Public Policy Advocacy Highlights for April 2023

Public Policy Advocacy Highlights for April 2023

Characterizations, editorial comments, abbreviations and shorthand references are solely PPA Highlights author Barnaby Zall’s, and do not necessarily represent the views or positions of the Public Policy Legal Institute, the First Tuesday Lunch Group or their members and participants. Suggestions and corrections welcome.


Danny Werfel, Part Deux, Takes Over as IRS Commissioner: The first time Danny Werfel became Commissioner, the Internal Revenue Service was in turmoil, following the Lois Lerner-led 2010-13 “targeting” scandal in which the Service’s Exempt Organizations Division selected organizations for intensive review on the basis of their names and perceptions of whether they were conservative. He lasted seven months, before leaving “quietly” as John Koskinen took over to “heal” the IRS.

This time, Werfel came in as the 50th Commissioner to “heal” the IRS by spending billions in new appropriations. “This is our moment in history,” he told Service employees. The Service’s official “tracker” shows great progress: in the last twelve months, the IRS was able to “clear” all error-free returns in its backlog, but much of that took place before Werfel took over. Still, Treasury took a well-deserved victory lap. “The IRS achieved 87% Level of Service.” Apparently, it cost 1% of the $80 billion to achieve that level of service. Not everyone is on board; former Service employees are now saying (paywall) that $80 billion “won’t be enough.”

In other Werfel news, dueling media perspectives on the $80 billion IRS funding increase: Reuters reports that “the agency will not hire any armed auditors with $80 billion in new funding, an attempt to dispel Republican assertions the IRS plans to build an ‘army’ of 87,000 armed agents.” Fox Business, on the other hand, notes that the armed agents are not likely to be auditors, but Criminal Investigators: “IRS special agents within the CI division are the only IRS employees who are authorized by law to carry and use firearms.” We in the trade know them as “Gold Badges,” as in “if you see a Gold Badge, stop whatever you’re doing and call me right away!”

And the New York Post notes that “IRS Commissioner Daniel Werfel promised Thursday that his agency won’t retaliate against whistleblowers when asked about an official alleging a coverup in the tax fraud investigation of first son Hunter Biden.” Background from New York Times: “As Justice Department officials weigh whether to indict Hunter Biden, the investigator overseeing the Internal Revenue Service’s portion of the case has come forward with allegations of political favoritism in the inquiry that stand to add to the already fraught circumstances facing the department.”

Watch What You Say – Applicant Seeking to Create a Political Party in a Foreign Country Denied (c)(3) Status Because It Said It Was A Political Party, When It Might Not Have Been One: Lesson in Denial 202316001: don’t tell the IRS you’re a “political party” and then try explain why you’re really not. The organization was explicit about the fact that it is a political party and it therefore does not meet the organizational test. However, they may well not have met the standard under U.S. law for being “partisan.” From the facts in the denial letter:

Your Bylaws state you are a “civil democratic party” based on E citizenship where the law prevails and protects the rights of all. You will seek to win over the E people in the United States, to make their sound heard. You will organize demonstrations to support the cause of E people. You will establish long-term political relations between the immigrants to the United States from D and the American people. You gain public opinion and mobilize American organizations to make the American people aware of the crisis in D . . . Your party’s goal is to support the cause politically and morally toward change in D and to support the people of D by collecting donations from people, charitable organizations, and civil society organizations. You submitted a document which describes this political party. It discusses unity, freedoms, and building society as well as “building the state.” Building the state “includes infrastructure, departments, institutions, services, law, and placing the individual in the right place.”

The organization said it would not support or oppose candidates in political campaigns, despite its attestation that it was a “political party.” The IRS took this “political party” language at face value, despite the other facts in the application that suggested this classification may not actually be applicable and there could be language barriers or other issues at play. The Service declared the organization to be an “action organization” under Treas. Reg. Section 1.501 ( c )(3 )-1 ( c )(3 )(iii), which provides that an organization is an “action” organization if it participates or intervenes, directly or indirectly, in any political campaign on behalf of or in opposition to any candidate for public office. “You are dissimilar to the organization described in Rev. Rul. 66-256 because you are not conducting balanced public forums on political or international issues. Rather, you are creating and supporting a specific foreign political party, which will include the establishment of laws, which is a non-exempt purpose. This substantial non-exempt purpose, as explained in Better Business Bureau of Washington, D.C., Inc. [v. United States, 326 U.S. 279 (1945)], destroys your claim for exemption regardless of the number or importance of truly exempt purposes.”

