Please join us for a networking lunch and program (also available as a webinar) on April 29, 2014, at 12:00pm EDT in our Washington, D.C. office, which will provide a timely roadmap for nonprofit organizations that engage or are thinking about engaging in the political process. We will cover topics that you should be thinking about for the mid-term elections and beyond:

  • The rules that apply to 501(c)(4) and 501(c)(6) organizations and how those rules are changing
  • How to operate a political action committee (PAC), including guidelines for fundraising and advocacy communications
  • Specific activities that 501(c)(3) organizations can and cannot engage in, and how the proposed IRS rules for 501(c)(4)’s may impact 501(c)(3)’s
  • Rules on coordinating activities with campaigns and political parties
  • How successful enterprises can combine a 501(c)(3), 501(c)(4) and/or 501(c)(6) organization, a PAC, and even a Super PAC

We will also discuss McCutcheon v. FEC, the Supreme Court’s recent decision striking down aggregate contribution limits, and how it could influence your electoral strategy in 2014.

To register for the event, please click here. You can choose to attend in person or via webinar.

A leaked email written by a senior Congressional aide became fodder for the politics section of the Washington Post last week, painting a picture of secret industry collusion with candidate campaigns on independent expenditures. The aide’s email, reportedly written to several of his boss’s campaign officials, explained that a prominent industry trade association was committed to an independent expenditure in support of the candidate, and wanted to be put in touch with the campaign.

The official reaction from both the trade association and the candidate’s campaign was that the aide was misinformed. According to the association, there was no such offer or commitment, although it had engaged in preliminary discussions about hosting an industry-sponsored PAC fundraiser for the candidate. The campaign explained that the aide “made inaccurate assumptions” about the type of assistance the industry group could provide the campaign, and that no communications took place between the campaign and the
association that would constitute coordination in violation of the federal campaign finance laws governing independent expenditures.

Perhaps by bringing the email to light the leaker sought and achieved some measure of damage control, allowing all involved to refute, publicly and contemporaneously, any inappropriate conduct. Even so, this kind of revelation can have damaging consequences. At the very least, there is plenty of embarrassment to go around. Worse, it could be a trigger for a government investigation.  The following lessons are worth keeping in mind:

  1. Assume that email will come to light. When your email ends up in the Washington Post, something has probably gone awry. But this should not be totally unexpected. Even without being leaked to a reporter, email is easily discoverable by government investigators. As this example highlights, don’t write anything in an email that you wouldn’t feel comfortable seeing in the newspaper.
  2. Talk to the right people and be clear in your communications. Under House and Senate Ethics rules, Congressional aides are not permitted to engage in campaign activities on official time or to use official resources for campaigning. While the ethics rules do permit aides to refer campaign-related inquiries to the campaign, any other campaign-related activities must be done voluntarily on their own time and using their own resources. In this example, the aide used his personal email account to communicate about the campaign-related matters. But that alone is not indicative of full compliance with the ethics rules. As a general rule of thumb, it is preferable to not discuss campaign matters with official staff. Take the time to identify the appropriate campaign officials and talk to them at the appropriate time. Above all, be clear in your communications with those officials about your interests and goals to avoid misunderstandings—don’t assume that they understand all of the nuances of the campaign finance laws.
  3. Know the rules on IE coordination. If your organization intends to engage in independent expenditure activities and doesn’t have a policy on coordination in place, now is the time to put one in place and provide training to everyone involved.

On April 16, Ron Jacobs, Larry Norton, and Janice Ryan will host a program for nonprofits covering campaign finance, lobbying disclosure, and gift rule issues for trade associations, social welfare organizations, and charities. Perfect for those who have already seen our Political Law 101 session and want to learn answers to more advanced questions like:

  • How do I get prior approval for PAC solicitations?
  • Should I create a super PAC or just use my 501(c)(4) or 501(c)(6)—what will I have to disclose?
  • Can my charity pay for a grassroots lobbying campaign that mentions a Member of Congress?
  • How in the world will I deal with having lobbyists in 16 different states?

And many more.

Come for lunch or watch online. Click here to register.

The New York State Joint Commission on Public Ethics (“JCOPE”), which oversees and regulates ethics and lobbying in New York, hosted the first in a series of roundtable discussions with the regulated community on March 8 (in Albany) and March 15 (in NYC).

The March roundtable discussions focused on the new Reportable Business Relationship (“RBR”) and Source of Funding (“SOF”) disclosure requirements, which were enacted as part of the Public Integrity Reform Act of 2011. The RBR rule requires lobbyists and entities that hire or retain lobbyists to report certain business relationships they have with NYS employees. The SOF rule requires organizations that devote substantial resources to lobbying activity in NYS to disclose their sources of funding over $5,000. The rules went into effect in August 2011 and were first incorporated in the lobbying reports that were due this past January.

During the roundtables, JCOPE elaborated on the guidance it has provided to the public to date here and here. It also agreed to post additional guidance on its website.

With respect to the RBR rule, JCOPE continued to emphasize (as it has in prior webinars and trainings) that a business arrangement or transaction only needs to be reported if a lobbyist or lobbyist employer (including the lobbyist employer’s board members and executives) knows or has a reason to know that it/he/she is transacting with a NYS employee. It is important to note that this rule also applies to business relationships with entities in which a NYS employee has a certain ownership or managerial interest.

To satisfy their obligation under the RBR rule, organizations that file lobbying reports in NYS should survey their board members and senior executives to determine if these individuals have any RBRs to report.  The organizations can then rely on these representations when filing their report. JCOPE agreed to provide more specific guidance on how organizations—particularly organizations with large boards and complex management structures—can comply with this requirement.

The SOF disclosure applies to organizations that have spent at least $50,000 in lobbying in NYS during the six or twelve months preceding the lobbying report deadline, but only if those expenditures constitute at least 3% of the organization’s total expenditures during that same time period. During the roundtable discussion, attendees provided feedback on how to make the reporting process more efficient and meaningful.

Although JCOPE has not announced any dates or topics for future roundtables, it plans to cover a host of issues within its jurisdiction, including its draft regulations on gifts and honoraria. Information about future JCOPE roundtables and how to register is available on JCOPE’s website.

In the recent press release announcing his retirement, Senator Carl Levin announced that he will use his last two years running the Permanent Subcommittee on Investigations (“PSI”) to “encourage” the IRS to provide aggressive oversight of tax-exempt groups that are primarily engaged in politics. The prospect of hearings could potentially expose the inner workings of 501(c)(4) organizations that presently enjoy significant protection under IRS rules and force the IRS to provide a less nebulous standard as to the limits on political activity by such organizations.

In his March 7 statement, Senator Levin said:

“Our tax laws are supposed to prevent secret contributions to tax exempt organizations for political purposes. My Permanent Subcommittee on Investigations needs to look into the failure of the IRS to enforce our tax laws and stem the flood of hundreds of millions of secret dollars flowing into our elections, eroding public confidence in our democracy.”

Many of the organizations he has in mind are tax exempt under section 501(c)(4) of the tax code. These organizations do not have to disclose the names of their donors. On the flip side, their primary purpose must be promoting the public welfare, which, under IRS regulations, does not include supporting or opposing candidates. This is not to say they cannot engage in electoral advocacy, just that there are (poorly defined) limits on their political activity.

Melanie Sloan, the executive director of Citizens for Responsibility and Ethics in Washington, applauded Levin’s efforts and called on him to go further: “He could issue subpoenas and find out who’s supporting these groups. I think he should subpoena all the (c)(4) groups that were active in the last election cycle.

Sloan’s request for subpoenas is troubling, because it could expose the identity of donors who reasonably expected anonymity and subject the organizations to scrutiny for following the tax laws as they have long been applied.

Yet, as Chairman of PSI, Levin has broad authority to issue subpoenas as he sees fit (with only de minimus restrictions). In fact, the PSI rules enable Levin to unilaterally issue subpoenas as long as he provides notice to the Ranking Minority Member of PSI and the Chairman and Ranking Member of the full Homeland Security and Governmental Affairs Committee.

Being called on the carpet by Senator Levin is never a pleasant experience for his witnesses. Here’s one good example:

PSI routinely holds full-day, four panel hearings and issues staff reports that are hundreds of pages long and include damaging emails and documents. Such information is often utilized by Federal prosecutors and plaintiff’s counsel. In short, the stakes have been raised for organizations that became a significant force in the 2012 elections.

Ray Shepherd, chair of Venable’s congressional investigations practice, previously served as staff director and chief counsel for PSI.

On December 11, New York’s attorney general revealed new regulations that would, if adopted, require nonprofit groups doing business in New York to disclose the percentage of total spending devoted to political activities in New York. The rules also would require groups that spend more than $10,000 to identify any donor giving $100 or more.

Under the proposed rules, tax-exempt organizations registered—or required to be registered—under New York’s charitable registration law must include in their annual financial report the amount and percentage of total expenses during the reporting period that are New York “election related expenditures.” “Election related expenditures” include communications calling for the nomination, election or defeat of a clearly identified candidate, political party, or proposition in a New York election. They also include communications made within 180 days of a New York election that refer to one or more clearly identified candidate in that election or depict the image, name, or likeness of a candidate. The term “communication” covers paid broadcast advertisements, placement of content on the internet, print ads, telephone contacts, mailings and other print materials.

Of particular concern to nonprofits, especially 501(c)(4) groups, is the prospect of having to disclose their individual donors. The proposed rules state that a group that has made over $10,000 in New York election related expenditures must disclose the following information about each “covered donation” received within the applicable reporting period:  (1) the name and address of each donor who made donations of $100 or more (in the aggregate) during the reporting period, (2) the donor’s employer, and (3) the date and amount of each donation. A “covered donation” is any contribution or thing of value made to a non-501(c)(3) tax-exempt group doing business in New York that is available to be used for a New York election related expenditure. In other words, the donation does not actually have to be used or intended for New York election related expenditures in order to be subject to disclosure.

The proposed rules would, however, exempt from disclosure donations that are restricted in a way that prevents them from being used for electioneering. The proposal also includes a process by which a group can seek a waiver if it can show that public disclosure of a contribution or donor’s identify could cause undue harm, threats, harassment or reprisals.

Written comments on the proposed rules may be submitted until March 6, 2013, with final rules expected to be in place in time for the 2013 local elections.

Many “political” organizations have 501(c)(4) arms that claim to allow their donors to remain anonymous. Donors who don’t mind being disclosed often give to independent expenditure committees (“super PACs”), which publicly disclose all of their donors to state or federal officials. Those who prefer not to disclose their name, address, occupation, and employer will often give to the related 501(c)(4) organization.

Of course, there are tradeoffs for groups that use a 501(c)(4). Namely, there are limits on how much money they can spend on influencing candidate elections and the organization must be careful how it makes its “ask” for money.

A 501(c)(4) focused on federal elections usually has an easier time navigating the law to maintain the anonymity of its donors. Generally speaking, as long as the 501(c)(4) does the math right and does not solicit contributions to fund a specific advertisement, it will not have to disclose its donors to the public. This is true whether it pays for advertisements directly or whether it donates some of its funds to a super PAC.

In state elections and ballot measures, this is not always the case. State laws often require far broader disclosure of donors and state enforcement agencies have been going to court to enforce their rules.

There are three scenarios in particular where disclosure is more likely to be required (depending on state law). First, if the 501(c)(4) is funding communications to support or oppose a ballot measure, it will likely be required to register as a ballot measure committee and disclose its donors. Second, if the communications will refer to specific candidates and are made fairly close to an election (particularly if the communications are aired on television), then state law may well require disclosure. Third, if the communication expressly urges a vote for or against a specific candidate, then disclosure may also be required.

On the other hand, messages about issues, with no reference to specific candidates, likely will not require donor disclosure. For example, ads that say “Call your state representative and tell him to vote against higher taxes,” “Learn more about how the state senate can protect the environment,” or “It’s time for the state to balance its budget,” will hardly ever require disclosure.

How can donors know whether their names will be disclosed? There are four questions you should ask to determine how anonymous your contribution really will be.

  • First, ask whether the organization will be involved in state or local elections—since the federal election has just passed, it is likely that organizations will be turning their attention to state and local races now.
  • Second, if the organization is involved in state races, does it have segregated accounts for funds earmarked for purposes other than influencing state races?
  • Third, if you want to support state efforts, will the messages refer to candidates or ballot questions? If not, then disclosure is unlikely.
  • Fourth, if the donation will fund communications that support or oppose ballot measures or candidates, then there is a good chance state law will require disclosure.

Americans for Responsible Leadership (“ARL”), a Phoenix-based nonprofit organization, disclosed its donors today in response to a ruling late yesterday from California’s highest court. The suit to enforce a new California disclosure regulation was filed by the state’s Fair Political Practices Commission (“FPPC”). According to the FPPC, the contribution was funneled to ARL from two other nonprofit organizations, Americans for Job Security and the Center to Protect Patient Rights.

The dramatic court order and subsequent disclosure is the latest development in an ongoing legal battle between the FPPC and ARL, stemming from ARL’s $11 million contribution to a California political action committee that is opposing one ballot measure and supporting another. The contribution prompted an activist organization to file a complaint with the FPPC arguing that the contribution violated a new California regulation requiring contributors to be identified if they donate to nonprofits with the intention of spending money on state political campaigns. Following the complaint, the FPPC commenced an audit of ARL to determine whether reporting of the contribution complied with the new rule, but the group had refused to turn over its records.

At the heart of the controversy is a new FPPC regulation that went into effect in May 2012. The regulation applies to tax-exempt organizations and federal or out-of-state political organizations that make contributions or independent expenditures to support or oppose candidates or ballot measures in California. Under the rule, if a donor to such an organization “requests or knows that the payment will be used by the organization to make a contribution or an independent expenditure to support or oppose a candidate or ballot measure in California,” the organization must disclose the individual donation.

ARL argued that it has not solicited earmarked contributions for any particular project or campaign, and thus no donor had reason to know that ARL would make a contribution to the California PAC. As a result, according to ARL, it is not required to identify individual donations to the group. The group asserted that because the underlying donor information is not subject to public disclosure under the law, forcing disclosure would be unjustified and would have a chilling effect on the exercise of fundamental rights.

In response to the Citizens United decision many states have pushed through tough disclosure requirements. The California regulation at issue here is particularly controversial because it requires the disclosure of individual donors to a 501(c)(4) nonprofit group. Under federal law, such organizations do not have to disclose their donors. Moreover, the FPPC’s decision to seek a court order forcing a group to release its donor records in order to determine whether a violation even occurred signals that states are more aggressively pursuing politically-active organizations.

Today a D.C. federal appeals court temporarily reinstated a Federal Election Commission rule concerning when advocacy groups and others must disclose their donors, but has directed the FEC to clarify the rule or return to the courts for more litigation. The effect of the ruling is to put in limbo a key disclosure rule less than 50 days before the November election.

A lower federal court concluded in March (Van Hollen v. FEC, Civ. No. 11-0766 (ABJ)) that the FEC’s “electioneering communications” rule was drawn too narrowly by requiring groups airing pre-election ads to disclose only those donors who contribute for the purpose of “furthering” so-called “electioneering communications” – that is, ads that air in the 30 days before a primary or 60 days before a general election and refer to a federal candidate.  The appeals court determined that the FEC rule does not conflict with the plain language of the McCain-Feingold law, which requires that groups funding such electioneering communications file reports within 24 hours, listing the names and addresses of the group’s contributors.

The court refused, however, to resolve the dispute entirely, noting that through a strange quirk of procedure the FEC did not participate in the appeal, making it impossible to resolve issues such as the intended reach of the FEC rule and the effect of recent Supreme Court rulings.

Instead, under the appeals court ruling, the FEC must “promptly” tell the court whether it intends to clarify its disclosure rule or defend the rule in court.  While the FEC must decide “promptly” what to do, the court gives no indication as to whether it expects a rulemaking to be completed before the November election – a daunting task for any federal agency.  If more litigation is the chosen route, then the rules could well change again before the November election, with another appeal likely — and potentially more changes.

For the moment, the FEC rule is again in effect – disclosure of only those donors who contribute for the purpose of furthering electioneering communications.  We will be monitoring the situation closely over the coming days and weeks.

New York Attorney General Eric Schneiderman has reportedly been investigating 501(c)(4) organizations that have been involved in political activities. According to the New York Times, his office has sent letters to nearly two dozen groups seeking information about their activities.  The exact aim of this investigation is not clear, but commentators have suggested that it is an attempt to learn more about whether the groups have engaged in excessive political activity and whether the donors should be disclosed.

Now, the Chairman of the House Ways and Means Committee and the ranking member on the Senate Finance Committee—the Congressional Committees responsible for the Tax Code and overseeing the IRS—have written to Attorney General Schneiderman. They raise concerns about whether he is requesting information that should only be obtained from the IRS. Indeed, they “emphasize strongly that willful unauthorized disclosure of returns or return information is a federal crime.”

It would be surprising if this letter halts the investigations, but the prospect of a turf war may complicate things.  At a minimum, it shows that for all the praise the Attorney General is receiving for his efforts, there are others who are concerned about whether he is overstepping his authority or obtaining information contrary to the procedures Congress has put in place.