[EL] OFA: 501(c)(4) formed by recent campaign officials and candidate

Fri Feb 8 14:55:58 PST 2013

Just catching up on my election-law list reading.  I appreciate Barnaby invoking me, but I’d like to clarify that while I do agree that Organizing for America faces some challenging (and, I think, soluble) issues under tax law, what I was trying to say quite different from the way Barnaby characterizes it.

I think that the Gingrich case (or, more correctly, IRS TAM 96-03 on the Progress and Freedom Foundation) stands for the proposition that it’s not per se political campaign intervention for a 501(c)(3) to have a “conservative” ideology, but that American Campaign Academy holds that aid to a particular political party is not OK because of the “private benefit” to the party.  (As an aside, I think that American Campaign Academy only relies on a private benefit analysis rather than a campaign intervention analysis because the IRS couldn’t point to a specific candidate election that ACA was trying to influence.)

As for the Kemp matter (a proposed denial of the organization Empower America’s application for 501(c)(4) status that the organization successfully fought), it’s another example of a “conservative” organization succeeding where a “Republican” organization might have failed.  (And yes, it’s always helpful to use someone from the “other party” in your curriculum, as Empower America did with Joe Lieberman.  The Gingrich course supported by the Progress and Freedom Foundation did likewise.)

Thus, smart organizations seeking to avoid having their activities characterized as electioneering or private benefit by the IRS talk about being “conservative” or “liberal” or “libertarian” or “progressive” and not about any affiliation with or allegiance to the political party most often associated with the particular viewpoint endorsed.

With all of that said, Organizing for America is going to have to be careful to avoid falling into American Campaign Academy style private benefit.  Like ACA, OFA could, if it’s not careful, be seen as attempting to take over work that was previously done by a political party for the benefit of that party.  Clearly OFA is struggling to define itself, but the press reports I have read suggest that it should be possible for OFA to avoid that pitfall (just as other former campaigns have similarly made a transition to independent advocacy organizations).

John Pomeranz
Harmon, Curran, Spielberg & Eisenberg, LLP
1726 M Street, NW, Suite 600
Washington, DC  20036
p: 202.328.3500
f: 202.328.6918
e: jpomeranz at harmoncurran.com

From: law-election-bounces at department-lists.uci.edu [mailto:law-election-bounces at department-lists.uci.edu] On Behalf Of bzall at aol.com
Sent: Wednesday, February 06, 2013 11:40 AM
To: douglasrhess at gmail.com; law-election at department-lists.uci.edu
Subject: [EL] OFA: 501(c)(4) formed by recent campaign officials and candidate

In regard to the last point Douglas Hess raises (and perhaps the others as well), it may be harder than people think to use a 501(c)(4) to do the "creative" political organizing that a party would otherwise do. With the permission of the author, I reprint a recent letter from Paul Streckfus' Exempt Organizations Tax Journal, www.eotaxjournal.com<http://www.eotaxjournal.com>:

 if only because of the circumstances of its history and creation, Organizing for Action raises interesting questions that are not present in the case of the conservative section 501(c)(4) organizations to which it is so often compared. The American Campaign Academy case says that (i) the private benefit doctrine will prevent an organization from qualifying under section 501(c)(3) if its motive/purpose/intent/goal is to benefit a particular political party and (ii) the organization’s motive/purpose/intent/goal can be inferred from the prior active involvement with that political party of the individuals who created and controlled the organization. As a matter of logic, the rules must be the same for section 501(c)(4) organizations because, since 1996, section 501(c)(4) has expressly prohibited “inurement,” and even before the 1996 amendment, private benefit had been held to be inconsistent with section 501(c )(4) status.

The scope and effect of American Campaign Academy, a Tax Court opinion by a judge who appeared somewhat befuddled by the intricacies of tax-exempt organization practice and reality (as the Chief Judge of the Tax Court once pointed out to me: the average Tax Court judge sees one or two exempt organization cases in a decade), was the topic of substantial discussion, including in yesterday's First Tuesday Lunch Group (a meeting of election and tax lawyers). The bottom line of the discussion, per John Pomeranz and others, was the Gingrich ("we're ideological, not partisan") and Kemp (Empower America) cases (bipartisanship is sufficient -- "See? We have Joe Lieberman!") trump American Campaign Academy (aid to a particular party is prohibited private benefit), though, as in all such analyses, "facts and circumstances" control.

So, although it is almost certain that the Service will not turn down OFA's application for recognition of its already-existing 501(c)(4) status (granted automatically by its formation in a state and only "recognized" by the IRS), there do exist substantial tax and legal questions about whether an organization can "do more creative political organizing" if it is directed in ways deemed to aid only one party. Those whose principals were and are in control of a campaign or party might be held to a higher standard if they immediately transition into a c4 structure. They would have to rely on the bipartisan or ideological defenses.

Barnaby Zall
Of Counsel
Weinberg, Jacobs & Tolani, LLP
10411 Motor City Drive, Suite 500
Bethesda, MD 20817
301-231-6943 (direct dial)
bzall at aol.com<mailto:bzall at aol.com>
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-----Original Message-----
From: Doug Hess <douglasrhess at gmail.com<mailto:douglasrhess at gmail.com>>
To: law-election <law-election at department-lists.uci.edu<mailto:law-election at department-lists.uci.edu>>
Sent: Wed, Feb 6, 2013 10:55 am
Subject: [EL] OFA: A Shot Heard 'round the World?

I don't understand the objection to an organization (the new OFA) that promotes mobilization around community and national issues receiving donations. If the members don't like who funds the group, they won't fund it (i.e., donate or join it) either.

I guess for appearances, Obama's involvement raises questions, but there are ways to limit that involvement in reality and in appearance. It will be interesting to see if he plans to help raise funds for it while in office. If it endorses, then things are trickier, I guess. But a 501(c)4 organization (I think that is what it is) can only inform members of its endorsement, right? And it would be odd for a sitting president to endorse many people in a primary fight in a systematic way (FDR learned that) and even odder that he would endorse members of the opposite party. So, what is the concern? That people may organize and a president encourage it?

On another topic: It is interesting to note that an extra-party organization is needed to do more creative political organizing in American politics.

-Doug

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