Yesterday, the Supreme Court released its opinion in Agency for International Development v. Alliance for Open Society International, Inc. The Court’s opinion in AID v. Alliance spells trouble for the Internal Revenue Service’s longstanding position that a section 501(c)(3) organization is not merely barred from using tax-deductible funds to engage in campaign intervention, but must not lend its imprimatur to political activity at all.
The Court’s opinion turned on whether Congress may demand that recipients of HIV/AIDS funding adopt a specific policy position as a condition for receiving funding. The Court held that it could not. While Congress has every right to control the use of the funds it appropriates, the Court, in a 6-2 opinion, held that it may not apply conditions that “reach outside” the federally funded program. In its opinion, the Court specifically compared Regan v. Taxation with Representation – upholding a requirement that section 501(c)(3) organizations not engage in substantial lobbying efforts, because they may set up an affiliated section 501(c)(4) and use non-tax deductible funds to carry out that mission, with FCC v. League of Women Voters – striking down a ban on federally funded TV and radio stations editorializing even with private funds. In FCC, the Court held, “[t]he prohibition thus went beyond ensuring that federal funds not be used to subsidize ‘public broadcasting station editorials,’ and instead leveraged the federal funding to regulate the stations’ speech outside the scope of the program.”
The IRS has stated that even if no tax-deductible funds are used, a section 501(c)(3) may not use its “logos, trademarks and goodwill” in connection with campaign intervention by a political organization, “because such use may be considered official sanction by the IRC 501(c)(3) organization of the political activities of the IRC 527 organization.” In its most recent revenue ruling on campaign intervention by section 501(c)(3)s, the IRS noted that merely carrying in a newsletter an endorsement by the organization’s president, when it is clear that the endorsement is in his personal capacity and when he pays for the proportional cost of the newsletter personally, is a violation of the prohibition on campaign intervention. And in another recent release, the IRS held that a section 501(c)(3) had violated the prohibition against campaign intervention when its logo was associated with political content on a website shared with a related section 501(c)(4) organization, even though the section 501(c)(4) reimbursed the section 501(c)(3) for the cost of the web page.
This position is fundamentally inconsistent with the Court’s ruling in AID v. Alliance and FCC v. League of Women Voters. If the government may not limit the speech of a recipient of government funding beyond the use of the granted funds, then the government’s ability to police the section 501(c)(3) prohibition against political campaign intervention must end if no tax-deductible funds were used, since doing so would be to “reach outside” the use of the government-subsidized funds. The IRS has every right to ensure that the government is not, through the use of the charitable tax deduction, subsidizing political activity; it has no right to ensure that recipients of such funding cease First Amendment-protected speech entirely, through the use of other non-subsidized funds.