United States District Court, D. Montana, Great Falls Division
STEPHEN C. BULLOCK, in his official capacity as Governor of Montana; MONTANA DEPARTMENT OF REVENUE; STATE OF NEW JERSEY, Plaintiffs,
INTERNAL REVENUE SERVICE; CHARLES RETTIG, in his official capacity as Commissioner of the Internal Revenue Service; UNITED STATE DEPARTMENT OF THE TREASURY, Defendants,
Morris United States District Court Judge
Court addresses two motions. Defendants Internal Revenue
Service (“IRS”), Charles Rettig in his official
capacity as Commissioner of the Internal Revenue Service, and
the United States Treasury (collectively
“Defendants”), move the Court to dismiss this
action for lack of subject matter jurisdiction and for
failure to state a claim, pursuant to Federal Rules of Civil
Procedure 12(b)(1) and (6). (Doc. 31). Plaintiffs Stephen C.
Bullock in his official capacity as the Governor of Montana,
the Montana Department of Revenue, and the State of New
Jersey (collectively “Plaintiffs”) move the Court
for summary judgment as to Count One of their Amended
Complaint. (Doc. 41). Count One asks the Court to hold
unlawful and set aside the IRS's promulgation of Revenue
Procedure 2018-38, and order the IRS to follow the procedure
for rulemaking as required by the Administrative Procedure
Act (“APA”). (Doc. 16 at 26-27).
Court held a hearing on these motions on June 5, 2019. (Doc.
56). The Court will address first the issue of whether the
Plaintiffs possess standing sufficient for purposes of
Article III to survive Defendants' motion to dismiss. The
Court next will address Plaintiffs' motion for summary
judgment as to Count One of their Amended Complaint.
Internal Revenue Code imposes federal taxes on all entities
on income from any source. Certain organizations remain
exempt from various taxes if the organization qualifies as
one of twenty-eight types of nonprofit organizations. 26
U.S.C. § 501(c), (c)(3). These exempt organizations
include those organized and operated exclusively for
charitable, educational, and similar purposes. Id.
Federal law largely exempts those entities from federal
income taxes, but the entities must meet certain substantive
requirements to qualify for tax-exempt status. For example,
§ 501(c)(4) groups generally must be “operated
exclusively for the promotion of social welfare.” 26
U.S.C. § 501(c)(4).
6033 of the Internal Revenue Code requires exempt
organizations to file annual information with the IRS. 26
U.S.C § 6033. Each organization exempt from taxation
must file an annual return “stating specifically the
items of gross income, receipts, and disbursements, and such
other information for the purpose of carrying out the
internal revenue laws as the Secretary may by forms or
regulations prescribe.” 26 U.S.C § 6033(a)(1). The
statute also contains a discretionary exception that allows
the Secretary to “relieve [most exempt organizations] .
. . from filing such a return where he [or she] determines
that such filing is not necessary to the efficient
administration of the internal revenue laws.” 26 U.S.C.
by regulation had required most exempt organizations to
report on Schedule B of Form 990 the “names and
addresses of all persons who contributed . . . $5, 000 or
more” during the taxable year. 26 C.F.R. §
1.6033-2(a)(2)(ii)(f). The IRS had required by regulation
that the exempt organizations described in § 501(c)(7)
(social clubs), § 501(c)(8) (fraternal beneficiary
societies), or § 501(c)(10) (domestic fraternal
societies), report on Schedule B the names of each donor who
contributed more than $1, 000 during the taxable year to be
used exclusively for certain religious, charitable, or
educational purposes. 26 C.F.R. §
1.6033-2(a)(2)(iii)(d). Section 1.6033-2 serves the principle
purpose of collecting and centralizing annual information
regarding money acquired by exempt organizations.
law permits states and their tax agencies to collect and use
federal return information gathered by the IRS. 26 U.S.C.
§§ 6103, 6104. Section 6103(d) provides for federal
and state information sharing of “[r]eturns and return
information with respect to taxes imposed by” a broad
swath of the federal tax code. This information “shall
be open to inspection by, or disclosure to, any State agency,
body, or commission” that is “charged under the
laws of such State with responsibility for the administration
of State tax laws, . . . for the purpose of . . . the
administration of such laws.” 26 U.S.C. § 6103(d).
A state also may enter into a disclosure agreement with the
IRS pursuant to § 6104(c). Neither Montana nor New
Jersey has entered into a disclosure agreement with the IRS.
noted that federal and state information sharing serves two
primary purposes when it updated § 6103(d) in 1976.
Sharing information first helps ensure that people and
organizations follow the tax laws. Congress reasoned
“that it is important that the States continue to have
access to Federal tax information for tax administration
purposes. With Federal tax information, the States are able
to determine if there are discrepancies between the State and
Federal returns in, e.g., reported income.” Staff of
Joint Comm. On Taxation, 94th Cong., General Explanation of
the Tax Reform Act of 1976 (Comm. Print 1976), 1976 WL
352412, at *32. Sharing tax information also relieves state
governments from the burden of expending resources to gather
information already obtained by the IRS. Congress highlighted
the fact that “many States have only a few, if any, of
their own tax auditors and rely largely (or entirely) on
Federal tax information in enforcing their own tax
Jersey alleges that it has received the names and addresses
of significant contributors through the Schedule B forms.
