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Legal Principle at Issue

Did an IRS restriction on lobbying for organizations that receive tax-deductible contributions under § 501(c)(3) violate the First or Fifth Amendments?

Action

The Supreme Court held unanimously (9–0) that the restriction did not violate the Constitution. In an opinion by Justice Rehnquist, the Court emphasized that the government is not required to subsidize lobbying through tax deductions. Organizations like Taxation with Representation of Washington were not prohibited from lobbying; they simply could not do so with tax-deductible donations. Instead, nonprofits could establish a separate § 501(c)(4) entity to engage in lobbying using non-deductible contributions, which for both free expression and a clear boundary on government subsidy of political activities.

Facts/Syllabus

Taxation With Representation of Washington was a nonprofit organization that sought tax-exempt status under § 501(c)(3) of the Internal Revenue Code. Organizations under this section are exempt from federal income tax and can receive tax-deductible contributions, but they are prohibited from engaging in substantial lobbying. TWR wanted to advocate for legislative reform and believed lobbying was integral to its mission. When it learned it couldn’t lobby as a 501(c)(3), it argued that the restriction violated its First Amendment right to free speech, as well as equal protection under the Fifth Amendment.

TWR filed a lawsuit in the U.S. District Court for the District of Columbia, which found in favor of the nonprofit, holding that the restriction on lobbying by 501(c)(3) organizations violated the First Amendment right to freedom of speech, and possibly the equal protection principles found in the Fifth Amendment's Due Process Clause. The government appealed, but the U.S. Court of Appeals for the D.C. Circuit affirmed the District Court’s ruling in favor of TWR, concluding it created a chilling effect on constitutionally protected expression.

The Supreme Court reversed the lower courts' rulings, holding that Congress could permissibly limit tax subsidies without infringing constitutional rights.

Importance of Case

The government can choose not to subsidize certain types of speech, like lobbying, without violating the Constitution. The decision clarified that there is no constitutional right to a tax deduction and reinforced the idea that tax benefits are a form of government subsidy, not entitlements.