Best practice: don’t assume your readers, especially at the Service, will understand and agree with your perspective and expertise when you draft materials for them. They are not going to give you the benefit of the doubt unless you explain why your client deserves it. More succinctly: remember that good writers write to be understood; great writers write not to be misunderstood.  

D.C. District Court Denies Exemption to Church Because RFRA Does Not Supersede Illegality and Public Policy Doctrines: In the mellifluously-named Church of the Lukumi Babalu Aye v. City of Hialeah, 508 U.S. 520 (1993), a unanimous Supreme Court ruled that the public sacrifice of live chickens on the courthouse steps was a protected religious practice and an ordinance prohibiting the practice, even one predicated on public health and safety and the prevention of cruelty to animals, was a violation of religious freedom. “Although the practice of animal sacrifice may seem abhorrent to some, ‘religious beliefs need not be acceptable, logical, consistent, or comprehensible to others in order to merit First Amendment protection.’ Thomas v. Review Bd. of Indiana Employment Security Div., 450 U. S. 707, 714 (1981).”

But tax-deductibility is different. So, in Iowaska Church of Healing v. United States, that principle ran up against the IRS’s traditional illegality and public policy doctrines which bar charitable exemption, even to churches, who violate the law or long-established public policies like racial exclusion. The Iowaska Church believed deeply in the practice of using Ayahuasca, a tea brewed from South American plants that contain a chemical deemed illegal under U.S. drug laws. Even the sweeping Religious Freedom Restoration Act doesn’t override the IRS’s ability to deny charitable status under the illegality and public policy doctrines. The Service denied the church’s Form 1023 Application for Exemption on the grounds that the church was not organized and operated exclusively for exempt purposes because Ayahuasca is illegal under federal law and violates public policy. The church then sued the IRS claiming that this violated the church’s rights under RFRA. The DEA grants permits for religious exemptions to the federal ban on Ayahuasca use, but the IRS wouldn’t grant the exemption without this permit – which was pending at the time the 1023 was denied and the organization filed suit. The court issued a summary judgment in favor of the IRS, agreeing with the IRS that the church doesn’t qualify under section 501(c)(3) unless it gets a permit exempting its Ayahuasca use, because of the illegality doctrine. The court also found that plaintiff lacked standing under the Religious Freedom Restoration Act because IRS exemption would not allow the church to use Ayahuasca legally – it needs DEA approval to do that.

Ironically, this organization did not have to file the Form 1023 that set off this series of legal proceedings. As a church, it would be exempt from that requirement. Much of this hassle could have been avoided had the church either not filed the 1023 application in the first place, or at least waited until being granted a DEA permit for the use of the drug in its ceremonies.


FEC and DoJ Sign MoU to Share Information, and Not Everyone Is Happy: For fifty years, the Federal Election Commission has had exclusive responsibility for civil law enforcement of the federal campaign finance laws, with special attention to balancing the First Amendment rights of Americans against the federal government’s interests in preventing quid pro quo corruption. The U.S. Department of Justice has had the responsibility for enforcing criminal laws that affect elections and political activity. The two agencies’ organic (foundational) laws are different, their procedures are different, and their sensitivities to First Amendment rights are decidedly different. See, for example, Jack Smith’s 2010 post-Citizens United attempt to use criminal law enforcement against tax-exempt organizations which were engaged in what he believed was too much political activity, until Lois Lerner (yes, THAT Lois Lerner of the IRS targeting scandal) shut him down.

Now the FEC and the DoJ have entered into an updated Memorandum of Understanding on sharing information between the two agencies. The two agencies “agree to assist each other in fulfilling their respective statutory responsibilities and to cooperate, consistent with all legal restrictions, to further their respective enforcement activities.” ¶ 5. The two agencies “do not intend to engage in joint fact-gathering, joint investigation or litigation strategy, or joint charging determinations,” ¶ 9, but DoJ may ask the FEC to suspend its activities during a parallel DoJ criminal investigation. ¶ 10. There are many paragraphs which deal with overlapping communications and responsibilities, which are supposed to be ironed out through inter-agency discussions.

