NATIONAL WILDLIFE FEDERATION, Hon. RANDOLPH W. THROWER, DEAR MR. COMMISSIONER: This is in response to your request for comments on Internal Revenue Release 1069, October 9, 1970, relating to claims for tax-exempt status by so-called public interest law firms and other organizations which litigate or support litigation. The National Wildlife Federation is exempt from Federal income tax as an educational organization, engaged directly in a wide range of activities relating to the advancement, restoration, and conservation of wildlife and the natural resources upon which life depends. While the Federation has not engaged in litigation in the past to any significant extent, it is conceivable that, to the extent consistent with and in furtherance of its conservation objectives, the Federation might in the future wish to participate in or otherwise support litigation designed to help effect its goals. The Federation's interest in the present study transcends its own possible involvement in any future litigation activity, however, and therefore this letter addresses itself to the basic issues presented, in the sincere hope that we can cast some light on them. The question whether exempt organizations may properly engage in litigation can best be analyzed by breaking the issues down into the following three categories: (1) Is the entity in question otherwise organized and operated for exempt purposes-that is to say, putting to one side for the moment. its litigation activities, can the organization qualify for exemption in all other respects? (2) Are litigation activities of the type here considered-that is, when conducted by an otherwise exempt organization in support of the purposes for which it is created-per se outside the range of permissible activities for an exempt organization? (3) If the answer to question (2) is no-that is, if some litigation is permissible—what are the proper guidelines governing such activities, when carried on by exempt organizations? No relaxation of requirement that entity be organized and operated exclusively for exempt purposes No one, to our knowledge, proposes that there should be any relaxation of the basic requirement that an organization must be both organized and operated exclusively for exempt purposes. All organizations, whether or not they are permitted to engage in litigation in the courts, would have to demonstrate that their purposes and operations are such as to entitle them to exemption. Thus, organizations will have to establish that they can meet the "organizational" test under the regulations (that is, that their "articles" are in order); their activities will have to meet the "operational" test of being in furtherance of their exempt purposes; they will have to demonstrate that they serve "a public rather than a private interest," and that they are "not organized or operated for the benefit of private interests." Reg. 1.501 (c) (3)-1 (d)(1). All organizations claiming exemption under I.R.C. 501 (c) (3) must meet the same strict standards, both as to their organization and as to their operations. Organizations claiming the right to litigate, as the case of all other exempt organizations, must therefore be prepared at all times to demonstrate that their litigation, as well as their other activities, is in furtherance of their exempt purposes; such organizations must demonstrate that they serve a public rather than a private interest; and that they are not organized or operated for the benefit of private interests. Litigation is not per se contrary to exempt status Resort to the courts by an exempt organization, in furtherance of its exempt objectives, to enforce existing laws and rights, cannot, we submit, be deemed action which is beyond the proper sphere for any exempt organizations. What, one is tempted to ask, can be more in accord with the American tradition than open advocacy in the courts of law to establish, defend and preserve the fair and impartial enforcement of the laws for all alike? When an organization, in furtherance of its exempt purposes, presents or defends an issue in the courts there are far greater safeguards than normally exist to insure that the ideas and positions advanced-by exempt organizations or by private interests-will obtain a fair and impartial hearing, subject to full judicial review, in open proceedings subject to adversary rules that have been centuries in their development. One need not rhapsodize over our judicial system, or gloss over its admitted faults or needed improvements, to see that our judicial system is, by and large, a good one. It is the best system going to protect the rights of the least important individual as well as those of the public at large. If an exempt organization chooses to channel its activities in furtherance of its goals through the courts-where, for the organization's views to prevail they must pass the hard test of open advocacy and judicial review-the organization cannot be said to have strayed from its exempt purposes. Such activities are more, rather than less, subject to scrutiny. The glare of the judicial searchlight (assured by the open and adversary nature of our judicial system) provides safeguards that simply are not found in the case of most other activities undertaken by charitable organizations. Litigation in furtherance of charitable goals-Guidelines and safeguards It has been suggested that where private interests are involved and may be adversely affected as a result of litigation, participation by a charitable organization in litigation is somehow improper or gives rise to possibilities of abuse. We have difficulty in perceiving the basis for these objections. We start from the acknowledged proposition that the litigation must be in furtherance of the organization's exempt purposes, serving a public rather than a private interest-these tests would apply to litigation just as they apply to any other activity carried on by the organization. If an exempt organization's interest in litigations-say, involving an environmental or conservation issue-is in furtherance of its exempt purposes, how can it be said that participation by the charitable organization in court proceedings is an activity to be condemned? The laws and rights sought to be enforced are expressions of the community's will, not those of the charity, and the enforcement action is taken by the courts, not by the charity. If private interests are adversely affected, it is because of actions taken by the courts under the existing law, and it is the community that benefits from the enforcement, not the charity. In the broadest sense, of course, there are always conflicts within any given community between competing goals, and it is inevitable that charitable and private interests will, on occasion, find themselves on opposite sides of issues. The stakes will frequently be large, furthermore (whether measured in terms of dollars