*1 WITH TAXATION REPRESENTATION WASHINGTON, Appellant,
OF REGAN, Secretary Donald T. Treasury, et al.
Nо. 79-1464. Appeals, United States Court District of Columbia Circuit. Argued En Banc Oct.
Decided March *2 Cary
John with whom Alan B. Mor- Sims Field, D. Washington, F. rison Thomas C., appellant. were on the brief for Cihlar, Atty., Dept, Frank P. of Justice Murray, Acting with whom John F. Asst. Gen., Ruff, Atty. Atty. F. Charles C. U. S. filed, at the time the were Michael L. briefs Farber, Paup Attys., Dept, and Richard Justice, C., Washington, D. were on Brown, appellees. brief for Ernest J. Leon- Brennan, Henzke, Philip ard J. Jr. and I. C., Justice, Dept, Washington, Attys., D. appellees. appearances also entered ROBINSON, Judge, and Before Chief TAMM, MacKINNON, ROBB, WRIGHT, WALD, MIKVA, EDWARDS, WILKEY, GINSBURG, Judges. Circuit
MIKVA, Judge: Circuit Representation
Washington (Taxation) challenges the lob
or
nonprofit
bying restrictions
certain
501(c)(3) of
ganizations
required
Code, the Internal Revenue
U.S.C.
501(c)(3),
a violation of
its First
Because this
equal protection
rights.
complex, may
Amendment
case is
path
to set out in advance the
useful
argument
whole of Taxation’s
well ex-
reasoning
opinion begins
our
follows. The
parts.
ceeds the sum of its
Taxation’s case
explanation
with an
of the internal revenue
solely
is weak if it
is viewed
as a First
provisions
(cited
issue
as l.R.C. or
claim,
Amendment
because the Constitution
Section) and the discrimination established
require Congress
does not
to subsidize First
*3
by
provisions.
part
those
In the second
activity.
Amendment
Taxation also has a
opinion,
explain why
we
the statute’s
weak
solely
equal protec-
case
in terms of
given
judicial
classifications must be
close
tion; Congress has vast
leeway under the
scrutiny. The third section then identifies
classify
recipients
Constitution to
of its
substantiality
gov-
and assesses the
of the
benefits
and to favor
some
over
ernmental
interests
justify
said to
the dis-
But
others.
a First Amendment
concern
crimination, and concludes that
the statute
equal protection analysis
must inform the
is unconstitutional.
The final section of the
this
spe-
case. Courts must scrutinize with
opinion
appropriate
discusses the
remedy
by Congress
cial care
act
facili-
for this violation and the
for
need
a remand
speech
speaker
tates the
of one
over anoth-
to the district court.
er,
legislation
even when
enacted
dry, classification-ridden context of the In-
I. BACKGROUND
ternal
By subsidizing
Revenue Code.
nonprofit
Taxation is a
charitable
and
lobbying activities of
organization
educational
that was formed
failing
tions while
to subsidize the
represent
general
public on tax issues
of Taxation and other
groups,
courts,
Congress,
before
and the execu-
equal protection
has violated the
incorporation
tive branch.1 After
its
guarantees
of the Constitution.
The dis-
applied
June
Taxation
Internal
erroneously rejected
trict court
Taxation’s
(IRS)
Revenue Service
for a declaration
challenge,
constitutional
accordingly
and we
organization
was an
described in
reverse.
501(c)(3).2 Although
Section
Taxation oth-
merg
e.g.,
Taxation was created as the result of a
those we decide here. See,
Christian Ech
organizations,
er between two other
Taxation
oes National
Inc. v. United
Ministry,
States,
(TWRF),
group
with
Fund
Representation
de
(10th
1972),
erwise status un- linchpin I.R.C. 501 “is the section, der that require- statutory system.” it did not meet the of the benefit Simon Kentucky Rights Organi Eastern Welfare part” ment that “no substantial of its activ- zation, n.1, “attempting leg- ities consist of to influence n.1, This sec specifically islation.” The found IRS organi describes several dozen kinds of purposes Taxation’s “stated include at- exempt zations that are from federal taxa tempting legislation, legis- to influence tion on the income receive. lative advocacy may constitute a substantial part your important components activities.” Notification of There are other Ruling, February provided by Adverse tax benefits Joint Section 501 in conjunction provisions with other (J.A.) result, of the Appendix 48. As a Code, however. The chief source of income ineligible pro- was for several tax benefits many nonprofit organizations 501(c)(3), particularly vided private described in the statute is contribu- eligibility to receive tax-deductible contri- *4 encourage giving, tions. In order to such butions from donors.3 frequently provided has that con- Taxation exhausted its administrative 501(c) tributors to organiza- various Section remedies, sought May and then 1978 to may tions take a deduction based on the overturn the by bringing IRS decision amount of the contribution. Because the declaratory judgment action under I.R.C. imposes general Code three taxes on indi- Upon 7428.4 § consideration of cross-mo- income, gifts, viduals —on and estates —the tions for summary judgment, the district provisions allowing contributors to take court ruled for the defendants. Memoran- appear these deductions separate in three Opinion, dum January 1979, J.A. 56-64. portions of the Code. See I.R.C. §§ appealed the district court’s deci- 2055, 2522. complexity, Aside from this sion, and a three-judge panel of this court however, general simple. scheme is 14,1981, April decided on uphold the trial Congress has organizations accorded certain 11, 1981, court. On June majority of the exemption double benefit: from taxes on full appeals court of voted to vacate the income, their own eligibility to receive panel opinion and rehear the case en banc. gifts contributions and that are deductible from the Throughout donors’ taxes as well. A. The Statutory Scheme opinion, tax exemption refers to the benefit, first tax-deductibility considering Before presented the issues second. case, by this it is necessary first to examine the classifications that are under review. Every organization described in Section Congress has excluded types various of or- enjoys exemption, some form of tax ganizations from taxing provisions of only eligible some are to receive tax-deduct- exclusively religious, charitable, for (emphasis added). organizations scientif- Such are ex- ic, testing public safety, literary, empt for or educa- from taxation under the income tax subti- purposes, tional exemption or to tle foster national or inter- unless is denied under sports competition (but national amateur §§ I.R.C. and 504. only part if no of its activities involve the 170(c). 3. See § I.R.C. Other benefits accru- provision equipment), of athletic facilities or ing 501(c)(3) organization to a § include ex- prevention or for the cruelty to children or emption security from federal social taxes animals, part earnings no of the net of which (FICA), 3121(a), exemption § I.R.C. any inures to private the benefit of share- unemployment (FUTA), federal taxes I.R.C. individual, holder or part no substantial 3306. § carrying propa- activities of which is
ganda,
attempting,
or otherwise
to influence
4.
I.R.C.
§
authorizes certain courts to is-
legislation (except
provided
as otherwise
declaratory judgments
appropriate
sue
cases
(h)),
subsection
partici-
and which does not
relating to the status and classification of or-
in,
pate
(including
publish-
or intervene in
ganizations
501(c)(3). Congress
under I.R.C. §
distributing
or
statements),
any politi-
part
enacted this section of the Code as
campaign
cal
on behalf of
for
candidate
94-455,
Tax Reform Act of
Pub.L. No.
public office.
Stat. 1520.
501(c)(3)
any par-
ible contributions.
The status of
—some
course,
organization,
simply
organiza
can
called “charitable”
ticular
times
examining
portions
examples of the former. A do
ascertained
the other
tions —are
organization may
his
provide
deductions to
nor to such an
deduct
of the Code
by virtue of the relevant
complica-
A further
contributions
to it
organization’s donors.
provisions
I.R.C.
in the
that the
differenti-
Code.
tion lies
fact
Code
deductions);
170(c)(2) (income tax
eligible to
I.R.C.
among
§
those
ates
2055(a)(2), 2106(a)
(estate
tax deduc
§§
receive
tax-deductible
contributions
2522(a)
tions);
(gift
tax deduct
of the uses to which
I.R.C. §
terms
ions).5
limits the
put.
purposes
The Code
amount of
may
tion’s income
For the
case,
by the
promoted
may
of this
the crucial distinction
be conducted
Sec
however,
organization,
wheth
Section 501 is between
tion
related to its
may
not receive tax-deductible
contri-
er or not
they lobby substantially,
exempt purpose.6
butions if
and or-
See Slee v. Commission
er,
(2d
1930).
ganizations
receive such contribu-
723 legislation legislation even infringe Amendment when the Taxation’s First di- id. at 26. This argument rights,” rectly objects, too affects their difference, course, standing has There of easily dismissed. Taxation is a between behalf showing First Amendment claims on that a has a discriminatory to raise statute unconstitutional, application and it is it is supporters,14 of members and its clearly will be But Taxation has met the threshold re- evident that Taxation quirement demonstrating injury of giving if its contributors cease from harmed statute,15 unequal application of a and it money. Regardless of the merits case, undoubtedly constitutionality of appropri- Taxation is an is to the that statute we bring this action. now turn. party ate short, complained has II. APPROPRIATE THE STANDARD 501(c) exposes vari- OF REVIEW discriminatory tax-exempt
ous
thereby
starting point
tax- treatment
violates Taxa-
for our review
The
protec-
equal
tion’s First Amendment and
appropriate
must be determination
rights.
statutory provision
apply
appellant’s
The
effec-
reviewing
standard to
McRae,
Harris v.
organi-
constitutional claims. See
tively
ability
limits the
of charitable
297, 322,
2671, 2691,
present
legislators
zations to
views
448 U.S.
100 S.Ct.
65
See,
Alabama,
449,
Florida,
184,
e.g.,
191,
McLaughlin
v.
