The Hollywood Foreign Press Association (HFPA) is responsible for the Golden Globes. The latest ceremony was last week. Readers wanting a respite from tax procedure can jump to some nice pix and the list of winners here, though as subscribers know, tax is everywhere. And one of this year’s winners sweeps in the story line of an IRS audit, with Michelle Yeoh winning for the heavily praised (but I hated) Everything Everywhere All at Once. In the movie, Yeoh tries to protect her family laundromat from Jamie Lee Curtis, who played Deirdre Beaubeirdra, an IRS revenue agent. But I digress….
In addition to shining the bright lights on Hollywood’s A-listers, the award show jogged my memory of a Ninth circuit case I read last month, Flaa v Hollywood Foreign Press Association.
The HFPA is no stranger to controversy. The networks, along with many actors and directors, boycotted the ceremony last year, with allegations of corruption, self-dealing and lack of diversity. It appears that the HFPA has changed some of its practices, and its boozy award ceremony is must see for some who find that kind of thing more interesting than the latest TIGTA report on CDP compliance or last week’s TAS recommendation to divide the worker and child component of the EITC.
Flaa v HFPA primarily involves antitrust claims brought by Kjersti Flaa and Rosa Gamazo Robbins, longtime entertainment journalists who for years unsuccessfully sought admission to HFPA. According to the journalists, membership in the HFPA conferred numerous benefits to its members, and the group unfairly restricted access to keep spoils to members:
Movie studios provide HFPA members with access to Hollywood talent that non-HFPA members lack: HFPA members receive opportunities to interview and interact with popular actors, directors, and producers. Studios grant HFPA members such privileges in order to gain favor with the individuals responsible for voting on the Golden Globe Awards. HFPA members also reap financial benefits. Members receive invitations to all-expenses-paid excursions to film festivals and press junkets, and are paid directly by the HFPA for performing what the complaint describes as trivial, makeweight tasks.
Standards for admission to the HFPA are tight; according to the complaint “a journalist seeking HFPA membership was required to submit two letters of sponsorship from active HFPA members, provide 24 articles written by the applicant in the last three years, demonstrate membership in the Motion Picture Association of America, and receive a majority vote of the HFPA’s active members, among other requirements. The HFPA admitted only one new member in 2018, and no new members in 2019.” (note HFPA appears to have mended its ways and has opened up membership considerably in the last year, see Tarnished Golden Globes attempt a comeback, after years of controversy).
After both Flaa and Gamazo Robbins were denied admission for multiple years, the journalists filed a suit challenging the HFPA’s membership policies under federal and state antitrust laws and California’s right of fair procedure. For good measure, they also sought a declaratory judgment that the HFPA’s bylaws conflicted with its status as an IRC § 501(c)(6) trade organization (to read more about (c)(6) versus the more well known (c)(3) status see the helpful write up from Marcum summarizing the differences).
Most of the opinion addresses the journalists’ unsuccessful antitrust claims. But as this is a tax blog, the key claim I discuss is how Flaa and Gamazo sought a declaration that the HFPA’s bylaws “are unlawful in light of the HFPA’s commitments and obligations as a tax-exempt Section 501(c)(6) mutual benefit corporation” because the HFPA’s bylaws serve to benefit its members rather than the industry as a whole.
The court dismissed that claim, holding that the Declaratory Judgment Act limits courts’ jurisdiction to provide the relief they sought:
The Declaratory Judgment Act grants federal courts the power to “declare the rights of any interested party seeking such declaration,” but it expressly provides that declaratory relief is unavailable “with respect to Federal taxes.” 28 U.S.C. § 2201(a). That language creates a jurisdictional bar to declaratory relief related to federal tax controversies….The statute provides an exception to the tax-related jurisdictional bar for “actions brought under section 7428 of the Internal Revenue Code.” 28 U.S.C. § 2201(a). Section 7428, in turn, provides jurisdiction to determine whether an organization is entitled to tax-exempt status, but only in actions brought by the organization itself. See 26 U.S.C. § 7428(a)(1)(E), (b)(1).
The journalists’ argued that the object of their suit was not to challenge the organization’s status or the amount of taxes it might owe but simply to “seek a declaration that the HFPA’s bylaws conflict with the “obligations flowing” from its tax-exempt status.”
The Ninth Circuit disagreed:
[A] declaration that the HFPA’s bylaws conflict with its tax status would be functionally equivalent to a declaration that the organization is violating the tax laws. Such a declaration would necessarily imply that the HFPA is not entitled to its tax-exempt status, and it would serve no purpose but to threaten the HFPA with the loss of that status….The requested declaration is therefore one “with respect to Federal taxes,” so the district court correctly dismissed the claim for lack of subject-matter jurisdiction.
Conclusion
The DJA, like its cousin the Anti Injunction Act, still serves as a formidable barrier that prevents courts from considering matters that touch on federal taxes. The DJA, like the AIA, serves to shoehorn tax disputes into a traditional tax enforcement path, and prevents nontax disputes from sweeping in issues that touch on federal tax law.