01 June 2017

Tax Exempt “Hate”

by Sean Parnell, Vice President of Public Policy, The Philanthropy Roundtable

The Washington Post had an interesting article last month on the subject of white nationalist groups that receive tax-exempt status:

The U.S. tax system contains a valuable benefit for prominent white-nationalist groups, which for years have enjoyed a legal status that allows them to not pay levies and lets supporters write off their donations. This status also, for tax purposes, puts them in the same legal category as zoos, colleges, museums, orchestras and planetariums.

It’s a lucrative classification. Four well-known organizations associated with white nationalism — the National Policy Institute, the New Century Foundation, the Charles Martel Society and VDare Foundation — have raised $7.8 million in tax-free donations over the last decade, according to a recent analysis by the Associated Press…

In a new proposal, legal expert Eric Franklin Amarante of the University of Nevada at Las Vegas is calling on the Internal Revenue Service to change the rules. His proposal, which he published online, would force white nationalist groups to start paying taxes by removing the provision they rely on for their tax exemption, a broad rule that benefits organizations that sponsor lectures, conferences and public discussions.

There are numerous problems with the idea proposed by Amarante (full paper available here), such as its disregard for philanthropic freedom, an over-broad solution, inaccurate assumptions, and apparent unfamiliarity with certain provisions of the tax code.

The abstract for the paper, which is apparently a first draft and will be published in the fall by the Emory Law Journal Online, reads as follows:

Many white supremacist groups enjoy tax-exempt status. As such, these hate groups do not have to pay federal taxes and people who give money to support these groups may take deductions on their personal taxes. This recognition not only results in potential lost revenue for government programs, but it also serves as a public subsidy of racist propaganda and operates as the federal government’s imprimatur of white supremacist activities. This is all due to an unnecessarily broad definition of “educational” that somehow encompasses the activities of universities, symphonies, and white supremacists. This Essay suggests a change in the Treasury regulations to restrict the definition of educational organizations to refer only to traditional, degree-granting institutions, distance learning organizations, or certain other enumerated entities. With this change, we would no longer allow white supremacists to call themselves charities, remove the public subsidy of such reprehensible organizations, and eliminate the government’s implicit blessing of hate groups.

Amarante does manage to avoid the obvious trap of infringing on First Amendment rights by simply having the IRS revoke tax exempt status for groups promoting “hate.” Given today’s heated political climate, and the overly promiscuous and pan-ideological use of the term “hate” to describe sentiments commonly held by political opponents, such an approach would almost certainly degenerate rapidly into competing camps of think tanks and advocacy organizations demanding their opposites be stripped of tax-exempt status due to their promotion of “hate.” And it would of course be unconstitutional.

But despite taking care to avoid the constitutional issue, there are still multiple problems with Amarante’s piece. A few of them include:

  • Radically narrowing the definition of “educational” would affect far more organizations than just those espousing the white nationalism he is concerned about – think tanks and issue advocacy groups as well as civic organizations of all stripes commonly qualify as “educational” entities, and Amarante’s proposed re-definition would push them out of 501(c)3 status as well. To cite just one example, the Boy Scouts of America could fall victim to this changing definition – the organization’s web site explains that “For more than 100 years, Boy Scouts of America has helped build future leaders by combining educational activities and lifelong values with fun.” A quick review of the IRS definition of charitable purposes would seem to confirm that is in fact an educational organization, as it does not easily fit any of the other categories.
  • Related to the above point, the IRS definition explicitly includes “lessening the burdens of government,” which aligns fairly well with most conservative/libertarian oriented think tanks and advocacy groups, but does not hold an obvious analogue for liberal/progressive views. Thus the proposed narrowing would possibly keep conservative/libertarian groups in the 501(c)3 classification but push out liberal/progressive groups or sharply limit the issues they could work on under the new definition. It should go without saying that tilting the think tank and advocacy world in favor of one side isn’t desirable.
  • Overtly racist and white nationalist organizations with religious underpinnings would remain tax-exempt. Though Amarante suggests in the paper that “most white supremacist organizations do not purport to be a religion,” I’m not sure this is accurate. Strains of Odinism, for example, draw on Norse pagan beliefs while incorporating white supremacist views, while the Christian Identity movement declares Anglo-Americans to be the true descendants of the ancient Israelites and other races and ethnicities to be inferior. The Church of Jesus Christ-Christian, originally known as the White Identity Church of Jesus Christ-Christian, is more commonly referred to as the Aryan Nations.
  • While Amarante’s ire is directed at both the tax-deductibility of donations to groups like the National Policy Institute and the fact that such entities are not taxed on their revenues, his solution would only address the former and not the latter. Denying 501(c)3 status to such organizations would presumably simply push them into 501(c)4 status, where donations are no longer tax deductible but organizations remain untaxed for federal income tax purposes. And even if the solution were to push them out of section 501(c) altogether, registering as an unincorporated nonprofit association or possibly 527 political organization would remain options allowing them to retain tax-exempt status.

These and other problems all suggest that, whatever problem or discomfort might exist due to the fact that a handful of ostensibly racist organizations apparently are able to receive 501(c)3 tax exempt status (while his piece opens by noting that “Many white supremacist groups enjoy tax-exempt status,” there is not much evidence that this is the case – he identifies only one, and the Post article adds three to the list, out of more than a million 501(c)3 charities total in the country), it is not sufficiently large to be worth the unintended (but not unforeseeable) consequences of the proposed “fix.” To cite just one example, forcing racist groups to become 527 political organizations would likely require them to become actively involved in elections, running ads or sending mailers urging voters to support or oppose specific candidates. I, for one, can do without hearing from white supremacists in school board elections.

Finally, even if the practical problems with Amarante’s proposal were addressable, anyone who values philanthropic freedom should oppose his solution. It’s easy to be against hate, and suggest that organizations espousing hateful views shouldn’t be considered to be charities, at least for tax purposes. But for anyone who takes philanthropic freedom seriously, the last thing government should be doing is separating out groups with controversial and even repugnant views to deny them basic rights or benefits accorded to other groups engaging in similar activities. We should no more accept this sort of infringement on philanthropic freedom than we would accept an attempt to deny First Amendment rights to those who wish to make controversial and repugnant statements.