The question of when a politically-active, nonprofit 501(c)(4) group must publicly disclose its donors has been on the front burner in various states—most, like New York and California, have called for greater regulation, while others like Arizona have loosened the reins. At the federal level, silence has been the norm because the statute is generally read as only requiring disclosure by a 501(c)(4) (or other nonprofit such as a 501(c)(6)) if a donor contributes for the purposes of funding a particular ad. The FEC has consistently deadlocked on complaints alleging either that a donor gave for the purpose of supporting an ad or that a 501(c)(4) should be treated as a political committee and disclose all of its donors.
Last week, however, details were released from an FEC enforcement matter that met this stringent test and, as a result, the Commission levied fines totaling $233,000 against three nonprofit groups for failing to identify donors behind specific advertisements. These three settlement agreements, released as a group, provide significant guidance to nonprofit 501(c)(4)s and other actors as to what type of conduct will trigger donor disclosure at the federal level.
A 501(c)(4) organization must file reports with the FEC concerning its independent expenditures (ads that expressly advocate for or against candidates) and electioneering communications (television or radio ads that refer to a federal candidate, air during specified pre-election periods, and target the relevant audience). Such ads have been on the rise, and growing exponentially, since 2008. But disclosure of donors to these groups often goes unreported. Under the prevailing FEC interpretation, 501(c)(4) organizations must disclose their donors on campaign finance reports only when they contribute specifically to support particular ads that are the subject of an FEC report. Since the vast majority of donors do not earmark their contributions for these purposes, donors’ identities typically remain unknown to the FEC and the public at large.
The case resolved last week helps demonstrate when a donor has that specific intent. In those cases, one 501(c)(4) (Group A) gave a series of contributions to three other entities, including two 501(c)(4)s and a 501(c)(6) (Group B). As the FEC explained, the same individual (Person 1) was simultaneously the Executive Director of the Group A and was the owner of a firm retained by Group B to produce the ads. Under these circumstances, the FEC found that the donor organization clearly understood which ads it was funding.
At the end of the day, the financial penalty is significant, particularly by FEC standards. However, the resolution of the case provides less than complete disclosure because the amended reports filed as part of the settlement list only Group A as the contributor to Group B. The sources of that donor organization’s funds remain unknown.
Nonprofit groups should keep in mind that disclosure of their donors may be required where a contributor intends a contribution to fund a particular independent expenditure or electioneering communication. Even if an earmarked designation does not appear on the memo line of a check or if a transmittal letter assures a grant is made for a general purpose fund, if a nonprofit receives funds with strong indicia of the donor’s motives and intentions for the contribution, disclosure of that donor may be required on the organization’s FEC filing. Finally, a growing number of states have expanded their disclosure laws to force 501(c)(4) groups to disclose individual donors behind contributions received from other 501(c)(4) groups.