[EL] ELB News and Commentary 12/20/11

[Ellen Aprill]

WARNING:  A LOT OF TAX RULES FOLLOW

Just to get the current state of affairs on record in connection with D -

The limits on political activities by nonprofits derive not from state
corporate law, but from federal tax rules.

The opinion of the court in *Regan* upheld lobbying limits on 501(c)(3)
organizations on the grounds that the government was not required to
subsidize First Amendment activities and that both exemption and the
ability to accept tax-deductible contribution were subsidies.

Justice Blackmun concurred on the grounds that an alternate channel for
lobbying was available - section 501(c)(3) organizations could form sister
501(c)(4) organizations that could not accept tax-deductible contributions,
but also were not subject to limits on lobbying.  Thus, the limits on
lobbying matched the subsidy supplied by tax deductibility of
contributions.

*Regan* did not address limits on campaign intervention.

While 501(c)(4)'s can lobbying without limit, they cannot, under IRS
regulations, engage in campaign intervention as their primary activity.
 (If such activity becomes the organization's primary activity, it would
meet the definition of a political organization under section 527.) There
is no official definition of what "primary activity" means, but at the very
least it means that activities other than campaign intervention must be at
least 51% of the organization's activities.

Initially, it might seem that tax exemption on any income earned by a
section 501(c)(4) is a sufficient subsidy under *Regan* to justify the
limits on campaign intervention by section 501(c)(4) organizations.

However, to the extent that a section 501(c)(4) organization engages
directly or through another organization in campaign intervention, it is
taxed on the lesser of its investment income or the amount spent on
campaign intervention.

This tax is imposed to put 501(c)'s that engage in campaign intervention in
the same position as PACs and  so-called section 527 organizations, which
are also taxed on investment income, if any.

501(c)(4) organizations do have available the option of establishing a PAC
or 527 organization, rather than engaging in the campaign intervention
directly.  It is relatively easy to ensure that the PAC or 527 organization
has little if any investment income.  That is, there is available an
alternate channel that is likely to be subject to little or no tax.

The policy reason for this set of rules is assumed to be that Congress has
made a decision that all monies contributed to campaign intervention should
be taxed at least once. (Thus, there is no business deduction allowed for
monies used for campaign intervention.)

Thus, Eugene, I don't think it is accurate to say that 501(c)(4)'s (and
contributors to them) are entirely free to engage in political speech.  Do
you think the limits on campaign intervention by sec. 501(c)(4)
organizations are unconstitutional or is the possibility of the c-4
establishing a PAC or 527 organization enough to save the current tax
scheme?

  Ellen

On Wed, Dec 21, 2011 at 3:32 PM, Volokh, Eugene <VOLOKH at law.ucla.edu> wrote:

>                 I appreciate Jamie’s response, and I’m glad that we might
> agree on the point that the First Amendment gives no special rights to the
> institutional press.  But if this is so, then I should note again that
> Jamie’s arguments would cut in favor of denying constitutional rights to
> corporate-owned media.  Media CEOs, and their employees, are “tak[ing]
> money out of their corporate treasuries to spend” on publishing editorials,
> just as are the CEOs of other business enterprises.  In my article, I do
> not speak about what the Framers saw as the constitutional rights of
> corporations; I mention the article only because I think they saw the
> rights of the institutional press as being the same as the rights of other
> speakers.  But the point of my post is that, under Jamie’s argument, the
> government would have the power to restrict speech by media corporations as
> well as other corporations.  Maybe that would be good or maybe it would be
> bad, maybe it would be consistent with original meaning and maybe it
> wouldn’t be – but in any event, that is the implication of Jamie’s argument.
> ****
>
> ** **
>
>                 As to the question whether Jamie supports repudiating *
> Buckley*’s protection of independent expenditures, I’m delighted to hear
> that he now would retain that (controversial) aspect of *Buckley*, and
> would leave people free to spend their own money to express their views.  I
> just find it hard to reconcile with his criticism of *Buckley *in the
> piece I quoted and linked to.  Jamie, given that you think *Buckley *is
> right as to protecting independent expenditures, and right as to protecting
> the candidate’s own expenditures, what exactly are you criticizing *
> Buckley* for?  Which parts of *Buckley *would you reverse, while
> retaining *Buckley*’s First Amendment protection for independent
> expenditures and candidate expenditures?  Just the restriction on total
> campaign expenditures (though with the understanding that the candidate
> would at least be able to spend his own money without limit)?****
>
> ** **
>
>                 As to your questions:  A & B.  I think government entities
> may restrict the speech of their own subdivisions, just as a corporation
> (for-profit or nonprofit) may dictate the speech of its subsidiaries.  C.
> If the question is whether the federal government may ban states for
> spending money on speech that supports a candidate, I’d be inclined to say
> no, though I say it tentatively, since I haven’t thought much about the
> interesting question of the First Amendment and government speech.  D.  I
> agree with *FCC v. League of Women Voters* and *Regan v. Taxation With
> Representation* that the restrictions on the use of government-supplied
> money are constitutional only to the extent they leave the recipient free
> to speak with its own money; so Harvard, the United Way, and the United
> Church of Christ should be entirely free to speak through 501c4-supplied
> money (which may be gathered without limit from everyone).  E.  I think
> foreign-owned business corporations should be free to speak about
> elections, just as I think noncitizen individuals should be free to speak
> about elections.****
>
> ** **
>
>                 Eugene****
>
> ** **
>
> *
> *
>
-- 
Ellen P. Aprill
John E. Anderson Professor of Tax Law
Loyola Law School
919 Albany Street
Los Angeles, CA 90015
213-736-1157
-------------- next part --------------
An HTML attachment was scrubbed...
URL: <http://webshare.law.ucla.edu/Listservs/law-election/attachments/20111221/0ba8f0f6/attachment.html>