THE IRS TARGETS DRUG POLICY REFORMERS.

• Author: Sullum, Jacob
• Position: DRUGS

A RECENTLY ADOPTED IRS rule for tax-exempt organizations seems to violate the First Amendment by taking aim at groups that support drug policy reform.

The rule, described in an Internal Revenue Bulletin dated January 2, 2018, says the IRS will deny tax-exempt status to "an organization whose purpose is directed to the improvement of business conditions of one or more lines of business relating to an activity involving controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law regardless of its legality under the law of the state in which such activity is conducted."

As Washington, D.C., lawyers David Rivkin and Randal Meyer pointed out in The Wall Street Journal, that language arguably covers organizations that advocate legalization of marijuana (or any other prohibited substance) or favor looser restrictions on certain prescription medications, both of which would improve "business conditions" for companies that sell those drugs. The exclusion also seems to encompass advocacy of less ambitious reforms, such as allowing state-licensed marijuana merchants to deduct business expenses on their federal income tax returns or changing the laws and regulations that discourage banks from serving such businesses.

Nonprofit organizations that are exempt from taxes under sections 501(c) (3) and 501(c)(4) of the Internal Revenue Code (for "charitable" and "social welfare" organizations, respectively) are subject to restrictions on the amount of "lobbying" they can do. But this...