possible time and should invite contributions from informed and interested sources. This was the purpose of our announcement of October 9, 1970. It was intended as an announcement of a study, but was unfortunately misunderstood by some in two important respects. The announcement stated that the issuance of rulings would be suspended during the study. Although knowledgeable practitioners and many four lation people were aware that for several months no favorable rulings had been issued and that none could be expected until our study was concluded, many people less familiar with the matter read into the announcement a meaning that outstanding rulings were being suspended. A second misunderstanding arose from the portion of the October 9 announcement on funding during the period of the study. It had been urged upon me by representatives of at least one of the pending applicants that, to avoid the inequity resulting from our indecision, we should ask foundations to withhold long-term commitments until the conclusion of our study. This was not clearly stated in the announcement of October 9 and was clarified by a further statement on October 15, 1970. In response to our announcement, we received a number of wellreasoned letters and legal memoranda which contributed much to the development of our position and permitted us to complete it well within the limit of 60 days which we had set for ourselves. It may be that the procedures which we followed did not comply in every respect with the letter of section 102 of the National Environmental Policy Act of 1969. On the other hand, we believe that they complied fully with the spirit of that provision. Not only did we take the actions described above, but in addition, before the public announcement of October 9, 1970, I advised Chairman Train by telephone of an intention to make such an announcement, and I reviewed with him the subject matter to be covered. Mr. KARTH. On the bottom of page 6, you talk about the procedures. Do you at some place in your testimony delineate those procedures to assure full compliance, or could you provide that for the record at the conclusion of these hearings? Mr. THROWER. Mr. Chairman, let me say that I would be happy to ask our chief counsel to provide his understanding of what these procedures should be. The language in the act is in very general terms. Up to this point. I don't know that there has been made available to all the departments and agencies any specifics as to the interpretation and application of the act. On the other hand, we have discussed the development of guidelines which we will follow in-house, so to speak, and I will ask him, in working with the Treasury, to commit these to written form and supply them to the committee at an early date. Mr. KARTH. If you would, please, the committee would be grateful. Thank you. You may proceed. Mr. THROWER. As I say, in addition to the other action which I have described preceding the public announcement of October 9, 1970, I had personally advised Chairman Train by telephone of an intention to make the announcement and reviewed it with him. We then made arrangements for our staffs and ourselves to meet and exchange views and memoranda so that we could have the full benefit of his views. This was done in developing the position announced on November 12, 1970. Further, the position itself would seem wholly in harmony with the spirit of the act since it promotes public airing and judicial resolution of environmental issues. However, the Service action does not itself directly affect the quality of the human environment. On November 16, 1970, I appeared before the Senate Subcommittee on Employment, Manpower, and Poverty of the Committee on Labor and Public Welfare to discuss our study, and I would like to leave a copy of my statement to that subcommittee with you, since it somewhat expands upon my remarks to you. However, following my appearance, a number of Senators expressed general satisfaction with the Service position, as did those representatives of the public interest law firms that appeared. Mr. KARTH. Without objection, Commissioner, that will be made part of the record at this point. Mr. THROWER. Thank you. And the same, may I ask, with respect to the submission from Dr. Train? Mr. KARTH. Yes. (The documents follow:) THE IMPORTANCE OF PRIVATE LITIGATION TO ENVIRONMENTAL PROTECTION EXECUTIVE OFFICE OF THE PRESIDENT, Commissioner RANDOLPH W. THROWER, DEAR COMMISSIONER THROWER: I have been advised by our General Counsel Mr. Atkeson of the analysis you are making of the eligibility under Sec. 501(c)(3) of the Code of entities which may pursue environment protection goals through litigation. It is my understanding that it would be helpful to you and your General Counsel Mr. Worthy if we were to set out the relevant public policy considerations as they appear to our Council. In our view, and in the view of our Legal Advisory Committee: "Private litigation before courts and administrative agencies has been and will continue to be an important environmental protection technique supplementing and reinforcing government environmental protection programs." I enclose a memorandum setting out at greater length the reasons for our view, some of the precedents and the safeguards you would wish to consider. We have observed that litigation brought by private groups which must rely on contributions for their support have performed at least three key functions in aid of our environment protection programs: ́They have strengthened and accelerated the process of enforcement of antipollution laws; They have identified gaps in our regulatory procedures as for example in our pesticide controls and spurred action to remedy these gaps, and They have brought before the courts the public's interest in enforcement of such new governmental procedures as the Section 102 environmental impact statement requirement. None of these cases is of a type that would bring an award of damages to the plaintiff and these cases typically do not involve an economic interest of the plaintiff that would finance the cost of litigation. In other words, if it were not for the plaintiffs' concern for the protection of our collective environment, and the availability of contributions which receive charitable contribution status under our tax laws to support the costs of litigation, this important private supplement to our governmental efforts would be seriously curtailed. I would be happy to discuss the matter with you at your convenience. I have asked Mr. Atkeson to call Mr. Worthy since I understand you are trying to reach an early decision. Sincerely, RUSSELL E. TRAIN, Chairman. CHARITABLE STATUS OF PRIVATE LITIGATION TO PROTECT THE ENVIRONMENT I. THE IMPORTANCE OF PRIVATE ENVIRONMENTAL LITIGATION A. Recognition by Government Officials On February 10, 1970, in his Message to Congress on the Environment, President Nixon called for "greater citizen involvement" in the "fight against pollution." The President observed that "[t]he tasks that need doing require money, resolve and ingenuity-and they are too big to be done by government alone." Id. The President's concern to obtain greater citizen involvement in our pollution control effort was reflected in the First Annual Report of the Council on Environmental Quality. The Council expressed the view that existing enforcement of Federal water and air pollution laws had not reached its full potential. Report, at 53. The Council made special mention of supplementary efforts of citizen groups to take actions to restore or prevent damage to the environment, citing among other examples instances where citizens had sought and obtained redress through the judicial system. Id., at 218. On this specific issue, the Council's Legal Advisory Committee has adopted a resolution stating as the sense of the Advisory Committee that: "Private litigation before courts and administrative agencies has been and will continue to be an important environmental protection technique supplementing and reinforcing governmental environmental protection programs." B. Stautory Recognition A number of Federal statutes recognize citizen participation in environmental litigation. The policy declaration of the National Environmental Policy Act (NEPA) states that: "the Congress . . . declares that it is the continuing policy of the Federal Government, in cooperation with State and local government, and other concerned public and private organizations, to use all practicable means and measures... to create and maintain conditions under which man and nature can exist in productive harmony...." (42 U.S.C. & 4331(a).) [Emphasis supplied.] Section 102 (2) (C) of NEPA, 42 U.S.C. & 4332 (2) (C), also requires that copies of the environmental impact statements required by the Act, along with the comments of governmental agencies, "shall be made available to the President, the Council on Environmental Quality and to the public as provided by section 552 of title 5...." [Emphasis supplied.] Courts have recognized a private right to enforce the environmental-impactstatement requirement of NEPA. In Wilderness Society v. Hickel, 1 Env. Rep. 1335 (D.C.D.C., decided April 23, 1970), at the request of private groups a Federal district court stayed construction of an access road for the proposed TransAlaska Pipeline System because, among other things, the Department of Interior had not fully complied with NEPA. Citizen participation is recognized in another anti-pollution law, the River and Harbors Act of 1899. One of its provisions (33 U.S.C. & 407), known as the Refuse Act, regulates the “deposit . . . [of] any refuse matter of any kind or description whatever . . . into any navigable waters of the United States." Viola tions of the Refuse Act are subject to fines and imprisonment (33 U.S.C. § 411). Section 411 allows the court, in its discretion to direct that "one-half of said fine... be paid to the person or persons giving information which shall lead to conviction." Several private groups have received this informer's bounty where government action has been successful. Both of the foregoing examples demonstrate that private plaintiffs can serve "as private Attorney Generals' to protect the public interest." Citizens Committee for the Hudson Valley v. Volpe, 452 F2d 97 (2d Cir., 1970) [No. 5 34010 et. al., decided April 16, 1970]. In recent decisions such as Association of Proeessing Service Organizations v. Camp, 397 U.S. 150 (1970), and Barlow v. Collins, 397 U.S. 159 (1970), the Supreme Court has eliminated certain restrictions on the standing of private persons to bring suits challenging federal administrative action, finding value in the ability of private groups to represent interests and concerns recognized by pertinent statutes. Similar considerations appear to be incorporated in the air-pollution bill passed by the Senate and sent to a Conference Committee. That bill authorizes citizen suits to enforce standards set by the Act "against any person, including, but not limited to, a governmental instrumentality or agency. ." S. 4358, 91st Congress, 2d sess. (reprinted at 116 Cong. Rec. S. 15797). The Council's Legal Advisory Committee has expressed its approval of citizen-suit provisions of this general type. II. SECTION 501(C) (3) STATUS OF ENVIRONMENTAL LITIGATION Most of the environmental cases previously described do not involve an economic interest of the plaintiff that would finance the cost of litigation. Having private organizations with an appropriate environmental interest and with an ability to litigate environment protection cases, supplements governmental efforts and helps fill gaps in the Government's programs. Some organizations such as Friends of Earth have been organized to operate without tax exempt status, presumably to avoid the limitations placed on their legislative activities by such status. However, the worthwhile objectives of private environmental litigation are not likely to be met by taxable groups alone. It is necessary to have organizations capable of receiving contributions which have charitable contribution status under our tax laws if the interests of our environmental programs are to be fully represented. A. Present Analogies Well-established groups enjoying tax exempt status have long filled the role of private attorneys general in areas of the law other than environment protection. The Internal Revenue Service has granted section 501(c)(3) tax exempt status to legal aid societies, the NAACP Legal Defense Fund, and the litigating arm of the ACLU. These organizations have brought and have supported a wide spectrum of actions against governmental and private groups involving both constitutional and non-constitutional issues. The crucial consideration appears to be whether the benefits flowing from litigation inhere primarily and principally to the general public rather than to private interests. B. Safeguards It seems clear that, whether or not section 501 (c) (3) organizations are permitted in the field, the courts will develop safeguards against frivolous or improperly motivated litigation of environmental issues. The courts have ample authority to deal with this problem through limitations upon the standing of parties to sue. Most major environmental litigation has been conducted by plaintiffs suing as representatives of the public interests. See e.g., Scenic Hudson Preservation Conference v. FPC, 354 F.2d 608 (C.A.2d 1965); Citizens Committee v. Volpe, 425 F.2d 97 (C.A.2d 1970). Paragraph (a) (4) of Rule 23 of the Federal Rules of Civil Procedure requires that, to be permitted standing to sue in a representative capacity, a party must “fairly and adequately protect the interests of the class"-here, the public. The authority which has developed under this rule allows broad inquiry into the motivation of the plaintiff in bringing suit, his responsibility, and similar matters. See Moore's Federal Practice, Vol. 4, pp. 1183, 1186-88. The Second Circuit recently applied such an approach in an environmental suit. Citizens Committee v. Volpe, supra. In addition, where improper suits are brought, costs may often be assessed against the plaintiff. With these tools, the courts have considerable scope to develop protective rules to cope with harassment, groundless suits, and other improper litigation in the environmental area. Beyond these safeguards, to insure that an applicant for tax exempt status under section 501 (c) (3) attains the appropriate degree of public benefit in each of its court actions, the Internal Revenue Service could condition charitable status on acceptance of additional limitations on the applicant's activity. Safeguards in the following areas would seem both appropriate and adequate with respect to environmental litigation, qualifying under Section 501(c)(3) of the code: 1. An independent board of lawyers familiar with the group's goals should be established to review each action brought by the group. Such a requirement would help insure that the environmental group follows its charitable purpose in bringing actions. that the actions are not brought for purposes of harassment or for political gain, and that action is brought only in publicly significant cases. 55-360-71-pt. 1-78 2. Litigation should not be brought which results in a monetary benefit to the group's contributors or, except in the limited circumstances described in paragraph 4 below, I to the group itself. 3. Litigation should be brought primarily in cases where a government decision is involved, e.g., either directly with respect to a governmental operation or indirectly through processing of a permit or other similar application. 4. Any suits involving rights asserted against private parties should not involve damage claims or other monetary demands, except in unusual circumstances. The group must be a nonprofit organization and should not seek to susstain itself through litigation or subsidize its activities by a monetary recovery from a given defendant except in those cases where attorneys' fees may be awarded by the court or a fine is to be shared with the Government under the applicable statute. STATEMENT OF RANDOLPH W. THROWER, COMMISSIONER OF INTERNAL REVENUE I am pleased to have the opportunity to discuss with you the study by the Internal Revenue Service of the tax status of "public interest law firms" engaged in litigation involving such matters as preservation of the environment and protection of consumer interests. I recognize that there is tremendous public interest in these matters and believe as you that the organizations which work to protect the public interest through our established legal system serve the common good and help to demonstrate the vitality of our form of government. We have for many years witnessed the contributions made to society by both public spirited lawyers and nonprofit legal societies and organizations that have resorted to the courts to advance recognized charitable causes, and I commend their work. Let me explain how our study began. The Service study was generated by our receipt of a number of applications for charitable classification filed by organizations which proposed to litigate "in the public interest." They represented a new phenomenon: organizations which claimed to be "charitable" but proposed to litigate on behalf of the majority, or, rather, the public at large. They were readily distinguishable from the traditional charitable organizations which litigate on behalf of minority interests, such as the poor, the racial minorities, and those who are denied fundamental liberty and rights. And at this point, I want to reiterate what the Service has previously said. The IRS has never questioned the status of these traditional charitable organizations. There has never been any doubt that the typical legal aid or civil rights organizations qualified as charitable. They are also distinguishable from the many organizations, such as conservation groups, which were held exempt because they engaged in educational activities, and as an incident to those activities, engaged in litigation in furtherance of their charitable purpose. The IRS never questioned the charitable status of these organizations. However, the requests for "charitable" determinations by the new types of organizations, those which we have been studying, the "public interest law firnis". presented new and unresolved issues in the law of charities. It was important that these issues be resolved on the basis of principles that could be meaningfully stated and not merely upon a subjective response of the Internal Revenue Service to the merits of the cause supported by the organization. In recent months, the issues before us were being recognized and analyzed, but we were having difficulty coming to a resolution of them and we believed that we could come to an early resolution only through an intensive concentration upon the issues by outside interests as well as by ourselves. As I will develop in my remarks, there were no clear judicial precedents, no standards for reference, and so on October 9, 1970, we announced our study of the issues and invited assistance. Here is what we stated: "The Internal Revenue Service announced today that it has temporarily suspended the issuance of rulings on claims for tax exempt status by 'public interest law firms' and other organizations which litigate or support litigation for what they determine to be the public good in some chosen area of national interest, such as preservation of the environment, protection of consumer interests, and the like. "The 'public interest law firm' is a new phenomenon rapidly proliferating on the American scene. |