Brief for Appellants

TAX ANALYSTS & ADVOCATES, et al.,
Appellants,
v.
WILLIAM E. SIMON, et al.,
Appellees.

IN THE UNITED STATES COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT

ON APPEAL FROM THE ORDER OF THE UNITED STATES
DISTRICT COURT FOR THE DISTRICT OF COLUMBIA

BRIEF FOR APPELLANTS

STATEMENT OF THE ISSUES PRESENTED

1. Whether a domestic oil producer has standing under the Administrative Procedure Act to challenge the legality of Internal Revenue Service rulings which confer significant tax advantages on competitor American companies producing oil in foreign countries.

2. Whether a taxpayer has standing under the Administrative Procedure Act to challenge the legality of Internal Revenue Service rulings which increase his tax burden.

This case has not previously been before this Court.

REFERENCES TO PARTIES AND RULINGS

Plaintiff Tax Analysts and Advocates is a non-profit corporation organized under the laws of the District of Columbia in 1970 for the purpose of promoting tax reform. Tax Analysts and Advocates directly represents over 175 individual supporters, each of whom is a United States taxpayer. Plaintiff Thomas Field is a United States taxpayer and the owner of the entire working interest in a currently producing well in Pennsylvania (J.A. 39).

Defendant William E. Simon is Secretary of the Treasury of the United States. Defendant Donald C. Alexander is Commissioner of Internal Revenue (J.A. 40).

The Opinion and Order of the District Court (Chief Judge Hart)granting Defendants' Motion to Dismiss was issued on February 5, 1975 (J.A. 72, 109). Plaintiffs filed a Notice of Appeal on February 14, 1975 (J.A. 110).

STATUTES

The revelant statutes are reproduced in the Joint Appendix (J.A. 111).

STATEMENT OF THE CASE

Section 901(b) of the Internal Revenue Code allows qualifying United States taxpayers to claim a foreign tax credit for "the amount of any income, war profits, and excess profit taxes paid or accrued during the taxable year to any foreign country or to any possession of the United States." A credit against federal incomes can only be taken for foreign income taxes paid; no credit is allowed for foreign sales taxes, excise taxes, or royalties paid to a foreign government. All such taxes and royalties are treated, when appropriate, as ordinary business expenses and therefore result in deduction from gross income rather than in tax credits which can offset taxable income on a dollar-for-dollar basis.

Beginning in the 1950's,the principal oil producing nations in the Middle East, North Africa and South America promulgated a series of formal income tax statutes which appeared to impose net income taxes on United States companies producing oil in those nations (J.A. 40-41). In 1955 and 1968, the Internal Revenue Service published rulings that the "income taxes" paid respectively to Saudi Arabia and Libya on oil production income were creditable taxes. Rev. Rul. 55-296, 1955-1 Cum Bull. 386; Rev. Rul. 68-552, 1968-2 Cum Bull. 306. In addition, it is understood that the Internal Revenue Service has issued several private, unpublished rulings to United States oil companies that payments made to other principal OPEC nations also are creditable taxes under Section 901 (J.A. 41).

In fact, however, the payments made by United States oil companies are not creditable income taxes within the meaning of the Code. As one recent scholarly study puts it:

"The tax paid on foreign investments of oil and gas companies in the OPEC countries (where most foreign oil and gas production occurs) is peculiar as an income tax. In the first place, it is not a general tax; it applies only to oil and gas companies. In some of the OPEC countries general business income taxes simply don't exist. Also, the governments in the OPEC countries are effectively the owners of oil in the ground, so that payment to the host government would look very much the same, whether it were a tax or a royalty.

There is every reason to assert that the bulk of oil company payments to host countries are in fact royalties and that this is relevant to the eligibility of these payments for full foreign tax credit.

* * *

On the face of things the tax-royalty situation of the OPEC countries, especially in the Persian Gulf, looks like a collusive device. The general economic principles of rent-royalty income, which are well established, tell us that rents and royalties on different lands should be related to differential production costs. Production costs in the Persian Gulf are reliably estimated as under 10 percent of costs in the United States, but the nominal royalty rate (12.5%) is even less than the royalty rate in the United States.

A further theoretical problem with the application of the foreign tax credits to the taxes of the OPEC countries is that they are not strictly income taxes even in form (putting aside the royalty issue). The taxes are levied on hypothetical gross income, calculated from a posted price, reduced by a hypothetical cost. It is not uncommon for royalties to be related to gross income.

* * *

On the grounds of tax theory, therefore, the extension of the foreign tax credit to the OPEC charge is highly questionable.¹

On February 19, 1974, appellant Tax Analysts and Advocates filed a petition with the Commissioner of Internal Revenue explaining in detail the illegality of the Internal Revenue Service rulings permitting foreign tax credits for per barrel oil payments to foreign governments and urging their revocation (J.A. 10). The Commissioner did not respond.

Appellant Tax Analysts and Advocates and Appellant Field then filed a Complaint on June 17, 1974 seeking a declaratory judgment that the Internal Revenue Service rulings were unlawful and an injunction requiring the Service to withdraw the rulings (J.A. 3). This Complaint was subsequently amended on August 13, 1974 (J.A. 38). The Amended Complaint alleged that as a result of the rulings promulgated by the Internal Revenue Service, American-owned oil companies pay no tax to the United States Treasury on income derived from the extraction or production of oil in Saudi Arabia, Libya, Iran, Kuwait and Venezuela (J.A. 42). It further alleged that the revenue loss to the United States Treasury attributable to the Internal Revenue Service rulings would be approximately three billion dollars in 1974 (J.A. 42).

Appellant Field is the owner of the entire working interest of a currently producing well in Pennsylvania (J.A. 42). He alleged that the price for oil charged by the oil producers who have received the challenged rulings determines the market price for oil in the United States and that these prices are lower because of the tax advantage conferred by the rulings. Therefore, the rulings result in his obtaining lower prices for his oil production (J.A. 43-44). Field further alleged that the Internal Revenue Service rulings increase the net income from foreign oil production over what it would be if payments to foreign governments only could be deducted from gross income. This results in higher investment returns from foreign oil production than from domestic oil production and depresses the price of the interest Field owns in a domestic well (J.A. 44).

Appellant Field also alleged that he would be required to pay higher federal income taxes because the Internal Revenue Service rulings reduce the tax burden of American companies producing oil abroad. Appellant Tax Analysts and Advocates alleged that its supporters, as federal taxpayers, would likewise be required to pay higher federal income taxes (J.A. 44).

On September 20, 1974, the Government moved to dismiss the Complaint on the ground that appellants lacked standing to sue, that the Court lacked jurisdiction over the subject matter of the action and the defendants named in the action, that the action was barred by the doctrine of sovereign immunity and that appellants had failed to state a claim upon which relief could be granted (J.A. 71). On February 5, 1975, the District Court issued an Opinion and Order dismissing the Complaint solely on the ground that appellants lacked standing (J.A. 72, 109). Appellants filed a Notice of Appeal on February 14, 1975 (J.A. 110).

SUMMARY OF ARGUMENT

Appellant Field has standing as a competitor under the two-pronged test set forth in Association of Data Processing Orgs. v. Camp, 397 U.S. 158 (1970). Field is the owner of the entire working interest of a domestic oil well. He alleged that Internal Revenue Service rulings have illegally permitted American companies producing oil abroad to obtain tax credits for payments to foreign governments and that the tax advantages thus reaped by his competitors reduce the value of his investment and the price of the oil he sells. These allegations easily meet the injury in fact requirement of Data Processing.

The interests Field seeks to protect are within the zone of interests protected by the Internal Revenue Code. One of the primary purposes of the 1954 Code is to remove inequities. Section 7805(b), providing for retroactive application of Internal Revenue Service rulings, is expressly designed to assure equality of treatment for taxpayers. IBM v. United States, 343 F.2d 914, 919 (Ct. Cl. 1965), cert denied, 382 U.S. 1028 (1966). Even more specifically, the Internal Revenue Code seeks to assure that one set of competitors is not given unfair tax advantages over another. Sections 501, 502 and 511-513 of the Code prohibit tax exempt organizations from using their tax advantages to compete unfairly with non-tax exempt commercial rivals. Section 7805(b) also protects the interests of competitors. In IBM v. United States, supra, a computer manufacturer was not required to pay a concededly valid excise tax solely because a competitor manufacturer had received an incorrect ruling exempting it from the tax.

Appellants also have standing as taxpayers. The Frothingham-Richardson line of taxpayer cases is not applicable here because this case alleges a violation of a statute rather than a violation of the Constitution. In constitutional cases, the Supreme Court has denied standing to plaintiffs who cannot show undifferentiated injury. In statutory cases, particularly broad-ranging environmental cases such as United States v. SCRAP, 412 U.S. 669 (1973), the Court has not insisted on undifferentiated injury. The basis for the distinction between the two sets of cases was set forth by the Court in United States v. Richardson, 418 U.S. 166, 176 n.9 (1974). The Court explained that when a plaintiff is arguably within the zone of interests protected by a statute, Congress has provided him standing through that statute. Thus, the Court must grant standing even if plaintiff's injury in fact is undifferentiated. In non-statutory constitutional cases, Congress has not provided standing and the Court is thus free to deny standing because of prudential considerations arising from the anti-democratic implications of judicial review.

Appellants, as taxpayers, are injured by the reduction in revenues caused by the allegedly illegal Internal Revenue Service rulings. They are within the zone of interests of the Code, which is meant to remove inequities and assure that the burdens of taxation are fairly distributed.

ARGUMENT

I. APPELLANT FIELD, A DOMESTIC OIL PRODUCER, HAS STANDING UNDER THE ADMINISTRATIVE PROCEDURE ACT TO CHALLENGE THE LEGALITY OF INTERNAL REVENUE SERVICE RULINGS WHICH CONFER SIGNIFICANT TAX ADVANTAGES ON COMPETITOR AMERICAN COMPANIES PRODUCING OIL IN FOREIGN COUNTRIES.

Appellant Field, as the owner of a domestic oil well, claims standing as a person "aggrieved" under Section 10 of the Administrative Procedure Act, 5 U.S.C. §702. In a long series of cases, the Supreme Court and this Court have held that competitors have standing under the Administrative Procedure Act.² But the District Court concluded that Field failed to meet both prongs of the test for standing set forth in Data Processing; that Field had not alleged injury in fact, and that the interests he sought to protect were not arguably within the zone of interests protected or regulated by the statute in question (J.A. 106-107). The District Court's conclusions were patently incorrect.

A. Appellant Meets the Injury in Fact Requirement for Standing.

Appellant Field owns the entire working interest in a producing oil well in Pennsylvania. The well produces three barrels of crude oil per month and future production is anticipated at this level. Field's gross receipts for the sale of the well's production are estimated to be $370.08 per year for the next five years. Field's anticipated net profits before taxes are approximately $203.76 for the next five years. Royalty payments to the owners of the land and the operator of the well are expected to amount to $46.32 per year for the next five years (J.A. 74-75).

The gravamen of Field's complaint is that although his royalty payments are only treated as deductions from income taxes, the functionally similar payments made by American companies producing oil abroad to their landowners — the foreign governments — are invalidly treated as creditable taxes (J.A. 41-42). Deductions reduce taxes by 48 cents on each dollar of income; credits provide a full dollar's reduction in taxes. The tax advantage thus reaped by the producers of oil in foreign countries has two adverse impacts on Field.

First, it increases the net income from investments in foreign oil production, thereby making such investments more profitable than investments in domestic oil production and depressing the price of the interest Field owns in a domestic well. Second, it enables the companies producing oil in foreign countries to charge a lower price for the oil they sell in the United States than they would otherwise be economically able to do. Since this lower price effectively sets the price for the American market, it requires Field to charge a lower price than he would otherwise be able to do (J.A. 43-44).

Since the standing question was decided on a motion to dismiss, Field's allegations of injury in fact must be treated as true.³ But there is no dearth of evidence that Field's allegations of injury are correct. Just recently, for example, Arthur Okun, former Chairman of the Council of Economic Advisors, testified before the House Ways and Means Committee that foreign tax credits provide an incentive to investment in foreign oil production and a disincentive to investment in domestic oil production.

