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Crenshaw County Private School Foundation, Etc., D/b/acrenshaw Christian Academy, Plaintiff-appellant, v. John B. Connally, Jr., Secretary of the Treasury of the U.s., et al., Defendants-appellees
United States Court of Appeals, Fifth Circuit. - 474 F.2d 1185
March 14, 1973.Rehearing and Rehearing En Banc Denied
Charles J. Kettler, Jr., Luverne, Ala., for plaintiff-appellant.
Ira DeMent, U. S. Atty., Kenneth E. Vines, Asst. U. S. Atty., Montgomery, Ala., Scott P. Crampton, Asst. Atty. Gen., Tax Div., Meyer Rothwacks, Carolyn R. Just, Leonard J. Henzke, Jr., Attys., U. S. Dept. of Justice, Washington, D. C., for defendants-appellees.
Before BELL and THORNBERRY, Circuit Judges, and GROOMS, District Judge.
GROOMS, District Judge:
This is an appeal by the plaintiff-appellant, a non-profit private school foundation, from an order of the District Court of the Middle District of Alabama, 343 F.Supp. 495, granting a motion to dismiss its complaint for an injunction against the Secretary of the Treasury and the Commissioner of Internal Revenue.
The action was dismissed on two grounds. The lower court held that (1) relief was barred by 26 U.S.C.A. Sec. 7421(a)1, and (2) that plaintiff had an adequate remedy at law in view of the fact that it was not threatened with irreparable injury.
Since our decision is posited on the first ground, we pretermit a decision on the second.
Appellant was incorporated on July 15, 1965, as a non-profit religious educational corporation under the laws of Alabama, including the provisions of Title 10, Secs. 124-132, Code of Alabama, 1940, as amended. It began full operation as the Crenshaw Christian Academy on September 30, 1968, allegedly "for students and parents who object to the constitutional inhibitions against prayer, Bible reading, religious study, and other activities of the Christian faith in public schools." Succinctly stated, the claimed purpose of the Academy is "to provide the children of the area an opportunity to obtain a quality education in a whole-some Christian atmosphere." Appellant avers that the Academy is nondenominational and is open to all adherents of the Christian faith, that its membership and student admission policy has never included any reference to race or color, and that there does not exist any officially recognized anti-racially discriminatory admission policy. It concedes that it has never received an application from a non-white, and consequently has never denied an application for admission from a non-white.
On September 17, 1968, appellant applied to the Internal Revenue Service for tax-exempt status under Title 26, Sec. 501(c)(3).2 On January 8, 1969, the Service issued its determination letter and letter of advance assurance ruling that appellant was exempt from Federal income tax under that section of the Revenue Code and that donors could deduct contributions to appellant as provided by Section 170, Title 26 U.S.C.A.3 However, the letter contained conditions reading:
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Subject to exceptions not here applicable Sec. 7421(a) provides that:
". . . [N]o suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person, whether or not such person is the person against whom such tax was assessed."
Section 501. Exemption from tax on corporations, certain trusts, etc
(c) List of exempt organizations.- The following organizations are referred to in subsection (a):
(3) Corporations, and any community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private shareholder or individual, no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation, and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of any candidate for public office.
Section 170. Charitable, etc., contributions and gifts
(a) Allowance of deduction.-
(1) General rule.-There shall be allowed as a deduction any charitable contribution (as defined in subsection (c)) payment of which is made within the taxable year. A charitable contribution shall be allowable as a deduction only if verified under regulations prescribed by the Secretary or his delegate.
(c) Charitable contribution defined. -For purposes of this section, the term "charitable contribution" means a contribution or gift to or for the use of-
(2) A corporation, trust, or community chest, fund, or foundation-
(B) organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes or for the prevention of cruelty to children or animals;
The suit of the individuals involved dollars contributed by them to American United. The claim of the latter did not involve its own tax-exempt status but the deductibility of contributions to it. The court held that the suit could not be maintained by the former since "the relief sought by the individual appellants directly ranged within the ambit of Sec. 7421(a)." Amercan United was permitted to maintain its action
See Fourth Circuit opinion in Bob Jones University
See Bailey v. George, 259 U.S. 16, 42 S.Ct. 419, 66 L.Ed. 816 (1922), where the court upheld the application of the predecessor of Section 7421(a) and reversed the lower court which had granted an injunction against the Collector of Internal Revenue from collecting the Child Labor Tax in face of the argument that the tax was not for the purpose of raising revenue, but was penal and for the purpose of regulating child labor. See also, Singleton v. Mathis, 284 F.2d 616 (8 Cir.), where the court affirmed the denial of an injunction against the Director who was proceeding to collect a gaming tax of $250.00 each on pinball machines where it was obvious that the purpose of the tax was not to raise revenue but to control gambling