Your ruling is respectfully requested that Public Citizen, Inc. ("Public Citizen") may accept legal fees pursuant to the award or approval of a court without jeopardizing its exempt status under section 501(c)(4). Public Citizen was incorporated by Ralph Nader and others under the laws of the District of Columbia on March 29, 1971, has its principal administrative offices at 1346 Connecticut Avenue, N.W., Washington, D.C. 20036, and files returns with the Director of the Baltimore District. I. STATEMENT OF FACTS On June 8, 1972, the Internal Revenue Service issued a letter ruling to Public Citizen, holding the organization exempt from federal income taxation under section 501(c)(4) of the Internal Revenue Code. One portion of that ruling reads as follows: page two You have stated that you intend of the Code. Among the guidelines contained in Revenue Procedure 71-39 is the following: .02 The organization does not accept fees for its service except in accordance No procedures governing the acceptance of legal fees by public interest law firms generally have been approved or promulgated by the Service. Furthermore, Revenue Procedure 71-39 does not state to what extent, if any, its provisions apply to organizations exempt under section 501(c)(4) rather than section 501(c)(3). On behalf of Public Citizen, a ruling is respectfully requested that the proposed legal fee acceptance practices described herein will not occasion loss of the organization's tax exempt status under section 501(c)(4). The statement of Public Citizen's purposes in its Articles of Incorporation includes the following: The Corporation is organized exclusively 3. To promote, encourage and foster page three governmental responsiveness, consumer pro- The Articles also provide that "[n]o part of the net earnings of the Corporation shall inure to the benefit of any individual," and that, in the event of the dissolution or final liquidation of the Corporation, "[n] one of [its] property . . nor any proceeds thereof shall be distributed to or divided among any of the directors of the Corporation or inure to the benefit of any individual." Instead, any property and assets remaining after the discharge of any obligations of the Corporation are to be distributed to one or more organizations exempt from federal income taxes under section 501(c)(3). Public Citizen is expressly prohibited by its Articles of Incorporation from "participating in, or intervening in any political campaign. . ." and from "carry [ing] on any activity not permitted to be carried on by a corporation exempt from federal income tax under Section 501(c) (4) . . ." Pursuant to the purposes contained in its articles and bylaws, Public Citizen has hired three full-time attorneys, who are actively engaged in public interest litigation before courts and administrative agencies. Public Citizen expects to hire other attorneys to perform similar work in the foreseeable future. All attorneys employed by Public Citizen are paid fixed salaries by the Corporation. In every case, the salaries paid to Public Citizen attorneys are considerably lower than those paid by the federal government or private law firms to lawyers of comparable skill and experience for the performance of similar work. To date, neither Public Citizen nor any attorney employed by it has sought or received any legal fee for services rendered by such an attorney in connection with his employment by the Corporation. As a condition of his employment, each attorney has agreed that any fee received by him in connection with his employment will be turned over to the Corporation. No such attorney, or any other individual, or any entity other than Public Citizen, will derive any monetary benefit from any attorney's fee received in the situations described in this request Cases undertaken by Public Citizen attorneys are selected on the basis of the following criteria: page four (a) Whether an important public interest is involved; (b) Whether there is a reasonable likelihood that a suit will be successful (c) Whether, in addition to resolving the immediate conflict, a successful suit will be useful for its precedental value; (d) Whether the potential client has sufficient resources to pursue the litigation through a compensated attorney qualified to handle it; and (e) Whether the resources of Public Citizen permit the undertaking of the litigation. Several of the cases in which Public Citizen attorneys have participated are described generally in the organization's first annual report to its contributors, a copy of which is filed herewith as Exhibit A. That report also describes the many non-litigation activities funded by Public Citizen and reveals that the $75,000 budgeted to the Litigation Group's activities for fiscal year 1971-72 amounted to about 18 per cent of the approximately $415,000 budgeted by the organization to support the activities of eight groups and projects. Public Citizen's second annual report, which covers the year ended May 31, 1973, will be available soon and will be supplied to the Service for its assistance in ruling on this request. The principal source of Public Citizen's funding to date has been contributions from individual members of the public, and it is expected that this will remain the primary source of Public Citizen's funding. However, attorneys employed by Public Citizen are currently engaged in certain litigation, in connection with which they may be awarded reasonable legal fees by a court. Because it would be impractical and otherwise undesirable for the Internal Revenue Service to have to pass on the prospect of each instance in which Public Citizen wishes to accept legal fees, the organization seeks page five here to establish as a general matter that its proposed fee acceptance practices are consonant with its exempt status. Attorneys employed by Public Citizen propose to accept legal fees on behalf of the organization in the following situations and subject to the following limitations: 1. Statutory awards. A number of federal statutes authorize the payment of reasonable attorney's fees to counsel for successful plaintiffs. One such statute is Section 4 of the Clayton Act, 15 U.S.C. § 15, which provides: Any person who shall be injured in his business or property by reason Attorneys employed by Public Citizen are currently representing plaintiffs in two consumer antitrust class actions brought pursuant to the above provision. In Goldfarb v. Virginia State Bar, 355 F. Supp. 491 (E.D. Va. 1973) (cross-appeals pending before the Fourth Circuit), an attorney employed by Public Citizen represents a home purchaser who is challenging on Sherman Act grounds the minimum fee schedules employed by Virginia attorneys to set legal fees for performing certain services. The suit is the first court attack on a fee-fixing system which has been called into question by the Justice Department and which, at the time the suit was initiated, existed in some form in thirty-four states. In Ditlow v. Pan American World Airways, Inc., Civ. Action No. 999-73 (D. D.C.) (filed May 22, 1973), Public Citizen attorneys represent an airline passenger who, on a recent trans-Pacific flight, was charged in accordance with a rate agreement which had not been approved by the Civil Aeronautics Board, and which plaintiff claims violated the antitrust laws in the absence of such approval. If plaintiffs are ultimately successful in either or both of these actions and a reasonable attorney's fee is awarded to the Public Citizen attorneys, said attorneys propose |