DATELINE: May 24, 2009, Chicago
Well, well, well. Everyone seems to wait for Memorial Day weekend to release explosive news. North Korea literally set off a nuclear explosion in an underground test. Now Liberty University has detonated its own bombshell. It has decided that a student Democratic club will no longer be officially recognized as a university club. The club still will be permitted to meet on campus, but it no longer will be eligible for university funding and it can no longer use the university name, according to a May 25, 2009 press release from Jerry Falwell, Jr., the university’s Chancellor and President. The Democratic club received an e-mail announcing the decision on May 15, 2009. Anita Kumar, Liberty U. Drops Democratic Club: Party's Views Conflicts with Those of College, Administrators Say, Washington Post (May 23, 2009).
Unfortunately the press release does not discuss the status of the university’s Republican club, but we will assume for purposes of this post that there is one and that it continues to be recognized as an official club. This assumption is supported by a report by an ABC News affiliate that the Republican club's status is untouched. Jeremy Mills, University Rejects LU Democrat Club, ABC News--WSET-TV (May 22, 2009). If Chancellor Falwell would like to challenge this assumption, he should issue a press release that lays all the salient facts out.
Not surprisingly, there already is speculation whether the IRS will...
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yank Liberty University's tax-exempt status, but that will not be as easy as many think, at least to the extent revocation is predicated on the notion that the university has violated the prohibition against campaign interventions by Section 501(c)(3) organizations.
There nevertheless may be other grounds for pulling status. Falwell’s press release raises serious questions as to whether Liberty qualifies as an educational institution. At six points in the press release, Falwell use “its’” as a possessive. For example, Falwell writes:
And, never has the University or its’ officials said that a person cannot be a Christian and a Democrat. Sorry for those who want to run with these titillating soundbites, but these are the facts.
[Emphasis added]
For those students at Liberty who are not adept with the English language, "its''" is a botched form of the contraction for "it is." The proper form is "it's." Falwell might better serve his students if he focused on grammar rather than student clubs. Snarky, but we couldn't resist.
Now let’s return to the main question. Should Liberty University lose its tax-exempt status? A good case can be made that the university should, but not necessarily because the university violated Section 501(c)(3)’s prohibition against campaign interventions.
The 2002 Election Year Issues IRS EO CPE Text (Judith E. Kindell and John Francis Reilly) is instructive. It addresses student clubs, stating:
Colleges and universities frequently make facilities available to student groups and others. Whether the provision of facilities to a group for the conduct of political campaign activities will constitute participation or intervention in a political campaign by the college or university will depend upon all the facts and circumstances, including whether the facilities are provided on the same basis that the facilities are provided to other non-political groups and whether the facilities are made available on an equal basis to similar groups.
This passage suggests that funding one political club without funding them all poses a problem.
Revenue Ruling 72-513, 1972-2 C.B. 246, also is instructive. This is a well-known ruling pertaining to a college newspaper. The student editors took positions on political matters in editorials. The newspaper provided training for students in various aspects of newspaper publication (including editorial policy) and was distributed primarily to students of the university. Editorial policy was determined by the student editors and not by the university or the faculty advisors. A statement on the editorial page clearly indicated that the views expressed were those of the students and not of the university. Because the university did not dictate the editorial position, the political activities of the student editors were not attributed to the university even though the university provided support to the newspaper. This ruling would seem to permit Liberty University to recognize and fund political clubs so long as it does so on a non-partisan basis.
Given the national election cycle, we initially thought that Liberty University might have some breathing room. Identifying a campaign intervention is difficult when there is no campaign. Virginia, the state in which Liberty is located, presents a troubling set of facts for the university, however. There is a gubernatorial primary scheduled for June 9, 2009, raising the distinct possibility that the university's decision was motivated by a desire to affect the election's outcome. This sort of overt action could be construed as a coded message to vote for a particular candidate or party.
There also is the private benefit doctrine, which the IRS invoked in American Campaign Academy, 92 TC 1053 (1989). In that case, the organization failed to qualify as an organization described in Section 501(c)(3) because, although its activities did not constitute prohibited political campaign intervention, its method of operation conferred a substantial private benefit on another organization, which happened to be a political party.
If past efforts to apply American Campaign Academy are any indicator, Liberty University has fired the opening shot in what will be a long and protracted fight should the IRS decides to challenge the university’s tax-exempt status. We hope the IRS decides to take Liberty University up on the challenge. We have no idea how much money the Democratic club received, but we suspect Liberty University's decision was not motivated by the money. This looks to us like another calculated challenge by certain religious organizations to the prohibition on Section 501(c)(3) organizations from participating in political campaigns.
We look forward to the fireworks that Liberty University's apparent in-your-face move will spark.
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