Service Employees International Union v. United States

We address whether penalties on tax exempt organizations for late filing of informational returns may be reduced by district courts as a matter of discretion. We conclude that they may not be.

I. Facts.

Labor unions do not have to pay income or other federal taxes. But they do have to file informational returns disclosing their income, disbursements, etc. Service Employees International Union (“SEIU”) and its subsidiary 100 Oak Street Corporation (“Oak Street”, SEIU’s Oakland address) are labor organizations enjoying the tax exemption and burdened by the return requirement.

SEIU filed its 1999 informational return twenty months late, and Oak Street filed its 1998 informational return four months late. The IRS applied a statutory formula based on the length of delay and gross receipts, and imposed the penalties provided for by the statute. SEIU had gross receipts of $11 million, Oak Street under $1 million, and the statutory formula generated penalties of $50,000 on the union and $2,460 on Oak Street. Neither SEIU nor Oak Street paid their penalties. The IRS sent to each a “Final Notice of Intent to Levy and Notice of Your Right to a Hearing.” The union and Oak Street each…