Not everyone is pleased with the MoU; Commissioner Trey Trainor called it “a dark day … for our Republic”, … “Not since the Alien and Sedition Acts of 1789 has there been a more grievous affront to the First Amendment than what we have before us today”, and:

This Memorandum of Understanding (MOU) is harmful to the free, public discourse of ideas, and the transparency mission of this agency, in four significant ways. First, there is no statutory authority for this agency to enter into such an information sharing agreement with another executive branch agency. Second, this MOU will significantly, and I believe irreparably, harm the level of candor between the entities that are regulated by the Federal Election Campaign Act (“FECA”) and this agency. Third, I believe there are significant Constitutional concerns that are implicated in this type of MOU. Finally, as a matter of policy, this MOU is just another example of the recent move to criminalize the participation of the American people in the necessary open exchange of ideas which is the foundation of our political system.

“Data” About Newest Buzzword for Concern About Too Much Money In Politics – “Joint Fundraising Committees” – Produces Mixed Messages: Washington Post breathlessly points out that raising money for multiple political committees at the same time “circumvents laws … [and] gives large donors ever-greater power to buy influence with candidates” by writing many checks at one event. David Byler, a “data columnist” for the Post, writes: “in practice, much of the money flows to the national party … The Post’s Chris Zubak-Skees calculates that, in 2016, for example, state-level Republican parties sent 90 percent of their cut of the Trump Victory Fund to the Republican National Committee. In 2020, they sent 96 percent to the RNC.” But it appears that sometimes the percentage of funds flowing to the national parties went down in 2020: “Meanwhile, Democratic state parties sent three-quarters of their haul from the Hillary Victory Fund to the DNC in 2016. In 2020, state parties gave about a quarter of their take to the DNC.”

Byler’s main point is confused: “fundraising is an arms race. … [But] In the end, reforming how joint fundraising committees operate won’t stop the deluge of funds pouring into our political system from moneyed interests.”


Former Head of SBA Pleads Guilty to Looting Two Exempt Organizations: Hector Barreto, who had been head of the federal Small Business Administration, and health care consultant Miguel Gutierrez, were accused of conspiracy to file false tax returns, mail fraud and wire fraud. The U.S. Attorney’s office in San Antonio, Texas, listed more than a page of alleged fraudulent transactions between the pair and two tax-exempt organizations. Both pled guilty.

Three Sentenced to Prison for “Scam PAC” Fraud: Speaking of fraudulently using tax-exempt organizations (which includes Political Action Committees, tax-exempt under IRC § 527), the Department of Justice announced guilty verdicts against three people who raised $4 million for “scam PACs” that told donors they were supporting 2016 presidential candidates Clinton and Trump, who never received the money. One received ten years in prison, the other two were sentenced to seven and five years.


Rubio: ActBlue Must Be Held Accountable For Fraud Caused By Not Requiring CCV On Credit Card Contributions: Sen. Marco Rubio has sent a letter to the Federal Election Commission requesting answers of why the Democratic-fundraising juggernaut ActBlue has not been investigated for allegedly garnering illegal campaign contributions. (h/t IFS) “[R]eports indicate that numerous individuals, including senior citizens, have purportedly donated to ActBlue thousands of times a year. … many of these individuals had no idea that their names and addresses were being used to give thousands of dollars in political donations.” Rubio’s main complaint is that ActBlue has not required donors using credit cards to enter a CCV (Credit Card Value) number, when everybody else does.

The FEC responded to Rubio by pointing out that federal law “does not impose requirements for specific safety or security guardrails that political committees must use to accept online donations.” So it doesn’t mandate use of a CCV.


“Does the First Amendment Allow a Government Official to Make Threats Like a Mob Boss?” More on NRA v. Vullo, from the Institute for Free Speech and from the Federalist Society. The Petition for Cert is now scheduled for consideration at the Supreme Court’s conference on May 11. Three amicus briefs were filed supporting the Petition, including one from 18 states asking the Court to take the case. New York did not file an opposition to the Petition, and UCLA law Prof. Eugene Volokh, counsel of record on the Petition, pointed out that the Court rarely grants cert without calling for a response first. And, on April 24, the Court did call for a response; note that it only takes one Justice to ask for a response, not the four that triggers review.

And the same issue jumped onto front pages nationwide when the Walt Disney Company filed suit against the State of Florida for violating its freedom of speech. “A targeted campaign of government retaliation — orchestrated at every step by Governor DeSantis as punishment for Disney’s protected speech — now threatens Disney’s business operations, jeopardizes its economic future in the region, and violates its constitutional rights,” said the company in its complaint. Significant differences between the two situations, but same issue underneath it all.

U.S. District Court Explores IRS Third-Party Summons Details: Last month the Supreme Court of the United States heard oral argument in Polselli v. IRS, No. 21-1599, considering when the IRS must give notice to a taxpayer when it subpoenas confidential information from a third party. Now the U.S. District Court for Kansas has handed down God’s Storehouse Topeka Church v. U.S, going into great detail on the procedures and process involved in those IRS third-party subpoenas.  Law Prof. Darryll Jones discusses many other issues in this case in his blog. (H/t Beth Kingsley and Dick Riley)

CFPB Appeals Loss in Attempt to Censor Speech Using Anti-Discrimination Laws: In 2020, the Consumer Financial Protection Board, a controversial federal agency with a vast jurisdiction, filed a novel “anti-redlining” lawsuit against Townstone Financial, a small Chicago-area mortgage original company; the suit alleges that Townstone’s comments on radio ads and programs about neighborhood crime rates discourages African-American prospective applicants from applying for mortgages. “Since at least 2014, Townstone has engaged in acts or practices directed at prospective applicants that, together and separately, would discourage prospective applicants, on the basis of race, from seeking or obtaining credit for properties within the Chicago MSA.” Amended Complaint, ¶ 22. The Complaint does not provide any examples of consumers who were discouraged by Townstone’s statements on the air, and includes only examples of statements in Townstone’s “infomercials” such as “it’s crazy in Markham on weekends. …You drive very fast through Markham, … and you don’t look at anybody or lock on anybody’s eyes in Markham … You look at your dashboard, you don’t lock on anybody.” Id., ¶ 33. In other words, this case is a clash between the First Amendment and anti-discrimination laws enforced, in part, by the CFPB.

As John Berlau and Stone Washington of the Competitive Enterprise Institute wrote in the Wall Street Journal: “the CFPB is signaling that it may attempt to punish anyone who complains about neighborhood crime.” Townstone’s counsel at the Pacific Legal Foundation noted “speaking about controversial topics is not illegal—even for mortgage companies. Unfortunately, the CFPB is armed with some vague laws and regulations that the agency claims allow it to decide what creditors are, and are not, allowed to say.”

The agency lost at the District Court. In a Feb. 3 opinion, Judge Franklin Valderrama rejected the CFPB’s claims because the agency did not present actual evidence that any applicant had been deterred, only a risk that prospective applicants had been deterred: “the Court finds that, when applying step one of Chevron, it cannot defer to Regulation’s anti-discouragement provision of with respect to ‘prospective applicants,’ no matter how desirable it might be to do so as a policy matter.”

The CFPB has now appealed to the Seventh Circuit. Richard Andreano, Jr., of Ballard Spahr, noted in a client memo that an appeal “would appear to be a risky move. … If the Seventh Circuit ruled in favor of the CFPB, then Townstone could seek Supreme Court review, and the CFPB would likely face an uphill battle if the Court took the case.”

Meanwhile, the Supreme Court granted cert in a case asking directly whether the long-standing Chevron deference rule, at the heart of this case, has run its course. The Petition in Loper Bright Enterprises v. Raimondo, No. 22-451, asks, flat out: “Whether the Court should overrule Chevron or at least clarify that statutory silence concerning controversial powers expressly but narrowly granted elsewhere in the statute does not constitute an ambiguity requiring deference to the agency.” The case is a little fishy, since it involves the National Marine Fisheries Service’s requirement that not only must ocean-going fishing vessels provide quarters for the federal agents who supervise the vessel, but pay their salaries as well. The ambiguity in the scope of the statutory delegation of authority to regulate the boats to the NMFS gives rise to the Chevron deference question of whether the agency has the authority to impose the cost, which the Petitioners allege will take away 20% of their annual returns. The Court has come close to reviewing Chevron several times recently, but the Court’s grant of cert in Loper Bright expressly limited the Question Presented to overruling Chevron, making this the culmination of this movement. Could be a very important decision.

