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ATTORNEY REGIS. & DISCIPLINARY COM'N v. HARRIS

August 23, 1982

ATTORNEY REGISTRATION AND DISCIPLINARY COMMISSION OF THE SUPREME COURT OF ILLINOIS, AND CARL H. ROLEWICK, ADMINISTRATOR, ON THEIR OWN BEHALF AND AS TRUSTEES ON BEHALF OF ALL EMPLOYEES OF THE COMMISSION PAST AND PRESENT, PLAINTIFFS,
v.
PATRICIA HARRIS, SECRETARY OF HEALTH AND HUMAN SERVICES, PHILIP J. DIBENEDETTO, ACTING REGIONAL COMMISSIONER FOR SOCIAL SECURITY, AND G. WILLIAM MILLER, SECRETARY OF THE TREASURY, DEFENDANTS.



The opinion of the court was delivered by: Hart, District Judge.

MEMORANDUM OPINION AND ORDER

On July 29, 1980, the Attorney Registration and Disciplinary Commission of the Supreme Court of Illinois ("Commission") and Carl H. Rolewick, Administrator of the Commission, brought a complaint on their own behalf and as trustees on behalf of all employees of the Commission, against Patricia Harris, Secretary of Health and Human Services ("Secretary"), Philip J. DiBenedetto, Acting Regional Commissioner for Social Security Region Five of the Department of Health and Human Services, and G. William Miller, Secretary of the Treasury ("defendants"). On September 16, 1980, Robert G. Cronson, Auditor General of the State of Illinois, filed a motion to intervene as a defendant in this action. On October 15, 1980, the defendants filed a motion to dismiss pursuant to Fed.R.Civ.P. 12(b), arguing that this Court lacks subject matter jurisdiction over this action, that the plaintiffs*fn1 have failed to exhaust their administrative remedies, and that the plaintiffs lack standing to sue these defendants.

By this memorandum opinion and order, the Court grants the defendants' motion to dismiss this action and states that it is without power to reach the merits of the underlying dispute as presented here. By virtue of granting defendants' motion to dismiss, the Court need not reach the Auditor General's motion to intervene.

BACKGROUND

The Commission was created by rule of the Supreme Court of Illinois in 1973. Ill.Rev.Stat., 1981, ch. 110A §§ 751 et seq. Its primary duty is to investigate and prosecute complaints against Illinois attorneys. Plaintiff Carl H. Rolewick is Administrator of the Commission, with principal responsibility for overseeing the operation of the Commission.

On March 26, 1973, the Commission applied to the Internal Revenue Service ("IRS") seeking Social Security coverage for the Commission employees. In a letter dated June 1, 1973, the IRS stated that the term "employment" as defined by the applicable federal statutes*fn2 did not include the Commission since it was a wholly owned instrumentality of the State of Illinois. Therefore, pursuant to the exceptions from coverage described by 42 U.S.C. § 410(a)(7) (defining "employment" in substantially the same way as the statutes in n. 2 above), the Commission employees were denied Social Security coverage. The IRS suggested that the Commission employees might instead seek coverage through the agreement previously entered into between the State of Illinois and the Secretary, pursuant to 42 U.S.C. § 418(a)(1) ("the State compact"). In essence, the IRS decided that the Commission was not a private employer within the meaning of the federal statutes. The effect of the June, 1973 decision was that the Commission employees could be covered through the State compact or not at all.

The Illinois State compact had been entered into by virtue of the Illinois Social Security Enabling Act, Ill.Rev.Stat. ch. 108 1/2 § 21-119, which in relevant part states:

  The [Social Security Unit of the State Employees'
  Retirement System of Illinois] is authorized to enter
  on behalf of the State of Illinois into an agreement
  with the Secretary [of Health and Human
  Services] . . . for the purpose of extending the
  benefits of the Federal Social Security insurance
  program to employees of the State of Illinois, or of
  any political subdivision thereof, or of any
  instrumentality of any one or more of the
  foregoing. . . .

Therefore the Commission employees could be covered by the Social Security laws through the State compact (1) if they were employees of the state or a political subdivision, or (2) if they were employees of an "instrumentality."

Since the Commission has consistently taken the position that their employees are not employees of the state or of a political subdivision, and the IRS had decided that they were not employees of a private employer, the Commission now tried a different tack. On November 30, 1973, the Commission requested the Attorney General of Illinois to construe the term "instrumentality" as defined by the Illinois Social Security Enabling Act, Ill.Rev.Stat. ch. 108 1/2, § 21-107, which states:

    "Instrumentality": A juristic entity which is
  legally separate and distinct from the State of
  Illinois and its political subdivisions and whose
  employees are not by virtue of their relation to such
  juristic entity employees of the State of Illinois or
  such political subdivisions.

On January 10, 1975, the Commission asked the IRS to reconsider its June, 1973 ruling in light of the opinion of the Attorney General. The Commission wished to show the IRS that since the Attorney General had stated that it was not an "instrumentality," the Commission could not come under the State compact and should be treated as a private employer receiving Social Security coverage.

On May 9, 1975, the IRS reaffirmed its 1973 ruling on the basis that services performed in the employ of a state, whether as an instrumentality or as an agency of the judicial branch, were excepted from Social Security coverage under the federal statutes pursuant to which the Commission sought such coverage.

On November 10, 1975, the Commission applied to the IRS for tax-exempt status pursuant to 26 U.S.C. § 501(c)(6). In its letter of January 29, 1976, granting tax-exempt status, the IRS stated that "unless specifically excepted, you are liable for taxes under the Federal Insurance Contributions Act (Social Security Taxes) . . . [a]nd, unless excepted, you are also liable for tax under the Federal Unemployment Tax Act. . . ." The Commission and its employees thereupon paid employment taxes and interest for the years 1973, 1974, and 1975. They continued to pay taxes as due from 1976 through the time this action was filed.

By letter of February 8, 1980, the Secretary stated that the Commission employees were never covered under the Social Security laws, and that the erroneous payment of taxes "may have been made in reliance on a favorable ruling by the IRS under Section 501(c)(6) of the Internal Revenue Code. . . . However, this ruling is based solely on the income tax provisions of the law and does not have any effect on the Social Security wage status of an organization." The Secretary pointed out that the favorable ruling by the IRS in its January, 1976 letter contained key limiting language: "Unless ...


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