195 F.3d 47 (D.C. Cir. 1999)
American Society of Association Executives, Appellantv.United States of America, Appellee
No. 98-5563
United States Court of AppealsFOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued October 6, 1999Decided November 9, 1999

Appeal from the United States District Court for the District of Columbia(No. 95cv00918)
Nory Miller argued the cause for appellant. With her on  the briefs were Bruce J. Ennis, Jr., and Jerald A. Jacobs.
Steven W. Parks, Attorney, U.S. Department of Justice,  argued the cause for appellee. With him on the brief were  Loretta C. Argrett, Assistant Attorney General, Kenneth L.  Greene, Attorney, and Wilma A. Lewis, U.S. Attorney. Thomas J. Clark, Attorney, U.S. Department of Justice,  entered an appearance.
Before:  Edwards, Chief Judge, Wald and Williams,  Circuit Judges.
Opinion for the Court filed by Circuit Judge Williams.
Williams, Circuit Judge:


1
Before its amendment by the  Omnibus Budget Reconciliation Act of 1993, Pub. L. No.  103-66 (the "1993 Act" or the "Act"),  162(e) of the Internal  Revenue Code ("I.R.C.") allowed businesses to deduct their  direct lobbying expenditures as business expenses.  In the  1993 Act, Congress amended I.R.C.  162(e) so that lobbying  expenses would no longer be deductible.  26 U.S.C.  162(e)  (1994).  It also enacted several additional provisions to ensure  that taxpayers could not evade the force of the Act by paying  dues to tax-exempt organizations that would then conduct the  desired lobbying activities.  The American Society of Association Executives, a tax-exempt trade association that lobbies  on behalf of its members, filed suit, alleging that these  provisions placed an affirmative burden on its right to lobby,  in violation of the First Amendment.  The district court rejected the constitutional challenge and granted the government's motion for summary judgment;  we affirm.


2
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3
Under the 1993 Act, a tax-exempt organization that engages in lobbying activities and is funded in part by membership dues and other contributions may either pay a tax on its  lobbying activities (the so-called "proxy tax"), or may follow  "flow-through provisions" aimed at making sure no contributor or dues payer takes a deduction with respect to funds  used for lobbying.  26 U.S.C.  6033(e) (1994).


4
The proxy tax, if the tax-exempt organization chooses that  route, falls on all lobbying expenses as defined in  162(e)(1)  and is imposed at the highest marginal rate of the corporate  income tax under I.R.C.  11, now 35%.  Id.   6033(e)(2)(A)(ii).  If the organization chooses the flowthrough alternative, it is required to provide donors, at the  time of "assessment or payment" of dues or other contributions, with a "reasonable estimate" of the portion of the dues  or contributions that is allocable to  162(e)(1) expenditures.  Id.  6033(e)(1)(A)(ii).  Donors are not allowed to take a  deduction for the portion of their dues and contributions  allocable to such expenditures.  Id.  162(e)(3).


5
To prevent organizations from circumventing the purpose  of the flow-through provisions by artificially allocating their  dues to non-lobbying activities, Congress enacted an "allocation provision."  Id.  6033(e)(1)(C)(i).  This provision dictates that lobbying expenditures will be considered paid out  of membership dues or "other similar amounts" to the extent  that they exist.  Id.  So as to preclude the analogous manipulation across years (e.g., an organization might "prepay"  lobbying expenses in excess of dues in one year and reduce  its lobbying expenses below that received from dues in the  following years, thereby artificially increasing the deductions  for which its members are eligible), a "carryover" provision  dictates that any lobbying expenditures in excess of the dues  or other amounts paid to the organization in one year will be  treated as expenditures incurred during the following year  and payable out of dues received during that year.  Id.   6033(e)(1)(C)(ii).


6
The organization must include on its annual tax returns the  lobbying expenditures that it has incurred as well as the total  amount of dues "to which such expenditures are allocable."Id.  6033(e)(1)(A)(i).  If a tax-exempt organization trying to  follow the flow-through method in fact incurs lobbying expenditures in excess of the aggregate amount covered as nondeductible by its notices to dues payers for the year, the  discrepancy will be subject to the flat 35% tax.  Id.   6033(e)(2)(A).  The Secretary may (but evidently need not)  "waive" this tax if the organization agrees to correct its  mistaken estimate by "carrying over" the excess to the following year and allocating it to dues paid in that year.  Id.   6033(e)(2)(B).


7
The American Society of Association Executives is a nonprofit professional association that lobbies on behalf of about  23,000 association executives and staff members.  It is tax exempt under 26 U.S.C.  501(c)(6), as a "[b]usiness league[ ] ... not organized for profit."  Thus it is subject to the  lobbying tax provisions at issue in this case.


8
For its fiscal year ending June 30, 1994, the Society chose  to apply the "proxy tax" to its lobbying expenditures, thus  allowing its members and contributors full deductibility.  On  November 7, 1994 it submitted an amended tax return,  requesting a refund of the $56,900 paid as proxy tax, and  claiming that the tax scheme was unconstitutional.  After six  months passed without action on the refund claim by the  Internal Revenue Service, the Society brought suit in district  court.  It alleged that the scheme placed a burden on its  freedom of expression in violation of the First Amendment,  and that it discriminated against lobbying associations and in  favor of individual businesses and private persons, in contravention of the Fifth Amendment.


9
The district court granted the government's motion for  summary judgment, rejecting both the Society's claims.  See  American Soc'y of Ass'n Executives v. United States, 23  F. Supp.2d 64 (D.D.C. 1998).  On appeal, the Society argues  only its First Amendment theory.


10
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11
The Society and the government agree on certain general  principles.  Although the government has no obligation to  subsidize speech, see, e.g., Perry v. Sindermann, 408 U.S.  593, 597 (1972), the courts will subject to "strict scrutiny" any  affirmative burden that the government places on speech on  the basis of its content.  See, e.g., Leathers v. Medlock, 499  U.S. 439, 447 (1991).  The Society points to various effects of  the proxy and flow-through choices that in its view affirmatively burden lobbying.


12
First, at least for association members in relatively low  brackets, the flat 35% rate necessarily places a higher effective burden on lobbying through an association than the  generally applicable corporate tax--a graduated rate starting  at 15% and capped at 35%--places on direct lobbying.  The  government counters (in part) that a dues payer in the 35%  bracket, and even well below, can get more lobbying per pretax dollar by contributing to a lobbying association than by  doing its own lobbying.  This is because the dues payer gets a  deduction for its full contribution to the entity, including the  amount devoted to the tax payment itself.  Whereas a dues  payer can buy $100 worth of lobbying for $135 (i.e., $100 plus  the $35 proxy tax), a corporation that is taxed at a 35% rate  would have to use up $154 of pre-tax income in order to spend  $100 on lobbying (65% of $154 = $100).1  The Society contests these calculations, but we need not resolve the dispute,  partly because the government figures would still leave dues  payers in tax brackets lower than the effective rate of the  proxy tax (brackets lower than 26% by the government's  calculations) more burdened by the proxy tax than by the  treatment of direct lobbying.  An additional reason we need  not resolve it is that, as we shall see, associations like the  Society have an option that avoids any such possible burden.


13
Alternatively, argues the Society, the flow-through method  subjects lobbying to a risk of non-neutral treatment.  If an  association overestimates its lobbying expenses, its dues payers will forfeit part of their deduction for nonlobbying business activities, without the possibility of recovering this deduction in the future.  And if it underestimates lobbying  expenditures, it is exposed to the proxy tax, from which it can  escape only if the Secretary chooses to "waive" the tax and  allow "carryover" treatment.  The Secretary has failed to  adopt regulations setting forth clear sufficient conditions for  the waiver.  According to the Society, his only official statement on the subject consists of instructions for Form 990 (the  income tax return for associations), in which he says that he  may permit a waiver if the association's estimate was reasonable and the association agrees to add the excess to the  following year's amount.  See IRS Form 990, line 85h and Instructions (1998).  The Society argues that, in light of the  First Amendment right to lobby, the Secretary's discretion is  far too broad to survive strict scrutiny.


14
Finally, the Society says that the allocation rules, by treating the association's lobbying expenditures as funded by dues  or similar payments (to the extent available), regardless of  their actual source, in effect limit the deductions that members can take for dues that the association spends on ordinary  business activities.  This, it says, violates the principle that  the government may not condition the receipt of an otherwise  available benefit on an entity's refraining from the exercise of  its freedom of speech.  See Perry, 408 U.S. at 597.


15
We do not reach these arguments, however, because a tax exempt organization that engages in lobbying activities can  altogether sidestep the specified dilemmas.  A  501(c)(6)  association can avoid any alleged burden on its First Amendment rights by splitting itself into two  501(c)(6) organizations--one that engages exclusively in lobbying on behalf of  its members and one that completely refrains from lobbying. Whereas the lobbying wing can be funded by dues and  contributions, for which members will not be able to take a  deduction, the non-lobbying affiliate can be funded, at least in  part, by deductible dues.  This system achieves precisely  what the Society says the Constitution demands:  a generally  applicable tax system that, although it does not subsidize  lobbying, imposes no burden on it by comparison with other  activities.


16
If this option is available, the treatment of lobbying contested here is subject only to "rational basis" scrutiny, and, as  we shall see, handily survives.  In Regan v. Taxation With  Representation, 461 U.S. 540 (1983), the Supreme Court  considered the operation of I.R.C. §§ 170(c)(2), 501(c)(3) and  501(c)(4).  Sections 501(c)(3) and (4) define the characteristics  of certain tax-exempt organizations, the key difference (for  our purposes) being that "no substantial part of the activities"  of a  501(c)(3) organization may consist of lobbying, whereas  no such limit applies to  501(c)(4) organizations.  The trade off is that  170(c)(2) permits taxpayers to deduct any contributions made to  501(c)(3) organizations, but not to organizations that are tax-exempt under  501(c)(4).  Because the  plaintiff organization in Taxation With Representation could  conduct its lobbying activities through a  501(c)(4) affiliate,  and continue to receive deductible contributions as a   501(c)(3) organization, the Court applied rational basis review and upheld the statute.  See Taxation With Representation, 461 U.S. at 547;  see also Rust v. Sullivan, 500 U.S. 173,  196-98 (1991) (upholding Congress's subsidy of family planning services even though the funding could not be used for  abortion-related activities, on the basis that the grantee could  still conduct such activities through programs that were  "separate and independent" from those receiving federal  funds).  In contrast with the situation in Taxation With  Representation, the Court in FCC v. League of Women  Voters, 468 U.S. 364 (1984), invalidated a grant conditioned on  a broadcasting station's not "engag[ing] in editorializing," on  the basis that the station could not "segregate its activities  according to the source of its funding."  Id. at 400-01.2


17
In Taxation With Representation the Court noted that the  taxpayer organization must show that its  501(c)(3) wing  does not subsidize its  501(c)(4) affiliate, so as to ensure that  "no tax-deductible contributions are used to pay for substantial lobbying."  461 U.S. at 544 & n.6, 103 S.Ct. 1997.The Court found,  however, that the IRS's only requirements to that end--that the two organizations be "separately incorporated and keep  records adequate to show that tax-deductible contributions  are not used to pay for lobbying"--were not "unduly burdensome."  Id. at 545 n.6;  see also id. at 553 (Blackmun, J.,  concurring) (stating that "[a]s long as the IRS goes no  further than this," the plaintiff's right to engage in lobbying  has not been infringed).


18
An organization like the Society can similarly split into two   501(c)(6) associations.  Neither affiliate would forfeit its  tax-exempt status, as the non-lobbying wing would clearly  continue to be a "business league" for purposes of the statute,  and the lobbying wing, so long as its activity is directed at  furthering a business interest, would also remain tax-exempt  under  501(c)(6).  See Rev. Rul. 61-177, 1961-2 C.B. 117  (stating that a corporation whose sole activity is to influence  legislation relevant to a business interest is exempt under   501(c)(6) if it otherwise meets the requirements of that  section).