Field's injury obviously meets the criterion for standing set forth by the Supreme Court in United States v. SCRAP, supra. In SCRAP, a far more attentuated line of causation from the allegedly illegal agency action to the eventual injury complained of did not result in a denial of standing. The line of causation considered adequate by the SCRAP court was that the general railroad rate increase would increase the use of nonrecycable commodities. This in turn would require the consumption of more natural resources that would be taken from the Washington area to the detriment of local parks used by plaintiffs, and would also result in the discarding of additional refuse in the same local park areas. 412 U.S. at 688.

Second, the Court made clear in SCRAP that once plaintiffs allege a specific and perceptible harm, even if they have only a small stake in the outcome of the litigation, this is an adequate basis for standing. The Court flatly rejected the Government's contention that plaintiffs had to show that they were "significantly" affected. Id. at 689, n.14. The Court stated that the

'Injury in fact' . . . requirement . . . serves to distinguish a person with a direct stake in the outcome of a litigation — even though small — from a person with a mere interest in the problem. . . . As Professor Davis has put it: "The basic idea that comes out in numerous cases is that an identifiable trifle is enough for standing to fight out a question of principle; the trifle is the basis for standing and the principle supplies the motivation." Davis, Standing: Taxpayers and Others, 35 U. Chi. L. Rev. 601, 613. Ibid.

Thus, the fact that the dollar value of Field's investment in domestic oil production is modest does not deny him standing.

Three lower court cases dealing specifically with tax rulings buttress the conclusion that Field has sufficiently alleged injury in fact. In EKWRO v. Shultz, 370 F. Supp. 325 (D.D.C. 1973) rev'd on other grounds, EKWRO v. Simon, ___ U.S. App. D.C. ___, 506 F.2d 1278 (1974), plaintiffs were indigents who challenged an Internal Revenue Service ruling which allegedly altered the obligation of tax-exempt hospitals to provide free care. Although the District Court recognized that "plaintiffs are hard pressed to demonstrate indisputably that their inability to secure medical services was a direct consequence of the[challenged] Ruling," it concluded that it would not be "engaged in wild speculation" by finding injury in fact within the meaning of SCRAP. 370 F. Supp. at 330. The Court of Appeals required only a footnote to uphold the District Court's finding. EKWRO v. Simon, 506 F.2d at 1282 n.6.

In Green v. Kennedy, 309 F. Supp. 1127 (D.D.C. 1970), black public school children sued to challenge rulings permitting private schools which discriminated against blacks from obtaining tax-exempt status. A three-judge district court found that plaintiffs had standing, Id. at 1132, even though it would appear that the injury in fact to plaintiffs was speculative since the private schools might have survived as segregated institutions without tax exemption.⁵

In McGlotten v. Connally, 338 F. Supp. 448 (D.D.C. 1972), a black American sued to challenge the tax exemption granted an Elks Lodge which discriminated against blacks. Again, even though it would appear the Elks Lodge might have survived as a segregated institution without tax exemption, a three-judge district court found adequate injury in fact. Id. at 452.⁶

In the instant case, the District Court made three blatant errors in reaching its conclusion that Field did not meet the injury in fact criteria for standing. First, the District Court incorrectly assumed that injury in fact depended on a statutory right. It therefore attempted to distinguish SCRAP because here there was "no failure to comply with a statutory procedure."(J.A. 106). But injury in fact does not depend on a statutory right. In SCRAP, for example, the Court did not even mention the statute in question in its discussion of injury in fact; the statute was discussed only with respect to the zone of interest requirement. 412 U.S. at 686 n.13.

Second, the Court noted that the price of oil had risen recently and stated that "It is difficult to perceive injury to Mr. Field in this context of a current price which is 2.4. times greater than it was less than two years ago."(J.A.106). But the rise in oil prices is totally irrelevant to the question of whether Field has suffered injury in fact. A person benefit-ting from rising prices can nevertheless suffer injury in fact from illegal government action.⁷

Third, the District Court stated that "Field's allegations concerning the decrease in the value of his investment is similarly lacking in substance. Field has offered no evidence of his injury as a domestic oil producer or the cause of his lower investment return." (J.A. 106). But, since this case was decided on a motion to dismiss, Field was neither required nor able to offer evidence as to his injury. As noted above, his allegations must be taken as true. See note 3 and accompanying text, supra.

In sum, the District Court erred in finding that Field did not allege adequate injury in fact for purposes of standing.

B. Appellant Meets the Zone of Interest Requirement For Standing.

The second prong of the Data Processing test requires that the interest Field seeks to protect be arguably within the zone of interests protected or regulated by the statute in question. Again, there can be no doubt that Field meets this test. His interest as a competitor oil producer is clearly protected or regulated by the Internal Revenue Code.

First, a primary stated goal of the enactment of the Revenue Code of 1954 was to remove existing inequities in the tax system. 1954 U.S. Code Cong. & Ad. News 4025. Moreover, in the area of Internal Revenue Service rulings, Congress has explicitly called for equality of treatment in 26 U.S.C. §7805(b), which gives the Secretary of the Treasury the power to apply rulings without retroactive effect. As the Court of Claims has stated:

Congress can direct the Service and the courts to take account, in a specified area, of discrimination, of equality of treatment, and of the tax burdens imposed on competitors or persons in the same or a comparable situation. Where that is what Congress has declared, the policy of the tax law emphasizes, in that particular sector more than in the rest of the tax field, the component of equal treatment; courts are then bound to vindicate that special interest just as they are, generally, to see that the uniform taxes Congress has sought to levy are paid. . . . With respect to Internal Revenue Service rulings and regulations, the Congressional mandate [of section 7805(b)] does direct administrative and judicial attention to this factor of equality (among others). IBM v. United States, 343 F.2d 914, 919 (Ct. Cl. 1965), cert denied, 382 U.S. 1028 (1966).⁸

Thus, an investor such as Field is within the zone of interest of the Code where, as in this action, he challenges as inequitable and illegal the favorable treatment received by others as a result of Internal Revenue Service action.

Second, and far more specifically, the Internal Revenue Code embodies Congress' firm intent to assure that the tax system does not give one set of business competitors an unfair advantage over another. For example, the restrictions on the commercial activities of tax exempt organizations contained in 26 U.S.C. § 502 and 26 U.S.C. §§ 511-513 are meant to protect the interests of non-tax exempt competitors. See, e.g., University Hill Foundation v. CIR, 446 F.2d 701, 707 n.4 (9th Cir. 1971); People's Education Camp Society, Inc. v. CIR, 331 F.2d 923 (2d Cir. 1964), cert denied, 379 U.S. 839. Indeed, a crucial factor in determining whether an organization qualifies for exemption under 26 U.S.C. § 501(c) is whether the organization is in commercial competition with non-tax exempt organizations. See, e.g., People's Education Camp Society, supra; Trinadad v. Sagrada Orden, 263 U.S. 578, 582 (1924).⁹

Section 7805(b) of the Internal Revenue Code, discussed above, is also meant to assure that one competitor does not receive unfair tax advantages. This is highlighted by the leading case of IBM v. United States, supra. There, Remington Rand had received a private ruling that it need pay no excise taxes on its Univac computers. IBM then asked for a similar ruling. Subsequently, Remington's ruling was revoked, but Remington was not retroactively required to pay excise taxes for the earlier period. IBM conceded that the private ruling obtained by Remington was incorrect and that excise taxes should be levied against both Remington and IBM computers. It argued, however, that it should not be required to pay excise taxes for the period during which Remington was incorrectly not required to pay excise taxes.

The Court of Claims, relying on 26 U.S.C. § 7805(b), upheld IBM's argument despite the strong general policy that no one other than the recipient can rely on a private ruling and despite the universal agreement that the ruling itself was incorrect. The basis of the Court's decision was that IBM and Remington were competitors.

In short, it is clear that one of the purposes of Internal Revenue Code is to protect commercial enterprises against unfair tax advantages to their competitors. The District Court erred in not looking at this general purpose of the Code as a whole and instead focussing too narrowly on the purpose of the foreign tax credit provisions. The case law in this and other Circuits demonstrates that in determining standing courts must examine the general purposes of the statute at issue as well as the purpose of the specific provision which has allegedly been violated.

