[PRELIMINARY NOTE: For more than a decade, the First Tuesday Lunch Group, made up of legal practitioners who are Democrats, Republicans, independents and non-partisans from across the United States, has met monthly to discuss current legal issues in tax-exempt organization, constitutional, and campaign finance law and developments in public advocacy. Participants represent diverse organizations, interests and views spanning the political spectrum – non-partisan, left, right, and center, sometimes in adversarial positions in the legal arena. Yet participants are united in our commitment to the rule of law. These non-partisan discussions help candidates, news media, government officials, and other Americans navigate difficult and complex federal laws.

There is no set FTLG agenda, but each month, a draft of possible topics for discussion, based on highlights of the prior month, is circulated; the actual FTLG discussions generally include only a few of these topics and often several other topics. This post includes only Barnaby Zall’s suggestions for possible topics and highlights, not those of the FTLG itself or its participants. This draft is intended for active FTLG participants, and thus includes abbreviations and references to government agencies or individuals, legal doctrines and terms, and other shorthand phrases or terms.]

IRS Form 1024 must now be submitted electronically: Using Paygov. Reminder: not for c3s or c4s. Form 1024-A, for c4s, must also be submitted electronically.

DCRA Confusion: (a recurring topic) Bill Farah’s question about separate corporate filings of certificate and articles.

New FEC Nominee: Dara Lindenbaum, from Sandler Reiff, will be nominated as Commissioner at the FEC, replacing Steven Walther. Walther has announced he will resign as soon as Lindenbaum is confirmed. Lindenbaum was a law clerk at the FEC for Commissioner Cynthia Bauerly while attending GWU Law School, and was an associate counsel at the Voting Rights Project of the Lawyers’ Committee for Civil Right Under Law. In addition to her election law practice, she also advises non-profit organizations on charitable solicitations, corporate governance issues, securing tax-exempt status with the IRS, and the scope of permissible political activities.

Who Says the FEC Can’t Make A Decision? In MUR 7593, the FEC voted 5-1 to dismiss and close a complaint that Fox News made a prohibited indirect campaign contribution when two of its TV personalities made an appearance onstage during a 2018 campaign rally for Josh Hawley, then a Senate candidate.

Broussard Requests Rulemaking Making Definition of “Earned Income” More Fair: FEC Commissioner Shana Broussard voted against designating VA Disability Benefits as “earned income” for calculating permissible candidate compensation, but also seeks a rulemaking to make the definition more “fair.”

Luke Wachob on How Long It Took FEC to Recognize SuperPACs on its Forms Page: “So the registration process for these newfound [in 2010] political entities, which raise and spend billions of dollars each election cycle, was ultimately developed – in the words of Commissioner Ellen Weintraub at Thursday’s meeting [Jan 13, 2022] – “out of something that Commissioner [Don] McGahn and I scrawled on a napkin in a conference room. … Anyone looking to start a super PAC was left to fill out the regular political action committee registration form, then attach a cover letter stating their intention to operate as an independent expenditure-only committee. It’s almost comical. If you want to start a super PAC, get your stapler ready.” Now there’s an actual form.

DoJ ANPRM on FARA: Reminder: the clock is ticking on sending comments to DoJ on its ANPRM on reforms and changes needed to FARA. Comment period closes on Feb. 11. Only three relatively brief comments have been filed as of Jan. 29.

Breyer Retires: It’s official.

Ted Cruz for Senate Argued on Jan. 19: “Ted Cruz: Litigious hot coffee spiller or civil rights champion?” Media comment on the oral arguments in Cruz for Senate v. FEC focused on “only $10,000” and “obscure arguments,” but significant issues were raised. Chief Justice Roberts, for example, asked “How are you supposed to weigh such imponderables such as the marginal burden on the exercise of First Amendment rights against the marginal assistance in preventing corruption?” Transcript, at 24.

Igor Fruman Sentenced to Year and a Day for Soliciting Foreign Campaign Contributions: Fruman pled guilty.

