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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.

Continue Reading The FEC Levels Fines on Nonprofits over Donor Disclosure

Interested in what it takes to set up a federal Super PAC? Take a look at Venable’s recently released white paper summarizing the key rules of the road, including:

  • Steps for creating a federal Super PAC
  • Avoiding illegal coordination with candidates
  • FEC and IRS reporting obligations
  • Advertising disclaimers

For those interested in Maryland elections, please also see our white paper summarizing the rules of the road for setting up and operating Maryland Super PACs.

With extensive experience advising federal, state, and local Super PACs and their donors, Venable’s Political Law Practice Group is ready to assist with all of your Super PAC legal needs in the 2016 election cycle and beyond.

moneyhandsOver the last few years, the courts have loosened campaign finance laws and the agency charged with enforcing them is frequently gridlocked. However, one campaign finance violation that can still get you in big trouble is reimbursing contributions, particularly when the reimbursing is done by a corporation.

In settling a recent enforcement matter involving the Fiesta Bowl, the Federal Election Commission (FEC) obtained fines of nearly $100,000 from the corporation and the CEO and restitution by the CEO of over $60,000. A parallel criminal case resulted in guilty pleas that landed the former CEO in jail for eight months, community service for one executive, and two years of probation for another (who would have also faced a $15,000 penalty from the FEC, but she was able to demonstrate an inability to pay).

The case is not really new – the settlements occurred in 2012 and 2013 – and the FEC has yet to release the documents on its website, but the organization that filed the complaint with the FEC made them available to the public. The documents show a scheme that the FEC says included:

Continue Reading The Big No: Reimbursing Contributions

Ramping Up for the 2016 Cycle Make Compliance a Priority for LobbyingThursday, March 26, 2015
1:30 p.m. – 2:30 p.m. ET – Webinar

The Justice Department recently announced its first criminal prosecution for coordination. States like Virginia are revamping their ethics laws and California recently imposed new restrictions on lobbyists. Although the IRS has yet to issue regulations for 501(c)(4)s, many states have created new disclosure requirements for politically active nonprofit groups. Maryland has imposed tough new disclosure requirements on state contractors that make campaign contributions.  Continue Reading Please Join Us: WEBINAR – Ramping up for the 2016 Cycle: Make Compliance a Priority for Lobbying and Political Activity

b2tfIn January 2010 –  as almost everyone already knows by now – the Supreme Court struck down major portions of campaign finance laws, allowing corporations to make independent expenditures in support of, or opposition to, candidates for federal office. Super PACs that could accept unlimited individual and corporate contributions soon followed based on lower court decisions.

Interestingly, the FEC never changed its rules to implement the Court’s decision. Pick up the Code of Federal Regulations from 2011, 2012, 2013, or 2014 and you will find very clear statements that corporations may not make independent expenditures or electioneering communications.

At long last, in October of last year, the FEC got around to making some changes to its regulations to account for Citizens United. They became effective on January 27, 2015, but the FEC just released the notice setting the effective date. You can now read in the regulations something that has been true for five years: “A corporation or labor organization may make independent expenditures or electioneering communications.”

As it has done every two years since the Bipartisan Campaign Reform Act indexed contribution limits for inflation, the FEC has announced revised contribution limits for the 2016 election cycle. In addition to the traditional limits for candidates, PACs, and parties, the FEC also set the indexed limit for the new special accounts created at the end of 2014 for the national political parties. This first chart shows the limits for individual and PAC contributions to candidates, PACs, and state and local party committees:


This next chart shows the amounts that an individual may give to the national party committees. The general fund is the account that has always existed, while the other funds are the new accounts Congress created in 2014 to help the parties to defray certain costs: Continue Reading More to Give: FEC Raises Contribution Limits

aftershockThe Supreme Court yesterday struck down the limit on the total amount an individual may contribute to federal candidates, PACs and political parties in a two-year election cycle. The 5-4 ruling is unlikely to have a major impact on political giving this year, but casts serious doubt on the constitutionality of similar state contribution schemes and paves the way for further challenges to federal campaign finance laws.

The case has sparked heated comment, not least by the four dissenting justices who charge that yesterday’s ruling “eviscerates our Nation’s campaign finance laws.” We do expect the ruling to prompt more donors to give the maximum contributions to the national committees of the Democratic and Republican parties (DNC, RNC, and their House and Senate committees), which the aggregate limits precluded donors from doing. Beyond that, the impact on federal elections will probably not be great. Few individuals come close to maxing out under the two-year election cycle limit, which in the current cycle allows individuals to give up to $123,200, of which $48,600 could be given to federal candidates. On top of that, the Federal Election Commission has never bothered to monitor or enforce this limit.

Also worth noting is that corporations are still barred from contributing in federal elections, and individuals interested in supporting candidates at these higher levels have better options available, such as Super PACs and 501(c) groups.

State Laws in Jeopardy

The more immediate and potentially significant impact of the ruling will be on state laws that apply calendar year or election cycle limits on political contributions. As we have previously written, at least 12 states have such limits, almost all of which are much lower than the overturned federal limit. In fact, Massachusetts wasted no time in announcing that based on the Supreme Court’s ruling, it will no longer enforce the state’s $12,500 limit on the total contributions an individual can make in a calendar year. We expect other states will follow suit.

Likely Reaction

While these state aggregate limits will likely fall, we expect states to propose new laws to bolster disclosure and limit the impact of the ruling. In yesterday’s ruling, as in the Citizens United case, the Supreme Court touted Internet disclosure as a potent protection against corruption. This favorable view of disclosure is likely to fuel efforts to force more groups involved in election activity to publicly reveal their donors and detail their spending. In addition, the Court suggested potentially acceptable ways that Congress could address concerns about donors funneling contributions through multiple PACs and party committees to support a particular candidate. While none of these ideas is likely to get traction in Congress, some states are sure to jump at the Court’s invitation to restrict the transfer of funds among candidates and political committees, or bar contributions to PACs that have indicated they will support candidates to whom the donor has already contributed.

Future Challenges

Finally, the parade of lawsuits seeking to dismantle federal campaign finance restrictions is likely to continue. The Supreme Court held on Wednesday that any regulation of campaign finance activity must satisfy a very high bar — namely, it must target quid pro quo corruption or its appearance. This places in the crosshairs such current restrictions as the ban on state party use of funds raised under state law to support or oppose federal candidates, the soft money ban that applies to the national parties, and the ban on contributions from contractors and corporations.

increaseLast week the Federal Election Commission increased the reporting threshold for contributions bundled by lobbyists to $17,300 (up from $17,100). Candidates, leadership PACs, and federal party committee must file lobbyist bundling reports if during a six-month reporting period they receive two or more bundled contributions exceeding the $17,300 threshold. We have written here about the reporting and fundraising issues that can arise with bundling.

The FEC also increased the amount that a national or state party committee may spend in coordination with its 2014 general election nominees. These expenditure limits are separate from the $5,000 limit on direct contributions by a party committee. The coordinated limits allow the party to pay expenses for activities coordinated with a candidate, such as the costs of a fundraiser and media efforts. For example, a party committee could discuss the content and timing of a direct mail piece with the candidate and then spend party money up to the limit to produce and send the mailer. With the FEC’s increase for inflation, the limits are now:

  • Senate Nominee – Ranges from $94,500 – $2,755,200 depending on the voting age of the population. The full list can be found here.
  • House Nominee in State with Only One Representative – $94,500 (up from $93,100 in 2013)
  • House Nominee in Other States – $47,200 (up from $46,600 in 2013)

Independent expenditures by the parties in support of candidates are not subject to limits, but may not be coordinated with the candidate.

*Admitted in Maryland; not yet admitted in D.C.

When the owner of a business runs for public office, he or she has to be careful not to use the assets of the business for the campaign. In the past, this issue has come up when the business owner uses money from a business account, uses customer mailing lists, or business equipment in a campaign. Prepaying the company for services, renting lists at fair-market value, or taking an authorized distribution are some ways to avoid illegal corporate contributions.

wrestlingThe FEC recently dealt with a novel argument that a letter from a business to a newspaper asking for a retraction from the newspaper was an in-kind contribution to the candidate who was the owner of the business.

The newspaper ran two columns critical of Linda McMahon, the owner of World Wrestling Entertainment Inc. (“WWE”) and the 2012 candidate for Senate in Connecticut. The columns did not mention the WWE by name, but referred to the “pornography and mock violence of the wrestling business from which” the candidate had made her living and referred to her business of “violence, pornography, and raunch.” In response, WWE sent a letter demanding a retraction of the columns because WWE was not engaged in violence or pornography, and threatened a lawsuit against the paper if a retraction was not forthcoming.

