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

[John White]

The discussion is mixing apples and oranges by conflating a special tax benefit (tax-exempt/tax deductible status) with the right to speak.  A 501(c)(3) organization is not prohibited by the election laws from speaking about candidates under threat of criminal prosecution.   Since MCFL, not-for-profit corporations have been recognized to be outside the general prohibition on corporate political speech.  Nonprofit (and 501(c)(3)) corporations enjoy the same protections of limited liability and perpetual life that their for-profit brethren (and LLCs) do.  Those factors are not grounds to distinguish one from the other.  Unlike other nonprofits, 501(c)(3) groups pay no tax and contributions to them are deductible as a charitable contribution on the donor’s tax return.  There are other limitations, besides non-intervention in political campaigns, placed on 501(c)(3) organizations.  The general thrust of these restrictions is to ensure that the organization’s purpose is a charitable one.

There is no direct prohibition on the ability of a church or any other organization to speak on matters of public import or mention a political candidate within a set time before an election.  Nor is there a prohibition on engaging in electoral political activity.  Organizations that request tax-exempt status under Section 501(c)(3) of the Internal Revenue Code receive the benefits of that section (and their contributors the benefit of charitable deductions for amount contributed) conditioned on abstention from electoral political activity.  The limitation on political activity is a condition to having the income exempt from tax.  It is also fully consistent with the general nondeductibility of electoral political expenditures under Section 162(e)(1)(B) and other provisions that back-up the general rule of nondeductibility.  Older members of the group may recall the erstwhile political contribution credit.

NBC, Toys ‘R Us and the corner pet store corporation are all prohibited from deducting political contributions when computing their taxable income, as am I.  This does not implicate the First Amendment right to speak.  Tax-exempt organizations other than Section 501(c)(3), e.g. the Chamber of Commerce and labor unions, may engage in limited political activity, but may have to pay tax on a portion of their income, and the portion of dues used for such purposes may be nondeductible by the contributor.  The depths of those rules need not be delved here.  From the early days of the income tax, the plenary authority of the 16th Amendment has been recognized.  From New Colonial Ice Company v. Helvering, 292 US 435 (1934)

The power to tax income like that of the new corporation is plain and extends to the gross income. Whether and to what extent deductions shall be allowed depends upon legislative grace; and only as there is clear provision therefor can any particular deduction be allowed. (emphasis added)

Under the 16th Amendment Congress could levy a tax on gross income with no deductions for any expenses.  There is no constitutional impediment to taxing the Red Cross, the Salvation Army or other organizations currently insulated from tax under Section 501(c)(3).  The general limitation on political activity by Section 501(c)(3) organizations has long been upheld as an exercise of Congressional taxing power.
As has been noted, there are alternative routes for 501(c)(3)s to pursue political objectives.  Alternatively, the organization can abandon its tax-favored, charitable status


John J. White, Jr.
white at lfa-law.com<mailto:white at lfa-law.com>
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From: law-election-bounces at department-lists.uci.edu [mailto:law-election-bounces at department-lists.uci.edu] On Behalf Of BZall at aol.com
Sent: Thursday, December 22, 2011 2:27 PM
To: ellen.aprill at lls.edu; VOLOKH at law.ucla.edu
Cc: law-election at uci.edu
Subject: Re: [EL] ELB News and Commentary 12/20/11

Of course, a later case than Branch Ministries said this about the "create a PAC" option as permitting speech regulation:

Section 441b is a ban on corporate speech notwithstanding the fact that a PAC created by a corporation can still speak. See McConnell, 540 U. S., at 330–333 (opinion of KENNEDY, J.). A PAC is a separate association from the corporation. So the PAC exemption from §441b’s expenditure ban, §441b(b)(2), does not allow corporations to speak.

Even if a PAC could somehow allow a corporation to speak—and it does not—the option to form PACs does not alleviate the First Amendment problems with §441b. PACs are burdensome alternatives; they are expensive to administer and subject to extensive regulations. For example, every PAC must appoint a treasurer, forward donations to the treasurer promptly, keep detailed records of the identities of the persons making donations, preserve receipts for three years, and file an organization statement and report changes to this information within 10 days. See id., at 330–332 (quoting MCFL, 479 U. S., at 253–254). And that is just the beginning. PACs must file detailed monthly reports with the FEC, which are due at different times depending on the type of election that is about to occur:
...
PACs have to comply with these regulations just to speak. This might explain why fewer than 2,000 of the millions of corporations in this country have PACs. See Brief for Seven Former Chairmen of FEC et al. as Amici Curiae 11 (citing FEC, Summary of PAC Activity 1990–2006, online at http://www.fec.gov/press/press2007/ 20071009pac/sumhistory.pdf); IRS, Statistics of Income: 2006, Corporation Income Tax Returns 2 (2009) (hereinafter Statistics of Income) (5.8 million for-profit corporations filed 2006 tax returns). PACs, furthermore, must exist before they can speak. Given the onerous restrictions, a corporation may not be able to establish a PAC in time to make its views known regarding candidates and issues in a current campaign.

Citizens United, 558 U.S. __, __, slip op. 21-22. And in the nonprofit organization context, the need to insulate the c3 from the PAC might or might not be considered an additional burden under League of Women Voters, Regan and Citizens United. The test of a governmental interest, as I noted, appears to now be limited to whether there is quid pro quo corruption. This is in tension with the "tax expenditures/subsidy" equation in use previously.

The night is still young on the resolution of this question. We shall see.

A happy holiday season to all!

Barnaby Zall
Of Counsel
Weinberg, Jacobs & Tolani, LLP
11300 Rockville Pike, Suite 1200
Rockville, MD 20852
301-231-6943 (direct dial)
www.wjlaw.com<http://www.wj/>
bzall at aol.com



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In a message dated 12/22/2011 5:10:32 P.M. Eastern Standard Time, ellen.aprill at lls.edu writes:
The c-3 can establish a c-4; the c-4 in turn can establish a PAC.  The DC Circuit in Branch Ministries a case from 2000, rejected the argument that the need to take both these steps in order to express views on candidates without any limit would be an impermissible burden.  The Circuit Court relied on both Regan and League of Women Voters for that conclusion.

  Ellen

The c-4 itself, as I noted earlier, can express views on candidates, so long as such is not its primary activity.
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