The Buckeye Institute v. Internal Revenue Service

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF OHIO

EASTERN DIVISION

The Buckeye Institute,

Plaintiff, Case No. 2:22-cv-4297

V. Judge Michael H. Watson

Internal Revenue Service, et al., Magistrate Judge Deavers

Defendants.

OPINION AND ORDER

The Internal Revenue Service (“IRS”), Douglas O’Donnell, United States

Department of Treasury, and Janet Yellen (collectively, “Defendants”) move to

dismiss The Buckeye Institute’s (“Plaintiff’) Complaint. ECF No. 21. Plaintiff and

Defendants also move for summary judgment on Plaintiff's claim.! ECF Nos. 36

& 43. For the following reasons, Plaintiffs motion for summary judgment and

Defendants’ motion for summary judgment are DENIED.

I. FACTS

Plaintiff is a nonprofit corporation that enjoys tax-exempt status under 26

U.S.C. § 501(c)(3) (“501(c)(3)”). Alt Decl., FJ 2-3, ECF No. 36-1. In Plaintiff's

words, Plaintiff often serves “as a government watchdog” and litigates “against

federal, state, and local authorities to defend rights under the Ohio and United

1 In Defendants’ motion for summary judgment, Defendants make (or incorporate by

reference) the same arguments they made in the motion to dismiss. Because the Court

will address all of Defendants’ arguments through the lens of summary judgment, the

motion to dismiss, ECF No. 21, is TERMINATED AS MOOT.

States Constitutions.” /d. J 3. Plaintiff relies on financial support from donors.

Id. J 5.

Like other 501(c)(3) organizations, Plaintiff is subject to certain reporting

requirements. Under 26 U.S.C. § 6033(b)(5), many 501(c)(3) organizations must

annually disclose to the Secretary of the Treasury “the total of the contributions

and gifts received by it during the year, and the names and addresses of all

substantial contributors” (the “Disclosure Requirement’).? A “substantial

contributor’ is a donor who contributes an aggregate total of $5,000 per tax year,

if the contributed amount is more than two percent of the total contributions the

organization receives in a tax year. 26 U.S.C. § 507(d)(2)(A). 501(c)(3)

organizations comply with the Disclosure Requirement by properly completing

and filing Schedule B to Form 990 (“Schedule B”). See Schedule B (Form 990),

available at https://www.irs.gov/pub/irs-pdf/f990ezb.pdf. Although Schedule Bs

must “be made available to the public at such times and in such places as the

Secretary may prescribe,” the Secretary may not “disclose the name or address

of any contributor to any organization’ (in other words, the Secretary must make

redacted Schedule Bs available to the public). 26 U.S.C. § 6104(b).

However, the IRS has a less-than-perfect record for keeping Schedule Bs

and Form 990s confidential: the IRS acknowledges at least fourteen

2 As Defendants point out, not all 501(c)(3) organizations are subject to the Disclosure

Requirements. For example, “religious activities of any religious order” are exempted

from the Disclosure Requirement. See 26 U.S.C. § 6033(a)(3)(A).

Case No. 2:22-cv-4297 Page 2 of 13

unauthorized disclosures of Form 990 information since 2010. See IRS Talking

Points, ECF No. 36-9.

Plaintiff argues the Disclosure Requirement infringes on Plaintiff's First

Amendment rights to freedom of association and assembly. E.g., Mot., ECF No.

36. According to Plaintiff, Plaintiffs (and Plaintiffs donors’) “exercise of these

rights to associate with each other in pursuing their mutual social, political, and

ideological goals is significantly curtailed because they reasonably fear that they

cannot associate privately.” /d. at 8. Plaintiffs donors have “made clear” that

they are afraid of “retribution” from Plaintiffs opponents if their Schedule B

information becomes public. Alt Decl. {ff 8, ECF No. 36-1. Some of Plaintiff's

donors have reduced their contributions to avoid being listed on Plaintiff's

Schedule B. /d. J 11-15.

Plaintiff sues Defendants, contending that the Disclosure Requirement is

unconstitutional under the First Amendment, both facially and as applied to

Plaintiff. Compl. □□□ 36-42, ECF No. 1.

ll. © STANDARD OF REVIEW

The standard governing summary judgment is set forth in Federal Rule of

Civil Procedure 56(a): “The court shall grant summary judgment if the movant

shows that there is no genuine dispute as to any material fact and the movant is

entitled to judgment as a matter of law.”

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The Court must grant summary judgment if the opposing party “fails to

make a showing sufficient to establish the existence of an element essential to

that party’s case” and “on which that party will bear the burden of proof at trial.”

Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). When reviewing a summary

judgment motion, the Court must draw all reasonable inferences in favor of the

nonmoving party, who must set forth specific facts showing there is a genuine

dispute of material fact for trial, and the Court must refrain from making credibility

determinations or weighing the evidence. Matsushita Elec. Indus. Co., Ltd. v.

Zenith Radio Corp., 475 U.S. 574, 587 (1986) (citation omitted); Anderson v.

Liberty Lobby, Inc., 477 U.S. 242, 248-49, 255 (1986). The Court disregards “all

evidence favorable to the moving party that the jury would not be required to

believe.” Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133, 150-51

(2000) (citation omitted). Summary judgment will “not lie if the dispute about a

material fact is ‘genuine,’ that is, if the evidence is such that a reasonable jury

could return a verdict for the nonmoving party.” Anderson, 477 U.S. at 248

(internal citations and quotation marks omitted).

The Court is not “obligated to wade through and search the entire record

for some specific facts that might support the nonmoving party’s claim.”

InterRoyal Corp. v. Sponseller, 889 F.2d 108, 111 (6th Cir. 1989). The Court

may rely on the parties to call attention to the specific portions of the record that

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demonstrate a genuine issue of material fact. Wells Fargo Bank, N.A. v. LaSalle

Bank N.A., 643 F. Supp. 2d 1014, 1022 (S.D. Ohio 2009).

lil. ANALYSIS

Both sides move for summary judgment on Plaintiffs claim. ECF Nos. 36

& 43. Before addressing the merits of Plaintiffs claim, the Court will consider

whether Plaintiff has standing.

A. Standing

Pursuant to Article III of the United States Constitution, federal jurisdiction

is limited to “cases” and “controversies,” and standing is “an essential and

unchanging part of’ this requirement. Lujan v. Defs. of Wildlife, 504 U.S. 555,

560 (1992). If a plaintiff lacks standing, then the federal court lacks jurisdiction.

Va. House of Delegates v. Bethune-Hill, 139 S. Ct. 1945, 1951 (2019). Thus,

standing is a “threshold question in every federal case.” Warth v. Seldin, 422

U.S. 490, 498 (1975).

Article Ill standing has three elements. “First, the plaintiff must have

suffered an ‘injury in fact’—an invasion of a legally protected interest which is

(a) concrete and particularized, and (b) actual or imminent, not conjectural or

hypothetical.” Lujan, 504 U.S. at 560 (internal quotation marks and citations

omitted). Second, the injury must be “fairly traceable to the challenged action of

the defendant.” /d. (internal alterations omitted). Third, it must be likely that the

injury will be “redressed by a favorable decision.” /d. at 561.

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Defendants argue that Plaintiff lacks standing because Plaintiff's asserted

injury has an overly attenuated connection to the Disclosure Requirement. Resp.

2-3, ECF No. 44. The Court disagrees.

First, Plaintiff has (at least one) injury-in-fact: it has received fewer

donations. Thus, Plaintiff has alleged a monetary harm. When a plaintiff suffers

a monetary harm, it “has suffered a concrete injury in fact under Article Ill.”

TransUnion LLC v. Ramirez, 141 S. Ct. 2190, 2204 (2021).

Next, consider causation. For standing purposes, “causation” means a

“causal connection between the injury and the conduct complained of—the injury

has to be fairly traceable to the challenged action of the defendant[.]” Lujan, 504

U.S. at 560 (internal quotation marks and citations omitted). Defendants argue

that Plaintiff cannot satisfy causation because it is the actions of third parties

(that is, the donors’ decision to donate less or not at all) that cause Plaintiff's

injury, not any action by Defendants. Mot. 6-12, ECF No. 21.

The Supreme Court of the United States’ decision in Department of

Commerce v. New York, 139 S. Ct. 2551 (2019) forecloses Defendants’

argument. In Department of Commerce, a group of states (the “States”)

challenged a Census rule that required respondents to mark if they were a citizen

or non-citizen. /d. at 2563-65. The States argued that many non-citizens would

choose to not complete the Census rather than check the “non-citizen” box

because of fears of legal consequences. /d. at 2565-66. Because the States

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received federal funding based on population, this non-response caused the

States a financial harm (among other harms). /d.