(Doc. 42 at 19). New Jersey alleges that the
substantial-contributor information previously contained in
the Schedule B form has allowed its Division of Consumer
Affairs to track contributions over time. Id. New
Jersey further alleges that this tracking of contributions
has allowed it to identify suspicious patterns of activity,
locate donors to aid in determining whether the entity is
soliciting from individuals within New Jersey, and otherwise
supplement state investigations under its Charitable
Registration and Investigation Act. Id. at 20. New
Jersey also requires certain organizations claiming
tax-exempt status to file registration statements that must
include a “complete copy of the charitable
organization's most recent [IRS] filing(s), ”
including “[a]ll schedules.” Id.; N.J.
Admin. Code § 13:48-4.1(b)(7). New Jersey thus obtained
substantial-contributor information through the IRS's
Schedule B forms given to the state pursuant to state tax
laws. (Doc. 42 at 21).
similarly requires entities claiming tax-exempt status to
report whether they have received a federal exemption. See
Agreement on Coordination of Tax Administration between the
MTDOR and the IRS (Doc. 45-1). Federal law and Montana law
contain similar standards. The IRS's regulations require
entities to submit the necessary information for exemption
determinations. Montana alleges that it relies on the
IRS's information regarding its exemption determinations
when making its own exemption determinations under state law.
Walborn Decl. (Doc. 45 at ¶¶ 9-10); (Doc. 42 at
collection of donor information changed when the IRS issued
Revenue Procedure 2018-38. Revenue Procedure 2018-38
eliminated the IRS's previous requirement contained at 26
C.F.R. § 1.6033-2 that exempt organizations report donor
information. Rev. Proc. 2018-38 at 1. Revenue Procedure
2018-38 applies to all 501(c) groups except 501(c)(3)
charitable organizations. Id. The instructions to
the 2018 Schedule B to Form 990 incorporate these changes and
inform exempt organizations of these changes. (Doc. 32 at
10). Revenue Procedure 2018-38 specifies that exempt
organizations still must collect and maintain the donor
information. The exempt organizations now must make it
available to the IRS only upon a specific request. Rev. Proc.
2018-38 at 1. The IRS maintains its ability to demand this
donor information should the IRS determine that this
information would be relevant. (Doc. 32 at 10).
Motion to Dismiss
motion to dismiss tests the legal sufficiency of the claims
asserted in the complaint. Fed.R.Civ.P. 12(b)(6). A court
should not dismiss a complaint unless it appears beyond doubt
that plaintiffs can prove no facts sufficient to support a
claim that entitles plaintiffs to relief. Hicks v.
Small, 69 F.3d 967, 969 (9th Cir. 1995). The Court must
assume at this stage that all allegations in Plaintiffs'
complaint are true and draw reasonable inferences in
Plaintiffs' favor. Wolfe v. Strankman, 392 F.3d
358, 362 (9th Cir. 2004).
argue that Plaintiffs lack Article III standing. Defendants
contend that Plaintiffs possess no legally protected interest
in receiving donor information from the IRS and thus have
suffered no actual harm caused by Revenue Procedure 2018-38.
(Doc. 32 at 14-15). The Court must consider whether New
Jersey or Montana has suffered a “concrete and
demonstrable injury to [its] activities, ” mindful that
“a mere setback to [Montana's and New Jersey's]
abstract social interests” remains insufficient.
Equal Rights Ctr. v. Post Props., Inc., 633 F.3d
1136, 1138 (D.C. Cir. 2011).
injury must be “concrete, particularized, and actual or
imminent” in order to establish Article III standing.
Clapper v. Amnesty Int'l USA, 568 U.S. 398, 409
(2013). The injury must be “fairly traceable to the
challenged action” and be “redressable by a
favorable ruling.” Id. At the pleadings stage,
“general factual allegations of injury resulting from
the defendant's conduct may suffice.” Lujan v.
Defs. of Wildlife, 504 U.S. 555, 561 (1992). The Court
may presume that these “general allegations embrace
those specific facts that are necessary to support the
claim.” Oregon v. Legal Serv. Corp., 552 F.3d
965, 969 (9th Cir. 2009).
deprivation of information can rise to a level sufficient to
establish an Article III injury for the purposes of standing.
The D.C. District Court in Public Citizen v. Carlin,
2 F.Supp.2d 1, 9 (D.D.C. 1997) (reversed on other grounds),
determined that a group of researchers, historians, and
journalists possessed standing to challenge the decision of
the Acting Archivist of the United States to authorize the
disposal of information contained in government documents and
records. The plaintiffs argued that the information contained
in the documents proved necessary for the dissemination of
that information through plaintiffs' public record
libraries, research projects, and journal articles.
Id. at 6.
district court acknowledged that this deprivation of
information worked a “distinct and palpable
injury.” Id. Plaintiffs demonstrated that they
previously had relied, and would continue to rely, on the
withheld information for purposes of their work. Id.
The injury remained true despite the fact that the plaintiffs
could request the records in electronic form through a
Freedom of Information Act (“FOIA”) request.
Id. The record cited by plaintiffs stood as
“ample evidence that the individual plaintiffs and
members of plaintiff organizations have been or will be
directly harmed” by the Archivist's action of
authorizing the destruction of previously used and available
information. Id. at 6. Defendants suggest that
Plaintiffs fail to meet an informational injury similar to
Public Citizen. Defendants argue that an “informational
injury can give rise to standing only when access to that
information is statutorily guaranteed.” (Doc. 32 at
16). The principle upheld in Public Citizen sweeps more
broadly than the notion that an informational injury occurs
only when a statute guarantees information to a specific
plaintiff. The district court determined instead that an
informational injury exists when the plaintiff can show that
it has relied on, and will further seek, the information that
must be ...