Much controversy attends the ability of tax exempt 501(c)(4) social welfare organizations to make expenditures in connection with candidates in U.S. elections. We’ll spare you the links. Since Citizens United, new public disclosure requirements have been sought and, in places, implemented for these and other corporations engaged in political spending.
To illustrate our topic, we look at the public disclosure requirements that apply in this year’s New York City elections. Consider the following hypothetical expenditure:
- An employee of a 501(c)(4) organization uses office resources and supplies to produce flyers to expressly support the election of a candidate for New York City Council. She distributes those flyers as she collects signatures on ballot petitions as a volunteer for that same candidate.
The first question is whether the value of these flyers would be treated as an in-kind contribution to the candidate. The NYC Campaign Finance Board (CFB) would determine whether the candidate’s campaign authorized, suggested, requested, fostered, or cooperated in the flyer production and distribution activity.
If the answer is yes, the candidates’ campaign would report the value of the contribution from the 501(c)(4) organization to both the CFB and the State Board of Elections. Because NYC law prohibits the acceptance of contributions from corporations, the campaign would also need to refund that same amount to the organization.
If the answer is no, the organization would report to the CFB the cost of these flyers as an independent expenditure, if the organization has met the $1,000 threshold for covered expenditures referring to that same candidate during the current election cycle. In this instance, the flyers are treated as a reportable independent expenditure because they expressly advocate the candidate’s election. Moreover, if the organization makes covered expenditures of at least $5,000 in the 12 months preceding the election that refer to any single candidate, the organization would also be required to report to the CFB all contributions it received from entities since January 1, 2012 and all contributions of $1,000 or more from individuals during the 12 months preceding the election.
(It is unclear whether the organization would be relieved of this reporting obligation to the CFB if it did not authorize or even have knowledge of its employee’s use of its resources for election-related activity. In any event, the organization would be well-advised to have a policy prohibiting use of office resources for individual political activity.)
The State Board of Elections defines independent expenditure as including express advocacy. But unlike in-kind contributions, there would be no corollary reporting of the independent expenditure to the State Board of Elections – unless the organization registers and submits disclosure statements as a political committee.
Finally, if the 501(c)(4) organization is registered as a charity with the NYS Attorney General, under proposed rules, the cost of the flyers would be reportable in its annual financial report, and would also be separately itemized (along with covered donations) if the fair market value exceeded $10,000. The Attorney General’s proposed rules include an exception: information need not be itemized if disclosed to another government agency, as required by law. On its face, however, the applicability of this proposed exception may turn on whether it is the organization that must report the flyers to the CFB as an independent expenditure. If the flyers are reported to the CFB only by the candidate’s campaign as an in-kind contribution, it is unclear that the exception would be applicable.