Washington Supreme Court Sustains $18 Million Fine for Failing to Register and Report Contributions to Oppose Initiative: Washington voters adopted a sweeping regime of registration and reporting that covered both candidates and ballot measures. The Grocery Manufacturers Association (now called the Consumer Brands Association) set up a separate account for contributions against a GMO-labeling initiative, as a means of avoiding disclosing donors. The Washington Supreme Court decided that $18 million – roughly the amount spent against the initiative – was the appropriate fine for failing to register and report the contributions properly. Case is headed for the “other” Supreme Court.

“Fair Notice” Law Found Unconstitutional in Montana: Judge Malloy of the U.S. District Ct for Montana, on summary judgment, found that a law requiring contemporary notice of any ad mentioning, but not endorsing, a candidate was unconstitutional. The Ninth Circuit had held earlier that disclosure laws do not limit speech, but provide more speech. Nat’l Association for Gun Rights v. Mangan, 933 F.3d 1102, 1112 (9^th Cir. 2019). But here, citing inter alia, AFPF/TMLC v. Bonta, Judge Malloy found that this was a content-based restriction that was not viewpoint neutral. And, that was a kiss of death.

Judge Rules Connecticut Law Requiring Pre-approved Fundraising Scripts Unconstitutional: Pacific Legal Foundation reports that, not only did Connecticut’s law require pre-registration for fundraisers, but pre-approval of their contacts and their scripts. After AFPF/TMLC v. Bonta, a federal judge enjoined the requirement.

Open Secrets Publishes List of Pending Campaign Finance Legislation: What’s next for campaign finance reform?

A Popular Structure Question to Hold Endowments – Trust or Corporation? Tom Antonucci’s question about pros and cons for using a trust or a corporation to hold a 501(c)(3)’s endowment elicited differing views.

Is Donors’ Threat to Withhold Future Contributions Corruption or Coordination? A lively discussion on the Election Law Blog’s mailing list is sparked by Prof. Eugene Volokh’s question of whether a donors’ letter to Sen. Sinema would be considered quid pro quo corruption, and Prof. Mark Scarberry’s followup asking if it would be coordination if sent by an independent PAC. Spoiler: Consensus that the letter was artfully drawn enough to likely not be either. Meanwhile, on the other hand, The Hill notes that GOP megadonor Ken Langone maxed out to Sen. Manchin after his rejection of Build Back Better.

NPR Raises “Red Flags” About Groups Fundraising to Support Jan. 6 Defendants: Quoting “experts,” NPR explores the Patriot Freedom Project.

New York Sched B Filing NPRM: From Robert Tigner of the Nonprofit Alliance (and a longtime FTLG member): “Courtesy NonProfit Times, last week we learned the NY AG has initiated a rulemaking governing the submission of Schedule B to the Charity Bureau.  The AG, evidently, made no public announcement other than the publication of the proposal in the Dec 1 NYS Register (the relevant text is attached here, if it made it through the web and software traps).  It proposes a redacted Schedule B but, as you can see, there is a catch or two. One obvious question: would the rule, eliciting donated amounts and the donor’s state (only) square with Bonta?  And another: what is the rule supposed to accomplish?  If any of you have a theory, please share.”

Text of proposed rule: Subdivisions (c) and (d) of section 91.5 are amended to read as follows:

(c)(1) CHAR500 (annual filing for charitable organizations) or a successor form, which shall include identifying and contact information, annual report exemption claim information (see subdivision [e] of this section), [and ]information regarding the submission of schedules required under article 7-A and, unless a Schedule B to IRS form 990 of a public charity, with the names and addresses of contributors redacted, is attached pursuant to subdivision (3)(i)(b), a statement of the gross amount of contributions received during the reporting period from individuals and entities residing or domiciled in the state of New York. …

(3) CHAR500 attachments.

