About an hour into the lengthy oral argument in a case involving Mississippi’s “heartbeat” abortion law, Supreme Court of the United States Chief Justice John Roberts said: ” It is certainly true that we cannot base our decisions on whether they’re popular or not with the people. … we shouldn’t base our decisions not only on that but whether they’re going to — whether they’re going to seem popular.” Moments later, Justice Stephen Breyer agreed: ” We use reason. We don’t look to just what’s popular.”

But there is just such an instance in which the Supreme Court does just that: the long-standing “appearance of corruption” test decides whether political expression and association can be limited on the basis of whether it is popular. The Court decided not to hear the two cases on the “appearance of corruption” that PPLI and other organizations requested it review in 2018, but on January 19, 2022, the Court will hear exactly that issue in a surprising case.

The Supreme Court of the United States has accepted an appeal in another case that poses the same questions about “the appearance of corruption” as the 2018 Term cases. In Cruz for Senate v. Fed. Election Comm’n, No. 21-12, the Federal Election Commission was sued by Ted Cruz’s election campaign over a limit on the amount of post-election campaign contributions it could use to repay Sen. Cruz’s personal loans to his campaign. Cruz argued that this limit on campaign contributions violated his First Amendment rights under existing campaign finance precedents; the FEC responded by drafting a seriously-flawed public opinion poll as evidence of an “appearance of corruption.” 

The Cruz for Senate case is a classic example of the dangers of the “appearance of corruption” model, with a government agency arguing that the constitutional rights of political expression and association can be limited if the public disapproves, and drafting an incomplete and misleading public opinion poll to demonstrate the public disapproval.  As Prof. Ronald Levin wrote in a 2001 law review article, the appearance of corruption rationale for contribution limits “means that the most zealous and aggressive advocates of restriction can make accusations, whether well founded in fact or not, and then use the very fact that some people believe the charges as a reason to justify regulation.” The District Court for the District of Columbia (which, to help national uniformity of federal election laws, has jurisdiction over constitutional challenges to FEC rules) rejected the FEC’s justifications because the poll and the FEC’s other support for its regulation was evidence merely of a traditional element of American democracy: a winning candidate is expected to be responsive to those who supported the candidate’s campaign (as opposed to an elected judge, who is supposed to be scrupulously neutral even toward campaign contributors). In other words, all the FEC showed with its public opinion poll was “an appearance of influence and access,” which, under Citizens United and McCutcheon, is not enough to justify a restriction on highly-protected political speech. 

The Public Policy Legal Institute has filed an amicus brief with the Court on December 20, 2021, supporting the lower court’s analysis and conclusion about “an appearance of corruption” and asking the Court to affirm Judge Naomi Rao’s opinion in the case. Other organizations, including the Institute for Free Speech, are also expected to file amicus briefs supporting affirmance. Organizations supporting the FEC’s position and asking the Court to reverse the lower court include Public Citizen, the Constitutional Accountability Center, Campaign Legal Center, and the Brennan Center for Justice.

Oral argument in the Cruz for Senate case will be heard on January 19, 2022. A decision is expected before June, 2022.

UPDATE: July 1, 2021. The Supreme Court of the United States decided the consolidated cases of Americans for Prosperity Foundation v. Becerra, No. 19-251, and Thomas More Legal Center v. Becerra, No. 19-255, rejecting, as unconstitutional infringements of First Amendment rights, the California Attorney General’s attempts to use a “dragnet” to obtain charities’ donor lists. The Court’s opinion did not address the Solicitor General’s request to declare that a tax deduction, exemption or other government “benefit” or “subsidy” requires giving up First Amendment rights. This may not be the last time the federal government raises this argument, since this is the third time in the last ten years, that it has asked the Court to adopt its position, and the Solicitors General of both the Trump and Biden Administrations pressed the argument in this case.

Oral Argument in Supreme Court on April 26

            Want a tax deduction, or tax exemption? The Solicitor General of the United States, the federal government’s top litigator at the Supreme Court, says the price of that “governmental subsidy” or “voluntary tax-benefit program” is giving up your First Amendment rights. A “bargain” for or “waiver” of your rights. But the claim is a hidden trap, removing an important Free Speech limit on government power.

