[EL] Milhauser Article in Vox on "Schedule B" cases, No. 19-251, Americans for Prosperity Foundation v. Rodriquez

[Barnaby Zall]

(Sorry for a long post, but tax-related cases are complicated.)Ian Milhauser's article in Voxon the “Schedule B cases” recognizes that “The specific issue in Americansfor Prosperity [Foundation] is fairly far afield of thefoundational questions about money in politics that animated Citizens United.” 

 And,as Milhauser notes, “There are difficult questions underlying Americans for Prosperity [Foundation]. If you are inclined to beunsympathetic to a Koch-aligned group that wants to keep its donors secret,imagine a very similar case where Texas required Planned Parenthood to discloseits donors to the state attorney general’s office. Would you have confidencethat no one in that office would leak the names of those donors to TuckerCarlson?” 

 Or,he might have asked, would you have confidence in the California Attorney General’sOffice not leaking Planned Parenthood’s documents by mistake? In fact, in theSchedule B cases, one of the biggest leaks from the California Attorney General’soffice was the major donors from Planned Parenthood of California. JointAppendix, No. 19-251, Trial Exhibit 131, at 40, July 3, 2012, e-mail fromBelinda Johns forwarding complaint from counsel for Planned Parenthood (“Wehave discovered that the Registry has posted the complete Form 990, Schedule B(for FYE June 30, 2009), including all of the names and addresses of hundredsof donors, to the publically [sic] accessiblerecord for our client, Planned Parenthood Affiliates of California, Inc.”). 

 Thesecases are not about “money in politics,” and no party has raised that issue inthe lower courts or at the Supreme Court (meaning it is unlikely the SupremeCourt will go down that road). The Petitioner charities both contend that thestandard of review for disclosing political donors is and should be differentfrom that used to review disclosures of charities’ donors.  

 Theseconsolidated cases involve the California Attorney General’s demands forunredacted copies of an obscure federal tax form, Schedule B to tax-exemptorganizations' annual return (Form 990), which lists major donors to, in thiscase, 501(c)(3) charities. Schedule B was created in 2000 as a standardreporting format to protect donor information from disclosure, i.e., to prevent what happened to Planned Parenthood in 2012. Schedule B failed immediately as aprotective device, as it leaked badly. 

 TheIRS has been trying to get rid ofSchedule B since 2016. Schedule B can't be used in today's world because itdoesn't collect enough information, its info can't be computer matched, and it isleaked. 

 Incontrast, the basic Form 990 annual return has 38 specific mandatory questionsleading to special Schedules that require every filer to disclose informationabout activities which may indicate problems in charitable operations,including those the Attorney General claims to need Schedule B to enforce.Schedule B doesn't have those questions or disclosures. See, mybrief for the National Taxpayers Union Foundation, pp. 11-14 (listingspecific disclosures on Form 990 of information sought by the Attorney Generalbut not available on Schedule B). 

 For20 years, the IRS has A/B tested Form 990 against Schedule B nationwide onmillions of returns to see which was more effective in uncovering the type of informationthe Attorney General seeks: the same organizations file both forms using thesame information at the same time (spoiler: Form 990 wins and the IRS has beentrying for five years to kill Schedule B). Form 990 is publicly-available ondemand to anyone, not just the Attorney General; Schedule B is not. 

 Charitabledonor protection is not the same as election campaign donor disclosure, eitherfactually or legally. Under Internal Revenue Code sections 501(c)(3) and 4955,not only are charities barred from candidate campaign intervention, those thatdo so are subject to penalty taxes of 100% on organizations and 50% on theirmanagers, jointly and severally.  Asthen-Chief Judge of the U.S. Court of Appeals for the First Circuit StephenBreyer said in 1992: "Congress has decided that, with respect to taxreturns, confidentiality, not sunlight, is the proper aim. ... without cleartaxpayer understanding that the government takes the strongest precautions tokeep tax information confidential, taxpayers’ confidence in the federal taxsystem might erode, with harmful consequences for a tax system that dependsheavily on voluntary compliance.” Aronsonv. IRS, 973 F.2d 962, 966 (1st Cir. 1992). 

 Thesedonor protections, in Internal Revenue Code sections 6103 (general tax privacyprotections) and 6104 (tax-exempt organizations must disclose their tax filingsOTHER THAN donor information) were enacted following the Nixon-era “enemieslist” scandals. Even Congress doesn’t getdonor information, except in certain limited circumstances with strict privacyprotections. Church of Scientology ofCal. v. IRS, 484 U.S. 9, 15 (1987) (“Subsections 6103 (f)(1), (2), and (4),for example, allow the release of returns and return information tocongressional committees, but distinguish between return information thatidentifies a taxpayer and return information that does not.”). 

 AndTHAT's what at stake in these cases: the Attorney General wants to vacuum uphighly-protected donor information from every charity that solicits nationallyand in California, without statutory authority or any reasonable suspicion ofwrongdoing. And then the Attorney General puts up paper-thin privacy protectionsthat haven’t worked, and doesn’t have even that authority under Californiastatutes. Fourth Amendment scholars will immediately recognize the problemhere. United States v. Janis, 428U.S. 433, 444, 459 (1976) (discussing “silver-platter doctrine” of sharinginformation between dual sovereigns); Gamblev. United States, 139 S. Ct. 1960, 1979 (2019) (same). 

 Therules are pretty simple: the Attorney General CAN get this information, butmust protect it carefully against disclosure. That's why California’s three taxagencies, including the Franchise Tax Board, can and do get those Schedule Bforms; they have the required strict privacy protections. In fact, the AttorneyGeneral got Schedule B forms when it used the same privacy protections as theIRS and the Franchise Tax Board, but stopped when it found the protections toohard to comply with. See testimony ofBelinda Johns, JointApp. in No. 19–251, p. 335 ("I had to keep a log that was written in pen." Emphasis added). In fairness, IRS Publication 1075, TaxInformation Security Guidelines For Federal, State and Local Agencies, is 180pages long. Butthe result of the Attorney General's failure to use strict privacy rules? TheU.S. Court of Appeals for the Second Circuit called the California AttorneyGeneral’s track record one of “systematic incompetence in keeping donor listsconfidential of such a magnitude as to effectively amount to publication.” Citizens United v. Schneiderman, 882F.3d 374, 384 (2nd Cir. 2018). The Attorney General still doesn’t do anybetter; for example, they don't even track who has accessed confidentialinformation, so they don’t know when information leaks. They will takeconfidential information off their public servers if an organization hascomplained about leaks, the way Planned Parenthood’s counsel did, but by thenthe information is already on the Internet and gone. 

 Icould go on, but more to the point of Milhauser's article, the chances that theCourt will actually use this case to revisit Citizens United are very low; they had that chance in McCutcheon v. FEC and soundly reinforced the value of disclosure in politicalcases (citing, in part, my brief defending disclosure of political donors). 572U.S. at 223-24 (“Because massive quantities of information can be accessed atthe click of a mouse, disclosure is effective to a degree not possible at thetime Buckley, or even McConnell, was decided.”) And did so forreasons consistent with Milhauser's point, but in a way he might notappreciate: “The existing aggregate limits may in fact encourage the movementof money away from entities subject to disclosure. Because individuals’ directcontributions are limited, would-be donors may turn to other avenues forpolitical speech.” 572 U.S. at 224. 

 Thatsuggests something else: if money is moving to non-disclosing entities, asclaims like Milhauser’s suggest, then the solution might not be to evisceratestatutes passed after real-world “enemies list” threats to democracy. It mightbe to look at whether something may be wrong with campaign finance limitsthemselves. Primo and Milyo, CampaignFinance and American Democracy, Univ. of Chicago Press, 2020, at 135 (“Thebottom line is this: we find that there simply is no meaningful relationshipbetween trust in state government and state campaign finance laws during thistime period. … we want to be clear that this is a major finding running counterto forty years of jurisprudence, as well as reformers’ promises and scholarlyclaims that reform is critical to maintaining or restoring citizens’ faith inthe integrity of democracy.”)

 BarnabyZall

FridayHarbor, Washington



 
“The Supreme Court hears a case next week that could make Citizens United even worse”
Posted on April 19, 2021 7:36 am by Rick HasenIan Millhiser for Vox:The Supreme Court will hear a major case on April 26 that could fundamentally alter the Court’s approach to laws requiring political organizations to disclose their donors — a change that could make it much easier for big spenders to hide the ways they seek to influence policy and elections.That case is Americans for Prosperity Foundation v. Rodriquez. But to fully understand it, it’s important to keep in mind the Supreme Court’s decision in Citizens United v. FEC(2010).Citizens United is best known forits anti-canonical holding that corporations may spend unlimited money to influence elections. While five of the justices who heard Citizens United voted to dismantle much of the nation’s campaign finance laws, eight justices also voted that the government has fairly broad authority to require advocacy groups to disclose major funders of their political activity.Disclosure requirements should be upheld, Justice Anthony Kennedy wrote for the Court, so long as there is “a ‘substantial relation’ between the disclosure requirement and a ‘sufficiently important’ governmental interest.”A lot has changed since Citizens United tucked this pro-disclosure ruling into its broader ruling against campaign finance limits, however. Four of the eight justices who supported disclosure rules have since left the Court, and three of them were replaced by judges who are significantly more conservative than the person they replaced.Which brings us to Americans for Prosperity Foundation. The plaintiffs in the case — which include a conservative advocacy group closely associated with the billionaire Koch brothers, and the Thomas More Law Center, a conservative law firm that claims it was formed to promote “America’s Judeo-Christian heritage” — seek to undercut pro-disclosure decisions such as Citizens United. And, with six Republican appointees on the Supreme Court, they have a very good chance of prevailing.The specific issue in Americans for Prosperity is fairly far afield of the foundational questions about money in politics that animated Citizens United. The plaintiffs challenge a California regulation that requires charities that wish to raise tax-deductible funds in California to disclose their largest contributors to the state attorney general’s office. State regulations require the attorney general to keep this information confidential from the public, but the attorney general’s office may use it to investigate allegations of fraud by nonprofits.
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