In response to the Supreme Court’s recent ruling in Citizens United, new legislation has been introduced that may directly affect the disclosure requirements of tax-exempt 501 (c) organizations. The decision struck down the long-standing prohibition on corporations using general treasury funds to make independent expenditures. See Citizens United Changed Landscape: May Produce Some Landmines for Nonprofit Organizations and Citizens United Alerts Landscape for Corporate Political Spending: Issues to Consider.
Various bills and joint resolutions have been introduced in the House of Representatives and the U.S. Senate [1] that would require increased disclosure for tax-exempt organizations. Under these proposals, the identity of certain donors to section 501(c) organizations would have to be publicly disclosed through traditional mechanisms or the current disclaimer provisions of the Federal Election Campaign Act (FECA). FECA requires disclosure of any donations that exceed the threshold independent expenditure of $200 made to further campaign activity.
The Supreme Court upheld the current disclosure rules, because they did not burden the ability to speak unless there was “reasonable probability that donor would be subject to harassments or reprisals.”
However, several of the proposals go beyond present law by requiring that public disclosure of certain donors be made regardless of the purpose for which the money was donated or used. The possibility has been raised that there is a constitutional limitation on the ability of Congress to require disclosure when there is no mechanism by which the organization could limit such disclosure.
For example, a constitutional issue may arise for donors who make non-earmarked contributions. They are in effect supporting the entirety of the organization’s activities, but whether the government could require disclosure simply because the organization happens to be engaged in limited campaign activity, remains in question.
Another proposal is to enact an excise tax on corporate campaign-related expenditures permitted under Citizens United under section 501(c). Congress has constitutional broad powers to tax, having enacted similar excise taxes on political activities of 501(c)(3) public charities under section 4955, private foundations under section 4945, and other 501(c) organizations under section 527(f).
In fact, the Supreme Court has also upheld provisions that provide disfavorable tax treatment to campaign accounts under the rationale that there is no requirement for the federal government to subsidize the constitutional rights of taxpayers. See Cammerano v. United States, 358 U.S. 498 (1959). However, there is a constitutional argument that the tax might be a restriction on speech, similar to the prohibitions struck down in Citizens United.
If these proposed excise taxes are viewed as an over broad restriction on political speech, they would be subject to a higher standard of strict scrutiny. In other words, they would need to serve a compelling government interest and be drafted narrowly enough to achieve that end. We will have to await further congressional action and potential litigation, if necessary, before such judgment can be made. For a detailed discussion of the constitutional issues surrounding this controversial decision, see CRS Report, Legislative Options After Citizens United v. FEC. Constitutional and Legal Issues dated March 8, 2010.
McGuireWoods’ nonprofit lawyers are available to address any of your questions and to keep you informed as developments occur in this important area.
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NOTE:
1. Legislation introduced in the 111th Congress, H.Con.Res. 13, H.J.Res. 13, H.J.Res. 68, H.J.Res. 74, H.R. 158, H.R. 1095, H.R. 1826, H.R. 2038, H.R. 2056, H.R. 3574, H.R. 3859, H.R. 4431, H.R. 4432, H.R. 4433, H.R. 4434, H.R. 4435, H.R. 4487, H.R. 4510, H.R. 4511, H.R. 4517, H.R. 4522, H.R. 4523, H.R. 4527, H.R. 4537, H.R. 4540, H.R. 4550, H.R. 4583, H.R. 4617, H.R. 4630, H.R. 4644, S.J.Res. 28, S. 133, S. 752, S. 2954, S. 2959, and S. 3004.