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Lobby tax: Sporkin's ruling.

In the U.S. District Court for the District of Columbia last month, Judge Stanley Sporkin denied an injunction requested by ASAE and 10 co-plaintiffs to prevent enforcement of the federal law that, in effect, taxes associations' lobbying activities. The judge's decision--to dismiss the case because the court did not have jurisdiction--signaled not the end but the beginning of associations' constitutional challenge of the provisions. On the heels of the decision, ASAE vowed to press its claims through the district and appellate courts and, if necessary, the Supreme Court.

In fact, ASAE emerged with some optimism about the chances of a future court challenge, which could come as early as next fall. Judge Sporkin said the court would not have jurisdiction to decide the case until an association either pays the proxy tax and sues for a refund, or until an association is assessed a tax deficiency for not complying. But in his opinion, the judge chastised Congress for creating rules applicable to associations that are "not necessary to enforce the withdrawal of the business deduction for lobbying expenses," and he singled out the allocation provision--whereby all lobbying is assumed to have been funded by dues only--as "obviously geared toward putting a specific and unique 'bite' on tax-exempt organizations." Significantly, Sporkin's opinion emphasized that ASAE and its co-plaintiffs could challenge the disputed provisions later, in a refund suit or a tax-deficiency hearing.

According to ASAE officials, it will take at least two months following the end of the association's current fiscal year on June 30 to file a tax return and pay the proxy tax. If, as expected, the Internal Revenue Service denies the request for a refund, ASAE will then file suit in U.S. District Court to recover the tax payment and challenge the constitutionality of the new law. ASAE also will continue to pursue its legislative-repeal effort and to work closely with the IRS to develop reasonable regulations. For more information, call ASAE Government Affairs, (202) 626-2703.
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Title Annotation:Judge Stanley Sporkin
Publication:Association Management
Date:May 1, 1994
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