19
The Society argues, however, that the regulations promulgated in response to the 1993 Act block such a remedy.  It  points in particular to the Treasury Department's regulation  precluding a taxpayer from "structur[ing] its activities with a  principal purpose of achieving results that are unreasonable  in light of the purposes of section 162(e)(1)(A) and section  6033(e)." Treas. Reg.  1.162-29(f) (1995).  Assuming that  this applies to an organization that formally segregates its  lobbying from its nonlobbying activities through dual incorporation, we see no indication that this is in any way more  onerous than the separation criteria referred to in Taxation  With Representation.  So long as the organization does not  attempt to evade  162(e)(1)(A)--by funneling resources to  the lobbying wing from the non-lobbying wing--we do not see  how it could run afoul of the regulation.  In fact, a dual-entity  structure is entirely consistent with Congress's intent in  enacting the 1993 Act:  to withdraw the deduction for lobbying expenses without affirmatively burdening the right to  lobby.


20
Apart from its claims that the regulations unduly hamper  the dual-entity strategy, the Society invokes Minneapolis  Star & Tribune Co. v. Minnesota Comm'r of Revenue, 460  U.S. 575, 587-88 (1983), for the idea that differential tax  treatment of the press is subject to heightened scrutiny even  when the taxpayer cannot prove the differential burdensome. Similarly, any subjection of lobbying to differential treatment  must meet heightened scrutiny.  But Taxation with Representation, and the other cases cited above and using only  rational basis scrutiny, were all decided after Minneapolis  Star (indeed, Taxation with Representation was decided later  the same Term).  The Court evidently regards the dual  incorporation option as obviating the need for heightened  scrutiny.  Even if we reframe the Society's objection as a  claim that the need to adopt a dual incorporation is itself a  "differential" (after all, non-lobbying associations that have  multiple functions commonly need not subdivide), the Court's  decisions necessarily reject the notion.


21
Accordingly, we ask simply whether the provisions bear "a  rational relation to a legitimate governmental purpose."  Taxation With Representation, 461 U.S. at 547.  The parties  agree on the legitimacy of withholding the benefits of tax  deductibility from lobbying.  And the scheme overall clearly  bears a rational relation to that goal.  For instance, the  estimation provision,  6033(e)(1)(A)(ii), allows taxpayers to  continue to take a deduction for dues paid to tax-exempt  organizations not allocable to lobbying.  The carryover and  allocation provisions,  6033(e)(1)(C) ensure that taxpayers  may not circumvent the Act by taking deductions for money  that will fund lobbying activities, directly or indirectly.  We  find no constitutional violation.


22
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23
The district court's order granting summary judgment for  the defendant is


24
Affirmed.



Notes:


1
 A firm that spends $100 on direct lobbying pays tax not only on  the $100, but on the $35 needed to pay tax on the $100, and the  $12.25 needed to pay tax on that $35, etc.  The formula for the sum  of an infinite geometric series is a + ar + ar2 + ar3 + ... =  a/(1-r), so that a firm in the 35% bracket, seeking to generate $100  for lobbying, needs $100/(1-.35) or $154 in pre-tax income.


2
 One might wonder why a grant-dependent broadcast licensee  could not create an independent affiliate and transfer to it, for fair  market value, an entitlement to broadcast in specified time slots. At least one answer is that the FCC has traditionally barred  broadcast licensees from creating de facto sublicensees by subdividing spectrum allocations or otherwise parceling out air time to third  parties.  See Howard A. Shelanski, The Bending Line Between  Conventional "Broadcast" and Wireless "Carriage", 97 Colum. L.  Rev. 1048, 1069-70 (1997);  47 CFR  73.3555 (1998) (requiring that  the licensee "maintain[ ] ultimate control over the station's facilities,  including specifically control over station finances, personnel and  programming").


