Political Contributions and Tax-Exempt Status for Labor Organizations, Marker v. Schultz 485 F.2d 1003 (D.C. Cir. 1973)

Washington University Law Review Volume 1974 Issue 1 January 1974 Political Contributions and Tax-Exempt Status for Labor Organizations, Marker v. Schultz 485 F.2d 1003 (D.C. Cir. 1973) Follow this and additional works at: https://openscholarship.wustl.edu/law_lawreview Part of the Constitutional Law Commons, Labor and Employment Law Commons, and the Law and Politics Commons Recommended Citation Political Contributions and Tax-Exempt Status for Labor Organizations, Marker v. Schultz 485 F.2d 1003 (D.C. Cir. 1973), 1974 WASH. U. L. Q. 139 (1974). Available at: https://openscholarship.wustl.edu/law_lawreview/vol1974/iss1/10 This Case Comment is brought to you for free and open access by the Law School at Washington University Open Scholarship. It has been accepted for inclusion in Washington University Law Review by an authorized administrator of Washington University Open Scholarship. For more information, please contact . COMMENTS POLITICAL CONTRIBUTIONS AND TAX-EXEMPT STATUS FOR LABOR ORGANIZATIONS Marker v. Schultz, 485 F.2d1003 (D.C. Cir.1973) Plaintiffs brought suit to enjoin Treasury officials from continuing to grant or recognize the tax-exempt status of labor organizations insofar as that status applies to tax-exempt membership dues used by the Plaintiffs alleged that the union for partisan political campaigns.' candidates were given the equivalent of a federal financial subsidy in violation of the constitutional limits imposed upon the taxing and spending powers of Congress by article I, section 8. The district court denied plaintiffs' request for a three-judge court and ordered the complaint dismissed with prejudice.2 The United States Court of Appeals for the District of Columbia affirmed and held: The tax-exempt status granted to labor organizations does not violate the implied first amendment ban prohibiting governmental establishment of a political movement, and consequently does not violate the constitutional limitations on congressional spending.' The Internal Revenue Code exempts certain types of organizations 1. Plaintiffs were workers required to pay union dues under a compulsory union shop contract. In raising the particular constitutional challenge discussed, however, standing as taxpayers and private attorneys general was asserted. Marker v. Schultz, 485 F.2d 1003, 1004 (D.C. Cir. 1973). 2. Id. 3. Marker v. Schultz, 485 F.2d 1003 (D.C. Cir. 1973). Plaintiffs also alleged that they were being compelled to provide financial support for parties and candidates they did not approve or favor, in contravention of their rights under the first, fifth, and ninth amendments of the Constitution. Id. at 1004. The court disagreed and held that dissenting union members had the right to be free of political use of their dues, but that their remedies would be limited to restitution to each individual employee of that portion of his money which the union expended for political use or to an injunction prohibiting expenditures for political causes of that portion of the dissenting members' dues. Id. at 1005. See Brotherhood of Ry. Clerks v. Allen, 373 U.S. 113, 118-21 (1963); International Ass'n of Machinists v. Street, 367 U.S. 740, 765-70, 77475 (1961). Washington University Open Scholarship 139 140 WASHINGTON UNIVERSITY LAW QUARTERLY [Vol. 1974:139 from taxation, 4 and the general power of Congress to establish these exemptions has been held constitutional.5 Some judicial limitations have been imposed on these statutory grants of exemption, however. The Internal Revenue Code has been construed to deny exempt status to racially discriminatory private schools' and fraternal orders." Similarly, tax deductions for contributions made to those organizations have also been denied, 8 and tax benefits accorded certain racially discriminatory organizations have been held unconstitutional. 9 However, 4. INT. REv. CODE of 1954, § 501(c). Included among the organizations granted tax exemptions are: (1) corporations which are organized by act of Congress and are instrumentalities of the United States; (2) charitable organizations; (3) civic leagues not organized for profit; (4) labor, agricultural, and horticultural organizations; (5) business leagues, chambers of commerce, real estate boards, or boards of trade not organized for profit; (6) nonprofit social clubs; (7) fraternal societies or orders; (8) voluntary employees' beneficiary associations; (9) benevolent life insurance associations of purely local character; and (10) nonprofit credit unions without capital stock. 5. Brushaber v. Union Pac. R.R., 240 U.S. 1, 21 (1916); St. Paul Fire & Marine Ins. Co. v. Reynolds, 44 F. Supp. 863, 866 (D. Minn. 1942); Phipps v. Bowers, 46 F.2d 164, 168 (S.D.N.Y. 1930), affd, 49 F.2d 996 (2d Cir.), cert. denied, 284 U.S. 641 (1931). 6. Green v. Connally, 330 F. Supp. 1150 (D.D.C.) (three-judge court), a!f'd sub nom. Coit v. Green, 404 U.S. 997 (1971) (permanent injunction granted since tax exemption would frustrate public policy declared in post-Civil War amendments and Civil Rights Act of 1964, 42 U.S.C. §§ 2000c to 2000d-4 (1970)); Green v. Kennedy, 309 F. Supp. 1127 (D.D.C.) (three-judge court), appeal dismissed sub nom. Cannon v. Green, 398 U.S. 956 (1970) (preliminary injunction against tax exemption granted); cf. Crenshaw County Private School Foundation v. Connally, 343 F. Supp. 495 (M.D. Ala. 1972), affd, 474 F.2d 1185 (5th Cir. 1973), cert. denied, 94 S.Ct. 2604 (1974) (suit seeking to retain benefits for private school dismissed); Bob Jones Univ. v. Connally, 472 F.2d 903 (4th Cir.), a!Id, 94 S. Ct. 2038 (1974) (injunction to prevent Treasury Department from withdrawing tax exemption to private racially discriminatory university denied). 7. McGlotten v. Connally, 338 F. Supp. 448 (D.D.C. 1972) (three-judge court). 8. Green v. Connally, 330 F. Supp. 1150 (D.D.C.) (three-judge court), aff'd sub nom. Colt v. Green, 404 U.S. 997 (1971). 9. McGlotten v. Connally, 338 F. Supp. 448, 456-59 (D.D.C. 1972) (three-judge court). The court held INT. Rnv. CODE of 1954, §§ 501(c)(8) (exemptions granted fraternal organizations) and 170(c)(4) (deductibility of contributions to fraternal orders) violative of the fifth amendment due process clause. Although federal action was involved, the reasoning of the court was based on "state action" and equal protection considerations generally applied in fourteenth amendment cases: Plaintiff's claim thus leads us into the murky waters of the "state action" doctrine, for we must determine whether . . .the Federal Government has supported or encouraged private discrimination so as to have itself violated plaintiffs right to the equal protection of the laws. 338 F. Supp. at 455 (footnote omitted). Tax exemptions established by INT. Rnv. CODE of 1954, § 501(c) (7) for racially discriminatory nonprofit social clubs were held https://openscholarship.wustl.edu/law_lawreview/vol1974/iss1/10 Vol. 1974:139] POLITICAL CONTRIBUTIONS the denial o (...truncated)