St. John's University Law Faculty Blog

Western liberal democracies, including the United States (U.S.), Australia, and others, are predicated on the rights of individual citizens not only to vote but also to participate fully in the public political arena by expressing and hearing the widest possible variety of thoughts and ideas involving the most diverse sources.  The First Amendment of the U.S. Constitution explicitly enshrines fundamental free speech and press rights – including most vitally electoral speech- of all speakers, interpreted recently by the U.S. Supreme Court in its controversial 5-4 decision in Citizens United v. FEC to include all corporations.’ Lacking an analogous constitutional provision, Australia’s comparable protection for individuals and entities to engage in political expression is judicially implied, but now firmly entrenched in the country’s constitutional jurisprudence.

Despite such fundamental protections for electoral speech grounded in both law and constitutive policy considerations, countervailing interests and considerations- political agendas, the potential for actual or perceived abuses, taxpayer subsidy objections, and the like – have led to the regulation of certain types of partisan, political speech. At least in the U.S., such regulatory restrictions, in both federal tax laws and federal campaign finance statutes, as well as regulatory interpretations by the Internal Revenue Service and the Federal Election Commission, continue to be a hot-bed of debate and litigation in which constitutional arguments about the First Amendment’s free speech provisions predominate.

The disharmony within the U.S. legal regimes is prominently manifesting itself this year as the contentious U.S. presidential and congressional races are in full swing.  Federal tax law excludes a broad group of secular and religious nonprofit entities(§ 501(c)(3)s) entirely from the public political square, while it permits other tax-exempt nonprofits (§§ 501(c)(4)s, 50l(c)(5)s, 50l(c)(6)s, and 527s) to participate. For those tax-exempt entities that can and do participate, some intentionally and aggressively maneuver to avoid disclosing their underlying sources of financial support. This is abetted by lax federal tax and campaign finance regulatory schemes. Such opacity risks undermining the values of a self-governing liberal democracy.

In accord with Australia’s project on defining, taxing, and regulating the not-for-profit sector, we examine the question of the appropriate role of nonprofits in the public political arena, focusing specifically on speech in support of or opposition to political parties or candidates. What political communication is consistent with the functions of charities and other nonprofits and with tax subsidies for them, and what regulation of political communication is appropriate given expansive constitutional protection for such speech?  To gain insights from the U.S experience, we first describe the main relevant categories of tax-exempt entities established under the Internal Revenue Code (“IRC”) and the regulatory structure of each compared to the current Australian situation. To further lay a foundation, we also explain the applicable disclosure requirements under both the IRC and the Federal Election Campaign Act.  We then consider the Aid/Watch case in Australia and the potential opening it provides for electoral speech by charities.