U.S.
NAACP
357
v.
379 U.S.
85
458,
1163, 1169,
283, 287,
(1964).
78 S.Ct.
L.Ed.2d 784
scrutiny
required
government sought
in which
is
because the
this a case
the
level
lobbying
lobbying
suppress
con-
the
activities of Taxa-
restriction
directly,
appropriate
tion
scruti-
protected
the
level of
a limitation on
First
stitutes
See,
ny
e.g.,
would
obvious.
N.A.A.C.P.
activity, and because Taxa-
Amendment
Button,
438-39,
415,
v.
371 U.S.
argument
83 S.Ct.
equal protection
therefore
tion’s
328, 340-41,
(1963);
725
501(c)(3), provided
efits” of Section
makes a valiant at
it did
Taxation
holdings
claiming
tempt
a
lobbying.
avoid these
not exceed “substantial” level of
501(c)(3) expressly
restriction
of Section Because Section
condi-
501(c)(3)
receipt
charity’s
constitutes
“unconstitutional
tions
of these benefits on a
greater
First
a
willingness
condition” on the exercise of
its
to refrain from
level
contends,
rights.
Perry
expression,
Amendment
v. Sinder
Taxation
an uncon-
mann,
593, 597,
2694, 2697,
placed
408
92
condition
U.S.
S.Ct.
stitutional
has been
on the
(1972),
Supreme
furnishing
33
Court
L.Ed.2d 570
these tax benefits.
“The
explained
though
person
obligation
a
has Government has no
that “even
whatever to
charities,
grant
‘right’
advantages
tax
but
governmental
no
bene
if it
a valuable
so,
do
though
government may
receipt
fit and even
decides to
cannot condition
advantages
on a surrender of First
deny
him the
number of
benefit
rights.”
reasons,”
Appellant
Amendment
Brief for
government “may
deny
a
(Taxation Brief)
person
infringes
benefit
on a basis that
protected
his constitutionally
interests —es
argument
strength,
has
This
some
but we
pecially,
speech.”
his
in freedom of
interest
reject
premise.
It
is true that under
Accord,
618, 626,
Paty,
v.
McDaniel
435 U.S.
conditions,
granted
certain
the indirect aid
1327,
1322,
(1978);
98
55 L.Ed.2d
S.Ct.
593
through
exemptions
tax
and deductions is
Educ.,
563,
Pickering v.
391
Board
U.S.
equivalent of a
functional
direct
568,
1731, 1734,
88 S.Ct.
ment
*11
compelling
solely
claim
on
tion has no
based
government
condi-
the case that
the
were
reject
We
“the
the
Amendment.22
First
provision of tax
on a
its
benefits
tioned
rights
notion that First Amendment
are
of First
organization’s waiver
fully
they
not
are
somehow
realized unless
rights.20
Amendment
Cammarano v.
subsidized
the
State.”
however,
mechanistic,
sug-
to
overly
It is
States,
515,
United
20. If this were the
we
be forced to
it for lob-
would
non-deductible contributions made to
bying purposes.
decide whether the restrictions on charities
501(c)(3)
that received benefits under Section
necessary
important
were both
that
attained.
challenge
proscription
assure
22. Taxation does not
objects
program
against
vagueness,
benefit
were
lobbying”
grounds
“substantial
on
Valeo,
Buckley
e.g.,
v.
however,
question is
and that
1,
n.65,
n.65,
96 S.Ct.
46 L.Ed.2d
Borod,
opinion.
Lobby
considered
this
See
(1976) (Congress, may
condition candi-
Interest,
for the Public
42 N.Y.U.L.Rev.
receipt
agreement
financing
dates’
of federal
on'
(1967); Clark,
supra
1106-10
note
abide
campaign
limitations on overall
451-54; Troyer, Charities, Law-Making, and
expenditures); CivilService
Comm’n Nation-
Validity
the Constitution: The
of Restrictions
Carriers,
al Ass'n of Letter
Inñuencing Legislation,
on
N.Y.U.Inst.
(1973) (upholding
Fed.Tax.
1456-62
political
activity
restriction of
federal em-
ployees).
strong argument
Taxation makes a
may misleading
23. It
to treat First Amend-
activities are not inconsistent
equal protection questions
though
ment and
see,
purposes,
e.g.,
with charitable
2 Restate-
entirely separate,
were
In cases
however.
(Second)
(1959);
ment
Scott,
of Trusts § 374
IV R. W.
this,
interplay
such as
there is a distinct
be-
(3d
1967),
The Law of Trusts
ed.
§ 374
principles.
tween these two constitutional
disposition
our
but
First
Taxation’s
Amend-
Emerson, The
the First
Affirmative Side of
unnecessary
ment claim makes it
to consider
Amendment,
Ga.L.Rev.
argument.
(1981) (discussing
equal protection
“an
element
guarantee”
in the first
in the con-
amendment
above,
supra,
21. As noted
see note 1
governmental
speech).
text of
subsidies for
originally
in fact
tional structure.
followed this dual
peculiar identity
equal protection
“The
Although
a Section
analyses
first amendment
access
organization
differential
converting
be barred from
logically
explicit
cases follows
consti-
from
organization,
a Section
see note 13
designation
speech
supra,
tutional
nothing
as fundamental
keeps
such an
forming
and from the fact
the first
using
amendment’s
a new arm at
time
opinion
Randall,
518, Harlan’s
for the
Speiser
Court Cammara-
(1958),
carefully distinguished
L.Ed.2d
no
the earlier
deci-
discriminatory
Supreme
Court held that
sion:
exemptions
engaging
tax
denial of
Speiser has
relevance to the cases be-
no
infringe First
speech
impermissibly
can
being
fore us.
are not
Petitioners
denied
Speiser
rights.
Amendment
concerned
they engage
tax deduction because
property
California statute that conditioned
activities,
protected
constitutionally
taking
exemptions
loyalty
of a
simply being required
pay
for those
though
oath. The Court held
even
entirely
pock-
out
their own
activities
*12
merely
discriminatory
statute involved
the
ets,
everyone
engaging
else
in similar
as
direct
exemptions,
denial of tax
and not the
required
pro-
is
to
under the
activities
do
suppression
scru-
speech,
of
a strict level of
of the
visions
Internal Revenue Code.
tiny
appropriate.
was
“When we deal
Nondiscriminatory
of
denial
deduction
complex
the
of strands in the web of free-
gross
from
expended
income to sums
opera-
up
speech,
doms which make
free
the
promote or
legislatiоn
plainly
defeat
“
the
tion and effect of
method
suppression
danger-
the
‘aimed at
of
”
sought
be
be
speech
restrained must
U.S.,
S.Ct.,
ous
519
ideas.’
357
at
at
[78
subjected
analysis
judg-
to close
and critical
Rather,
appears
express
it
us to
1338].
light
particular
in
the
ment
of
circum-
by Congress
a determination
that since
520,
is applied.”
stances to which it
Id. at
purchased publicity can
influence
fate
conducting
Although
year
513,
was decided a
ear-
(emphasis
at
79
at
U.S.
Cammarano,
than
nothing
added).
lier
in
emphasis
the later
The Court’s
on “nondis-
repudiates
Indeed,
ruling.
case
this
criminatory”
clearly
Justice
of
denial
benefits
dis-
proscription against censorship
simply
XX,
19,
is itself
forcé Article
of the California Consti-
specialized equal protection guarantee.”
tution,
a
Per-
exemptions
which denied tax
ry
Hohlt,
Local Educators’ Ass’n v.
F.2d
“person
which advocates
1286,
(7th
1981).
Karst, Equality
Cir.
overthrow of
the Government
the United
Amendment,
Principle
as a Central
in the First
violence,”
States or the State
force or
see
Supreme
43 U.Chi.L.Rev. 20
The
Court
516,
at
357 U.S.
729
deed,
previous gu-
number of
cast
guided by
ballots
in the
analysis
our
must be
Buck
election).
Valeo,
96
46
These “direct bur-
ley v.
S.Ct.
bernatorial
U.S.
(1976),
Supreme
much more
than
in which the
dens” were
restrictive
dis-
L.Ed.2d
financing
funding
criminatory
presidential
challenges
heard
candi-
Court
dates,
said, thereby
campaigns
implying
provisions
presidential
Court
appropri-
greater
support
“exacting scrutiny”
less than
was
provided far
financial
determining
significant
highly
major-party
candidates.
ate.
Id. But it is
appropriate
analyze
review
the Court went on
discrimi-
the standard of
Amendment,
heightened
natory funding provisions
the Fifth
Court started
event, Congress
holding
scrutiny
that direct “re
terms.
“In
precedents
process
strictions on access to the electoral
enacted
H furtherance of suffi-
Subtitle
interests,”
exacting scrutiny.”
ciently
must
Id. at
important governmental
survive
Panish,
id.,
e.g.,
at 670.
Lubin v.
at
S.Ct.
U.S.
S.Ct.
because
1315, 1321, 39 “public financing
of eliminating
as means
may
(indigent
improper
large private
L.Ed.2d
candidates
influence
con-
required
pay filing
govern-
not be
a significant
fees absent
tributions
furthers
access);
alternative means of ballot
Wil mental
interest.”
Id. at
Rhodes,
added).
liams
(emphasis
standard of review
(1968) (appearance
of mi we select in this case must
no
lower than
parties
nor
on
applied
Buckley,
though
ballot
be conditioned
even
nei-
on
petitions
whether
can obtain voter
ther situation involves a
burden”
“direct
signatures
percent
totaling
expression.27
of the
First Amendment
Cf. Citi-
us,
jority
agree
case now before
even
Court were unable
ac-
*14
any
cases,
one
in
knowledges
process
rationale
some of these
it is
as a
democratic
“[t]he
always easy
appropriate
not
to
jeopardized
determine the
government
whole is
where the
interpreting
of
standard
review. Even
any
provides
support
undue
to
one
way
in
cases
most favorable to the de-
faction, including
organi-
the class of charitable
fendants, however,
they require rigorous
zations.” IRS
at
Brief
29.
scrutiny
applied
[Sjpeech
to be
here....
keyed
identity
restrictions
speaker
to the
directly
of
Buckley
analogous
is
27.
to this case
always
strictly:
scrutinized
approved greater public
because
had
invariably
almost
spect
are not neutral with re-
funding of First Amendment activities for some
viewpoints they
tend to disfavor.
opposed
Buckley
candidates as
to others.
is
Fund,
Id. at 1294-95. National Black United
however,
distinguishable,
also
in the sense that
Devine,
(D.C.Cir., 1981),
Inc. v.
667
173
F.2d
it involved less restrictive discriminations than
rejected
a claim that refusal
to allow
at
those
issue here. The Court noted that cor-
participation in the Combined Federal Cam-
major-party
relative
on
restrictions
candidates
paign
ap-
nonqualifying charity abridged
a
helped
given
financing
of
offset
lack
full
to
pellant’s
rights,
First Amendment
is not to the
parties:
any major-party
minor
since
can-
“But
contrary.
opinion
The
observed that the mere
accepting public financing
campaign
didate
of a
“possibility” that the
of
voices
some charities
voluntarily
spending ceiling,
a
assents to
other
might
amplified
expense
at the
of others did
spend
will
to
in
candidates
be able
more
rela-
“compel
scrutiny
every
strict
of
Commis-
major-party
tion to the
candidates.” 424 U.S.
decision,”
179,
regulations
sion
at
because the
99,
offsetting
at
advantages
justification for such a rule.
Its content-neu-
contrast,
Again,
672 n.131.
501(c)(3)
in
‘compelling’
tral interests must be
and it must
lobbying by
restriction
demonstrate the
absence
‘less drastic
since
has been
effect
achieving
purpose.”
for
means’
Id.
In the
given by
ment of
activities
Rent Control/Coalition
Against
zens
-
-,
Berkeley,
tax-exempt groups.
It
Housing
501(c)
v.
to different
Fair
436,
-,
434,
L.Ed.2d 492
taxation,
more
may
S.Ct.
“in
even
be true that
(1981)
of First Amendment
(“regulation
fields, legislatures possess the
than in other
exacting judicial
subject
rights
always
is
classification,”
greatest
freedom in
Madden
review.”).
83, 88,
406,
Kentucky,
v.
60 S.Ct.
309 U.S.
408,
(1940),
power
is
legislative
tion to the attention of
legislation
eral
tion of
U.S.Code
ness’
tions:
2d
net
more accurate measurement of a business’
deduction of
and the
type lobbies with different
behind the distinction.
But the
Haswell v. United
The Senate
Sess.
expenses
income.
policy
is a
Report
viewpoint
itself
executive
people
fact that a difference exists
22-23
cost of
Cong.
branch;
considerations,
anomaly
to a business’ continued
mentions three
demonstrate the state interest
incurred
lobbying expenses permits a
Sen.Rep.No.1881,
Report explaining the addi-
162(e)
desirability
(1962), reprinted
to administrative
& Ad.News
branch but
doing
States,
Congress extended this tax private types treatment to of individuals for both or- generally ganizations. in 1924. *18 organizations concerned, limitation on charitable or- are if lobbying ganizations was not enacted until all excluded from immunity and all it is true only inserted it my judgment treated alike. It is that we dеaling the subsection of the statute get away never shall from mistakes of organizations. 23(o)(2), charitable administration and from decisions which Revenue Act of 48 Stat. 690. This may seem like favoritism until all contri- may simply drafting oversight, have been a organizations butions to of this kind are Indeed, Harrison, however. Senator subject made to the income tax. committee, reporting sug- chairman of the (Senator Reed) Id. at 5959. See id. at 5861 gested that carefully more drafted (stating disagreement” “no with Senator apply amendment would to “war remarks). Harrison’s The amendment was tions” as well: eventually agreed to with the under- amendment, considering In as I standing undergo redrafting it would recall, the sentiment of the committee by the conference Cong. committee. provision was that apply should (Senator Couzens) (amendment Rec. 5959 any organization receiving that is contri- conference, “go should butions, and we proceeds can of which are to be change propaganda purposes language used for if it try or to is found to do legislation. influence inequity”); (Senator Reed) (“if id. agreed I called the amendment shall experts attention of the to we will have the fact that it proviso seemed to me the from now until the study conference to at the end of the paragraph second subject prepare better phraseology”). [the lobbying provision] apply should to all explanation There is no legislative in the paragraphs. course, four Of that would history language for the fact that the of the affect organizations, some war per- enacted version was identical to that of the sonally I see no difference between one proposed.32 amendment as might be on one side of Congress has not indicated since 1934 getting fence propa- contributions to specifically impose wishes to gandize legislation and influence and be- lobbying restriction less uniformly, than ing permitted proceed without inter- other than enacting a Code that articu- ference, while at the prevent- same time lobbying lates provisions limitations some might one that have a different view- and not others. No stated intent to dis- point receiving making use of among criminate activities of contributions purpose. for the same tax-exempt various organizations is shown Cong.Rec. (emphasis added). 501(c)(19), the 1972 addition of Section LaFollette, Senator another member of the which created a new subsection for veter- Committee, agreed Senate Finance organizations ans’ in Section 501 to corre- desirability uniformity: spond with separate veterans’ subsec- I recognize . .. there are certain tion in legislative history Section 170. The types to which suggests that this addition was tech- and the executive branch of the Govern- nical, nonsubstantive designed amendment might ment desire to encourage contribu- to correct the tax treatment of in- tions. ... certain my opinion, it will not make penny’s difference, worth of come inadvert- so far as the contributions to ently these various changed by the Tax Reform Act of legislative provides sup- purposes. scheme further tax See Revenue Act of Pub.L. port reading scope 101(6), 23(o)(2), for this broad of the of the No. §§ 700, 690, 755, (current restriction. When the limitation Stat. version at enacted, por- was 501(c)(3), 170(c)(2)(D), 2055(a)(2), it was added to all relevant §§ I.R.C. tions of exemption establishing 2522(a)(2)). the Code—the section There was no intent —and no con- apply and the ceivable reason —to restric- provisions permitting some, all, three primary deduction of chari- tion to but not income, estate, gift table exempt organizations. contributions for benefits accorded *19 emphasizes, Congress, There is no indication Con- 1969.33 gress organiza- meant veterans’ impinge benefit impermissibly when it does not tions vis-a-vis tions in explaining the effect does lobbying (1972), reprinted tion.” tax difficult part lack of attention & Ad. News organizations Senate preferences S.Rep.No. any respect.34 purposes intend Report resist 3141, reflect no other for for 1082, and the IRS. to come under this the conclusion that noted: 3145.35 [1972] lobbying by tax any expenditures 92d Most consistency the new policy, exempt organiza- U.S. Code Cong., “The committee importantly, It but 2d Sess. therefore veterans’ provision on excep- simple Cong. for ry problems to a later date.” at 42. serious problems permits Congress L.Ed.2d 285 Brief at 40 problem upon demonstrates 96 S.Ct. at fundamental abuses, ‘one (quoting Buckley (1972)). step legislate respecting 675; while at rights, “may If the compelling Katzenbach v. single Jefferson v. leaving “[T]he time.’ Valeo, legislative out the IRS 1724, ” Constitution less serious Supp. reason IRS address Hackney, the most 1731, Morgan, greatest histo- Supp. Brief for at a particularity spe- on focus with organiza- charitable Section problems lobbying cial charitable created tions dollars, might with tax-deductible this suf- searching for govern- addition justify fice to the differential treatment promoted by preferential mental interests in the indicated Code sections before us. organi- of lobbying treatment veterans’ Initially, it does seem far to discern zations, easier we govern- must also examine the governmental promoted by interests mental interests behind restrictive treat- organiza- ment restriction charitable 501(c)(3) organizations. other As than extending tions those advanced exactly posi- 33. Until were veterans’ ans’ same exempt themselves as beneficiary from taxation so- either tion as fraternal now associations cial welfare enjoy”). 501(c)(4) or as clubs social under Section 501(c)(7). 1969, organizations exempt Until government argues language 35. The this categories subject under these were not modifies received insurance income unrelated business income tax. The Tax Re- purposes activities and set aside for charitable form Act 1969 extended the unrelated busi- 512(a). Supp. under Section IRS Brief categories, ness income tax to these however. correct, great reading Even if n.33. law created therefore a new subsec- weight given should still restriction. organizations, tion for veterans’ Sec- and added new rule excluded from the busi- unrelated 512(a)(4) so that the income that a veter- receipts ness income tax used or all insurance insuring ans’ received from set for for reli- aside insurance benefits “or subject dependents members was not charitable, scientific, gious, literary, education- to the unrelated business income tax. See etc., al, purposes” that were then identified S.Rep. (1972); Cong., No. 92d 2d Sess. 170(c)(4).” purposes specified “the in sec. H.R.Rep. Cong., No. 92d 2d Sess. S.Rep.No.1082, Cong. & Admin. U.S.Code 34. The busi- 1969 extension unrelated 1972, p. purposes, News the Re- 3145. These tax, example, ness prompted by income had been for said, port unequal treat- desire “to avoid programs involving to include American- are organi- types tax-exempt ment of the various ism, youth activities, activities, community H.R.Rep. pt. 1, Cong., zations.” No. 91st programs and information and educational Cong. 1st Sess. U.S.Code Admin. & security foreign relative to af- national 1969, pp. (amending News I.R.C. purposes provision. fairs of this 511(a)(2)(A)). The 1972 revision was based “purposes specified If Id. these in sec. Cong.Rec. a similar concern. See 118 170(c)(4)” do not include when in- (1972) (Rep. Mills) (“the source, come is one hard derived from it is tions should not be taxed on this insurance lobbying simply see how can include be- exempt organizations since income permitted cause income different is derived from a to insure be- their members without source. activity”); taxed on the income from this (Rep. Matsunaga) (bill place id. “would veter- if it bution is a selfish one made to ad- groups. to veterans’ Feder- this restriction charitable, exemptions religious, personal giver al tax interests of the vance the organizations'are money. as old as .. . and educational 1894,36 there the Income Tax Act of *20 suggest Id. at 5861. These statements statutory lobby- on the were no limitations regarded to curb what it acted exempt organizations for activities of by abuses above, forty years. the next As described eligible then to use -tax-deductible contribu- Congress amended the tax laws in 1934 to lobbying partly tions for Based activities. make clear that what are now Section comments, on these the district court below 501(c)(3) organizations engage were not to “legitimate governmental articulated three lobbying in substantial activities. Unlike purposes” by lobbying served restric- legislation concerning organi- governmental tion: “assurance of neutrali- zations, lobbying restriction was enact- ty respect to the activities of explanatory ed re- after number organizations; prevention charitable Congress, marks members of and this lobbying by private abuse of charitable in- relatively easy identify makes it seem terests; preservation of a balance be- governmental promoted interests tween the activities of charitable measure. organizations and those of non-charitable discussing In the amendment on the floor organizations and individuals.” Memoran- Senate, example, Order, of the for Harri- Senator J.A. 62. dum explained: son grossly simplistic It would read too the attention of the Senate committee comments, Leg- these much into however. was called to the fact there are vacuum, passed never islation is in a certain receiving which are any genuine understanding purpose of its legisla- contributions in order to influence must take some account of what conditions carry tion and propaganda. The com- were before it was enacted. There is an thought ought mittee there early history political of restrictions on ac- that, stop amendment which would so tivity by pre- well why put that is we have this amendment 1919, statutory change. ceding 1934 in the bill. example, Treasury provided reg- Cong.Rec. Reed, 5959 Senator ulation “associations formed to dissem- who was also a member the reporting partisan propaganda inate controversial or committee, addressed meaning not educational within the trying 45,
what we
Reg.
were
to do
the statute.”
Treas.
art.
(1919),
2831,
amendment.
There
no reason in the
in T.D.
21 Treas.Decs.Int.Rev.
why
world
a contribution
made to the
principle
successfully
was
Economy League
applied
National
should be de-
in several cases before the Board of
1920s,37
ductible as if it were a charitable contri-
Appeals
Tax
in the
and was central
August
349,
36. Act of
ch.
28 Stat. 509
and International Reform Bureau were formed
(held unconstitutional
propaganda);
Pollock v. Farmers’
to disseminate controversial
So-
Co.,
912,
Loan
Coxe,
& Trust
phia
(1926)
(League
G.
These that the 1934 political activity by restrictions on amend- organizations applying ment only charitable to prior to 1934 charitable make automatically it interpret congressional presumed difficult to tions cannot to Congress intent show that behind the 1934 amendment with addressed “the phase problem total confidence. “In existing view of the which most seem[ed] subject, law legislative case on the it is acute to the not clear what mind.” Williamson proponents legislation Co., 483, sought Optical 489, of the v. Lee to Clark, accomplish.” 461, The Limitation on Po- S.Ct. If L.Ed. the 1934 litical Activities: A Discordant Note in the amendment was to intended liberalize the Charities, 439, law, Law 46 Va.L.Rev. applied only case the fact that (1960). The may addition to the statute charitable suggest would have been simply codify preexist- meant lobbying by meant to treat ing regulation organizations. of charitable stringently less activity than similar extent, great however, To a by legislative commentators groups.40 other The history hold the view that the 1934 provides enactment was positive no prop- assurance for this osition, reform course, measure intended to liberalize the utterly but it also fails case law.38 It appears that proponents demonstrate that restricted the selfishly wanted to politi- restrict motivated of charitable be- agitation, cal personal meant to secure special some problems arising cause in that donor, interests of the providing without area alone. Commissioner, e.g., Seasongood (1970) (restriction is “obscure in (6th 1955) (courts origin, F.2d application, perhaps Cir. “have also uncertain in applied principle, harmfully outmoded”). being the section liberally construed”); Clark, remedial must be 447; Borod, supra supra Garrett, Clark, note (1934 supra 564; at note at note see supra amendments “were intended to note at 447. liberalize, restrict, some extent to than rather the administration of the revenue laws re- support argument 40. Some additional for this gard organizations”); Caplin 501(h) charitable & lie in the enactment of Section Timbie, supra (“A persuasive note supra, see note 6 which liberalized “Congress can governing by case organi- made” that intended a rules proscription reading more by limited freeing than literal zations application them from the uncertain suggest”). the statute “substantiality” would The restriction of the test. See widely Note, E.g., Hearings has been Legislative Activity by excoriated. Certain Tax Lobbying Types Exempt Code’s Organizations Differential Treatment Before the Comm, 501(c)(3), Means, Under Ways Cong., 66 Va.L.Rev. House 92d Note, (1980); Activity (1972); Geske, Lobbying Political Tax 2d Sess. 1 Direct Ac- Exempt Organizations Charities, Lawyer Before and Añer tivities of Public 26 Tax Tax Reform Act of 38 Geo.Wash.L.Rev. 501(c)(3) organizations is both relevant Interests Substantiality of the State
B.
narrowly
tailored to serve
interest
in-
governmental
If
are
there
it.41
disparate
tax treat-
terests
furthered
tax-exempt
activities
ment
162(e) has
The addition of Section
groups,
have
and other
assessing
strength
import
history
legislative
been identified
case, however,
government’s analysis in this
case. The
parties
in this
lobbying is not
because it demonstrates
any of these interests
now becomes whether
concerning
inherently improper activity
justify the
sufficiently
are
substantial
neutrality
Congress seeks as much
treatment,
and if so wheth-
differential
162(e)
possible.
unquestionably
to meet
narrowly
er
tailored
the statute
by Congress to de
demonstrates
a decision
them.
posture
neutrality toward
part from the
clearly
preceding
discussion
Camm
lobbying that once was affirmed
justi
governmental
interests that
identified
any sug
arano.42
It therefore undercuts
fy allowing
the cost of
businesses to deduct
to influence
gestion that
efforts
because
govern
lobbying. Because the
business
“well-recognized dangers
present
legislation
income,
taxes on net business
ment assesses
Government,”
Haswell v.
representative
necessary
in order to
such deductions
*22
States, United
at
such ef
F.2d
permit accurate measurement of
cost of
through
never be subsidized
forts should
contrast,
producing goods and services.
The first of the three
deductions.43
tax-exempt organizations
compara
have no
governmental
given by
interests
the district
ble need for a realistic reflection of income.
lobbying by
court
the restriction
governmental
distinguishing
The
interest
preservation
charitable
between
these two kinds of
is
—the
one,
governmental neutrality concerning
substantial
and the Code’s differenti
lob
ation
between
businesses
bying
disappears.
Section
—therefore
41. The same
gressional
fense of the
uniformly
reversing
amendment
ings Before the House
ment
over
encing Legislation
gress
strictions
validity.
lation to a business’ existence
relevant
ity
some of the
penses” under Section 162. See note 9 supra.
