From: Keith Henson <hkhenson@netcom17.netcom.com>
Subject: IRS reply to Henson
Date: 1999/07/08
Message-ID: <7m186k$68k@dfw-ixnews15.ix.netcom.com>
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The government's replied to my reply I posted last week.  If this goes to
a hearing, (and is not decided on the papers) the hearing will be July 19. 

Comments and suggestions as to arguments I should bring up at that time
would be helpful.  Keith Henson


ROBERT S. MUELLER, III (California State Bar No.59775)
United States Attorney
JAY R. WEILL (California State Bar No.75434)
Assistant United States Attorney
Chief, Tax Division
THOMAS F. CARLUCCI (California State Bar No.135767)
Assistant United States Attorney
10th Floor Federal Building
450 Golden Gate Avenue, Box 36055
San Francisco, California 94102
Telephone:      (415) 436-6852

Attorneys for the United States of Arnerica

IN THE UNITED STATES DISTRICT COURT FOR THE

NORTHERN DISTRICT OF CALIFORNIA


SAN JOSE DIVISION
H. KEITH HENSON, an individual, ) No. C-98-21290-JW
        Plaintiff,      )
                )       UNITED STATES' REPLY
)
V.
)
INTERNAL REVENUE SERVICE,       )       DATE:   JULY 19, 1999
Does 1-36,      )       TIME:   9:00 A.M.
        Defendants.     )
                )
                )

        This reply responds to only those issues which require
flirther comment than those made in the government's opening brief.
I



PLAINTIFF TACITLY CONCEDES
HE CANNOT SATISFY THE STANDING THRESHOLD


        The government's motion made clear that plaintiff is without
standing to bring this action Plaintiff's reply brief makes that case
even more clear "Plaintiff is not asking for full relief and does not
expect Scientology to cease its efforts at injury" Brf at I 8. In
other words, plaintiff acknowledges that even if he were to prevail in
the instant litigation, he would be unable to stop the Church from
continuing the alleged harmful conduct.1 As stated in our opening
brief in order for plaintiff to bring this action he must demonstrate
1) that he has suffered a distinct and palpable injury, 2) that the
source

*****************

footnote
        1 Plaintiff alleges that the church has used its tax-exempt
funds to harass plaintiff with lawsuits and pay private investigators
to attack his reputation and physically attack him while picketing.
Complaint, pp.2-3.

*****************

of the injury is causally connected to the government's conduct and 3)
that his injury will be alleviate(i by a favorable decision of the
court. Simon v. Eastern Kentucky Welfare Rights Organization, 426
U.S. 26 (1976). Because plaintiff tacitly concedes that he cannot
satisfy the third prong of the test he is, without standing to bring
this action.

        As the Supreme Court has made clear federal courts can act
only to redress injuries that are fairly traceable to the challenged
action of the defendant and not some injury that results from some
third-party not before the court. Simon, 426 U.S. at 41-21. Further,
that an injury is not "fairly traceable" to the defendant's conduct if
redressing that injury not only depends on the defendant's conduct,
but also on some independent intervening or additional causal factors.
Id. This is exactly the case here. Plaintiff 's complaint is directed
at the conduct of the Church, yet it fails to name the Church as a
defendant. Instead, plaintiff attempts to affect the conduct of the
Church by suing the United States. This action comes squarely within
the holding of Simon-a court cannot hear an action that is caused by
some third party not before the court, where the suspect conduct is
not fairly traceable to the plaintiff's injury. Here, plaintiff's
injury is not fairly traceable to the government's action because as
plaintiff states, even if this Court were to grant him relief he would
continue to suffer the same injury.  Plaintiff has no expectation that
the Church will ever cease its conduct.

        The Supreme Court further explained and clarified the
redressability requirement, i.e., the third requirement in Allen V.
Wright, 468 U.S. 737, 758 (1984). in Allen the parents of black public
school children challenged the tax-exempt status of certain private
schools. The parents claimed that the government subsidy
(tax-exemption) allowed the private schools to draw all of the white
students from the public schools, thereby creating predominately black
public schools. They claimed this resulted in government subsidized
segregation.

        The Supreme Court found that this alleged injury lacked both
traceability and redressability, as it was entirely speculative" to
assume that withdrawal of a private schools' tax-exempt status would
alleviate this system-wide discrimination, Id at 758. The Court opined
that even if it were to require the IRS to make the change proposed by
plaintiffs, it was still impossible to prove that the schools would
change their behavior. Indeed, the Court found that it was even more
speculative whether the parents would transfer their children to a
public school affer such Court ordered change. ~


        More recently, the DC and Second Circuits in considering
third-party suits against the government to force revocation of
another taxpayer's 501(c)(3) exempt status, similarly determined that
the plaintiffs were without standing because of the lack of
redressability. See, F'ulani v. Bra4y, 935 F.2d 1324 (D.C. Cir. 1991)
and Fulani v. Bentsen, 3SF. 3d 49 (2d Cir. 1994).

        In Fulani (Brady) plaintiff claimed that the IRS was
responsible for her injury because it indirectly subsidized the
Commission for Presidential Debates "CPD". Apparently, CPD excluded
Ms. Fulani from one of its televised debates. The DC Circuit concluded
that plaintiff lacked standind to bring the claim because her alleged
injury lacked sufficient redressability. The Court found that if it
ordered CPD's tax-exempt status revoked, CPD might decline to sponsor
the debates, or if CPD did include plaintiff the other candidates
might choose to withdraw from the debate. The Court concluded that
there were too many causal factors significant to plaintiff's
injuries, apart from the government to warrant its review of the case.

        In Fulani (Bentsen) plaintiff made the same argument raised
above, only this time it was leveled at the League of Women Voters
"League" instead of the CPD. The League sponsored a democratic primary
debate along with CNN. Plaintiff was excluded from participating in
the debate. The Court however, found that even if it ordered the
League's tax-exempt status revoked, CNN was entitled to and would have
conducted the debate without the League. Fulani at 35 F.3d at 52-53.
And CNN still would have excluded plaintiff Id at 54. The Court
therefore concluded plaintiff's injuries were speculative and
insufficient. Id.

        Given the circumstances here, plaintiff can neither trace the
alleged wrongtul conduct to the government nor demonstrate that his
alleged injury could be redressed by this Court. Like the Fulani,
Catholic Conference, Simon and Allen cases, plaintiff's alleged
injuries here are not traceable to the government and not redressable
by this Court. By plaintiff's own admission, even if the Court were
to order the IRS to revoke the Church of Scientology's tax-exempt
status, the Church would still persist in its objectionable conduct.
Thus, by definition they are not traceable to the tax-exempt status of
the Church. This is the same reasons the Courts above determined that
the plaintiffs in those cases were without standing. In Allen the
parents might not put their children in public schools. In Fulani
(Bentsen) CNN still would have conducted the debate. In Fulani (Brady)
CPD might not sponsor any debate or if it did the other candidates
might not show. 2 In Simon the hospitals might forgo favorable tax
treatment to avoid the financial drain of serving indigent patients.

        In each of these cases, like the instant one, there was an
intervening action which was the cause of the injury, separate and
apart from the government's granting of the tax-exemption. Accordingly
like each of the plaintiffs in those cases, plaintiff here is without
standing to challenge another taxpayer's tax-exemption.

        This principle was revisited by the Second Circuit in a case
that it virtually identical to the instant case, where a third-party
plaintiff sued the government to challenge the tax-exemption of a
Church. In re United States Catholic Conference: Abortion Rights
Mobilization Inc. V. Bake.YA 885 F.2d 1020 (2d Cir. 1989). There,
plaintiffs' claimed that the government's granting the Catholic Church
tax-exempt status unfairly advantaged the Churches pro-life movement
and disadvantaged plaintiffs' pro-choice movement. The Court
determined that plaintiffs lacked standing because as a basic rule
"taxpayers do not have standing to challenge how the federal
government spends tax revenue." The Court further found that the Flast
V. Cohen 3 Establishment clause standing exception did not apply
because plaintiffs were not attacking Congress' exercise of its taxing
and spending power The Court commented that in order for plaintiffs to
come within the coverage of Flast they would have had to allege that
section 501(c)(3) itself favored the Church. id at 1028.

[I need to read this case, but in my case I did make the alternate claim that
if what the IRS did was legal under Section 170, then the law did favor
Scientology.]

        Like the plaintiffs in Catholic Conference, plaintiff here
cannot allege or demonstrate that section 501 (c)(3) favors the Church
of Scientolgy 4. Indeed, plaintiffs in both cases do not target
section 501 (c)(3), but rather the IRS alleged reflisal to address
"violations by the Church" of their exempt status. This complaint,
i.e., suing to have the government act in accordance with the law,

*******************

footnotes

        2       Unlike this case, the Second Circuit found standing in
a different context. See, Fulani V. League of Women Voters Educ. Fund,
882 F.2d 621 (2d Cir. 1989). That case turned on the unique fact that
the League could not sponsor the" debate without the tax-exemption.
Thus, the Court found that it could specifically redress plaintiff's
alleged injury. Here, this holding offers no help to plaintiff because
as plaintiff has already stated, regardless of the relief the Court
grants, the Church will continue its alleged harassment,

        3 Flast V. Cohen, 392 U.S. 83 (1968).

        4  In Hernandez V. Commissioner, 490 U.S. 680 (1989), the
Supreme Court held that the I R59 disallowance of charitable
deductions to the Church of Scientology under section 170 did not
violate the Establishment Clause.

******************

however, is insufficient to confer standing. Id. at 1025. Moreover,
this type of argument falls without the Flast exception and within
the Frothingham 5 rule denying general taxpayer standing. Id at l()2~
Accordingly, Plaintiff is without standing to maintain this action.

