An Unhealthy Nation: Why Lobbying Restrictions for Voluntary Health Care Organizations Don't Make Sense
| Jurisdiction | United States,Federal |
| Publication year | 2010 |
| Citation | Vol. 24 No. 4 |
Georgia State University Law Review
Article 5
3-21-2012
An Unhealthy Nation: Why Lobbying Restrictions for Voluntary Health Care Organizations Don't Make Sense
Catherine Hammer
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Recommended Citation
Hammer, Catherine (2007) 'An Unhealthy Nation: Why Lobbying Restrictions for Voluntary Health Care Organizations Don't Make Sense," Georgia State University Law Review: Vol. 24: Iss. 4, Article 5. Available at: http://digitalarchive.gsu.edu/gsulr/vol24/iss4/5
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AN UNHEALTHY NATION: WHY LOBBYING RESTRICTIONS FOR VOLUNTARY HEALTH CARE ORGANIZATIONS DON'T MAKE SENSE
INTRODUCTION
Recently, Jack Abramoff, a now infamous lobbyist in the federal government, was charged with exploiting the charitable tax exemptions in an attempt to illegally influence Congressmen by giving them seemingly permittable "charitable gifts."1 Abramoff s abuse of charitable organizations was well documented and publicized in the news. Ignited by the Abramoff scandal, discussions of greater oversight into lobbying activities of nonprofits have increased. However, contrary to these views that more oversight is necessary, the idea that certain charitable organizations should have more freedom to lobby because of the important social function they serve has been around for many years.4
"[T]ax exemption is a privilege that is accorded only to organizations that meet the requirements of the Code and the Treasury regulations, including the requirement that their activities be in the public interest."5 The privileges granted to 501(c)(3) tax exempt organizations include freedom from federal income tax and the allowance of personal income tax deductibility by contributions of donors.6 With these privileges come many costs to exempt organizations, especially those whose mission includes advocacy.7
1. Frances R. Hill, Congress's Charity Cases, N.Y. Times, Oct. 17,2006, at A21.
2. See generally Philip Shenon, Panel Reports Fraud by Some Nonprofits, N.Y. times, Oct. 13, 2006, at A21; Editorial, The Whirl of the Political Casino, N.Y. Times, June 29,2006, at A24.
3. See Stephanie Strom, New Equation for Charities: More Money, Less Oversight, N.Y. times, Nov. 17, 2003, at Fl. Strom reports that the Internal Revenue Service has 800 employees monitoring the activities of close to 1 million charities. Further, many state governments do not adequately monitor small charities located within the state. Id.
4. See generally Laura B. Chisolm, Exempt Organization Advocacy: Matching the Rules to the Rationales, 63 Ind. L.J. 201,204 (1987).
5. Miriam Galston, Lobbying and the Public Interest: Rethinking the Internal Revenue Code's Treatment of Legislative Activities, 71 Tex. L. Rev. 1269, 1323 (1993).
6. I.R.C. § 170(aXl) (2006); I.R.C. § 501(cX3) (2006).
7. See Mortimer M. Caplin & Richard E. Timbie, Legislative Activities of Public Charities, 39 Law & contemp. probs. 183, 185 (1975).
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Some commentators suggest that it appears illogical to prevent charitable organizations from promoting a mission of advocacy through lobbying activities.8 Many exempt organizations accomplish their missions through legislative advocacy, such as promoting legislation to ban smoking.9 Other exempt organizations promote numerous social and economic issues that are the direct subject of many legislative proceedings.10
Many of the services that large charities provide to the government are within the area of health and voluntary health services.11 "Voluntary health care charities," for purposes of this Note, are categorized as those charities that are primarily organized and operated to serve a health advocacy function.12 As the nation becomes increasingly unhealthy, health issues have shifted to the forefront of the minds of many Americans.13 In 2004, health care spending in America accounted for 15% of the economy, with spending in excess of $1.55 trillion dollars.14 Every day, government officials, politicians, and legislators make decisions about numerous health issues that impact the health of the nation.15 However, under the current Internal Revenue Code regulations, voluntary health care charities are highly restricted in their attempts at advocating for advancement of health-related legislation.16
8. Galston, supra note 5, at 1322.
9. See generally American Cancer Society, Cancer Facts and Figures 47 (2006), http://www.cancer.org/downloads/STT/CAFF2006PWSecured.pdf.
