TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Saturday, November 24, 2018

Another IRS Free Speech Scandal

IRS Logo 2Wall Street Journal op-ed:  Another IRS Free-Speech Scandal, by David B. Rivkin (Baker & Hostetler, Washington, D.C.) & Randal John Meyer (Cato Institute Center for Constitutional Studies):

The Internal Revenue Service infamously targeted dissenters during President Obama’s re-election campaign. Now the IRS is at it again. Earlier this year it issued a rule suppressing huge swaths of First Amendment protected speech. The regulation appears designed to hamper the marijuana industry, which is still illegal under federal law although many states have enacted decriminalization measures. But it goes far beyond that.

The innocuously named Revenue Procedure 2018-5 contains a well-hidden provision enabling the Service to withhold tax-exempt status from organizations seeking to improve “business conditions . . . 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.” That means that to obtain tax-exempt status under any provision of the Internal Revenue Code’s Section 501—whether as a charity, social-welfare advocacy group or other type of nonprofit—an organization may not advocate for altering the legal regime applicable to any Schedule I or II substance.

Marijuana is a Schedule I substance, meaning the Food and Drug Administration has found it has “no currently accepted medical use and a high potential for abuse.” Schedule II drugs include such widely prescribed medications as Adderall, Vyvanse, codeine and oxycodone. The IRS can deny tax-exempt status to any organization that seeks to improve the “business conditions” of a currently prohibited activity involving these medications. That could include simply advocating for a change in the law or regulation forbidding the possession, sale or use of marijuana or other Schedule I substances. It would also encompass advocacy for relaxing the regulatory regime currently governing the production, distribution or prescription of Schedule II medications.

The rule does not apply to all speech dealing with the listed substances, only that involving an “improvement” in “business conditions,” such as legalization or deregulation. Efforts to maintain restrictions or impose additional ones are fine by the IRS. This is constitutionally pernicious viewpoint discrimination. As the Supreme Court stated in Rosenberger v. University of Virginia (1995): “When the government targets not subject matter, but particular views taken by speakers on a subject, the violation of the First Amendment is all the more blatant.” ...

[W]hile government has been able to justify limiting activities or conduct even when it has an expressive or religious component, the Supreme Court has sanctioned limits on the content of speech only in extreme circumstances. In Holder v. Humanitarian Law Project (2010), for instance, the justices upheld a ban on policy advocacy undertaken under the direction of, or in coordination with, certain terrorist groups. This narrow prohibition was constitutional only because the coordinated speech amounted to a “material support” to terrorist groups. The same speech, if conducted independently, would have been fully protected.

Here, by contrast, the IRS seeks to control independent policy advocacy. That’s something the federal government may not do. Yet it’s the second time this decade for the IRS.

https://taxprof.typepad.com/taxprof_blog/2018/11/another-irs-free-speech-scandal.html

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Comments

Marijuana is so difficult to reschedule, because it was Congress itself that placed it on Schedule 1 in 1970.

Posted by: Doug Wenzel | Nov 24, 2018 8:43:52 AM

In this case an organization is asking for tax exempt treatment of its advocacy efforts. The government is free to place limitations on the activities of such an entity. It would be unconstitutional to restrict speech for an organization that is not receiving favorable tax treatment or any other favorable treatment not available to the ordinary citizen. Thus this case is NOT like the previous one regarding conservative organizations, where similar organizations were treated differently based solely on whether they were conservative or liberal, and no advocacy for improving business conditions for illegal activities was alleged.

Posted by: Ken_in_Camarillo | Nov 24, 2018 9:14:28 AM