Nonprofit Law Prof Blog

Americans for Prosperity v. Becerra - What's at Stake?

Exciting times in the world of nonprofit law, as the Supreme Court will soon decide a case with potentially significant implications for regulation of nonprofits. Nonprofits challenge the constitutionality of a California law that requires the organizations to provide their unredacted Form 990 – including Schedule B’s list of major donors – to the State as a condition of soliciting donations in the state.

The petitioners/plaintiffs – conservative organizations Thomas More Law Society and Americans for Prosperity Foundation -- cite the risk of the information being publicly disclosed by the state and the fear their donors possess of being harassed if their support for these organizations is made public. The plaintiffs rely heavily on the NAACP v. Alabama case from the 1950s, where the Supreme Court struck down an Alabama ruling that required the NAACP to publicly disclose its members, finding that such a disclosure would pose significant challenges to the ability to associate to advocate against oppression. Petitioners do argue that their donors may be less willing to donate and may face reprisal if their identities are known, but they do not and cannot argue that they face the same levels of risk that members of the NAACP faced in the 1950s South. The analogy is further strained by the fact that California has promised not to publicly disclose the identity of major donors, which further reduces the risk to associational rights.

The government, in contrast, cites to Citizens United and Doe v. Reed, which blessed laws requiring disclosure of donors in election-related contexts as a way of supplying the electorate information on which to judge the messages we’re hearing. Yet California’s law isn’t triggered by election-related speech as in Doe and Citizens United. Instead, it is triggered by charitable solicitation for any cause, and applies broadly to organizations across the nonprofit spectrum.

Relying on precedent, the 9th Circuit rejected out of hand the plaintiffs’ facial challenge to California’s law. And finding that the plaintiffs failed to prove their case (rejecting the district court’s factual findings to the contrary), the 9th Circuit also rejected the plaintiffs’ as-applied challenge to the disclosure requirement. The Second Circuit had reached a similar conclusion in a challenge to an analogous provision in New York’s law, and there wasn’t a split on this narrow point. Yet the Supreme Court agreed to take the case, which will be argued towards the end of this term. There are a lot of vulnerabilities in the case for California (such as unfavorable factual findings by the district court, a sloppy regulatory canvas (for example, not enshrining the rule against public disclosure in statute)), but a loss for California could have ramifications well beyond California and well beyond the specific mandate challenged here.

While the entire case is complex, here are some of the questions that the Court might find it necessary to address:

• What is the standard of review: Is it strict scrutiny, intermediate scrutiny, “exacting” scrutiny, or something else entirely?
• Is the case best decided as a facial or as-applied challenge? Does it matter?
• Is a constitutional analysis only required upon a threshold associational showing of a risk of threats/violence/harassment/something else, or does it apply even in the absence of this predicate showing?
• Assuming that the mode of analysis is, or is similar in structure to, strict/exacting/intermediate scrutiny, what are valid government interests that would justify the compelled disclosure, and what level of proof is needed? Conversely, what are the relevant associational interests at stake, and what level of proof is needed?
• Does the rule change depending on the content area of the association’s speech (political v. ballot initiative v. lobbying v. other)? The parties seem keen to use content of speech (election-related versus something else) as a dividing line.
• What effect, if any, does the fact that these organizations already provide this information to the IRS have on their challenge? (For example, does the constitutional analysis change depending on whether the compelled disclosure is in the context of granting tax exemption (the IRS requirement) versus engaging in charitable solicitation (California rule)?

Joseph W Mead

Treasury Report: Obstacles Exist in Detecting Noncompliance of Tax-Exempt Organizations

Last week, the Treasury Inspector General issued a report, Obstacles Exist in Detecting Noncompliance of Tax-Exempt Organizations. From the summary:

Information reported on tax-exempt organizations’ returns does not always indicate noncompliance; therefore, the IRS relies heavily on referrals to identify abusive schemes. However, TIGTA found that although referrals may help detect tax schemes, they do not always lead to productive cases. In addition, the chances of examination for tax-exempt organizations is lower when compared to examination rates of businesses and individuals. For Fiscal Year (FY) 2019, the chance of examination for exempt organizations was one in 742, compared to one in 156 for businesses and one in 226 for individual taxpayers. Further, churches and certain other religious organizations are not required to file annual information returns making it difficult to track the activities of these organizations to identify noncompliance. For FY 2019, the chance of examination for churches was about one in 5,000.

-Joseph Mead

Call for Nominations: 2021 Outstanding Nonprofit Lawyer Awards

From the inbox:

The Committee on Nonprofit Organizations of the American Bar Association’s Business Law Section is calling for nominations for the “2021 Outstanding Nonprofit Lawyer Awards.” The Committee presents the Awards annually to outstanding lawyers in the categories of Academic, Attorney, Nonprofit In-House Counsel, and Young Attorney (under 35 years old or in practice for less than 10 years). The Committee will also bestow its Vanguard Award for lifetime commitment or achievement on a leading legal practitioner in the nonprofit field.

Nominations are due by March 22, 2021. For a nomination form, please go to the Nonprofit Organizations Committee webpage and scroll down to find the form under “2021 Outstanding Nonprofit Lawyer Awards." The Awards will be announced at the Business Law Section's Spring Meeting in April.

Here are the 2020 winners.

Congress Members Reintroduce Spotlight Act Dealing with Dark Money Disclosure

U.S. Senators and Representatives reintroduced the Spotlight Act again to repeal the regulations issued by Treasury and the IRS in 2020 that eliminated the requirement for many tax exempt organizations to have to disclose substantial donor names and addresses.

"U.S. Senators Jon Tester (D-Mont.) and Ron Wyden (D-Ore.) along with U.S. Rep. David Price (D-N.C.) today are reintroducing their Spotlight Act to shine a light on dark money political donors and hold the government accountable to enforce our nation's campaign finance laws. This legislation is also supported by Senators Bennet, Carper, Whitehouse, Blumenthal, Murray, Van Hollen, Merkley, Klobuchar, Hirono, King, Brown, Cortez Masto, Booker, Menendez, Casey, Warren and Baldwin.

The Spotlight Act would require certain political non-profit organizations to disclose their donors to the Internal Revenue Service (IRS), reversing a Trump-era rule that eliminated the requirement and allowed such organizations to keep their donors secret."

You can find the Act here.

Philip Hackney

Activist Group Guerrilla Girls Put Pressure on MOMA Over Chair of Board, Leon Black

Fascinating collision of art and activism with an art museum's brand attached to the chairman of its board of trustees. The Activist artist group the Guerrilla Girls have posted a prominent ad outside the Modern Museum of Art calling for it to end its relationship with Leon Black as a board member because of his strong connection to Jeffrey Epsten.

"The Museum of Modern Art (MoMA) in New York is facing increasing pressure to part ways with the chairman of its board of trustees, Leon Black, following revelations about the billionaire’s close ties with convicted sex offender Jeffery Epstein. The activist group Guerrilla Girls, which has been voicing this demand since 2019, revealed that it had canceled a book contract with Phaidon Press that same year after realizing the art publisher is owned by Black.

Guerrilla Girls claim that they contracted with Phaidon Press in 2018 to publish a book that surveys their activism since 1985. In a report by the New York Times, the group first revealed that it broke the contract a year later after news surfaced about Black’s relationship with Epstein. Instead, the group published Guerrilla Girls: The Art of Behaving Badly with Chronicle Books in 2020."

Philip Hackney

 

IRS Chief Counsel Memo on Relief for late 501(c)(3) applicants

The Office of the Chief Counsel of the IRS recently issued a memorandum describing when nonprofits seeking charitable tax exempt status under section 501(c)(3) might receive relief from failing to file their application in a timely manner. For counsel meeting this problem, this memo is likely a very useful tool for considering options.

It's a long memo, but the basics are:

"ISSUES

1. Under what circumstances, if any, should Exempt Organizations, Determinations (EOD) provide Treas. Reg. § 301.9100-3 relief to IRC section 501(c)(3) applicants?
2. What is the proper process for denying relief requests under § 301.9100-3? (i.e., does taxpayer have section 7428 Declaratory judgment rights?)

CONCLUSIONS

1. Section 501(c)(3) organizations who are eligible to self-declare, like non-(c)(3) self-declarers, are not eligible for § 301.9100-3 relief because they did not fail to make a required regulatory election. Further, organizations that fail to file the necessary information returns holding themselves out as exempt organizations are not eligible for § 301.9100-3 relief because they would not otherwise be exempt for the period for which they are requesting relief. In addition, the Internal Revenue Service (“Service”) is justified under the applicable standard of review to deny such relief on the grounds that the organizations did not act in reasonable good faith. Finally, organizations that have filed the necessary information returns are not eligible for relief beyond the date of which the statute of limitations on assessment of tax has expired, which is typically three years after the due date of the return.
2.  Denial of § 301.9100-3 relief by EOD does not separately provide a right to petition the Tax Court under section 7428 because § 301.9100-3 relief is purely a function of administrative grace, is not a justiciable controversy described in section 7428, and is reviewed under a completely separate standard than the de novo standard used in section 7428 actions. However, section 7428 jurisdiction over the denial of exempt status for periods prior to the postmark date of the
   application appears to be a matter of first impression."

Philip Hackney