Supreme Court Requires Donor Disclosure by 501(c) Organizations

Since the Supreme Court’s 2010 ruling in Citizens United, spending by outside groups and non-political organizations has increased in federal elections. Many of these groups are organized as 501(c)(4) social-welfare organizations and 501(c)(6) trade associations. Under current IRS rules, these groups are not required to disclose their donors and may engage in political activity, including making independent-expenditures, provided the political activity is not the organization’s primary purpose.

Previously, under FEC regulations, such groups and organizations were only required to identify donors who contributed over $200 for the purpose of influencing a federal election if the contribution was earmarked for a specific independent expenditure; general contributions were not required to be disclosed. Last month, in a case brought against the Federal Election Commission and Crossroads GPS by the Committee for Responsibility and Ethics in Washington, the U.S. District Court for the District of Columbia struck down the FEC regulation allowing 501(c)(4) and 501(c)(6) organizations to shield their donors, stating that the regulation was overly narrow and inconsistent with the Federal Election Campaign Act. Crossroads GPS appealed the decision, lost on appeal, and filed an application for a stay with the U.S. Supreme Court, which was denied.

The Supreme Court’s denial for a stay has important implications for 501(c)(4) and 501(c)(6) organizations. Going forward, nonprofit organizations that file independent expenditure reports with the FEC may be required to disclose ALL donors who contribute more than $200 toward influencing a federal election, regardless of whether that particular contribution was earmarked for a particular independent expenditure. The FEC has not issued any rules or guidance regarding this expanded disclosure requirement, but 501(c)(4) and 501 (c)(6) organizations should know that this new disclosure rule may require a change in their fundraising and disclosure processes.

Prior to the Supreme Court’s ruling, many donors felt comfort in giving to 501(c)(4) and 501(c)(6) organizations knowing they their identities would not be publicly disclosed. Now, with less than seven weeks until the 2018 Mid-Term Elections, this recent decision has these groups and their donors wondering what is next. At a minimum, groups considering running ads in connection with the 2018 Mid-Term Elections should evaluate their strategy to determine whether the ads fall within the category of independent expenditures (that would be subject to FEC reporting) or issue advocacy (that would be exempt from current reporting requirements). If disclosure is a concern, donors must also make sure that they fully understand whether a group to which they wish to make a donation plans to engage in independent expenditures.

While the finer details will not be known until the FEC issues temporary guidance or regulations, one thing is clear: the fact that the rules of the road have changed with less than two months before Mid-Term Elections means that many groups and donors may need to re-evaluate their strategy with respect to participation in the upcoming election. For more information on what this ruling means with respect to your plans for participating in the 2018 Mid-Term Elections, please contact Rebecca Moll Freed, Esq., Chair of the Corporate Political Activity Law Group, at rfreed@genovaburns.com or 973-230-2075, Rajiv D. Parikh, Esq. at rparikh@genovaburns.com or 973-535-4446, Avi D. Kelin, Esq. at akelin@genovaburns.com or 973-646-3267, or Paul M. Rozenberg, Esq. at prozenberg@genovaburns.com or 973-646-3283.

It’s Golf Outing Season: Do You Know Where Your Check Is Going?

Although it has been a long winter, we have recently had a taste of spring (or maybe even summer) here in New Jersey. The warmer weather means that golf outing season is upon us. In the political world, this means that your company may soon be receiving invitations to sponsor a hole, beverage cart or foursome at a golf outing. Before you register for the golf outing, you should ask yourself the following questions:

  • Who is hosting the event? Is it a political party committee, candidate committee, political action committee or not-for-profit entity?
  • If the host is a political recipient, does your company currently hold or are you seeking contracts in the jurisdiction where the political recipient is located?
  • Have you evaluated all applicable campaign finance and pay-to-play limits? Do they apply on a calendar year, per election or per election cycle basis?
  • Are you inviting anyone outside of your company to attend as your guest? If so, are they an elected official or government employee? If they are, is your invitation in compliance with relevant gift rules?

To assist compliance with campaign finance pay-to-play and gift rules, these questions should be a part of your company’s internal review process for each and every political event you are asked to attend. The bottom line is that your company should not write a check without knowing the exact name of the recipient committee, how it is organized and whether the sponsorship will jeopardize your eligibility for current or future government contracts.

Genova Burns LLC can help your company comply with campaign finance pay-to-play and gift rules. Contact Rebecca Moll Freed, Esq., Chair of the Corporate Political Activity Law Group, at rfreed@genovaburns.com or 973-230-2075 or Avi D. Kelin, Esq. at akelin@genovaburns.com or 973-646-3267.

