Today s Advocacy Toolbox: PACs, Super PACs, and Independent Expenditures

Transcription

1 Today s Advocacy Toolbox: PACs, Super PACs, and Independent Expenditures 2016 Association of Chamber of Commerce Executives Annual Convention August 11, 2016 Janice M. Ryan Political and Nonprofit Law Practices Venable LLP jryan@venable.com

2 Background and Experience Janice Ryan is an associate attorney at Venable LLP in Washington, DC, where she focuses her practice on advising clients on all aspects of state and federal political law, including campaign finance, lobbying disclosure, gift and ethics rules, pay-to-play laws, and tax implications of political activities. Ms. Ryan develops comprehensive political compliance programs tailored to clients needs, and assists clients to implement those programs on an ongoing basis. Ms. Ryan helps clients navigate the complex web of state and federal political laws with practical advice based on clients particular goals and activities. In addition to counseling clients on political law matters, Ms. Ryan counsels trade and professional associations, public charities, private foundations, and other nonprofits on a wide variety of legal topics, including political activities, tax exemption, corporate governance, antitrust, and transactional matters. 2

3 What We ll Cover Section I: Introduction Limits on campaign activity Contributions v. expenditures Contribution limits Tax considerations Section II: PACS Key Terms Solicitation Rules Successful Solicitations Disclosure Operations & Governance Using the PAC Section III: Independent Expenditures and Super PACS Independent Expenditures Funding Super PACs Independence Disclaimers Disclosure Questions? 3

4 SECTION I: Introduction 4

5 Campaign Finance Basics Federal law: Distinguishes between contributions & expenditures Limits individual contributions Restricts or prohibits contributions from other entities Requires contributions to be disclosed Prohibits reimbursing contributions or using straw donors Allows for unlimited independent expenditures 5

6 Contributions versus Expenditures Contributions Monetary support given directly to a candidate, PAC, or party In-kind support (discounts, etc.) given directly to candidate, PAC, or party In-kind activity for the benefit of a candidate, PAC, or party done at the request or suggestion of the candidate, PAC, or party Expenditures Spending money to support candidates, PACs, or parties done without coordinating If coordinated, becomes a contribution 6

7 Basic Campaign Contribution Rules Corporations Federal: may not give State: laws vary Foreign Nationals Prohibited at federal, state, and local level May not control political activities Contractors Federal: banned (but applies mostly to individuals) State: restricted by many state and local laws Reimbursements Prohibited at federal, state, and local level Earmarking through other entities often restricted 7

8 Corporate Contributions Corporate contributions to federal candidates, PACs, parties are prohibited Corporate resources may not be used to facilitate fundraising (except in connection with a PAC) including: Using subordinates Paying event costs Collecting contributions But: corporations may form PACs to support candidates Some states allow corporate contributions Citizens United did not change everything Allows corporations to make independent expenditures Few corporations do so; most independent expenditures funded by individuals 8

9 State Corporate Contributions to Candidates Washington Montana Maine North Dakota Minnesota Oregon Idaho New Hampshire Wisconsin South Dakota Michigan Wyoming Nebraska Nevada Pennsylvania Iowa Utah Illinois Colorado California Kansas Indiana Missouri Ohio Oklahoma New Mexico Tennessee Arkansas Alabama Mississippi Connecticut Delaware Virginia Maryland North Carolina South Carolina Georgia Unlimited Subject to Limits Louisiana Florida Rhode Island New Jersey Texas Alaska Massachusetts West Virginia Kentucky Arizona Hawaii Vermont New York Prohibited

10 Federal Contribution Limits Individual May Give Multicandidate PAC May Give NonMulticandidate PAC May Give To a Candidate $2,700 per election $5,000 per election $2,700 per election To a PAC $5,000 per year To a National Party Committee $33,400 per year* To State and Local Parties $10,000 per year $5,000 per year $15,000 per year* $5,000 per year $5,000 per year $33,400 per year* $10,000 per year *Additional amounts may be given to convention, building, and legal funds 10

11 Federal Tax Law Basics 501(c)(6): Trade Association 501(c)(4): Social Welfare 501(c)(3): Public Charity Campaign intervention limited May not be primary purpose May contribute to candidates (if allowed under state law) May form a PAC May make communications to support candidates No campaign intervention No endorsements No contributions No communications to support candidates 11

12 501(c)(6) Primary Purpose Improving Business Line Political Safe Harbor: 60%/40% 12

13 Additional Tax Law Considerations Reporting 527(f) Tax Dues Nondeductibility Political expenditures and activities must be reported to the IRS on annual Form 990 information return Form 1120-POL must be filed with the IRS to report tax liability under Code Section 527(f) Expenditures on political activities are taxable under section Code Section 527(f) (unless paid for from segregated fund registered as political organization with state, FEC, or IRS) Tax is 35%, paid on lessor of net investment income or political expenditures Expenditures on political activities are non-deductible under Code Section 162(e) Association must include political activities expenditures with lobbying expenses in annual calculation and reporting of percentage of dues that are nondeductible by members (unless 527(f) tax paid) 13

14 SECTION II: PACS 14

15 PAC Basics 15

16 Political Action Committees Used to make contributions to candidates Up to $5,000 per year Only U.S. citizens or permanent residents $5,000 per election to candidates Voluntary contributions from individuals Separate Segregated Fund No corporate funds in the account 16

17 Dispelling Myths PACs don t buy influence PACs are highly transparent PACs do provide opportunities to interact with lawmakers PACs help to elect and retain members who understand and support the PAC s positions 17

18 Connected versus Non-Connected Non-Connected No related corporation May solicit any US citizen All administrative costs paid by PAC Connected Related corporation May pay for administrative costs Fundraising costs Compliance costs May only solicit restricted class May accept contributions from any US citizen 18

19 Solicitation Rules Who and How? 19

20 Connected PAC Solicitations May only be directed to restricted class Identify restricted class Determine who will be solicited May not be coercive Must include disclaimers about the contribution 20

21 Contribution Disclaimer Contributions are not deductible for federal tax purposes. Contributions from foreign nationals who are not lawfully admitted for permanent residence in the U.S. are prohibited. Contributions to the PAC will be used for political purposes and are entirely voluntary. You have the right to refuse to contribute without reprisal. [COMPANY NAME] will not favor or disadvantage anyone by reason of the amount of their contribution or their decision not to contribute. All individual contributions must be made from personal funds and may not be reimbursed by any other person. Federal law requires [PAC NAME] to use its best efforts to report the name, mailing address, occupation, and employer of each individual whose contributions exceed $200 per calendar year. 21

22 Restricted Class The individuals who may be solicited to make contributions to the PAC Varies by type of connected organization: For-profit corporation Membership organization Trade association 22

23 Corporation Restricted Class Stockholders Board of Directors (shareholders or paid stipend) Members of recognized professions Salaried employees with policymaking or managerial responsibilities PAC Family members 23

24 Individual Membership Organization Restricted Class Members of recognized professions employed by organization Salaried employees of organization with policymaking or managerial responsibilities PAC Members Family members 24

25 Corporate Membership Organization Restricted Class Non-Corporate Members Members of recognized professions employed by organization Salaried employees of organization with policymaking or managerial responsibilities Salaried employees of member companies but only if company gives prior approval PAC Family members 25

26 FEC Membership Rules Requirements Affirmation of membership One of the following: Pay annual dues OR Role in governance Individual Members Create individual members Create related organization with individual members 26

27 Trade Association Solicitation May only solicit executives of member companies if the member gives prior approval Only one association per company per year Applies to member company, not parent or subsidiary Must be in writing Company may limit scope May include sample solicitation 27

28 Prior Approval in Practice Limits ability to communicate with corporate members All asks must be focused on prior approval May communicate with association leadership 28

29 Responses to Prior Approval Sign Form Solicit Contributions Send a Personal Check Send a PAC Check 29

30 Suggestions for Successful Solicitations Incentives and Technique 30

31 Suggested Amounts May provide suggested giving levels Tiers: Gold Silver Bronze Level: CEO EVP VP Director Must have additional disclaimer 31

