The opinion of the court was delivered by: CALDWELL
Plaintiffs, Bethel Baptist Church (Bethel), its pastor, employees and certain church members have challenged the constitutionality of the social security amendments of 1983 and 1984 which imposed for the first time mandatory participation in the social security system upon employees of non-profit institutions. Plaintiffs contend that the change in the law violates the free exercise and establishment provisions of the first amendment
and the equal protection component of the due process guarantee of the fifth amendment.
Defendant has moved for summary judgment, raising procedural obstacles to the suit, and also asserting that the plaintiffs' claims must fail on the merits. Oral argument was held on this motion on December 30, 1985, supplemental briefs have been submitted, and the motion is ripe for disposition. Also pending are plaintiffs' motions to compel answers to interrogatories and request for production of documents.
Prior to the change in the social security law, nonprofit organizations, including religious ones, meeting the conditions of 26 U.S.C. § 501(c)(3), could participate in the social security system on a voluntary basis. To participate they had to affirmatively choose to do so. See 26 U.S.C. § 3121(k). Otherwise, the organizations were automatically excluded because "employment" for social security purposes was not defined to include work for nonprofit organizations. See 26 U.S.C. § 3121(b)(8)(B). The reason for allowing voluntary participation for religious groups was concern for separation of church and state. H.R. No. 25, 98th Cong., 1st Sess. at 16 (1983) reprinted in 1983 U.S. Code Cong. Ad. News 219, 233. On April 30, 1983, Congress repealed section 3121(b)(8)(B) with respect to services performed after December 31, 1983, see The Social Security Amendments of 1983, Pub. L. No. 98-21, § 102(b)(1)(C), 97 Stat. 70-71 (1983). Also repealed was section 3121(k). Id., § 102(b)(2).
On July 18, 1984, Congress passed the Deficit Reduction Act of 1984, Pub. L. No. 98-369, 98 Stat. 494 (1984). Section 2603(b) of the Act, 98 Stat. 1128-29, amended section 3121 of the Internal Revenue Code by adding section 3121(w) which provides, in pertinent part, as follows:
(w) Exemption of churches and qualified church-controlled organizations. --
(2) Timing and duration of election. -- An election under this subsection must be made prior to the first date, more than 90 days after the date of the enactment of this subsection, on which a quarterly employment tax return for the tax imposed under section 3111 is due, or would be due but for the election, from such church or organization. . . . The election may not be revoked by the church or organization . . . .
(A) For purposes of this subsection, the term "church" means a church, a convention or association of churches, or any elementary or secondary school which is controlled, operated, or principally supported by a church or by a convention or association of churches.
26 U.S.C. § 3121(w) (brackets added).
The 1984 Act also excluded employment with a duly electing church from the definition of employment for social security purposes, The Deficit Reduction Act of 1984, supra at section 2603(a)(2), codified at 26 U.S.C. § 3121(b)(8)(B), but changed the treatment of income derived from such employment to self-employment income. Id. at section 2603(c)(2)(C), codified at 26 U.S.C. § 1402(c)(2)(G).
As a result of the 1983 and 1984 amendments churches must now affirmatively elect not to be part of the system if they do not wish to contribute to social security and the election only affects the church's liability. If it elects for religious reasons not to be part of the system, it has no responsibility to pay the employer's share of the tax but the entire burden of the tax then falls upon the employee at the self-employment rate. If the church decides to become a contributing employer, then it pays the employer's share and the employee contributes at the employee rate. The latter rate is less than the self-employment rate. Compare 26 U.S.C. §§ 3101 and 3111 with 26 U.S.C. § 1401(a). Thus, church employees, regardless of whether the church decides to contribute to the system, are now covered under social security. The church remains responsible for withholding the tax and paying it to the government even if it elects out of the system.
Bethel did not make the election. On April 30, 1984, it filed a form 941, employer's federal tax return, for the quarterly period ending March 31, 1984. The return reported that Bethel paid its employees during the quarter a total of $129,890.78 in wages subject to social security taxes. The return also reported social security taxes of $17,795.04 on both Bethel and its employees which were paid on or before April 30, 1984.
On May 3, 1984, on behalf of itself and its employees, Bethel filed a claim for refund of the $17,795.04 in social security taxes, making first amendment objections to the tax. None of the individual plaintiffs made a claim for refund. They had authorized Bethel to make the claim for them. The government denied Bethel's claim on November 15, 1984, waiting until the October 30, 1984 deadline for election out of the system had passed. See 26 U.S.C. § 3121(w)(2).
While members of the Church believe that they have a scriptural duty to obey all just laws, they also believe that Christianity must govern their religious obligations. In plaintiffs' view, Scripture requires them as Christians to provide for their own financial security. If they cannot do so, their church must provide it for them. They cannot participate in an effort by government to assume or preempt that religiously mandated responsibility. Additionally, as a matter of religious belief, the church must remain free to choose the means by which it will discharge its responsibility to its members and government cannot interfere with that choice.
A person who works for the Church must be a "born again" Christian and must have actually experienced a religious call to the vocation in which he or she is employed. Plaintiff, James F. Hockman, administrator of the Upper Bucks Christian School, is one of the Church's employees. He considers his position a religious vocation by which he is fulfilling God's calling upon his life to oversee the education of young Christians by his service to Bethel. He makes less money working for the Church than he could in secular society as a school administrator but does so because of his beliefs. The other plaintiff employees, a teacher, the Church secretary, and maintenance men, echo Mr. Hockman's sentiments. Other plaintiffs are members of the Church but not employees. They are parents of children at Upper Bucks Christian School who have sent their children there to obtain an education centered on the Bible. They have made financial sacrifices to pay the required tuition.
In 1978, to fulfill its responsibility to its employees, the Church instituted a program of benefits, including life insurance, disability coverage, a pension program and medical care.
After the government denied Bethel's claim for refund, the Church, two of its officers and its employees filed suit under 28 U.S.C. § 1346(a)(1) to recover the taxes paid. The parent plaintiffs also joined in the suit, seeking redress for claimed injuries to their first amendment rights as well.
Before discussing the merits of defendant's motion we set forth our standard of review as follows:
Summary judgment under Federal Rule of Civil Procedure 56 is appropriate only where the moving party establishes that no genuine issue exists as to any of the material facts in the case, and that he is entitled to judgment as a matter of law. See, e.g., Hollinger v. Wagner Mining Equipment Co., 667 F.2d 402, 405 (3d Cir. 1981). Courts should resolve any doubts as to the existence of issues of material fact against the moving party, and view all inferences in the light most favorable to the nonmoving party. [citation omitted].
Fragale & Sons Beverage Co. v. Dill, 760 F.2d 469, 472 (3d Cir. 1985) (brackets added).
B. The Court Has Jurisdiction Over the Claims of the Parents And the Employees But Not of the Officers of the Church.
1. Jurisdiction Over the Employee Plaintiffs.
Section 1346(a)(1) provides, in pertinent part, as follows:
(a) The district courts shall have original jurisdiction, concurrent with the United States Claims Court, of:
(1) Any civil action against the United States for the recovery of any internal-revenue tax alleged to have been erroneously or illegally assessed or collected . . . or any sum alleged to have been excessive or in any manner wrongfully collected under the internal-revenue laws . . . .
But before such a suit can be filed 26 U.S.C. § 7422(a) must be satisfied. That section provides, in pertinent part, as follows:
No suit or proceeding shall be maintained in any court for the recovery of any internal revenue tax alleged to have been erroneously or illegally assessed or collected . . . or of any sum alleged to have been . . . in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Secretary or his delegate, according to the provisions of law in ...