A recently adopted IRS rule for tax-exempt organizations seems to violate the First Amendment by taking aim at groups that support drug policy reform.
The rule, described in an Internal Revenue Bulletin dated January 2, 2018, says the IRS will deny tax-exempt status to "an organization whose purpose is directed to the improvement of business conditions of one or more lines of business relating to an activity involving controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law regardless of its legality under the law of the state in which such activity is conducted."
As Washington, D.C., lawyers David Rivkin and Randal Meyer pointed out in The Wall Street Journal, that language arguably covers organizations that advocate legalization of marijuana (or any other prohibited substance) or favor looser restrictions on certain prescription medications, both of which would improve "business conditions" for companies that sell those drugs. The exclusion also seems to encompass advocacy of less ambitious reforms, such as allowing state-licensed marijuana merchants to deduct business expenses on their federal income tax returns or changing the laws and regulations that discourage banks from serving such businesses.
Nonprofit organizations that are exempt from taxes under sections 501(c)(3) and 501(c)(4) of the Internal Revenue Code (for "charitable" and "social welfare" organizations, respectively) are subject to restrictions on the amount of "lobbying" they can do. But this exclusion goes beyond those general rules by disfavoring certain viewpoints.
"The government may not discriminate against groups based on the viewpoint of their speech," UCLA law professor Eugene Volokh noted in a 2016 Volokh Conspiracy post about tax-exempt "hate groups." Volokh cited a 2015 D.C. Circuit case dealing with an anti-Zionist group that claimed its views had led the IRS to delay consideration of its application for 501(c)(3) status. "In administering the tax code," the appeals court noted, "the IRS may not discriminate on the basis of viewpoint."
Asked to clarify the aim, scope, and legal basis of the rule, an IRS spokesman promised a reply or a firm "no comment" but delivered neither. Mason Tvert, spokesman for the Marijuana Policy Project, says he believes the rule applies to new applicants for tax-exempt status but not organizations that have already been granted it. A new drug policy reform group could be rejected "if whoever is reviewing the application determines the applicant would be working to advance the cannabis industry," Tvert says. "It wasn't necessarily simple before. It seems like this new rule could make it even more difficult."