Practical Advice for Navigating Your Way Through Political Law. Topics for Today

Transcription

1 Practical Advice for Navigating Your Way Through Political Law 2011 Annual Association Law Symposium Washington, DC September16 16, 2011 Topics for Today Update on Campaign Finance Issues: Jim Kahl Tax Issues for Different Organizations: Jeff Altman Reporting Lobbying Activities: Ron Jacobs 1

2 Campaign Finance Issues Jim Kahl Womble Carlyle Sandridge & Rice, PLLC Citizens United v. FEC 2

3 Supreme Court s Ruling: Big Changes Incorporated entities including associations can makeindependent candidate related expenditures Expenditures may advocate for/against candidates & political parties All types of media: Radio & TV, print, magazine, billboards, signs, mail, phones May spend unlimited i amounts Applies to all elections: federal & state Don t Forget: Some Things Haven t Changed Corp./assn. contributions to fd federal candidates & parties still prohibited Still need PAC for contributions to candidates Cannot coordinate with candidates & parties about expenditures must be independent Disclaimers & reports still required 3

4 Associations Are Big Winners! Many corporations will not risk ikrunning ads on their own Most independent spending through trade associations, advocacy & interest groups, informal coalitions And There s More: Super PACs Federal appeals court and FEC approved independent expenditure only political committees Super PACs May accept unlimited individual and corporate contributions & be supported by the association Contributions not limited to restricted class 130+ formed din past year Will Super PACs impact assn s tax status? 4

5 Continuing Concerns Disclosure of contributions tib ti for independent expenditures Coordination with candidates & parties Key Disclosure Issues Cost of communications must be reported by sponsoring entity to fed/state regulator Federal & state rules vary on disclosure of payments to intermediaries assns., advocacy groups & others FEC deadlocked on post Citizens United rules Confusion regarding application of old rules Possible public image problems for company? E.g., Target s contributions to MN advocacy group 5

6 FEC: Current Disclosure Rules Assn. IE/EC costs reported to FEC Members contributions to assn. may have to be reported to FEC For IEs: donors contributing > $200 For ECs: donors contributing $1000 or more for purpose of furthering the communication FEC Commissioners split on application FEC: Disclosure Considerations Disclosure likely required if: Solicitation expressly states or suggests that some portion of payment will be used to fund election advertising There is a special assessment for an ad Disclosure likely not required if: Ads are funded with general dues? Nothing said to members about use of dues 6

7 States Revising Laws or Regs Arizona Minnesota Alaska North thcarolina Colorado North Dakota Connecticut South Dakota Florida West Virginia Iowa Kentucky Massachusetts Other Disclosure Efforts Legislation: Disclose Act (not enacted) Shareholder Protection Act (not enacted) Voluntary Disclosure Efforts: Center for Political Accountability Corporate Governance: Shareholder Resolutions 7

8 Coordination Issues What does independent mean? Cannot be an expenditure made at the request or suggestion of candidate or party Cannot republish candidate materials No substantial discussion about expenditures Retaining same vendor as campaign or employing former campaign employee can result in coordination Key Questions for Associations 1. Should assn. sponsor IEs or should it only sponsor issue advocacy? 2. What are the risks and rewards for the assn. and its members from IEs? 3. Will IEs cause public image problems like those experienced by Target? Press strategy? 8

9 Key Questions for Associations 1. Should the assn. form an IE only Super PAC? 2. How should IEs be financed? Member dues? Specific assessments? What is conveyed to members? 3. Who will review content of IEs to avoid liability for content of communication? Association Political Contributions 9

10 General Rules For Assns/Corps Prohibited under federal law No assn./corp. contributions tib ti to fd federal officeholders and candidates, national parties, and federal PACs Exception contributions by an assn/corp PAC State laws vary A few states allow unlimited corporate contributions Prohibited in about 20 states Remaining states impose limits No limit on assn/corp spending in support of or opposition to ballot measures Federal Limits Individual Limits: $2,500 per candidate, per election $5,000 per PAC, per year $10,000 per state/local party comm, per year $30,800 per national party comm, per year $117,000 biennial limit ($46,2000/candidates & $70,800/PACs and parties) 10