The Federal Government (the “Government”’) argued that the harm was

not “fairly traceable” to the Census rule because the harm depended “on the

independent action of third parties choosing to violate their legal duty to respond

to the census.” /d. The Supreme Court rejected this argument as follows:

[Wle are satisfied that, in these circumstances, respondents have met

their burden of showing that third parties will likely react in predictable

ways to the citizenship question, even if they do so unlawfully and

despite the requirement that the Government keep individual answers

confidential. The evidence at trial established that noncitizen

households have historically responded to the census at lower rates

than other groups, and the District Court did not clearly err in crediting

the Census Bureau’s theory that the discrepancy is likely attributable

at least in part to noncitizens’ reluctance to answer a citizenship

question. Respondents’ theory of standing thus does not rest on mere

speculation about the decisions of third parties; it relies instead on the

predictable effect of Government action on the decisions of third

parties ... Because Article Ill requires no more than de facto

causality[] . . . traceability is satisfied here.

Id. at 2566 (internal quotation marks and citations omitted).

The same reasoning applies here with equal weight. Plaintiff points to

evidence that donors will “likely react in predictable ways” to the disclosure

requirement: the donors reduce their donations to avoid being part of the

disclosure. Alt Decl. JJ] 11-15, ECF No. 36-1.° Indeed, not only has Plaintiff

3 Defendants argue that the Court should not consider Alt’s statements about why

donors have reduced contributions because, according to Defendants, those statements

are hearsay. However, because those statements could be presented in an admissible

form at trial (e.g., by calling the donors to testify), the Court may consider them on

summary judgment. See Bard v. Brown Cnty., Ohio, 970 F.3d 738, 758, n.12 (6th Cir.

Case No. 2:22-cv-4297 Page 7 of 13

shown that donors are “likely” to react this way, Plaintiff has shown that donors

already have reacted this way. In sum, Plaintiffs “theory of standing thus does

not rest on mere speculation about the decisions of third parties; it relies instead

on the predictable effect of Government action on the decisions of third parties.”

Dep’t of Com., 139 S. Ct. at 2566 (citations omitted). As a result, causation is

satisfied.

Finally, Plaintiff satisfies redressability because the Court could redress

Plaintiffs injury by enjoining enforcement of the Disclosure Requirement.

Accordingly, Plaintiff has standing to pursue its claims.*

B. Merits

Turning to the merits, the first issue is what standard of review applies to

Plaintiffs First Amendment claim. A recent Supreme Court case, Americans for

Prosperity Foundation v. Bonta, 141 S. Ct. 2373 (2021) (“AFPF’), is instructive.

In AFPF, certain charitable organizations challenged a California state

regulation (the “California Regulation”) that required charitable organizations to

file a Schedule B with the State of California. 141 S. Ct. at 2379. “Out of

concern for their donors’ anonymity,” the two plaintiff organizations did not

2020) (instructing that although certain “out-of-court statements may constitute

inadmissible hearsay,” “it is well-established that the party opposing summary judgment

need not produce evidence in a form that would be admissible at trial in order to avoid

summary judgment” (quotation marks and citation omitted)).

4 In arguing against standing, Defendants make many of the same arguments as the

dissent in Americans for Prosperity Foundation v. Bonta, 141 S. Ct. 2373, 2392-2405

(2021) (Sotomayor, J., dissenting). See Mot. 6-12, ECF No. 21. Unfortunately for

Defendants, those arguments did not carry the day and are thus unpersuasive here.

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provide those disclosures (or provided redacted versions). /d. at 2380. The

plaintiffs “alleged that disclosure of their Schedule Bs would make their donors

less likely to contribute and would subject them to the risk of reprisals.” /d. The

plaintiffs argued that the California Regulation violated the First Amendment. /d.

The Supreme Court began by observing that “it is hardly a novel

perception that compelled disclosure of affiliation with groups engaged in

advocacy may constitute as effective a restraint on freedom of association as

[other] forms of governmental action.” /d. at 2382 (cleaned up). A three-justice

plurality of the Court concluded that “exacting scrutiny” was the appropriate level

of scrutiny for compelled disclosure cases.° /d. at 2382-83.

Under the exacting scrutiny standard, “there must be a substantial relation

between the disclosure requirement and a sufficiently important governmental

interest.” /d. at 2383 (quotation marks and citations omitted). To pass exacting

scrutiny, the “strength of the governmental interest must reflect the seriousness

of the actual burden on First Amendment rights.” /d. (cleaned up). In addition,

although a compelled disclosure requirement need not be “the least restrictive

means of achieving [the government's] ends,” the requirement must be “narrowly

tailored to the government's asserted interest.” /d.

5 One justice concurred in the result but would have analyzed the claim under strict

scrutiny. /d. at 2389-91. Two other justices concurred in the result but would not have

decided which level of scrutiny to apply because, in their view, the California Regulation

failed under either standard. /d. at 2391-92.