            The federal government has been pushing that argument for sixty years; sometimes it won (Regan v. Taxation With Representation, 1983, limit on charities’ lobbying did not violate the First Amendment). But in recent years, the Supreme Court usually rejects the argument, as it did in 2013 (Agency for International Development v. Alliance for Open Society Int’l) (AOSI I), 2017 (Matal v. Tam), and 2020 (AID v. AOSI II). As Justice Alito pointed out in Matal v. Tam, a case asking if the First Amendment protects “offensive” trademarks, the Department of Justice has been trying to expand their theory into an all-encompassing governmental power to limit the First Amendment rights of anyone who gets a governmental benefit or participates in a governmental program: “a new doctrine that would apply to ‘government-program’ cases. For the most part, this argument simply merges our government-speech cases and the previously discussed subsidy cases in an attempt to construct a broader doctrine.”

            In other words, if you take a tax deduction or a governmental benefit, or participate in a government program that involves an outlay of tax dollars (even an “indirect” one such as not having to pay as much tax), you lose some of your First Amendment rights. Which would be a massive problem: almost all Americans take tax deductions, get governmental benefits or participate in governmental programs.

            Congress’s power to decide what is tax-exempt or -deductible is not unlimited: “the First Amendment supplies a limit on Congress’ ability to place conditions on the receipt of funds.” Rumsfeld v. Forum for Academic and Institutional Rights (2006). If every exemption, benefit or deduction becomes a “voluntary” waiver that negates the First Amendment, then there is effectively no First Amendment limit on Congress’s ability to fashion a creative governmental “benefit.” And the problem would be worse if Congress, as it often does, leaves the details to agency regulation, which could expand the “voluntary” waiver far beyond what Congress intended. So, if the Supreme Court ever accepts the Solicitor General’s “broader theory,” it would be an enormous expansion of governmental power under the Constitution’s Sixteenth Amendment (income tax) and Spending Clause (if government pays for it, it can control it).

            Yet this long, existential battle has mostly flown under the radar. They’re trying again in the “Schedule B” cases consolidated for Supreme Court oral argument on April 26: Americans for Prosperity Foundation v. Becerra, No. 19-251, and Thomas More Legal Center v. Becerra, No. 19-255. This freedom of association case involves a demand from the California Attorney General that charities wanting to operate or fundraise in California must surrender their major donor lists to him as the price, even though California does not use the strict donor privacy protections required under federal law (enacted following the Nixon-era “enemies list” scandals).

            Even though the parties and lower courts in these cases didn’t raise this “subsidy” or “waiver” theory, the Solicitor General, sometimes known as the “Tenth Justice,” promoted the theory in the official briefs of the United States. For example, last November, President Trump’s Solicitor General 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 … That is particularly so when the disclosure relates to a voluntary tax-benefit program—in effect, a governmental subsidy. An organization seeking the subsidy is not, strictly speaking, compelled to disclose its donors, because it always can forgo the governmental benefit.” Brief of the United States, Nov. 24, 2020, P. 12.

            Then on March 1, 2021, President Biden’s Acting Solicitor General told the Court that: “a disclosure requirement imposed as a condition on a governmental subsidy does not raise the same First Amendment concerns as a requirement that compels disclosure as a regulatory measure.” Brief of the United States, March 1, 2021, Pp. 24-25. The Acting Solicitor General has requested the Court to allow her time during the April 26 oral argument to discuss her assertion.

            Even though it might seem like this fight against the First Amendment should be a loser for the federal government, this is a really deep and complicated legal question. Almost every time the Justices face the “subsidy” or “public benefit” argument, we get cries of pain from the Court. For example, Justice Alito wrote in Matal v. Tam: “These cases implicate a notoriously tricky question of constitutional law. We have held that the Government may not deny a benefit to a person on a basis that infringes his constitutionally protected … freedom of speech even if he has no entitlement to that benefit. But at the same time, government is not required to subsidize activities that it does not wish to promote.  Determining which of these principles applies in a particular case is not always self-evident.” 

            The question originally wasn’t so difficult, but quickly the specific question of whether the Treasury was required to “subsidize” lobbying came up. Ever since the passage of the Sixteenth Amendment, Congress has exempted at least some organizations from taxes. But in the Revenue Act of 1934, otherwise charitable organizations were barred from tax-exemption and deductibility if they engaged in lobbying, and that deductibility prohibition for lobbying was extended to for-profit entities in 1935. In Cammarano v. United States(1959), the Court said that the federal government didn’t have to subsidize lobbying by a family-owned beer distributor because Congress had said so directly and clearly.

