An Update on Texas AG’s Challenge of Migrant-Serving Nonprofit’s Tax Exemption
From a June 2016 protest . The picture, sans the placard, appeared on FIEL’s social media.
On Monday, I reported on Texas AG, Ken Paxton’s challenge to FIEL’s tax exemption status. I gotta say, the whole thing might not be as far-fetched as I originally thought. Paxton’s motivations are still despicable as ever but the complaint ought not to draw sanctions for being frivolous. The Houston Chronicle reporter was kind enough to send me a copy of the complaint. Here are a few snippets:
Corporations organized under the federal Internal Revenue Code as 501(c)(3) organizations enjoy significant benefits. See 26 U.S.C. 501(c)(3). At the federal level, they enjoy exemption from federal income tax. And at the State level, they enjoy significant benefits under State tax law, including exemption from taxation on real and personal property, Tex TGax Code 11.18, franchise taxes, Id. at 171.063, and sales and use taxes, Id. at 151.310. 501(c)(3) status, however, comes with a tradeoff. Namely, to obtain these significant benefits, 501(c)(3) organizations must be “operated exclusively for” one of an enumerated set of purposes, such as “charitable” purposes or “for the prevention of cruelty to children or animals.” 26 USC 501(c)(3). In addition, they must not “participate in, or intervene in (including the publishing or distributing of statements), any political campaign.” Id. and they must not engage in “carry on propaganda, or otherwise attempt[ ] to influence legislation.” Id.
Defendant FIEL openly flouts these rules. It has engaged in electioneering, such as by depicting Donald Trump as the “Son of the Devil” in the heart of the election season. Its website prominently features material supporting Joe Biden. And, although FIEL generally supports Joe Biden and his agenda, it paradoxically has widely announced that if he does “not deliver on his campaign promises, we will deliver — [his] exit ticket out of the White House.” Moreover, its social media is littered with material that openly attempts to defeat Texas legislation, and carries on propaganda. FIEL obsessively campaigns against Texas legislation, and boosts federal legislation and related Executive actions. In short, FIEL systematically violates the 501(c)(3) rules.
There is a lot of hyperbole. The complaint asserts that the AG has the authority to enforce 501(c)(3) because FIEL’s state registration claims, falsely according to the complaint, that FIEL operates strictly within the bounds of its federal tax exempt status. And that its failure to do so constitutes a breach of the promise it made to the state in return for its right to exist in Texas as a recognized nonprofit. The complaint acknowledges the First Amendment concerns but way too easily dismisses them on the authority of Regan v. Taxation With Representation.
The complaint gives a few examples of improper campaign intervention, as when FIEL encouraged people to “vote for President Obama’s ‘Deferred Action for Childhood Arrivals.” The complaint characterizes that as evidence of FIEL’s campaigning against President Trump, though the two presidents never ran against each other. “The most reasonable interpretation [of FIEL’s support of DACA] was as a statement in opposition to candidate Trump and to vote against him on November 8, in favor of voting for candidates who supported DACA.” That seems a stretch. And then in October 2016, FIEL had a Facebook post depicting Trump with horns, accompanied by the statement, ‘El Hijo Del Diablo.” Yeah, that might not be a stretch. But there are reasons why the Service is not as eager to enforce the prohibition as Paxton’s posse. One of which is its unconstitutionality. The complaint points out instances when FIEL members asserted their support for President Biden and against various pieces of Texas legislation. There is not much comparison alleged in the complaint from which to determine whether the lobbying is “substantial.” The complaint encourages the judge not to be concerned with ratios anyway. And then there are kinda silly examples of “lobbying, as when a member of FIEL shouted down the Governor, calling him a “traitor” and a “violent fascist man.”
So I take back what I said Monday. It is not as far fetched as I originally thought when I couldn’t find the complaint. Now that I have read it, the Complaint fairly alleges at least one violation of the campaign intervention prohibition, though not the lobbying restrictions. And I suppose a state court judge could validly revoke a business license conditioned on compliance with 501(c)(3)’s political activity restrictions (assuming them to be constitutional). But it should take a whole lot more than a 30 minute hearing to establish a factual and legal predicate.
darryll k. jones