Regan v. Taxation With Representation of Washington Taxation With Representation of Washington v. Regan, Nos. 81-2338

• Court: United States Supreme Court
• Writing for the Court: REHNQUIST
• Citation: 76 L.Ed.2d 129,103 S.Ct. 1997,461 U.S. 540
• Decision Date: 23 May 1983
• Docket Number: 82-134,Nos. 81-2338
• Parties: Donald T. REGAN, Secretary of the Treasury, et al., Appellants, v. TAXATION WITH REPRESENTATION OF WASHINGTON. TAXATION WITH REPRESENTATION OF WASHINGTON, Appellant, v. Donald T. REGAN, Secretary of the Treasury, et al

461 U.S. 540 103 S.Ct. 1997 76 L.Ed.2d 129 Donald T. REGAN, Secretary of the Treasury, et al., Appellants,

v.

TAXATION WITH REPRESENTATION OF WASHINGTON. TAXATION WITH REPRESENTATION OF WASHINGTON, Appellant, v. Donald T. REGAN, Secretary of the Treasury, et al.

Nos. 81-2338, 82-134. Argued March 22, 1983. Decided May 23, 1983.^* Syllabus

Section 501(c)(3) of the Internal Revenue Code of 1954 (Code) grants tax exemption to certain nonprofit organizations "no substantial part of the activities of which is carrying on propaganda, or otherwise attempting to influence legislation." Section 170(c)(2) permits taxpayers who contribute to § 501(c)(3) organizations to deduct the amount of their contributions on their federal income tax returns. Section 501(c)(4) grants tax-exempt status to certain nonprofit organizations but contributions to these organizations are not deductible. Taxation With Representation of Washington (TWR) is a nonprofit corporation organized to promote its view of the "public interest" in the area of federal taxation; it was formed to take over the operation of two other nonprofit organizations, one of which had tax-exempt status under § 501(c)(3) and the other under § 501(c)(4). The Internal Revenue Service denied TWR's application for tax-exempt status under § 501(c)(3), because it appeared that a substantial part of TWR's activities would consist of attempting to influence legislation. TWR then brought suit in Federal District Court against the Commissioner of Internal Revenue, the Secretary of the Treasury, and the United States, claiming that § 501(c)(3)'s prohibition against substantial lobbying is unconstitutional under the First Amendment by imposing an "unconstitutional burden" on the receipt of tax-deductible contributions, and is also unconstitutional under the equal protection component of the Fifth Amendment's Due Process Clause because the Code permits taxpayers to deduct contributions to veterans' organizations that qualify for tax exemption under § 501(c)(19). The District Court granted summary judgment for the defendants, but the Court of Appeals reversed, holding that § 501(c)(3) does not violate the First Amendment but does violate the Fifth Amendment.

Held:

1. Section 501(c)(3) does not violate the First Amendment. Congress has not infringed any First Amendment rights or regulated any First

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Amendment activity but has simply chosen not to subsidize TWR's lobbying out of public funds. Cammarano v. United States, 358 U.S. 498, 79 S.Ct. 524, 3 L.Ed.2d 462. Pp. 545-546.

2. Nor does § 501(c)(3) violate the equal protection component of the Fifth Amendment. The sections of the Code at issue do not employ any suspect classification. A legislature's decision not to subsidize the exercise of a fundamental right does not infringe that right and thus is not subject to strict scrutiny. It was not irrational for Congress to decide that tax-exempt organizations such as TWR should not further benefit at the expense of taxpayers at large by obtaining a further subsidy for lobbying. Nor was it irrational for Congress to decide that, even though it will not subsidize lobbying by charities generally, it will subsidize lobbying by veterans' organizations. Pp. 546-551.

--- U.S.App.D.C. ----, 676 F.2d 715, reversed.

Sol. Gen. Rex E. Lee, Washington, D.C., for appellants.

John Cary Sims, Washington, D.C., for appellee.

Justice REHNQUIST delivered the opinion of the Court.

Appellee Taxation With Representation of Washington (TWR) is a nonprofit corporation organized to promote what it conceives to be the "public interest" in the area of federal

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taxation. It proposes to advocate its point of view before Congress, the Executive Branch, and the Judiciary. This case began when TWR applied for tax exempt status under § 501(c)(3) of the Internal Revenue Code, 26 U.S.C. § 501(c)(3). The Internal Revenue Service denied the application because it appeared that a substantial part of TWR's activities would consist of attempting to influence legislation, which is not permitted by § 501(c)(3).¹

TWR then brought this suit in District Court against the appellants, the Commissioner of Internal Revenue, the Secretary of the Treasury, and the United States, seeking a declaratory judgment that it qualifies for the exemption granted by § 501(c)(3). It claimed the prohibition against substantial lobbying is unconstitutional under the First Amendment and the equal protection component of the Fifth Amendment's Due Process Clause.² The District Court granted summary judgment for appellants. On appeal, the en banc Court of Appeals for the District of Columbia Circuit reversed, holding that § 501(c)(3) does not violate the First Amendment but does violate the Fifth Amendment. --- U.S.App.D.C. ----, 676 F.2d 715 (CADC 1982). Appellants appealed pursuant to 28 U.S.C. § 1252, and TWR cross-

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appealed. We noted probable jurisdiction of the appeal, --- U.S. ----, 103 S.Ct. 47, 74 L.Ed.2d 55 (1982).³

TWR was formed to take over the operations of two other non-profit corporations. One, Taxation With Representation Fund, was organized to promote TWR's goals by publishing a journal and engaging in litigation; it had tax exempt status under § 501(c)(3). The other, Taxation With Representation, attempted to promote the same goals by influencing legislation; it had tax exempt status under § 501(c)(4).⁴ Neither predecessor organization was required to pay federal income taxes. For purposes of our analysis, there are two principal differences between § 501(c)(3) organizations and § 501(c)(4) organizations. Taxpayers who contribute to § 501(c)(3) organizations are permitted by § 170(c)(2) to deduct the amount of their contributions on their federal income tax returns, while contributions to § 501(c)(4) organizations are not deductible. Section 501(c)(4) organizations, but not § 501(c)(3) organizations, are permitted to engage in substantial lobbying to advance their exempt purposes.

In this case, TWR is attacking the prohibition against substantial lobbying in § 501(c)(3) because it wants to use tax-

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deductible contributions to support substantial lobbying activities. To evaluate TWR's claims, it is necessary to understand the effect of the tax exemption system enacted by Congress.

Both tax exemptions and tax-deductibility are a form of subsidy that is administered through the tax system. A tax exemption has much the same effect as a cash grant to the organization of the amount of tax it would have to pay on its income. Deductible contributions are similar to cash grants of the amount of a portion of the individual's contributions.⁵ The system Congress has enacted provides this kind of subsidy to non profit civic welfare organizations generally, and an additional subsidy to those charitable organizations that do not engage in substantial lobbying. In short, Congress chose not to subsidize lobbying as extensively as it chose to subsidize other activities that non profit organizations undertake to promote the public welfare.

It appears that TWR could still qualify for a tax exemption under § 501(c)(4). It also appears that TWR can obtain tax deductible contributions for its non-lobbying activity by returning to the dual structure it used in the past, with a § 501(c)(3) organization for non-lobbying activities and a § 501(c)(4) organization for lobbying. TWR would, of course, have to ensure that the § 501(c)(3) organization did not subsidize the § 501(c)(4) organization; otherwise, public funds might be spent on an activity Congress chose not to subsidize.⁶

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TWR contends that Congress' decision not to subsidize its lobbying violates the First Amendment. It claims, relying on Speiser v. Randall, 357 U.S. 513, 78 S.Ct. 1332, 2 L.Ed.2d 1460 (1958), that the prohibition against substantial lobbying by § 501(c)(3) organizations imposes an "unconstitutional condition" on the receipt of tax-deductible contributions. In Speiser, California established a rule requiring anyone who sought to take advantage of a property tax exemption to sign a declaration stating that he did not advocate the forcible overthrow of the Government of the United States. This Court stated that "[t]o deny an exemption to claimants who engage in speech is in effect to penalize them for the same speech." Id., at 518, 78 S.Ct., at 1338.

TWR is certainly correct when it states that we have held that the government may not deny a benefit to a person because he exercises a constitutional right. See Perry v. Sindermann, 408 U.S. 593, 597, 92 S.Ct. 2694, 2697, 33 L.Ed.2d 570 (1972). But TWR is just as certainly incorrect when it claims that this case fits the Speiser-Perry model. The Code does not deny TWR the right to receive deductible contributions to support its non-lobbying activity, nor does it deny TWR any independent benefit on account of its intention to lobby. Congress has merely refused to pay for the lobbying out of public monies. This Court has never held that the Court must grant a benefit such as TWR claims here to a person who wishes to exercise a constitutional right.

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This aspect of the case is controlled by Cammarano v. United States, 358 U.S. 498, 79 S.Ct. 524, 3 L.Ed.2d 462 (1959), in which we upheld a Treasury Regulation that denied business expense deductions for lobbying activities. We held that Congress is not required by the First Amendment to subsidize lobbying. Id., at 513, 79 S.Ct., at 533. In this case, like in Cammarano, Congress has not infringed any First Amendment rights or regulated any First Amendment activity. Congress has simply chosen not to pay for TWR's lobbying. We again reject the "notion that First Amendment rights are somehow not fully realized unless they are subsidized by the State." Id., at 515, 79 S.Ct., at 534 (Douglas, J., concurring).⁷

TWR also contends that the equal protection component of the Fifth Amendment renders...