170(c)(2) organizations
in the
[1962]
Section
leagues
ity
ble
As
It
See,
suppress
noted
subsidizing
only
of contributions
to section
offers a clear and substantial
others.
reports
encouraging
U.S.Code
e.g.,
under Sections
162(e)
information
to the extent
above,
Neither
be noted in
applied
position
applied,
policy
Garrett,
governmental
issues
constitutional
reasoning
Supreme
accompanying
162(e)
are of doubtful
lobbying
such contributions
Cong.
difficult since
regarding
to section
on subvention, makes de-
supra
S.Rep.No.1881
business
and raises
importance
to the attention
to unions
indicates a
Public Charities: Hear-
operate discriminatorily
Court,
supports
passing,
Comm,
& Ad.News
by particular
concerns
note
freedoms”);
are “business
the enactment
nor
the 1962 amend-
whether
people
the deductibil-
however,
of some
constitutional
and business
changed
serious
justification
is no
are deducti-
at
articulated
Ways
at
501(c)(6).
desirabil-
to
at 3325.
of Con-
the re-
groups
22-23,
longer
Influ-
bring
legis-
(“By
con-
first
that
ex-
U.S 490, 516,
The second such 98 S.Ct. lobbying by private 1420-21, abuse of charitable in- (1978); id. see at terests, pass also fails mus- constitutional 790-91, concept 1423-24. “[T]he scrutiny ter close test. There is no government speech may restrict the lobbying evidence whatsoever that society some elements of order our by private is subject veterans less to abuse enhance the relative voice of is others whol 501(c) than interests that of Section ly foreign to the First Buck Amendment.” Thus, groups. although this interest is Valeo, ley 96 S.Ct. at valid, suggested doubtless it cannot be governmental purposes 648-649. The said 501(c) has been tailored meet it. require special lobbying restrictions on government’s We decline invitation to 501(c)(3)organizations there apply infer that because did insubstantial, illegitimate, fore either in lobbying exemption exempt to all or- promoted adequately by a statute is ganizations, problem it saw according no narrowly tailored to serve them. special tax benefits to veterans’ Moreover, the Code’s discriminato despite tions activities. The ry of lobbying treatment veterans’ or legislative provides history discussed above ganizations satisfy does not even the test of no support for such an inference. rationality, heightened much less the level require special The final interest said to scrutiny appropriate legisla here. The organi- treatment of lobbying history exemptions tive of the tax accorded “preservation of a balance be- zations — gov no absolutely veterans demonstrates tween the activities of charitable ernmental interest whatsoever organizations” groups— and those of other by allowing served to conduct also heightened fails meet the standard substantial with tax-deductible applicable absolutely here. There no evi- post sug contributions. The hoc rationales Congress sought dence that to achieve this gested by the are constitution *23 objective lobbying when it enacted re- ally illegitimate. Allowing to veterans lob in striction 1934. Even if charities before by freely protect in order to their benefit that time could with lobby deductible con- programs explain does why other tributions, there is that no indication chari- groups may equally dependent upon that powerful ties had become so that they Congress support for should have less access threatened drown out the of voices those legislature. tax-exempt Other similarly whose was subsi- universities, groups, as equally such are be Moreover, dized.44 had this been intent set hostile forces but are nevertheless of Congress, courts would consider limited in the amount purpose constitutionally illegitimate. of lobbying they may do to “[Wjhere, here, as maintain or legislature’s suppres- congressional increase speech siоn of their level of fund suggests attempt an give ing. Finally, emphatically one of it public side not fol debatable does an advantage in low expressing special its views to the because veterans deserve people, the First plainly recognition Amendment benefits of of- in their service to fended.” First National Bank of Boston v. the country, they greater are entitled to J., suggested (Leventhal, (“Courts concurring) engaged Members of this court have cases, judges legislation scrutiny First Amendment should con- the careful of are not .. . governmental purposes conjecture important governmental sider the actual free to challenged legislation possi- congres behind rather than interest when one has not surfaced in hypothetical e.g., deliberations.”). ble or ones. Communi- sional farb, Cf. Califano Gold ty-Service Mid-America, Broadcasting 212-17, of Inc. v. 1029- U.S. FCC, (Robinson, J., concurring (1977) (plurality opinion) F.2d at L.Ed.2d (“courts part) rely upon legislative history challenged (examining cannot aims that apparently leg- purpose” never crossed the minds of the statute to determine “actual dis islators, particularly crimination, refusing objectives accept when confronted and possibility danger by appellants to a inter- fundamental advanced given had because est") (footnote omitted); them). id. at 1146 & n.51 no attention to so, rights and is Amendment than other citizens. unconstitutional. Even this re-
First
proscribes govern-
First Amendment
mains a troublesome case.
has
speaker
efforts to favor one
over
mental
recipi-
leeway
classifying
enormous
See, e.g.,
Brown,
Carey v.
another.
funds,
favor-
ents of its benefits and
and in
2291-92;
at
100 S.Ct. at
First
U.S.
groups
If Con-
certain
over others.45
Bellotti,
National Bank of Boston v.
435 gress provided
space
government
office
1420;
784-85, 98
at
S.Ct. at
Police
surplus
organizations,
furniture
veterans’
96, 92
Dep’t Mosley,
example,
Congress clearly
has au-
rights may
2290. “First Amendment
not be
do,
thority
indirectly
it
facilitate
would
type
‘currency’
as a
to reward those
used
freeing
groups by
up
of such
who have
service
rendered
nation or
funds
such as Tax-
who
otherwise determined
be wor-
spend
ation would have to
for rent and
thy.”
Supp.
Brief at
Moreover, Congress occasionally
supplies.
appropriates grants
certain
groups
short,
the Code’s classification
understanding
according
money
lobbying by
tax benefits to
some
education,
tax-exempt
litigation,
but
used for
groups
not others does not
scrutiny.
Similarly,
withstand
lobbying.46
constitutional
No iden
other contexts
governmental
justify
tifiable
interests
such as
Televi-
National Public Radio and
differential
by sion,
treatment of
government directly
First
funds
necessity
or
activity
ex-
Amendment
ganizations. The distinctions and interests
speakers
cludes some
and favors others.
suggested by the
are either
Emerson, The
Affirmative Side
completely
any
unrelated to
substantial
Amendment,
First
15 Ga.L.Rev.
823-28
purpose,
only illegitimate govern
or reflect
Note,
(1981);
Freeing
Broadcasting
Public
goals.
mental
open
has been
to courts
“[I]t
Restraints,
from Unconstitutional
89 Yale
since the
enactment
the Fourteenth
(1980) (arguing
L.J. 719
state
direct
determine,
particu
Amendment to
if on the
subsidy
Broadcasting
of the Public
Service
must,
lar
facts
that a discrimination
Amendment).
violates the First
no policy,
simply arbitrary
reflects
capricious
Carr,
action.” Baker v.
suggest nothing concerning
We
grants
constitutionality
these
(1962) (emphasis by
Court).
programs,
course are not be
Nevertheless, may
fore us.
be observed
C. The Unconstitutionality of These Clas-
many
principles
distinguish
that certain
do
*24
sifications
pref
programs
of
these
from
First,
justifies
given
Because
erence
it is
purpose
no substantial
now
to veterans.
disparate
although government
well
that
lobbying by
treatment of
estаblished
Sec-
501(c)
subjected
may
directly
speech
tion
of one
when that statute
facilitate
is
another,
person
scrutiny,
discriminatory
government
careful
treat-
over that of
of
ment
rightful participant
Taxation’s First Amendment activ-
too is a
in the “market
protection,
Examples
ities
denial
equal
place
constitutes a
of
of
ideas.”47
such as
I,
prepare
45. Article
8 of
em-
Constitution
Prevention authorized to
studies and
powers Congress
lay
and collect taxes and
recommendations and disseminate information
public
expend
general
individuals, agencies,
funds for the
welfare.
con-
powers
prevention
juve-
Its
under this clause are broad. See
cerned with
nile
and treatment of
Davis,
548,
delinquency).
Steward
Co. v.
Machine
301 U.S.
57
883,
(1937).
741
press
analysis
programs
constitutional
of
offices of
of certain
Voice
America
agencies
might
although
well demonstrate
departments
executive
illus-
government program
discriminatorily
does
government’s authority to commu-
trate the
speakers,
subsidize certain
state
interest
people
with
nicate
its citizens and
is sufficiently compelling
discrimi-
conditions,
possible
world. Under some
nation is
unconstitutional. Until other
government
could also subsidize
programs
arguably
subsidize First
private groups
speakers in an effort
rights
discriminatory
Amendment
fash-
message
get
Compare
its own
across.
Com-
us, however,
ion come before
it would be
Broadcasting of
munity-Service
Mid-Ameri-
injudicious to
con-
undertake
elaborate
ca,
n.17,
FCC,
v.
593
at 1110
with
Inc.
F.2d
analysis
might
now
stitutional
what
Shiffrin,
Speech,
Government
27 U.C.L.A.
analogous
seem
situations.
Second,
very
565
nature
L.Rev.
may
government
dictate that it alone can
.
crucially important,
does
What
remain
provide certain forums for First Amend-
however,
jus-
possible
is that none of these
expression,
parks
ment
with rostrums
uphold discriminatory
can
tifications
system.
to a national
First
television
of lobbying
treatment
different kinds of
principles apply
Amendment
to these fo-
501(c) organizations.
There is a
rums,
course,
require
that ac-
brightline
legisla-
distinction between direct
nondiscriminatory48
cess be
than
promotion
rather
tive
speech,
indirectly
fa-
government
speech
not create the facilities at
cilitating
by providing
Finally,
possible
thorough
all.
it is
that a
with other
of support.
kinds
It cannot
by government).
569,
Hampshire,
fied
also
Cox v. New
312 U.S.
61 S.Ct.
possesses
powers
762,
(1941) (parades).
editorial
when it acts as the
743
sion,
nullification,
possible
proper
rather than
is
remedy
A second
is also
Westcott,
Supreme
recog
course,”
this case. As the
Court has
Califano v.
443 U.S.
nized,
may
in certain situations benefits
be
2655, 2663,
99
61
S.Ct.
L.Ed.2d 382
away
preferred group in
taken
from a
order
(1979),
choosing between these alter-
“[i]n
unconstitutionally
unequal
to cure
treat
natives,
attempt
a court should
to accom-
ment,
group
even if that
before the
fully
possible
policies
modate as
States,
e.g.,
Welsh v. United
court.
judgments
expressed
statutory
in the
333, 361-65,
1792, 1807-09,
90
U.S.
S.Ct.
Id. scheme as a whole.”
99 S.Ct. at
J.,
(1970) (Harlan,
concur
J.,
(Powell,
dissenting).
It seems evi-
ex rel.
ring
result);
Skinner Oklahoma
dent
legislative
judgments
that
ex-
Williamson,
535, 543,
U.S.
501(c)
pressed will be
Section
less dis-
right
86 L.Ed.
“The
in
by striking
preferential
turbed
down the
treatment;
equal
voked is that
and such
treatment
now accorded the
treatment will be attained if either
by
extending
than
competitors’
taxes are increased or their
501(c)(3) organi-
treatment
to Section
Iowa-Des Moines National
own reduced.”
legislative history, suggesting
zations. The
Bennett,
Bank v.
239, 247,
may
the current
treatment of veterans
Kirk v.
Cf.
Internal Revenue under 26
§
U.S.C.
seeking
(1976),6
a declaration
section
raising
presented
A case
the same issue
501(c)(3)’s restriction
of
substantial
at
against
here was decided
one of Taxation’s
legislation
tempts
influence
is unconsti
predecessor organizations8
by the Fourth
granted
tutional.
The district court
the
Representation
v.
Circuit
in Taxation with
summary judg
Commissioner’s
motion
States,
(4th
1978),
United
II.
exercises its first
right
lobby.
amendment
Taxation’s first claim is based on the
statutory denial of tax
contention that
placed upon
The condition
engage in
benefits to
plainly
upon speech,
has its direct effect not
places an
substantial
“unconstitu-
upon fundraising.
not,
This fact does
upon
enjoyment
tional condition”
however,
protections
render
the first
those benefits.11 The cornerstone of this
inapplicable,
amendment
is well es
Randall,
argument
Speiser
v.
357 U.S.
protection
“the
tablished that
Constitution’s
(1958),
obligation
view,
support
my
activities either L.Ed.2d
But in
its
directly
structure,
case,
through
specific
or
the tax
Taxa-
circumstances of this
Con-
argues,
tion
provide
or
gress
constitutionally
decision to
with-
could
condition the
hold
support
permissibly
availability
agree-
cannot
turn
upon
of tax benefits
primarily
applicants’
speech rights.
11. We consider
of tax ex-
denial
of their
exercise
income,
emption
bring
for Taxation’s own
but note
“The man who knows that he must
forth
question
there is no serious
persuade
as to Taxa-
proof and
another of
lawfulness
standing
challenge
upon
tion’s
conditions
necessarily
of his conduct
must steer far wider
deductibility of donors’ contributions to it. It is
if
the unlawful zone than
the state must bear
so,
understanding
doing
our
that in
is
Taxation
these burdens.”
B.
interpret
support congressional
enact-
foregoing
establishes that
this case
Congress
ments.
is not an administrative
does not concern a
agency
required
content-based restriction
grounds
that is
to state the
speech.
acts,
It
upon
remains to decide whether
which it
and courts do not inter-
restriction
powers
satisfies the lower
fere with the
when
standard of first amendment
review
exercising
judicial power
im-
interpret
posed by
O’Brien,
United
supra,
States v.
federal statutes. Cf. Securities and Ex-
391 U.S.
change
Chenery Corporation,
Commission v.
(1968).20
is,
above,
That standard
194, 196,
stated
whether the
law in
serves an “im-
(1947); id.,
L.Ed. 1995
portant
governmental
or substantial
inter-
753 restriction, argument Congress, having be- Taxation’s upon narrower is based the all tax emanating fact that benefits interpretation leading fore it the above 501(e)(3) any to section are denied charged member of the with re- committee part tion a “substantial the of activities of matters, sponsibility adopted the for tax This, lobbying. which” is alleges, language presently found in section the renders restriction broader than neces- 501(c)(3). statutory language Even if the sary Congress’ achieve purpose, to in that if thought were leave doubt substantial Congress sought deny only to tax benefits sought about purpose to be achieved engaged in “selfish” activi- restriction, revealing the lobbying his- ty, deny deductibility and so to to their tory question resolves intent about the contributors, the achievement of that end of Congress adopting it. requires only that portion of contribu- actually prohibited tions used for the interpreted, beyond question Thus is “self- ish” purposes nonexempt be treated as restriction an “im- serves non-deductible. The remainder of portant and of the substantial” interest funds, purposes for expressly used for- encouragement United The of States. bidden, qualify would continue ex- education, charity, objectives and similar emption deductibility. through system, the tax like that achieved government accuracy with which by direct congressional appropriations for categories pur defines of citizens purposes, legiti- is interest whose poses regulation particular is a matter macy seriously cannot The in- doubted. importance when first amendment interests organ- terests served the activities of the are at stake. Central Hudson Gas & Elec 501(e)(3) izations enumerated section Commission, v. Corp. tric Public 447 Service power well within both 557, U.S. 100 65 S.Ct. serve the and the traditional interest (1980). Courts in such circumstances are scope of power. the exercise of that relieved, however, duty to re spect superior competence and concomi Scope 2. The Restriction authority tant legislature devising regulation. means of As was held in Buck argument against Taxation’s section final Valeo, ley v. 424 96 U.S. S.Ct. that, conceding govern- even (1976), “Congress’ fail ment to important have an and substantial engage ure tuning in such fine does not restriction, interest that is served legislation, invalidate” where leg even restriction is invalid because it is broader islation in burdens first amend “than is essential furtherance speech ment freedoms of and association. O’Brien, supra, interest.” States v. United 75.24 83, 103, also id. at 96 at 6 391 88 S.Ct. at 1679. Even long recognized It has been that this defer where speech a restriction on is not directed legislative competence particular ence to content, imposes the first amendment ly appropriate regulation where the in requirement adopt system volved is of taxation. Anto San achieving means of purpose is least Independent nio District v. School Rodri restrictive of first amendment interests. 1, 41, guez, 1278, 1301, Village Schaumburg for a Citizens (1973); Kentucky, L.Ed.2d Madden Environment, Better 83, 88, 406, 408, 84 L.Ed. L.Ed.2d Judges frequently Court, Supreme and commentators have 1979 Term —Foreword: dangers judicial attempts Expression Burger Court, noted the inherent Freedom in the schemes, regulatory (1980) (questioning refine even un- where Harv.L.Rev. compliance judicial analysis dertaken in policy order to enforce “close alternatives See, e.g., ], the first put upon amendment. Hudson Central Central Hudson with the burden [in Comm’n, Corp. Gas & Electric v. Public negate Service all the state foresee and the alterna- supra, ”). U.S. at imagine S.Ct. at 2368- tives Court can . . . J., Cox, (Rehnquist, dissenting); *36 Taxation, remedy majori- proceed the Taxation’s is to I reach the same conclusion as (h) subsection rather and the as whole as a under than under ty view Code If, hand, (c)(3).27 on the other section regulation sufficiently scheme of is 501(h) equally is an or more restrictive satisfy con- narrow to first amendment confining proper to means charities their my opinion, In the enactment cerns. recent purposes, extremely one should be reluctant 501(h) provides of section of the Code an Congress produce to hold that can and must insight Congress’ into choice of means in competing a still better resolution of the regulating compels charities the con- 501(h) interest than it has in either 501(c)(3) clusion that section is valid.25 501(c)(3). Bearing in the Con- mind effort Before a discussion of the proceeding to gress has made to resolve these interests 501(h) terms of section and their relation- precisely, authority and this court’s limited ship important 501(c)(3), to section is to determination, pro- second-guess to I significance relationship. note the of that purpose ceed to an and examination of the 501(h) an product is the exten- 501(h). effect section precise by Congress sive effort to establish 501(h) part as was enacted of the political activity limits on the Tax Reform Act Pub.L.No.94-455 of. effect, organizations.26 In 501(h) section (1976). permits It § Stat. congressionally-engineered constitutes described in section “less restrictive alternative’’ to the opt regulation out under “substan- 501(c)(3). Rarely restriction in section part” (cX3) tial standard of and come under position presented courts in our with such a precise quantitative limitations on ready-made, legislatively-created solution to they may spend leg- influencing amount on problem the sort of first amendment raised expenditures”) (“lobbying islators and recognize here. We should therefore public (“grass expenditures”). roots I.R.C. this Congress great action is entitled 501(h)(2)(A), (C). Generally speaking, § weight. 501(c)(3) organization section prudential aspect addition to this a church so elect. I.R.C. relationship between the two subsec- 501(h)(5). By electing un- treated § tions, is an important logical there connec- 501(h), per- der section hand, 501(h) mitted, tion. On the one if section subject to certain require- disclosure truly ments, offers less restrictive expend alternative on lobbying “grass than political activity up section like roots” 25% parties significance ultimately 501(h), 25. The did on § not focus became “further decisions 501(h) arguments markup before § were made in committee sessions ability willingness court. Taxation’s Throughout Treasury . 1974 . . De- coverage 501(h), elect see discussion partment, many of the charitable considered, infra, proposals, 755-756 not be representa- need interested these rely simply however for we on that section not major religious organizations joined tives of all affording as less alterna- Taxation a restrictive agreements ...” staff members reach fact, guidance tive in also as source of Id. evaluating scope 501(c)(3). existing §of (Although 501(h) pro- section related passed part were as visions Tax Reform early 26. At as least held 94-455, writing hearings problems posed Act of Pub.L.No. the tax on originally (c)(3)’s Legisla- committees con- of both houses § 501 restriction. See bill, Activity by separate Types Exempt tive ganizations: sidered the H.R. measure as a Certain Or- 94-1210, Hearings H.R.Rep.No. Before House 13500. See U.S.Code Comm, Means, Ways Cong., 6640; Cong. p. S.Rep.No. 92d 2d & Admin.News 94-938, Sess. 94-1236, Cong. Several bills S.Rep.No. were introduced & U.S.Code subject prior earlier sessions on the to the ulti- p. 2897, (conference report) Admin.News adoption 501(h) mate of section the 94th (all (1976)). Cong., 94th 2d Sess. 94-455, in Pub.L.No. 90 Stat. 1520 94-1345, H.R.Rep.No. U.S. Code 27. Taxation has declined to so. We discuss do Cong. 1976, p. Cong. & Admin.News significance of this decision at (June 8, 1976). According Rec. 16886 to Con- infra. gressman Ullman, sponsor of the bill that It exempt purposes speci- remains to whether spends amount it considered *37 501(h) the availability of section 501(c)(3).28 Expenditures alternative fied in in section is, is it relevant here. I believe that not- ceiling excess of this amount result in the withstanding the fact that Taxation has imposition a the of 25% tax on excess. elected not to come under that section’s 4911(a)(1). I.R.C. § coverage. clarify history attempts of and signifi- As chief previously, noted the quantify political activity limits on the the 501(h) purposes cance of for the section of exempt organizations which culminated represents the this case lies in fact that it 501(h) in adoption the of section in 1976is a to meet congressional recent enactment congressional activity fine example problems raises. The that Taxation now response to first amendment concerns. (1) Congress that statute indicates finds 501(h) features of section and related activity might legislative lobbying that provision, satisfy section combine to compatible purposes to a with charitable any objection valid that Taxation have extent, any limited charitable First, lobbying they rep- to the restriction. organization wishing legisla- engage resent of Congress’ clear statement should, activity judgment tive in the understanding relationship between subject Congress, regula- to well-defined purposes political activity. tory lobbying limits on activities. Any ambiguity purpose to un- claimed organization an Whether or not chooses to derlie 501(c)(3) lobbying the section restric- coverage 501(h), elect under these section tion, 16; majority op. see Taxation Br. at congressional must determinations be re- 501(h)’s resolved treat- section spected. Second, subject.29 ment of the Taxation’s Although from all indications in Taxation objection that section denies all qualify record would for treatment un- tax an benefits to does 501(h), der section it before testified (i.e., some a more than an insubstantial District Court it elected not to be so of) lobbying, amount is addressed section treated: 4911’s expendi- 25% tax excess has not does made and [Taxation] 4911(a). tures. I.R.C. The loss of tax § make, plan to an election under sections is, system, directly benefits under this pro- 501(h) and 4911 of the Code. Such an portional organization’s to the extent of the might require accept election us to re- lobbying activity, eliminating alleged justified strictions are which or au- “massive overkill” effect section thorized under First Amendment of 501(c)(3). 17. Finally, See Br. at Constitution, right on our to commu- legislative history and structure of sec- nicate with our contributors and members 501(h) illustrates the weakness of the regarding of legislative matters interest. claim, see Taxation Br. at 501(h) Sections also fail is seeking regulate speech because of its any specificity define with narrow impact.30 communicative “legislative terms as and “tax- activities” 4911(c) 28. I.R.C. sets forth the formulae for created § test, which part” possibility determining the maximum expenditures per- two different size spend mitted. amount same dollar would be treated because that amount bears a differently facing legislative different to the total relationship expenditures could have activity by exempt Cong.Rec. organizations. chosen to restriction. This repeal 1976); (daily S16884 ed. see June also suggesting do, declined to doubts about United,” Walters, “Americans Inс. v. of that section as in 1934 purpose adopted jurisdiction- (D.C.Cir.1973), 1169, 1173 rev’d on largely are misconceived. grounds al nom. v. “Americans sub Alexander “sliding 4911’s noteworthy § Particularly United” Inc., 752, 94 scale” definition level of permitted politi- cal This was included expenditures. provision as an alternative “substantial event, reason, expenditures”. For this those restrictions serve able 501(h) might under section re- election clearly valid interest are drawn quire impose us to on the prior restraints comport precision with sufficient weekly publication of Articles our requirements of the first amendment. news-magazine, Tax Notes. An election require 501(h) might section us also III. accept legislative limitations on our activities which we believe are unconsti- Next to be considered is Taxation’s *38 imposed tutional not claim imposing second that the similarly exempt organiza- situated tax restriction on the activities of section as, tions, such example, associa- trade organizations, 501(c)(3) placing while no tions, societies, unions, fraternal labor upon similar restriction fraternal organizations, veterans practice, and in exempted by tions sections addition, churches. In the of an income (10) or exempted by veterans’ sec- organization Rep- such as Taxation with 501(c)(19), against tion discriminates Taxa- Washington normally of resentation fluc- impermissible in a constitutionally tion widely year year. tuates from to There- similarly rejected. manner. This claim is practical matter, percentage fore as legislative attempts Recent to deal with 501(h) test —such as in that section —to complex relationship money, politics, of the permissible spend- determine the level of guarantees provid- have and constitutional ing legislative activities is unworkable. Supreme opportu- with several ed the Court (J.A. 15-16). Field Aff. 2-3 applicable to set forth the standards nities Except complaints for the same dis- support here. Those the standards conclu- criminatory treatment that it raises this Congress consistently sion that has acted case, alleged Taxation’s reasons for choos- requirements with of the first amend- remain to section ment. objections (1) to conclusory amount evaluating claim of unlawful dis- specificity statutory terms in sections crimination, whether under the constitu- 501(h) “workability” first, tional strictures and four- quantitative fifth expenditure limitation. or questions regarding 501(h) These teenth amendments under some other section obviously provision law, it not suited for resolution must be remembered However, do “[sjometimes grossest here.31 we not believe that that discrimina- precludes this recognizing us from ex- treating things can lie tion that are dif- or congressional istence of statute exactly though they ferent as were alike represents. it determinations that Al- Valeo, 1, 97-98, Buckley ...” v. 424 U.S. though compelled Taxation cannot be 612, 672-673, (1976), S.Ct. L.Ed.2d coverage 501(h), elect under section Fortson, quoting Jenness v. 403 U.S. present mean does not that its must be case 1970, 1975-76, L.Ed.2d statutory evaluated as if that alternative (1971). presumed simply It cannot be did not exist. complains parties, two one of who treatment different from that received From the foregoing, is submitted that other, similarly are situated so that the Congress legitimately has distinc- drawn a rises the level difference of “discrimina- between charitable Obviously, tion.” differential treatment of engage in substantial and those persons members of do not. The different classes restrictions to which subject depend upon equated is the ex- cannot differential treat- tent right lobby, of its exercise persons identically ment situated. Con- Taxation, adverting specif- paid It noted is while able deference should also be vagueness quаntitive alleged its affidavit to the of terms ic set forth in the statute. standards 501(h) Valeo, 1, 30, 83, Buckley used §§ similar raised no vagueness objections 612, 640, 501(c)(3). §to Consider- establish, speech. however, What scrutiny alleged of an it does stitutional “discrimi- short, nation,” presupposes es- that when determines that two complaining sential characteristics significantly serve different party indistinguishable are in the main purposes, present significantly different from the characteristics of those who are regulatory problems, the Constitution does alleged favorably. treated more require it to afford them identical treat- Equal protection does require ment. “things which are different in fact ... be majority opinion The fatal defect in the though they treated in law as were the recognize its failure to different regula- Texas, Tigner same.” tory presented by considerations veterans’ L.Ed. 1124 501(c)(3) organizations. groups36 beyond dispute We take it that were adopts assumption that, majority the tacit preserve existing benefit restriction, but for Taxation is provisions favoring veterans’ purposes legally for all relevant indistin- wholly eliminating while those afforded guishable groups. The ma- organizations, other charitable jority therefore draws the conclusion that *39 would be without colorable of dis- claim permitted by the difference in treatment crimination the first or fifth amend- that touching restriction discrimination Generally ments.32 speaking, Congress is right speech. on the fundamental of free I free, subject to the minimal constraint of disagree strongly assumption with the that to “rationality,”33 determine that veterans’ groups Taxation and veterans’ are identical- groups worthy are of those benefits while ly respect purposes situated with to of groups with charitable or educational Congress benefits, in conferring these tax purposes are The not. fact that veterans’ consequently accept and cannot the conclu- organizations permitted engage would to majority sion the draws from it. lobbying among in their other activities34 would not be for to com- cause majority appears view to veterans’ plain congressional discrimination favor- organizations 501(c)(3) simply organiza- as speech veterans’ over its Govern- own. happen which purely tions for technical rea- ment is free to choose the which interests to subsection, occupy separate sons to Code structure, support offers via the tax even 501(c)(19). ignores That both view Con- if as a groups result some are to exer- able gress’ understanding own Tax Code’s speech rights cise their at a lower effective character, provisions unique and the status cost than are others.35 groups and function of veterans’ under the Insofar laws of United as these States. The foregoing would not establish important reveal between differences veter- constitutionality of a measure that condi- groups tioned ans’ and receipt of a benefit educational group one general, over particular polit- groups nothing another on the basis of in the first or interests, ical views or Congress nor that of one fifth amendments forecloses from imposed a direct protected legislating burden on on the those basis of differences See, maj.op. contrary upon govern- 32. place Part IIA. 35. A rule would obligation providing equal ment re- publish Dukes, to sources all who would their views on 33. See New Orleans any subject. obligation That no such exists is obvious, Maj.op. (per majority curiam). as the notes. 726. congression- Assuming 34. the absence of other majority appears agree upon activity. 36. al Because limits this Limits of sort Treasury conjunction presеntly respect the statute read in with fact exist with to veterans’ regulations Congress. does fact restrict chartered Act of See, e.g., (1976) (DAV activities of fraternal a fashion sim- § 90f shall be societies U.S.C. nonpolitical 501(c)(3), any support ilar to this discussion confined to candi- regarding groups. office). date claims veterans’ for Taxation’s There are discussed at 760- 761 infra. 501(c)(3) groups subject being from essen- as it has done here. Far re- charities, vet- It viewed tially Taxation and striction.38 fungible as into a falling groups tions class fundamentally groups erans’ different tax-exempt entitled to enjoy status without operations, their purposes, in their their political restriction activities. responsibilities law. Those dif- under the that Taxa- ferences lead the conclusion Second, legislative evolution subjected to tion has not been unconstitu- income, specific provisions gift and es- tional discrimination. tate deductions contributions shows Congress, having originally extended groups The fact that veterans’ are treat- exempt the benefits of status deducti- (501(c)(19)) ed statutory provision in a dis- types to all bility charitable and educa- general exemption tinct from the chari- groups, subsequently tional determined to table educational sec- 501(c)(3) withdraw it from section or- suggest itself tends to ganizations engaged in substantial at- essentially viewed these tempts legislation.39 to influence The basis types organizations. different ma- for that decision need not be set forth ex- jority separate attributes this treatment plicitly for it be entitled court’s reasons, purely technical namely, the need respect, but previously quoted debate on insulate veterans’ cogni- action was shows tax imposed on unrelated business income drawing. zant the distinction it was op. Reform Maj. Tax Act present This evolution section S.Rep.No.92-1082, Cong., 92d 2d extending the benefits of —first (1972); H.R.Rep.No.92-851, Cong., Sess. 92d exemption deductibility, paring later 2d attempted explana- Sess. That precisely response them back —is the sort of tion is not sufficient. *40 experience experi- legislative to social First, appears it that at the it enact- time Supreme ment that the Court has held most 501(c)(19), ed Congress section viewed vet- worthy judicial Contrary of deference. to erans’ falling as the outside majority opinion, the the rule that “reform scope 501(c)(3). of section In stating step time, may take one at a addressing understanding existing law, of the the com- phase to of problem itself the the which reports 501(c)(19) mittee on section stated legislative seems most acute to the mind”40 groups that qualified veterans’ “so- as fully applicable is to this case notwithstand- cial 501(c)(7) clubs” under “so- section or as presence of first amendment con- organizations” cial welfare under section meaning That is cerns. the unmistakable 501(c)(4).37 At Congress the time enacted Supreme holding Buckley Court’s 501(c)(19), then, Valeo, it believed that veterans’ supra, 424 U.S. 96 46 S.Ct. groups were not classified with (1976). Cong., 92d Sess. 2 condition 92-851, 2d H.R.Rep.No. placed upon exempt status (1972); Cong., 92-1082, 92d S.Rep.No. 2d Sess. now in § was appears adopted (1972), Cong. 2 U.S.Code & Admin.News in order denial deduc- complement p. 3142. groups tions for contributions lobby 170(c)(2)(D). is § now S.Rep.No. 38. Given this recent Con- interpretation Cong., (explaining 73d 2d Sess. gress, legislative the pre-1934 cited history change in rules under the 1939 Code exemption majority, maj. is little op. 732-733, (prior 101(6) change § reference in de- might value. Whatever one make of the “pre- 23(b)). This fact fur- ductibility prior history” restriction, since 1934 ther the view that intent supports principal Congress has without view deviation taken the Congress imposing restric- veterans’ section self-serving was to curtail “donations” in- 501(c)(3) organizаtions different essentially with compatible the charitable Con- purposes in character. sought gress to further. 39. The initial focus of the decision to deny these benefits 483, 489, lobbied 40. Williamson v. Lee Optical, was organizations’ upon the status, 99 L.Ed. 461, 465, exempt upon them. deductibility contributions ment, Buckley, presented explicit was the Court made holding the Court its challenge to various features of the Fed- understanding Congress’ that this power Campaign
eral Election
Act of
fully applicable
was
in first amendment
seq.
Among
431 et
U.S.C. §
precisely
cases of
the character
presented
issues there
was
claim that
present
here.
See id.
U.S. at 105 n.
provision
providing
of the Act
for feder-
n.
S.Ct.
funding
primary
campaigns,
al
election
Buckley
statute at issue in
was an
no
which allowed
funds to candidates for
attempt by Congress
regulate
the effects
elections,
primary
office who did not run in
private
upon
massed
wealth
federal elec-
unconstitutionally
against
discriminated
such,
presented
tions. As
it
lying
concerns
those candidates in violation of the first and
very
at the
political
heart of the
freedom
rejected
fifth amendments. The Court
this
protected by the first amendment. The
challenge, holding
different
treat-
regulation imposed by
section
can
justified
Congress’
ment was
in view of
hardly
pose
be said to
equally
or still
power to structure the conduct of federal
more serious threat
to those values.
elections. The
stated:
Court
specific
When the
actions of
deciding
propriety
the constitutional
[I]n
relative
groups,
to the status of veterans’
of the
limitations
such a reform meas-
including
regulation
political
of their
guided by
princi-
ure we are
the familiar
activities,
closely
are examined more
than
ples that a ‘statute is not invalid under
do,
majority
apparently willing
might
the Constitution
because
have
Congress’
conclusion is even more evident.
did,’
gone farther
than it
Roschen v.
decision in 1934 to limit the
re-
Ward,
[49
501(c)(3) organizations
striction to
take—to
722],
legislature
L.Ed.
that a
need not
step
amply supported
“one
at a time” —is
time,’
‘strike at all evils at the same
Sem-
contemporary
continuing
“fact
Examiners,
ler v. Dental
regarding
unique
of American life”42
1086],
79 L.Ed.
and that
[55
status of
in our soci-
time,
‘reform may
step
take one
at a
fact,
ety.
In view of this familiar social
addressing
phase
prob-
itself to the
clearly justified
focusing
was
lem which
legis-
seems most acute to the
perceived
its attention on what it
to be the
mind,’
lative
Optical
Williamson v. Lee
tax-exempt
most serious abuse of the
or-
Co.,
[75
*41
statutes,
ganization
namely, the activities
IV. system majority While attributes agreement There is that the unanimous regulation challenged simple lobbying restriction in section here con- does impose upon “inadvertence,” op. maj. unconstitutional burden gressional the exercise of Taxation’s first amendment respect I would afford it the dictated rights. holds, however, The majority that Buckley by long sorry and counseled imposing upon judicial history forays legislative into tions an identical restriction—the threat of Here, Congress province. has treated vet- losing benefits under the Internal groups differently erans’ from the vast un- Congress unconstitutionally Revenue Code— mass of claim- differentiated against discriminated Taxation. purposes. educational and charitable It opinion, my holding fails accord recognized has that veterans’ are Congress due, respect it is even areas unique having “differing entities structures regulation may place where an indirect bur differing purposes, and that there- interests, den on first amendment when require regula- fore different forms legislating insure interest Association, tion ...” California Medical ignores best served. To the extent it supra, Nothing at 2724. fact that has used means besides opinion persuasive majority either of the system regulate the tax the otherwise of that conclusion or of incorrectness Con- fully protected political activity of veterans’ authority gress’ legislate lack groups, majority leaps peremptorily basis of it. past the threshold of whether sec respectfully I therefore dissent. groups are in fact discriminat against ed at all. Medical Asso California FEC, supra. ciation v. To the extent that it WILKEY, JJ., join ROBB herein.
fails cognizance to take gradual de velopment of governing political the law
activity exempt organizations which be gan with the passage re
striction in 1934 and which continues into present52 explicit solicitude for —with
the first amendment interest at stake—the majority fails to afford the re
spect due in this field of endeavor. Buck Valeo,
ley v. supra. Veterans’ essentially are different character from other charitable groups. They particu- educational supra. 52. See 760-761