IRS Changes the Game?

On Wednesday November 26, 2013, the US Department of Treasury and Internal Revenue Service issued proposed guidance, subject to a comment period, that would limit the scope of permissible political activities of 501(c)(4) social welfare groups. Under the new guidance, the IRS will move away from the “facts and circumstances” test long-employed in evaluating 501(c)(4) political activity and instead use bright-line rules.

The Treasury and the IRS plan to issue additional guidance that will address other issues relating to the standards for tax exemption under section 501(c)(4).

As there is a comment period, any new rules will not likely be in place until after the 2014 elections.

On Election Day

When you come up for air today, take a moment to reflect on how the process of campaigning serves our democratic values.  What does Citizens United have to say about this?  How will future Supreme Court opinions, such as the pending decision in McCutcheon v. FEC, further narrow or expand our understanding of the speech and competition values embodied in the First Amendment?  To facilitate your meditation, consider this new essay published in the Seton Hall Law Journal, as linked by Rick Hasen on the Election Law Blog.

New State Board of Elections Opinion Clarifies Political Committee Registration Requirement

In a rare formal opinion, the NY State Board of Elections (SBOE) explains that a person or entity must register and file disclosure statements as a political committee when it expends funds to communicate its endorsement of candidate(s) to the general public. Unlike federal law, the SBOE opinion does not treat the “major purpose” of the entity as a factor in determining whether registration is required.

Although not expressly discussed in the opinion, exceptions to the registration requirement presumably remain in effect for labor organizations communicating with their members and newspapers and other publications in respect to the ordinary conduct of such business.

Another open question concerns the Internet, which came into being long after the current Election Law statutes were adopted.  For example, must bloggers and tweeters register as political committees if they similarly expend funds to expressly advocate for or against a candidate?

New Jersey Now Says Yes to SuperPACs

On July 17, 2013, the New Jersey Election Law Enforcement Commission (“ELEC”) announced that an agreement reached on July 11 between itself and Fund For Jobs, Growth & Security (“Fund”) was approved by the United States District Court for the District of New Jersey. Under the agreement, the Fund was granted a permanent injunction that permits unrestricted fundraising by political committees that plan to make only independent expenditures.

The permanent injunction overturns an Advisory Opinion in which ELEC determined that the Fund had to abide by New Jersey campaign finance limits. The ELEC Advisory Opinion 01-2013 has now been withdrawn pursuant to the permanent injunction.   As a result, New Jersey’s treatment of SuperPACs now appears to follow the federal model – a complete reversal.

ELEC reiterates that political committees that intend to spend in excess of $2,400 on a New Jersey election, whose major purpose is for more than half of its funds to be spent in New Jersey, must register as a political committee with ELEC and comply with all relevant regulations and reporting requirements.

Finally, the permanent injunction instructs ELEC to “recommend to the Legislature that it amend N.J.S.A. 19:44A-11.5 to cure the infirmities in the statute raised by this litigation, so that the Commission may adopt regulations consistent herewith.” Stay tuned.

Genova Burns served as co-counsel to Fund For Jobs, Growth & Security in this litigation. 

New York Governor Delivers Reform Bill; New Law to Follow?

On June 11, 2013, with about one week of the legislative session remaining, Governor Cuomo introduced his plan for campaign finance reform in New York State. Citing New York as having some of the weakest campaign finance restrictions in the country, Cuomo’s proposed bill  seeks to:

  • Create the toughest disclosure requirements in the country by requiring full disclosure of any independent expenditure advertisement and disclosure of contributor information for all contributions over $1,000 within 48 hours of receipt.
  • Create a statewide public financing program that is modeled on the New York City Campaign program that both provides a matching funds program and significantly reduces the contribution limits to both participating and non-participating candidates.
  • No longer treat LLC contributions as a contribution from an individual and instead as a corporate contribution with a proposed limit of $1,000 per year.
  • Amend the current election law provision on personal use of campaign contributions to allow for contributions to be used only for expenses that are directly related to the election or public office.

The Governor’s bill provides for an effective date of June 1, 2014 for the independent expenditure reform provisions in time for next year’s state elections. The proposed campaign contribution and public financing reform provisions would go into effect for State elections held after January 1, 2015.


New York Requires Social Welfare Organizations to Disclose Donors

Yesterday, New York Attorney General Eric Schneiderman announced that, effective immediately, new regulations will require non-profit organizations, such as 501(c)(4) organizations,  making expenditures related to New York elections to disclose expenditures they make and donations they receive.  These rules apply to organizations that must register with the Attorney General as charities, other than 501(c)(3) organizations.  The required disclosures will be made in annual financial reports.

The new disclosure requirement is triggered when the organization makes direct or indirect expenditures for “express election advocacy” or “election-targeted issue advocacy”, the latter of which is defined as a communication that refers to a clearly identified candidate in an election that is made within 45 days before the primary or 90 days before the general election.  The disclosure will include: (i) the aggregate amount of election related expenditures and the percentage of total expenses during the reporting period it represents; and (ii) itemization of each election-related expenditure exceeding $50 made and each covered donation of $1,000 or more received by an organization that makes New York election related expenditures that total more than $10,000 in the reporting period.

Non-segregated donations need not be disclosed if the organization keeps segregated bank account(s) containing funds used solely for New York election related expenditures, if all of such expenditures are made from such accounts.  Covered organizations may apply to the AG for an exemption from disclosing any information to the public about a covered donation if the applicant shows that “the covered organization’s primary activities involve areas of public concern that create a reasonable probability that disclosure will cause undue harm, threats, harassment or reprisals to any person or organization.”

While there is also an exception for information that must be reported to other government agencies, the overlap with other public disclosure requirements is complex (as, for instance, with New York City Campaign Finance Board disclosure requirements), such that the scope of the exception may be unclear.

Will the Attorney General’s push for donor disclosure by social welfare organizations inspire similar reforms elsewhere?  Or might the AG’s action spur challenges arguing that he has reached beyond his authority?  Or both?

New Jersey Statewide Pay to Play Reform to be Introduced in the Senate Today

This afternoon, Senate Democrats plan to introduce legislation aimed to overhaul “loopholes” in New Jersey’s current pay-to-play laws.  One of the goals of this legislation is to direct local governments to follow the same rules that currently apply to State government contractors.  If municipal and county governments are required to follow restrictions similar to those in place at the State Executive Branch level of government, the “fair and open process” exception to the local contracting process may become obsolete.  Another goal set by the proposed legislation is to broaden political contribution disclosure requirements for public government contractors and to require political candidates and non-profit advocacy groups to disclose all donors (regardless of the amount of their contribution or donation).  Another significant potential change is that the broadened disclosure brings non-profit advocacy groups into the ambit of New Jersey’s pay-to-play regime.  If this bill moves forward, it will likely present the most significant changes to New Jersey’s pay-to-play laws since their inception in 2004.

New Jersey says No to SuperPACs

Today, the New Jersey Election Law Enforcement Commission issued Advisory Opinion 01-2013  holding that a committee organized under Section 527 of the IRS code and intending to make solely independent expenditures (i.e., expenditures not coordinated with candidates or parties) of $2,400 or more in the 2013 New Jersey legislative elections must be classified as a political committee under New Jersey law, subject to registration, reporting, and contribution limits, if over half of its total activity is for that purpose.  The Fund for Jobs and Growth represented that it is an organization incorporated in the District of Columbia that will make only independent expenditures in support of legislative candidates in New Jersey elections in 2013 and that more than  half of its spending will be in support of that independent expenditure program in New Jersey.

ELEC held that independent expenditure activity comes within the meaning of “aid or promote” the election or defeat of a candidate as used in the definition of “political committee” under New Jersey law because that definition does not differentiate between activity that is “coordinated” and activity that is “independent” of a candidate.  ELEC applied the “major purpose” test derived from Buckley v. Valeo (1976) in concluding that spending in excess of half of the Fund’s total spending on independent expenditures in New Jersey elections would constitute a “major purpose” of supporting New Jersey candidates in 2013 elections.

Because the Fund is a “political committee,” ELEC stated it must observe New Jersey law with respect to contribution limits in addition to registration and contributor reporting requirements.  Specifically, the Fund may receive no more than $7,200 per election from a contributor (except for contributions from political party committees and legislative leadership committees).  ELEC reached this result notwithstanding the Fund’s representation that since the time of the U.S. Supreme Court opinion in Citizens United v. FEC (2010) and the subsequent Court of Appeals opinion in v. FEC (D.C. Cir. 2010) (en banc), no court has upheld a government restriction on the amount that an independent expenditure-only committee (more popularly known as a super PAC) may receive as a contribution.

Will this ELEC Advisory Opinion become the subject of a court challenge?  Stay tuned.

Genova Burns Of Counsel Gregory E. Nagy assisted with this post. 

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