       What the discussion above make clear is that there are "special
problems attendant upon the establishment of standing in . . . tax
cases, ' when a litigant seeks to attack the tax exemption of a third
party." Fulani (Brady), at 1327, citing American Society of Travel
A~ents, Inc. V. Blumenthal, "()() F.      2d 145, 150, n.3 (D.C. Cir.
1977), cert. den. 435 U.S. 947 (1978); Tax Analysts & Advocates V.
Blumenthal, 566 F. 2d 130, 145 n. 90 (D.C. Cir. 1977). "~W]here a
party is seeking simply to remo~~ a third party's entitlement to a tax
exemption, the exemption likely will not bear sufficient links el
traceability and redressability to the alleged injury to warrant
standing under Allen V. Wright." 1(1 at 1328.6!

II

THE APA (5 U.S.C. 702) DOES NOT PROVIDE JURISDICTION HERE


                In 1976, Congress amended the APA to waive sovereign
immunity for suits seeking relict othei than money damages from
federal agencies or officials:

     An action in a court of the United States seeking relief other
     than money damages and stating a claim that an agency or an
     officer or employee thereof acted or failed to act in au 3
     official capacity or under color of legal authority shall not be
     dismissed nor relief therein be denied on the ground that it is
     against the United States or that the United States is aii
     indispensable party. The United States may be named as a
     defendant in any such action, and a judgment or decree may be
     entered against the United States. (5 U.S.C. section 702)


       Under settled law, for claims permitted under the APA's waiver
of sovereign immunity, jurisdiction is proper in the federal district
court under the federal-question statute, 28 lJ.S.(~ ~ 3 the
declaratory-judgment statute, id. section 2201-2202, or the mandamus
statute, id. section 1361. See Sh~r1)

******************

footnotes

5      Frothingham V. Mellon, 262 U.S. 447 (1 923

6       Of Course, even if the Court were to determine
that plaintiff had standing, the complaint should be dismissed because
plaintiff is not entitled to the relief he seeks. See Fulani V. Brady,
809 F.      Supp. 1112, 1127-1128 (S.D.N. Y. 1993) (an action seeking
to influence the discretionary authority of the government, is a
mandamus action, and where the matter involves the administering of
the tax system it is prohibited), aff'd 35 F.3d 49 (2d Cir. 1994),
citing Bob Jones University v. United States, 461 IJ.S. 574 (1983).

****************


Weinberger, 798 F.2d 1521, 1523
(D.C.Cir.1986). Whether section 702 of the APA justifies jurisdiction in this
case depends on whether the plaintiff's claims fall under any of the
three limitations on the APA's waiver of sovereign immunity. The APA
excludes from its waiver of sovereign immunity (1) claims for money
damages, (2) claims for which an adequate remedy is available
elsewhere, and (3) claims seeking relief expressly or impliedly
forbidden by another statute.

        Here, any claim for money damages would preclude APA review.
Plaintiff now asserts thai he no longer seeks money damages. Thus,
money damages is no longer an issue before this Court. Notwithstanding
plaintiff's latest change to the complaint, the APA still precludes
review because plaintiff has an adequate remedy. He can sue the Church
directly, the party that is the immediate source of his alleged
injuries. See Weinberger V. Romero-Barcelo, 456 U.S. 305 (1 982) (to
obtain injunctive relief, the party must suffer irreparable injury and
show inadequate remedy at law). Lastly because such relief is
expressly prohibited by statute ( See 26 U.S.C., sections 7421 and
7428), APA review is prohibited. 26 U.S.C. section 7121 (the
Anti-Injunction Act) specifically prohibits this action See, Barrette
et. al. V. Phoenix Gen. Hospital, 58 AFTR 2d 86-5685, 1986 ~., 10896
(D. Ariz. 986) (Plaintiffs did not have standing to challenge
hospital's tax exempt status under 501 (c)(3) of ihi IRC, and
flirthermore the action was barred by the Anti-Injunction Act, 26
U.S.C., section 7121 Section 7428, 26 U.S.C., provides that only the
organization that has qualified for tax-exempt status can file a
pleading challenging that issue. 26 U.S.C., section 7428(b)(1); see
also, Fulani(Brad~, supra at 935 F.2d 1327.

        Accordingly, this Court is without jurisdiction because the
APA does not provide a waiver of sovereign immunity under the facts
and circumstances of this case. Of course, even if the Court were ~
determine that the APA did provide such a waiver, the plaintiff lacks
standing to sue and this Court would be without jurisdiction to hear
the matter.

CONCLUSION

        In summary, plaintiffs complaint amounts to little more than
an attempt "to employ a federa court as a forum in which to air. . .
generalized grievances about the conduct of government." Flast v
Cohen, 392 U.S. supra, at 106. The Supreme Court has repeatedly
rejected such claims of standing predicated on "the right, possessed
by every citizen, to require that the Government be administered
according to the law, .  Valley Forge Christian College V. Americans
United for Separation of Church & State, 454 U.S. 464,482 (~982).

        Plaintiff lacks standing as a federal taxpayer to challenge
the IRS closing agreement with the Church; the government has not
waived its sovereign immunity; and plaintiff has failed to join the
Church of Scientology as a defendant. Accordingly, the complaint
should be dismissed


Respectfiilly submitted,


ROBERT S. MUELLER, III United States Attorney



By THOMAS F CARLUCCI


 Assistant United States Attorney Tax Division