Sunday, January 9, 2011
Ellen Aprill (Loyola - L.A.), Roger Colinvaux (Catholic), and I have posted papers examining different ways that the Supreme Court's Citizens United v. FEC decision affects - or does not affect - speech by nonprofit organizations. We initially presented these papers at the National Center on Philanthropy and the Law's Annual Conference last fall, which focused on nonprofit speech in the 21st century. Richard Briffault (Columbia) also presented a paper on this topic at that conference, but that paper is not yet publically available. Here are the abstracts and links for our three papers in the order they were presented:
Roger Colinvaux, Citizens United and the Political Speech of Charities
The Supreme Court’s decision in Citizens United v. Federal Election Commission makes a Supreme Court challenge to the tax law rule that prohibits charities from involvement in political activities likely, and a reexamination of the political speech of charities necessary. Part I of the Article surveys the history of the political activities prohibition in order to emphasize that it was not a reactionary policy but quite considered, and that there are strong State interests supporting it. Part II of the Article analyzes Citizens United in detail and argues that if the Supreme Court considers a challenge to the political activities prohibition, Citizens United is distinguishable: the purpose of the political activities prohibition is not to suppress speech but to define charity; the legal setting is tax and not campaign finance; unlike the campaign finance rule, violation of the political activities prohibition is not criminal; and the political activities prohibition is by nature a rule associated with a tax status rather than a ban on corporate speech. Accordingly, the political activities prohibition, unlike the campaign finance rule, is not a burden on speech and therefore is constitutional. Part III of the Article discusses cautionary notes to the analysis of Part II, and explains that even if there is a constitutional defect to the political activities prohibition, the political activities limitation on the charitable deduction nonetheless would survive. Regardless of the constitutionality of the political activities prohibition, Part IV examines a number of possibilities for a charitable tax status in which political activity is allowed, and concludes that the current rule is the best option. Part V concludes that the prohibition represents the evolution of a century of wrestling with the subject of political activity and charity, and the wisdom that the two are not compatible. Such wisdom should not be contravened.
One of the many aftershocks of the Supreme Court’s landmark decision in Citizens United v. FEC is that the decision may raise constitutional questions for the long-standing limits on speech by charities. There has been much scholarly attention both before and after that decision on the limit for election-related speech by charities, but much less attention has been paid to the relating lobbying speech limit. This article seeks to close that gap by exploring that latter limit and its continued viability in the wake of Citizens United. I conclude that while Citizens United by itself does not undermine the limit on lobbying by charities, the decision does reinforce the constitutional requirement that the government allow charities to easily form a non-tax favored alternative for engaging in unlimited lobbying. Some post-Citizens United proposals for regulating speech-related activity may in fact run afoul of this requirement. More importantly, the intersection of Citizens United and this tax-based limit on charity speech may be a catalyst for renewed consideration of whether the unconstitutional conditions doctrine could be successfully refined in the subsidy context through an approach that considers the purpose of the subsidy and how important the speech-related limit is to the accomplishment of that purpose.
The role of noncharitable exempt organizations was perhaps the key feature of this year’s election. Senator Baucus as Chairman of the Senate Finance Committee, for example, sent a letter calling upon the IRS to survey major noncharitable 501(c) organizations to ensure that they are obeying the rules regarding political activity, including limits on politicking. In Citizens United, however, the Supreme Court decreed that “[n]o sufficient governmental interest justifies limits on the political speech of nonprofit or for-profit corporations.” Nowhere does Citizens United acknowledge the tax limits on political speech or address their constitutionality. Supreme Court cases predating Citizens United have justified these tax limits on the grounds that government has no duty to subsidize political speech. To the extent that “no duty to subsidize” is and remains the justification, nothing in Citizens United explicitly threatens the current tax regime. Nonetheless, we must ask whether the reasoning of Citizens United has undermined Regan v. Taxation with Representation of Washington (“TWR”), the key ”no duty to subsidize” case. In addition, the rules regarding politicking by tax exempt entities have changed significantly since TWR. As a result, the standards as announced in the case and interpreted by its progeny may call for a different conclusion today.
Furthermore, this piece will explore both the tax rules that are, and some that might be, applicable to the political speech of noncharitable tax exempt organizations. Part I will review TWR, its ancestors and its progeny as well as Citizens United. Part II will describe the current tax rules regarding lobbying and politicking applicable to exempt organizations that can engage in unlimited lobbying and politicking as part, but not the primary purpose, of their activities: section 501(c)(4) social welfare organization, section 501(c)(5) labor organizations, and section 501(c)(6) trade associations. The discussion will include consideration of treatment of contributions to such organizations for gift tax purposes and the special tax that may be applicable to membership dues because of lobbying and politicking by such organizations. Part II will also review the history of section 527, the section governing political organizations, with particular attention to the 2000 amendments that added registration and disclosure requirements. Part III examines the possible impact of Citizens United on the tax law’s current approach to political speech. It highlights the difference between the definitions of lobbying provided in the Internal Revenue Code and Treasury regulations and the uncertain “facts and circumstances” approach employed by the Internal Revenue Service (“IRS” or “Service”) in identifying politicking. It offers a reconciliation of seemingly contradictory language in Taxpayers With Representation and Citizens United regarding use of affiliates to conclude that Citizens United has not sub silentio overturned TWR’s “no duty to subsidize” holding. It defends, albeit unenthusiastically, the 2000 amendments to section 527. Part IV proposes a number of possible additional disclosure requirements for noncharitable exempt organizations engaged in lobbying and politicking. They include requiring applications for exemption, establishing a new category of exempt organizations for organizations primarily engaged in lobbying and expanding disclosure of contributors for all or for some noncharitable exempt organizations. It also explores the possibility of taxing the politicking expenditures of noncharitable tax exempt organizations not conducted through a separate segregated fund, whether or not the organization has investment income. The piece concludes by reminding us that the tax law regulation cannot substitute for campaign finance regulation.