The U.S. Supreme Court this week left in place a lower court ruling that expands donor disclosure for advocacy groups that fund independent expenditures. While the full effect of the ruling may not be known for some time, groups in the throes of an election season suddenly have to reconsider their electoral spending plans and fundraising practices, and donors to politically active 501(c)(4) social welfare organizations or 501(c)(6) business leagues have to account for an increased risk that their donations will be publicly disclosed.
What Does the Ruling Do?
Groups that are not registered with the Federal Election Commission (FEC) as campaign committees, party committees, or PACs are nonetheless required to file reports if they make an expenditure of more than $250 that expressly supports or opposes a federal candidate. These “independent expenditure” reports must itemize disbursements to each vendor involved in the creation and distribution of an ad (or other public communication), and identify the election involved and whether the organization supports or opposes the featured candidate.
In addition, a long-standing FEC rule requires that these reports identify donors who gave more than $200 to the organization in the calendar year for the purpose of funding the particular ad that is being reported. As a practical matter, donors seldom know that their funds will be used to pay for a specific ad, and thus donors have rarely been disclosed.
The district court struck down the FEC donor-disclosure rule, concluding that it applied the statutory disclosure requirement too narrowly. The court concluded that independent expenditure reports filed by groups that are not registered political committees must identify all donors who (1) give to the organization for the purpose of influencing a federal election, or (2) give for the purpose of funding the group’s independent expenditures, whether tied to a specific ad or not. The court stressed, however, that contributors to an organization’s “general programs” need not be identified.
The court deferred the effective date of the ruling for 45 days, giving the FEC time to adopt a new donor disclosure rule. That period came and went with no new rule or interpretive guidance. Crossroads GPS, which intervened in the case, has appealed the ruling to the D.C. Circuit.
What Happens Now?
- Legal questions unanswered. The district court ruling leaves much unsettled. For instance: What are the disclosure obligations of a group that received donations prior to the ruling but makes independent expenditures after it? How should a group determine whether a donation was made for the purpose of influencing a federal election or to further an independent expenditure? How much due diligence is required of an organization to make these determinations? And when does a group disclose a reportable contribution? Once? Every time it files an independent expenditure report?
- Internal practices under review. Organizations will want to review their fundraising practices, including written solicitations and donor meetings, to determine what information is shared with prospective donors about the group’s spending plans. While some groups will continue to make independent expenditures and disclose donors who they have determined gave funds to influence federal elections, others may want to consider shifting their budgets to issue ads that don’t refer to a candidate or “electioneering communications” that reference a candidate but that do not expressly advocate the candidate’s election or defeat. These ads can often be just as persuasive as independent expenditure ads, but are subject to looser regulation with more limited or no donor disclosure obligations. Still others may determine that the group has not received any donations to influence federal elections based on the group’s solicitation and gift acceptance practices, and will continue to make independent expenditures without disclosing donors on FEC reports.
- Increased risks for donors. Donors to politically active 501(c)(4) or 501(c)(6) advocacy groups face an increased risk that their donations will be disclosed, particularly if the organization soliciting the funds indicates that their donation will be used, in whole or in part, to influence a federal election. Donors concerned about disclosure should do their own due diligence and obtain appropriate written confirmation of how their donations will or will not be used.
- Growing role for super PACs. Some advocacy groups may choose to fund electoral ads through an affiliated super PAC, which is a political committee formed to make only independent expenditures. Super PACs disclose all contributions received and all expenditures made through a regular reporting schedule. 501(c)(4) and other similar groups may contribute unlimited amounts to super PACs (subject to limitations on political activities imposed by the Internal Revenue Code), though a 501(c)(4) may not serve merely as a pass-through.
- More complaints filed with the FEC. Independent expenditure reports are likely to draw scrutiny over the coming weeks, with watchdog groups and political adversaries filing complaints over perceived inadequate disclosure. Large contributions from 501(c)(4) groups to super PACs may also elicit complaints.
It is rare for the courts or the FEC to change campaign finance rules this close to an election. With only seven weeks until the 2018 midterm elections, and without the benefit of agency guidance, advocacy groups are now faced with the significant challenge of how to apply these new rules to already planned communications.