            Then, in 1970, the Court decided Walz v. Tax Commission of the City of New York, which distinguished direct governmental support (subsidies, employment, grants or contracts) from tax exemption: “No one has ever suggested that tax exemption has converted libraries, art galleries, or hospitals into arms of the state or put employees ‘on the public payroll.’” Justice Brennan, concurring in Walz, was more descriptive:

“Tax exemptions and general subsidies, however, are qualitatively different. Though both provide economic assistance, they do so in fundamentally different ways. A subsidy involves the direct transfer of public monies to the subsidized enterprise, and uses resources exacted from taxpayers as a whole. An exemption, on the other hand, involves no such transfer. It assists the exempted enterprise only passively, by relieving a privately funded venture of the burden of paying taxes. … The exemption simply leaves untouched that which adherents of the organization bring into being and maintain.”

            There’s another reason the Court considers this a tricky area of constitutional law; it’s a self-inflicted wound, implicating questions about preserving prior precedents. In 1983, the Court returned to the lobbying prohibition on charities, but stumbled with some inartful language. In Regan v. Taxation With Representation, the Court said: “Both tax exemptions and tax deductibility are a form of subsidy that is administered through the tax system. A tax exemption has much the same effect as a cash grant to the organization of the amount of tax it would have to pay on its income. Deductible contributions are similar to cash grants of the amount of a portion of the individual’s contributions.”    

            The language of the Regan opinions reflects that stumble and the resulting confusion. In Footnote 5, Chief Justice Rehnquist, for the Court, tried to clarify that it was not disagreeing with Justice Brennan’s concurrence in Walz: “In stating that exemptions and deductions, on the one hand, are like cash subsidies, on the other, we of course do not mean to assert that they are in all respects identical.” But many, including the Solicitor General, overlook the correction. They think exemptions = subsidies = unlimited waiver of rights; not “similar to,” but equal to.

            In addition, through Footnote 6 in the Court’s Regan opinion and a Justice Blackmun concurrence that has, over time, become the general rule, the Court added a new “not burdensome” restriction on Congressional power to limit speech through the subsidy theory: no speech restriction could be so burdensome that the organization could not function using “private” money. In 1984, in FCC v. League of Women Voters of California, just one year after Regan, the Court said that a public radio station that received less than 1% of its funding from federal appropriations could not be barred from using private funds “to make known its views on matters of public importance.” Free speech, despite the government 1% “subsidy.”

            Still, several seemingly-conflicting decisions came down, with some arguing that “Every tax exemption constitutes a subsidy that affects nonqualifying taxpayers, forcing them to bear its cost,” Texas Monthly, Inc. v. Bullock (1989), and others saying that “Although tax exemptions and subsidies serve similar ends, they differ in important and relevant respects, and our cases have recognized these distinctions.” Camps Newfound/Owatonna, Inc. v. Town of Harrison (1997). Gradually, however, the Court began to pull together a clearer explanation of the limits on Congress of the “subsidy” or “benefits” approach. In 2011, in Arizona Christian School Tuition Organization v. Winn, the Court rejected the assertion that indirect assistance through money that the government never collected should be considered equivalent to cash grants: “Respondents’ contrary position assumes that income should be treated as if it were government property even if it has not come into the tax collector’s hands. … Private bank accounts cannot be equated with the Arizona State Treasury.”

            Since Agency for International Development v. Alliance for Open Society International (ASOI I) came down in 2013, the modern Court has focused on Congressional power, as it had in the original cases on tax-exemption. “In the present context, the 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. The line is hardly clear, in part because the definition of a particular program can always be manipulated to subsume the challenged condition.”

            The AOSI I Court returned to a 1991 analysis from Rust v. Sullivan to see whether the challenged condition applied to the funded or subsidized “project” under review (likely appropriate) or to the “recipient” (likely inappropriate because outside the contours of the program intended to be restricted). “We explained that Congress can, without offending the Constitution, selectively fund certain programs to address an issue of public concern, without funding alternative ways of addressing the same problem. … The challenged regulations were simply ‘designed to ensure that the limits of the federal program are observed,’ and ‘that public funds [are] spent for the purposes for which they were authorized.’” A grantee can continue to engage in protected conduct using private funding.

            As Justice Kavanaugh’s 2020 opinion for the Court in AOSI II pointed out, the Regan option to speak through an affiliate was “rejected” in AOSI I because it “in essence would have compelled the American organizations to affiliate with other organizations.” Justice Breyer, in dissent in AOSI II, reinforced this rejection of part of Regan’s formula for constitutionality: “We further explained in AOSI I —and this is critical—why we could not accept the Government’s suggestion that the case was just a redux of Regan. In AOSI I, the Government suggested a similar ‘dual-structure’ solution to the First Amendment problem. Like the nonprofit in Regan, the Government noted, respondents could act (and speak) through two corporate entities. … True enough. But we rejected the Government’s argument all the same.”

