The opinion of the court was delivered by: SHERIDAN
Plaintiff, Commonwealth Development Association of Pennsylvania, filed a complaint requesting the court "(a) To issue a preliminary injunction against the defendants from enforcing their Revocation of the Exempt Tax status of the plaintiff and direct that it be permitted to operate as such an Exempt organization until a final judicial decision has been made in the matter. (b) To grant plaintiff a hearing on the merits of the matter in accordance with its principles of law and equity, and after such a hearing to order and issue a permanent injunction against the defendants prohibiting them from revoking the plaintiff's status as an Exempt Tax organization, and any other unlawful actions against it. (c) To find that such aforesaid Revocation and its retroactivity were illegal, void, invalid, improper, arbitrary, capricious and of no lawful effect; . . . ." Defendants
moved to dismiss the complaint.
The plaintiff alleges it is a nonprofit corporation formed on December 27, 1966, under the laws of the Commonwealth of Pennsylvania. In December 1967, plaintiff filed an exemption application pursuant to the Internal Revenue Code, Section 501(c) (4).
On December 20, 1967, the District Director of the Internal Revenue Service granted the exemption pursuant to Section 501(c) (4), "On the basis of your stated purposes and the understanding that your operations will continue as evidenced to date or will conform to those proposed in your ruling application. . . ." By letter of November 24, 1972, the IRS notified plaintiff:
Information secured by this office discloses that your organization has not been operated on a nonprofit basis exclusively for the promotion of social welfare. Accordingly, it is held that you do not qualify for exemption from Federal Income Tax as a social welfare organization as described in Sec. 501(c) (4) of the Code.
In view of the foregoing, therefore, your exempt status is hereby revoked effective December 20, 1967, under the provisions of Rev. Procedure 72-4.07. You are required to file Federal Income Tax Returns on Form 1120 for the year 1968 and subsequent years."
On the same date a jeopardy assessment was made against plaintiff for the taxable years 1969 and 1970 in the total amount of $2,368,190.74. On January 10, 1973, the IRS sent plaintiff a written statutory notice of deficiency in income tax for 1969 and 1970.
Plaintiff contends, inter alia, that its constitutional rights were violated and the District Director abused his discretion since a hearing was not held and other due process safeguards were not complied with in the revocation of its tax exempt status. Plaintiff also argues that there was an improper delegation of authority since the notification of the tax exemption revocation, the jeopardy assessment and the statutory notice of tax deficiency were not approved and signed by the appropriate IRS officials.
The defendants moved to dismiss on the ground not only has the United States not waived its sovereign immunity, but there is a specific statute prohibiting this suit.
Section 7421(a) is very broad in its coverage, and only when the case comes within some acknowledged head of equity jurisprudence, and only if it is apparent that under the most liberal view of the law and the facts the United States cannot establish its claim, may the suit for an injunction be maintained. Otherwise, the court is without jurisdiction. Enochs v. Williams Packing and Navigation Co., 1962, 370 U.S. 1, 8 L. Ed. 2d 292, 82 S. Ct. 1125; Miller v. Nut Margarine Co., 1932, 284 U.S. 498, 76 L. Ed. 422, 52 S. Ct. 260; Iannelli v. Long, 487 F.2D 317 (3d Cir. 1973); Sipkoff v. Whinston, M.D. Pa. 1973, 354 F. Supp. 683.
Plaintiff claims Section 7421(a) is not applicable here since it does not seek to restrain the assessment or collection of any tax but only wants a hearing and review of the retroactive revocation of its tax exempt status. It further alleges since due process requirements were not met and there was an improper delegation of authority, the Government's action was clearly illegal and the exception to Section 7421(a) applies.
A suit to prevent the revocation of plaintiff's tax exempt status under Section 501(c) (4) is a suit to restrain the assessment or collection of ...