IRS May Step Up Its Attack on Free Speech of Non-Profits

By Hans Bader - Competitive Enterprise Institute

Earlier, we wrote about how proposed IRS regulations would gag 501(c)(4) groups—and potentially 501(c)(3) groups like think tanks as well—by redefining non-partisan, non-election-related criticism of government officials, and advice to the president, as “candidate-related political activity.” CEI, along with over 140,000 other people and institutions, filed comments against the proposed regulations, with CEI explaining how the proposed rules violated the First Amendment and twisted the meaning of the Internal Revenue Code statute dealing with 501(c)(4) groups. In response to this outpouring of public protest, the IRS temporarily relented, withdrawing the proposed rule until after the 2014 election.

But the reprieve is only temporary. Recently, IRS Commissioner John Koskinen indicated that new, probably even worse, rules will be proposed in early 2015, that will not just redefine political activity (a concept the IRS has proven it cannot be trusted to do fairly, given its ridiculous attempt to redefine non-partisan, non-election-related criticism of government wrongdoing as “candidate-related political activity,” and its documented history of subjecting Tea Party and limited-government groups to ), but also set new limits on 501(c)(4) groups’ so-called “political” activity as well.

The IRS lacks credibility in this area, recently claiming that it “lost” key emails exchanged with IRS managers, such as Lois Lerner, who subjected to Tea Party and limited-government groups to burdensome, irrelevant, and intrusive queries after they applied for 501(c)(4) status (like asking them for every single thing their members had posted on sites like Facebook, and asking them irrelevant, pointlessly-harassing questions about the content of their prayers, and what books they were reading, questions unrelated to whether they were legally entitled to 501(c)(4) status.)

The Federal Records Act required it to preserve these destroyed emails, as the IRS’s own handbook notes, contrary to Commissioner Koskinen’s recent false claims to Congress. Lawyers and IT specialists say the IRS is lying when it claims that it innocently lost these emails and that it could not have recovered them (see this IT specialist in The Washington Post, and this discussion by a lawyer familiar with IRS document-retention policies and document production in litigation).

Progressives argue that along with many Tea Party groups, (a much smaller number of) progressive groups were also subjected to scrutiny based on their ideology. (The IRS also investigated groups that “criticized how the country is being run”—including groups that opposed deficit spending—or taught about the Constitution.)

But there is no evidence that any progressive group was subjected to burdensome paperwork demands or highly-intrusive questions the way Tea Party groups were, or that their applications were subjected to such extended delays. Even when it is perfectly acceptable to investigate someone (as does not appear to be the situation with the IRS’s harassment of the Tea Party groups), the government cannot conduct an investigation in a way that needlessly targets, burdens, or chills their speech. The Constitution bans pointlessly harassing document demands and other queries from other investigators based on the target’s speech, even if the government had a valid reason for initially investigating the target. See, for example, the opinion of the federal appeals court in White v. Lee, 227 F.3d 1214 (9th Cir. 2000), which held that federal officials violated clearly-established First Amendment rights by subjecting citizens who opposed a housing project for the disabled to an eight-month investigation, even though there was initially a colorable claim that they had violated the Fair Housing Act by impeding housing for the disabled.

Note that contributions to 501(c)(4) groups—unlike donations to 501(c)(3) groups—are not tax deductible (the 501(c)(4) itself is not taxed on those contributions, but neither would you as an individual be taxed on a gift to you; and the income used for the donation is not tax-deductible to the donor, which is what really matters. So, it’s not really a government-conferred privilege for the 501(c)(4)).

A common progressive fallacy is that 501(c)(4) groups should not be allowed to engage in political activity because they are tax-exempt (but donations to them are not tax-deductible) and because such groups must be operated “exclusively” for the social welfare (which may be true, but is irrelevant to IRS attempts to prevent 501(c)(4) groups from speaking out, because civic participation does promote social welfare, and that can include involvement in politics—indeed, “civic” leagues are a specific example of a 501(c)(4) group).

Congress plainly did not view politics as being inherently antithetical to the social welfare, since it banned electioneering for 501(c)(3) groups, but not for 501(c)(4) “social welfare” groups (as the plain language of the statute shows), and certainly did not ban, or even restrict, the sort of non-partisan “political” activity (like criticism of wrongdoing by bureaucrats nominated to head executive branch agencies like the IRS) that the IRS recently sought to restrict in its proposed rules.

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