IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA

Transcription

1 Case 1:13-cv JDB Document 26 Filed 01/17/14 Page 1 of 23 IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA CITIZENS FOR RESPONSIBILITY AND ) ETHICS IN WASHINGTON ) ) Plaintiff, ) ) v. ) No. 1:13-cv-732-JDB ) U.S. DEPARTMENT OF THE TREASURY ) INTERNAL REVENUE SERVICE, et al. ) ) Defendants. ) POINTS AND AUTHORITIES IN REPLY TO PLAINTIFF S OPPOSITION TO DEENDANT S MOTION TO DISMISS CONTENTS I. OVERVIEW... 1 II. ARGUMENT... 4 A. CREW Has Not Suffered a Cognizable Informational Injury... 4 B. CREW Has Not Shown Causation C. CREW Has Not Demonstrated Redressability D. CREW Lacks Prudential Standing III. CONCLUSION... 20

2 Case 1:13-cv JDB Document 26 Filed 01/17/14 Page 2 of 23 AUTHORITIES Cases Amnesty International USA v. Clapper,--- U.S. at S. Ct (2013) * Animal Legal Def. Fund., Inc. v. Espy, 23 F.3d 496 (D.C. Cir. 1994)... 5, 18, 19 * ASPCA v. FEI,, 659 F.3d 13 (D.C. Cir. 2011)... passim Chiron Corp. v. NTSB, 198 F.3d 935 (D.C. Cir. 1999)... 5 Citizens for Responsibility & Ethics in Wash. v. FEC, 401 F. Supp. 2d 115, (D.D.C. 2005), aff d, 475 F.3d 337 (D.C. Cir. 2007) 475 F.3d 337 (D.C. Cir. 2007) Common Cause v. Biden, 909 F. Supp. 2d 9 (D.D.C. 2012) * Common Cause v. FEC, 108 F.3d 413 (D.C. Cir. 1997)... 5 * Ctr. for Law & Educ. v. Dep't of Educ., 396 F.3d 1152 (D.C. Cir. 2005) * Competitive Enter. Inst. v.nat l. Highway Traffic Safety Admin, 901 F.2d 107, 123 (D.C. Cir. 1990) * Fla. Audobon Society v. Bentsen, 94 F.3d 658 (D.C. Cir. 1996) Fulani v. Brady, 935 F.2d 1324 (1991) Gettman v. DEA, 290 F.3d 430 (D.C. Cir. 2003)... 2 Int'l Primate Protection League v. Inst. for Behavioral Research, 799 F.2d 934 (4th Cir. 1986). 18 * Lujan v. Defenders of Wildlife, 504 U.S. 555 (1992)... 11, 16, 17 Massachusetts v. EPA, 549 U.S. 497 (2007)... 4 * Nader v. FEC, 725 F.3d 226 (D.C. Cir. 2013)... 5 * Nat'l Treas. Employees Union v. United States, 101 F.3d 1423 (D.C. Cir. 1996)... 10, 11 * Simon v. E. Ky. Welfare Rights Org., 426 U.S. 26 (1976)... 2, 11, 15, 16 * St. John's United Church of Christ v. FAA, 520 F.3d 460 (D.C. Cir. 2008)... 4, 16, 17 * Wertheimer v. FEC, 268 F.3d 1070 (D.C. Cir. 2001)... 5, 7 Statutes Administrative Procedures Act, 5 U.S.C. 701 et seq * 26 U.S.C. 170(c)(2)(D) U.S.C. 3306(c)(8) Internal Revenue Code section 501(c)(3), 26 U.S.C. 501(c)(3)... passim Internal Revenue Code section 501(c)(4) 26 U.S.C. 501(c)(4)... passim Internal Revenue Code section 501(c)(5) 26 U.S.C. 501(c)(5)... 7, 12, 15 Internal Revenue Code section 501(c)(6) 26 U.S.C. 501(c)(6)... 7, 13, 15 * Internal Revenue Code section 527, 26 U.S.C passim * 26 U.S.C. 7801(a)... 3, 4, 18 Regulations Treas Reg (c)(4)-(1), 26 C.F.R (c)(4)-(1)... 1 Congressional Materials * 146 Cong. Rec. H (2000)... 7 * H.R. 4717, 106th Cong. 2 (2000)... 7 P.L ii

