The Supreme Court’s Citizens United decision has contributed to an unprecedented influx of money into the election process, raising questions about donor disclosure and political activities by 501(c)(4) tax-exempt organizations. A highly politicized issue, Members of Congress and the public have begun to both call for, and question, increased scrutiny of 501(c)(4) organizations that appear to be engaged in partisan political activity.
IRS admits targeting conservative groups
IRS Exempt Organizations Division Director Lois Lerner apologized before a convening of the American Bar Association Friday on behalf of the agency’s “absolutely wrong and inappropriate” actions in pursuing predominately tea party-affiliated organizations applying for 501(c)(4) status between 2010 and 2012. Accusations of IRS discrimination erupted last year, with the IRS denying the charges until now. In a statement, Lerner explained the alleged overstep as a function of poor planning in the face of an unexpected increase in the volume of 501(c)(4) applications, rather than an intentional policy of discrimination. House Ways and Means Committee Chairman Dave Camp (R-MI) announced the committee will hold a hearing on the issue in the near future.
Bipartisan campaign finance reform legislation introduced in Senate
Senators Ron Wyden (D-OR) and Lisa Murkowski (R-AK) introduced the Follow the Money Act (S. 791) on April 24, legislation to require all groups, including 501(c)(4) social welfare organizations, that spend at least $10,000 on political activities to disclose the names of donors who contribute $1,000 or more. Meanwhile, Senator Carl Levin (D-MI), who is retiring in 2014, has pledged to use his remaining time as Chairman of the Homeland Security and Governmental Affairs Permanent Subcommittee on Investigations examining IRS oversight of political activity by 501(c)(4)s.
IRS responds to inquiries from watchdog groups on 501(c)(4) political activities
In a letter responding to requests from the Campaign Legal Center and Democracy 21 to change the rules related to political activity by 501(c)(4) organizations, IRS Exempt Organizations Division Director Lois Lerner stated the IRS is “aware of the current public interest in the issue,” and noted the agency will “consider proposed changes in this area as we work with the IRS Office of Chief Counsel and the Treasury Department’s Office of Tax Policy to identify tax issues that should be addressed through regulations and other published guidance.” The groups responded by calling on the IRS “to act expeditiously in the interim to stop the blatant abuses of the tax laws that are resulting in massive amounts of secret money being laundered into our national elections by groups claiming to be ‘social welfare’ organizations."
Read letters to the IRS from the Campaign Legal Center and Democracy 21:
Supreme Court reverses court case attempting a rebuttal of Citizens United
On Monday, June 25, the Supreme Court voted 5-4 to reverse a Montana Supreme Court ruling based on a century-old Montana law that prohibits corporations from spending money on political campaigns. The reversal of American Tradition Partnership v Bullock, which was a rebuttal to the 2010 Citizens United v. Federal Election Commission decision, reaffirmed the 2010 ruling allowing corporations to make unlimited political expenditures. The court did not revisit the 2010 case, did not hear oral arguments, and the ruling clarifies that the 2010 rules apply at the state level.
Federal Election Commission rules
On March 30, the U.S. District Court for the District of Columbia issued a ruling in Van Hollen v. Federal Election Commission that FEC rules restricting campaign donor disclosure are invalid and must be changed to provide for donor disclosure.
FEC rules had required that the identities of donors to groups spending money on advertisements called “electioneering communications” must only be disclosed if donors specifically earmarked their donation to that particular expenditure. Electioneering communications are broadcast advertisements that mention a federal candidate, air within 60 days preceding an election or 30 days preceding a primary, and are targeted to the relevant electorate. Since few donors specified a specific election expense when making a contribution, very little, if any, donor disclosure was occurring.
In the ruling, U.S. District Judge Amy Berman Jackson said the FEC did not have the authority to modify the requirements of the McCain-Feingold campaign finance law, which specified that disclosure is required of all persons who contributed $1000 or more to groups running electioneering communications. On April 26, the FEC declined to appeal the ruling, and on April 27, the U.S. District Court for the District of Columbia refused to stay the ruling, requiring the FEC to immediately adhere to the legislative requirement. On May 14, a three-judge panel of the D.C. Circuit Court of Appeals denied a motion to stay the lower court ruling. An appeal of the case is pending.
On July 27, the Federal Election Commission (FEC) indicated in a press release they would enforce the legislatively mandated disclosure rules while the case is being appealed:
Effective March 30, 2012, persons making disbursements for electioneering communications should report “the name and address of each donor who donated an amount aggregating $1,000 or more to the person making the disbursement, aggregating since the first day of the preceding calendar year.”
These rules require that organizations airing electioneering communications known as "issue ads" airing 60 days before a general election or 30 days before a primary must disclose the identities of donors contributing $1,000 or more annually. The requirement is retroactive to March 30, 2012.
UPDATE: On September 18, 2012, the District of Columbia U.S. Court of Appeals overturned the district court's ruling that would have required groups to disclose the name and address of each donor who gives more than $1,000 to run electioneering communications. The decision sent the case back to the lower court, who is directed to provide the FEC an opportunity to revise the regulation as part of a rulemaking procedure. According to a statement by J. Gerald Hebert, Executive Director of the Campaign Legal Center, "(t)his order effectively means that there will be no disclosure of the donors funding the tens of millions of dollars being spent on political advertising by 501(c)(4) groups...in the 2012 election cycle."
501(c)(4) organizations include two types of organizations: (a) social welfare organizations, defined by statute as civic leagues or organizations operated exclusively for the promotion of social welfare; and (b) local associations of employees of which the net earnings are devoted exclusively to charitable, educational, or recreational purposes. Learn more from the IRS.
501(c)(4) organizations are tax-exempt, but donations to them are not tax deductible and the identities of donors do not have to be disclosed. These organizations are allowed to engage in unlimited lobbying activities, and can engage in some campaign activity, as long as it is not their primary activity.