DoJ Resurrects “First Amendment Waived By Tax Deductibility” Theory That the Supreme Court Has Already Rejected Many Times: In Americans for Prosperity Foundation v. Bonta, 141 S. Ct. 2373 (2021), the Supreme Court found that the California Attorney General’s “dragnet” collection of donor information violated the First Amendment, holding among other things, that “[i]t is hardly a novel perception that compelled disclosure of affiliation with groups engaged in advocacy may constitute as effective a restraint on freedom of association as [other] forms of governmental action”, quoting, NAACP v. Alabama ex rel. Patterson, 357 U. S. 449, 462 (1958). NAACP v. Alabama involved this chilling effect in its starkest form.” In other words, the Supreme Court found that requiring tax-exempt organizations to disclose their donors was “compelled disclosure,” subjecting the government’s requirement to at least “exacting scrutiny.”

Yet, in a mind-boggling Motion to Dismiss in Buckeye Institute v. Internal Revenue Service, No. 2:22-cv-4297-MHW-EPD, (S.D. Ohio, April 4, 2023) (h/t IFS, which is counsel for plaintiff) the Department of Justice, citing AFPF v. Bonta, denied that requiring disclosure of donors (which is what AFPF v. Bonta and NAACP v. Alabama were about) was compelled disclosure at all. “Buckeye is challenging a condition of receiving preferential tax treatment, not a rule compelling disclosure.” Motion to Dismiss, 27.

Those are not opposites, or even different things: in this case, as the DoJ motion itself noted, “if they choose to accept a subsidy in the form of tax benefits to support their activities, they must comply with the reasonable conditions that Congress has determined are appropriate, including the requirement to disclose their substantial contributors.” Id., at 28. In other words, the rule compelling disclosure IS the unconstitutional condition, just as it was in AFPF v. Bonta and NAACP v. Alabama. As the Court’s opinion in AFPF v. Bonta said: “As part of an effort to oust the organization from the State, the Alabama Attorney General sought the group’s membership lists. Id., at 452–453. We held that the First Amendment prohibited such compelled disclosure. Id., at 466.” AFPF, slip op. at 7, citing NAACP (emphasis added). If the DoJ assertion were true, neither AFPF nor the NAACP would have been able to bring its case.

Nor is this the first time DoJ has promoted this theory that accepting a tax “subsidy” requires giving up important First Amendment rights. For example, in AFPF v. Bonta itself, the DoJ told the Supreme Court 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.” Brief of the United States, at 12. The Supreme Court has expressly rejected that theory many times, including in AFPF v. Bonta, Rumsfeld v. Forum for Academic and Institutional Rights, 547 U.S. 47, 59 (2006) (“the First Amendment supplies ‘a limit on Congress’ ability to place conditions on the receipt of funds’”); Agency for Int’l Dev. v. All. for Open Soc’y Int’l, Inc., 570 U.S. 205, 2014–15 (2013) (“AOSI I”) (“[T]he relevant distinction that has emerged from our cases is between conditions that define the limits of the government spending program—those that specify the activities Congress wants to subsidize—and conditions that seek to leverage funding to regulate speech outside the contours of the program itself”); Agency for Int’l Dev. v. All. for Open Soc’y Int’l, Inc., 140 S. Ct. 2082, 2086 (2020) (“AOSI II”) (same).

In other words, even Congress cannot insist on a funding condition that goes beyond the limits of the government spending program it wants to subsidize or “conditions that seek to leverage funding to regulate speech outside the contours of the program itself.” AOSI I, 570 U.S. at 214–15, citing FCC v. League of Women Voters of Cal., 468 U.S. 364, 399–401 (1984) (condition struck because the effect of ban on editorials went beyond limits of congressional program). “By demanding that funding recipients adopt—as their own—the Government’s view on an issue of public concern, the condition by its very nature affects ‘protected conduct outside the scope of the federally funded program’.” AOSI I, 570 U.S. at 219, quoting Rust v. Sullivan, 500 U.S. 173, 197 (1991). What is true for speech is also true for freedom of association and petition for redress of grievances. NAACP v. Alabama, 357 U. S. at 462 (“[i]t is hardly a novel perception that compelled disclosure of affiliation with groups engaged in advocacy may constitute as effective a restraint on freedom of association as [other] forms of governmental action”).


New Jersey’s Sweeping “Elections Transparency Act” Sparks “Considerable Controversy” Over Changes for Tax-Exempt Organizations, Donors, and Government Contractors: Turmoil continues, including the resignation of all four members of the New Jersey Election Law Enforcement Commission. Venable has a good summary of the changes.

California Moves to Restrict Referenda: California has long been the most active State in direct democracy, both for initiatives and referenda. Now there’s a move to restrict referenda; note that California is effectively a one-party State, and the effort is being pushed by Democratic-leaning unions and environmental activists. Contrasting views on the move: the once-staid, now very progressive Los Angeles Times is for it; the more conservative California Chamber of Commerce is not. (H/t Pepperdine Law Prof. Mark Scarberry on ELB)


Eugene Volokh on the Supreme Court, Lincoln, and “Liberty:” UCLA Law Professor Eugene Volokh has been serializing his presentation to a Wisconsin Law Review symposium on “Is the Supreme Court Out of Control?” The fourth installment looks to the Court and the concept of liberty, and Volokh quotes Abraham Lincoln at the height of the Civil War:

The world has never had a good definition of the word liberty, and the American people, just now, are much in want of one. We all declare for liberty; but in using the same word we do not all mean the same thing. With some the word liberty may mean for each man to do as he pleases with himself, and the product of his labor; while with others the same word may mean for some men to do as they please with other men, and the product of other men’s labor. Here are two, not only different, but incompatible things, called by the same name—liberty. And it follows that each of the things is, by the respective parties, called by two different and incompatible names—liberty and tyranny.

The shepherd drives the wolf from the sheep’s throat, for which the sheep thanks the shepherd as a liberator, while the wolf denounces him for the same act as the destroyer of liberty, especially as the sheep was a black one. Plainly the sheep and the wolf are not agreed upon a definition of the word liberty; and precisely the same difference prevails today among us human creatures, even in the North, and all professing to love liberty. Hence we behold the processes by which thousands are daily passing from under the yoke of bondage, hailed by some as the advance of liberty, and bewailed by others as the destruction of all liberty.

Banzhaf Files Complaint Against Stanford Law School and Students Who Silenced Federal Judge: Retired George Washington University Law Professor John Banzhaf, a renowned public interest lawyer who coined the term “legal activism” for using the law “as a powerful, largely untried, untested, tool or weapon to change, to prove the public interest and to change the world,” is best known for fighting against smoking tobacco. Now he’s directing his attention to the Stanford Law School and its students for its now-infamous hecklers’ veto of Fifth Circuit Judge Kyle Duncan’s presentation to the school’s Federalist Society on March 9. It wasn’t enough that Law School Dean Jenny Martinez issued an apology to Duncan and a substantive constitutional legal memorandum to the students, Banzhaf decided, since neither the students nor the students received sufficient punishment for their legal and pedagogical violations. Banzhaf filed a California State Bar complaint against the students for illegal violations of the First Amendment. Banzhaf told Palo Alto Online in an interview that:

‘And as a number of people said, if they go out of law school with these ideas that this is OK and proper, it could be incredibly dangerous because the kids from Stanford and Yale are going to wind up in these top positions. … I think it’s very important that the (students) understand what the law is. If you don’t like a law, if you don’t like what a judge has written, then the answer is to fight back using the law — use your unique legal skills.”

Australian Offers an “Insider’s Guide to “Anti-Disinformation:”  Andrew Lowenthal, “a progressive-minded Australian who for almost 18 years was the Executive Director of EngageMedia,” pens a “guide” (h/t IFS) that shows how the concept of “anti-disinformation” has supplanted protecting and expanding digital rights and freedoms: “For most of my career, I believed strongly in the work I was doing, which I believed was about protecting and expanding digital rights and freedoms. … In recent years, however, I watched in despair as a dramatic change swept through my field. As if all at once, organizations and colleagues with whom I’d worked for years began de-emphasizing freedom of speech and expression, and shifted focus to a new arena: fighting ‘disinformation.’”