PPLI and National Taxpayers Union Foundation file Amici Curiae Brief supporting protection for donors
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.
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 very broad powers to collect income taxes. 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, at 97%.
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:
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 an obscure 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.
The Attorney General requires charities that want to operate in California to file an unredacted copy of a federal tax form: Schedule B to Form 990, the annual return filed by charities and other tax-exempt organizations. Schedule B lists identifying information about major donors to the reporting organization. Donor information is highly protected under federal law, but the Attorney General demands the form without complying with onerous federal security requirements and usage restrictions.
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. 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.”
This article follows the history and purpose of Schedule B. The history shows that Schedule B was created in 2000 as a protection for donor privacy, but unauthorized leaks of the form have continued. Although the Supreme Court is unlikely to interpret the federal tax privacy laws that gave rise to and continue to shape Schedule B, the information may form part of the context in which the Court will analyze the First Amendment issues being discussed.
Caution: this is a very long and complicated article, even for this website, and has many footnotes. But tax-exempt organization law is complex, and especially so when constitutional rights are involved.
To Read this Legal Analysis, click here: