Emerging Markets Law

Taylor English Victory in Litigation Against IRS

My tax partner, Julian Fortuna, assisted in obtaining a great result for our client, Linchpins of Liberty, Inc., in its suit against the IRS.

Our client, Linchpins of Liberty, is a non-profit organization that, along with roughly 37 other clients, applied for non-profit status under IRC Sections 501(c)(3) or 501(c)(4). Because of their names, the IRS failed to properly process these organizations’ applications for non-profit status as part of a program that tried to frustrate or delay non-profit status for conservative or anti-administration organizations. Linchpins of Liberty, along with many other organizations, sued the IRS on constitutional grounds, claiming that they were being denied constitutional rights because of their political beliefs.

After the fact of the IRS’ program of delay and non-response came to light, the IRS claims to have halted the program and resumed the proper processing of applications for non-profit status. At the trial court level, the IRS had succeeded in dismissing certain of Linchpins of Liberty’s constitutional claims as moot on the grounds that the IRS was no longer engaged in its intentional policy of delay and non-response.

In an opinion released last week the D.C. Circuit Court of Appeals reversed the trial court’s ruling, holding that the IRS had not carried its “heavy burden” to prove that the constitutional claims were moot. The opinion of the D.C. Circuit took the IRS to task for its argument:

“The IRS offers a rather puzzling explanation for why the continued failure to afford proper processing to at least some of the victim applicants should not prevent a finding of cessation. That explanation is that the organizations whose applications were still pending “were involved in ‘litigation’ with the Justice Department . . . .” Id. at 27. . . It is not at all clear why the IRS proposes that not ceasing becomes cessation if the victim of the conduct is litigating against it. The IRS position is reminiscent of Catch-22 from the novel of the same name. Under that “catch,” World War II airmen were not required to fly if they were mentally ill. However, anyone who applied to stop flying was evidencing rationality and therefore was not mentally ill. See Joseph Heller, Catch-22 (1971). “You are entitled to an exemption from flying,” the government said, “but you can’t get it as long as you are asking for it.””

Julian Fortuna was co-counsel for these clients, along with the American Center for Law and Justice, and participated in oral argument in the case.

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