Category Archives: tax law and election law

Federal District Court Denies Summary Judgment to IRS over Whether IRS Can Require Disclosure of Donor Information in Government Reports for 501(c)(3) Organizations

tax law and election law

Looks like this is going to trial, and (as I’ve said, Americans for Prosperity Foundation v. Bonta will have lots of ramifications for disclosure rules). From the opinion:

In sum, the remaining question is whether the Disclosure Requirement is unconstitutional, and the Court will review the constitutionality of the Disclosure Requirement under exacting scrutiny. The parties’ briefing under the exacting
scrutiny raises a genuine issue of material fact. For example, Defendants argue and point to some evidence that the Disclosure Requirement is an important part
of the IRS’s enforcement and compliance procedures. Mot. 8-11 , ECF No. 43. On the other hand, Plaintiff raises several issues that undercut Defendants’ arguments. Resp. 5-13, ECF No. 49. Determining which side is ultimately more
persuasive will turn, at least in part, on witness credibility, which is an inappropriate consideration at summary judgment. Anderson, 477 U.S. at 255. Accordingly, both motions for summary judgment are DENIED.

Share this:

“Response by Tax-Exempt Organization Scholars to Request for Information”

tax law and election law

Ellen Aprill, Roger Colinvaux, Brian Galle, Philip Hackney, and Lloyd Mayer (the five who are among the most respected nonprofit tax law scholars in the nation) have posted this piece on SSRN. Here is the abstract:

A group of academics who study and write about tax-exempt organizations, including their politically related activities, has responded to an August 14, 2023 Request for Information (RFI) from the Ways and Means Committee regarding issues in connection with the advocacy activities of tax-exempt organizations. The submission describes aspects of current law and provides an appendix with a list of the authors’ relevant scholarly work. As a preliminary matter, the submission emphasizes the importance of the voice of tax-exempt organizations to a well-functioning civil society and democracy. The submission also notes that in no case do the laws applicable to tax-exempt organizations forbid all political activity, a term almost without boundaries if “political” means related to government.

Responding to concerns raised in the RFI, the submission makes several points. First, it is appropriate and lawful for section 501(c)(3) organizations to engage in nonpartisan voter education, registration, and get-out-the-vote activities. Second, Congress should lift the restriction that prevents the IRS from issuing guidance regarding the political activities of 501(c)(4) organizations. Third, Congress should take steps to tighten disclosure relating to foreign donors. Fourth, a new study of 501(c)(3) campaign activities is needed. Fifth and finally, affiliated relationships among tax-exempt organizations are standard practice for nonprofits that want to engage in different types and amounts of politically related activity.

Share this:

“Trump Vows to Empower Political Pastors on Christian Nationalist Broadcast”

campaign finance, tax law and election law

Rolling Stone cites the former President’s plans on the Johnson Amendment: “We never enforced it.  We essentially ended it.  I wasn’t able to finish it.  But I’ll finish it this time.”

The Johnson Amendment prohibits 501(c)(3) nonprofits, contributions to which are tax-deductible, from participating in campaigns for or against candidates for public office.

Share this:

“I.R.S. Official Is Said to Assert Political Meddling in Hunter Biden Inquiry”

chicanery, tax law and election law

NYT:

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.

Congressional leaders learned of the investigator’s allegations on Wednesday when a lawyer sent them a letter asking for whistle-blower protections for his client. The letter stated that the unnamed client, identified as an “I.R.S. criminal supervisory special agent who has been overseeing” an ongoing and sensitive case, had knowledge of an array of misconduct including political meddling, according to a copy of the letter obtained by The New York Times.

While the letter from the lawyer, Mark D. Lytle, did not name Hunter Biden, Senate and House Republicans put out statements specifying that it was referring to him. The disclosure fed claims by congressional Republicans that a Justice Department run by the president’s political appointees could not be trusted to make a decision about his son based on the facts and law.