10. See Caplin & Timbie, supra note 7, at 184.
11. See generally American Cancer Society, http://www.cancer.org (last visited June 14, 2008); American Heart Association, http://www.americanheart.org (last visited June 14, 2008); American Diabetes Association, http://www.diabetes.org (last visited June 14, 2008); American Lung Association, http://www.lungusa.org (last visited June 14,2008).
12. Examples of these organizations include: American Cancer Society, http://www.cancer.org (last visited June 14, 2008); American Heart Association, http://www.americanheart.org (last visited June 14, 2008); American Diabetes Association, http://www.diabetes.org (last visited June 14, 2008); American Lung Association, http://www.lungusa.org (last visited June 14,2008).
13. See generally Nancy Hellraich, USA Wallowing in Unhealthy Ways, USA Today, Aug. 22,2002, available at htrp^/www.usatoday.com/news/health/2002-08-21-james_x.htm.
14. Robert Pear, Health Spending Rises to 15% of Economy, a Record Level, N.Y. Times, Jan. 9, 2004, at Al 6.
15. American Cancer Society, supra note 9, at 47.
16. See I.R.C § 501(cX3X2006); Treas. Reg. § 1.501(c)(3)-l(c)(2), (d)(1) (as amended in 1990).
2008] AN UNHEALTHY NATION 1099
The charitable exemption that 501(c)(3) tax exempt organizations receive is only available if the organization is not operated for profit, does not participate directly or indirectly in any political campaign on behalf of or in opposition to any candidate for public office, or if any of the net earnings inure to the benefit of a private person or shareholder.17 Further, these organizations must be organized and operated for tax exempt purposes and will lose their tax exempt status if more than an insubstantial amount of their activities do not coincide with this tax exempt purpose.18 Although advocacy by charitable organizations "may not fit comfortably within the narrowest and most traditional sense of 'charitable' enterprise, many believe that the roles of advocate and improver of social systems, empowerer of citizens, and critic and monitor of government policies and programs are among the most crucial functions of the nonprofit sector."19
Many charitable organizations in the United States have "turned their efforts to raising public awareness, demanding accountability from governmental agencies, and pressing for changes in the law, all in an attempt to serve the collective interests of those whose needs are ill-served by the status quo."20 For many years, the existence of tax exempt charities has been justified on the grounds that these charities provide services to the government that are beyond the ability of the government to provide.
However, under the current lobbying restrictions, "it is not clear just how much of what kind of activity, addressed to which social issues, will so color the character of an organization that it no longer qualifies for exemption and donor deductibility under section 501(c)(3) of the Internal Revenue Code."22 This Note will scrutinize the inefficiency of current advocacy restrictions as applied to voluntary health organizations and will propose a more efficient
17. I.R.C. § 501(c)(3)(2006); Treas. Reg. § 1.501(c)(3)-l(c)(2), WOX") (as amended in 1990).
18. Treas. Reg. § 1.501(c)(3>l(a)(l) (as amended in 1990).
19. Chisolm, supra note 4, at 205.
20. Mat204.
21. Id.
22. Id. at 207.
1100 GEORGIA STATE UNIVERSITY LAW REVIEW [VoL 24:4
approach to monitoring exempt organization advocacy. Part I of this Note will give an overview of obtaining tax exempt status as a 501(c)(3), discuss the benefits and limitations that accompany tax exempt status as a 501(c)(3)23 and will discuss the organizational and operational tests.24 Part II of this Note will address the history of the lobbying restrictions currently affecting 501(c)(3) organizations,25 the substantial part test and the expenditure test. 26 Part III of this Note addresses the problems associated with the current lobbying restrictions, including problems with 501(c)(3) organizations funneling their lobbying activities within 501(c)(4) organizations and policy reasons why the restrictions should be lifted for voluntary health care organizations.27
Part IV will discuss the need to reform the current lobbying restrictions as applied to voluntary health care organizations. Finally, this Note concludes that the present state of lobbying restrictions is not justified in its application to voluntary health
29
organizations.
I. Overview Of Obtaining 501 (c)(3) Status
The Internal Revenue Code exempts from taxation many different types of organizations.30 There are roughly twenty-eight types of organizations, including labor unions, trade associations, certain fraternal societies, social welfare organizations, veterans groups, and social clubs that are tax exempt.31 Charitable organizations, which are
23. See discussion infra Part I.A.
24. See discussion infra Part LB.
25. See discussion infra Part II. A.
26. See discussion infra Part II.B.
27. See discussion infra Part III.
28. See discussion infra Part IV.
29. See discussion infra Conclusion.
30. See generally l.R.C. §501...
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