WSJ Doth Protest Too Much About Law Firms Trying To Play Games With Tax Laws
Protecting the First Amendment doesn't require tax exemptions.
The headline “Texas Goes After Pro-Bono Legal Help” might make your blood boil that a protectionist lawyers’ cabal seeks to magnify the legal peril facing indigent folks. That would be a grave injustice.
BUT it turns out that’s not what this editorial talks about! Instead, the Journal is complaining that advocacy groups with shadowy finances might not be able to inject themselves directly into the political process without facing the same legal scrutiny:
The election-law police are always looking for new ways to limit political speech, and their next victim may be public-interest law firms. That’s now being put to the test in Texas, where the state Ethics Commission could decide Thursday whether a law firm can be barred from offering pro-bono legal help to a candidate.
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For the record, the opinion doesn’t suggest that law firms would be barred from offering pro bono legal services to a candidate.
Rather…
Under the commission’s draft advisory opinion, a public-interest firm that provides free legal services to a candidate would be making an in-kind campaign contribution.
Because giving value to a campaign for free actually is an in-kind contribution.
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Legal billing adds up quickly, so any firm that offered pro-bono help would also risk a change in its tax-exempt status and disclosure of its donors.
The FEC already has provisions allowing entities to provide free legal services to campaigns and individual attorneys can perform pro bono work as volunteers. So help is out there! But the complaint here focuses specifically on groups set up to avoid taxes conditioned on the promise of staying out of politics. The tax exemption argument is that, hypothetically, if a state characterized a 501(c)(3)’s work as a contribution to a political campaign, the IRS might cease to consider the entity a 501(c)(3). Putting aside whether or not the IRS would handle it that way, such a declassification would happen… because the organization is actually involved in direct political activity. I know there are a lot of 501(c)(3) organizations that ride the line between being overtly political and merely politically adjacent, but just because the IRS looks the other way more often than it should doesn’t mean these groups should continue to get tax breaks for actively doing campaign work.
If you want to offer your services to candidates… pay your taxes.
But the transparency issue may be what’s really unsettling for these groups. Campaign donations to candidates trigger disclosure requirements because the Supreme Court hasn’t (yet) dispensed with protections against people corruptly buying candidates outright. But, through the magic of political action committees, money can stay shadowy if spent on non-candidates. For the specific firms at issue, the rub is that they plan to launch an assault on election laws and only the candidates will have standing.
So let’s see: Candidates are the most likely to have standing to challenge election rules, but per the Election Commission, they can’t hire a public-interest lawyer to do it.
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Again, they CAN hire a lawyer to do it. But if the lawyers cleared the above tax hurdles and did this work for free, they might be subject to revealing who actually pays for this work and those people do not want that to happen. Because the people behind these anti-voter efforts lack the courage of their convictions to be actually identified.
The Texas opinion is a threat to 501(c)3 groups that would be faced with compromising their core mission.
Their core mission being… providing free legal services to campaigns? Because if that’s the “core” mission it shouldn’t be a 501(c)(3) in the first place.
The draft opinion also threatens the ability of candidates to file legal challenges, which are often expensive and time consuming, costing more than what many small local campaigns can raise.
There’s a simple solution… the organization doesn’t have to be a 501(c)(3).
The ACLU is also opposed to this advisory opinion, so there’s an element of bipartisanship — though the ACLU objection frames its objection as seeking a carve out for services rendered to “defend civil rights and civil liberties” which might arguably be distinct from election work.
Still, we have laws designed to protect the sanctity of the political process. Among those laws are prohibitions on giving political groups get-out-of-taxes free cards and some basic semblance of transparency.
As a practical matter, the Commission will probably cave or there will be a legal challenge and some judge will spin a claim that the fact that these groups have free speech rights simultaneously grants them tax exempt rights for some reason.
But we don’t have to live this way as a country. We could draw a line that wherever the line is for tax free political advocacy, working directly for a candidate is on the wrong side of it.
Texas Goes After Pro-Bono Legal Help [WSJ]
Joe Patrice is a senior editor at Above the Law and co-host of Thinking Like A Lawyer. Feel free to email any tips, questions, or comments. Follow him on Twitter if you’re interested in law, politics, and a healthy dose of college sports news. Joe also serves as a Managing Director at RPN Executive Search.