or the human values involved), to name just a few of the possible conflicts, there are charitable organizations concerned with diseases (heart, cancer, alcoholism, etc.) engaged in various activities which clearly affect adversely corporations in the tobacco and alcohol industries. The actual and potential effects on the profits of these industries from the activities of the exempt organization-even though carried on completely outside. of the courts-is self-evident, but the fact that tremendous private interests are involved, and are in conflict with the organization's activities, does not lead to the conclusions that the activities of the exempt organization are in any way improper or suspect. It has also been suggested that where substantial private interests are involved, and are in conflict, there is difficulty in determining whether action on one side or the other can be deemed exclusively charitable. We submit that the difficulty is no greater than exists in the case of determining whether any activity of an exempt organization is in furtherance of its exempt purposes, and that the test is the same. The determination can be made by comparing positions taken with the organization's exempt purposes, and applying the same rigorous standards as are applied to all other activities undertaken by the organization. For example, if the organization is a conservation organization; if the stand taken is in furtherance of its conservation purposes; and is taken in the public (rather than a private) interest, then the position taken by the organization conforms to the statutory test. It would not be necessary or desirable, here any more than in any other area invloving exempt organizations, for the Internal Revenue Service examiner to seek personally to evaluate on any absolute scale the worth or inherent merits of the views expressed or the positions taken. These are matters which are not for the determination by the tax collector-his job (and for this he is no doubt sincerely grateful) is merely to ascertain that the actions taken by the organization are in furtherance of its exempt purposes and to determine that those purposes are within the board categories (educational, charitable, religious, etc.) laid down by the statute. This, of course, does not mean that there are no limits on what the charities can do, in the litigation area any more than any other. Litigation conducted in the guise of charitable interests but really undertaken for private purposes is clearly beyond the scope of permissible action. There is no lack of tax authority in support of the proposition that charitable action cannot cloak private benefit. Similarly, the courts have long had to deal with questions of adequate representational capacity, standing to sue, interest, captious or frivolous claims, champerty, and maintenance, et cetra. These are areas where the courts have had great experience and the rules are well established. They would apply to litigation by charitable organizations no less than to any other litigation. Here again, the central fact we wish to make is simply this: Where a charity is a litigant there is more, rather than less, supervision over its activities. Furthermore, the consequences from its litigative efforts will be determined by the courts. based on existing law and precedents, and not by unilateral action by the exempt organization. If the purpose of the litigation is in furtherance of the charity's exempt goals then the pursuit of such litigation in the courts-where the proceedings are subject to rigorous scrutiny and the ultimate outcome is determined by the courts, under existing laws and precedents, rather than by the charity-cannot, we submit, adversely affect in any way the exempt status of the charity. Thank you for this opportunity to present our views. We have deliberately refrained from stressing the very great importance to the national environmental program played by litigation on the assumption that these facts have been adequately presented to you by others (such as the President's Council on Environmental Quality) and that it might be more helpful if we were to concentrate our analysis on the basic relationships between tax exempt status and litigation. If we can be of any assistance in discussing orally or preparing any additional written analyses with respect to any aspect of this matter, please call or write the undersigned or Mr. Arnold C. Johnson of Hogan & Hartson, 815 Connecticut Avenue, Washington, D.C., telephone No. 2985500, who has worked with us in the preparation of this letter. Sincerely, THOMAS L. KIMBALL, EDITOR'S NOTE.-The request of the Natural Resources Defense Council, Inc. for an IRS ruling that its proposed litigating activities would not cause loss of tax-exempt status helped to precipitate the IRS study of public interest litigation and the tax-exempt status of organizations involved in such litigation. This brief sets forth the arguments submitted on behalf of the council in support of its request, LAW OFFICES, CAPLIN & DRYSDALE, Washington, D.C., June 4, 1970. Re Natural Resources Defense Council, Inc.-exemption from tax under section 501 (c) (3). COMMISSIONER OF INTERNAL REVENUE, Washington, D.C. DEAR SIR: On March 16, 1970, the Internal Revenue Service issued a letter ruling to the Natural Resources Defense Council, Inc. (NRDC), holding that organization exempt from Federal income tax under section 501(c)(3) of the Internal Revenue Code and qualified to receive charitable contributions deductible in accordance with the provisions of section 170 of the Code. One paragraph of the ruling placed the following limitation upon the proposed litigating activities of NRDC: Although you are empowered to take whatever legal steps that are appropriate to carry out your purposes, you do not plan to engage in or support legal actions without requesting a ruling on the effect, if any, of the proposed activity on your exempt status. On behalf of NRDC we now respectfully request a ruling that the proposed litigating activities described in the following paragraphs will not occasion loss of the organization's exempt status under section 501 (c) (3). I. FACTS NRDC's certificate of incorporation states that the substantive purposes of the organization are: To preserve, protect, and defend natural resources, wildlife, and environment against encroachment, misuse, and destruction. The certificate grants NRDC power: To conduct research and to collect, compile, and publish facts, information, and statistics concerning natural resources, wildlife, and environment and to conduct public education programs with respect thereto. To take whatever legal steps may be appropriate and proper to carry out the foregoing purposes. The certificate specifically provides that: No substantial part of the activities of the corporation shall be carrying on propaganda, or otherwise attempting to influence |