Dec 29, 2016

No, the IRS may not deny tax exemptions on the grounds that a group is a supposed 'hate group'

By Eugene Volokh
Washington Post
December 29, 2016

The Chronicle of Philanthropy writes:

The federal government has granted tax-exempt status to more than 60 controversial nonprofits branded by critics as “hate groups,” including anti-immigrant and anti-gay-rights organizations, white nationalists, and Holocaust deniers, according to a Chronicle of Philanthropy analysis.

The issue is a thorny one for the Internal Revenue Service, which must balance First Amendment rights against concerns that it is essentially granting government subsidies to groups holding views that millions of Americans may find abhorrent….

Though tax exemption is intended to be available to groups espousing a wide range of views, [Prof. Frances] Hill worries that the concept of a nonprofit organization has become too malleable. “The idea of tax-exempt organizations devoted to hate speech is just corrosive of everything that the tax-exempt sector says it stands for.”

Yet the IRS is in an impossible position, she said. Still shaken by the revelation that agency leaders had singled out conservative advocacy groups’ applications for tax-exempt status for extra scrutiny, the IRS has little incentive to investigate organizations based on the content of their messages.

Salon likewise writes:

Samuel Brunson, a tax law professor at Loyola University in Chicago, noted the nonprofit status gives these groups a veneer of legitimacy and respectability.

“It should make people uncomfortable that the government is subsidizing groups that espouse values that are incompatible with most Americans,” he said.

But the IRS can’t deny tax exemptions on the grounds that a group “hold[s] views that millions of Americans may find abhorrent” — or “espouse[s] values that are incompatible with most Americans” — whether those views are socialist, Islamist, pro-abortion, anti-abortion, pro-illegal-immigrant, anti-immigrant, pro-gay-rights, anti-gay-rights, white nationalist, black nationalist or anti-nationalist. It can’t deny exemptions to groups that engage in “hate speech” against blacks, gays, evangelical Christians or Donald Trump supporters, while allowing exemptions to groups that praise blacks, gays, evangelical Christians or Donald Trump supporters.

Indeed, the Supreme Court has made this clear: The government may not discriminate against groups based on the viewpoint of their speech. See Rosenberger v. Rector (1994) (discussing Regan v. Taxation With Representation (1983)). As the D.C. Circuit put it in Z Street v. Koskinen (2015) (itself a 501(c)(3) tax exemption case), “in administering the tax code, the IRS may not discriminate on the basis of viewpoint.”

There may be some confusion about this among some observers, because the government may limit certain tax exemptions based on the subject matter of groups’ speech; for instance, it may deny 501(c)(3) status, which allows tax-deductible contributions to various educational groups but not ones that support or oppose candidates for office, or engage in a substantial amount of advocacy for or against legislation. Likewise, groups can be denied benefits, including tax exemptions, because of their conduct (such as discrimination against members, students and the like), precisely because this discrimination is based on what the groups actually do, rather than based on what the groups advocate. See Bob Jones Univ. v. United States (1983); Christian Legal Society v. Martinez (2010) (upholding university’s denial of certain benefits to student groups that discriminate in certain ways, though reaffirming groups’ rights to communicate whatever viewpoints they want).

The D.C. Circuit, in National Alliance v. United States (1983), also upheld IRS guidelines that deny the educational tax exemption to groups that simply present “strong emotional feelings,” without an attempt to support their viewpoints with “a relevant factual basis”; I’m troubled by such a standard, which can easily be applied in biased ways. But even that decision defended the factual-support requirement on the grounds that it was a “criteri[on] neutral with regard to viewpoint.” And the decision noted that the requirement avoided a judgment on whether the factual argument was indeed accurate:

One of the concerns in this area, because of First Amendment considerations, is that the government must shun being the arbiter of “truth.” Material supporting a particular point of view may well be “educational” although a particular public officer may strongly disagree with the proposition advocated. Accordingly IRS has attempted to test the method by which the advocate proceeds from the premises he furnishes to the conclusion he advocates rather than the truth or accuracy or general acceptance of the conclusion.