3 Case 1:13-cv JDB Document 26 Filed 01/17/14 Page 3 of 23 I. OVERVIEW We moved to dismiss this suit because Plaintiff, Citizens for Responsibility and Ethics in Washington [ CREW ] lacks standing. CREW sued because it petitioned the Internal Revenue Service (the Service ) to impose tax on groups that engage in certain activities, and is dissatisfied with the Service s response. It asked the Service to amend Treas. Reg (c)(4)-(1), 26 C.F.R (c)(4)-(1), which explains the criteria for exemption from income tax under Internal Revenue Code section 501(c)(4), 26 U.S.C. 501(c)(4). Under the regulation, groups qualify for the exemption if they are primarily engaged in promoting [social welfare], which does not include political campaign participation. 26 C.F.R. 501(c)(4)-(1)(a)(2)(i)-(ii). Thus, such participation, by itself, does not disqualify groups from the exemption if they are not primarily engaged in it and are instead primarily engaged in promoting social welfare as defined in the regulation. 1 CREW asked the Service to make the exemption unavailable to groups engaging in any political campaign activity. (Compl. 31, ) If the Service did so, such groups income would be taxed unless they qualify for exemption under another provision or end their political campaign activity. 2 1 However, such activity may subject them to tax on their net investment income up to the amount of their political spending. 26 U.S.C. 527(f)(1). 2 CREW contends that the Service s recent request for public comments on whether it should amend the regulation along the lines requested in the petition does not obviate the need to grant this relief. We reserve the right to argue, 1

4 Case 1:13-cv JDB Document 26 Filed 01/17/14 Page 4 of 23 CREW brought suit 45 days after submitting its petition, claiming that the Service s response that it would consider proposed changes in this area was an effective denial. Id. 43, 48. It seeks to enjoin implementation of the current regulation, and a writ of mandamus ordering Service to start proceedings to modify the regulation in the manner CREW requested. Id. at 17. We moved to dismiss because CREW lacks Constitutional and prudential standing. We argued that the purported failure to act favorably on a petition does not, in itself, establish standing to sue; CREW must still, inter alia, allege that it suffered a substantive injury as a result. See Gettman v. DEA, 290 F.3d 430, (D.C. Cir. 2003). While CREW s complaint implies that groups tax exemption under section 501(c)(4) deprives CREW of information on their donors, we argued that CREW failed to identify a statute granting it an express right to this information that was directly impacted by a section 501(c)(4) tax exemption. Cf. ASPCA v. FEI, 659 F.3d 13, (D.C. Cir. 2011). We also argued that CREW s allegations do not show causation and redressability. CREW cannot establish standing by speculating about how the regulation affects the behavior of parties not before the Court nor how the requested relief might help it. See Simon v. E. Ky. Welfare Rights Org., 426 U.S. 26, (1976). Lastly, we argued that provisions in the Internal Revenue Code vesting exclusive should the Court deny this motion, that these agency proceedings either moot this suit or constitute, on the merits, a reasonable response to the petition. 2

5 Case 1:13-cv JDB Document 26 Filed 01/17/14 Page 5 of 23 enforcement authority in the Executive Branch deprive CREW of prudential standing to sue to impose tax on others. See 26 U.S.C. 7801(a). In its opposition, CREW does not argue that it has standing merely by virtue of the agency s procedural response to its petition. (Opp. at 21-22). CREW makes four arguments as to why it has standing, but these are not on point. First, CREW asserts it has suffered concrete informational harm. Id. at 20. It claims that the ability of groups with some political campaign activity to qualify for a tax exemption under section 501(c)(4) means that they do not elect exemption under an alternate provision of the Internal Revenue Code section 527, 26 U.S.C. 527, which imposes a donor disclosure requirement. Id. at 20, 24. CREW contends that not having access to donor information harms its activities. But a plaintiff does not demonstrate a cognizable informational injury, conferring standing to litigate over a statutory provision not affecting disclosure, by asserting that if its view of the law were upheld, others might elect to proceed under other provisions requiring disclosure. ASPCA, 659 F.3d at Second, CREW asserts that Simon, which held that plaintiffs could not establish standing by speculating about how third parties react to the grant of a tax exemption, is factually distinguishable and that it is therefore not speculating. However, the facts that it cites in support of this assertion still fail to establish causation without the aid of conjecture. If anything, the more limited tax benefits accorded under section 501(c)(4) in comparison to the tax benefits at issue in Simon require even greater speculation to establish traceability here. 3

6 Case 1:13-cv JDB Document 26 Filed 01/17/14 Page 6 of 23 Third, CREW attempts to further distinguish Simon by arguing that a lesser standard for redressability applies to it because it is asserting a procedural right to have the Service act on its petition. However, this lesser standard -- if it even applies -- only removes the need to demonstrate that the Service will act favorably on CREW s petition. CREW must still demonstrate that a favorable decision by the Service will actually redress its purported injuries without speculating as to the behavior of third parties, which CREW is unable to do. See St. John's United Church of Christ v. FAA, 520 F.3d 460, 463 (D.C. Cir. 2008). Fourth, CREW argues that it has prudential standing because it is not trying to impose a tax on any specific entity, but merely seeks a procedural remedy of having the Service commence rulemaking to limit the section 501(c)(4) exemption. It thus contradicts its arguments on Article III standing, namely, that it has standing precisely because action on its petition would lead to imposition of a tax on a large number of entities unless they altered their behavior. Since the Internal Revenue Code reserves enforcement to the Executive Branch, CREW lacks prudential standing to bring such a suit. Cf. 26 U.S.C. 7801(a). The Court should therefore dismiss this action for lack of standing. II. ARGUMENT A. CREW Has Not Suffered a Cognizable Informational Injury CREW concedes that to have standing, it must allege more than denial of its petition; rather, it must allege that the denial causes a cognizable injury to a concrete interest (Opp. at 21-22) (citing Massachusetts v. EPA, 549 U.S

7 Case 1:13-cv JDB Document 26 Filed 01/17/14 Page 7 of 23 (2007).) See also Common Cause v. FEC, 108 F.3d 413, 419 (D.C. Cir. 1997) ( [Plaintiff] cannot establish standing merely by asserting that the FEC failed to process its complaint in accordance with law ). CREW claims the Service s actions cause it concrete informational harm because it lacks information on donors to groups claiming a tax exemption under section 501(c)(4). (Opp. at 22.) We argued that CREW failed to allege a cognizable informational injury since it identifies no law expressly entitling it to this information whose applicability is affected by section 501(c)(4). In response, CREW speculates that if groups engaging in political campaign activities did not qualify for a section 501(c)(4) exemption, they would elect tax exempt status under Internal Revenue Code section 527, 26 U.S.C. 527, which requires groups that qualify for and elect exemption under its terms to disclose donors. But such indirect harm does not constitute injury to a cognizable right to information. ASPCA, 659 F.3d at A plaintiff claiming informational standing must allege it is (1) directly being deprived of information that (2) must be disclosed under a statute [that] grants a plaintiff a concrete interest by explicitly creat[ing] a right to information. Nader v. FEC, 725 F.3d 226, 229 (D.C. Cir. 2013); Wertheimer v. FEC, 268 F.3d 1070, 1074 (D.C. Cir. 2001); Animal Legal Def. Fund., Inc. v. Espy, 23 F.3d 496, 502 (D.C. Cir. 1994). See also Chiron Corp. v. NTSB, 198 F.3d 935, 942 (D.C. Cir. 1999) (plaintiff must identify sources of law requiring disclosure.). CREW claims that section 527 is such a statute. 5

8 Case 1:13-cv JDB Document 26 Filed 01/17/14 Page 8 of 23 But CREW cites no statute that automatically applies section 527 s rules to the groups whose donor identities it wants; indeed, it concedes that these rules do not apply universally. (Opp. at 7) (section 527 s requirements apply to most organizations that do not report to the [FEC] )(emphasis added)(citation omitted). In fact, no group is subject to these rules unless (1) its activities meet section 527 s specific criteria for exemption and (2) it affirmatively elects to be exempt under that section. As CREW concedes, just to qualify for exemption under section 527, a group must be primarily operated for the purpose of participating in political campaigns. 26 U.S.C. 527(e)(1)-(2) (quoted in Opp. at 6.) It is thus unlikely that the activity mix of groups exempted by section 501(c)(4) under the disputed regulation (i.e., groups that by definition primarily engage[] in specified activities not related to political campaigns) would qualify them for the section 527 exemption. And even if it did, they would still need to affirmatively elect exemption under section 527 by giving notice to the Service before they would be subject to its disclosure requirements. Id. 527(i)(1)(A). 3 Section 527 s legislative history further demonstrates that it does not create even an implicit right to disclosure from the groups at issue. When Congress was enacting section 527 s disclosure rules, the bill reported out of committee would have automatically required disclosure from groups qualifying for tax 3 While some entities are automatically exempt under section 527, these groups are also exempted from section 527 s disclosure rules. Id. 527(i)(5)-(6), j(5). 6

9 Case 1:13-cv JDB Document 26 Filed 01/17/14 Page 9 of 23 exemption under section 527 as well as section 501(c)(4), (c)(5), or (c)(6). H.R. 4717, 106th Cong. 2 (2000). But due to a lack of support in the House for such broad disclosure requirements, an alternate bill was enacted by the full House instead, which included the current rules requiring disclosure solely from groups electing tax exemption under section 527. P.L ; 146 Cong. Rec. H (2000) (smts. of Reps. Houghton, Archer, and McDermot). Thus, in enacting the disclosure rules that CREW cites, Congress considered -- and rejected -- a law that might have given CREW a concrete interest in the information it seeks about donors to groups currently claiming tax exemption under section 501(c)(4). The law Congress chose to enact instead thus cannot provide CREW with a basis for claiming a concrete interest in such information. CREW also fails to meet another element of informational injury: showing that it is directly being deprived of the information by the agency s action. Wertheimer, 268 F.3d at As noted above, the applicability of section 527 s disclosure requirements depends on a group s activities and whether it has affirmatively elected to be exempt under the section. It does not depend on whether an organization qualifies or fails to qualify for tax exemption under section 501(c)(4). And the exceptions to disclosure under section 527 are not conditioned on section 501(c)(4) status. See 26 U.S.C. 527(j)(5) (listing exceptions). Thus, a group s ability to claim tax-exempt status under section 501(c)(4) does not directly... deprive[] CREW of information that must be disclosed under section

10 Case 1:13-cv JDB Document 26 Filed 01/17/14 Page 10 of 23 Instead, CREW appears to argue that since some groups involved in political campaign activity can obtain tax exemption under section 501(c)(4), they choose not to seek tax-exempt status under section 527, and thus do not become subject to section 527 s disclosure requirements. CREW claims that for groups with political campaign activities that qualify for the section 501(c)(4) exemption under the disputed regulation, 527 provides a vehicle to continue those activities while retaining their tax-exempt status. (Opp. at 20. See also id. at 24) ( If the IRS had granted CREW s petition, organizations would have been able to engage in a significant level of political activity and retain their tax-exempt status by becoming or affiliating with organizations granted tax-exempt status under 527 of the Tax Code. ). Thus, CREW asserts, these groups ability to claim a tax exemption under section 501(c)(4) causes them to forego tax exemption under section 527 and deprives it of information disclosable under that section. Id. But the D.C. Circuit has expressly rejected such attempts to claim standing based on the possibility that others might proceed under a separate statute that requires disclosure. See ASPCA v. Feld Entertainment, 659 F.3d 13, (D.C. Cir. 2011). In ASPCA, the plaintiffs claimed that a circus practices violated section 9 of the Endangered Species Act of 1973 (ESA). One plaintiff asserted that it had informational standing since a separate ESA provision, section 10, permitted the circus to continue these activities if it applied for a permit, and required public disclosure of the application. The plaintiff argued that under its reading of section 9, the circus cannot lawfully engage in these practices 8

11 Case 1:13-cv JDB Document 26 Filed 01/17/14 Page 11 of 23 without first applying for and obtaining a permit pursuant to section 10, and therefore it was deprived of the information that would be disclosed if the circus were to continue its activities by obtaining a permit under section F.3d at 22. CREW makes a similar argument that under its reading of section 501(c)(4), groups engaged in political campaign activities could only retain tax-exempt status if they choose to seek exemption under section 527; thus, it claims to be deprived of the information that these groups would have to disclose if they failed to qualify under section 501(c)(4) and instead elected tax exemption under section 527. In ASPCA, the court held that the asserted claim to information was too attenuated to demonstrate an informational injury. Id. at Similarly here, CREW has not demonstrated that its view of section 501(c)(4) would directly entitle it to the information it seeks. Id. at 24. Since CREW lacks a direct legal right to disclosure of information on donors to affected groups, it cannot independently establish standing with its allegations that the inability to obtain this information has impeded its mission and resulted in a drain on its resources. 4 Such allegations are a necessary, but not sufficient, prerequisite for organizations (rather than individuals) to assert informational standing. Competitive Enter. Inst. v. Nat l Highway Traffic Safety Admin, 901 F.2d 107, 123 (D.C. Cir. 1990) ( to sustain informational standing, 4 Since we have made a facial challenge to jurisdiction, we have not attacked the veracity of these assertions, but reserve the right to test them through discovery if the Court concludes that CREW s allegations establish its standing. 9

12 Case 1:13-cv JDB Document 26 Filed 01/17/14 Page 12 of 23 organizations must point to concrete ways in which their programmatic activities have been harmed. ). Accord, Citizens for Responsibility & Ethics in Wash. v. FEC, 401 F. Supp. 2d 115, (D.D.C. 2005) (Bates, J.), aff d, 475 F.3d 337 (D.C. Cir. 2007) ( CREW was required to identify exactly how its alleged lack of access to [information] has impeded its programmatic activities... In order to satisfy the informational standing doctrine, an organizational plaintiff must show a more targeted, concrete injury than that suffered by CREW. ). In any event, programmatic injury only arises from a direct conflict between an organization s mission and a defendant s conduct; it does not arise from choices made by intermediate decisionmakers as is the case here. Nat l Treas. Employees Union v. United States, 101 F.3d 1423, 1430 (D.C. Cir. 1996); Common Cause v. Biden, 909 F. Supp. 2d 9, 22 n. 8 (D.D.C. 2012). Accordingly, CREW has failed to allege a cognizable informational injury. B. CREW Has Not Shown Causation In our opening brief, we construed the complaint s allegations that the disputed regulation allowed groups claiming tax exemption under section 501(c)(4) to pour vast amounts of anonymous money into campaigns as an assertion that the regulation enabled political campaign intervention by groups that would otherwise be prohibited. (Compl. 7.) CREW alleged that it was thus deprived of information on the identities of individuals and entities that attempt to influence elections and elected officials. Id. We argued that such allegations failed to establish that this harm was fairly traceable to the 10

13 Case 1:13-cv JDB Document 26 Filed 01/17/14 Page 13 of 23 disputed regulation (or the Service s alleged refusal to amend it), since the affected groups could have engaged in these activities as taxable entities even if the current regulation were not in force. See Simon v. E. Ky. Welfare Rights Org 426 U.S. at (1976). See also Clapper v. Amnesty International USA, --- U.S. at S. Ct. 1138, 1141 (2013) ( [W]e have been reluctant to endorse standing theories that require guesswork as to how independent decisionmakers will exercise their judgment. ). In response, CREW argues that it has established causation, because [i]f the IRS had granted CREW s petition, organizations would have been able to engage in a significant level of political activity and retain their tax-exempt status by becoming or affiliating with organizations electing tax-exempt status under 527 of the Tax Code, with its concomitant requirement to disclose the sources of their funds. In this way, CREW would have had access to the information it seeks. (Opp. at 24.) It contends that it is a certainty that these organizations behavior was so affected, and attempts to factually distinguish Simon. As a preliminary matter, in a facial challenge to standing, the Court need only accept CREW s factual allegations, not the conclusions it draws from such facts. Nat l Treas. Employees Union, 101 F.3d at Thus, CREW s assertion that its lack of information was caused by the regulation does not itself establish causation. Rather, CREW must allege facts showing that those choices have been... made in such manner as to produce causation. Lujan v. Defenders of Wildlife, 504 U.S. 555, 562 (1992) (emphasis added). Here, the facts 11

14 Case 1:13-cv JDB Document 26 Filed 01/17/14 Page 14 of 23 cited by CREW still require conjecture to establish that absent the current regulation, (1) organizations currently claiming tax exemption under section 501(c)(4) would have elected section 527 status or affiliated with organizations that did so and (2) political donors would have agreed to have their identities disclosed by contributing to these groups rather than to groups that declined to elect section 527 status. First, even if one assumes for the sake of argument that at least some, if not many groups currently claiming tax exemption under section 501(c)(4) would have created or affiliated with separate organizations claiming taxexempt status under section 527, as CREW suggests, it does not follow that CREW would have gotten the information that it wants about campaigns donors. These donors could have redirected their contributions to other groups. CREW does not argue (and has not alleged any of the facts needed to show) that in the absence of the current regulation, all groups participating in political campaign activities would have elected to be tax-exempt under section 527. Thus, in the absence of the disputed regulation, political donors wishing to stay anonymous could have redirected their contributions to groups that decline to elect section 527 status (i.e. groups that choose either be taxed on their income or elect an alternative tax-exempt status that does not require donor disclosure). 5 5 For example, some political campaign activity does not necessarily disqualify a group from tax exemption under section 501(c)(5), which applies, inter alia, to 12

15 Case 1:13-cv JDB Document 26 Filed 01/17/14 Page 15 of 23 The need to speculate not only about the choices of groups currently claiming exemption under section 501(c)(4), but also about how these choices affect the behavior of their donors, makes CREW s causation theory especially speculative. Cf. Fla. Audobon Society v. Bentsen, 94 F.3d 658, 670 (D.C. Cir. 1996) (holding that plaintiffs challenging a tax credit could not establish standing by engaging in a double layer of speculation about the behavior of both the groups claiming the credit and the effect of such behavior on choices made by others). Further, CREW s argument that it is certain that groups act differently because of the availability of the tax exemption still relies on conjecture. CREW speculates that the choices of specific organizations under the current regulatory regime to create or affiliate with entities exempt under section 527 means that other groups would chose to do so under a different regulatory regime. For example, it notes that some groups claiming tax exempt status under another provision, Internal Revenue Code section 501(c)(3), 26 U.S.C. 501(c)(3), which is unavailable to groups with more than no substantial political campaign activity, have established affiliated entities that elect tax exempt status under section 527. But section 501(c)(3) status has significant benefits that do not come with section 501(c)(4) status, such as donors ability to deduct donations from their own taxable income and an unemployment tax exemption. 26 U.S.C. labor unions, or under section 501(c)(6), which applies, inter alia to trade associations. 13

16 Case 1:13-cv JDB Document 26 Filed 01/17/14 Page 16 of (c)(2)(D), 3306(c)(8). It thus requires conjecture to assume that other groups would choose to redirect politically-minded donors to affiliated organizations exempt under section 527 in order to benefit from the more limited benefits of section 501(c)(4) status. Similarly, CREW notes that some groups claiming tax exemption under section 501(c)(4) currently direct politically-minded donors to affiliated section 527 organizations, and that a group that was determined not to qualify for a tax exemption under section 501(c)(4) under the current regulation subsequently elected section 527 status. But it does not follow -- absent conjecture -- that other groups would have done the same (rather than foregone tax-exempt status or selected an alternate tax exempt status under section 501(c)) if they could not have qualified for a tax exemption under section 501(c)(4). CREW s other attempts to distinguish Simon also fail to demonstrate that it is not speculating. It claims that there are many more groups claiming tax exemption under section 501(c)(4) than the few tax exempt hospitals whose actions were at issue in Simon. But it has not alleged any facts showing that even one such group failed to elect section 527 status or redirect politically-minded donors to an affiliated section 527 organization due to the disputed regulation. CREW s brief also asserts that unlike the Simon hospitals, all 501(c)(4) organizations, by definition, derive the overwhelming majority of their income from donations. (Opp. at 28.) Even if this unsupported and unalleged assertion 14

