The political speech of charities in the face of Citizens United: a defense of prohibition.

• Author: Colinvaux, Roger
• Position: Introduction to II. Does Citizens United Condemn the Political Activities Prohibition? C. Sanctions, p. 685-721

CONTENTS INTRODUCTION I. HISTORICAL BACKGROUND OF A NOBLE RULE A. A Brief History of the Prohibition: A Noncontroversial Rule B. Legislative Developments after Enactment C. Criticisms of and Reasons for the Rule II. DOES CITIZENS UNITED CONDEMN THE POLITICAL ACTIVITIES PROHIBITION? A. Introduction B. Purpose of the Rule 1. Purpose of Section 501(c)(3) is to Define Charity for Tax Purposes 2. Purpose of the Rule Viewed as Part of the Tax-Exemption System 3. Purpose and Institutional Considerations C. Sanctions D. A Ban on Speech E. Identity Discrimination F. Existing Jurisprudence Supports the Political Activities Prohibition 1. The Rules of Speiser, Cammarano, and TWR 2. The Speiser-Cammarano-TWR Trilogy Discussed III. CAUTIONARY NOTES AND THE RELEVANCE OF THE CHARITABLE DEDUCTION A. Purpose to Penalize Speech B. The Penalty Effect and the Charitable Deduction: Significance and Sufficiency of an Alternate Channel C. Implications of Reliance on Constitutional Conditions Analysis D. Summary IV. ALTERNATIVES TO THE STATUS QUO ARE WANTING A. One Extreme: Congress May Not Restrict the Political Activity of Charitable Organizations B. Assuming Change to the Prohibition, Some Limit Should Be Contemplated C. Taxing Speech: The Most Plausible Limitation D. Much Ado About Nothing? It Depends on the Deduction E. Summary CONCLUSION INTRODUCTION

The rule that charitable organizations may not "participate in, or intervene in ... any political campaign" (1) is hardly a secret. Since its introduction as part of the Internal Revenue Code in 1954, section 501(c)(3)'s "Political Activities Prohibition," (2) as it is often called, has been the subject of considerable scholarly debate, practical concern, and occasional political wrangling. Although the contours of the rule may be imprecise, and enforcement by the IRS uneven--resulting in frustration for some--arguably the rule has stood the test of time. Like it or not, understand it or not, it is an embedded characteristic of the charitable sector that charity and political activity are by law incompatible.

As a practical matter, the "Political Activities Prohibition" or "Rule" means that charities may not become partisan, or agents of propaganda. (3) The Rule keeps charitable institutions outside of the political sphere. Charities are allowed a voice on issues, but may not become political actors or unbalanced purveyors of opinion. Of course, as Aristotle said long ago, "man is by nature a political animal." (4) Thus, a rule that keeps associations of persons from speaking politically is bound to bump up against primal forces from time to time--and so it has proved. But, despite occasional pressure on the Rule, there has been little realistic chance of reversing this defining characteristic of the charitable "independent" sector by Congress or the courts.

One reason the Rule has lasted is that, by and large, it has been uncontroversial. There have been some loud voices raised in resistance, but little concrete action. (5) Another reason the Rule has survived may be because, to a certain extent, it was redundant. Absent the Rule, charities still would have faced a prohibition on some of their political activities under campaign finance laws, which, until recently, had long provided that corporations, including charitable corporations, could not spend money expressly advocating for or against a candidate for public office. (6) Accordingly, for the most political of speech, charities faced both a tax law restriction and a campaign finance law restriction.

The Supreme Court's decision in Citizens United v. Federal Election Commission, (7) however, changed the legal landscape. Citizens United held that the campaign finance rule prohibiting corporate expenditures for express advocacy (8) (or its functional equivalent) is an unconstitutional burden on free speech under the First Amendment. (9) Accordingly, the tax rule now stands alone, prohibiting not only express advocacy by charitable corporations, but also other forms of political speech as defined by the Internal Revenue Service ("IRS"). (10) A challenge to the constitutionality of the Political Activities Prohibition thus seems inevitable. (11) Can the prohibition survive Citizens United?. Should it? These are the questions addressed in this Article. (12)

