Any Nonprofit Organization, Which Is Exempt From Taxation Under Section 501(C)(3) Of The Internal Revenue Code

Our review of the district court's grant of the motion to dismiss is de novo. (4) See Goldings v. Winn, 383 F.3d 17, 21 (1st Cir. 2004). At issue is the reach of 15 U.S.C. § 1679a(3)(B)(i), which provides that "a credit repair organization does not include any nonprofit organization which is exempt from taxation under section 501(c)(3)" of the Internal Revenue Code. 15 U.S.C. § 1679a(3)(B)(i). The plaintiffs argue that the exclusion requires (1) that the credit repair organization actually operates as a nonprofit entity and (2) that the credit repair organization meets the eligibility requirements in in section 501(c)(3) of the tax code. The defendants respond that the phrase "exempt from taxation under section 501(c)(3)" defines "nonprofit organization." Therefore, the defendants contend that a credit repair organization must only have received section 501(c)(3) from the IRS to qualify for the exclusion.

"As in any case of statutory construction, our analysis begins with the language of the statute." Hughes Aircraft Co. v. Jacobson, 525 U.S. 432, 438 (1999) (internal quotation marks and citation omitted). The Act qualifies a large group of entities for the exclusion -- all nonprofit organizations -- and then limits the excluded group to a smaller group of nonprofit organizations "which are tax-exempt under section 501(c)(3) . . . ." 15 U.S.C. § 1679a(3)(B)(i). The most natural reading of the text is that it establishes two requirements. The nonprofit language excludes some entities from eligibility (namely, profit making entities), and the "tax-exempt" language distills the excluded group to the kinds of organizations identified in section 501(c)(3) (e.g., charitable or educational organizations) which are, in fact, tax-exempt. Read in this way, the Act does not define "nonprofit organization" as an entity with section 501(c)(3) status but rather establishes two independent criteria for the exclusion: nonprofit status and section 501(c)(3) status.

This plain reading of the exclusion is supported by the surrounding text. See Massachusetts v. Morash, 490 U.S. 107, 115 (1989). In addition to excluding nonprofit organizations with section 501(c)(3) status, the CROA excludes creditors and depository institutions. But as to these latter exclusions, Congress defined the excluded entities by reference to another section of the United States Code. See 15 U.S.C. § 1679a(3)(B)(ii) (excluding "any creditor (as defined in section 1062 of this title)"); 15 U.S.C. § 1679a(3)(B)(iii) (excluding "any depository institution (as that term is defined in section 1813 of Title 12)"). Had the drafters of the CROA intended to define "nonprofit" simply by reference to section 501(c)(3) of the Internal Revenue Code, they had at their disposal a method for doing so unambiguously -- a method they employed for other exclusions under the CROA. See King v. St. Vincent's Hosp., 502 U.S. 215, 220-21 (1991).