32 Disclaimer with Suggested Giving Levels The recommended giving levels are only suggestions. You are free to contribute more or less than suggested and [Company] will not favor or disadvantage anyone by reason of the amount of their contribution or their decision not to contribute. 32

33 Payroll Deduction Very efficient way to collect contributions Remains in effect until revoked Some states have different laws for state PACs Helps provide budget for PAC 33

34 Other PAC Incentives Receptions/dinners Trinkets Prizes Charitable Match 34

35 One-Third Rule Value of prize < 1/3 Value of Contribution PAC must pay excess Universe of contributions is important Prizes can be donated by the association or member companies using corporate funds

36 Examples Raffle: $1,200 in contributions Prize worth no more than $400 Gifts: $10 pen Contribution must be more than $30 36

37 Charitable Match No benefit to contributor No token gifts from charity No tax deduction to contributor Charity May be limited by company to specific list Including related foundations May be open to any 501(c)(3) System to verify charities Level One-for-one approved by FEC in Advisory Opinions Two-for-one dismissed in enforcement action (4-2 vote) 37

38 Solicitation Ideas Ask people to join not contribute Provide appropriate incentives Provide suggested giving amounts Use ambassadors Multi-touch solicitations CEO Other senior leadership Learning opportunities from peers 38

39 PAC Disclosure Filing Reports and Maintaining Records 39

40 FEC Reports Regular reports filed with FEC Donors disclosed who give more than $200: Name Address (may be company address) Occupation Employer All contributions given by the PAC Available online 40

41 Reporting Schedule Election Year Quarterly Plus pre-primary reports where needed OR Monthly Off-Years Semi-annual OR Monthly 41

42 Maintaining Records Must retain records for three years Record of all receipts Record of all disbursements Signed prior approvals Signed payroll deduction authorization Contribution forms Bank statements 42

43 PAC Formation and Operations Governance 43

44 Forming a PAC Board approval Open bank account File FEC Form 1 BEFORE YOU START Develop governance plan Develop budget Sell the board and senior leadership on the PAC 44

45 What is Required FEC does not impose governance requirements beyond having a treasurer Most PACs have some form of governance structure Structure is not disclosed 45

46 PAC Governance Committee Combination Executive 46

47 What Does a Governing Body Do? Helps to decide who will receive contributions Budget approval Contribution-by-contribution approval Approval of contributions off budget Helps to raise money Different divisions or groups Ambassadors Geographic regions Broadens the appeal 47

48 Giving Criteria Relevant candidates Committees of jurisdiction Representation of facilities Congressional leadership Interested members Other types of committees PACs Parties State involvement 48

49 Governing Documents Bylaws Keep them simple Basic operations May be amended Policies Procedures 49

50 Using the PAC Making Contributions & Holding Events 50

51 Federal Contribution Limits New PAC: $2,700 per election to candidate Multi-Candidate PAC: $5,000 per election to candidate In existence for six months Made contributions to five candidates Received contributions from 50 different contributors 51

52 PAC Events for Candidates PAC pays for food and beverage PAC pays for room rental PAC invites attendees Restricted class Others not with company PAC pays for corporate staff time All is treated as in-kind contribution to candidate subject to $5,000 limit per election 52

53 Restricted Class Event Limited to restricted class Those employees outside of the restricted class necessary for event Special guests (e.g., speakers) May urge attendees to vote for candidate May solicit contributions for candidate May not collect contributions must be given directly to candidate or candidate s agent May provide food and beverage May limit to one candidate and not include opponent 53

54 Federal PAC Contributions to State Candidates Washington Montana Maine North Dakota Minnesota Oregon Idaho New Hampshire Wisconsin South Dakota Michigan Wyoming Nebraska Nevada Pennsylvania Iowa Utah Illinois Colorado California Vermont New York Kansas Indiana Missouri Ohio Oklahoma New Mexico Tennessee Arkansas Alabama Mississippi West Virginia Delaware Virginia Maryland North Carolina South Carolina Georgia Few or No Requirements Texas Hawaii Louisiana Florida Alaska Connecticut New Jersey Kentucky Arizona Massachusetts Rhode Island Periodic Reporting Prohibited or Virtually Impossible

55 SECTION III: INDEPENDENT EXPENDITURES AND SUPER PACS 55

56 Independent Expenditures The Basics 56

57 Making Independent Expenditures No limits on amount individuals or groups (including corporations) may spend independently to support or oppose candidates or parties Options: Make IEs directly Contribute to others making IEs (e.g., Super PACs) BUT: Coordination with candidates/parties transforms expenditures into inkind contributions, which may be prohibited or limited IE activity may trigger: Political committee registration; Reporting of expenditures and donors 57

58 Federal Independent Expenditure Definition An expenditure for a communication that expressly advocates the election or defeat of a clearly identified candidate for federal office that is not made in cooperation, consultation, or concert with, or at the request or suggestion of, a candidate, a candidate s authorized committee, or their agents, or a political party committee or its agents 58

59 What Kinds of Entities Make IEs? Nonprofits 501(c)(4) social welfare organizations 501(c)(5) unions 501(c)(6) trade associations Limited to less than half of organization s activities Business entities Independent expenditure only committees (i.e., Super PACs) 59

60 What is a Super PAC? Makes independent expenditures only Does not contribute to candidates May not coordinate with candidates Registered with FEC or state Unlimited contributions 60

61 Common IE Activities Produce and air television and radio commercials Send direct mail Conduct phone banks Produce online ads Develop get-out-the-vote activities Fund voter-registration drives 61

62 Funding Super PACs Issues to Consider 62

63 Foreign National Restrictions Foreign nationals may not contribute Includes foreign companies U.S. subsidiaries may fund Foreign nationals may not control super PACs 63

64 Government Contractors Although government contractor may make independent expenditures, law not entirely clear on contributing to IE groups FEC focused on distinct corporate entity that made a contribution as opposed to entity that held contract Thus did not reach the ultimate question as to whether a government contractor may give, only that the entity that gave was not a government contractor Provides safety for entities in a corporate structure that are not government contractors to give, even if a parent or subsidiary is a contractor 64

65 Corporate Involvement Many companies have policies against funding super PACs Relatively few large companies do so 65

66 Partnership and LLC Contributions Follow rules for allocation and disclosure of contributions from partnerships LLCs and closely held corporations present issues for disclosure Is it the LLC or an individual? 66

67 Maintaining Independence No Coordination 67

68 What is Coordination? Expenditures made in cooperation, consultation or concert with, or at the request or suggestion of, a candidate, a candidate s authorized committee, or a political party committee. 68

69 What is Coordination? Request Common Vendor Suggestion Discussion Former Employee Republication of Campaign Materials 69

70 Firewalls Used for common vendors Useful for associations and other groups that lobby Screen lobbyists who talk to candidates IE unit does not talk

71 IE Communication Disclaimers 71

72 Paid for By All IE public communications must include a paid for by statement: Paid for by [Association] ([association website url]) and not authorized by any candidate or candidate s committee. Voiceover also required for television and radio ads [Association] is responsible for the content of this advertising. Must follow specific requirements for disclaimer size and duration Some state laws require naming top donors in ad disclaimers 72

73 Public Communications Yes TV Own website Radio Newspaper Social Media Magazine 500 mail pieces Telephone bank Outdoor advertisement Paid web No

74 Disclosure 74

75 FEC Disclosure Super PACs What? All contributors of more than $200 disclosed Name Address Occupation Employer All expenditures When? Monthly/Quarterly 48 and 24 Hour Reports 75

76 FEC Disclosure Non-PAC Form 5 Filers What? Expenditures for IE communications Payee names and addresses Amounts Dates Purpose (e.g., ad buy direct mail graphic design postage ) Candidate supported/opposed Contributions received by the entity in excess of $200 that were made for the purpose of furthering the entity s IEs during the reporting period. When? Quarterly 48 and 24 Hour Reports 76

77 Donor Disclosure Issues States imposing new disclosure rules all of the time Nonprofits have very limited disclosure of donors for federal IEs 77

78 Questions? Janice M. Ryan For white papers on setting up PACs and additional resources, visit: