Part of a public library containing court papers related to lawsuits involving Scientology in some way. Collected to help lawyers and critics of Scientology in future lawsuits from or against this cult. Please report back if this has been of help, or send new contributions to the collection. Thanks. Andreas Heldal-Lund (heldal@online.no)

                            UNITED STATES, Defendant.
                                  No. 91-1176T.
                           United States Claims Court.
                                  May 27, 1992.
  Church sought declaratory judgment that it was organization entitled to be
 included in Internal Revenue Service's list of organizations recognized as
 qualified charitable donees.  United States moved to dismiss.  The Claims
 Court, Margolis, J., held that no actual controversy existed so as to
 permit church to seek declaratory judgment that it was qualified
 charitable donee under Internal Revenue Service rules.
  Motion granted.

 There was no actual controversy in case brought by church seeking declaratory
 judgment that it was organization entitled to be included in Internal Revenue
 Service's (IRS) list of organizations recognized as qualified charitable
 donees, where IRS had never actually proposed to revoke prior ruling and had
 not done so, and church had not filed any papers with IRS in course of church
 examination which could be construed as request for determination.  26
 U.S.C.A. ss 170(c), 6033(a)(2), 7428, 7611(c)(1)(A).
  *245 Monique E. Yingling, Washington, D.C., for plaintiff.  Thomas C.
 Spring, of counsel.
  W.C. Rapp, Washington, D.C., with whom was Asst. Atty. Gen. Shirley D.
 Peterson, for defendant.

  MARGOLIS, Judge.
  This tax case comes before the court on defendant's motion to dismiss
 and on plaintiff's motion for summary judgment.  Defendant, through the
 Internal Revenue Service (IRS), began a church tax examination of plaintiff in
 1989, but failed to complete it within the statutory time period.  Before this
 court, plaintiff seeks a declaratory judgment that it is an organization
 described in s 170(c) of the Internal Revenue Code of 1986 (I.R.C.) entitled
 to be included in IRS publication 78, a list of organizations recognized by the
 IRS as qualified charitable donees.  Defendant moves to dismiss, contending
 this court lacks jurisdiction, and plaintiff moves for summary judgment.  After
 careful review of the record, and after hearing oral argument, this court
 grants defendant's motion to dismiss and denies the plaintiff's motion for
 summary judgment.
  In the 1950s, the IRS revoked plaintiff's tax-exempt status, a decision that
 the Court of Claims upheld in Founding Church of Scientology of Washington,
 D.C. v. United States, 412 F.2d 1197, 188 Ct.Cl. 490 (1969), cert. denied,
 397 U.S. 1009, 90 S.Ct. 1237, 25 L.Ed.2d 422 (1970).  Consequently,
 plaintiff began to file corporate tax returns as a taxable entity.
  Believing that circumstances had changed and that it was now operated
 exclusively for tax-exempt purposes, plaintiff began in 1973 to file
 information returns on Form 990, the information return used by exempt
 organizations.  Plaintiff discontinued filing returns in 1980, consistent with
 its alleged church status and as permitted for churches by I.R.C. s
  Pursuant to I.R.C. s 7611, the IRS sent plaintiff a "Notice of Church
 Inquiry" on December 2, 1988, and a "Notice of Church Examination" on March 1,
 1989, questioning plaintiff's qualification for tax-exempt status.  On February
 27, 1991, the IRS notified plaintiff that it was unable to complete its
 examination within the two-year period provided by I.R.C. s 7611(c)(1)(A)
 and that, as a result, there would be no change in plaintiff's tax status.
  Plaintiff filed suit in this court on May 28, 1991, seeking a declaratory
 judgment under I.R.C. s 7428 that it is an entity described in I.R.C. s
 170(c) entitled to be included in IRS publication 78, the cumulative list of
 organizations the IRS recognizes as qualified charitable donees.  Defendant now
 moves to dismiss for lack of jurisdiction, and plaintiff moves for summary
  Plaintiff maintains that this court has jurisdiction to render a declaratory
 judgment in this matter under I.R.C. s 7428, which provides in subsection a
 in pertinent part as follows:
   In a case of actual controversy involving--
   (1) a determination by the Secretary--
   *246 (A) with respect to the initial qualification or continuing
 qualification of an organization as an organization described in section
 501(c)(3) which is exempt from tax under section 501(a) or as an
 organization described in section 170(c)(2).... or
   (2) a failure by the Secretary to make a determination with respect to an
 issue referred to in paragraph (1),
  upon the filing of an appropriate pleading ... the United States Claims
 Court ... may make a declaration with respect to such initial qualification or
 continuing qualification....
  Plaintiff also maintains that the February 27, 1991 letter in which the IRS
 stated that plaintiff's tax status had not been changed (no-change letter) is
 a "final report" within the meaning of I.R.C. s 7611(g).  That section
 provides that:
   [a]ny final report of an agent of the Internal Revenue Service shall be
 treated as a determination of the Secretary under paragraph (1) of section
 7428(a), and any church receiving such a report shall be treated for purposes
 of sections 7428 and 7430 as having exhausted the administrative remedies
 available to it.
  Defendant seeks dismissal on jurisdictional grounds for two reasons.  First,
 defendant argues that plaintiff's complaint fails to set forth "a case of
 actual controversy" as I.R.C. s 7428(a) demands.  Second, defendant asserts
 that the no-change letter should not be construed as a section 7611(g) final
 report, which allows plaintiff to sue for declaratory relief under I.R.C. s
  Beginning with the question of whether this is a case of actual controversy,
 plaintiff contends that the IRS has " 'directly put in issue [its]
 classification or qualification under the sections listed in
 s 7428(a)(1)(A)-(C),' " which has " 'cause[d] [it] sufficient adverse
 consequences ... to create an actual controversy.' "  Baptist Hospitals,
 Inc. v. United States, 851 F.2d 1397, 1400 (Fed.Cir.1988) (quoting Urantia
 Foundation v. Commissioner, 684 F.2d 521, 525 (7th Cir.1982)).  Plaintiff
 argues that by not including it in IRS publication 78, the IRS has not provided
 its potential contributors with advance assurance of deductibility and thus
 created a case of actual controversy.  As support for its contention, plaintiff
 cites several cases in which, according to plaintiff, the court entertained
 jurisdiction after the IRS failed to make a determination of tax-exempt
 status.  See National Foundation, Inc. v. United States, 13 Cl.Ct. 486
 (1987);  Foundation of Human Understanding v. Commissioner, 88 T.C. 1341
 (1987);  World Family Corp. v. Commissioner, 81 T.C. 958 (1983);
 Gladstone Foundation v. Commissioner, 77 T.C. 221 (1981);  Friends of the
 Society of Servants of God v. Commissioner, 75 T.C. 209 (1980);  BBS
 Associates, Inc. v. Commissioner, 74 T.C. 1118 (1980);  B.H.W. Anesthesia
 Foundation, Inc. v. Commissioner, 72 T.C. 681 (1979).
  Defendant counters that an actual controversy cannot exist in this case
 because the IRS has not taken a position which is adverse to that asserted by
 plaintiff.  Defendant notes that the no-change letter does not alter the status
 quo, namely, that plaintiff may maintain the same tax-exempt status it did
 prior to and during the examination.  Defendant also asserts that plaintiff is
 free, following the examination, to hold itself out as an entity described in
 I.R.C. ss 501(c)(3) and 170(a), as it could before the examination.
  This court finds merit in defendant's position.  Although plaintiff may
 not be pleased that the examination ended without the conclusion to which
 plaintiff believes it is entitled, the IRS's failure to complete the church tax
 examination did not create an actual controversy.  Had the IRS altered
 plaintiff's "continuing qualification" in a fashion that would be adverse to
 plaintiff, this court could have jurisdiction under I.R.C. s 7428(a)(1)(A)
 to issue a declaratory judgment. [FN1]  As the facts stand, the IRS in no way
 changed plaintiff's tax status because *247 plaintiff is in the same tax
 status position it was in before the examination began.

      FN1. Jurisdiction would exist if the no-change letter is in fact a report
     within the meaning of I.R.C. s 7611(g).  However, this court need not
     reach that issue.  See note 2, infra.

  The cases plaintiff cited are all distinguishable from the case at hand.  In
 three of the cases, the courts recognized that jurisdiction can exist under
 s 7428(a) if the IRS determines that an entity should receive tax status
 that is less favorable than that plaintiff requested in an application to the
 IRS.  See CREATE, Inc. v. Commissioner, 634 F.2d 803, 813 (5th Cir.1981);
 Foundation of Human Understanding, 88 T.C. at 1355;  Friends of the
 Society, 75 T.C. at 216.  Here, of course, plaintiff has not made a request for
 certain treatment, which the IRS has rejected, and consequently plaintiff could
 not have received an adverse ruling in the sense those cases contemplated.
 Further, plaintiff could have applied (and still may do so) for the treatment
 it seeks by filing Form 1023 with the IRS.
  Four of the cases plaintiff cited involve jurisdiction following an exhaustion
 of administrative remedies under I.R.C. s 7428(b)(2), which provides in
 pertinent part:
   [a]n organization requesting the determination of an issue referred to in
 subsection (a)(1) shall be deemed to have exhausted its administrative remedies
 with respect to a failure by the Secretary to make a determination with respect
 to such issue at the expiration of 270 days after the date on which the request
 for such determination was made if the organization has taken, in a timely
 manner, all reasonable steps to secure such determination.
  In the cases plaintiff raises, the petitioners/plaintiffs sought a declaratory
 judgment after the IRS had failed to issue notices of determination on their
 requests for such within the statutory period.  See National Foundation,
 Inc., 13 Cl.Ct. at 490;  World Family Corp., 81 T.C. at 959;  BBS
 Associates, Inc., 74 T.C. at 1119-20;  B.H.W. Anesthesia Foundation, Inc.,
 72 T.C. at 682 n. 2.  An actual controversy may exist when the IRS fails to
 make a determination, see I.R.C. s 7428(a)(2), so long as the
 petitioner/plaintiff waits 270 days after the date on which the request for
 such determination was made.  See I.R.C. s 7428(b)(2).  Subsection b of
 s 7428 is inapposite in the present circumstances because the instant case
 does not involve the IRS's failure to make a determination following a request
 by plaintiff to do so.  Therefore, this case is not an actual controversy
 under s 7428(a)(2).
  In the final case plaintiff cites, Gladstone Foundation, 77 T.C. 221, the
 IRS proposed revoking petitioner's nonprivate foundation status, and petitioner
 filed a written protest with the IRS.  The IRS failed to make a final
 determination within 270 days of petitioner's written protest, and petitioner
 subsequently sought a declaratory judgment in the Tax Court.  Ruling that the
 written protest was the equivalent of a request for determination, the Tax
 Court found that petitioner had exhausted its remedies under I.R.C. s
 7428(b)(2) and therefore could bring a declaratory judgment action under
 s 7428(a)(2).  Id. at 233, 236.
  The facts in the instant case are quite different from those in
 Gladstone Foundation.  Here, unlike in Gladstone Foundation, the IRS
 actually never proposed to revoke a prior ruling and has not done so.  Also,
 plaintiff did not file any papers with the IRS in the course of the church
 examination that can be construed as a request for a determination;  and, in
 any event, this court is not prepared to rule that something short of filing a
 Form 1023 would satisfy I.R.C. s 7428(b)(2) in the circumstances of this
 case.  Gladstone Foundation does not lead this court to conclude that an
 actual controversy exists in the instant case.
  Because the facts do not "show that there is a substantial controversy,
 between parties having adverse legal interests, of sufficient immediacy and
 reality" to find an actual controversy, this court is without jurisdiction, and
 the complaint must be dismissed. *248 [FN2]  Maryland Casualty Co. v.
 Pacific Coal & Oil Co., 312 U.S. 270, 273, 61 S.Ct. 510, 512, 85 L.Ed. 826
 (1941).  The defendant's motion to dismiss is granted.  Further, plaintiff's
 motion for summary judgment is denied.  The clerk will dismiss the complaint
 without prejudice.  No costs.

      FN2. Because the complaint has been dismissed on the actual controversy
     ground, this court need not reach defendant's argument that the no-change
     letter is not a final report.

End of file...