Subsidizing Hate: A Proposal to Reform the Internal Revenue Service's Methodology Test
Reed, Alex, Fordham Journal of Corporate & Financial Law
Although a wide variety of organizations may qualify as tax-exempt public charities, reform is needed to ensure that hate groups masquerading as educational organizations do not receive preferential tax treatment. Since 1986, the Internal Revenue Service has utilized a methodology test to determine when advocacy of a particular viewpoint may be deemed educational so as to qualify the underlying organization as a public charity. Because Service has been reluctant to apply the test rigorously, however, a number of hate groups have been able to obtain charitable status under the guise of operating as legitimate educational organizations. This Article argues that application of the methodology test must be more robust to prevent hate groups from receiving federal subsidies in the form of certain tax advantages. Additionally, the Article proposes reforms designed to limit hate groups' ability to operate as public charities while ensuring that educational organizations advocating hate-neutral minority viewpoints may continue to receive the tax benefits associated with charitable status.
"[O]ne of the primary goals of the homosexual rights movement is to abolish all age of consent laws and to eventually recognize pedophiles as the 'prophets' of a new sexual order."
"Immigrants don't come [to the United States] all church-loving, freedom-loving, God-fearing. . . . Many of them hate America, hate everything the United States stands for."2
"Blacks and whites are different. When blacks are left entirely to their own devices, Western Civilization - any kind of civilization - disappears."3
The organizations to which the aforementioned quotes are attributable have two things in common - they have been classified as hate groups by a leading civil rights organization, and they have been accorded charitable status by the Internal Revenue Service (the "Service")· The practical consequence of the latter designation is that these groups are exempt from federal income taxation4 and are eligible to receive tax-deductible contributions.5 Because such tax benefits are the equivalent of a cash grant,6 the federal government - and U.S. taxpayers indirectly7 - may be said to subsidize these groups' existence.
Whereas charitable status has historically been reserved for organizations furthering some desirable public purpose,8 the dissemination of prejudiced propaganda serves only to fuel societal discord and unrest.9 Nonetheless, a number of hate groups have been able to obtain charitable status under the guise of operating as legitimate educational organizations. These groups include white nationalists,10 anti-gay11 and anti-immigrant12 organizations, and those who would deny the Holocaust,13 among others.
For its part, Service has demonstrated a reluctance to revoke or otherwise challenge these groups' continued tax-exempt status as educational organizations.14 Although this inaction may be attributable to something as innocuous as a lack of resources, a more troubling explanation can be found in the procedures Service utilizes to evaluate whether an entity qualifies as a tax-exempt educational organization. Over the past thirty years, Service has been forced to defend the constitutionality of its procedures vis-à-vis educational organizations on a number of occasions. Despite a lull in litigation following Service's adoption of a methodology test, serious constitutional concerns remain. Consequently, as long as Service permits these groups to retain their taxexempt status for fear that any revocation will provoke a constitutional challenge to Service's procedures, all manner of hate groups are free to subsidize their operations on the U.S. taxpayer's dime.
This Article concludes that application of the methodology test must be more rigorous to prevent hate groups masquerading as educational organizations from receiving government subsidies in the form of certain tax advantages. …