            Add into the mix Justice Alito’s 2017 analysis in Matal v. Tam that:

“just about every government service requires the expenditure of government funds. This is true of services that benefit everyone, like police and fire protection, as well as services that are utilized by only some, e.g., the adjudication of private lawsuits and the use of public parks and highways.”

In other words, the Supreme Court noticed how far the Solicitor General’s theory could stretch to swallow First Amendment rights.

            In that light, the Solicitor Generals’ straight-faced assertions that there is some powerful governmental power to strip away First Amendment rights as a “bargain” or “waiver” in exchange for tax-exemption or deductions seem thin. Even California, which had several opportunities to plead the subsidy theory to support its desire to vacuum up the donor lists of every charity that wanted to do business in California, didn’t argue that in the end.

            It seems the days are over in which a government could simply utter “Regan” and hope to gain unlimited leverage over speech using tax exemption or deductions. Now both California and Congress still have to justify these decisions under the First Amendment as within their power and as tailored to the circumstances. And that is a win for the First Amendment’s inherent limits on government.

            But this quiet battle for the heart of the First Amendment, waged at least three times in the last decade, may yet continue. We will have to see what the Supreme Court says in response to the Solicitor Generals’ theory in the Schedule B cases this Term for the latest installment.

Following discussions with participants in the First Tuesday Lunch Group, a bipartisan discussion group of public policy practitioners, we have revised The Curious History of Schedule B legal analysis published last week into a new one, called “Revising the Nixon ‘Enemies List,’ Using IRS Form 990, Schedule B.” The new analysis is longer and more detailed, with additional discussion of how useful and effective Schedule B to Form 990 actually is. In particular, we have added specific looks at arguments already presented in court by the California Attorney General as justification for demanding that any charity that wishes to operate or raise funds in California reveal its donors.

Some excerpts:

• Schedule B is one of the simplest tax forms: a list of names, addresses and other details which could identify those who have given large amounts to charities. Schedule B’s content makes it one of the most highly-protected federal tax forms because donor information, “if in the hands of the IRS at all, should be categorically sheltered from disclosure.” The Attorney General does not comply with federal data security requirements and usage restrictions, and so can’t get Schedule B from the IRS; he must ask for it directly from the charity.
• The charities are challenging the Attorney General’s demands as violating the First Amendment’s freedom of speech and association. They have shown that the Attorney General’s office has a long and sordid history of leaking tax information on the Internet, endangering their donors’ safety and livelihoods.
• The Attorney General claims to need the Schedule B to enforce California’s laws against fraud and abuse of charitable status because it would be more “efficient.” But the Attorney General did not mention to the lower courts, and the parties did not raise, a December 9, 2019, letter that he and 19 other Attorneys General sent to the IRS commenting on proposed regulations on Schedule B. The Attorneys General Letter indicated that the Attorney General actually had knowledge of, and intentions to continue, use of Schedule B for purposes far different from the limited charitable law enforcement he told the courts was his sole purpose in obtaining the Schedule B forms.
• Most prominent among those other purposes was to use Schedule B to fight against “dark money” organizations, which, by law, are not charities: “corporations, wealthy individuals, and special interests seek to influence politics without leaving fingerprints. … The revised donor reporting requirements that the IRS now proposes are certain to make federal and state review of this spending far more difficult if not impossible.”
• In other words, the Attorneys General of several states wanted to use Schedule B as a new kind of “enemies list,” targeting those who, entirely lawfully, want to enjoy the confidentiality promised under federal tax law.
• Schedule B was a well-intentioned, but ultimately unsuccessful attempt to protect donors from disclosure. A significant number of State Attorneys General have indicated that they view Schedule B not only as a source of taxpayer information that federal law protects from disclosure, but as “a powerful tool” to use as they choose, no matter what federal law forbids. This difference of opinion sets up a variety of constitutional clashes over rights of individuals, organizations, and States themselves, under the First (freedom of speech and association), Fourth (freedom from unreasonable searches and seizures) and Sixteenth (tax) Amendments.
• Not all these clashes are present in the cases pending before the Supreme Court. The lower courts and the parties have limited their briefings to the First Amendment issue of whether the State can request donor lists knowing that they will inevitably injure donors. The charities’ evidence of harassment and injury is strong, but disputed by the California Attorney General and in the Ninth Circuit Court of Appeals decisions.
• Like a movie monster rising from the grave, Schedule B is essentially obsolete and unwanted. It injures people and undermines taxpayer confidence that is essential to support government. It is not essential or efficient in regulating charities. It raises unnecessary constitutional questions. More efficient and targeted methods are already available than the upfront collection of thousands of charities’ donors’ information.
• The Supreme Court should use long-established First Amendment interpretations to help protect charitable donors, the organizations that depend on them, and the interests of the federal tax system in voluntary compliance. Otherwise, “enemies lists” may not only be revived, but will multiply.

To read or download the full analysis, click here:

On January 8, 2021, the Supreme Court of the United States decided to review two cases challenging the California Attorney General’s requirement that any charity seeking to operate in California file an unredacted copy of Schedule B, a simple tax form listing major donors to the organization. The cases, Americans for Prosperity Foundation v. Becerra, No. 19-251, and Thomas More Law Center v. Becerra, No. 19-255, were consolidated and oral arguments may be held this spring or fall. Recently, some articles have appeared that suggest that these cases will dramatically affect campaign finance laws, but that’s a stretch.

The Attorney General requires charities that want to operate in California to file an unredacted copy of Schedule B as part of their annual State applications. Donor information is highly protected under federal law, but the Attorney General demands the form as filed with the IRS. The same information is already filed with California’s Franchise Tax Board, which supervises tax-exempt organizations in California as an attachment to the CA 199 form, California’s annual tax form for tax-exempt organizations, and some organizations voluntarily file their Schedule B instead of a less formal list. The Attorney General does not, however, comply with federal data security requirements and usage restrictions, and so cannot get the information from the Franchise Tax Board.

The charities are challenging the Attorney General’s demands as violating the First Amendment’s freedom of speech and association. They have shown that the Attorney General’s office has a long and sordid history of leaking tax information on the Internet, endangering their donors’ safety and livelihoods. Under unbroken precedent dating back to NAACP v. Alabama, that showing should be enough to protect the donor information. But the Attorney General claims to need the Schedule B to enforce California’s laws against fraud and abuse of charitable status because it would be more “efficient,” and prevailed when the U.S. Court of Appeals for the Ninth Circuit refused to believe the charities’ evidence and the findings of the trial court.

The campaign finance angle is an interesting assertion, since a big part of these cases involves the charities distinguishing themselves from the statutes and judicial interpretations that have evolved from campaign finance litigation. For example, one of the biggest debates in these cases is over the “standard of review,” which tests what the opposing parties have to prove to win. Should that standard be “strict” or merely “exacting?” Traditionally, First Amendment cases have usually involved strict scrutiny, but even First Amendment-related campaign finance cases are now judged by the lower “exacting” standard. The reason is “corruption” or the “appearance of corruption” which PPLI has weighed in on before. The charities now before the Court are not looking to change campaign finance law, but to avoid using the same, lower standard for reviewing their case.

More likely, the articles are referring to the same debate that erupted over changing the IRS regulations that govern Schedule B, which PPLI has also weighed in on. The argument there was that State Attorneys General want to use IRS information to enforce campaign finance laws. In fact, on December 9, 2019, many State Attorneys General sent a letter to the IRS saying exactly that: “The revised donor reporting requirements that the IRS now proposes are certain to make federal and state review of this spending far more difficult if not impossible.” In its final Schedule B regulations on May 20, 2020, the IRS soundly rejected the Attorneys’ General plea (as PPLI had requested), noting that: “Use of returns or return information received from the IRS under these sections for purposes other than those listed above (for example, for the enforcement of campaign finance laws or consumer protection laws) is not consistent with states’ authorized use under sections 6103(d) and 6104(c).”

That didn’t stop the California Attorney General before, and likely won’t now. The Attorney General sought the filed Schedule B directly from the charities, not from the IRS. The IRS’s position is that the federal tax privacy provisions only protect against disclosures by the IRS, not by States demanding them directly from the charities. Some courts have upheld the IRS’s interpretation. But the Supreme Court isn’t bound by those interpretations, and may decide to follow the actual statutory language, which is broader than the IRS view.

Because the parties in these cases haven’t directly raised that interpretation, the Supreme Court likely won’t consider it. But the history of Schedule will likely provide context for the Supreme Court’s consideration. But tying these cases to some dramatic change in campaign finance law is a stretch.

PPLI has prepared a very long (and complicated) summary of the history of Schedule B. UPDATE: This is a new revision of this legal analysis, as of February 3, 2021, based, in part, on comments from and discussions with public policy law practitioners in the First Tuesday Lunch Group. The changes are significant and the document is both longer and more detailed, including analyses of the need for and effectiveness of Schedule B. You can find it here: