Government Seeks Dismissal of Challenge to Nonprofit Reporting Rules

STEPHEN C. BULLOCK, et al.,
Plaintiffs,
v.
INTERNAL REVENUE SERVICE, et al.,
Defendants.

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MONTANA
GREAT FALLS DIVISION

DEFENDANTS' MOTION TO DISMISS

RICHARD E. ZUCKERMAN
Principal Deputy Assistant Attorney General

JOSEPH A. SERGI
Senior Litigation Counsel
LAURA M. CONNER
LANDON M. YOST
Trial Attorneys
U.S. Department of Justice, Tax Division
555 4th Street, N.W.
Washington, D.C. 20001
(202) 305-0868 (Sergi); (202) 514-6438 (Conner); (202) 307-2144 (Yost)
(202) 307-0054 (fax)
joseph.a.sergi@usdoj.gov
laura.m.conner@usdoj.gov
landon.m.yost@usdoj.gov

Of Counsel:
KURT G. ALME
United States Attorney
VICTORIA FRANCIS
Assistant United States Attorney

Attorneys for the defendants

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TABLE OF CONTENTS

I. INTRODUCTION

II. BACKGROUND

III. ARGUMENT

IV. CONCLUSION

TABLE OF AUTHORITIES

Federal Cases

AICPA v. IRS, 2018 WL 3893768 (D.C. Cir. Aug. 14, 2018)

Ashley Creek Phosphate Co. v. Norton, 420 F.3d 934 (9th Cir. 2005)

Batterton v. Marshall, 648 F.2d 694 (D.C. Cir. 1980)

Boorstein v. Men's Journal, 2012 WL 2152815 (C.D. Cal. June 14, 2012)

Clapper v. Amnesty Int'l USA, 568 U.S. 398 (2013)

E.J. Friedman, v. United States, 6 F. 3d 1355 (9th Cir. 1993)

Facebook v. IRS., 2018 WL 2215743 (N.D. Cal. May 14, 2018)

FEC v. Akins, 524 U.S. 11 (1998)

Gozlon-Peretz v. U.S., 498 U.S. 395 (1991)

Havasupai Tribe v. Provencio, 906 F.3d 1155 (9th Cir. 2018)

Heckler v. Chaney, 470 U.S. 821 (1985)

Hemp Indus. Ass'n v. DEA, 333 F.3d 1082 (9th Cir. 2003)

JEM Broad. v. FCC, 22 F.3d 320 (D.C. Cir. 1994)

Lexmark v. Static Control Components, 134 S.Ct. 1377 (2014)

Lujan v. Defenders of Wildlife, 504 U.S. 555 (1992)

Massachusetts v. Mellon, 262 U.S. 447 (1923)

Match-E-Be-Nash-She-Wish Band v. Patchak, 567 U.S. 209 (2012)

Mendoza v. Perez, 754 F.3d 1002 (D.C. Cir. 2014)

Nw. Requirements Utilities v. F.E.R.C., 798 F.3d 796 (9th Cir. 2015)

PETA v. United States Fish & Wildlife Serv., 2013 WL 12131726 (C.D. Cal. June 26, 2013)

Virginia ex rel. Cuccinelli v. Sebelius, 656 F.3d 253 (4th Cir. 2011)

West Virginia ex rel. Morrisey v. HHS Dep't, 827 F.3d 81 (D.C. Cir. 2016)

West Virginia v. HHS Dep't., 145 F. Supp. 3d 94 (D.D.C. 2015)

Whitmore v. Arkansas, 495 U.S. 149 (1990)

Wilderness Society v. Rey, 622 F.3d 1251 (9th Cir. 2010)

State Cases

Bullock v. Fox, OP 18-0599 (Montana)

McGrath v. Martz, 2004 WL 2985143 (November 04, 2004)

Federal Statutes

26 U.S.C § 6033

26 U.S.C. § 501

26 U.S.C. § 6103

26 U.S.C. § 6104

28 U.S.C. § 1331

28 U.S.C. § 1391

5 U.S.C. § 553

5 U.S.C. § 701

Federal Rules

Federal Rule of Civil Procedure 12

Federal Regulations

26 C.F.R. § 1.6033-2

26 C.F.R. § 301.6103

Other Authorities

Rev. Proc. 2003-21

Rev. Proc. 2011-15

Rev. Proc. 2018-38

Rev. Proc. 80-44

Rev. Proc. 83-23

Rev. Proc. 94-17

Rev. Proc. 95-48

Rev. Proc. 96-10

U.S. Const., Art. II § 2

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Defendants move to dismiss this action pursuant to Federal Rules of Civil Procedure 12(b)(1) and (b)(6) for lack of subject matter jurisdiction and failure to state a claim.

I. INTRODUCTION

This lawsuit presents the extraordinary case of a state tax agency suing a federal tax agency in an attempt to dictate to the IRS the information that it must collect from federal taxpayers and turn over to the state for its own state purposes. It is even more exceptional because Montana has never before sought or received from the IRS the information plaintiffs are now trying to force the IRS to continue collecting, and because Montana lacks the ability to obtain this information from the IRS even if the IRS were to continue collecting it.

As a threshold matter, this action must be dismissed because plaintiffs — the Governor of Montana and the Montana Department of Revenue — lack Article III standing.¹ Plaintiffs have suffered no concrete or actual harm from the IRS's decision because they have never before sought from the IRS the donor information that they now claim to need, and would have no legal right to the information even if the challenged Revenue Procedure were revoked. Plaintiffs also lack statutory standing, because they do not fall within the “zone of interests” of any relevant statute that permits this suit.

The IRS's issuance of Rev. Proc. 2018-38 would not be reviewable under the APA even if plaintiffs did have standing to bring this suit. First, Congress has explicitly committed decisions about what information to collect from exempt organizations to the IRS's discretion, precluding APA review. In issuing Revenue Procedure 2018-38, the IRS² exercised its longstanding statutory discretion to determine what information it collects from organizations exempt from tax under 26 U.S.C. § 501(a) to meet its tax administration needs. The IRS specified that non-501(c)(3) exempt organizations no longer needed to supply it with the names and addresses of their donors (“donor information”). This exercise of discretion was nothing new: the IRS has repeatedly revised the reporting requirements for exempt organizations through revenue procedures, as permitted by statute and regulation. The most recent revision, Rev. Proc. 2018-38, resulted in the determination that the benefits of receiving this information, if any, were outweighed by the costs and risks associated with collecting and retaining it. Rev. Proc. 2018-38. That is well within the IRS's statutory discretion to determine.

Second, as to plaintiffs' claims that Rev. Proc. 2018-38 is subject to the APA's notice-and-comment procedures, this revenue procedure is an interpretive and procedural rule and those procedures do not apply.

II. BACKGROUND

A. The IRS may specify the information that tax-exempt organizations must supply on their information returns

In general, the Internal Revenue Code imposes federal taxes on all entities that receive income from any source. An exception applies for certain organizations that qualify under § 501(c) as one of 28 types of nonprofit organizations, including those that are organized and operated exclusively for charitable, educational, and other similar purposes (§ 501(c)(3)). These entities are largely exempt from federal income taxes, but must meet certain substantive requirements to qualify for tax-exempt status.³ For example, § 501(c)(4) groups generally must be “operated exclusively for the promotion of social welfare.” 26 U.S.C. § 501(c)(4).

In addition to the substantive requirements, § 6033 generally requires exempt organizations to file annual information returns on Form 990 “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); 26 C.F.R. § 1.6033-2(a)(2)(i). For all exempt organizations other than those that have 501(c)(3) status (hereinafter, “exempt organizations”), the statute leaves it to the IRS's discretion to specify what “other information” it needs to collect, including whether to collect donor information.⁴ The statute also contains a discretionary exception allowing the IRS to relieve most organizations from filing an information return if the filing is not necessary to the efficient administration of the internal revenue laws: “The Secretary may relieve [most exempt organizations] . . . from filing such a return where he determines that such filing is not necessary to the efficient administration of the internal revenue laws.” 26 U.S.C. § 6033(a)(3)(B). For example, pursuant to this authority, the IRS has relieved most organizations with typical gross receipts of not more than $50,000 from the requirement to file an annual information return on Form 990 as long as they submit a Form 990-N e-Postcard annually in electronic format. Rev. Proc. 2011-15, 2011-3 I.R.B. 322 (January 17, 2011).

Prior to Rev. Proc. 2018-38, the IRS 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 also 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 purposes, such as religious, charitable, or educational purposes. 26 C.F.R. § 1.6033-2(a)(2)(iii)(d). That same regulation also provides that “the Commissioner may relieve any organization or class of organizations . . . from filing, . . . in part the annual return required by this section . . .,” 26 C.F.R. 1.6033-2(g)(6), which is consistent with the statutory authorization for the Secretary to “relieve any organization . . . from filing such a return,” 26 U.S.C. § 6033(3)(B).

Copies of the Forms 990 filed by exempt organizations must be made available to the public, but donor information on Schedules B is strictly prohibited from public disclosure. 26 U.S.C. § 6104(b). Thus, the IRS must redact this donor information before disclosing these annual returns to the public, creating the risk of inadvertent disclosure of confidential donor information due to human or technical error.

B. With Rev. Proc. 2018-38, the IRS specified that non-501(c)(3) exempt organizations were no longer required to report donor information

The IRS has long revised reporting requirements for exempt organizations through revenue procedures.⁵ Consistent with that practice, in the summer of 2018, the IRS issued Rev. Proc. 2018-38, which eliminated the requirement that non-501(c)(3) organizations report the names and addresses of substantial contributors. Rev. Proc. 2018-38 also eliminated the requirement that organizations described in §§ 501(c)(7), (8), or (10) report the names and addresses of persons who contributed more than $1,000 during the taxable year to be used for exclusively charitable and other purposes. The instructions to the 2018 Schedule B to Form 990 incorporate these changes, and inform these organizations that they are no longer required to report the names and addresses of donors on this schedule. See https://www.irs.gov/pub/irs-pdf/f990ezb.pdf.

Rev. Proc. 2018-38 specified that exempt organizations still must collect the donor information, maintain it, and make it available to the IRS upon request. Rev. Proc. 2018-38. Thus, the IRS fully maintained its ability to demand this donor information should the IRS determine that it was relevant.

C. Montana has not been receiving the return information of exempt organizations from the IRS, and has not satisfied the prerequisites necessary to request it

Although plaintiffs state that they need to obtain donor information from the IRS for Montana's tax administration purposes, Montana has not taken advantage of the mechanisms whereby it could request this information from the IRS. Although § 6103 generally prohibits the disclosure of tax return information, there are different mechanisms through which a state may request return information from the IRS, once the state has met the safekeeping requirements established by the IRS. See 26 U.S.C. § 6103(p); 26 C.F.R. § 301.6103(p)(4)-1; IRS Publication 1075.

While plaintiffs do not cite this provision in their complaint, disclosure of Form 990 information is primarily governed by § 6104(c), which specifically addresses disclosure of this information to states. With respect to non-501(c)(3) exempt organizations, this subsection generally provides that the IRS “may” disclose returns and return information to an appropriate state officer upon written request, but only to the extent necessary in administering state laws regulating the solicitation or administration of charitable funds or charitable assets of such organizations. 26 U.S.C. § 6104(c)(3).⁶ As with disclosures under § 6103(d), discussed below, established IRS procedures for disclosures under § 6104(c) require a state to enter into a disclosure agreement with the IRS before it may make such a request. See I.R.M. § 7.28.2⁷; Declaration of Phyllis Grimes, ¶ 2. Montana does not have a § 6104(c) disclosure agreement with the IRS, and thus does not receive any information pursuant to § 6104(c).⁸ Id., ¶ 3.

The IRS may also disclose Form 990 information to Montana pursuant to § 6103(c), but only at the “taxpayer's request.” 26 U.S.C. § 6103(c). Disclosures made under this subsection are part of a different joint federal and state program that provides that a taxpayer can consent to disclosure by designating another person to receive its return. Id., ¶ 4. A state, however, may only participate in this program by executing a standard Memorandum of Understanding. Id. Montana has not done this for information specific to exempt organizations. Id., ¶ 5.

Section 6103(d), the provision cited by plaintiffs, also allows for the disclosure of certain return information to states, but it does not specifically authorize the disclosure of donor information. Pursuant to § 6103(d) states may make a written request for certain returns and return information by executing agreements with the IRS, which serve as the written requests required by this subsection. The IRS has executed § 6103(d) agreements with Montana, and they are attached as Exhibits 3 and 4 to the Grimes Declaration. These Montana agreements, however, do not provide for the disclosure of Form 990 series returns or any return information of exempt organizations. Grimes Decl., ¶ 7; Exs. 3 and 4 to the Grimes Decl. This is understandable because § 6103(d) only authorizes disclosure, upon written request, of returns and return information to state tax agencies “with respect to the taxes imposed” by the chapters named therein. 26 U.S.C. § 6103(d). Donor information of exempt organizations is typically not information with respect to taxes imposed by any chapter listed in this subsection. Thus, unless unusual circumstances were to cause an exempt organization to be subject to a tax imposed by one of these chapters and donor information to somehow be relevant to those taxes, the plain terms of § 6103(d) do not authorize disclosure of donor information to states, because this information is not information “with respect to the taxes imposed” by any chapter.

Finally, at the risk of stating the obvious, if a state determines that it needs this donor information, nothing prevents it from requesting this information directly from exempt organizations.

III. ARGUMENT

A. Plaintiffs lack Article III standing because they have suffered no actual harm and have no legally protected interest in receiving private donor information

Article III of the Constitution limits the jurisdiction of federal courts to “cases” and “controversies.” U.S. Const., Art. III § 2. To bring a case or controversy before the Court, plaintiffs must have suffered an “injury in fact” that has a “causal connection” with the injury it complains of and that is likely to be “redressed by a favorable decision.” Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992) (internal citations and quotes omitted). An “injury in fact” for purposes of standing must rise to the level of an “invasion of a legally protected interest.” See id. The injury must also be “concrete and particularized” and “actual or imminent,” as opposed to “conjectural or hypothetical.” See id. Plaintiffs cannot meet these threshold requirements.

The challenged revenue procedure “imposes none of the obligations on [Montana] that, in other cases, have provided a state standing to challenge a federal statute:” it “does not directly burden [Montana];” “does not commandeer [Montana's] enforcement officials;” and “does not threaten [Montana's] sovereign territory.” Virginia ex rel. Cuccinelli v. Sebelius, 656 F.3d 253, 268 (4th Cir. 2011) (internal citations omitted). Nor does it create a conflict between federal law and Montana state law that in certain cases might lead to a state having standing to challenge federal action. Id. at 268-70 (finding that the conflict between the Affordable Care Act's individual mandate and Virginia state law did not give rise to a sufficient injury-in-fact for standing purposes).

Rather, plaintiffs' assertion of standing rests on little more than their desire to have the federal government collect certain donor information for them. Yet Montana never received this information prior to the issuance of Rev. Proc. 2018-38. Plaintiffs' alleged injury is therefore entirely “conjectural and hypothetical.” Lujan, 504 U.S. at 560-61. And even if Montana has suddenly discovered a need for this information for purposes of this litigation, the State would have no legal right to the information even in the absence of Rev. Proc. 2018-38: applicable law does not obligate the IRS to supply Montana with requested donor information. Plaintiffs thus cannot establish any injury to a “legally protected interest.” Id.

1. Governor Bullock and the Montana Department of Revenue have not established that they have legal authority to assert the State of Montana's alleged interests

As an initial matter, the plaintiffs here — the Governor of Montana and the Montana Department of Revenue — allege only injuries to the State of Montana's “quasi-sovereign interests.” Complaint ¶¶ 46-48. The State of Montana is not a plaintiff in this suit, and it does not appear that attorneys from the Montana Attorney General's office are representing the plaintiffs. The plaintiffs have not established that they have the authority to sue in the name of the State of Montana, and it appears that Governor Bullock may lack such authority under Montana law. See Application for Writ of Prohibition, McGrath v. Martz, 2004 WL 2985143 (November 04, 2004) (“The Governor's attempt to prosecute and defend any litigation on behalf of the State clearly exceeds the limitation set in the Constitutional Convention against her assumption of 'direct responsibility of performing the duties assigned . . . the attorney general.'”) (internal citations omitted); see also Bullock v. Fox, OP 18-0599 (Montana) (considering questions of gubernatorial standing).

2. Plaintiffs' alleged injuries are hypothetical

Plaintiffs have suffered no concrete or actual injury from Rev. Proc. 2018-38. First, Montana has never actually requested or received from the IRS the donor information it claims to need. Tellingly, plaintiffs fail to allege that Montana has ever had a practice of receiving — or has even once received — such information from the IRS. Instead, the State merely hypothesizes that it someday “may request the names and addresses of significant contributors from the IRS.” Complaint ¶ 33 (emphasis added). In fact, Montana has not taken the preliminary steps necessary to receive such information. To receive donor information under § 6104(c)(3) — which governs the disclosure of donor information to states — state tax agencies must satisfy certain prerequisites, including entering into a disclosure agreement with the IRS. See I.R.M. § 7.28.2; Grimes Decl. ¶ 2. Montana does not have a § 6104(c) disclosure agreement with the IRS and has therefore not been receiving the information it now claims it needs. Id., ¶ 3. For this reason alone, plaintiffs' claims of harm are pure speculation about future actions it might take, which is exactly the kind of hypothetical situation a federal court is not constitutionally permitted to adjudicate. Clapper v. Amnesty Int'l USA, 568 U.S. 398, 409 (2013) (“we have repeatedly reiterated that 'threatened injury must be certainly impending to constitute injury in fact,' and that '[a]llegations of possible future injury' are not sufficient) (quoting Whitmore v. Arkansas, 495 U.S. 149, 158 (1990) (emphasis added; internal quotation marks omitted)”).

Second, even if Montana now decides that it desires this donor information, Rev. Proc. 2018-38 does not inhibit Montana from obtaining it. Montana could obtain that information directly from the exempt organizations themselves, as Rev. Proc. 2018-38 leaves in place the requirement that exempt organizations must maintain this information.⁹ Nor does Rev. Proc. 2018-38 prevent Montana from independently mandating that exempt organizations retain and submit donor information. The fact that doing so might require the allocation of administrative resources or the enactment of new rules or regulations is not an injury-in-fact, as it would require the Court to accept the “extraordinary claim” that simply leaving Montana with the discretion to decide “whether to implement a federal statute,” or in this case, to replicate the effect of a prior federal regulation by exercising its own sovereign powers, is an injury-in-fact. West Virginia ex rel. Morrisey v. HHS Dep't, 827 F.3d 81, 83-84 (D.C. Cir. 2016) (West Virginia lacked standing to challenge DHHS's decision to not enforce the Affordable Care Act's minimum coverage requirement during transition period, which left enforceability up to the states, because its injury was not sufficiently concrete and particular); see also Massachusetts v. Mellon, 262 U.S. 447, 482 (1923) (finding no “justiciable controversy” where the statute did not “require the states to do or to yield anything”).

Plaintiffs do not plausibly assert that they would be harmed by the alleged weakening of the “overall rigor and reliability of the federal process” (Complaint, ¶ 35), nor that its own laws and regulations are not rigorous or reliable. Nor do they cite any legal principle that a state's own failure to rigorously or reliably enforce its own laws could give rise to a claim of harm inflicted by the federal government. Likewise, Montana does not plausibly assert that it would face “substantial pressure” to change its laws, nor that such pressure could give rise to a claim of harm inflicted by the federal government. Complaint, ¶¶ 46-48. Montana's “claimed injury, at bottom, involves a general desire to challenge the legality of a federal action, [but the] Supreme Court held long ago . . . that a State's general challenge to the lawfulness of federal action, predicated on an abstract injury to the State's sovereignty, is not sufficient to confer standing.” West Virginia v. HHS Dep't., 145 F. Supp. 3d 94, 102 (D.D.C. 2015), aff'd 827 F.3d 81 (D.C. Cir. 2016) (citing Mellon, 262 U.S. at 482).

3. Plaintiffs have no legally protected interest

Even if plaintiffs could establish that they had a right under Montana law to assert sovereign injury based on their purely hypothetical desire to request donor information from the IRS at some future time, they have no legal right to receive such information from the IRS. They therefore have no legally protected interest on which standing may be based.

As discussed, § 6104(c) governs the disclosure of donor information to states, but Montana does not meet the statutory prerequisites and therefore has no legally protected interest here.

Plaintiffs allege that Montana is authorized to obtain the donor information under § 6103(d) in conjunction with 26 C.F.R. § 1.6033-2, but this is incorrect. The more specific statute, § 6104(c), controls over the more general provisions of § 6103(d). See, e.g., Gozlon-Peretz v. U.S., 498 U.S. 395, 407 (1991) (specific statutory provision normally controls over more general one). Moreover, the plain terms of § 6103(d) do not apply to exempt organization donor information, but only to return information “with respect to taxes imposed by” the specified chapters named therein. 26 U.S.C. § 6103(d)(1). Finally, even if plaintiffs could use § 6103(d) to obtain the donor information they seek, Montana's current § 6103(d) disclosure agreements with the IRS do not provide for the disclosure of any Form 990 information, including the donor information at issue. Exs. 3 and 4 to the Grimes Decl.; Grimes Decl. ¶ 7.

Additionally, even if Montana were somehow to have a legally protected interest in obtaining return information though either § 6104 or § 6103, such an interest is not a statutory right to dictate to the IRS what information it must collect from exempt organizations on that form. Congress has explicitly granted the IRS the discretion, within certain parameters, to determine what information to collect on the form. Plaintiffs cannot possibly have the legal right to dictate to the IRS the “other information . . . [the IRS] may by forms or regulations prescribe,” 26 U.S.C. § 6033(a)(1), or to prohibit the IRS from issuing a discretionary exception allowed by 26 U.S.C. § 6033(a)(3)(B). Congress granted that authority exclusively to the IRS.

Plaintiffs claim that they have suffered informational injury because information that was previously available to them by statute is no longer available. See Complaint, ¶ 45. But informational injury can give rise to standing only when access to that information is statutorily guaranteed. Wilderness Society v. Rey, 622 F.3d 1251, 1258–60 (9th Cir. 2010); PETA v. United States Fish & Wildlife Serv., 2013 WL 12131726, at *3 (C.D. Cal. June 26, 2013); Boorstein v. Men's Journal, 2012 WL 2152815, at *4 (C.D. Cal. June 14, 2012). While plaintiffs cite FEC v. Akins, 524 U.S. 11, 21 (1998), that case involved information that the applicable statute “required be made public.” Wilderness Society, 622 F.3d at 1258 (discussing Akins). Here, in contrast, there is no statutory guarantee that Montana can receive the names and addresses of donors to exempt organizations, and plaintiffs have therefore suffered no cognizable informational injury due to the IRS's issuance of Rev. Proc. 2018-38.

Without a legal right for Montana to the donor information at issue, the IRS has not invaded a legally protected interest by discontinuing the collection of this information on Schedule B of Form 990, and plaintiffs consequently lack standing. See, e.g., Facebook v. IRS., 2018 WL 2215743, at *12 (N.D. Cal. May 14, 2018) (“Because Facebook has no legally enforceable right to take its tax case to IRS Appeals, the IRS has not invaded a legally protected interest by refusing to refer Facebook's case to IRS Appeals, and Facebook consequently lacks standing.”).

B. Plaintiffs lack statutory standing because they do not come within the zone of interests of any statute that authorizes their suit

In addition to their lack of Article III standing, plaintiffs also lack standing for the independent reason that they do not fall “within the class of plaintiffs whom Congress has authorized to sue.” Lexmark v. Static Control Components, 134 S.Ct. 1377, 1387 (2014). To determine this, the Court must ask whether the interests plaintiffs assert are “arguably within the zone of interests to be protected or regulated by the statute that [plaintiffs say] was violated.” Match-E-Be-Nash-She-Wish Band v. Patchak, 567 U.S. 209, 224 (2012) (internal quotations omitted).

This limitation on standing “is not toothless” in an APA suit, as plaintiffs must show that they fall within the “zone of interests” protected by the underlying substantive statute that is implicated by the challenged agency action. Nw. Requirements Utilities v. F.E.R.C., 798 F.3d 796, 807-08 (9th Cir. 2015); see also, e.g., Havasupai Tribe v. Provencio, 906 F.3d 1155, 1166 (9th Cir. 2018). Plaintiffs cannot do so here. They are presumably claiming that 26 U.S.C. § 6033, or perhaps § 6103, are the substantive statutes implicated by the IRS's action, as these are the only two non-APA statutes cited in the complaint, besides § 501 and the general jurisdictional statutes 28 U.S.C. §§ 1331 and 1391. But neither statute protects any state interest in the administration of federal tax law.

Section 6033 sets forth the return filing obligations of exempt organizations by prescribing certain requirements regarding the information they must report, while granting the IRS the discretion to make the majority of decisions regarding these requirements. Thus, the plain purpose of § 6033 is to enable the IRS to administer the tax code as it applies to exempt organizations. States like Montana are not within the class of intended beneficiaries of § 6033. Indeed, states are not mentioned, alluded to, or even contemplated by the provision.

As for § 6103, Rev. Proc. 2018-38 was not issued under § 6103, and it is difficult to see how plaintiffs could allege that § 6103 is the statute that protects their interests, as it does not govern the disclosure of donor information, as discussed above. Moreover, the purpose of this statute is not to enable states to access return information, but to protect the privacy of taxpayers' return information by strictly limiting the circumstances under which the IRS may disclose it.

Because plaintiffs' “interests are so marginally related to or inconsistent with the purposes implicit” in §§ 6033 and 6103, “it cannot be reasonably assumed that Congress intended to permit” states to challenge decisions made by the IRS pursuant to these sections. Ashley Creek Phosphate Co. v. Norton, 420 F.3d 934, 940 (9th Cir. 2005) (internal quotation omitted); Nw. Requirements, 798 F.3d at 809.

C. Congress has committed decisions about what information to collect from exempt organizations to the IRS's discretion

The APA provides the framework for determining when a court may review an agency decision, but such review is precluded to the extent that “agency action is committed to agency discretion by law.” 5 U.S.C. § 701(a)(2). In other words, review is precluded “if the statute is drawn so that a court would have no meaningful standard against which to judge the agency's discretion.” Heckler v. Chaney, 470 U.S. 821, 830 (1985). This is just such a case.

The tax code provides that all exempt organizations must file a 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) (emphasis added). Pursuant to that broad grant of authority, the Secretary promulgated a regulation that requires exempt organizations to file the “additional information” of donor names and addresses. See 26 C.F.R. §§ 1.6033-2(a)(2)(ii)(f), 1.6033-2(a)(2)(iii)(d)(1). But in that same regulation, the Secretary delegated to the IRS Commissioner the discretion to “relieve any organization or class of organizations . . . from filing, . . . in part the annual return required by this section.” 26 C.F.R. § 1.6033-2(g)(6). This relief authority is entirely consistent with the statute, which (1) specifies that “such other information” can be prescribed by regulation or forms, and (2) expressly and solely grants the Secretary the authority to “relieve any organization . . . from filing such a return where he determines that such filing is not necessary to the efficient administration of the internal revenue laws.” 26 U.S.C. § 6033(a)(3)(B). Rev. Proc. 2018-38 is an exercise of both grants of broad discretion, and it is separately authorized by each one: (i) it (along with its follow-on revised Form 990) prescribes by “form[ ]” which “other information” exempt organizations must provide, and (ii) it is an exercise of the Secretary's broad discretion to “relieve any organization . . . from filing such a return.”

These two broad, statutory grants of power leave no meaningful standard that a court could apply in judging the IRS's exercise of discretion. “[F]or the purpose of carrying out the internal revenue laws,” 26 U.S.C. § 6033(a)(1), and “not necessary to the efficient administration of the internal revenue laws,” 26 U.S.C. § 6033(a)(3)(B), are so broad as to constitute no meaningful standards, and Congress gives no discrete, objective factors by which a court can judge either one. See Webster v. Doe, 486 U.S. 592, 600-01 (1988) (finding that Congress had committed employee termination decisions to agency discretion when Congress authorized termination whenever the Director “shall deem such termination necessary or advisable in the interests of the United States”) (emphasis in original); see also E.J. Friedman v. United States, 6 F. 3d 1355, 1359 (9th Cir. 1993) (finding that statute, which provided that IRS may discharge property from liens if the IRS determines the United States' interest in the property has no value, committed the IRS decision to its discretion and thus was not subject to judicial review).

D. Rev. Proc. 2018-38 is an interpretive and procedural rule for which notice-and-comment procedures are not required

Notice-and-comment procedures are not required for “interpretive rules” or “rules of agency organization, procedure, or practice.” 5 U.S.C. § 553(b)(3)(A). Rev. Proc. 2018-38 qualifies as an interpretive rule because it interprets and clarifies the “other information” that § 6033(a)(1) allows the IRS to require. It also qualifies as a procedural rule because it does not change the substantive criteria that organizations must meet to qualify for tax exemption.

“In general terms, interpretive rules merely explain, but do not add to, the substantive law that already exists in the form of a statute or legislative rule. Legislative [or substantive] rules, on the other hand, create rights, impose obligations, or effect a change in existing law pursuant to authority delegated by Congress.” Hemp Indus. Ass'n v. DEA, 333 F.3d 1082, 1087 (9th Cir. 2003). Rev. Proc. 2018-38 clarifies the “other information” that § 6033(a)(1) allows the IRS to require, but it makes no change to the existing law requiring the submission of “gross income, receipts and disbursements” or the law governing the qualifications an organization must maintain to be tax-exempt.

Rev. Proc. 2018-38 is similar to another revenue procedure that the D.C. Circuit recently determined to be interpretive and, thus, not subject to notice and comment. In that case, the applicable statute authorized the IRS to require return preparers to demonstrate necessary qualifications and competency. AICPA v. IRS, 2018 WL 3893768, at *8 (D.C. Cir. Aug. 14, 2018). The court found that a revenue procedure establishing education and testing requirements for certain preparers was an interpretive rule because it clarified how a preparer may demonstrate his qualifications and competency. Id. Similarly, Rev. Proc. 2018-38 is interpretive because it clarifies the “other information” that certain exempt organizations must provide to the IRS under IRC § 6033. By specifying the type of information — donor information — that certain organizations need not provide, Rev. Proc. 2018-38 interprets and clarifies § 6033's requirement to submit “other information.”

Rev. Proc. 2018-38 also is not subject to notice and comment for the independent reason that it is a procedural rule. Procedural rules are “primarily directed toward improving the efficient and effective operations of an agency, not toward a determination of the rights [or] interests of affected parties,” and they “do not themselves alter the rights or interests of parties, although [they] may alter the manner in which the parties present themselves or their viewpoints to the agency.” Mendoza v. Perez, 754 F.3d 1002, 1023 (D.C. Cir. 2014) (quoting Batterton v. Marshall, 648 F.2d 694, 702 n.34, 707 (D.C. Cir. 1980)).

Changing the information that certain exempt organizations must report (or not) on their returns does not alter the rights or interests of those organizations. Regardless of what information the organizations are required to report on their annual returns, the substantive law and standards that the organization must meet to remain tax-exempt are unchanged. For example, whether or not a § 501(c)(4) organization is required to report the names and addresses of its donors, the organization must nonetheless generally conduct its activities in support of social welfare and not for the private benefit of certain individuals, and not primarily for political campaign or other non-exempt purposes. Rather than altering any of the substantive limitations on the activities of tax-exempt organizations, Rev. Proc. 2018-38 merely addresses the IRS's timing and process for collecting information that may be used by the IRS to determine compliance with those unchanged substantive criteria. As Rev. Proc. 2018-38 explains, organizations “must continue to collect and keep [donor names and addresses] in their books and records and to make [that information] available to the IRS upon request.” Although donor information no longer will be automatically collected for certain exempt organizations on Schedule B of their Forms 990, that information will remain available to the IRS in the event the IRS deems it necessary to obtain that information.

As a result of the above, Rev. Proc. 2018-38 is a procedural rule and thus not subject to notice and comment. See JEM Broad. v. FCC, 22 F.3d 320, 327 (D.C. Cir. 1994) (finding that FCC rules that required the dismissal of incomplete license applications without leave to amend were not subject to notice and comment because they “did not change the substantive standards by which the FCC evaluates license applications”) (emphasis in original). Plaintiffs' claims to the contrary should be dismissed.

IV. CONCLUSION

For the foregoing reasons, the Court should dismiss this action pursuant to Fed. R. Civ. P. 12(b)(1) and (b)(6).

DATED: February 20, 2019

Respectfully submitted,

RICHARD E. ZUCKERMAN
Principal Deputy Assistant Attorney General

JOSEPH A. SERGI
Senior Litigation Counsel
LAURA M. CONNER
LANDON M. YOST
Trial Attorneys
U.S. Department of Justice, Tax Division
Attorneys for the defendants