> > Well, with some trepidation that I face the wrath of Eugene, I've already been reported in the trade press as having criticized the constitutionality of the application of the gift tax to free speech contributions to c4s, so I'll do some off-the-top discussion with Ellen about the question. I apologize for the length and ask the election law participants to bear with me for a bit until I get to Citizens United and so on:   > > Section 2501 of the Internal Revenue Code imposes a tax on gifts, defined very broadly. Currently the tax is to be imposed at a 35% rate; the rate may increase to 55% if the estate tax is reinstated. The tax is imposed only on individuals, but if corporations make gifts, shareholders may be liable for the tax. The recipient may be liable for the tax if the donor does not pay. There are various credits available, including both annual and lifetime exclusions.   > > There are a few statutory exemptions from the gift tax, including gifts to 501(c)(3) organizations (which are actually supposed to be reported as gifts, but then offset by a deduction), and gifts to 527 political organizations. The IRS has taken the position that if one of these exemptions is not available, it can impose the gift tax. Rev. Rul. 82-216, 1982-2 C.B. 220 (“[G]ratuitous transfers to persons other than [§ 527] organizations . . . are subject to the gift tax absent any specific statute to the contrary, even though the transfers may be motivated by a desire to advance the donor’s own social, political or charitable goals.”).   > > The actual legal support for this IRS position, however, has always been limited. Gift tax is to be construed broadly, Comm’r v. Wemyss, 324 U.S. 303, 306-07 (1945), and there is some dicta applying gift tax to speech-based contributions to c4 organizations. Dupont v. U.S., 97 F.Supp. 376 (D.Del., 1951) (donor’s gift to organization to improve national policies and improve economy held a gift, and thus subject to tax). Note the question in Dupont was whether something was a gift, which goes to Lloyd Mayer’s (and congratulations, Lloyd) point about services vs. gifts, and doesn’t address the constitutionality of the application of gift tax to speech. Nothing since 1951, except the IRS's quavering position and a long-time policy of non-enforcement, which was hard-fought in the 1980's and 90's.   > > But even in imposing gift tax, courts have distinguished political speech and other, non-speech-related activities [please note: in the interests of brevity, I am conflating speech and associational rights, though I think the latter is far more important here]. See, e.g., Carson v. Commissioner, 71 T.C. 252 (1978), aff’d, 641 F.2d 864 (10th Cir. 1981): > > In the Tax Court the Commissioner argued that the taxpayer transferred funds for the benefit of political candidates, and received no consideration reducible to money or money's worth, and that such transfers were taxable as a gift. The taxpayer contended, inter alia, that the history of the gift tax compelled the conclusion that it was never intended to and does not encompass the type of political contributions made by the taxpayer. As indicated, the Tax Court agreed with the taxpayer's position, as do we. > > 641 F.2d at 865. See also, Stern v. U.S., 436 F.2d 1327 (5th Cir. 1971) (political gifts not subject to gift tax); Barbara Rhomberg, The Law Remains Unsettled on Gift Taxation of Section 501(c)(4) Contributions, 15 TAX’N EXEMPTS 62 (2003).   > > So we do not (or at least the 5th, 11th – Stern was before the split – and 10th Circuits did not) analyze gift tax solely on whether it is a direct income tax or an excise tax. Indeed, arguing that the gift tax is applicable as an excise tax on speech ought to give readers a bit of pause. What speech SHOULD be taxed?   > > The government can and does impose restrictions on certain exempt organizations’ speech. Cammarano v. U.S., 358 U.S. 498 (1959). The Treasury does not have to provide a deduction for speech. Id. at 546. But in so doing, Congress was not regulating speech. Id. This was reiterated in Regan v. Taxation With Representation of Washington, 461 U.S. 540 (1983), and especially the oft-quoted Blackmun concurrence that said that the constitutionality of the restriction on 501(c)(3) charities’ lobbying was conditioned on the IRS not limiting the speech of c4s. 461 U.S. at 551-555 (“Such restrictions would extend far beyond Congress' mere refusal to subsidize lobbying. See ante, at 2000, n. 6. In my view, *554 any such restriction would render the statutory scheme unconstitutional.”).   > > Note that contributions to c4s are not deductible and the organization must so inform donors or pay a “proxy tax” designed to compensate for the possibility of improper deductions. If the c4 engages in "exempt function activities" (electioneering), there is a 35% tax on the lesser of net investment income or the electioneering expenditures. There is no question here of governmental subsidies of speech (unless you want to argue the “tax expenditure” position that did not seem to factor into the Supreme Court’s thinking).  And this isn't an end-run around the electioneering regulations: if a c4 engages in more than a small percentage of electioneering activity, it loses its tax exemption. Treas. Regs. 1.527-2(b)(2). (Of course, the definition of what is electioneering is quite elastic, and many activities that would be electioneering for a 527 are not for a c4, PLR 9808037 (Feb. 20, 1998), but that's a whole 'nother discussion.)   > > So let us look to the speech regulation side. In Buckley v. Valeo, 424 U.S. 1 (1976), the Supreme Court differentiated between restrictions on political speech and upheld a restriction on contributions: “in contrast with a limitation upon expenditures for political expression, a limitation upon the amount that any one person or group may contribute to a candidate or political committee entails only a marginal restriction upon the contributor's ability to engage in free communication.” Id. at 20-21. This analysis, and many of the progeny, rely on burden-weighing.   > > Where a law does regulate speech, it may run afoul of the First Amendment. Citizens Against Rent Control v. Berkeley, 454 U.S. 290, 297 (1981). > > There are, of course, some activities, legal if engaged in by one, yet illegal if performed in concert with others, but political expression is not one of them. To place a Spartan limit-or indeed any limit-on individuals wishing to band together to advance their views on a ballot measure, while placing none on individuals acting alone, is clearly a restraint on the right of association. Section 602 does not seek to mute the voice of one individual, and it cannot be allowed to hobble the collective expressions of a group.   > > Buckley identified a single narrow exception to the rule that limits on political activity were contrary to the First *297 Amendment. The exception relates to the perception of **438 undue influence of large contributors to a candidate. ...   > > The gift tax, by definition, cannot involve one person; it must involve a group. So if it limits speech, it must have a governmental interest strong enough to offset the First Amendment violation.   > > Recent cases involving government regulation of political speech, leaving aside all the rhetoric on this list and elsewhere, have substantially narrowed the definition of appropriately-strong governmental interests. See, e.g., Citizens United v. F.E.C., 130 S.Ct. 876, 908 (2010) (“When Government seeks to use its full power, including the criminal law, to command where a person may get his or her information or what distrusted source he or she may not hear, it uses censorship to control thought. This is unlawful. The First Amendment confirms the freedom to think for ourselves.”). Or as perhaps best surveyed in SpeechNow.org v. F.E.C., 599 F.3d 686, 693 (D.C. Cir. 2010):   > > When the government attempts to regulate the financing of political campaigns and express advocacy through contribution limits, therefore, it must have a countervailing interest that outweighs the limit's burden on the exercise of First Amendment rights. Thus a “contribution limit involving significant interference with associational rights must be closely drawn to serve a sufficiently important interest.” Davis v. FEC, --- U.S. ----, ---- n. 7, 128 S.Ct. 2759, 2772 n. 7, 171 L.Ed.2d 737 (2008) (quoting McConnell v. FEC, 540 U.S. 93, 136, 124 S.Ct. 619, 157 L.Ed.2d 491 (2003)) (internal quotation marks omitted). The Supreme Court has recognized only one interest sufficiently important to outweigh the First Amendment interests implicated by contributions for political speech: preventing corruption or the appearance of corruption. Id. at 2773; FEC v. Nat'l Conservative Political Action Comm., 470 U.S. 480, 496-97, 105 S.Ct. 1459, 84 L.Ed.2d 455 (1985) (“ NCPAC”). The Court has rejected each of the few other interests the government has, at one point or another, suggested as a justification for contribution or expenditure limits. Equalization of differing viewpoints is not a legitimate government objective. Davis, 128 S.Ct. at 2773. An informational interest in “identifying the sources of support for and opposition to” a political position or candidate is not enough to justify the First Amendment burden. Citizens Against Rent Control v. City of Berkeley, 454 U.S. 290, 298, 102 S.Ct. 434, 70 L.Ed.2d 492 (1981). And, though this rationale would not affect an unincorporated association such as SpeechNow, the Court has also refused to find a sufficiently compelling governmental interest in preventing “the corrosive and distorting effects of immense aggregations of wealth that are accumulated with the help of the corporate form.” Citizens United v. FEC, --- U.S. ----, 130 S.Ct. 876, 902, 905, --- L.Ed.2d ---- (2010) (quoting Austin v. Mich. Chamber of Commerce, 494 U.S. 652, 660, 110 S.Ct. 1391, 108 L.Ed.2d 652 (1990), and rejecting Austin's and subsequent cases' reliance on that interest).   > > ***   > > In light of the Court's holding as a matter of law that independent expenditures do not corrupt or create the appearance of quid pro quo corruption, contributions to groups that make only independent expenditures also cannot corrupt or create the appearance of corruption. The Court has effectively held that there is no corrupting “quid” for **433 *695 which a candidate might in exchange offer a corrupt “quo.”   > > Given this analysis from Citizens United, we must conclude that the government has no anti-corruption interest in limiting contributions to an independent expenditure group such as SpeechNow. This simplifies the task of weighing the First Amendment interests implicated by contributions to SpeechNow against the government's interest in limiting such contributions. As we have observed in other contexts, “something ... outweighs nothing every time.” Nat'l Ass'n of Retired Fed. Employees v. Horner, 879 F.2d 873, 879 (D.C.Cir.1989). Thus, we do not need to quantify to what extent contributions to SpeechNow are an expression of core political speech. We do not need to answer whether giving money is speech per se, or if contributions are merely symbolic expressions of general support, or if it matters in this case that just one person, David Keating, decides what the group will say. All that matters is that the First Amendment cannot be encroached upon for naught.   > > At oral argument, the FEC insisted that Citizens United does not disrupt Buckley's longstanding decision upholding contribution limits. This is literally true. But, as Citizens United emphasized, the limits upheld in Buckley were limits on contributions made directly to candidates. Limits on direct contributions to candidates, “unlike limits on independent expenditures, have been an accepted means to prevent quid pro quo corruption.” Citizens United, 130 S.Ct. at 909 (citing McConnell, 540 U.S. at 136-38 & n. 40, 124 S.Ct. 619).   > > Is there a constitutionally-cognizable difference between the independent expenditures at issue in SpeechNow and the speech of a c4? I see none. It appears to be core speech, of the type reviewed by the 5th and 10th Circuits in Carson and Stern.   > > So, given that there is no tax subsidy interest, no corruption interest, no informational interest, no equalization interest involved in this speech restriction, I would flip Ellen’s question around: what, exactly, is the constitutional basis for applying the gift tax to c4 contributions?   > > Three Circuits have already found none, and arguably the recent trilogy of Emily’s List, Citizens United and SpeechNow have put to rest any governmental interest argument. Is this just a "we can tax it because we can" argument? (In tax law, this is the equivalent of a person murdering their parents and throwing themselves on the mercy of the court as an orphan.)   > > Arguably, applying the gift tax prevents speech and association. "An unlimited power to tax involves, necessarily, a power to destroy; because there is a limit beyond which no institution and no property can bear taxation." M'Culloch v. Maryland, 17 U.S. 316, 327 (1819). This isn’t a relatively minor burden like the courts have held non-burdensome disclosure would be. This is a major limitation. So we have an excise tax on speech and association, without any basis or governmental interest. How exactly do we distinguish Citizens Against Rent Control and the other cases?       > > Barnaby Zall > > Of Counsel > > Weinberg, Jacobs & Tolani, LLP > > 11300 Rockville Pike, Suite 1200 > > Rockville, MD 20852 > > 301-231-6943 (direct dial) > > www.wjlaw.com > > bzall@aol.com   > > _____________________________________________________________ > > U.S. Treasury Circular 230 Notice > > Any U.S. federal tax advice included in this communication (including > > any attachments) was not intended or written to be used, and cannot be > > used, for the purpose of (i) avoiding U.S. federal tax-related penalties > > or (ii) promoting, marketing or recommending to another party any > > tax-related matter addressed herein. > > _____________________________________________________________ > > Confidentiality > > The information contained in this communication may be confidential, is > > intended only for the use of the recipient named above, and may be legally > > privileged. It is not intended as legal advice, and may not be relied upon > > or used as legal advice. Nor does this communication establish an attorney > > client relationship between us. If the reader of this message is not the > > intended recipient, you are hereby notified that any dissemination, > > distribution, or copying of this communication, or any of its contents, is > > strictly prohibited. If you have received this communication in error, > > please re-send this communication to the sender and delete the original > > message and any copy of it from your computer system. Thank you. > > ______________________________________________________________    > > In a message dated 5/11/2011 11:17:16 A.M. Eastern Daylight Time, Ellen.Aprill@lls.edu writes: > > The constitutional arguments seem weak to me -- for income tax purposes we require that contributions for campaign intervention (and in most cases for lobbying) come from after-tax income; we do not say that the constitution requires that these contributions be deductible so that no tax is imposed.  We tax newspapers along with other corporations (if they have taxable income which they may not these days).  Not all 501(c0(4) organizations are involved in campaign intervention.  Those contributors who want protection from the gift tax have the option of contributing to a PAC or other organization subject to section 527, an alternative channel free of this transfer tax - and the Supreme Court upheld the alternative channel approach in Regan v. Taxation with Representation.     > > I'd love to hear others on why taxing c-4's is unconstitutional.  I have read Rhomberg article and did not find it convincing. It did not rely on tax cases.   > >   Ellen   > > Ellen Aprill > > John E. Anderson Professor of Tax Law > > Loyola Law School > > ----- Original Message ----- > > From: Beth Kingsley <bkingsley@harmoncurran.com> > > Date: Wednesday, May 11, 2011 5:31 am > > Subject: Re: [EL] Electionlawblog news and commentary 5/11/11 > > To: Lloyd Mayer <lmayer@nd.edu>, Election Law <election-law@mailman.lls.edu> > > > It is also worth noting that this initiative seems to be coming out of the Estate and Gift Tax section of the IRS, not from the Exempt Organizations people.  I suspect they have no idea what they may be stepping into, and how hot an issue this may be, as estate and gift tax is not usually mixed up with politics.  Just guessing, but I don’t imagine they have even considered there could be constitutional implications to their attempt to collect this tax.    > > > It will be fascinating to see how this develops.    > > > Beth     > > > Elizabeth Kingsley > > > Harmon, Curran, Spielberg & Eisenberg, LLP > > > 1726 M St., NW > > > Suite 600 > > > Washington, DC 20036 > > > 202-328-3500     > > > From: election-law-bounces@mailman.lls.edu [mailto:election-law-bounces@mailman.lls.edu] On Behalf Of Lloyd Mayer > > > Sent: Wednesday, May 11, 2011 7:16 AM > > > To: Election Law > > > Subject: Re: [EL] Electionlawblog news and commentary 5/11/11   > > > This issue has been around for decades, but as related in the Ben Smith column and also discussed at last week’s ABA Tax Section meeting the IRS appears to have finally decided to pursue it through audits of a number of large donors to section 501(c)(4) organizations.  Since those donors are reported to the IRS on the non-public Schedule B to the Form 990 filed by section 501(c)(4) organizations, the donors are not hard for the IRS to find.  The most significant effect for 2012 will probably be a chilling one.  There are numerous grounds for challenging application of the gift tax in this context (see two articles by Barbara Rhomberg, one relating to constitutional issues and one relating to other legal issues).  But many of these donors may not want to risk an IRS audit, much less public litigation with the IRS that would reveal not only their identities but the extent of their gifts.  Some lawyers may also find themselves in trouble, because it is easier to challenge application of the gift tax depending on how the “donation” is structured.  For example, if it is structured to more closely resemble a payment for services than a gift, the IRS would find it hard to apply the gift tax.   > > > Lloyd Hitoshi Mayer > > > Associate Professor > > > Notre Dame Law School > > > P.O. Box 780 > > > Notre Dame, IN 46556-0780 > > > Phone: (574) 631-8057 > > > Fax: (574) 631-4197 > > > Web Bio: http://law.nd.edu/faculty/lloyd-hitoshi-mayer > > > SSRN Author Page: http://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=504775       > > > From: election-law-bounces@mailman.lls.edu [mailto:election-law-bounces@mailman.lls.edu] On Behalf Of Rick Hasen > > > Sent: Wednesday, May 11, 2011 12:55 AM > > > To: Election Law > > > Subject: [EL] Electionlawblog news and commentary 5/11/11   > > > May 10, 2011 "IRS gift tax move could hit new anonymous groups" > > > Ben Smith notes a very interesting development with potentially important implications for 2012. What say you, tax/election law people? > > > Posted by Rick Hasen at 09:52 PM   > > > _______________________________________________ > > > election-law mailing list > > > election-law@mailman.lls.edu > > > http://mailman.lls.edu/mailman/listinfo/election-law > > Ellen P. Aprill > > John E. Anderson Professor of Tax Law > > Loyola Law School > > 919 Albany Street > > Los Angeles, California 90015 > > Telephone: 213.736.1157 > > Fax: 213,380.3769 > > Ellen.Aprill@lls.edu > > http://www.lls.edu/academics/faculty/aprill.html > > _______________________________________________ > > election-law mailing list > > election-law@mailman.lls.edu > > http://mailman.lls.edu/mailman/listinfo/election-law