Part I surveys the history of the political activities prohibition, emphasizing that it was not a reactionary policy, but quite considered and is supported by strong state interests. Part II analyzes Citizens United in detail. It argues that if the Supreme Court reviews the Political Activities Prohibition, Citizens United is distinguishable, and that the Political Activities Prohibition, unlike the campaign finance rule, is not a burden on speech and, therefore, is constitutional. Part III discusses cautionary notes to Part II's analysis, and explains that even if the Political Activities Prohibition is constitutionally defective, the important limitation on the charitable deduction nonetheless would survive. Regardless of the constitutionality of the Political Activities Prohibition, Part IV outlines and examines alternatives to present law, considering practical, legal, and administrative concerns with a regime that allows some political activity by charitable organizations. This Part concludes that the Political Activities Prohibition is the best option, in part because alternatives would dilute the meaning of charity and prove even more difficult to administer than present law.

As a side note, although the thrust of this Article is about the Political Activities Prohibition of section 501(c)(3), the prohibition cannot be viewed in isolation. It is closely connected to section 501 (c)(3)'s lobbying limitation (13) and also to provisions of the Internal Revenue Code (the "Code") (14) that disallow ordinary and necessary business expense deductions for lobbying and political activity, (15) disallow charitable contribution deductions for contributions to an organization that engages in political activity or substantial lobbying, (16) and provide for the tax treatment of political organizations. (17) Although full exploration of the history and relevance of these important provisions is beyond this Article's scope, (18) much of the discussion is relevant not just to the political activity of section 501(c)(3) organizations, but to the political and lobbying activity of tax-exempt organizations more broadly.

1. HISTORICAL BACKGROUND OF A NOBLE RULE

   From the original federal income tax exemption for charitable organizations in 1913 (19) to the present, the term "political activity" has given rise to considerable confusion. Today, the term refers to activity covered by the Political Activities Prohibition of section 501(c)(3) and is distinguished from another subset of activity related to politics, namely lobbying, which carries its own separate limitation. (20) Although we now readily distinguish between the two, historically the term "political activity" did not have the same technical meaning. (21) Rather, references to political activity often included both lobbying and campaign activity, as if the two types were part of the same topic of concern. (22) This is important because arguably, an unanswered question in 1913 was what sort of "political activity," broadly construed, was consistent with charitable tax status. In part, the statutory history of political activity and charity is a response to this question, one that fashioned distinct legal categories to limit and describe specific types of "political activity."

   1. A Brief History of the Prohibition: A Noncontroversial Rule

      Senator Lyndon Johnson famously inserted the Political Activities Prohibition as a Senate floor amendment to legislation that became the Internal Revenue Code of 1954. (23) There is no direct legislative history to the provision explaining Congress's reasoning. (24) The Rule's abrupt passage leads many to conclude that its rationale was mostly political: Senator Johnson was attacked by a charity during his reelection campaign and used the power of his office to change the law to prohibit such attacks. (25) And there is little doubt that Johnson pushed the Rule through in the heat of a political battle. Indeed, after a thorough review of the legislative record, one commentator concluded that "Johnson saw a cabal of national conservative forces, led by tax-exempt educational entities fueled by corporate donations, arrayed against him and wanted to put a stop to the meddling of these foreign interlopers." (26) Enactment of the Political Activities Prohibition was his weapon of choice.

      Notwithstanding the circumstances of the Rule's enactment, however, the broader historical record offers a more compelling story of the origin of the Rule than the reaction of a single skillful Senator to a political problem. Although the absence of direct legislative history is accurate, a view often implicit (and sometimes explicit) in some discussions of the Rule (27) is that, in part because of the abrupt fashion in which the Rule was enacted, the rationale is uncertain, and we are, for the most part, supplying reasons for Congress' actions after the fact. Importantly, here, the implication may be that the Rule was adopted ad hoc, and therefore should be changed, or if not changed, perhaps treated with less reverence than a more fully reasoned rule.

      Although this is an important objection to the Rule, it overstates the significance of both the barren legislative history and Johnson's self-interest. Legislators often act with selfish motives and consistently fail fully to explain their actions for the record. But such facts do not necessarily undermine a law's broader purposes or intent. In the case of the Political Activities Prohibition, for example, the question of charity and politics did not arise suddenly in the summer of 1954. Rather, it was an issue that had dogged charitable tax status from the...