So viewpoint discrimination in tax exemptions is unconstitutional, even if viewpoint-neutral subject matter or methodology restrictions — applied equally to “hate” groups as to love groups — are permissible.

Nor has the court been persuaded by the argument that tax exemptions, being economically similar to subsidies, can be denied to disfavored speakers. Indeed, in Rosenberger, the court made clear that even outright subsidies (there the payment of printing costs for student newspapers) can’t be denied based on viewpoint, so long as they are offered to a broad range of speakers based on generally applicable criteria. Does that mean that taxpayer money goes to speakers that many taxpayers disapprove of, whether those speakers are far left, left, center, right, far right, or something else? Yes — but the alternative is to give the government immense power to skew public debate. And even those who might in the abstract like the skewing of such debate against “hate speech,” whatever that might mean, ought to see that a government that can deny exemptions for “hate speech” groups can deny exemptions to any other unpopular groups.

Finally, Prof. Philip Hackney (The Surly Subgroup, a blog that deals with tax law) points to Principle Voices of Polygamy, a 2013 IRS decision that denied a tax exemption to a pro-polygamy group, partly on the grounds that,

[Y]ou provide conferences for attorneys and others in the legal community seeking to represent those performing polygamous acts. Your website, rallies, and publications try to change general opinion about polygamy. Similar to Bob Jones University, whose activities created an environment to perpetuate discrimination, see Bob Jones, 461 U.S. 574, your training courses as well as your website and rallies all seek to create an environment where people are free to contravene state law and federal policy. Not only do you seek to create a permissible environment, but you also suggest to people that they must perform illegal acts by stating, through your website, that polygamy is the only way to achieve “exaltation.”

You admit in your application and through your material the illegality of polygamy and you actively fight to alter the status of polygamy. You train individuals in proper techniques for advocacy and argumentation. These trainings are directed solely at the polygamous community. The trainings are intended for political advocacy as well as day-to-day advocacy of an illegal lifestyle. You hope to use the media to broadly disperse a positive view of an illegal activity. Furthermore, you provide specific training on how to lobby, which is also directed solely at the polygamous community. This training activity is supported by pro-polygamy rallies, visits to the state capital building, and printed material on your website espousing a singular pro-polygamy point of view.

But much of this analysis, which to my knowledge has not been approved by a court, is in large measure inconsistent with the court’s and the D.C. Circuit’s stress that tax exemptions can’t be denied on the basis of a group’s viewpoint. Trying to “change general opinion about polygamy” can’t be treated differently from trying to change general opinion about marijuana, or about illegal immigration — or for that matter for trying to reinforce general opinion about polygamy. Likewise, hoping “to use the media to broadly disperse a positive view of an illegal activity” can’t be treated differently from trying to use the media to disperse a negative view of an illegal activity, or for that matter from trying to use the media to disperse a positive view of illegal immigration, or of illegal homosexual conduct during an era (before 2003) when homosexuality was illegal in some places. A “pro-polygamy point of view” is just as protected against viewpoint discrimination as any other view.

It’s possible that the group could be properly denied 501(c)(3) tax-exempt status on the grounds that it predominantly supported lobbying to change the law (which is another argument the IRS gave). As I mentioned, the court has upheld such a broad subject matter restriction on 501(c)(3) status, precisely because that restriction was viewpoint-neutral. But to the extent that the IRS decision was based on the pro-polygamy group’s viewpoint, the decision violated the First Amendment, as cases such as Rosenberger and Z Street (cited above) make clear.

Thanks to Paul Caron (TaxProf Blog) for the pointer.

Eugene Volokh teaches free speech law, religious freedom law, church-state relations law, a First Amendment Amicus Brief Clinic, and tort law, at UCLA School of Law, where he has also often taught copyright law, criminal law, and a seminar on firearms regulation policy. Follow @volokhc

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