[EL] account of how the c4 situation became what it is?

Mon Jan 30 11:20:24 PST 2012

I agree with Ellen about the IRS.  At the moment, c(4)s provide some information on their 990s, but the problem is the 990 are filed well past any election and the statute keeps the names on the 990s private.  I do, however, think there are other regulatory ways to require some disclosure.  The article appeared in the Election Law Journal ,  Campaign Disclosure and Tax-Exempt Entities:  A Quick Repair to the Regulatory Plumbing.  Vol. 10, No. 4, December 2011:  427-448.  Here is the abstract.

This article argues that there are some quick regulatory fixes the Treasury can implement to ensure that tax-exempt organizations are operating within the rules and that aggressive tax planning is not being used as a way to obfuscate rules for political organizations requiring disclosure. The article recommends that Treasury promulgate new regulations to require disclosure by tax-exempt entities of expenditures and contributions in excess of $25,000. The article also proposes that Treasury institute procedures to require tax-exempt organizations to file for exempt status, and to provide procedures for ensuring that these organizations meet the requirements in the statute and are not being used as a mechanism to avoid disclosure provisions in the Internal Revenue Code.

From: Ellen Aprill [mailto:ellen.aprill at lls.edu]
Sent: Monday, January 30, 2012 1:12 PM
To: Rick Hasen
Cc: Tobin, Donald; law-election at department-lists.uci.edu
Subject: Re: [EL] account of how the c4 situation became what it is?

The IRS promised some activity in this area in last year's work plan, after a request from Baucus.  The IRS probably meant audits.  If they have taken place, we will learn about them in detail only if the organization audited chooses to go public. It is possible the IRS would give some kind of aggregated information to show that it responded to Baucus's request.

The IRS has been urged for many years to set up guidelines as to what "primary activity" means for c-4's. (The primary activity of c-4's cannot be electioneering, defined far more broadly than for FEC purposes.)  The IRS has nnot responded to these requests.

The Code states that only donors to private foundations and 527 organization can be disclosed publicly on the annual information return for exempt organizations.  Congress would have to make a change for contributors to c-4's to be disclosed publiclty (donors above $5000 are listed on a schedule that must be filed with the IRS.)

While section 527 recognizes that noncharitable exempt organizations can engage in electioneering by imposing tax on them equal to the lower of their electioneering expenses or their investment income, no disclosure obligation accompanies this imposition of tax.
  Ellen
On Mon, Jan 30, 2012 at 9:53 AM, Rick Hasen <rhasen at law.uci.edu<mailto:rhasen at law.uci.edu>> wrote:
Donald,
To what extent is there the likelihood that, absent further congressional action, the IRS will eventually come after some of these electoral c(4)s for having electioneering as their primary activity?  Or at least to set guidelines going forward?  I recall that the IRS said it would do such a thing but it first required additional study.
Rick

On 1/30/2012 9:49 AM, Tobin, Donald wrote:
Part of the story is that very few entities that avoided express advocacy had any disclosure requirement.  The only Federal disclosure requirements were in FECA or those required by the FCC when placing an ad on TV.

Congress then added disclosure provisions to 527 of the IRC.  This required political organizations organized under 527 to disclose.   It did not impose a similar requirement on 501(c)(4)s.

Congress then passed the broader electioneering communication rules in McCain-Feingold.

Because of the disclosure requirements, 527 political organizations were no longer a preferred vehicle.  Organizations that wished to avoid disclosure organized as 501(c)(4) organizations instead of 527 organizations.

So while (c)(4)s were not required to disclose, they usually were social welfare organizations that also engaged in some advocacy.

In my view, the big change is the use of (c)(4)s as political campaign type vehicles absent any real social welfare purpose.

There is a big difference between the NAACP or the NRA, having a social welfare purpose and also engaging in some political advocacy than an organization that is allegedly social welfare but really has its primary purpose being election activity.

So I agree with Brad that (c)(4)s have not had the burden to disclose (except if they engaged in express advocacy, and now electioneering communication), but the type of organization now claiming to be a (c)(4) has changed.

Donald

From: law-election-bounces at department-lists.uci.edu<mailto:law-election-bounces at department-lists.uci.edu> [mailto:law-election-bounces at department-lists.uci.edu] On Behalf Of Justin Elliott
Sent: Monday, January 30, 2012 12:30 PM
To: law-election at department-lists.uci.edu<mailto:law-election at department-lists.uci.edu>
Subject: [EL] account of how the c4 situation became what it is?

Hi --

To briefly introduce myself since I'm new to the list: I'm a reporter at Salon who covers campaign finance from time to time. People may have read my recent inteview with Floyd Abrams and Rick's response http://bit.ly/AnZlbK  http://bit.ly/yRXw55

Quick question for the group. I'm looking for a narrative account or just good explanation of how we got to the current point of c4s running ads etc and not disclosing donors. My sense is this is a relatively new phenomenon, but I'd like to be more clear on the legal/regulatory background....

Thanks!
Justin Elliott
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