Does Memorial Hermann Threaten (c)(4) Campaign Intervention Limits
The Fifth Circuit’s opinion this week in Memorial Hermann is giving me math brain cramps. The Wall Street Journal reported this week that Memorial Hermann “threatens” social welfare organizations that rely on dark money to engage in campaign intervention. I don’t see how that can be true and its bothering me enough to blog about it. Here is a sample from the article:
WASHINGTON—A federal appeals court narrowed the tax rule that has let conservative and liberal groups pour billions of dollars into political campaigns without disclosing their donors, and the case could restrict the flow of so-called dark money into politics. The unanimous opinion from a three-judge panel of the 5th U.S. Circuit Court of Appeals came this week in a healthcare case that didn’t directly address politically active organizations. But the decision—from a conservative court—sets a tighter legal standard for tax-exempt status that the advocates for political donor transparency have long sought. The court said groups can’t qualify for tax exemption under Section 501(c)(4) of the tax code if they have a substantial nonexempt purpose. That is a much stricter standard than the one in Internal Revenue Service regulations, which say groups only need a primary purpose that qualifies for the exemption. That has been interpreted to allow tax exemptions for groups that spend 51% of their money on lobbying or other clearly allowed activities—and 49% on politics. “The people who are making the case that they can do up to 49%, do they have a leg to stand on? Their leg got a lot weaker,” said Phil Hackney, a University of Pittsburgh tax law professor.
Everybody is trying to quantify the difference between “substantial” and “primary.” But neither word can be quantified with any certainty. That’s why we use the words in the first place; to describe the unquantifiable relative predominance of a thing. We try anyway, I suppose.
It all starts with “exclusively,” a word English speakers use to means 100%. We are operating in a world of whole numbers here. Charities and social welfare organizations must be “exclusively operated” for their exempt purposes. Well, the Supreme Court long ago said exclusively means “substantial.” “Substantial” is less than exclusive so it must mean less than 100% but at least 50%. Something less than the 50% of the whole can’t be substantial, it’s all relative, you understand. “Primary” is less than “substantial,” according to administrative pronouncements cited in Hermann, so that must mean less than 50% but more than minimal, a word we don’t need to quantify unless we are trying to determine “incidental.” But we know that anything equal or greater than 50% is substantial. Before Memorial Hermann threw out the word “primary” in the (c)(4) regs, 49% was not fatal. But it still can’t be fatal. Because a (c)(4) that is a 49% campaign interventionist still doesn’t have a substantial non-exempt purpose even if primary really means substantial. Forty nine percent still can’t be substantial.
If primary really means substantial, as the Fifth Circuit decided when defining “exclusively,” and substantial means at least 51%, Memorial Herman is not a threat to politically active (c)(4)s because they are only prohibited from primary now defined as substantial (50%) campaign intervention. I think the reason some think Memorial Hermann changes that is because “substantial” is used both prescriptively and proscriptively to describe how much an organization must and can’t do. Social Welfare organizations must engage in social welfare substantially (51%). But they may not engage in campaign intervention substantially (51%). Thus, to do both simultaneously, a social welfare organization can still engage in politics to the 49th percentile because that is not substantial. Memorial Hermann doesn’t change anything. But it does point out a broader point. The law can’t effectively prohibit something that cannot be precisely defined. Or something like that.
That Journal’s math just ain’t mathing.
darryll k. jones