The conditional privilege of tax exemption: Sovereignty, security, and the control of civil society

“ Second, government grants exemptions to religious organizations because they uniquely contribute to the pluralism of American society by their religious activities. Government may properly include religious institutions among the variety of private, nonprofit groups that receive tax exemptions, for each group contributes to the diversity of association, viewpoint, and enterprise essential to a vigorous, pluralistic society. ”

“ Qualification for tax exemption is not perpetual or immutable; some tax-exempt groups lose that status when their activities take them outside the classification and new entities can come into being and qualify for exemption.
Governments have not always been tolerant of religious activity, and hostility toward religion has taken many shapes and forms-economic, political, and sometimes harshly oppressive. ”

“ Exemption from taxation, being a special privilege granted by the government to an individual, either in gross or as appurtenant to his freehold, is a franchise. Non-user for 60, or even 30, years may well be regarded as presumptive proof of its abandonment or surrender. The present case is a strong one. The non-user consists of acquiescence in actual taxation, or an actual invasion of the franchise, year by year, for a period of years reaching almost beyond the memory of man. ”

“ National security threat actor information comprises identity attributes and associated information about individuals, organizations, groups, or networks assessed to be a threat to the safety, security, or national interests of the United States that fall into one or more of the categories listed in the annex to this memorandum. ”

“ The activities of significant transnational criminal organizations continue to pose an unusual and extraordinary threat to the national security, foreign policy, and economy of the United States. For this reason, the national emergency declared in Executive Order 13581 of July 24, 2011, and the measures adopted on that date to deal with that emergency, must continue in effect beyond July 24, 2017. ”

“ The obligation of one domiciled within a state to pay taxes there, arises from the unilateral action of the state government in the exercise of the most plenary of sovereign powers, that to raise revenue to defray the expenses of government and to distribute its burdens equably among those who enjoy its benefits. ”

“ Taxation is neither a penalty imposed on the taxpayer nor a liability which he assumes by contract. It is but a way of apportioning the cost of government among those who in some measure are privileged to enjoy its benefits and must bear its burdens. Since no citizen enjoys immunity from that burden, its retroactive imposition does not necessarily infringe due process, and to challenge the present tax it is not enough to point out that the taxable event, the receipt of income, antedated the statute. ”

“ When we realize that exemption from taxation is as palpable a subsidy as direct appropriation of funds for the propagation of the doctrines of the exempted institution, and that every taxpayer must not only bear a heavier burden in consequence of such exemption, but must also, with or against his will, be counted as part of the organic social whole which officially pronounces in favor of the merits of such doctrines, we immediately perceive that the wrong done to the citizens is not to be measured in dollars and cents. ”

“ Not only is exemption from taxation a covert subsidy for the spread of doctrinal proselytism; not only does it place the state in the position of paying for the circulation of incomparably more error than truth; not only does it rob part of the community for the benefit of another part; not only does it violate the principles of justice and of impartiality as among the conflicting beliefs of its various citizens; not only does it force the taxpayers to support religion, whether they wish to do so or not; not only does it unite church and state in defiance of democracy and equal liberty ”

“ Significant transnational criminal organizations continue to threaten the safety of the United States and its citizens through the scope and gravity of their actions. Such organizations derive revenue through widespread illegal conduct and overwhelmingly demonstrate a blatant disregard for human life through acts of violence and abuse. These organizations often facilitate and aggravate violent civil conflicts and increasingly facilitate the activities of other dangerous persons. As the sophistication of these organizations increases, they pose an increasing threat to the United States. ”

“ To that end, agencies should ensure that taxpayer-funded union time is used efficiently and authorized in amounts that are reasonable, necessary, and in the public interest. Federal employees should spend the clear majority of their duty hours working for the public. No agency should pay for Federal labor organizations’ expenses, except where required by law. Agencies should eliminate unrestricted grants of taxpayer-funded union time and instead require employees to obtain specific authorization before using such time. ”

“ Determining that the legislative purpose of tax exemption is not aimed at establishing, sponsoring, or supporting religion does not end the inquiry, however. We must also be sure that the end result-the effect-is not an excessive government entanglement with religion. The test is inescapably one of degree. Either course, taxation of churches or exemption, occasions some degree of involvement with religion. ”

“ Grants of exemption historically reflect the concern of authors of constitutions and statutes as to the latent dangers inherent in the imposition of property taxes; examption constitutes a reasonable and balanced attempt to guard against those dangers. ”

“ No one has ever suggested that tax exemption has converted libraries, art galleries, or hospitals into arms of the state or put employees 'on the public payroll.' There is no genuine nexus between tax exemption and establishment of religion. ”

“ What is Exemption from Taxation?—An exemption is freedom from a burden or service to which others are liable; but an exemption for a public purpose, or a valid consideration, is not an exemption except in name, for the valid and full consideration, or the public purpose promoted, is received in lieu of the tax. Xor is an exemption from taxation a discriminating burden on those who pay an income tax, provided the person or institution benefited by the exemption is a pauper, or a public charitable institution ”

“ Another reason rests upon the fact that any allowance of a tax immunity for the protection of state sovereignty is at the expense of the sovereign power of the nation to tax. Enlargement of the one involves diminution of the other. When enlargement proceeds beyond the necessity of protecting the state, the burden of the immunity is thrown upon the national government with benefit only to a privileged class of taxpayers. ”

“ Any implied limitation upon the supremacy of the federal power to levy a tax like that now before us, in the absence of discrimination against State activities, brings fiscal and political factors into play. The problem cannot escape issues that do not lend themselves to judgment by criteria and methods of reasoning that are within the professional training and special competence of judges. Indeed the claim of implied immunity by States from federal taxation raises questions not wholly unlike provisions of the Constitution, such as that of Art. ”

“ Persons have a constitutional right to engage in interstate commerce free from burdens imposed by a state tax upon the business which constitutes such commerce or the privilege of engaging in it or the receipts as such derived from it.'
As has been pointed out, the doctrine of federal immunity from state taxation is based upon the right of the federal government to carry on its lawful operations free from burden or impediment imposed by a state upon the business which constitutes such operations or the privilege of engaging in them. ”

“ The effect of the immunity if allowed would be to relieve respondents of their duty of financial support to the national government, in order to secure to the state a theoretical advantage so speculative in its character and measurement as to be unsubstantial. A tax immunity devised for protection of the states as governmental entities cannot be pressed so far. ”

“ It suffices to say that the tax immunity extended to property qua property does not embrace a special privilege, the corporate franchise, otherwise taxable, merely because the value of the corporate property or net income is included in an equable measure of the enjoyment of the privilege. The owner may enjoy his exempt property free of tax, but if he asks and receives from the state the benefit of a taxable privilege as the implement of that enjoyment, he must bear the burden of the tax which the state exacts as its price. ”

“ When a corporation succeeds to the rights, powers, and capacities of another corporation, it does not thereby or necessarily become entitled to an exemption from taxation. An exemption or immunity from taxation so vitally affects the exercise of powers essential to the proper conduct of public affairs and to the support of government that immunity or exemption from taxation is never sustained inless it has been given in language clearly and unmistakably evincing a purpose to grant such immunity or exemption. ”

“ The first inquiry is whether the appellee has any immunity under the contract clause; and that, I submit, is answered when it is found that it has no contract of its own and no stipulation for a transfer to it of the immunity of others.
The principle which precludes the implication of such a transfer applies equally to leases-even leases for ordinary periods. A lessee is in no better position to claim tax exemptions or limitations than a mortgagee, or a purchaser at a foreclosure sale, who, under legal authority, takes all the property, franchises, and privileges of the mortgagor. ”

“ If, as appellant argues, the exemption from taxation of the bonds is contractual and extends to the income derived from them, the question still remains whether the immunity is broad enough to secure freedom from taxation of a corporate franchise, to the extent that it is measured by tax exempt income. ”

“ The requirements of this section apply to any act that provides for a net increase in state revenues in the form of: The imposition of any new tax. An increase in a tax rate or rates. A reduction or elimination of a tax deduction, exemption, exclusion, credit or other tax exemption feature in computing tax liability. An increase in a statutorily prescribed state fee or assessment or an increase in a statutorily prescribed maximum limit for an administratively set fee. The imposition of any new state fee or assessment or the authorization of any new administratively set fee. ”

“ nor by any pretence of superiority plead exemption, thereby to license his own, or the miscarriages of any of his dependents.** No man in civil society can be exempted from the laws of it: for if any man may do what he thinks fit, and there be no appeal on earth, for redress or security against any harm he shall do; I ask, whether he be not perfectly still in the state of nature, and so can be no part or member of that civil society; ”

“ Respondent disallowed both the depreciation expense deduction and the interest expense deductions on the grounds that (1) the transfer of assets should be disregarded because there was no real change in the ownership of the assets and that the transaction lacked economic substance; (2) the $14,000,000 and $1,000,000 loan transactions were Margolis circular money movements which lacked economic substance; (3) the transaction was purely tax-motivated and lacked any business purpose ”

“ There is nothing in the record to explain the derivation or the nature of the interest in the property by these two entities. It is significant that both of these entities were among the so-called 'system entities' managed by individuals from the office of Margolis. There is no effort to explain why (apart from tax considerations) petitioner, which had just acquired the property with a loan from Barclays Bank of California, [13] would immediately embark on a transaction which did nothing except to engender an onerous (and inflated) monthly rental liability. ”

“ Petitioner contends that respondent's determination is erroneous because none of its members benefited from its activities and it is unrelated to, and dealt at arm's length with, International, a for-profit corporation. The burden of proof is on petitioner. Rule 217 (c) , Tax Court Rules of Practice and Procedure.
The operational test (see sec. 1.501 (c) (3) -1 (c) , Income Tax *1079 Regs.) focuses on the purpose rather than the nature of an organization's activities. ”

“ When the Trust made a grant to an exempt organization, petitioner always requested a copy of its exemption letter. If the donation was made to an individual or a nonexempt organization, petitioner sent the recipient a copy of a letter prepared by Mr. Margolis explaining expenditure responsibility and that expenditure responsibility reports were required. The Trust never sought approval of its grant-making procedures from the Internal Revenue Service before it made grants to individuals. ”

“ If we have no intention or purpose to be at loggerheads with the tax system, the structure should be one in which substance and form are the same, in which both truth and reality correspond, which expresses the quality of integrity, and which not only permits you and the organization to function without hindrance but facilitates such functioning. ”

“ They point out that suspicious circumstances may only be used as a cause to scrutinize a transaction and are not relevant in determining whether a transaction should be recognized for tax purposes. While claiming that these transactions were all at arm's length, petitioners argue that a transaction not at arm's length is merely an indication that it may be appropriate to scrutinize the transaction and does not in and of itself cause the transaction not to be one of substance. ”

“ Individuals, organizations, groups, or networks, including individuals acting as agents of a foreign government, that are not part of a foreign state’s armed forces, who are known or appropriately suspected to be engaged in activities that constitute an articulable threat to U.S., U.S. supported, or U.S.-led coalition military operations, personnel, equipment, or facilities. ”

“ To give emphasis to so variable an aspect of the work of religious bodies would introduce an element of governmental evaluation and standards as to the worth of particular social welfare programs, thus producing a kind of continuing day-to-day relationship which the policy of neutrality seeks to minimize. Hence, the use of a social welfare yardstick as a significant element to qualify for tax exemption could conceivably give rise to confrontations that could escalate to constitutional dimensions. ”

“ As respondent correctly points out, if petitioner's contention were correct, then an individual who is the sole manager of a private foundation could never incur liability under subsections (b) (2) .
In drafting the provisions under subchapter C, Congress intended to stop abuses that were occurring within private foundations. Mannheimer Charitable Trust v. Commissioner, 93 T.C. at 39. One of Congress' means was to provide an incentive for alleviation of the second-tier taxes upon voluntary compliance with the statute. ”

“ Section 4944 (b) (1) imposes liability for the second-tier tax on a foundation "in any case in which an initial tax is imposed by subsection (a) (1) [imposing a first-tier tax] on the making of an investment and such investment is not removed from jeopardy within the taxable period". Section 4945 (b) (1) similarly imposes liability for the second-tier tax on a foundation "In any case in which an initial tax is imposed by subsection (a) (1) on a taxable expenditure and such expenditure is not corrected within the taxable period". ”

“ When more of the people's substance is exacted through the form of taxation than is necessary to meet the just obligations of the Government and the expense of its economical administration, such exaction becomes ruthless extortion and a violation of the fundamental principles of a free government. ”

“ Our great country was forged in the fires of a revolution to overthrow the rule of a tyrant, by a free people who understood the fundamental truth that liberty is best secured when the state’s power is carefully limited. From the Declaration of Independence, to the Constitution, and through the Bill of Rights, our country and our people have always known the true, God-given nature of liberty and the ability of law to safeguard it against the state. ”

“ From the beginning of our republic, therefore, they endeavored to enhance the Constitution with a bill of rights, a specific enumeration of fundamental rights that would prevail even against a future government inclined to abuse the power it has over the lives of citizens. ”

“ As the great Justice Antonin Scalia frequently observed, every dictatorship has a bill of rights, but paper rights alone will not preserve liberty. It is our Constitution's clear division of the sovereign's power vesting the power to create laws in the Congress, the power to execute laws in the President, and the power to interpret laws in an independent judiciary that enables us to remain free and in control of our government. ”