(c)(3) Donor Disclosure is On the Verge of Unconstitutionality
The Buckeye Institute has a web page with lots of the pleadings — an amicus brief endorsed by 70 nonprofits and other stuff — involved in its suit against the IRS seeking to enjoin Schedule B’s collection of donor names. But I could not find NYU’s Tax Law Center’s amicus brief on that page. Probably because it’s one of the few arguments, other than the governments, in support of donor disclosure. The Buckeye institute argued that soon after it successfully advocated against Ohio’s acceptance of Medicaid expansion, it was selected for a federal tax audit. It alleges that donors have reduced their donations because of their fear that their names will be disclosed. The complaint cites 14 instances over about as many years when donor identities were accidentally disclosed or discovered by hackers. Both sides moved for summary judgment, the government on standing grounds. The Court denied both motions. It ruled that allegations that donors reduced their donations, or stopped making donations altogether, for fear of disclosure, is sufficient to confer standing.
The more interesting discussion, brief though it was, regards the unconstitutional conditions doctrine, something that hardly makes any sense at all. But the Court’s discussion pretty much confirms that the Court will declare mandatory 501(c)(3) donor disclosure unconstitutional:
Defendants argue that AFPF’s exacting scrutiny framework is inapplicable here because Plaintiff voluntarily chose to take advantage of the 501(c)(3) tax benefit. In support of this argument, Defendants cite Regan v. Taxation with Representation of Washington, 46 U.S. 540 (1983). Relevant here, Regan explains two rules: (1) both “tax exemptions and tax-deductibility are a form of subsidy”; and (2) although “the government may not deny a benefit to a person because he exercises a constitutional right, ” Congress may choose to not fund certain activities without offending the First Amendment. 461 U. S. at 544-46. The cases since Regan (including AFPF) developed on these rules. From those cases, the Court synthesizes the following rule: Congress may, without offending the First Amendment, condition benefits for programs or activities on compliance with restrictions on First Amendment activities, but if Congress denies a benefit because an organization will not comply with a restriction on First Amendment activities, that denial may be unconstitutional. See, e. g., Agency for Int’l Dev. v. All. for Open Soc’y Int’l, Inc., 570 U.S. 205, 218, (2013) (striking down a law that required organizations that received certain federal funding to “adopt-as their own-the Government’s view on an issue of public concern”); Rust v. Sullivan, 500 U.S. 173, 195-200 (1991) (holding that Congress could prohibit recipients of federal funds for a “family planning” public health project from using those funds for anything related to abortion).
Applied here, the Disclosure Requirement requires any 501(c)(3) to disclose their substantial donors in order to operate as a 501(c)(3). That is, if a charitable organization does not disclose their substantial donors, they may not receive the benefit of 501(c)(3) status. Thus, this is not an example of the Government “simply insisting that public funds be spent for the purposes for which they were authorized. ” Rust, 500 U.S. at 196. Instead, the Government denies its 501(c)(3) tax benefits entirely to organizations that resist the disclosure requirement. Thus, if the Disclosure Requirement is unconstitutional, it would be an unconstitutional condition on receipt of the tax benefits. See id. at 196-97 (explaining that the “‘unconstitutional conditions’ cases involve situations in which the Government has placed a condition on the recipient of the subsidy rather than on a particular [federally-funded] program or service! ]”
Trust me, there is no place on earth where the unconstitutional conditions doctrine is so easily synthesized or even understandable. The Court’s synthesis is singularly unenlightening; it is much more the opposite. Congress can deny tax exemption to certain speech activities, as it did in Rust v. Sullivan. But if it does so, it may act unconstitutionally, as in Agency for International Development. In other words, “Congress can but it can’t,” that’s as much as I can get out of what the Court said. In fact, the Court got as much as there is to get from the caselaw; it correctly synthesized the unconstitutional conditions caselaw. Still, I can pretty much guarantee that the Court will say Congress can’t require donor disclosure as a condition of tax exemption. There is no logic in the unconstitutional conditions doctrine precluding that or even an opposite conclusion. That’s why the doctrine exists but doesn’t prevent the government from requiring defendants waive all sorts of constitutional rights to get a plea bargain. There is no enduring rhyme or reason. But it’s a doctrine about which predictions can be made after you have read enough cases or articles on the subject. So you heard it here first. The days of 501(c)(3) donor disclosure are numbered just as sure as the days of summer in November.
darryll k. jones