(i) All organizations that do not claim annual report exemptions for all laws under which they are registered, as described in subdivision (e) of this section, must include a copy of the following IRS forms with their submission of the CHAR500, regardless of whether such IRS forms are submitted or required to be submitted to the IRS:

(a) a copy of the complete IRS form 990, 990-EZ or 990-PF with all required schedules including a Schedule B, unless exempt from such filing pursuant to subsection (b), and

(b) public charities required to submit Schedule B to the IRS must file either (i) a redacted Schedule B with the Charities Bureau, without the names and street addresses of the donors but including the amounts of donations and the states from which those donations were received during the reporting period, or (ii) a statement of the gross amount of contributions received during the reporting period from individuals and entities residing or domiciled in New York (see section C(1)),

BanPACs Act Draft Leaks: Axios reports a leaked copy of legislation to be proposed by Sens. Ossoff and Kelly called “The Ban Corporate PACs Act,” which, not surprisingly, would ban corporate PACs. Both Senators are up for re-election, and both refused contributions from corporate PACs – but not other PACs.

Calif. Bill Would Suspend Tax-Exemption of Organizations that “[p]romotes, engages in, commits to, supports, or aids insurrection against the United States or any state in the Union, at any time, past or present.”: Nonprofit Times expects the bill, SB 834, to be introduced in February. CalNonprofits Public Policy Director Lucy Salcido says: “They (Senator Wiener and staff) are aware of what the senator describes as ‘threading that needle’ to ensure protected activities aren’t affected by the bill, and they are looking forward to working with us to address our concerns.”

Florida Considers “Personal Privacy Protection” Law for Donors: The proposed law would, according to the Tampa Bay Times, “prohibit government entities from requiring corporations, associations, and nonprofit organizations to provide information about their direct or indirect support to any entity. The public entities would also be barred from publicly releasing the information if they have it.”

538 Says Inexperienced Candidates Winning More: One argument offered by supporters of Citizens United is that it helps challengers and inexperienced candidates, which may not be all puppies and rainbows. The statistics-spouting column 538 reports that “the amount of money spent in politics following the Supreme Court’s 2010 decision in Citizens United v. Federal Election Commission is likely working in concert with the increased interconnectedness brought about by the internet to collectively boost amateur candidates’ profiles. ‘We don’t think it’s a coincidence that all of this kind of came to a head at the same time,’ said Porter.” 538 says having more inexperienced candidates “may lead to more diversity within Congress, with more women and people of color holding office, as they historically have had more difficulty breaking into the elected offices that have traditionally served as stepping stones to Congress,” but cautions that “if many successful political amateurs are uninterested in governing, Treul and Porter fear Congress will become even more dysfunctional.”

Reading Between the Lines of Public Citizens’ Consultant $1B Double-Dipping Report: Axios reports that Public Citizen “finds extensive overlap in the vendors employed by “regulated” political entities — such as campaigns and party committees — and “unregulated” groups, which include super PACs and 501(c)(4) nonprofits.” The Public Citizen “dual agents” report begins: “Political consulting firms that worked for a candidate or political party and also for an unregulated super PAC or other purportedly independent entity in the same elections (“common vendors”) received $1.4 billion for work in those contests during the past two election cycles.” (Emphasis added.) Probably need to explain how ad-buying works to understand “the scale of the vendor overlap.” As Axios reports: the $1 Billion figure “Much of that was for ad-buying services, meaning the firms didn’t just pocket the funds.”

[PRELIMINARY NOTE: For more than a decade, the First Tuesday Lunch Group, made up of legal practitioners who are Democrats, Republicans, independents and non-partisans from across the United States, has met monthly to discuss current legal issues in tax-exempt organization, constitutional, and campaign finance law and developments in public advocacy. Participants represent diverse organizations, interests and views spanning the political spectrum – non-partisan, left, right, and center, sometimes in adversarial positions in the legal arena. Yet participants are united in our commitment to the rule of law. These non-partisan discussions help candidates, news media, government officials, and other Americans navigate difficult and complex federal laws.

There is no set FTLG agenda, but each month, a draft of possible topics for discussion, based on highlights of the prior month, is circulated; the actual FTLG discussions generally include only a few of these topics and often several other topics. This post includes only Barnaby Zall’s suggestions for possible topics and highlights, not those of the FTLG itself or its participants. This draft is intended for active FTLG participants, and thus includes abbreviations and references to government agencies or individuals, legal doctrines and terms, and other shorthand phrases or terms.]

DCRA Confusion: Jim Kahl’s question about conflicting information from DCRA about registering foreign corporations from states whose laws differ from D.C.’s. Can foreign corporations register to do business in D.C. with fewer than three directors?

DoJ ANPRM on FARA: Reminder: the clock is ticking on sending comments to DoJ on its ANPRM on reforms and changes needed to FARA.

IRS EO Reminders: Tax-exempt organizations affected by Hurricane Ida have until February 15, 2022 to file various tax and information returns and make tax payments. TEOS is now the only page for Service exempt org info. 1024’s going electronic in 2022. Nice summary from Proskauer on new requirements for LLCs that want c3 status. Announcement 2021-18 revokes 2001 guidance that allowed penalty waivers when payments to management companies were reported on Form 990 rather than reporting the compensation paid to the person(s) who provided services to the tax-exempt organization on behalf of that management company; now everyone must follow the 990 instructions for each type of 990, so that persons who should be listed in the compensation section may be individually listed and not hidden in a blanket payment to a management company.

New FEC Leadership: Long-time FTLG participant Allen Dickerson has been elected Chair for 2022, and Steven Walther was elected Vice-Chair.

Short Codes: No FEC action on whether “short code” texts are public communications (discussed at a recent FTLG lunch). AOR 2021-11.

D.C.D.C. Reverses Earlier Decision and Denies Standing to Challenge FEC Inaction: On Dec. 30, Judge Cooper reconsidered and reversed an earlier decision in CLC v. FEC/Right to Rise Super PAC, No. 20-CV-00730 (CRC), Dec. 30, 2021. The earlier decision in February dismissed Right to Rise’s challenge to the Complainants’ standing, though it did agree with RTR that the Complaint failed to state a claim under the APA. In Thursday’s decision, Judge Cooper “the court will grant RTR’s motion for reconsideration, and, finding that it lacks subject matter jurisdiction, dismiss the case and deny plaintiffs’ motion for a default judgment against the FEC.” Slip op., 1. The dismissal was based on the Plaintiffs’ speculation about whether there was more pre-candidacy announcement “testing the waters” expenditures than were disclosed on the PAC’s initial FEC filing. This is similar to an issue raised in Cruz for Senate v. FEC, No. 21-12: a court cannot “accept[] mere conjecture as adequate to carry a First Amendment burden.” McCutcheon, 572 U.S. at 210.

Removing Redactions Exposes Why FEC Could Not Act: Rick Hasen writes: “After Republican commissioners delayed consideration of the matter, FEC Commissioner Petersen recused himself once he accepted a post-FEC job at Holtzman Vogel, depriving the FEC of a quorum.” Unredacted Giffords v. FEC opinion.

Media Coverage Complaining About Consulting Legal Counsel: As long as we’re talking about Holtzman Vogel Josefiak Torchinsky, the Daily Beast notes the activity of various HVJT heavy-hitters in the Kanye West 2020 campaign for President. Many of us in the FTLG, including Barnaby Zall, have counseled not only Presidential candidates from both parties, but also losers and long-shots, without being called out for it. A more balanced piece on long-time FTLG member Cleta Mitchell in TPM points to her long legal counseling career as a good thing (although it doesn’t mention her background as a Democratic legislator): “But Mitchell also has institutional cred among conservatives that goes back decades, the kind of swing that can land you a post-insurrection seat on a government elections advisory board without much public fuss, even during the Biden administration.”

Supremes Consider Corruption: Briefing is almost complete for Ted Cruz for Senate v. FEC, No. 21-12, to be argued on January 19. The case nominally involves whether a limit on using post-election contributions to repay candidate loans to their campaign committees one of the few remaining provisions of BCRA, but also raises several other questions, including the evidence required to find an “appearance of corruption,” one of the few areas in which First Amendment rights can be limited because they are unpopular. A cert petition was filed in Roberson v. U.S., No. 21-605, asking a similar question with more emphasis on the exempt organization side: “Whether, in a bribery prosecution based on issue-advocacy payments that would otherwise enjoy First Amendment protection, the government must prove that the payments were explicitly linked to official action.”

Supreme Court Commission (cont.): Not much media coverage of the concurring reports from the few independent members of the recent Biden Commission on changing the Supreme Court. Prof. Will Baude reprints a couple (limited to 800 words each).

Senators Complain About Conservative Organizations Filing Amicus Briefs: Sens. Whitehouse, Blumenthal and Hirono file “AMICUS Act,” a bill requiring disclosure of donors to organizations filing amicus briefs in the Supreme Court. Meanwhile, Brian Klaas, a professor from University College, London, urges “defund[ing] donors” to “authoritarians.”

Dems and Transparency: Meanwhile, are Dems moving on from “transparency” as a top priority? Rachel Cohen at American Prospect says so. (If you’re paywalled, see these excerpts from Rick Pildes’ blog post at ELB.) “more quietly, leaders in the progressive fundraising world will admit that transparency is just not a serious priority anymore … This isn’t new, and the Democratic Party in particular has been making itself more easily swayed by the whims of the wealthy ever since the early 1980s, when Rep. Tony Coelho took over the Democratic Congressional Campaign Committee and established new direct lines of communication between corporate donors and members of Congress. … As progressive groups grow more dependent on rich donors who’d like to keep their contributions private, liberals find themselves contorting into awkward positions to justify the status quo, insisting groups that are clearly affiliated with the Democratic Party are not, in fact, partisan.” From the other side, is donor privacy ok for Mackenzie Bezos but not for others? An article in City Journal discusses the value of donor privacy.

Cops Surveil Portland Protestors: (should Portland Protestors be a recurring topic?) Is police/FBI surveillance of active protests where violence is taking place a violation of the first Amendment? The New York Times and activists appear to say yes. Asked about FBI agents watching from within a protest in Portland, Oregon, “Mike German, a former FBI special agent who specialized in domestic terrorism and covert operations and is now a fellow at the Brennan Center for Justice, said that such surveillance operations inherently run the risk of violating First Amendment rights.”

Change 1^st and 2^nd Amendments? In the wake of Justice Kavanaugh’s comments about the “neutrality” of the Court in the abortion cases, others have suggested changes to various parts of the Bill of Rights. A Boston Globe op-ed by Mary Ann Franks, a professor at Univ. of Miami Law School, suggests “explicitly situating individual rights within the framework of ‘domestic tranquility’ and the ‘general welfare’ set out in the Constitution’s preamble” to prevent the First and Second Amendments from “being read in isolation from the Constitution as a whole and from its commitments to equality and the collective good. The First and Second Amendments tend to be interpreted in aggressively individualistic ways that ignore the reality of conflict among competing rights. This in turn allows the most powerful members of society to reap the benefits of these constitutional rights at the expense of vulnerable groups.”

CounterMajoritarianism vs. the Constitution: Dueling professors in the Cal.L.Rev. Franita Tolson explains the dilemma: “Writing about the countermajoritarian difficulty is a rite of passage for constitutional law scholars.” Pam Karlan says “we’re all going to die,” Will Baude says “a feature, not a bug,” and Nick Stephanopoulos says “we can Guarantee [Clause] this problem.” 

Gangs and PACs? Real, Chicago-type organized gangs (in Chicago), running PACs and candidates for office? New book says yep, and Rick Pildes is intrigued.

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.