Forum Shopping Advantages in Seeking Declaratory Judgments

Depending on whether the declaratory judgment sough is from a denial of initial qualification of a revocation of exempt status, the choice of Tax Court, D.C. District Court or Court of Claims may be crucial for the organization. The authors analyze the developing trends in this area and the possibility of other approaches. 

Section 7428 grants an organization denied tax-exempt status under Section 501(c)(3) the right to seek a declaratory judgment that the Service's adverse administrative determination was improper. Jurisdiction in Section 7428 cases is not limited to the Tax Court, as in other declaratory judgment proceedings; an action may be filed in either the Tax Court, the Court of Claims, or the D.C. District Court. Since Section 7428 was enacted, there has been considerable speculation as to whether the nature of the proceedings in the Court of Claims and D.C. District Court will be parallel that in the Tax Court. The tax bar has been particularly interested in whether a trial of de novo would be available in the Court of Claims or the D.C. District Court, even though the Tax Court proceedings are generally limited to a review of the administrative record. The initial cases brought under Section 7428 are beginning to determine the scope of review in the various courts. Although these cases indicate that the courts will usually follow the Tax Court's leading in limiting the proceedings to a review of the administrative record, they do not foreclose all incentives to forum shop in the declaratory judgment cases. 


Peter H. WinslowL. Wright