Did the Fifth Circuit Set the Stage for a Reversal of Donor Protections?

​There’s no denying that the U.S. Fifth Circuit Court of Appeals, which covers Louisiana, Mississippi, and Texas, has a maverick streak. Earlier this year, the court ruled that geofence warrants of cellphone data of suspects and innocents alike are inherently unconstitutional. Law enforcement, which routinely collects such data from the scene of a crime or around a suspect, found its practices upended.
 
And now… oops, they did it again. This week, the Fifth Circuit invalidated settled IRS regulations in a way that is certain to upend speech protections under the law, at least in states under the Fifth Circuit’s purview.
 
The court’s unanimous three-judge panel ruling on a healthcare organization’s tax exemption opens up for revision IRS regulations on 501 (c) (4) “social welfare organization’s” right to engage in political speech. This ruling concerns the current regulation stipulating that these groups can engage in political activities if 51 percent of their funds are spent on approved activities, like public education. Political activity – including ads and social media campaigns – are allowed if they account for no more than 49 percent of the group’s spending. The Fifth Circuit ruled that 501 (c) (4)s can now no longer qualify for tax exemptions if their political activity is at a level that is judged “substantial.”
 
As a result of the Fifth’s ruling it is anyone’s guess how other courts and the IRS will come to define the “substantial” standard for 501 (c) (4) organizations. If spending 49 percent of an organization’s time and money on political activity is substantial, how about 39 percent? Would 29 percent be too much? Five percent?
 
Critics of the 49 percent rule have long argued that it allows donors to pass so-called “dark money” through tax exempt educational organizations to fund political ads for and against candidates. This criticism sharpened in the aftermath of the U.S. Supreme Court’s Citizens United decision in 2010 that held that private groups unaffiliated with political campaigns are not limited by the donation limits set by law and enforced by the Federal Election Commission.
 
The Supreme Court found that limiting what someone can spend on their opinions about the issues and candidates of the day is a limit on speech itself. Protect The 1st agrees and defends Citizens United as a cornerstone of the First Amendment’s protection of speech. Undoing that standard would subject all political speech in America to bureaucratic regulation and parsing.
 
A possible collateral casualty of the Fifth’s ruling is donor privacy. The Supreme Court unanimously ruled in NAACP v. Alabama in 1958 that organizations have a right to withhold the identities of their donors. In this age of doxing and political retaliation against individuals and their businesses, the wisdom of NAACP seems greater than ever. The Fifth’s decision to open the rule to revision will almost certainly lead to efforts to force the disclosure of donors to 501 (c) (4) organizations. This opening has not exactly gone unnoticed. One advocate for donor disclosure told The Wall Street Journal that donors should be revealed if the tax law was “interpreted the way that we believe it should be.”
 
In the interest of full disclosure, Protect The 1st is organized as a 501 (c) (4), and we use our status to advocate for the PRESS Act, which protects the notes and sources of journalists from compelled exposure, as well as other important First Amendment causes, from donor privacy to the free exercise of religion. For our part, we believe that under all circumstances Americans have the right to freely associate and advocate for their opinions. Full stop. That is what the founders had in mind when they wrote and passed the First Amendment.

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