Friday, September 24, 2021
Hawaii Supreme Court: "KAHEA's advocacy could be totally legal and still jeopardize its eligibility for 501(c)(3) status" under the public policy exception.
Interesting, but very problematic, decision out of the Supreme Court of Hawai'i largely upholding the Attorney General's subpoena of bank records from a charity. KAHEA: The Hawai‘ian Environmental Alliance, "advocate[s] for the proper stewardship of our resources and for social responsibility by promoting cultural understanding and environmental justice." KAHEA created the "Aloha ‘Āina Support Fund" which “prioritizes frontline logistical support for non-violent direct actions taken to protect Mauna Kea from further industrial development.” After around 30 protesters apparently affiliated in some way with KAHEA (the court doesn't discuss except to emphasize that the Fund paid for bail for some of the protesters) blocked a road to a construction site, the Attorney General issued sweeping subpoenas of bank records from the organization. The Court suggests that AG's true motive seems to be dislike for KAHEA's advocacy agenda. KAHEA was able to get the scope of the subpoenas narrowed at both the trial level and in the Supreme Court on the grounds that they were unreasonable, but Court upheld the demand for information about how expenditures made by the Aloha ‘Āina Support Fund.
The Supreme Court' rejects KAHEA's claim that the subpoena was improperly retaliatory for KAHEA's advocacy activities. The Court seems to agree that a subpoena is an adverse action that triggers First Amendment:
KAHEA's opposition to development on Mauna Kea falls squarely within the heartland of the First Amendment's protections. We also agree with KAHEA that the prospect of an administrative subpoena seeking extensive banking records is an adverse action that would chill a person of ordinary firmness from exercising First Amendment rights.
The Court explains:
The State AG's investigation is premised on the notion that KAHEA's financial support for direct action opposing development on Mauna Kea may disqualify it from 501(c)(3) status. Nothing about this premise contradicts or runs counter to First Amendment principles.The federal tax exemption for charitable organizations is effectively a taxpayer-funded subsidy for organizations that serve some public benefit. As the Supreme Court explained in Bob Jones Univ. v. United States, 461 U.S. 574 (1983):
When the Government grants exemptions or allows deductions all taxpayers are affected; the very fact of the exemption or deduction for the donor means that other taxpayers can be said to be indirect and vicarious “donors.” Charitable exemptions are justified on the basis that the exempt entity confers a public benefit ....
Id. at 591. One corollary of the “public benefit principle” is that to qualify for the exemption, an organization must have a charitable purpose “ ‘consistent with local laws and public policy’.”
The State AG's characterization of its investigation as probing whether KAHEA has “an illegal purpose” is thus misleading because its use of the word “illegal” suggests as a necessary premise some unlawfulness on KAHEA's part. To the contrary, KAHEA's advocacy could be totally legal and still jeopardize its eligibility for 501(c)(3) status.
The State AG has represented that it is not investigating whether KAHEA has done anything illegal; it is investigating whether KAHEA serves a public benefit such that all U.S. taxpayers – a group that may include supporters of development on Mauna Kea – ought to be KAHEA's “vicarious donors.” KAHEA could have an “illegal purpose” without having done anything illegal. As such – and given IRS Revenue Ruling 75-384 and the record here – the notion that KAHEA's support for “direct action” on Mauna Kea might impact its eligibility for § 501(c)(3) status is not so unsound that it betrays retaliatory animus.