The opinion of the court was delivered by: Irma E. Gonzalez, Chief Judge United States District Court
ORDER GRANTING AMENDED COMPLAINT DEFENDANT'S MOTION TO DISMISS PLAINTIFFS' FIRST (Doc. No. 11)
Presently before the Court is defendant United States of America's ("Defendant") motion to dismiss Plaintiffs' first amended complaint ("FAC"). (Doc. No. 11.) Plaintiffs have filed an opposition and Defendant has filed a reply. The Court heard oral argument on the motion on Monday, September 28, 2009. For the reasons stated herein, the motion is granted.
The following facts are drawn from Plaintiffs' FAC unless otherwise noted. Plaintiff Catholic Answers, Inc. ("CA") is a nonprofit religious corporation. Plaintiff Karl Keating ("Keating") is the founder and president of CA. CA was allegedly incorporated in the State of California under the California Nonprofit Religious Corporation Law (Cal. Corp. Code § 9110 (2009)), and is exempt from federal income taxes pursuant to 26 U.S.C. §§ 501(a) and 501(c)(3).*fn1
On April 13, 2004, CA posted an "E-Letter" from Mr. Keating on its website. The E-Letter opines that, inter alia, Senator John Kerry, then the presumptive Democratic party presidential nominee: is nominally Catholic, and is vociferously pro-abortion. So far as I can tell, he flunks the test given in Catholic Answers' "Voter's Guide for Serious Catholics":*fn2 He is wrong on all five "non-negotiable" issues listed there.
He is precisely the kind of politician who should be denied Communion at Catholic parishes because his strong endorsement of abortion qualifies him as a "notorious sinner." (FAC ¶ 23) (citation omitted). On May 11, 2004, Mr. Keating posted another E-Letter to the CA website responding to readers' comments on Mr. Keating's previously-expressed opinions on Senator Kerry and abortion-related issues.
By a letter dated January 3, 2005, the United States Internal Revenue Service ("IRS") notified CA that it was investigating the organization's activities, specifically, whether CA had engaged in any prohibited acts of political intervention. On May 6, 2008 the IRS allegedly notified CA that Mr. Keating's E-Letters constituted "political expenditures" within the meaning of 26 U.S.C. § 4955(d)*fn3 because they "oppose the election of a specific candidate running in the November 2004 presidential election." Accordingly, the IRS assessed excise taxes for the tax years of 2004 and 2005, pursuant to 26 U.S.C. § 4955(a).*fn4 The IRS determined the total amount of the expenditures to be $831.41. Accordingly, the IRS assessed excise taxes pursuant to § 4955(a) in the following amounts, including interest: $58.51 for the 2004 tax year, and $43.42 for the 2005 tax year.
Moreover, the IRS required CA to attempt to "correct" the political expenditure pursuant to 26 U.S.C. § 4955(f)(3).*fn5 On March 17, 2008 CA collected the correction amounts, totaling $831.41, from Mr. Keating. On March 19, 2008, CA submitted a document entitled "Form 870-E, Waiver of Restrictions on Assessment and Collection of Deficiency and Acceptance of Overassessment," with respect to the excise taxes along with proof the expenditures had been corrected. On September 24, 2008 CA filed Form 843, Claim for Refund and Request for Abatement with the IRS, requesting a refund of the excise taxes paid for both 2004 and 2005. (Ex. 1to FAC, pp. 5 and 7.)
In a letter dated March 27, 2009, the IRS indicated it was abating the excise taxes pursuant to 26 U.S.C. § 4962,*fn6 and issuing a refund of the amounts assessed, including interest. Specifically, the letter stated:
We are pleased to tell you that we have approved your claim for the tax years(s) shown above. We have determined that the political intervention subject to tax under section 4955 of the Internal Revenue Code was not wilful and flagrant and was corrected within the correction period. Accordingly, under section 4962, we have abated the tax. We will change your account accordingly.
If you do not owe other amounts that the law requires us to collect, we will issue you a refund including interest. (Ex. 2 to FAC.) Accordingly, on April 21, 2009, CA received refund checks from the IRS in the amounts of $58.41 and $43.42 for the tax years 2004 and 2005, respectively. (FAC ¶ 45-46; Ex. 2 to FAC; Exs. 4 and 5 to Hendon Decl.)
II. Plaintiffs' Complaint
Plaintiffs filed the instant action on April 3, 2009, and filed their FAC on July 15, 2009.
(Doc. No. 10.) Plaintiffs allege that because CA did not make political expenditures within the meaning of § 4955(d), the IRS wrongly collected the excise taxes, and CA should not have been required to "correct" the expenditures. Although CA received an abatement and refund of the excise taxes, Plaintiffs disagree with the basis for those actions because the IRS never conceded the E-Letters were not political expenditures. Plaintiffs therefore argue CA is now prohibited from returning the $831.41 to Mr. Keating. Plaintiffs further allege the IRS's position regarding the nature of the E-Letters chills them from engaging in speech that is otherwise permissible by a § 501(c)(3) organization.
Plaintiffs additionally raise constitutional objections to § 4955, Treasury Regulation § 53.4955-1,*fn7 and Treasury Regulation § 1.501(c)(3)-1(c)(3)(iii), arguing:
(1) all three are unconstitutional, facially and as applied, because they are vague and lacking in terminology susceptible to objective assessment;
(2) § 4955 and Treasury Regulation § 53.4955-1 are unconstitutional, facially and as applied, because they lack constitutionally-requisite specificity and reach expressive activities and speech that are not IRS-regulable political expenditures; and
(3) Treasury Regulation § 1.501(c)(3)-1(c)(3)(iii)'s particular language*fn8 is unconstitutionally overbroad because it encompasses speech that is not limited to activities and communications such as express advocacy for or against a candidate's election, or direct or in-kind contributions to political candidates. (FAC ¶¶ 52-70.)
Plaintiffs' jurisdictional allegations state "this is an action for the recovery of internal revenue taxes, and this Court has jurisdiction by reason of 28 U.S.C. § 1346(a)(1)*fn9 and 26 U.S.C. § 7422.*fn10 Notwithstanding Plaintiffs' allegation that this case is a claim for a tax refund, the FAC also sets forth two "counts" alleging numerous claims for declaratory relief with respect to the excise taxes CA paid for tax years 2004 and 2005. Specifically, for each tax year, Plaintiffs request: (1) judgment that the E-Letters are not "political expenditures" within the meaning of § 4955(d); (2) judgment that CA is entitled to return any monies collected from Mr. Keating for the cost of the E-Letters; and (3) a ...