The Issue
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.

Latest News

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:

• Response to the IRS (July 23, 2012)
• Follow-up to petition requesting IRS rulemaking on 501(c)(4) entities and political activity (March 22, 2012)
• Petition to IRS requesting rulemaking on 501(c)(4) entities and political activity (July 27, 2011)
  

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." 

Background
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.

Media Coverage

On June 1, 2012, National Public Radio (NPR) aired a piece called "Why Political Ads in 2012 May All Look Alike" on their All Things Considered program that discusses political advertisements and the involvement of outside groups, including 501(c)(4) organizations.

Congressional Actions

• Republican Senators ask IRS for answers on donor information requests
• A group of 11 Republican Senators, led by Senate Finance Committee Ranking Member Orrin Hatch (R-UT), sent a letter June 18 to Internal Revenue Service (IRS) Commissioner Douglas Shulman pressing for additional answers on the agency’s request for confidential donor information from organizations applying for section 501(c)(4) tax exempt status, saying the action circumvented current statutory privacy protections. “Congress has made privacy the rule, and not the exception,” wrote the Senators, “Unfortunately, the public release of private donor information exposes citizens to possible harassment and intimidation by those who oppose the goals of the charitable organization.


• McConnell criticizes IRS treatment of conservative 501(c)(4) organizations
• On June 15 Senate Republican Leader Mitch McConnell (R-KY) criticized the Internal Revenue Service’s (IRS) treatment of 501(c)(4) organizations affiliated with the Tea Party and other conservative organizations, suggesting that the Obama Administration may be using the IRS to go after its political opponents. Addressing the American Enterprise Institute, McConnell referred to recent complaints by Tea Party groups that the IRS is holding up processing of their applications for tax-exempt status by requiring the completion of lengthy questionnaires that include requests for meeting transcripts and information on donors. The IRS has denied targeting the groups and said decisions on exemption applications and rulings are made in a “fair, impartial manner” and "without regard to political party affiliation or ideology.” Read Senate Republican Leader Mitch McConnell’s prepared remarks.
  
  
• Boustany presses IRS on 501(c)(4) organizations
• House Ways and Means Oversight Subcommittee Chairman Charles Boustany (R-LA) has questioned the IRS’s scrutiny of certain tax-exempt applicants, including grassroots political entities such as local Tea Party groups, about their operations and donors.
• Following testimony by IRS Commissioner Douglas Shulman on March 22, in which he maintained the Agency's actions are not politically motivated, Boustany expressed his intention to hold a hearing to further explore IRS investigation activities and the broader issues surrounding exempt organizations.
• Boustany sent a letter to the IRS on March 1 as a follow-up to an October 2011 request for general information on the tax-exempt sector, IRS audits and compliance activities related to tax-exempt organizations.
  


• Democratic Senators letters to the IRS
• On March 12 a group of seven Democratic senators sent a letter to the IRS calling on the agency to adopt a bright line test to define a purpose “primarily” related to social welfare activities, as well as require 501(c)(4) organizations to document social welfare activity on Form 990s. The letter was a follow up to their February 16 letter to the IRS, which urged the agency to investigate abuse of the tax code by 501(c)(4) social welfare organizations.
  


• Senate Democrats convene task force to craft response to impact of Citizens United
• A group of seven Democratic senators, led by Senator Sheldon Whitehouse (D-RI), announced on March 13 that they are convening a taskforce to craft a new legislative response to what they see as the harmful impact of the Supreme Court's Citizens United decision. The taskforce said it intends to pursue all available legislative and administrative means to disclose to the public who is influencing American elections.
  


• Senate Republican letter to the IRS
• On March 14 a group of Senate Republicans sent a letter to the IRS questioning recent allegations of selective enforcement on tax-exempt organizations and requested a detailed analysis of the agency's process for the approval and renewal of a tax-exempt designation under tax code Section 501(c)(4). The group is led by Senators Orrin Hatch (R-UT), ranking member of the Senate Finance Committee and Senator Rob Portman (R-OH).


• Chairman Issa requests information from IRS on 501(c)(4) organizations
• On March 27, Chairman of the House Committee on Oversight and Government Reform Darrell Issa (R-CA) and Chairman of the Subcommittee on Regulatory Affairs, Stimulus Oversight and Government Spending Jim Jordan (R-OH) sent a letter to the IRS expressing concern that the IRS has exceeded appropriate levels of scrutiny and may be selectively enforcing regulation of 501(c)(4), 501(c)(5), and 501(c)(6) organizations. The letter requests documentation from the IRS about their work pertaining to those organizations.
  


• House Democratic letter to the IRS
• Thirty two House Democrats, led by Rep. Peter Welch (D-VT), on March 28 called on the IRS to investigate whether any 501(c)(4) organizations are improperly engaged in political campaign activity. In a letter to IRS Commissioner Douglas Shulman, the lawmakers urged the IRS "to investigate and stop any abuse of the federal tax laws by groups whose primary activity and true mission are to influence the outcome of federal elections."


• Senate Republican letter to the IRS
•  On August 6, a group of Senate Republicans sent a letter to the IRS inquiring about a recent IRS letter regarding regulations addressing 501(c)(4) political activity. The letter requests information about any draft changes to regulations and what mechanisms (as well as a time frame) that would be used to make those changes. The letter, led by Senator Orrin Hatch, ranking member of the Senate Finance Committee, is signed by 10 Republican Senators.

Legislative Actions

For more information on the "DISCLOSE Act" click here.