WSJ too protests law firms trying to play games with tax laws

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The title “Texas cracks down on pro-bono legal aidmight make your blood boil that a cabal of protectionist lawyers seek to amplify the legal peril facing the indigent. It would be a grave injustice.

BUT it turns out that’s not what this editorial is about! Instead, the Journal complains that advocacy groups with obscure finances may not be able to inject themselves directly into the political process without facing the same legal scrutiny:

Election police are always looking for new ways to limit political speech, and their next victim could be public interest law firms. That is now being tested in Texas, where the state ethics commission could decide on Thursday whether a law firm can be barred from offering pro bono legal aid to a candidate.

For the record, the notice does not suggest that law firms would be prohibited from offering pro bono legal services to a candidate.

Instead…

According to the commission’s draft advisory opinion, a public interest firm that provides free legal services to a candidate would make an in-kind contribution to the campaign.

Because giving value to a campaign for free is in fact an in-kind contribution.

The legal billing adds up quickly, so any company offering pro bono assistance would also risk changing its tax-exempt status and disclosing its donors.

The FEC already has provisions enabling entities to provide free legal services to campaigns and individual lawyers can do pro bono work as volunteers. Then help is here! But the complaint here focuses specifically on groups created to avoid taxes conditioned on a promise to stay out of politics. The argument for the tax exemption is that, hypothetically, if a state characterized the work of a 501(c)(3) as contributing to a political campaign, the IRS could stop considering the entity as a 501( c)(3). Aside from whether or not the IRS would handle it that way, such a declassification would happen… because the organization is actually involved in direct political activity. I know there are a lot of 501(c)(3) organizations that make the distinction between being overtly political and just being politically adjacent, but just because the IRS looks the other way more often doesn’t mean it should only these groups should continue to get tax breaks to actively do campaign work.

If you want to offer your services to candidates… pay your taxes.

But the question of transparency is perhaps what really bothers these groups. Campaign donations to candidates trigger disclosure requirements because the Supreme Court has not (yet) removed protections against people who bribe candidates outright. But, thanks to the magic of political action committees, the money can stay in the shadows if it’s spent on non-candidates. For the specific companies involved, the problem is that they plan to launch an assault on election laws and only the candidates will have standing.

Let’s see: Candidates are most likely to have standing to challenge election rules, but according to the election commission, they cannot hire a public interest lawyer to do so.

Again, they CAN hire a lawyer to do this. But if lawyers removed the above tax barriers and did this work for free, they might have to reveal who is actually paying for this work and these people don’t want that to happen. Because the people behind these anti-election efforts don’t have the courage of their convictions to actually be identified.

The Texas opinion is a threat to 501(c)3 groups that would face the compromise of their core mission.

Their main mission being… to provide free legal services to campaigns? Because if it’s the “main” mission, it shouldn’t be a 501(c)(3) in the first place.

The draft notice also threatens candidates’ ability to file legal challenges, which are often costly and time-consuming, costing more than many small local campaigns can raise.

There is a simple solution…the organization does not have to be a 501(c)(3).

The ACLU also opposes this advisory opinion, so there is an element of bipartisanship – although the ACLU’s objection presents its objection as seeking an exclusion for services rendered to “advocate for civil rights and civil liberties” which could arguably be separate from electoral work.

Yet we have laws designed to protect the sanctity of the political process. Among these laws are bans on giving political groups free tax exemption cards and some semblance of basic transparency.

In practice, the Commission will likely relent or there will be a legal challenge and a judge will argue that the fact that these groups have free speech rights simultaneously grants them tax exemption rights for some reason.

But we don’t have to live that way as a country. We could draw a line that whatever the limit for tax-free political advocacy, working directly for a candidate is on the wrong side.

Texas cracks down on pro-bono legal aid [WSJ]


Head shotJoe Patrice is an editor at Above the Law and co-host of Think like a lawyer. Feel free to email tips, questions or comments. Follow him on Twitter if you’re interested in law, politics, and a healthy dose of college sports news. Joe also serves as Managing Director at RPN Executive Search.

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