Thus, in Constructores Civiles de Centroamerica, S.A. v. Hannah, 148 U.S. App. D.C. 159, 459 F.2d 1183 (1972), plaintiff was a contractor in Honduras who had been found unqualified by AID to bid on a Latin American construction project. Plaintiff alleged that AID's decision had violated the agency's Capital Project Guidelines and that AID had failed to grant it a hearing required by federal regulations. The Court did not find standing on the basis of the guidelines and regulations which AID had allegedly violated but on the basis of broad general language in the congressional statement of policy for the Foreign Assistance Act, 22 U.S.C. §2151, and the preamble to the Alliance for Progress Act, 22 U.S.C. §2211(a). The Court noted that

"These broadly stroked provisions obviously do not specify particular individuals or groups to be served by the loan assistance program. The statute speaks to socio-economic interests of the peoples of Latin America. However, the requirement for standing is only that the asserted interest be arguably within the zone of interests sought to be protected. Certainly the economy of a country is dependent upon the stability of local business enterprises such as [plaintiff's]." 459 F.2d at 1189.

In Armco Steel Corp. v. Stans, 431 F.2d 779 (2d Cir. 1970) plaintiff sued to challenge an alleged violation of the Foreign Trade Zones Act, 19 U.S.C. §81(c), which benefitted a competitor. The Court did not find standing on the basis of that specific Act but instead locked to the general policy of the tariff laws, which, it stated,"are demonstrably intended to protect the competitive interest of the entire class of domestic steel producers." The Court relied on the general policy even though it recognized that foreign trade zones constituted an exception to that policy and were meant to establish a "hole" in "the tariff wall." Id. at 784-85.

In conclusion, then, the District Court erred in finding that Field did not meet the "injury in fact" and "zone of interest" criteria for standing.¹⁰ Plaintiff has alleged adequate injury in fact and has demonstrated that the interest he seeks to vindicate is arguably protected or regulated by the Internal Revenue Code. He does have standing to maintain his challenge to the legality of the Internal Revenue Service rulings on foreign tax credits.

II. APPELLANTS, AS TAXPAYERS, HAVE STANDING UNDER THE ADMINISTRATIVE PROCEDURE ACT TO CHALLENGE THE LEGALITY OF INTERNAL REVENUE SERVICE RULINGS WHICH INCREASE THEIR TAX BURDEN.

The District Court held that neither Field nor Tax Analysts and Advocates, representing its members, had standing as taxpayers. The Court relied on the recent Supreme Court decisions in United States v. Richardson, 418 U.S. 166 (1974) and Schlesinger v. Reservists Committee to Stop the War, 418 U.S. 208 (1974), as well as on the earlier cases of Frothingham v. Mellon, 262 U.S. 447 (1923) and Flast v. Cohen, 392 U.S. 83 (1968) (J.A. 82).

Appellants contend that the four leading Supreme Court cases are not applicable to the instant case, which involves a statutory rather than a constitutional violation. The Supreme Court recognized in Richardson that there is a crucial distinction between cases involving an allegation that an administrative agency has violated its statutory mandate and cases involving an allegation that a co-ordinate branch of government has violated the Constitution. In statutory cases, Congress in effect has provided standing. In non-statutory cases, on the other hand, the Court is free to deny standing because of prudential considerations arising from the anti-democratic implications of judicial review.

The starting point for an analysis of taxpayer standing is Frothingham v. Mellon. There a taxpayer challenged a federal statute providing grants to those states who would undertake programs to reduce maternity and infant mortality. The taxpayer alleged that the statute trenched on powers reserved to the several states by the Tenth Amendment and that therefore the additional taxes she was required to pay constituted deprivation of property without due process of law in violation of the Fifth Amendment.

In denying standing the Court stated that the taxpayer's interest in the monies of the Treasury was "comparatively minute and indeterminable" and that the effect of the challenged program on future taxes was "remote, fluctuating and uncertain." 262 U.S. at 487. In essence, the Court held that plaintiff had not alleged injury in fact and that, therefore, there was no case or controversy within the meaning of Article III. See Barlow v. Collins, 397 U.S. 159, 164 (1970).