No Room for Refunds: Pay-to-Play Limits and New Jersey’s Upcoming Gubernatorial Election

With summer vacations over and the New Jersey political world focused on the November gubernatorial election, Friday, September 8, 2017 marks an important milestone under New Jersey’s pay-to-play laws.

Under the law, a business entity can find itself ineligible for New Jersey Executive Branch contracts if the business entity or its covered individuals have made a reportable political contribution (a contribution greater than $300) to a gubernatorial candidate, political party committee, or legislative leadership committee. As previously discussed here, a contribution in excess of pay-to-play limits can have a devastating effect on a company.

The good news is that, generally, if a company or a covered individual makes a contribution in excess of the applicable pay-to-play limit, the contributor can request and receive a refund within 30 days of the contribution without jeopardizing eligibility for New Jersey Executive Branch contracts. The bad news is that, for contributions made within 60 days of a gubernatorial election, a refund will not cure a violation.

As New Jersey draws closer to electing its next Governor and companies and individuals are increasingly engaged in the political process, government contractors (and prospective government contractors) must understand pay-to-play limits. Smart companies know that each contribution must be reviewed and approved in advance and that relying upon obtaining a refund is not a prudent strategy for compliance.

For more information on how you or your company may safely participate in the political process, please contact Rebecca Moll Freed, Esq., Chair of the Corporate Political Activity Law Group, at rfreed@genovaburns.com or 973-230-2075

Lessons Learned from the Della Pello Decision

Earlier this year, a government contractor lost just over $7 million in New Jersey state government contracts because of a single political contribution that was inadvertently made payable to the WRONG political recipient. Don’t let this happen to your company:

  • If an invitation for a political event gives you a choice of recipients to which you can write your check, always evaluate your options and understand the pay-to-play limits with respect to each recipient committee. Different pay-to-play restrictions apply to different types of recipients. Choose wisely …
  • Always have a clear understanding of each type of recipient committee. Ask yourself – are we writing our check to a candidate, party, PAC, Super PAC or legislative leadership committee?
  • Look at the check before it goes out to make sure the check is payable to the intended recipient. Ask yourself – does the name on the check match up with the name on the invitation? Is this the committee to which we want to contribute?
  • Use a cover letter with each contribution. Stick to the basics – Who, What , When, Where – remember less can sometimes be more – there is no need to include a Why!
  • Review your canceled checks on a regular basis to make sure your check was deposited by the intended recipient and didn’t end up in the wrong pile of checks (sometimes recipient committees share a Treasurer).
  • Train relevant people within your company about the “Dos and Don’ts” of political activity compliance (although too many cooks in the kitchen can sometimes be a recipe for disaster, having more than one set of eyes involved in the process is usually helpful).
  • Do not participate as a matter of routine – recipient committees will always be happy to accept your contribution after an event – contact the recipient committee if you need additional information and take your time to make an informed decision – remember – political contributions are NOT an emergency!
  • And, if a mistake occurs because you did not have (or follow) the proper procedures at the time of the contribution, review the refund provisions and do everything in your power to get the check back within the correct time-frame.

For more information on how you or your company may safely participate in the political process while preserving eligibility for government contracting opportunities, please contact Rebecca Moll Freed, Esq., Chair of the Corporate Political Activity Law Group, at rfreed@genovaburns.com or 973-230-2075.

NJ’s Gubernatorial Election – Public Matching Funds and the Role of Outside Money

On the same day that it was announced that Kim Guadagno and Phil Murphy both qualified for public matching funds in New Jersey’s 2017 gubernatorial election, the New Jersey Election Law Enforcement Commission issued a News Release reporting that independent spending reached an all-time high in New Jersey’s 2017 primary election. This means that, as we look toward the general election, our gubernatorial candidates will be limited in what they can spend in the general election ($13.8 million to be precise) while independent groups will not be subject to contribution or expenditure limits—this type of “outside spending,” which arises from sources other than candidates, is likely to become increasingly important in the 2017 gubernatorial election.

Under the First Amendment, independent groups are permitted to spend unlimited amounts of money in connection with an election provided they do not coordinate their activities with a candidate, his or her agents, or his or her campaign. Many think that Super PACs and independent-expenditure only committees are the only outside groups that play a role in elections; however, individuals, corporations, labor organizations and trade associations are also free to engage in the process and spend unlimited funds in New Jersey elections so long as there is no coordination with the candidate, his or her agents, or his or her campaign. Especially in New Jersey, home to strict pay-to-play restrictions that limit contributions to no more than $300 per election to a gubernatorial candidate and no more than $300 per calendar year to a party committee by a government contractor (and certain individuals associated with that contractor), independent spending is likely to play a big role in the upcoming general election.

For more information on how you or your company may participate in the political process, please contact Rebecca Moll Freed, Esq., Chair of the Corporate Political Activity Law Group, at rfreed@genovaburns.com or 973-230-2075.

Calling all New Jersey Government Contractors: What is your Plan for Political Activity Compliance in Anticipation of the 2017 Gubernatorial Election?

With only 19 days until the presidential election and the final debate being held tonight, most of the country is focused on national politics. Although the presidential election may be taking center stage, now is the time for companies to focus on their New Jersey political-activity compliance.

We are currently within the 18-month period before the inauguration of New Jersey’s next governor, which means that a contribution made today may impact your company’s eligibility for contracts with the State of New Jersey for years to come. If your company or even one covered individual (including officers, shareholders, equity partners or their spouses, civil-union partners and resident children) contributes more than $300 to a gubernatorial candidate or certain other political recipients, your company could be declared ineligible for contracts with the State of New Jersey through January of 2022!

Focusing on political-activity compliance is important for all companies, but it is especially important if your company has recently gone through a merger, conducted a re-organization, hired new officers or partners, promoted individuals within your company to new roles or simply needs a refresher. If you have no policy is place, it is not too late to adopt one before New Jersey’s gubernatorial election kicks into full swing and you find yourselves ineligible to compete for government-contracting opportunities.

501(c)(3)s and the 2016 Federal Election: Do You Know What Your Employees Are Doing?

As the 2016 presidential primary season proceeds, we are quickly approaching the summer conventions and the November presidential election. With the political contests becoming more heated, this post is part of a new series on what different entities and groups need to know about their political activity as the 2016 election approaches.

There are many obvious benefits to earning the designation of a 501(c)(3) charitable organization—the organization is exempt from tax and donations are deductible. But the Internal Revenue Code places a key limitation on all 501(c)(3) organizations by prohibiting them from engaging in any political activity. Violation of this prohibition on political activity may lead the IRS to refuse or revoke 501(c)(3) status. A 501(c)(3) therefore must avoid any partisan activity that supports or opposes political candidates or political parties.

A 501(c)(3) generally MAY NOT:

  • Make political contributions (monetary or in-kind).
  • Issue a statement that supports or opposes a candidate (e.g., stand-alone statements, statements in newsletters, or material on a website).
  • Endorse a candidate.
  • Ask a candidate to sign a pledge on any issue.

However, a 501(c)(3) may generally engage in non-partisan activity that is related to the democratic process. Therefore, a 501(c)(3) generally MAY:

  • Engage in non-partisan election-related activities such as get-out-the-vote and voter registration drives.
  • Engage in limited lobbying (related to the mission of the organization), including ballot-measure advocacy.
  • Educate all candidates on issues within the purview of the organization.
  • Conduct non-partisan public-education and training sessions about participation in the political process.
  • Prepare and disseminate non-partisan candidate questionnaires and sample ballots.

However, the officers, directors, and employees of a 501(c)(3) retain the right to personally engage in political activity (just as we described in our recent post on political activity for corporations). A 501(c)(3) must simply be careful to avoid allowing organization resources (from mailing lists to letterhead) to be used for political activity or permitting individuals to engage in political activity that suggests the support or endorsement of the organization.

Corporations and the 2016 Federal Election: Do You Know What Your Employees Are Doing?

As the 2016 presidential primary season proceeds, we are quickly approaching the summer conventions and the November presidential election. With the political contests becoming more heated, this post is part of a new series on what different entities and groups need to know about their political activity as the 2016 election approaches.

One of the key principles of federal campaign-finance law is that corporations are prohibited from making political contributions to federal candidates, political action committees, and party committees. This means not only that corporations are prohibited from writing checks to federal candidates, political action committees, or parties, but that a corporation should not use its resources—or allow its resources to be used—for any federal election purpose (though some exceptions exist for a corporation’s federal connected PAC). This prohibition on the corporation’s activity must be balanced, though, with the individual political activity of a corporation’s employees. Although a corporation may not make federal political contributions, a corporation’s employees have a First Amendment right to engage in the political process.  To maintain this balance, corporations should keep the following guidelines in mind:

Employees MAY:

  • Make individual political contributions with personal funds.
  • Volunteer or work for a political campaign on their own time.
  • Run for political office.

