On February 26, 2021, the Public Policy Legal Institute and the National Taxpayers Union Foundation filed a friend of the court (amici curiae) brief in the consolidated cases of Americans for Prosperity Foundation v. Becerra, No. 19-251, and Thomas More Legal Center v. Becerra, No. 19-255. Both these cases involve demands by the California Attorney General for an obscure federal tax form listing major donors to charities. The two charities contend that the Attorney General’s demands violate the First Amendment rights of association; the Attorney General contends that he needs to collect the form from all charities that want to operate or fundraise in California in order to find and prosecute those who want to misuse the charities.
The PPLI/NTUF amici brief takes a different approach from most of the briefs filed in this case, which directly discuss the First Amendment issues and precedents. The new brief points out that this case is not just about the First Amendment, but also about the Sixteenth Amendment, which grants government very broad powers to collect income taxes, but must also respect taxpayer privacy. In other words, it’s not just the rights of donors, but also the need for government to protect the American tradition of voluntary tax compliance, which is the highest in the world. One of the reasons President Richard Nixon resigned was his misuse of the Internal Revenue Service; in the wake of Nixon’s “enemies list,” Congress passed strong privacy protections for taxpayers, including donors to charities. Ignoring those privacy protections undercuts taxpayer confidence.
The brief also addresses an over-reach in which the federal government argued that it could withhold First Amendment rights if a “public subsidy” was involved. In these cases, the Attorney General argued that it could require the charities to give up their donors’ names and addresses as a condition of being exempt from taxes. But that position is an overstatement of a long-standing line of “public subsidy” cases, with the most recent case handed down just last year. Only Congress, not the Attorney General, can pass a law requiring such a condition, and then only within specific limits. The “public subsidy” argument does not mean that charities must surrender all constitutional rights in order to get a tax subsidy, and the Attorney General’s demand for donor identification falls far short of the tests used to see if such conditions are constitutional.
The Summary of Argument from the PPLI/NTUF amici brief says:
These cases involve the First Amendment, but this is not just a First Amendment case. These cases are also, at heart, about taxpayer confidence, and its effect on government and society.
Respondent Attorney General of California, according to a letter dated December 9, 2019 and also signed by 19 other attorneys general, seeks to use charities’ donor information against “corporations, wealthy individuals, and special interests [who] seek to influence politics without leaving fingerprints.” The use of donor lists and other taxpayer information for non-tax purposes is the reason Congress enacted extensive tax privacy provisions after President Nixon’s misuse of the IRS. Ignoring the lessons taught by the federal experience could cause the revival of “enemies lists,” undercut the taxpayer confidence that underlies the world’s highest voluntary tax compliance rate, and reverse long-standing donor privacy rights.
Schedule B to IRS Form 990, the obscure tax form sought here, was never intended to be used to uncover wrongdoing; it was created in 2000 to protect donor information against leaks. It immediately failed, as it leaked again and “opposition researchers” discovered it as a rich source of donor information.
Nor is Schedule B useful for the purposes sought by the Attorney General, compared to the rich data available from Form 990. For twenty years, the IRS has tested Schedule B’s general questions against the more detailed and targeted information obtained on the publicly-available Form 990. The result is that the IRS no longer uses Schedule B. Nor do 47 states. Schedule B simply can’t be used, where Form 990 offers precisely what the IRS and the Attorney General seek. The IRS has been trying to get rid of Schedule B since 2016.
The same is true of any similar use of donor lists in the absence of the type of particularized evidence of wrongdoing the Form 990 was designed to uncover. To find wrongdoing, there are efficient and effective ways of identifying problem areas; Schedule B and other donor lists generally are neither efficient nor effective, especially compared to their propensity to leak. Advance mass collection of donor lists undermines taxpayer confidence that is essential to support government, especially if it is merely politicians tilting ineffectually at campaign finance windmills.
The contention in the amicus brief for the United States that “the disclosure of a group’s donors, when imposed as a condition of administering a voluntary governmental benefit program or similar administrative scheme, is not a compelled disclosure subject to exacting scrutiny or the narrow-tailoring requirement” is an overstatement and a misreading of this Court’s decisions. This Court has held that the condition may not be on the recipient as a whole, but only on a statutorily-defined program. The condition may not prohibit the recipient from conducting its activities using “private” money, and it may not be so burdensome that the organization cannot function. Language that suggests otherwise, such as in Regan v. Taxation With Representation, 461 U.S. 540 (1983), should be clarified. Among other things, this characterization ignores the special role of donor lists, the varied interests underpinning the tax system, and taxpayer confidence.
Finally, the lower court misunderstood how federal tax privacy protections operate and their effect. While the court below believed that the “risk of inadvertent disclosure of any Schedule B information in the future is small,” the Attorney General’s failure to provide even basic protections such as tracking and logging those who accessed the donor information means that the Attorney General wouldn’t even know when the protected information leaked.
This Court long ago established that the First Amendment bars the Attorney General here. The Court should reverse the decision below.
To see a copy of the amici brief, click here: