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Thread: U.S. - New IRS Rule Denies Tax-Exempt Status to Drug Policy Reform Groups

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    U.S. - New IRS Rule Denies Tax-Exempt Status to Drug Policy Reform Groups 
    #1
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    New IRS Rule Seems to Violate the First Amendment by Denying Tax-Exempt Status to Drug Policy Reform Groups
    Jacob Sullum
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    November 28th, 2018

    A new IRS rule for tax-exempt organizations seems to violate the First Amendment by taking aim at groups that support a wide range of drug policy reforms. The rule, described in an Internal Revenue Bulletin dated January 2, says the IRS will deny tax-exempt status to "an organization whose purpose is directed to the improvement of business conditions of one or more lines of business relating to an activity involving controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law regardless of its legality under the law of the state in which such activity is conducted."

    As Washington, D.C., lawyers David Rivkin and Randal Meyer point out in The Wall Street Journal, that language arguably applies to any organization that advocates legalization of marijuana (or any other prohibited substance) or favors looser restrictions on certain prescription medications, both of which would improve "business conditions" for companies that sell those drugs. The exclusion also seems to encompass advocacy of less ambitious reforms, such as licensing new sources of marijuana for medical research, allowing state-licensed marijuana merchants to deduct their business expenses when they file their federal income tax returns, or changing the laws and regulations that discourage banks from serving such businesses.

    Nonprofit organizations that are exempt from taxes under Sections 501(c)(3) and 501(c)(4) of the Internal Revenue Code (for "charitable" and "social welfare" organizations, respectively) are subject to restrictions on the amount of "lobbying" they can do. But this exclusion goes beyond those general rules by disfavoring certain viewpoints, which is unconstitutional even when the government is distributing benefits rather than directly censoring speech.

    "The rule does not apply to all speech dealing with the listed substances, only that involving an 'improvement' in 'business conditions,' such as legalization or deregulation," Rivkin and Meyer note. "Efforts to maintain restrictions or impose additional ones are fine by the IRS." Hence an educational or social welfare organization that supports marijuana prohibition, unlike one that favors legalization, would be unaffacted by the rule.
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    #2
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    There's no way this will stand up to a court challenge.
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    #3
    Yeah hopefully the ACLU is already salivating over the prospect of challenging this in court
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    #4
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    Hospitals and other massive money grubbers are non profits... but good lord don't promote MMJ. The IRS is usually all about collecting money, but I guess they are getting enough already from the legal grass. I'm going to switch my activist focal point to taxing hospitals and other not for profit shams. Problem solved.
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