Employees may NOT:

  • Be reimbursed for any political contributions they make.
  • Use any corporate resources (including letterhead, printers, conference rooms, and mailing lists) for federal-election purposes.
  • Provide even individual volunteer services for a federal campaign during normal business hours—the corporation’s time is itself a resource of the corporation.
  • Take even unpaid leave to work or volunteer for a federal campaign if the leave is granted in a way that demonstrates a preference for one candidate or political party.
  • If an employee runs for political office, the corporation may not endorse the candidate or indicate support through such avenues as a newsletter or website.

Because the scope of what is prohibited is so broad, it is important for corporations to adopt and enforce political-activity policies to ensure that employees are not unknowingly making prohibited political contributions by performing work for a political campaign during paid business hours or by using corporate resources for political purposes. Similarly, corporations should have a plan in place to govern how and when employees are entitled to take unpaid leave to work or volunteer for a federal campaign.

Corporations may be faced with navigating these and other challenges in this heated political season. It is therefore important for corporations to begin thinking about how to navigate between the federal prohibition on corporate political contributions and the First Amendment right of a corporation’s employees to engage in the political process.

Explaining Jon Stewart’s Monologue on Campaign Finance

After more than 16 years at the helm of The Daily Show, Jon Stewart hosted his final episode last night. The hour-long show devoted most of its running time to Stewart saying farewell to the correspondents and staffers who have played a part in the show’s history. But Stewart found time to deliver a short monologue on how truth is often obscured in business, policy, and politics. (Because this is a family-friendly Corporate Political Activity Law Blog, we won’t mention the term Stewart repeated throughout the monologue.) One strategy, Stewart explains, is hiding the truth through complexity:

Hey, a handful of billionaires can’t buy our elections, right? Of course not. They can only pour unlimited, anonymous cash into a 501(c)(4) if 50% is devoted to issue education, otherwise they’d have to 501(c)(6) it, or funnel it openly through a non-campaign coordinated Super PAC.

Here’s a quick overview of the campaign-finance concepts that Stewart referenced, which also doubles as a handy primer on the different ways money is raised and spent on political activity.

  • For federal elections, the making of political contributions to a candidate or a political party is subject to both contribution limits and disclosure requirements. The FEC has jurisdiction over these issues.
  • Tax-exempt organizations are not subject to the FEC’s jurisdiction. Instead, the IRS ensures that 501(c) organizations do not engage in prohibited political activity. A 501(c)(3) organization, for example, may not engage in any political activity but may engage in limited lobbying expenditures. In contrast, a 501(c)(4) or a 501(c)(6) may carry on partisan political activity so long as political activity is a secondary—and not the primary—activity of the organization. The IRS has expressed an apparent tolerance of political activity by 501(c)(4)s and 501(c)(6)s, so long as the political activity is less than 50% of the organization’s total activity. A 501(c)(4) or a 501(c)(6) may also engage in unlimited lobbying expenditures. There are no limits on the money that may be donated to 501(c) organizations and the donations are not subject to disclosure.
  • As we’ve discussed here on the blog, a Super PAC is a political organization that may only make independent expenditures, which means that they are not coordinated with candidates. A Super PAC may raise unlimited funds but it is required to disclose its contributors.

Stewart is right. The world of campaign finance can be complicated. Although he will no longer be around to explain the complexities of campaign-finance law, we will!

Political Law Roundup – July 13, 2015

This is the first post in a new series on the blog, providing a quick recap of recent political-law news and developments.

  • What role will non-profits have on the 2016 presidential election? According to a report in the New York Times, 501(c)(4) political activity is expected to be an important factor in the upcoming race.
  • In Wagner v. FEC, the DC Circuit Court upheld the prohibition on political contributions by federal contractors. You can see our full analysis of this important case here.
  • Challenges in defining coordination and enforcing restrictions means that Super PACs will continue to play an important role in federal elections, including the 2016 presidential race.
  • The New York City Campaign Finance Board is holding a hearing on Monday, July 13, 2015 to solicit comments on proposed amendments to Board rules on public-funds eligibility and disclosure-statement documentation. More information is available here.
  • The Brennan Center for Justice, the New York City Campaign Finance Board, and the Committee for Economic Development will be hosting a conference titled American Elections at the Crossroads, on Wednesday, July 22. Ann Ravel, chair of the FEC, will deliver remarks.