Nonprofit Advocacy and  Lobbying

INDEPENDENT SECTOR Letter to Senators McCain, Feingold, and Lieberman
Regarding the Bipartisan Campaign Reform Act of 2001

March 15, 2001

The Honorable John McCain
241 Russell Senate Office Building
United States Senate
Washington, DC 20510-0303

The Honorable Russell Feingold
506 Hart Senate Office Building
United States Senate
Washington, DC 20510-4904

The Honorable Joseph Lieberman
706 Hart Senate Office Building
United States Senate
Washington, DC 20510-0703

Dear Senators McCain, Feingold and Lieberman:

I am writing to advise you of INDEPENDENT SECTOR’s concerns regarding certain provisions in S.27, the Bipartisan Campaign Reform Act of 2001. I greatly appreciate the opportunity your staffs provided earlier this week for representatives of our organization to meet with them. As they requested, I am writing to provide you with more information about our concerns.

INDEPENDENT SECTOR is a nonprofit, nonpartisan coalition of more than 700 national nonprofit organizations, foundations, and corporate philanthropy programs, collectively representing thousands of charitable groups in every state across the nation. Our mission is to promote, strengthen, and advance the nonprofit and philanthropic community to foster private initiatives for the public good. The vast majority of INDEPENDENT SECTOR’s are Section 501(c)(3) tax-exempt organizations, and it is S.27’s effect on these organizations that have given rise to our concerns.

Section 501(c)(3) organizations are already prohibited by federal tax law from engaging in any partisan electoral activities, including the partisan issue ads that S.27 seeks to regulate. However, S.27’s definition of “electioneering communications” is sufficiently broad that it encompasses—and, thus, S.27 would prohibit—a range of nonpartisan educational and advocacy communications clearly permitted for 501(c)(3)s. This result would interfere with 501(c)(3)s’ legitimate efforts to accomplish their charitable purposes and is unnecessary to accomplish S.27’s objectives. Accordingly, we recommend that 501(c)(3)s be explicitly excluded from coverage by amending Subtitle A of the bill to exempt communications by Section 501(c)(3) organizations from the definition of “electioneering communications.”

Exempting 501(c)(3) organizations would not create an equal protection problem since the long-standing tax law prohibition on partisan campaign intervention by 501(c)(3)s—a prohibition that does not apply to 501(c)(4), (5), or (6) organizations such as labor unions and trade associations—provides a rational basis for excluding Section 501(c)(3) organizations from S.27’s regulation of partisan issue ads.

The following are real world examples illustrating the sorts of legitimate nonpartisan 501(c)(3) activities that would be prohibited by S.27 in its current form:

• Local affiliates of the American Heart Association (AHA) have hosted nonpartisan candidate educational forums, some of which have fallen within 30-60 days before an election. As part of the media strategy for these forums, the Association has paid for the placement of print announcements for the events. In the future, such placements could more than likely be done on local radio stations, including listing the names of the candidates who will be participating. S.27 would prohibit these advertisements and broadcasts by AHA or any other Section 501(c)(3) organization that wanted to broadcast information about nonpartisan candidate debates.
  
  
• St. Peter’s Episcopal Church in Rome, Georgia regular broadcasts its 11 a.m. Sunday morning service on WRGA, 1470 AM. Part of the regular Episcopal liturgy from the Book of Common Prayer is to pray for the country’s leaders, including the President, U.S. Senators and U.S. Representatives, often by name. S.27 would prohibit St. Peter’s, and all of the other religious bodies that broadcast their Sunday morning services, from praying by name or otherwise mentioning incumbent federal politicians in their Sunday morning services within 30 days of a primary election, caucus or convention or 60 days of a general election in which any of these politicians was a candidate.
  
  
• Windsor Community Television of Windsor, Connecticut is a Section 501(c)(3) public access cable television station. As with most such stations, it provides anyone in the local community the ability to create programming for the station, including political organizations. For example, the Windsor Republicans currently have a show at 7:30 p.m. on Wednesday. S.27 would require this and all other Section 501(c)(3) public access cable television stations to screen all programming to ensure that none of it constituted “electioneering communications.” Imposing such a requirement runs counter to the federal policy of encouraging the creation of such stations in order to grant local communities the ability to have the broadest possible range of programming.