11 Federal PAC Limits Multicandidate PAC: $5,000 per candidate per election $15,000 per national party comm per year $5,000 per state/local party or PAC per year Not Multicandidate PAC: $2,500 per candidate per election $30,800 to national party comm per year $10,000 per state/local party comm per year $5,000 per PAC per year Special Contribution Restrictions 11

12 State/Local Pay to Play Laws Impacts your members that seek or hold public contracts Prohibit or restrict political contributions by state and local contractors/bidders & key company personnel (e.g., officers/directors/sr. mgrs) Some laws apply to certain regulated industries Restrictions i may begin before bf bid and end months after contract is terminated ( look back provision) Disclosure/registration/reporting What s At Stake? Bids disqualified and contracts voided Barred from future contracts Fines and criminal penalties Damage to reputation 12

13 Pay to Play Laws STATE LAWS California Connecticut Florida Georgia (licensees) Hawaii Indiana (lottery contracts) Illinois Kentucky Louisiana (hurricane contracts) Maryland Missouri Nebraska New Jersey New Mexico Ohio Pennsylvania Rhode Island South Carolina Vermont Virginia West Virginia LOCAL LAWS All California counties, Culver City, LA City, LA County MTA, LA Unified School District, Oakland, Pasadena, San Fran Chicago & Cook County, IL Columbia, SC Dallas, Houston, & San Antonio, TX Denver Fort Lauderdale & Orange County, FL New Jersey in over 165 cities & towns New York City Philadelphia Tax Issues Jeff Altman McKenna Long & Aldridge LLP 13

14 Overview Implications of Citizens United & other cases Different rules for different types of tax exempt entities IRS, LDA & FEC registration & reporting requirements Website compliance issues Managing multiple/related organizations The 2012 Playing Field What are the Objectives? Maximize lobbying & political activities Preserve tax exempt status tt Maximize tax deductibility Minimize donor/member disclosure Minimize taxes on political activities & investment income Avoid & be prepared for unwanted publicity, third party complaints, and IRS, GAO, DOJ & FEC audits and investigations 14

15 Types of Communications Education = Ideas & Public Policy Lobbying = Legislation Political = Candidates & Elections General political communications & activities Independent Expenditures (IEs) Electioneering i Communications (ECs) Issue Advocacy = Any or all of the above? Candidate Fundraising & Coordinated Activities Citizens United & Other Cases Authorizes unrestricted political communications & other activities not just advertising! Can engage in express advocacy and any other political activities with general corporate funds Can raise funds from any source not just restricted class No coordination i or candidate fund raising ii Beware of FEC registration, reporting & disclaimer requirements 15

16 What s Next Greatly expanded opportunities FEC reporting requirements still evolving Complex array of tax rules left untouched by Supreme Court decision & being challenged Increased public and IRS scrutiny Private complaints 31 Tax Issues What educational, lobbying & political activities iti are allowed? By what kind of tax exempt entities? What are the practical implications? How do you maximize your effectiveness while minimizing complexity and risk? 32 16

17 Different Tax Entities 501(c)(3) Charitable/Educational 501(c)(4) Social Welfare 501(c)(5) Labor, Agriculture & Horticulture 501(c)(6) Trade Association Section 527 Political Organization Independent Expenditure Only Committee Traditional Political Action Committee Section 501(c)(3) General Rules Unlimited public education Limited it lobbying activities iti Absolute prohibition against political activities Contributions deductible as charitable or business expenses No disclosure of member/donor names No tax on investment income No private inurement and no substantial private benefit 34 17

18 Section 501(c)(3) Lobbying Substantial part facts & circumstances test Section 501(h) election definitions & limits Lobbying for appropriations is lobbying The Lobbying Disclosure Act rules apply whether or not your organization makes a 501(h) election Section 501(c)(3) Political Absolute prohibition and possible loss of tax exempt status tt Subjective facts and circumstances test 21 examples in Rev. Rul : Voter education & registration; GOTV drives Individual activity by organization leaders Facilitating appearances officials vs candidate? Unsuccessful court challenges top date 18