The letter said the client had information that would contradict sworn testimony to Congress from a senior political appointee, an apparent reference to Attorney General Merrick B. Garland, who has offered assurances that the U.S. attorney in Delaware, David C. Weiss, who was appointed by President Donald J. Trump, would be free to run the investigation.

In response, Hunter Biden’s criminal defense lawyer, Christopher Clark, fired back on Thursday, claiming that the I.R.S. supervisor broke the law by disclosing confidential taxpayer information and called on the Justice Department to investigate the supervisor. Mr. Clark said that the only way it was known that the supervisor’s complaints could be linked to the Hunter Biden investigation would be if the supervisor or his lawyer disclosed it, either of which, he said, would have been improper.

Share this:

“Nonprofits, campaign finance and more blows to democracy”

campaign finance, tax law and election law

Lucy Bernholz blogs, responding to my draft paper, Nonprofit Law as the Tool to Kill What Remains of Campaign Finance Law: Reluctant Lessons from Ellen Aprill:

In a nutshell, Professor Hasen uses Professor Aprill’s work to show the intellectual and legal history that will likely use religious freedom to deregulate political donations. How? Via the deregulation of political activity in churches and houses of worship. There’s much more to it (read the paper) but that gets us started. 

What does this mean for nonprofits? More politics. More money laundering. Less trust. 

What does it mean for democracy? More blurring of boundaries between nonprofit and commercial corporations. More anonymous money in politics. Less trust. More plutocratic control. 

It’s not a positive tale. But thanks to Professors Aprill and Hasen, we’ve been warned. So, what are we going to do about it?

Share this:

“Loyola-L.A. Hosts Festschrift, Symposium, And Celebration To Honor Ellen Aprill”

election law biz, tax law and election law

It was a delight to participate in this event honoring my friend and colleague, Ellen Aprill:

Loyola-L.A. hosted a festschrift, live symposium, and celebration to honor Ellen Aprill (Loyola-L.A.; Google Scholar) yesterday:

Lloyd Hitoshi Mayer (Notre Dame; Google Scholar), Nonprofits, Taxes, and Speech, 56 Loy. L.A. L. Rev. __ (2023):

Federal tax law is of two minds when it comes to speech by nonprofits. The tax benefits provided to nonprofits are justified in significant part because they provide nonprofits great discretion in choosing the specific ends and means to pursue, thereby promoting diversity and pluralism. But current law withholds some of these tax benefits if a nonprofit engages in certain types of political speech. Legislators have also repeatedly, if unsuccessfully, sought to expand these political speech restrictions in various ways. And some commentators have proposed denying tax benefits to groups engaged in other types of disfavored speech, including hate speech and fake news. These latter proposals have recently become more prominent as additional facts come to light about the role of nonprofits in supporting white supremacy and in disseminating misleading information about COVID-19 treatments.

This Article explores the existing and proposed limitations on speech by tax-exempt nonprofits given the constitutional restrictions on such limitations and the policy justifications for existing nonprofit tax benefits. It explains why the existing limits on political campaign intervention and lobbying by charities are both justified given the subsidy provided to charities and their supporters under existing federal tax law and constitutional given existing and longstanding case law. It further concludes that any expansion of these limits on charities to cover other types of speech, including hate speech and fake news, would be inconsistent with the existing broad definitions of the purposes that charities can pursue as well as, in some circumstances, constitutionally suspect. It also concludes that limits on speech by non-charitable tax-exempt nonprofits, including the existing limit on political campaign intervention for some of these nonprofits, is both unwise as a policy matter and, in some circumstances, constitutionally suspect given the lack of a subsidy for such speech by these nonprofits.