In response to the letters, the newspaper filed a complaint with the FEC, alleging that the WWE letter was an attempt to support the campaign by silencing the newspaper. The FEC unanimously disagreed. The General Counsel’s report explains that the WWE had a clear business interest in defending its reputation and made no mention of the campaign in its letters. The FEC found that the letters were not for the purpose of influencing a federal election.

This is obviously a unique case, but it serves as a reminder of the need to erect high walls between a candidate’s business interests and the campaign.

With donors now allowed to give unlimited sums to Super PACs and other political advocacy groups, the biggest issue in campaign finance regulation is what such groups must disclose about their fundraising and spending, and when.  Some states have moved aggressively to bolster their disclosure rules, with a couple of states filing suit to force groups engaged in election spending to unmask their donors. 

The federal response has been a different story, with no consensus on a path forward, let alone agreement that new disclosure rules are necessary in a post-Citizens United world.  A little-noticed statement released by the three Republican Commissioners of the Federal Election Commission (“FEC”) suggests that groups active in 2014 may actually find it easier to avoid registering as Super PACs and disclosing their donors. 

The 26-page statement explains the Commission’s dismissal of a complaint charging that American Issues Project (“AIP”), a 501(c)(4), failed to register with the FEC and file reports as a federal political committee.  AIP spent over $2.8 million in the 2008 election on ads attacking then-candidate Barack Obama.  The two Democrats on the Commission found reason to believe a violation had occurred – the sixth seat on the Commission is vacant right now – but that left the matter short of the votes necessary to move forward. 

How does a group that spends almost $3 million on negative campaign ads avoid registering and filing reports as a federal political committee – or as it would be characterized if it registered today, a Super PAC?  Because, according to the three Republican Commissioners, AIP’s “major purpose” – the Constitutional test for determining when a group is acting as a political committee – was not influencing federal elections.

First, the Commissioners noted AIP’s self-described mission, as reflected in IRS and corporate filings, which was to advocate for conservative principles, including limited government, lower taxes, and a strong national defense.  Thus, the Commissioners reasoned, AIP’s “central organizational purpose” related to issues, not federal candidates.

Second, according to the three Commissioners, AIP’s spending showed that its major purpose was not to nominate or elect federal candidates.  In each of its fiscal years (which ran from May 1 to April 30), AIP reported combined spending on “management and general expenses,” “fundraising expenses,” “program services, and other activities in excess of the amount it spent on express electoral advocacy. Even looking only at “non-overhead” expenses, the Commissioners concluded that the $2.8 million ad buy represented slightly less than 45% of AIP’s total spending from the organization’s inception in 2007 until it ceased operating in 2010.  To determine a group’s major purpose, the Commissioners wrote, spending must be viewed over time, not within a single calendar year.

Where does this leave things for advocacy groups in 2014?  The AIP case may prompt more organizations to forgo registering and reporting as Super PACs, opting instead for the 501(c)(4) form that generally does not require disclosing donors.  Such groups will have to be careful in publicly describing their activities and ensure that over the long term their expenses for express electoral advocacy are exceeded by their combined expenses for everything else. While a future complaint will likely be considered by a new group of FEC Commissioners, the Commission has traditionally been reluctant to impose penalties for conduct that it found in a prior case did not violate the law. 

But even if an organization manages to skirt registration and reporting as a federal political committee, it cannot escape FEC rules entirely.  The organization must file 24- and 48-hour independent expenditure reports that itemize its spending on express electoral advocacy and must include disclaimers on such advertising.  Also, regardless of whether it operates as a Super PAC or 501(c)(4), a group must be careful to observe coordination rules that can treat certain spending as a prohibited in-kind contribution to a campaign or political party.  Finally, a 501(c)(4) group must navigate IRS rules that prohibit such organizations from making intervention in political campaigns its primary activity.  The IRS “primary activity” test is not the same as the FEC’s “major purpose” test and can be just as difficult to apply. 

In speaking for the Supreme Court’s majority in Citizens United, Justice Kennedy lauded the benefits of prompt disclosure, noting that it enables shareholders to make informed decisions and “citizens can see whether elected officials are ‘in the pocket’ of so-called moneyed interests.”  While these general principles are widely accepted, the stakes as to how disclosure should work, and when anonymity is permissible, are much higher now that groups may raise unlimited sums from individuals and corporations. The AIP case suggests that it may be some time before disclosure meets Justice Kennedy’s ideal.