In Flast, the Supreme Court, after noting the criticisms of commentators, abandoned the position that federal taxpayer suits did not meet the requirements of Article III." A taxpayer," the Court held,"may or may not have the requisite personal stake in the outcome, depending upon the circumstances of the particular case. Therefore, we find no absolute bar in Article III to suits by federal taxpayers challenging allegedly unconstitutional federal taxing and spending programs." 392 U.S. at 101. In short, Flast rejected the view that a taxpayer's interest was necessarily too minute to meet the injury in fact requirement of Article III.¹¹ Flast is thus perfectly consistent with SCRAP — which likewise makes clear that even a minute injury in fact is adequate under Article III. And, significantly, neither Richardson nor Schlesinger resurrected the doctrine that the federal taxpayer's economic injury was too minute.¹² Richardson and Schlesinger rested on another rationale, a rationale which also stemmed from Frothingham.

In Frothingham, the Court stressed not only that the federal taxpayer's interests were minute but that they were shared in common by millions of others. The taxpayer, said the Court, "suffers in some indefinite way in common with people generally." 262 U.S. at 488. As the Supreme Court put it in Flast, the taxpayer in Frothingham had sought "to employ a federal court as a forum in which to air his generalized grievances about the conduct of government or the allocation of power in the Federal System." 392 U.S. at 106.

In Richardson, the Court made clear that plaintiff lacked standing precisely because he too was seeking to employ a federal court as a forum in which to air his generalized grievances. Plaintiff's claim, the Court concluded, "is surely the kind of a generalized grievance described in both Frothingham and Flast since the impact on him is plainly undifferentiated and 'common to all members of the public'." 418 U.S. at 176-77.

It is readily apparent, however, that an undifferentiated injury or interest does not preclude standing in a case challenging an agency's compliance with its statutory mandate. For example, if a person challenged an agency's handling of the alleged dangers of aerosol sprays, he would not be denied standing because the alleged impact of aerosol sprays on the atmosphere affects all people on this planet equally. The Supreme Court said as much in SCRAP.

". . . we have already made it clear that standing is not to be denied simply because many people suffer the same injury. Indeed some of the cases on which we relied in Sierra Club demonstrated the patent fact that persons across the Nation could be adversely affected by major governmental actions. . . . To deny standing to persons who are in fact injured simply because many others are also injured, would mean that the most injurious and widespread Government actions could be questioned by nobody. We cannot accept that conclusion." 412 U.S. at 687-88.

See also the discussion of consumer standing in Office of Communication of United Church of Christ v. FCC, 123 App. D.C. 328, 359 F.2d 994, 1000-10002 (1966).

At first blush, it seems difficult to harmonize SCRAP and other statutory cases with Frothingham and the subsequent taxpayer cases. But the key to harmonizing them is found in Richardson itself. In a lengthy footnote the Chief Justice explored the distinction between Richardson and the paradigm statutory case, Data Processing.

The Court of Appeals . . . appeared to rely on Association of Data Processing Service Organizations v. Camp, 397 U.S. 150 (1970). Abstracting some general language of that opinion from the setting and controlling facts of that case, the Court of Appeals overlooked the crucial factor that standing in that case arose under a specific statute. Bank Service Corporation Act of 1962, 76 Stat. 1132, 12 U.S.C. §1861. The petitioner in Data Processing alleged competitive economic injury to private business enterprise due to a ruling by the Comptroller of the Currency permitting national banks to sell their data processing services to other banks and to bank customers whose patronage the data processing companies sought. We recognized standing for those private business proprietors who were engaged in selling the same kind of services the Comptroller allowed banks to sell; we held only that the claims of impermissible competition were "arguably . . . within the zone of interests protected" by §4 of the Bank Service Corporation Act. 397 U.S. at 156. In short, Congress had provided competitor standing. The Court saw no indication that Congress had sought to preclude judicial review of administrative rulings of the Comptroller of the Currency as to the limitations Congress placed on national banks. 418 U.S. 176, n.9. (emphasis added).

In short, the Chief Justice is saying that in SCRAP, Data Processing, and other statutory cases, Congress provides standing to plaintiffs through the statute at issue. Thus, the Courts must grant standing as long as the Article III injury in fact requirement is met, even if plaintiff's injury in undifferentiated. But in non-statutory cases Congress has not provided standing. Courts are therefore free to exercise judicial self-restraint and to deny standing for prudential reasons.¹³ They have chosen to do so in the taxpayer cases.