Roger Paul Colinvaux (Catholic University),  Strings Are Attached: Placing a Spotlight on the Hidden Subsidy for Gift Restrictions, 56 Loy. L.A. L. Rev. __ (2023):

Charitable gifts often come with strings attached. Donors limit their gifts in many ways, by restricting an asset’s use or purpose, controlling the timing of spending (as in an endowment), securing naming rights, or by retaining effective control over the distribution or investment of the asset by giving to a charitable intermediary such as a donor advised fund or private foundation. Most donor limits are perpetual in nature and a form of dead hand control. The Article explains that default rules strongly favor donor limits. Property law allows donors wide latitude to place limits on gifts, and they are easy for donors to impose. Once imposed, donor limits typically are extremely hard for charities to eliminate, as obedience to the donor’s intent is a priority in the law. Federal tax rules also favor donor limits by treating most donor-limited gifts the same as unrestricted gifts for purposes of the income and estate tax charitable deductions. As a result, donor limits are common, and burden a substantial portion of charitable assets. The Article finds based on a review of Form 990 data that, for 96 of the leading charities in the U.S., 69% of their $474 billion in net assets are subject to donor limits. For the 17 private universities in this group, 68% of the total endowment is donor limited. There is thus a substantial, hidden tax law subsidy for donor limits on gifts, yet one that entails many harms, including to the public interest, charitable autonomy, pluralism, constraining access to resources, compliance costs, and subsidizing gains to donors. Given these harms, the Article considers tax reform options for donor limited gifts. These include treating donor limits as retained rights or as return benefits (thus reducing the charitable deduction to account for limits), estate tax reform to discourage giving to intermediaries, encouraging unrestricted gifts from intermediaries, and not subsidizing donor limits in connection with any new giving incentive, such as a nonitemizer deduction or charitable giving credit. Under any of the reform approaches, the power of donors to impose limits would not change. But charity, and society, would be relieved from some of the costs of the dead hand.

Samuel D. Brunson (Loyola-Chicago; Google Scholar) & Philip Hackney (Pittsburgh; Google Scholar), A More Capacious Conception of Church, 56 Loy. L.A. L. Rev. __ (2023):

United States tax law provides churches with extra benefits and robust protection from IRS enforcement actions. Churches and religious organizations are automatically exempt from the income tax without needing to apply to be so recognized and without needing to file a tax return. Beyond that, churches are protected from audit by stringent procedures. There are good reasons to consider providing a distance between church and state, including the state tax authority. In many instances, Congress granted churches preferential tax treatment to try to avoid excess entanglement between church and state, though that preferential treatment often just shifts the locus of entanglement. But those benefits and protections come with cost both to individual churches (by making these organizations susceptible to tax shelters and political activity shelters) and to our democratic order (by granting churches to a higher status than other organizations). Does Congress get the balance right? We think the balance struck is problematic but justifiable. In this Essay we only note the problems and suggest some actions churches and religious organizations might take to protect against some of the dangers.

Michelle D. Layser (San Diego; Google Scholar), The Uncertain Equity Impacts of Place-Based Tax Incentives, 56 Loy. L.A. L. Rev. __ (2023):

Nearly 30 years have passed since Professor Ellen Aprill warned policymakers not to rely on tax incentives to fight urban poverty. At the time, federal and state governments were just beginning to embrace so-called place-based tax incentives, which are used to promote investment in low-income areas. Aprill was skeptical and expressed doubts about their capacity to change business behavior or to benefit low-income residents. Nevertheless, federal and state lawmakers charged forward, introducing new place-based tax incentive programs in the decades that followed. Today, tax incentives are a central part of most place-based policy initiatives. Yet, there is still a lot we do not know about the consequences about place-based tax incentives. Almost everything we do know about place-based tax incentives has been produced by economists. Those studies cast serious doubt about place-based tax incentives’ capacity to benefit low-income communities, but they also have significant limitations. As a result, our understanding of the consequences of place-based tax incentives is incomplete, making it difficult to chart a path forward. The purpose of this Essay is to highlight several alternative scholarly frameworks that may be relevant to understand the consequences of place-based tax incentives. It proceeds with the modest goal of starting a conversation, and it makes no attempt to provide the final word. Rather, this Essay argues that the field of place-based tax incentive research must be expanded to include new, diverse perspectives—from researchers across the academy, from scholars of color and other nontraditional backgrounds, and even from members of low-income communities.

  • Deanna Newton (Pepperdine) (commentator)

Richard L. Hasen (UCLA; Google Scholar), Nonprofit Law as the Tool to Kill What Remains of Campaign Finance Law: Reluctant Lessons from Ellen Aprill:

This brief Essay was prepared for a festschrift honoring the work of Professor Ellen Aprill. I explain in the Essay how Professor Aprill’s deep knowledge of nonprofit and tax law and her relentless intellectual honesty leads her (and us) to an unhappy place: a world in which many of the remaining regulations of money in politics could well be struck down as unconstitutional or rendered wholly ineffective by a Supreme Court increasingly hostile to the goals of campaign finance law and extremely solicitous of religious freedom. Just as the Supreme Court’s 2010 decision in Citizens United v. Federal Election Commission used the First Amendment rights of nonprofit corporations to open up direct political spending by large, for-profit corporations, additional arguments about the rights of charitable institutions and other nonprofits will be used to push further judicial deregulation of the political process for all.

Professor Aprill in her most recent writings at the intersection of nonprofit law and election law reluctantly shows the way: a path toward getting churches, synagogues and other charitable institutions directly in the business of politics; a means of striking down or rendering ineffective what remains of our campaign disclosure laws; and a self-reinforcing bootstrapping that relies upon legislative and agency inertia coupled with judicially-created loopholes to argue for the ineffectiveness of the system as a whole, triggering its demise through constitutional litigation. It is a sad but expertly told story of regulatory collapse.

  • Justin Levitt (Loyola-L.A.) (commentator)

Here’s a small tribute from Wall Street Journal tax columnist Laura Saunders, one of many journalists Ellen has helped over the years.

The deadline is looming. The topic is tough.  
The editor’s scowling: “This isn’t enough!
What is this nonprofit known as a (c)(4)? 
And why should our readers care to know more?” 

Or maybe the story’s on U.B.I.T.,  
Or a private foundation–is it a (c)(3)?
Or DAFs, or deductions, carryforwards, and such;
With exempt-org. campaigning, how much is too much?

When these questions are swirling, reporters all know 
Without a doubt, the best place to go.
“Call Ellen!” “Ask Ellen!” She’ll be patient and clear,  
She’s truly the Dean of the non-profit sphere.

With knowledge and context and contacts a-plenty,
She guides us among tax-exempt cognoscenti.
The story will work! The editor will smile!
We’ll still be employed — at least for a while. 

So thank you, dear Ellen, for all you have done 
For the Fourth Estate. It has been a great run.  
And it’s not over, we’re ready for more–
As you embark on your great encore! 

With gratitude,
Laura Saunders
The Wall Street Journal 

Share this:

My New Paper: “Nonprofit Law as the Tool to Kill What Remains of Campaign Finance Law: Reluctant Lessons from Ellen Aprill”

campaign finance, Supreme Court, tax law and election law

I have written this draft for a festschrift symposium issue of the Loyola of Los Angeles Law Review honoring my dear friend, Loyola Law School professor Ellen Aprill. Here is the abstract:

This brief Essay was prepared for a festschrift honoring the work of Professor Ellen Aprill. I explain in the Essay how Professor Aprill’s deep knowledge of nonprofit and tax law and her relentless intellectual honesty leads her (and us) to an unhappy place: a world in which many of the remaining regulations of money in politics could well be struck down as unconstitutional or rendered wholly ineffective by a Supreme Court increasingly hostile to the goals of campaign finance law and extremely solicitous of religious freedom. Just as the Supreme Court’s 2010 decision in Citizens United v. Federal Election Commission used the First Amendment rights of nonprofit corporations to open up direct political spending by large, for-profit corporations, additional arguments about the rights of charitable institutions and other nonprofits will be used to push further judicial deregulation of the political process for all.

Professor Aprill in her most recent writings at the intersection of nonprofit law and election law reluctantly shows the way: a path toward getting churches, synagogues and other charitable institutions directly in the business of politics; a means of striking down or rendering ineffective what remains of our campaign disclosure laws; and a self-reinforcing bootstrapping that relies upon legislative and agency inertia coupled with judicially-created loopholes to argue for the ineffectiveness of the system as a whole, triggering its demise through constitutional litigation. It is a sad but expertly told story of regulatory collapse.

