What President Trump’s Executive Order Means for 501(c)(3) Political Activity

Recently, President Trump signed his Executive Order “Promoting Free Speech and Religious Liberty.”  It directs the Secretary of the Treasury to exercise discretion to avoid taking any adverse action against an individual, house of worship, or religious organization that speaks about moral or political issues from a religious perspective, including the revocation of 501(c)(3) status.  According to President Trump, this Executive Order “removes the financial threat faced by tax-exempt churches from the Internal Revenue Service when pastors speak out on behalf of political candidates.”

Under the Internal Revenue Code, 501(c)(3) charitable organizations are prohibited from engaging in partisan political activity.  This means: making political contributions, making statements that endorse or oppose a candidate, and asking candidates to sign pledges on any issue.  However, charitable organizations are allowed to engage in limited non-partisan activity, such as: voter-registration drives, limited lobbying on ballot initiatives, and educating candidates on issues that fall under the purview of the entity.  Also, the officers, directors, and employees of a 501(c)(3) retain the right to personally engage in partisan political activity.

So, does this Executive Order free religious 501(c)(3) charitable organizations to engage in partisan political activity without fear of tax-exempt status revocation?  Perhaps not. While the Executive Order may promote more relaxed enforcement, the restrictions on partisan political activity still exist in statute and legislative action would be required to change the law. In addition, this Executive Order may face legal challenges in court. The Executive Order also raises the question whether churches should be treated differently from non-religious 501(c)(3) entities. Until and unless the statute is changed, 501(c)(3) organizations would do well to refrain from participating in partisan political activity.

For more information on how this Executive Order may effect you, please contact Rebecca Moll Freed, Esq., Chair of the Corporate Political Activity Law Group, at rfreed@genovaburns.com or 973-230-2075.


FEC Contribution Limits for 2015-2016

Last week, the Federal Election Commission (“FEC”) released increased contribution limits for individuals for the 2015-2016 federal election cycle. Certain federal contribution limits are indexed for inflation and are increased in odd-numbered years.

Under the new limits, individuals may now give up to $2,700 per election to a federal candidate committee and up to $33,400 per calendar year to a national political party committee. The limits upon permissible contributions by individuals to federal PACs and to the federal account of state, district, and local party committees are not adjusted for inflation. Like the previous cycle(s), contributions to PACs are limited to $5,000 per calendar year, while contributions to the federal account of a state, district, or local party committees remain subject to the combined limit of $10,000 per calendar year.

Calling All Government Contractors: Upcoming Maryland Political Contribution Disclosure Form

For government contractors, the start of a new year brings with it a host of filing requirements in many states along the Northeast Corridor. Although some states (such as New York and Connecticut) do not impose annual or semi-annual filing requirements on government contractors, other states such as New Jersey, Pennsylvania, and Maryland require government contractors to file reports. This is the first in a series of blog posts that focuses on the upcoming filing deadlines in Maryland, Pennsylvania, and New Jersey. These reports generally require government contractors to disclose certain information about their political contributions, but no two filing requirements are the same. As your company prepares to put its best foot forward in 2015, this series will share what you need to know about these disclosure requirements and some compliance tips to make sure that your company is accurately capturing all relevant information.

Maryland (Filing Deadline – February 5, 2015 & August 5, 2015) 

The filing requirements applicable to Maryland government contractors changed on January 1, 2015. This means that all Maryland government contractors need to familiarize themselves with new filing requirements this year! Maryland law now requires businesses that hold a single contract worth at least $200,000 with the state to electronically file the Contribution Disclosure Form semi-annually with the Maryland Board of Elections. The first semi-annual report must be filed no later than Thursday, February 5, 2015.

Compliance Tip – Companies subject to this disclosure requirement must not only disclose information specific to each of their Maryland government contracts, but they must also disclose contributions that exceed $500 per reporting period to covered candidates and officeholders made by the company; a subsidiary of the company; an officer, director, or partner of the company or of the subsidiary; a Political Action Committee sponsored by the company; and an employee or agent of the company or the subsidiary, if the employee or agent made the contribution at the direction of the company or the subsidiary. Regardless of whether a company has contributions to report, the company must still file a Contribution Disclosure Form if the company holds Maryland government contracts.

The DISCLOSE Act: Fantasy or Future?

Following a wave of judicial decisions that have cleared the way for more soft money in politics, federal legislators have continued to press for the passage of laws creating more stringent regulations on donor disclosures and transparency in political contributions.

The Democracy Is Strengthened by Casting Light On Spending in Elections (DISCLOSE) Act was introduced in Congress in 2010 and 2012, but the legislation was twice defeated after falling short of overcoming a Republican-led filibuster.  A third attempt at passing disclosure legislation, the DISCLOSE Act of 2014, was introduced by Senator Sheldon Whitehouse of Rhode Island and is currently being considered in the Senate Rules Committee. A hearing was held last week.

“DISCLOSE 2014” would:

  • Broaden the definition of what is a reportable “independent expenditure,” by treating the functional equivalent of express advocacy as an independent expenditure ;
  • expand the time periods during which a communication would be considered a reportable “electioneering communication,”
  • require disclosure of donors underlying large transfers to political spenders,
  • require that covered organizations (including corporations, labor unions and 501(c)(4) and 501(c)(6) nonprofit organizations) that spend more than $10,000 or more on election ads publicly identify their donors, and
  • impose new required disclaimers for political advertisements.

The bill faces the hefty obstacle of garnering bipartisan support to become federal law.  Nonetheless, DISCLOSE 2014 could serve as a model for state and local jurisdictions. While the Supreme Court (in decisions such as Citizens United and McCutcheon) has made it easier to generously fund political and issue advocacy organizations, the Court has also emphasized that disclosure requirements are both constitutional and beneficial to a healthy democracy.  Accordingly, proponents of enhanced campaign finance transparency might find that the last bastion of reform lies in disclosure requirements like those introduced in DISCLOSE 2014.

Public Trust Act Preserves Candidate Choices

Political communications are like trees in a forest.  Blessed with monetary sunshine political communications reach toward the sky, dominate the horizon, and potentially drench competitors in shade.  Legal limits on financial support serve to wither these other messengers who, like trees in a forest, fall to silence.

Consider then what this April showered upon New York’s thicket of contribution limits.

First came the Public Trust Act.  It marks the first time the State has adopted a public campaign financing law, in the form of a this-year-only pilot for one office, State Comptroller.  As was the case for all New York City elections between 1988 and 2004, this new State law does not purport to change the currently high contribution limits for non-publicly-financed candidates and reduces contribution limits only for those candidates seeking public matching funds.

Immediately on the heels of that legislation, the U.S. Supreme Court in McCutcheon v. FEC struck down aggregate contributions limits in federal elections, seemingly imperiling New York’s $150,000 annual aggregate limit.

Now, Judge Paul Crotty has brought New York’s $150,000 annual aggregate contribution limit to an inevitable (albeit incomplete) denouement pursuant to McCutcheon by striking down its applicability to SuperPACs.  When the rest of the $150,000 limit falls, contributors will also get to sprinkle maximum financial support upon as many candidates and party committees as they may wish.  In theory, according to McCutcheon, these candidates will remain insulated from risk of quid pro quo corruption by “base limits.”

Returning then to the distinction the new Public Trust Act makes between the base limits that apply to publicly-financed and the lower base limits that apply to non-publicly-financed candidates: what public policy does this serve?  (While this blog has generally not been a forum for discussion of active cases in which we appear as attorneys, I’m about to make an exception.)

At the very time Judge Crotty was (however reluctantly) sprinkling sunshine on SuperPACs, this lawyer was arguing an appeal on behalf of former NYC Republican mayoral candidate George McDonald (McDonald v. New York City Campaign Finance Board).  Putting aside the specific legal issues of that case, which is a challenge to a 2004 local law leveling base limits for non-publicly-financed candidates, the McDonald appeal aims to help candidates compete for sunshine in a post-Citizens United wilderness.