19 Other Section 501(c) Organizations No charitable deduction Unlimited education and lobbying activities Political activities are allowed, but: Cannot be primary purpose Subject to income taxes on lesser of political activities or investment income IRS Form 1120 POL filing requirement & Form 990 Schedule C question Other Section 501(c) Organizations No Member/Donor Disclosure (except beware of communications that t may ti trigger FEC reporting) Business Tax Deduction Issues 501(c)(4) if business purpose 501(c)(6) generally allowed Must provide Section 162(e) notice OR pay proxy tax re lobbying/political activities 38 19

20 Other Section 501(c) Organizations Political activities are allowed if not primary purpose ($$$ & activities) Per IRS, political activities = attempt to influence the selection, nomination, election or appointment of any public official (much broader than FEC) Section 501(c)(4) organizations are also subject to revocation for substantial private benefit. Challenges and uncertainty regarding the primary purpose test and whether issue advocacy is political 39 Other Section 501(c) Organizations Subjective facts & circumstances test and other rules set forth in Rev. Rul Factors = Political: Identifies candidate Timing coincides with election Targets voters Indicates candidate s position on a distinguishing issue in the campaign Isolated ad or communication 40 20

21 Other Section 501(c) Organizations Factors = Nonpolitical: Reference to legislation or other event Timing re legislation/other event Candidate identified as government official or other non candidate capacity Candidate among list of sponsors Part of an ongoing series of public policy advocacy communications Other Section 501(c) Organizations Risk of Political activities: If primary purpose, can endanger tax status Tax on the lesser of political ( exempt function ) expenditures or investment income (IRS Form 1120 POL) FEC filings for Member Communications (Form 7); IEs (Form 5); and ECs (Form 9) IRS Gift tax notices to 501(c)(4) donors??!! 21

22 Section 527 Organizations Separate segregated fund (SSF) established by filing IRS Form 8871 Unlimited political activities May engage in educational and lobbying activities if not primary purpose No deduction for contributions notice requirement Investment income tax IRS Form 1120 POL Section 527 Organizations Definition of Political Activities generally same as Section501(c) organizations except called exempt function Disclosure of member/donor names & expenditures on periodic IRS Form 8872 (with 35% tax on both receipts and disbursements for nonfiling) Dual FEC reporting requirements like Section 501(c) organizations 44 22

23 Traditional Connected PACs Separate Segregated Fund (SSF) that register with the FEC Unlimited campaign activities subject to hard money limits on contributions and coordinated expenditures Administrative support provided by association Can only raise funds from restricted class OLD RULESSTILL STILL APPLY 45 Traditional Connected PACs (cont.) No deduction for contributions Investment income taxed IRS Form 1120 POL Full FEC filings Form 1 (Registration & Statement of Organization); Form 3 (periodic receipts & disbursements); Form 5 (IEs); Form 9 (ECs) 23

24 New Independent Expenditure Political Committees Separate Segregated Fund (SSF) that registers with the FEC Primary purpose to conduct IEs with no limitation on expenditures No coordination or candidate fundraising allowed Administrative support by association allowed Can raise unlimited funds from corporations and individuals NOT LIMITED TO RESTRICTED CLASS Website Compliance Lobbying and political activity judged by content and links Political and PAC information vs fund raising Links to unrelated organizations & attribution Context of the link Are all candidates represented? Any exempt purpose served? Directness of the link Links to related organizations & attribution TAM Recommendations Separate URL Sign indicating that viewer is officially leaving the site 24

25 The 2012 Playing Field Section 501(c) Organizations Education and issue advocacy; avoid donor disclosure; deductibility of dues Section 527 Political Organization Unlimited political (some IEs & ECs) Traditional Connected PACs Candidate fundraising & coordinated campaign activities Independent Expenditure Only Political Committee Unlimited political (primary IEs) Opportunities & challenges of managing multiple entities IRS Form 990, 1120 POL & 8872 reporting and FEC compliance issues IRS investigations, private complaints, media warfare Lobbying Reporting Ron Jacobs Venable LLP 25

26 Federal Lobbying Disclosure Lobbying Disclosure Act Tax Implications What Gets Reported What is Reported? Lobbyists Issues Amount Spent on Lobbying Activity 26

27 Who is a Lobbyist? TWO PART TEST More than one lobbying contact AND More than 20% of time on lobbying activities in calendar quarter Lobbying Contact Any oral or written communication (including an electronic communication) to a covered executive branch official or a covered legislative branch official that is made on behalf of a client with regard to the formulation, modification, or adoption of Federal legislation (including legislative proposals); the formulation, modification, or adoption of a Federal rule, regulation, Executive order, or any other program, policy, or position of theunited States Government; the administration or execution of a Federal program or policy (including the negotiation, award, or administration of a Federal contract, grant, loan, permit, or license); or the nomination or confirmation of a person for a position subject to confirmation by the Senate. 27

28 Exceptions to Definition of Lobbying Contacts Administrative requests (e.g., requests for meeting); Testimony given before a congressional committee; Speeches or articles made available to the public; Information provided in writing in response to a request by a covered official; Information required by subpoena, CID, etc. Communications in response to a Federal Register notice (e.g., comments to proposed rulemaking); Written comments filed in thecourse of a public meeting; Any communication made on the record in a public proceeding; and Petitions for agency action made in writing and part of the record. Other Definitions COVERED LEGISLATIVE BRANCH OFFICIALS Anyone in Congress from Members to the receptionist i t COVERED EXECUTIVE BRANCH OFFICIALS President, Vice President, & Executive Office of the President Levels 1 through 5 of the Executive schedule (cabinet & some below) Certain military officers Schedule C political appointees 28

29 Lobbying Activity Contacts and efforts in support of such contacts, t including preparation and planning activities, research and other background work that is intended, at the time it is performed, for use in contacts, and coordination with the lobbying activities of others. What Gets Reported? Total amount spent on lobbying activities IRC or LDA Broad issues and description of issue Names of lobbyists 29

30 What Does NOT Get Reported? Specific lobbying contacts Amount spent on each issue Details about which lobbyist met with whom Choosing IRC or LDA If LDA: Use all lllda definitions iti for amounts spent on lobbying Use LDA definitions for determining who is a lobbyist If IRC: Use IRC definition for amount spent on lobbying Cannot back out non LDA expenses For determining who is a lobbyist: Use LDA definition for legislative branch Use IRC definition for executive branch 30

31 IRC or LDA? IRC Influencing legislation Yes Yes Influencing other policy No Yes Contact with executive branch If discussing legislation and Limited covered officials Grassroots lobbying Yes No State lobbying Yes No Testifying before legislature No Yes Political activities Yes No Public advertising Yes, depending on content No LDA Broad set of covered officials State Lobbying Disclosure No Uniform Rules Different Triggers Use Caution 31

32 Scope Differs in Each State Definition of lobbying Legislative Applies to virtually all states Scope may be narrow or broad Executive May be limited to legislation May include most administrative functions Types of Activity Examples Sales activities Passage of legislation Regulatory actions Permit approvals 32

33 Thresholds for Registration Amount of time Percentage Hours worked Amounts of money Portion of salary spent on lobbying Amount spent ongifts Who Has to Register? Outside lobbyists In house lobbyists The organization itself For its own employees For its outside employees as a lobbyist principal or lobbyist employer 33

34 Exceptions Take alongs Subject matter experts who accompany lobbyists May have to register May have more limited registration requirements May have no registration requirements State Lobbying Reporting Timing of reports Method of reports Content of the reports Approval of the reports 34

35 Multiple Levels of Reporting Who reports? Individual lobbyist Lobbyist employer Outside lobbyist May all have to approve the reports of the others Contact Information Jeffrey P. Altman, Esq. Partner McKenna Long & Aldridge LLP Ronald M. Jacobs, Esq. Partner Venable LLP James Kahl, Esq. Of Counsel Womble Carlyle Sandridge & Rice, PLLC