February 8, 2008
First Amendment Law Review Symposium on First Amendment and Tax Exempts
The First Amendment Law Review published Symposium: No Strings Attached? The First Amendment and Exempt Organizations, 6 First Amend. L. Rev. 1-191 (2007). The symposium contains articles by a number of law professors and nonprofit specialists, including Lloyd Hitoshi Mayer (Grasping Smoke: Enforcing the Ban on Political Activity by Charities, 6 First. Amend L. Rev. 1 (2007); Donald B. Tobin, Political Advocacy and Taxable Entities: Are They the Next "Loophole"? 6 First. Amend L. Rev. 1 (2007); Miriam Galston, Campaign Speech and Contextual Analysis, 6 First. Amend L. Rev. 1 (2007); Kay Guinane, Wanted: A Bright-line Test Defining Prohibited Intervention in Elections by 501(c)(3) Organizations, 6 First. Amend L. Rev. 1 (2007); Arnold H. Loewy, Distinguishing Government Suppression of Speech from Government Support of Speech, 6 First. Amend L. Rev. 1 (2007); and James Bopp, Jr., Preserving Judicial Independence: Judicial Elections as the Antidote to Judicial Activism, 6 First. Amend L. Rev. 1 (2007). Here are some of the abstracts from SSRN Nonprofit and Philanthropy Law Abstract Journal:
The rule that charities are not allowed to intervene in political campaigns has now been in place for over fifty years. Despite uncertainty about the exact reasons for Congress' enactment of it, skepticism by some about its validity for both constitutional and public policy reasons, and continued confusion about its exact parameters, this rule has survived virtually unchanged for all of those years. Yet while overall noncompliance with the income tax laws has drawn significant scholarly attention, few scholars have focused on violations of this prohibition and the IRS' attempts to enforce it.
This Article focuses on the elusive issue of how extensive is noncompliance with this prohibition and how could the IRS improve its enforcement in this area. The limited data available about the extent of noncompliance indicates that while violations involving extensive expenditures or high profile activities are relatively rare, minor and probably mostly inadvertent violations may be much more widespread than current IRS enforcement figures would indicate. Such violations should be of concern because they risk creating a culture of noncompliance, they may harm the public's trust in both the violating charities and the charitable sector as a whole, and they may have significant effects on the outcome of political campaigns because of the public's generally high regard for charities. To address these violations, the Treasury Department and the IRS should adopt three strategies. First, the IRS should reduce its reliance on third-party complaints by pro-actively looking in publicly available information for possible violations, including by reviewing websites, media reports, and state campaign finance filings. Second, the Treasury Department should adopt an approach that has generally worked in other tax contexts by clarifying the vague boundaries of the prohibition through creating safe harbors for the most common election-related activities, while retaining the current facts and circumstances approach as an anti-abuse rule. Third and finally, the IRS should continue to fully utilize the flexibility of the existing penalty regime to tailor penalties to match violations, issuing only âwarning ticketsâ for first time, apparently unintentional violators while reserving financial penalties and revocation of tax-exempt status for repeat and intentional violators.
Independent political organizations have become increasingly active in political advocacy and in their attempts to influence elections. These independent political organizations generally organize as non-profit organizations and are not directly associated with a candidate or political party. The groups either seek to promote issues associated with candidates running for office, or seek to influence an election in favor of or in opposition to a specific candidate. As these organizations have become more involved in political advocacy, campaign finance reform advocates have pressed for further regulation of these entities. Attempts to regulate the activities of independent groups are often in tension with First Amendment principles. The Supreme Court's decision in Federal Election Commission v. Wisconsin Right to Life significantly rolled back some of the restrictions placed on independent groups, and this decision may encourage Congress to seek alternative means of regulating campaign activities.
In the past, Congress has regulated independent political groups by putting restrictions on the entity structures under which these entities are organized. For example, as a condition of receiving tax-exempt status under section 527 (as a political organization) an entity must disclose the contributions it receives and its expenditures. Some in Congress and in academia have argued that section 527 political organizations should be regulated under election law as political committees. This article examines whether an organization could avoid some of these restrictions by forgoing tax-exempt status and organizing as a taxable organization. Proponents of such a move argue that political organizations have no taxable income and there would therefore be no consequences to organizing as political organizations. This article examines the characteristics that independent organizations seek when choosing an organizational form and discusses various tax theories that provide the basis for examining the tax implications of an organization's forgoing tax-exempt status. The article concludes that there will be significant tax implications to an independent political group that decides to forgo tax-exempt status and that taxable independent groups are not an ideal mechanism for avoiding restrictions on non-profit organizations.
Recent developments - such as a wave of FEC enforcement actions, the FEC's publication of its case by case approach to determining political committee status, and the Supreme Court's decision in FEC v. Wisconsin Right to Life - have made it necessary to reconsider the kinds of campaign finance reforms desirable and constitutionally permissible. This Article examines the proposition that, if section 527 groups and groups exempt under section 501 of the Internal Revenue Code are part of a network of commonly managed organizations, then the FEC should decide whether they need to register as political committees under the Federal Election Campaign Act (FECA) by looking at their relationships with other members of the network in addition to evaluating the character of these groups viewed in isolation.
In 2006 the Campaign Finance Institute issued a report looking twelve nationally important nonprofits that had been active in the 2004 election. It found that in ten of the twelve cases, a section 527 group that had not registered with the FEC had an affiliated group that was expressly involved in promoting the candidacy of one or more individuals who were running for a federal office. Sometimes the affiliated group was a PAC registered with the FEC and sometimes it was a 501(c) organization engaged in political campaign activity. Based largely upon the study's findings, I develop my recommendation for a network approach to determining political committee status.
I then examine two potential First Amendment barriers to implementing the approach I recommend. According to the first, which is based upon a line of cases starting with Regan v. Taxation with Representation of Washington, the government cannot condition tax and other financial benefit for a potential recipient on its surrendering free speech rights that it otherwise would have unless there is an alternate channel available for the recipient to exercise those rights. The second depends upon the reasoning of the Supreme Court in, which limits the ability of the FEC to examine the context surrounding campaign messages in deciding whether electioneering communications have occurred. I argue that both of these constitutional obstacles can be overcome and, thus, that a network approach to political committee status is desirable from a public policy point of view and constitutionally valid.
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