Significantly, all of the taxpayer standing cases involve constitutional challenges to the action of a co-ordinate branch. The Frothingham rule against taxpayer standing is and always has been a rule for constitutional cases. The very first line of the Flast opinion reads "In Frothingham v. Mellon, . . . this Court ruled that a federal taxpayer is without standing to challenge the constitutionality of a federal statute. That ruling has stood for 45 years as an impenetrable barrier to suits against Acts of Congress brought by individuals who can only assert the interest of federal taxpayers." 392 U.S. at 85. (emphasis added).

The reason for the exercise of restraint in such cases is spelled out most fully in Justice Powell's concurring opinion in Richardson." It seems to me inescapable," Justice Powell wrote

"that allowing unrestricted taxpayer or citizen standing would significantly alter the allocation of power at the national level, with a shift away from a democratic form of government. . . . We should be ever mindful of the contradictions that would arise if a democracy were to permit general oversight of the elected branches of government by a nonrepresentative, and in large measure insulated, judicial branch." 418 U.S. at 188.

Justice Powell is concerned lest the Court jeopardize "the peaceful coexistence of the
counter-majoratarian implications of judicial review and the democratic principles upon which our Federal Government in the final analysis rest. "418 U.S. at 192. The Court, Powell asserted," should explicity reaffirm traditional prudential barriers against [unrestricted taxpayer or citizen suits]. My reasons for this view are rooted in respect for democractic processes. . . ." 418 U.S. at 196

Justice Powell's concerns with respect to the anti-democratic, countermajoritarian implications of judicial review, which apply, of course, only to constitutional cases, clearly animated the majority in Schlesinger and Richardson. The Chief Justice wrote in Schlesinger that the "claim of respondents here, like the claim under the Ineligibility Clause in Levitt, supra, would require courts to deal with a difficult and sensitive issue of constitutional adjudication." 418 U.S. at 224. He stressed that constitutional adjudication was the "most important and delicate" of the Court's responsibilities and must not take place unnecessarily. Id. at 121.

In sum, the decisions in the Supreme Court's taxpayer cases reflect special prudential concerns which do not apply to statutory cases and which, in any event, the Court is not free to apply in statutory cases. The Harvard Law Review Supreme Court Note has discussed the distinction between the constitutional taxpayer cases and statutory cases at length:

Perhaps the best explanation for the difference in result between Schlesinger and SCRAP is the difference between the Court's role in cases involving statutory review of administrative action and in citizen suits to enforce the Constitution. First, review of administrative action usually turns on questions involving statutory rather than constitutional construction. Second, Congress has already decided in such cases that those persons whose interests have been affected within the meaning of the relevant statute should be entitled to seek judicial review. Standing serves only to identify those interests which Congress meant to protect and to assure that harm to those interests has occurred. The role of the courts is merely to protect the remedies imagined by the political process; if Congress is unhappy with the result it can always amend the statute. 88 Harv. L. Rev. 41, 240-41 (1974) (emphasis added).

The Supreme Court Note went on to urge that Schlesinger not be interpreted to curtail the availability of judicial review of regulatory agency action.

"The Court's insistence that standing requires a concrete, differentiated injury should not be understood as an attempt to redefine the minimum requirement of injury under article Rather, it should be seen as a reflection of prudential considerations peculiarly applicable to citizen suits brought to enforce general mandates of the Constitution." Id. at 243.

The instant case, challenging an agency interpretation of a statute, is governed by the Data Processing-SCRAP line of cases rather than the Frothingham-Richardson line of cases. And under Data Processing and SCRAP, appellants have standing. Appellants' allegation of injury in fact — that their taxes are increased by the Internal Revenue Service ruling — is adequate under SCRAP, even though their economic stake is "comparatively minute." Apppellants' interest is within the zone of interests protected by the Internal Revenue Code, since one of the primary purposes of the Code is to assure that the tax system is equitable and its burdens fall on taxpayers fairly.¹⁴ See pp. 17-18, supra. Thus, the Richardson analysis of standing in statutory cases applies here. In this case, Congress has provided standing to appellants.

CONCLUSION

The District Court's conclusion that appellants lacked standing was incorrect.¹⁵ Thus, the Court's Order dismissing the Complaint must be reversed.

Respectfully submitted,

Joseph Onek
Eldon V.C. Greenberg
Richard A. Frank
Center for Law and Social Policy
1751 N Street, N.W.
Washington, D.C.20036