Under the Public Trust Act, candidates have three financing options: 1) self-financing; 2) raise matchable contributions for public financing and comply with reduced base limits; or 3) raise legally permissible campaign contributions under the pre-existing base limits.  Each option for candidates runs up against limits: the limits of a candidate’s personal wealth, the limits of the time and effort that will be necessary for demonstrating eligibility for public funding, and the base limits themselves.  In contrast, independent spending is constitutionally unlimited.  Indeed, SuperPACs serve as a force multiplier for uniting the potentially unlimited fortunes of (non-candidate) citizens in pursuit of a common political message.

Precisely because independent spending may be financed by unlimited sources, base limits inadvertently weaken the voice of candidates and amplify the impact of independent spending.  Candidates therefore need all the options that campaign finance law may afford for financing their own campaign advocacy effectively.  The Public Trust Act follows this approach precisely both by creating and preserving choice for candidates.

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 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. 

IRS Issues Initial Report on 501(c)(4) Controversy

This week the Internal Revenue Service issued a report to assess the scandal that has been plaguing the agency ever since a Treasury Inspector General Report came out that, as the report cites, found that:

The IRS used inappropriate criteria that identified for review Tea Party and other organizations applying for tax-exempt status based upon their names or policy positions instead of indications of potential political campaign intervention. Ineffective management: 1) allowed inappropriate criteria to be developed and stay in place for more than 18 months, 2) resulted in substantial delays in processing certain applications, and 3) allowed unnecessary information requests to be issued.

The report is meant to provide “an initial set of conclusions and action steps, along with an explanation of the additional review and investigatory activities underway.”

Interestingly, the report establishes a new voluntary process for organizations that have been subject to a backlog for more than 120 days to gain expedited approval to operate as a 501(c)(4) through self-certifying to certain thresholds and limits to political and social welfare activities.  Specifically, organizations can self-certify if:

  1. The organization has spent and anticipates that it will spend less than 40% of both the organization’s total expenditures and its total time (measured by employee and volunteer hours) on direct or indirect participation or intervention in any political campaign on behalf of (or in opposition to) any candidate for public office (within the meaning of the regulations under Section 501(c)(4)); and
  2. The organization has spent and anticipates that it will spend 60% or more of both the organization’s total expenditures and its total time (measured by employee and volunteer hours) on activities that promote the social welfare (within the meaning of Section 501(c)(4) and the regulations thereunder).

The IRS notes that the “thresholds reflected in the representations are criteria for eligibility for expedited processing rather than new legal requirements.”

The report also spells out additional criteria as to what constitutes “direct or indirect participation or intervention in any political campaign”:

  1. Any public communication within 60 days prior to a general election or 30 days prior to a primary election that identifies a candidate in the election.
  2. Conducting an event at which only one candidate is, or candidates of only one party are, invited to speak; and
  3. Any grant to an organization described in Section 501(c) if the recipient of the grant engages in political campaign intervention.

CFTC Division of Swap Dealer and Intermediary Oversight Clarifies Pay-to-Play Rule

Last week the Commodity Futures Trading Commission (CFTC) issued a No-Action letter that it would not enforce pay-to-play restrictions on banks that sell swaps to pension plans. As we previously reported, the CFTC adopted a pay-to-play rule in February 2012 pursuant to the Dodd-Frank Act, which makes it unlawful for a swap dealer (“SD”) to offer to enter or to enter into a swap with a “government Special Entity” for a period of two years after such SD or any of its “covered associates” make a political contribution to a government Special Entity. By excluding banks from the restrictions, the CFTC stated that its intention was to harmonize limits on political contributions from the SEC and Municipal Securities Rulemaking Board because, “unlike Regulation 23.451, neither the SEC’s nor MSRB’s ‘pay-to-play’ rules apply to officials of federal or other non-state or non-local government agencies, instrumentalities, or plans.”  Further, the CFTC letter clarifies the two-year lookback period, during which swap dealers could be prohibited from doing business with a government entity due to a prohibited contribution, does not encompass the time that precedes the date when a swap dealer is required to register as a swap dealer with the CFTC.