Share this:

“Dark money group linked to Leonard Leo is dissolved”

tax law and election law

Politico:

A dark money group tied to conservative judicial activist Leonard Leo was dissolved three days after POLITICO inquired about whether it helped to facilitate the multi-million-dollar sale of former White House senior adviser Kellyanne Conway’s polling company, paperwork filed in Virginia shows.

The BH Fund, which was formed in 2016 with an anonymous $24 million donation, has been a nerve center for distributing millions of dollars around Leo’s network of dark-money groups bolstering former President Donald Trump’s Supreme Court picks. On the day of the 2017 sale of Conway’s polling business to the firm Creative Response Concepts Inc., a lawyer filed similar liens with Virginia regulators for both CRC and BH Fund, which financial experts say suggested the dark money group played a role in financing the transaction, POLITICO reported in late December.

The deal, which Conway valued at between $1 million and $5 million on her federal filings, raised potential ethical concerns because Conway was simultaneously advocating with Trump for some of Leo’s favored judicial candidates.

But just three days after POLITICO’s inquiries, the BH Fund closed down, according to documents filed with the Virginia State Corporation Commission.

Adam Kennedy, a spokesperson for the firm now known as CRC Advisors, which had performed extensive consulting work for Leo in 2017 and is now led by him, said the BH Fund has been dormant since the end of 2021. He confirmed it was dissolved in October “as other organizations made it obsolete.”

Indeed, Leo now controls more than $1.6 billion in conservative donor funds, and he is erecting a new architecture of dark-money groups to administer it. Critics have long maintained that understanding how Leo has distributed his trove of anonymous funds is critical to understanding how the conservative legal movement claimed a majority of the U.S. Supreme Court.

Share this:

“Arizona Attorney General’s Office asks FBI, IRS to investigate group behind ‘2000 Mules'” (True the Vote)

chicanery, tax law and election law

Arizona Republic:

Republican candidates for top statewide offices in Arizona have said they believe what they saw in the election-conspiracy movie “2000 Mules.”

Now, the state Attorney General’s Office is asking the FBI and IRS for investigations of the group behind the movie, True the Vote, noting that it has repeatedly rebuffed all requests to share the documentary’s alleged evidence and has raised “considerable sums of money” based on claims of having that evidence.

“Given TTV’s status as a nonprofit organization, it would appear that further review of its financials may be warranted,” wrote Reginald “Reggie” Grigsby, chief special agent of the office’s Special Investigations Section.

The film, released in May and thoroughly debunked by experts and media organizations, claims mobile-phone data obtained by the group shows a coordinated effort by hundreds of people around the country — deemed “mules” — to stuff election drop boxes with ballots for candidate Joe Biden in 2020. True the Vote’s representatives said they would use their findings to make elections more secure.

But the moviemakers have since refused to release any of their supposed data to law enforcement groups even after promising to do so, the Attorney General’s Office said in the two-page letter Friday.

Grigsby’s letter accuses True the Vote founder Catherine Engelbrecht and its contractor Gregg Phillips of providing misleading information to his office and other law enforcement groups. He also mentions some of the bogus information the group has previously put out related to the movie, such as the false claims that the group helped solve a murder in Atlanta and break a ballot-harvesting case in San Luis, Arizona.

In sum, the information points to “potential violations” of tax code given True the Vote’s 501(c)3 nonprofit status, the letter states.

(The letter is here.)

Share this:

“Super PAC and its President Plead Guilty to Dark Money Scheme to File False Reports with the FEC”

campaign finance, tax law and election law

DOJ Release:

A Super PAC and its president pleaded guilty today to scheming to lie to the Federal Election Commission (FEC) about the true identities of donors.

According to court documents, Joseph Fuentes-Fernandez, 62, of Arlington, Virginia, and the Super PAC for which he served as president and treasurer, Salvemos a Puerto Rico, pleaded guilty today before U.S District Judge Joseph N. Laplante to one count of scheming to falsify and conceal material facts.

According to the admissions made in connection with their pleas, Fuentes was the president and treasurer of Salvemos a Puerto Rico, which was organized to raise funds to support the 2020 election campaign of Public Official-1, then a candidate for office in the executive branch of the government of Puerto Rico. Soon after Salvemos a Puerto Rico was organized, Fuentes and others also formed two shell § 501(c)(4) nonprofit social welfare organizations. These two § 501(c)(4) entities were registered within seven minutes of each other, listed the same mailing address, and shared some of the same officers.

Fuentes and others solicited hundreds of thousands of dollars of donations to the two shell nonprofit entities, which rapidly sent most of those funds on to Salvemos a Puerto Rico. Fuentes and Salvemos a Puerto Rico then reported to the FEC that the nonprofit organizations were the donors of those funds, rather than reporting the true source of the funds. The purpose of routing these donor funds through the nonprofit organizations was exclusively to conceal the true identities of the donors to Salvemos a Puerto Rico. For example, in October 2020, Fuentes sent this text message to a potential donor: “You can use a third party to not disclose the true donor.” By ensuring that many of the true donors to Salvemos a Puerto Rico remained anonymous, Fuentes and Salvemos a Puerto Rico deprived the people of the Commonwealth of Puerto Rico and the FEC of information about the true source of hundreds of thousands of dollars flowing into the Commonwealth of Puerto Rico’s political system.

Share this:

Court concludes California candidate tax disclosure law applies only to gubernatorial primaries, not recalls

ballot access, recall elections, tax law and election law

California recently enacted a law to compel presidential candidates and gubernatorial candidates to disclose their tax returns as a condition for appearing on the primary ballot. The presidential rule was targeted at Donald Trump; the gubernatorial rule added at the behest of Gavin Newsom, who was voluntarily disclosing tax returns anyway. While Jerry Brown had vetoed a similar bill, Newsom signed the bill. A federal district court and the California Supreme Court independently enjoined enforcement of the presidential primary component (which I discuss, among other things, in Weaponizing the Ballot, recently published in the Florida State University Law Review; enjoined, despite the serial assurances of its constitutionality mentioned in Newsom’s signing statement).

On the gubernatorial side, Division 8 of the Elections Code includes rules for the primary. Section 8902(a) provides, “Notwithstanding any other law, the name of a candidate for Governor shall not be printed on a direct primary election ballot, unless the candidate, at least 98 days before the direct primary election, files with the Secretary of State copies of every income tax return the candidate filed with the Internal Revenue Service in the five most recent taxable years, in accordance with the procedure set forth in Section 8903.”

Newsom now faces a gubernatorial recall election. A number of candidates filed to challenge him.

One might think that this tax disclosure provision would not apply to a recall election. After all, the Code uses the word “primary,” not “recall.” Ballot access for a recall election is governed by an entirely separate part of the Elections Code, Division 11. Professor Jessica Levinson at Loyola Law School noted that it’s “going to be hard to overcome a plain language problem.”

One might think. But it didn’t dissuade California’s Secretary of State from summarizing that “gubernatorial candidates,” not primary candidates, are required to disclose tax returns. And she enforced the rule, dutifully disclosing the sordid details of dozens of candidates, which you’re welcome to peruse here, and excluding any candidate who failed to comply.

One prospective candidate, Larry Elder, failed to comply with the law, apparently inadvertently failing to redact some information from his tax returns. He sued, and a state court found he should appear on the ballot. As the court said, “I don’t find that Mr. Elder was required to file tax returns at all.” By its plain text, the statute applies to primaries, not recalls.

Whether other candidates were improperly excluded from the ballot for failure to file tax returns remains to be seen. Did it “scare off” any candidates? Time will tell if the California recall ballot gets much longer in the days ahead as the recall election rapidly approaches and ballots need to be printed.

Share this: