On the morning of July 10, 2020, President Donald Trump tweeted: "Too many universities and school systems are concerned with radical left-wing indoctrination, not education. For this reason, I ask the finance department to review their tax exemption status … and / or funding, which will be taken away if this propaganda or public order law continues. Our children have to be brought up and not indoctrinated! “He tweeted in response to the university community's widespread opposition to the administration's announcement that foreign students would have to take at least one personal class or be denied permission to stay in the United States.
Trump's tweets sparked a firestorm of responses that focused on the implicit political threat to free speech. Within a few days, what Trump called "propaganda" led his government to change its policies. Nevertheless, it remains important to identify errors in his tweets.
Trump's misunderstanding of current tax law also helps us to better understand both the rules for tax-exempt colleges and the important role they play in our society.
Pursuant to Section 501 (c) (3) of the Internal Revenue Code, “Organizations operate and operate exclusively for. . . Educational Purposes ”can be considered non-profit organizations that are exempt from income tax. Exempt educational institutions must meet several general rules that apply to all organizations applying for such a tax exemption.
An important general rule limits lobbying. Pursuant to Section 501 (c) (3), “no substantial part” of an exempted organization's activities may consist of “promoting propaganda or otherwise trying to influence legislation”. Insignificant lobbying is allowed. No bright line separates insignificant activities from essential activities, and courts generally deal with materiality on an ad hoc basis. However, section 501 (c) (3) clearly allows exempt organizations to participate to some extent in the political process by advocating for laws.
The test for illegal lobbying is quantitative and not based on content. Too much lobbying, regardless of the topic, can result in loss of exemption. The activities of universities that oppose the visa requirements for foreign students – whether in the form of letters, statements, lawsuits or Amicus letters – would not constitute an essential activity under the lobbying rules, even if they were lobbying.
The resistance of the universities to the new policy is not lobbying. President TrumpDonald John TrumpPelosi, Blumenaur condemn Trump's "tremendous abuses of power" against protesters in Oregon Federal agents sent to Portland had no training in riot control: the NYT government tried to block funding for CDC, pursue contacts, and in one test new aid law: report MOREThe tweet contradicts the university's "propaganda" and reflects the language of section 501 (c) (3). However, in the code, the word "propaganda" refers to attempts to influence legislation, not to executive action. So the lobby restriction does not even come into play in this dispute.
More specific rules apply to tax-exempt educational institutions. For tax exemption purposes, an educational organization is an organization that teaches or trains individuals to improve or develop their skills, or that informs the public about topics that are useful to the public. Universities and schools are the epitome of exempted educational organizations.
However, "pedagogical" does not mean that it is not neutral. According to the tax law, an educational organization can take a specific position or position, provided that it offers a sufficiently "complete and fair presentation of the relevant facts" so that the individual can reach his or her own conclusion. An organization that essentially represents unsupported opinions is not considered to be educational.
The IRS has passed a test to apply the requirement for a complete and fair presentation, which focuses on the method of providing information and not on the information presented. It is important that the IRS test does not require an educational organization that takes a particular view in order to present and refute conflicting views. The resistance of the universities to the new administrative policy undoubtedly meets the IRS test for an exempted educational organization.
Two other legal considerations further undermine the President's position in his tweet. First, the doctrine is public policy. In its decision by Bob Jones, the Supreme Court ruled that a racially discriminatory school under Section 501 (c) (3) cannot be tax-exempt because racial discrimination in education "violates a fundamental public order." To support this conclusion, the Court cited case law, legislation and consistent executive support. Nowhere, however, has the Court clarified exactly what government action is needed to create a "most basic public policy" in other contexts.
Whatever triggers a basic public policy, at least it must require more than one new position to be taken by one administration and changed by another. Rejection of a new and controversial policy, such as the administration's announcement that foreign students must take at least one personal class, does not prevent tax exemption under the public policy doctrine.
Second, there are two Congress guidelines for enforcing the IRS. Over 20 years ago, Congress banned the president from telling the IRS to investigate every taxpayer. President Trump's tweets may have violated this law – Rep. Richard NealRichard Edmund NealOn The Money: Weekly unemployment claims decrease but remain over 1 million | Black, Hispanics are less likely to get stimulus checks quickly More and more retailers in need of masks across the country are demanding top Democrat control over Trump's call for a review of university tax exemption status. Pandemic highlights the need for state long-term care insurance MORE (D-Mass.) Instructed two IRS oversight organizations to address the issue.
In addition, following the controversy surrounding IRS treatment of tea party groups in 2013, Congress included a provision in the Consolidated Appropriations Act of 2018 that prohibits the IRS from using earmarked funds to "target groups for the regulatory Control based on their ideological beliefs ”. The 2020 mean law contains the same language.
While theoretically this prohibition on orienting oneself towards ideological convictions could violate the doctrine of public order – a unit could represent an ideological conviction that contradicts basic public policy – this possibility does not arise here. The Trump administration's position on visas for foreign students is not a fundamental public order and therefore does not violate the public order doctrine.
However, the president's tweet has asked the finance department to address the universities based on their ideological beliefs. It is the president, not the university community, who tries to violate applicable law by asking federal tax administrators to review colleges and universities based on the principles and beliefs of schools.
Samuel D. Brunson is Georgia Reithal Professor of Law at Loyola University Chicago School of Law. His teaching and research focuses on federal taxes and tax-exempt organizations. Follow him on Twitter @smbrnsn
Ellen P. Aprill is a John E. Anderson Chair in Tax Law at LMU Loyola Law School in Los Angeles, where she founded the Western Conference on Tax Exempt Organizations.