Amdt1.3.22.3 Tax Exemptions

First Amendment:

Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.

The Supreme Court has treated tax exemptions as a kind of government subsidy subject to the unconstitutional conditions doctrine. In an early unconstitutional conditions case, Speiser v. Randall, the Supreme Court considered a California law requiring applicants for a veterans’ property tax exemption to sign an oath that they “do not advocate the overthrow” of the federal or state government “by force or violence or other unlawful means.” 1 The Court stated that to “deny an exemption to claimants who engage in certain forms of speech is in effect to penalize them for such speech.” 2 In the Court’s view, such a requirement would “coerc[e] the claimants to refrain from the proscribed speech.” 3

In another decision concerning tax exemptions, Regan v. Taxation with Representation of Washington (TWR), the Supreme Court held that the government need not subsidize private entities’ speech to comply with the First Amendment.4 Specifically, the TWR Court upheld the Internal Revenue Code’s ban on “substantial lobbying” activities by tax-exempt Section 501(c)(3) organizations.5 In the statutory scheme before the Court, both Section 501(c)(3) “charitable” and Section 501(c)(4) “social welfare” organizations were exempt from federal taxation.6 However, only donations to Section 501(c)(3)s were tax-deductible.7 The Supreme Court held that the “substantial lobbying” restriction on Section 501(c)(3) organizations was not an unconstitutional condition.8 Unlike in Speiser where the taxpayer had to refrain from speaking in order to qualify for a tax exemption, the Court reasoned, TWR could engage in substantial lobbying activities, while still qualifying as a tax-exempt organization (albeit not one that could receive tax-deductible contributions).9 The Court concluded that the lobbying restriction merely reflected Congress’s decision “not to subsidize” substantial lobbying.10

Speiser v. Randall, 357 U.S. 513, 515 (1958) (quoting Cal. Rev. & Tax Code § 32 (1953)). back
Id. at 518. back
Id. at 519. The Speiser Court did not hold that speech advocating the overthrow of the government is protected by the First Amendment. Rather, it held that the process of claiming the California exemption was unconstitutionally coercive because it would potentially chill protected speech. In the Court’s view, the public would be wary of “the line separating the lawful and the unlawful,” and would therefore “steer far wider of the unlawful zone.” Id. at 522–29, back
Regan v. Taxation with Representation of Wash., 461 U.S. 540 (1983). back
Id. at 551. back
Id. at 554; see also 26 U.S.C. § 501(c)(3)–(4). back
Taxation with Representation of Wash., 461 U.S. at 554. back
Id. at 551 back
Id. at 544. back
Id. at 549–51; see also Cammarano v. United States, 358 U.S. 498, 512–13 (1959) (holding that the exclusion of lobbying expenses from income tax deduction for ordinary and necessary business expenses did not violate the First Amendment). back