of each contributor
who gives more than $200 in the aggregate, as well as the name and address of
each recip ient of m ore than $500 in aggreg ate expen ditures. 2 6 U.S .C. §
527(j)(3).2 If an organization that gives notice under section 527(i) fails to make
146 Cong. Rec. S6044 (June 29, 2000) (statement of Sen. Levin).
2
Following the district court decision in this case, Congress amended 527(j) to require
disclosure of expenditure purpose as well as the identity of the recipient. Congress also
exempted organizations focused solely on state and local elections and subject to comparable
3
the required disclosures, it must pay the highest corporate tax rate on “the amount
to which the failure relates.” 26 U.S.C. § 527(j)(1).
Shortly after Congress enacted these provisions, numerous section 527
organizations, including Mobile Republican Assembly (the “organizational
appellees”), and several individuals, including campaign contributor Paul
Houghton (the “individual appellees”), filed this suit in federal district court
seeking both a declaration that the provisions were unconstitutional and an
injunctio n agains t their enfo rcemen t. In rejectin g the go vernm ent’s mo tion to
dismiss, the district court recognized that the Anti-Injunction Act3 barred the action
to the exte nt that it sou ght to en join the co llection of a tax. Nat’l Fed’n of
Republican Assemblies v. United States (“Republican Assem blies I”), 148 F. Supp.
2d 127 3, 1278 (S.D. A la. 2001 ). How ever, the c ourt fou nd that se ction 52 7(j)
constituted a penalty rather than a tax, citing in part the lack of revenue-related
purpo se and th e use of th e word “penalty” w ithin the su bsection heading . Id. at
1278-80.
The court also treated the provision as a penalty rather than a tax when
analyzing the substantive constitutional claims in an order granting partial
disclosure requirements under state law. See Pub. L. 107-276, 116 Stat. 1929 (Nov. 2, 2002).
3
The Anti-Injunction Act provides that “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.” 26 U.S.C. § 7421(a).
4
summ ary judg ment to th e appellee s. Nat’l Fed’n of Republican Assemblies v.
United States (“Republican Assemblies II”) 218 F. Supp. 2d 1300, 1318-23 (S.D.
Ala. 2002).4 The court surmised that man y section 527 organizations wo uld refuse
to disclose both contributions and expenditures. As a result, they would be subject
to the highest corporate tax rate on the amount of money coming in as well as the
amoun t of mon ey going out. Th us, the fin ancial con sequen ces of failin g to com ply
with the disclosure requirements might exceed the tax benefit obtained, making the
assessm ent a “pen alty” rather than a tax . Id. at 1318-21. We disagree with the
court’s characterization and hold that section 527(j) forms part of the overall tax
scheme.
In Regan v. Taxation With Representation, 461 U .S. 540 (1983), the
Supreme Court interpreted an analogous provision of the tax code, section
501(c)(3). That section grants a tax exemption (as well as a tax deduction for
contributors) to certain non-profit organizations so long as they do not dedicate a
“substantial portion” of their activities to the attempt to influence legislation. 26
U.S.C. § 501(c)(3). Taxation With Representation (TWR), a tax policy advocacy
4
On the merits, the court weighed the intrusiveness of the disclosure requirements against
the government’s interests in increasing public information about candidates and deterring actual
and perceived corruption. Applying strict scrutiny analysis, the court upheld the required
disclosure of contributors but found that disclosure of expenditures violated the First
Amendment. The court also found that required disclosure of expenditures violated the equal
protection component of the Fifth Amendment Due Process Clause and the Tenth Amendment.
5
group, challenged the Internal Revenue Service’s denial of its attempt to register
under this provision, arguing that the prohibition against substantial lobbying
violated b oth its Fir st Ame ndmen t right to sp eak and its Fifth A mendm ent right to
equal pr otection v is-a-vis o ther org anization s.
The Supreme Court rejected these claims. The Court noted that tax
exemptions were a “form of subsidy . . . administered through the tax system” and
held that Congress had legitimately decided “not to subsidize lobbying as
extensively as it chose to subsidize other activities that nonprofit organizations
undertake to promote the public welfare.” 461 U.S. at 544. Although TWR argued
that the restriction on lobbying imposed an unconstitutional condition on the
receipt of tax-deductible contributions, the Court treated the prohibition against
lobbying as a legitimate, congressionally-mandated component of the voluntary tax
exemption. That is, the Court analyzed the condition within the context of the
overall tax scheme , rather than as a sep arate pro vision o r penalty.
The C ourt ob served th at TW R rema ined free to receive tax-ded uctible
contributions for non-lobbying activities and to engage in lobbying using other
financial resources. Congress, however, was not obliged to provide a tax subsidy
merely because the organization wished to use it for political speech: “Although
TWR does no t have as m uch mo ney as it w ants, and thus can not exer cise its
6
freedom of speech as much as it would like, the Constitution does not confer an
entitlement to such funds as may be necessary to realize all the advantages of that
freedom.” Id. at 549. As a result, the Court upheld differential treatment of §
501(c)(3) organizations against both F irst and Fifth Amendm ent challenges.
We believe that section 527(j) falls squarely under Regan. Congress has
enacted no barrier to the exercise of the appellees’ constitutional rights. Rather,
Cong ress has e stablished certain req uiremen ts that must be follo wed in order to
claim the b enefit of a public tax subsidy . Any p olitical org anization uncom fortable
with the disclosure of expenditures or contributions may simply decline to register
under section 527(i) and avoid these requirements altogether. The fact that the
organization might then engage in somewhat less speech because of stricter
financial constraints does not create a constitutionally mandated right to the tax
subsidy. Similarly, the fact that some self-declared section 527 organizations may
later choose to withhold disclosure and, as a result, may pay more in taxes than
they would have paid without tax-exempt status does not make the initial decision
to register under section 527 any less voluntary. Rather, we consider the statutory
scheme as a whole and treat the consequences of violating the conditions of the
subsidy as part of the tax fra mewo rk.
Because the section 527(j) disclosure requirements constitute conditions
7
attached to the receipt of a tax subsidy, we hold that penalties imposed for
violating the conditions of that tax status should be considered as part of the tax for
purpo ses of an alysis und er the A nti-Injun ction A ct.5 As a result, we conclude that
the Act bars the organizational appellees from seeking injunctive relief.6 Instead,
they must pursue relief within a suit for refund after the tax has been assessed and
paid. See Enochs v. Williams Packing & Nav. Co., 370 U .S. 1, 7 (1 962).
The appellees assert that third parties such as individual contributor Paul
5
In its denial of the government’s Rule 12(b)(6) motion to dismiss on Anti-Injunction Act
grounds, the district court concluded that the disclosure requirements did not serve a discernible
revenue purpose and thus fell under the line of cases allowing suits against penalties imposed
through the tax code. Republican Assemblies I, 148 F. Supp. 2d at 1278. However, those cases
involve tax penalties imposed for substantive violations of laws not directly related to the tax
code. See Lipke v. Lederer, 259 U.S. 557, 561-62 (1922) (allowing a suit against penalties
imposed for violating the Prohibition Act); Regal Drug Corp. v. Wardell, 260 U.S. 386, 391-92
(1922) (same). In Bob Jones University v. Simon, 416 U.S. 725 (1974), the Supreme Court
rejected the argument that the Anti-Injunction Act did not apply whenever adverse revenue
consequences were imposed for non-tax purposes. In that case, the university challenged an IRS
decision to rescind its § 501(c)(3) tax status because of its discriminatory admission policies.
The Court held that the Anti-Injunction Act barred the suit:
Petitioner further contends that the Service's actions do not represent an effort to protect
the revenues but an attempt to regulate the admissions policies of private universities.
Under this line of argument, the Anti-Injunction Act is said to be inapplicable because
the case does not truly involve taxes. We disagree. The Service bases its present
position with regard to the tax status of segregative private schools on its interpretation of
the Code. There is no evidence that that position does not represent a good-faith effort to
enforce the technical requirements of the tax laws, and, without indicating a view as to
whether the Service's interpretation is correct, we cannot say that its position has no legal
basis or is unrelated to the protection of the revenues. The Act is therefore applicable.
Id. at 739-40. Similarly, in this case, the IRS bases its position squarely upon the explicit
language of the Internal Revenue Code, and the disclosure conditions form part of the overall tax
subsidy scheme.
6
Because the federal tax exception to the Declaratory Judgment Act is at least as broad as
the prohibition of the Anti-Injunction Act, our holding also forecloses the appellees from seeking
declaratory relief. See Alexander v. “Americans United,” Inc., 416 U.S. 752, 758 n.10 (1974).
8
Haughton may not challenge the tax in a refund suit because they do not pay any
taxes under section 527 and thus may not initiate a suit for refund. Therefore, they
contend, Haughton falls under the exception to the Anti-Injunction Act described
in South Carolina v. Regan, 465 U.S. 367 (1984). In that case, the Supreme Court
held that “Congress did not intend the Act to apply to actions brought by aggrieved
parties for whom it has not provided an alternative remedy.” Id. at 378. E ven if
Haughton might be eligible for the South Carolina exception, however, his claims
primarily involve the disclosure of his identity as a contributor. Complaint at para.
61-62. The district court upheld the constitutionality of contributor disclosure, and
that portion of its ruling is not on appeal here.7
VACATED AND REMANDED WITH INSTRUCTIONS TO DISMISS FOR
LACK OF JURISDICTION.
7
The appellees note that the district court also found section 527(j) unconstitutional with
respect to contributions under its Tenth Amendment analysis. See Mobile Republican II, 218 F.
Supp. 2d at 1352. However, this analysis rested on the finding that section 527(j) “is not a
revenue measure and does not serve any revenue purpose.” Id. Our analysis above disposes of
this issue. Section 527(j) merely places conditions on private organizations who voluntarily seek
a federal tax subsidy, something well within the taxing authority conferred upon Congress. We
also note that the complaint does not allege that Haughton ever gave money to state political
organizations, making his connection to this claim highly tenuous. See Complaint at para. 19,
61-62. In addition, Congress has now exempted many purely state-level organizations from
section 527(j) disclosure requirements. See Pub. L. 107-276, 116 Stat. 1929 (Nov. 2, 2002).
9