In addition to these examples, S.27 would prevent 501(c)(3) organizations from engaging in grassroots lobbying activities that are clearly legislative in both intent and effect, despite the fact that they may fall within S.27’s definition of electioneering. For example, primary elections generally fall in the midst of congressional sessions. If a Section 501(c)(3) organization that supports strengthening penalties for drunk driving wanted to purchase television ads urging the public to call named members of Congress in support of a pending bill (without commenting on the positions of the members with respect to the bill), it would be barred from doing so if it wanted the ads to air within 30 days of a primary election involving one of the named members. This prohibition would apply even if the vote on the bill were scheduled during those 30 days.

Subjecting Section 501(c)(3) organizations to S.27’s general prohibition on corporate expenditures for “electioneering communications” is unnecessary to accomplish S.27’s purpose of regulating partisan issue ads because federal tax law already effectively prohibits 501(c)(3)s from funding such ads. The existing federal tax law penalties include any or all of the following: 

• Revocation of tax-exempt status. The IRS has repeatedly stated and successfully argued in court that the ban on Section 501(c)(3) organizations supporting or opposing candidates is a “zero tolerance” rule, with revocation applying regardless of how few dollars are spent on such activities.
  
  
• Penalty tax on the organization. Section 4955 of the Code imposes a 10 percent penalty tax on the organization for any expenditures that support or oppose candidates for public office, increased to 100 percent if the organization refuses to correct the expenditures by recovering the expenditures to the degree possible and taking whatever additional corrective action the IRS, in its discretion, determines is necessary.
  
  
• Penalty tax on the organization’s managers. Section 4955 of the Code also imposes a 2.5 percent penalty tax on the organization’s managers for knowingly agreeing to make such expenditures, increased to 50 percent if the managers refuse to agree to correct the expenditures.

Three observations underscore the effectiveness of these tax law prohibitions:

• First, donors already have a powerful incentive to use 501(c)(3)s whenever possible because contributions to (c)(3)s are tax deductible. If creative and aggressive election lawyers could figure out a way around the tax law prohibitions on campaign interven-tion, they would presumably already be advising their clients to use (c)(3)s since the ability to use pre-tax dollars would almost double their clients’ purchasing power. This is not happening, and it is not happening because the tax law restrictions work.
  
  
• Second, it is important to note that the tax rules make it highly unattractive to use a “disposable” 501(c)(3) organization to fund partisan issue ads in a single election cycle. While the IRS may not catch up with such an organization until after the election, once the IRS does catch up with the organization it can impose substantial personal liability on the organization’s managers if it can show that they knowingly approved a partisan expenditure. This prospect of substantial personal liability for misusing 501(c)(3)s for partisan purposes has proved to be a highly effective deterrent.
  
  
• As noted above, the IRS has a record of aggressive enforcement of the prohibition on partisan activities by Section 501(c)(3) organizations.

Since these tax rules effectively prohibit Section 501(c)(3) organizations from funding the partisan issue ads that S.27 seeks to regulate, there is no reason to make them subject to any of the bill’s restrictions. In this regard, it is important to note that Section 501(c)(3)s stand in a very different position from 501(c)(4)s. 

Unlike 501(c)(3)s, 501(c)(4)s are permitted under federal tax law to engage in partisan electoral activity. Moreover, the Supreme Court has ruled in Massachusetts Citizens for Life that (c)(4)s, except to the extent they depend on business income, have a First Amendment right to engage directly in partisan electoral speech. S.27’s exemption of (c)(4)s from the general prohibition on use of corporate funds for “electioneering communications” is clearly required to conform to the Court’s ruling in MCFL. 

By contrast, as explained above, 501(c)(3)s are already prohibited by federal tax law from engaging in partisan electoral activities. Therefore, the appropriate treatment for (c)(3)s is not to include them in the (c)(4) “carve out” but rather to exempt them entirely from S.27. Section 501(c)(3) organizations have never been required to register or file with the FEC, and for the reasons noted above, there is no reason why that should change.

For all of these reasons, INDEPENDENT SECTOR strongly urges you to amend the bill along the lines we have described.

Thank you for your thoughtful efforts to help craft an appropriate solution to the problems raised by these types of communications.

Sincerely, 

Sara E. Meléndez
President and CEO
INDEPENDENT SECTOR