The Volokh Conspiracy

Mostly law professors | Sometimes contrarian | Often libertarian | Always independent

Free Speech

Can Nonprofits That Help Organize Protests Lose Their Tax Exemptions?

Not because of the viewpoints they express—but yes if they engage in systematic illegal conduct.


Senate Republicans have called on the IRS to investigate various nonprofits that have helped organize university protests, and see if they should be stripped of their tax exemptions. Would that be permissible?

[1.] The government can't strip groups of nonprofit status based on their ideological viewpoints. This was first made clear in Justice Brennan's opinion in Speiser v. Randall (1958), which struck down a denial of a property tax exemption to people and organizations that "advocate[] the overthrow of the Government of the United States … by … violence … or who advocate[] the support of a foreign government against the United States in the event of hostilities":

[A] discriminatory denial of a tax exemption for engaging in speech is a limitation on free speech. It is settled that speech can be effectively limited by the exercise of the taxing power. To deny an exemption to claimants who engage in certain forms of speech is in effect to penalize them for such speech. Its deterrent effect is the same as if the State were to fine them for this speech…. [T]he denial of a tax exemption for engaging in certain speech necessarily will have the effect of coercing the claimants to refrain from the proscribed speech. The denial is "frankly aimed at the suppression of dangerous ideas."

The Supreme Court reaffirmed this in Regan v. Taxation with Representation of Wash. (1983) and Rosenberger v. Rector (1995): Though "the Government is not required to subsidize" speakers, once it chooses to provide such a subsidy—including through "tax deductions for contributions"—it must abide by "the requirement of viewpoint neutrality in the Government's provision of financial benefits."

And the U.S. Court of Appeals for the D.C. Circuit has specifically applied this (in Z Street v. Koskinen (D.C. Cir. 2015)) to denials of a 501(c)(3) tax exemption, holding that "in administering the tax code, the IRS may not discriminate on the basis of viewpoint"—there, as it happens, against pro-Israel speech that departed from the Administration's foreign policy. There have been some viewpoint-based denials in the past (see Dale Carpenter's post for some examples), but these precedents pretty categorically forbid such denials.

[2.] But nonprofits' right to express viewpoints doesn't extend to a right to violate valid laws (such as content-neutral time, place, and manner restrictions). IRS Revenue Ruling 75-384 deals specifically with that:

Advice has been requested whether a nonprofit organization formed to promote world peace and disarmament by nonviolent direct action including acts of civil disobedience qualifies for exemption from Federal income tax under section 501(c)(3) or 501(c)(4) of the Internal Revenue Code of 1954.

The purposes of the organization are to educate and inform the public on the principles of pacificism and nonviolent action including civil disobedience. Its primary activity is the sponsoring of protest demonstrations and nonviolent action projects in opposition to war and preparations for war.

Protest demonstrations are conducted at military establishments, Federal agencies, and industrial companies involved with military and defense operations. Other activities consist of peace marches and protests against the use of tax monies for war purposes. The protest demonstrations constitute the primary activity of the organization. They are designed to draw public attention to the views of the organization and to exert pressure on governmental authorities. To derive the maximum publicity of an event, demonstrators are urged to commit acts of civil disobedience. Participants deliberately block vehicular or pedestrian traffic, disrupt the work of government, and prevent the movement of supplies. These activities are violations of local ordinances and breaches of public order. Incidental to demonstrations, leaflets are dispersed presenting the views of the organization….

[A]ll charitable trusts (and by implication all charitable organizations, regardless of their form) are subject to the requirement that their purposes may not be illegal or contrary to public policy. In this case the organization induces or encourages the commission of criminal acts by planning and sponsoring such events. The intentional nature of this encouragement precludes the possibility that the organization might unfairly fail to qualify for exemption due to an isolated or inadvertent violation of a regulatory statute. Its activities demonstrate an illegal purpose which is inconsistent with charitable ends….

Illegal activities, which violate the minimum standards of acceptable conduct necessary to the preservation of an orderly society, are contrary to the common good and the general welfare of the people in a community and thus are not permissible means of promoting the social welfare for purposes of section 501(c)(4) of the Code. Accordingly, the organization in this case is not operated exclusively for the promotion of social welfare and does not qualify for exemption from Federal income tax under section 501(c)(4).

For a recent application of this principle, see In re Kahea (Haw. 2021), which generally endorsed (in a somewhat different context) the reasoning of Rev. Rul. 75-384, while upholding the Hawaii Attorney General's investigation into whether an advocacy group violated the law:

In July 2019, construction of an astronomical observatory (the Thirty Meter Telescope or TMT) near the Mauna Kea summit loomed. That month, law enforcement officers arrested over thirty protesters on Mauna Kea's slopes. Hoping to thwart the Thirty Meter Telescope's construction, the protesters had blocked the road leading to the TMT's planned site. Later, the State charged these protesters with obstructing a highway or public passage.

The arrests and charges followed a lengthy legal and political battle over Mauna Kea's future. KAHEA: The Hawaiian Environmental Alliance, is an outspoken anti-TMT partisan in that scrap. One way KAHEA opposed development on Mauna Kea was through its Aloha `Āina Support Fund. According to KAHEA's website, the Aloha `Āina Support Fund "prioritizes frontline logistical support for non-violent direct actions taken to protect Mauna Kea from further industrial development." …

The State AG's investigation is premised on the notion that KAHEA's financial support for direct action opposing development on Mauna Kea may disqualify it from 501(c)(3) status. Nothing about this premise contradicts or runs counter to First Amendment principles….

Though Revenue Ruling 75-384 is more than forty years old, the IRS continues to rely on it in private letter rulings. For example, in 2019, the IRS cited Revenue Ruling 75-384 in a private letter ruling concerning an organization formed to aid financially disadvantaged patients affected by the costs of THC and CBD (cannabidiol) treatment. The organization assisted these patients "by providing financial support to cover costs of living and other expenses…." The IRS concluded that because cannabis was illegal under federal law, and because the organization was formed to provide financial assistance to cannabis users, the organization had an "illegal purpose" and could not be recognized as exempt under Section 501(c)(3) of the Internal Revenue Code.

Nothing in Rev. Rul. 75-384, of course, suggested there was anything wrong with advocating for world peace and disarmament as such. But trying to serve any cause, good or bad, through deliberately violating the law—including by "deliberately block[ing] vehicular or pedestrian traffic" and thus "disrupt[ing] the work of government, and prevent[ing] the movement of supplies"—can justify denying a tax exemption.

Indeed, such denial of tax exemptions can extend even to groups that operate merely "contrary to public policy," which includes engaging in race discrimination in education (Bob Jones Univ. v. U.S. (1983)). And that principle is at least equally true as to groups that systematically engage in violating criminal laws; here's the Court's reasoning in Bob Jones, which treats them in parallely:

A corollary to the public benefit principle is the requirement, long recognized in the law of trusts, that the purpose of a charitable trust may not be illegal or violate established public policy. In 1861, this Court stated that a public charitable use must be "consistent with local laws and public policy." Modern commentators and courts have echoed that view.

[3.] Again, speech remains protected regardless of its viewpoint. That would include speech that is viewed as disparaging based on race (see Matal v. Tam (2017), affirming In re Tam (Fed. Cir. 2015) ("Bob Jones University is a case about racially discriminatory conduct, not speech")); advocacy of "the overthrow of the Government of the United States … by … violence … or who advocate[] the support of a foreign government against the United States in the event of hostilities" (see Speiser); advocacy of terrorist attacks by Hamas; and more. But pervasive illegal conduct planned by the group can lead not just to criminal punishment for members of the group, but to the loss of tax exemption for the group itself.