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Applying AFPF, exacting scrutiny is the correct standard for this case. As

in AFPF, the Disclosure Requirement here requires (or “compels”) 501(c)(3)

organizations, including Plaintiff, to disclosure their contributors to the federal

government. Thus, as in AFPF, the Disclosure Requirement is a compelled

disclosure and will be reviewed under exacting scrutiny. AFPF, 141 S. Ct. at

2383 (“Regardless of the type of association, compelled disclosure requirements

are reviewed under exacting scrutiny.”).

Defendants disagree. Defendants argue that AFPF’s exacting scrutiny

framework is inapplicable here because Plaintiff voluntarily chose to take

advantage of the 501(c)(3) tax benefit. E.g., Mot. 2-3, ECF No. 43. In support of

this argument, Defendants cite Regan v. Taxation with Representation of

Washington, 461 U.S. 540 (1983). /d. Relevant here, Regan explains two rules:

(1) both “tax exemptions and tax-deductibility are a form of subsidy”; and

(2) although “the government may not deny a benefit to a person because he

exercises a constitutional right,” Congress may choose to not fund certain

activities without offending the First Amendment. 461 U.S. at 544-46.

The cases since Regan (including AFPF) developed on these rules. From

those cases, the Court synthesizes the following rule: Congress may, without

offending the First Amendment, condition benefits for programs or activities on

compliance with restrictions on First Amendment activities, but if Congress

denies a benefit because an organization will not comply with a restriction on

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First Amendment activities, that denial may be unconstitutional. See, e.g.,

Agency for Int'l Dev. v. All. for Open Soc’y Int'l, Inc., 570 U.S. 205, 218, (2013)

(striking down a law that required organizations that received certain federal

funding to “adopt—as their own—the Government's view on an issue of public

concern’); Rust v. Sullivan, 500 U.S. 173, 195-200 (1991) (holding that

Congress could prohibit recipients of federal funds for a “family planning” public

health project from using those funds for anything related to abortion).

Applied here, the Disclosure Requirement requires any 501(c)(3) to

disclose their substantial donors in order to operate as a 501(c)(3). Thatis, ifa

charitable organization does not disclose their substantial donors, they may not

receive the benefit of 501(c)(3) status. Thus, this is not an example of the

Government “simply insisting that public funds be spent for the purposes for

which they were authorized.” Rust, 500 U.S. at 196. Instead, the Government

denies its 501(c)(3) tax benefits entirely to organizations that resist the disclosure

requirement. Thus, if the Disclosure Requirement is unconstitutional, it would be

an unconstitutional condition on receipt of the tax benefits. See id. at 196-97

(explaining that the “unconstitutional conditions’ cases involve situations in which

the Government has placed a condition on the recipient of the subsidy rather

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than on a particular [federally-funded] program or service[.]” (emphasis in

original)).®

In sum, the remaining question is whether the Disclosure Requirement is

unconstitutional, and the Court will review the constitutionality of the Disclosure

Requirement under exacting scrutiny. The parties’ briefing under the exacting

scrutiny raises a genuine issue of material fact. For example, Defendants argue

and point to some evidence that the Disclosure Requirement is an important part

of the IRS’s enforcement and compliance procedures. Mot. 8-11, ECF No. 43.

On the other hand, Plaintiff raises several issues that undercut Defendants’

arguments. Resp. 5-13, ECF No. 49. Determining which side is ultimately more

persuasive will turn, at least in part, on witness credibility, which is an

inappropriate consideration at summary judgment. Anderson, 477 U.S. at 255.

Accordingly, both motions for summary judgment are DENIED.

6 That Plaintiff could re-organize as a different type of 501(c) organization does not

change this conclusion. As the Supreme Court has explained, both tax exempt status

and tax deduction status (that is, the status that allows an organization to receive tax-

deductible donations) are subsidies. Regan, 461 U.S. 544. If Plaintiff reorganizes as a

different type of 501(c) organization, it would lose tax deduction status. Thus, the

allegedly unconstitutional condition (the disclosure requirement) is on the tax deduction

status.

Case No. 2:22-cv-4297 Page 12 of 13

IV. CONCLUSION

For the following reasons, Plaintiffs motion for summary judgment and

Defendants’ motion for summary judgment are DENIED. The motion to dismiss

is TERMINATED AS MOOT. The parties are ORDERED to file a joint notice

‘WITHIN FOURTEEN DAYS identifying the anticipated length of trial, number of

witnesses, and mutually available trial dates in the next several months.

The Clerk shall terminate ECF Nos. 21, 36, and 43.

IT IS SO ORDERED. |, - { Ii] bon

MI KEL H. WATSON, JUDGE

UNITED STATES DISTRICT COURT

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