17 Case 1:13-cv JDB Document 26 Filed 01/17/14 Page 17 of 23 were true, 6 CREW does not explain why it is relevant. In Simon, the plaintiffs theory of causation was that the continued ability of hospitals to receive taxdeductible contributions because of their section 501(c)(3) status encouraged their offending behavior. 426 U.S. at 43. As previously noted, however, section 501(c)(4) status does not confer this type of tax subsidy, and CREW has not explained how the purported reliance on donors matters here. If anything, the differences between this case and Simon require greater speculation about the impact of the disputed regulation on the behavior of affected organizations. As noted above, the benefits granted to these groups under the section 501(c)(4) tax exemption are far more limited than the benefits accorded under the section 501(c)(3) exemption at issue in Simon. And unlike hospitals in Simon that were tax-exempt under section 501(c)(3), they may be able to retain these limited benefits under other tax-exemption provisions such as sections 501(c)(5) and (c)(6). Lastly, these groups have already chosen to subject their investment income to tax by participating in political campaign activities. See 26 U.S.C. 527(f) (generally imposing a tax on the net investment income of organizations exempted from income tax under section 501(c) up to the amount of their political campaign spending). 6 CREW cites no authority for this proposition nor has it alleged it as a fact in its complaint that must be taken as true. 15

18 Case 1:13-cv JDB Document 26 Filed 01/17/14 Page 18 of 23 It is therefore far from certain, as CREW contends, that these groups would have behaved differently if the current regulation made tax-exempt status under section 501(c)(4) less readily available, or that these groups donors would have also altered their behavior. Given this uncertainty about the behavior of parties not before the Court, CREW s allegations fail to establish that its purported harm is fairly traceable to the denial of its petition, rather than to the unfettered choices of parties not before the Court. Lujan, 504 U.S. at 562. C. CREW Has Not Demonstrated Redressability In our opening brief, we also cited Simon for the proposition (closely related to traceability) that CREW cannot demonstrate redressability based on speculation that the procedural relief it seeks, if granted, would cause third parties -- groups currently claiming tax exemption under section 501(c)(4) -- to change their behavior. Cf. Simon, 426 U.S. at 42. CREW responds by incorrectly asserting that it is subject to a more relaxed redressability requirement because it claims standing based on the denial of a procedural right. (Opp. at 29.) (citing Lujan, 504 U.S. at 573 n. 7). But such a standard does not permit speculation as to the actions of parties not before the court, as opposed to the defendant agency. St. John s United Church of Christ v. FAA, 520 F.3d 460, 463 (D.C. Cir. 2008) 16

19 Case 1:13-cv JDB Document 26 Filed 01/17/14 Page 19 of 23 Assuming that this relaxed standard even applies here, 7 all it does is save CREW the need to demonstrate that if the Service commenced rulemaking, it would issue the final regulation CREW had requested in its petition. It does not excuse the need to demonstrate without conjecture - that the revised regulation would cause groups engaging in in political campaign activity that currently claim tax exemption under section 501(c)(4), who are not parties to this action, to independently elect tax-exempt status under section 527 instead of foregoing a tax exemption or electing another tax-exempt status for which they might qualify. Similarly, CREW must still demonstrate that donors wishing to remain anonymous would choose not to redirect their contributions to other organizations that do not elect a tax exemption under section 527 and thus are not subject to its disclosure requirements. Specifically, the relaxed redressability standard referenced by CREW applies only when a party challenging an agency's procedural failure cannot establish with any certainty that the agency would reach a different decision. Id. 7 The procedural standing cases relied on by CREW apply to procedural rights designed to protect some threatened concrete interest... that is the ultimate basis for standing. Ctr. for Law & Educ. v. Dep't of Educ., 396 F.3d 1152, 1157 (D.C. Cir. 2005) (emphasis in the original) (quoting Lujan, 504 U.S. at 573 n. 7). To benefit from this standard, a plaintiff must show that the statute granting the procedural right was designed to protect the particular interest he claims was harmed. Id. at Here, CREW has not cited to the statutory basis for its asserted procedural right nor shown that such statute was designed to protect its purported interest in donor disclosure. 17

20 Case 1:13-cv JDB Document 26 Filed 01/17/14 Page 20 of 23 (emphasis in the original) (citing Lujan, 504 U.S. at 573 n. 7). Where the redressability obstacle... is uncertainty over what [a third party] would do even procedural-rights plaintiffs must satisfy the normal standard for redressability, and cannot do so when it is entirely conjectural whether the nonagency activity that affects [them] will be altered or affected by the agency activity they seek to overturn. Id. (quoting Lujan, 504 U.S. at 571). Here, we argued that CREW has not demonstrated redressability because it relied on speculation as to the behavior of parties not before the court. CREW s assertion that it has suffered a procedural injury might excuse the need to show that the Service would actually enact the rule it requested, but it does not give CREW any greater ability to rely on speculation about how groups currently claiming section 501(c)(4) status -- and their donors -- might react to that rule. Since CREW s entire theory of redressability is based on conjecture about the behavior of these parties not before the Court, it lacks standing to bring this suit. D. CREW Lacks Prudential Standing In our opening brief, we had argued that CREW lacks prudential standing to bring a suit meant to limit the availability of the section 501(c)(4) exemption and thus subject other parties to income tax. Specifically, Congress expressly reserved enforcement of the Internal Revenue Code to the Executive Branch and thus did not intend to authorize a tax enforcement suit by a private litigant such as CREW. See 26 U.S.C. 7801(a). See also Animal Legal Def. Fund v. Espy, 23 F.3d 496, 503 (D.C. Cir. 1997)(citing Int l Primate Protection League v. Inst. for 18

21 Case 1:13-cv JDB Document 26 Filed 01/17/14 Page 21 of 23 Behavioral Research, 799 F.2d 934, 939 & n.4 (4th Cir. 1986)) (provisions in a statute expressly providing for agency enforcement may limit others prudential standing to sue); Fulani v. Brady, 935 F.2d 1324, 1327 (1991) ( [T]he statutory scheme created by Congress is inconsistent with, if not preclusive of, third party litigation of tax-exempt status. ). CREW responds that it seeks only a procedural remedy relating to its petition, rather than to impose a tax on any specific entity, (Opp. at 31) but its pleadings demonstrate that it seeks to impose tax on an entire class of entities. CREW s opposition asserts constitutional standing because, it says, if its relief is granted, groups whose activities qualify them for a tax exemption under the current regulation would become subject to income tax unless they elect tax exemption under section 527. (Opp. at ) And the very relief CREW s complaint requests enjoining the Service from enforcing the current regulation (which permits such groups to claim a tax exemption) and issuing a writ of mandamus requiring it to commence rulemaking to limit these groups ability to claim the tax exemption belies CREW s assertion that it does not seek to impose tax on any entity. In addition, CREW s attempt to argue that an Administrative Procedures Act suit demanding new rulemaking cannot amount to enforcement has been expressly rejected. Espy was a suit in which private individuals and organizations sued under the APA to compel the Secretary of Agriculture to commence rulemaking to amend regulations under the Animal Welfare Act in 19

22 Case 1:13-cv JDB Document 26 Filed 01/17/14 Page 22 of 23 order to promulgate standards for the humane care of additional species that are used in research. 23 F.3d at 498. The court held that the plaintiffs lacked prudential standing to sue to compel a rulemaking proceeding to regulate laboratories because the statute established private committees of citizens to ensure compliance with the act by such regulated entities. Id. at 503. Similarly here, CREW s attempt to compel rulemaking to impose a tax on a class of organizations is precluded by the exclusive enforcement provisions of the Internal Revenue Code. III. CONCLUSION CREW s arguments that it has Constitutional and prudential standing are not on point. CREW has not demonstrated that the regulation at issue impacts any concrete legal right to obtain contributor information for groups currently claiming a tax exemption under section 501(c)(4). Further, it has not shown, other than by conjecture, that the behavior of these groups -- or their donors -- was affected by the disputed regulation or would change if it were amended. The groups could simply choose to become taxable entities who do not disclose their donors or potentially qualify as a different type of tax-exempt organization. And if some groups do elect to become disclosing organizations under section 527, their donors could redirect their funds to organizations who do not elect taxexempt status under section 527. Lastly, CREW lacks prudential standing to sue to impose tax on others, because the Internal Revenue Code expressly vests enforcement authority in the Executive Branch. For the foregoing reasons, 20

23 Case 1:13-cv JDB Document 26 Filed 01/17/14 Page 23 of 23 CREW lacks standing, and the Court should dismiss this suit for lack of subject matter jurisdiction. DATE: January 17, 2014 OF COUNSEL: RONALD C. MACHEN, JR. United States Attorney Respectfully submitted, /s/ Yonatan Gelblum YONATAN GELBLUM Trial Attorney, Tax Division U.S. Department of Justice Post Office Box 227 Washington, DC Phone/Fax: (202) /