MLR

New debates arise about donor disclosure laws

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If your long-standing, well-established nonprofit functions as a 501(c)(4), the federal Citizens United decision by the Supreme Court – which better enables political action committees’ ability to incorporate as social welfare organizations – might have been of some interest, but not a major concern.

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After all, under federal law, the new ability of PACs to maintain confidential donor lists doesn’t take away any of your rights.

Well, not today anyway.

Not surprisingly, this new ability of corporations to anonymously affect elections and government policy without leaving fingerprints has raised hackles across the political divide and led states to begin enacting laws that do require 501(c)(4)s to reveal their donors.

Understandably, it’s not just big-time corporate-driven political organizations like Karl Rove’s Crossroads GPS that are unhappy about this.

Long-established 501(c)(4)s that lobby for controversial social issue programs across the ideological spectrum are also feeling the heat. Unlike PACs that often incorporate as 501s just before elections and disband before votes are even tallied, they must maintain the same donor base year after year. Their donors, they claim, could be put at risk if their names were publicly revealed, leading to cut financial ties and organizational death.

The right of 501(c)(4)s to keep their donors secret dates back to the 1958 Supreme Court Case NAACP v. Alabama, which found that the NAACP didn’t have to disclose donors because disclosure could lead to harassment.

Groups like the NAACP are now being caught up in this dilemma because the long-standing vagueness of IRS standards for 501(c)(4)s has enabled political action committees to shelter under the social welfare mantle for years.

The Citizens United decision, however, started a gold rush of PACs seeking nonprofit status. While the federal statute on 504(c)(4)s states that groups must “exclusively” engage in social welfare activity, the IRS regulations state that groups’ “primary” activity must be social welfare-related.

These primary activities are not well defined and, while it is understood that more money is to be spent on tending to social issues than on lobbying and campaigning, actual standards are blurry. (All 501(c)(3)s are forbidden to pursue political agendas.)

PACs on both sides have been able to stay legal and nonprofit while pursuing political aims by focusing their actions and advertising on “social issues,” rather than on promoting the specific politicians who advocate the “right” way on those issues.

Traditional 501(c)(4)s are fighting back. Earlier this year, for example, in New York State, Naral-Pro Choice New York applied for and received an exemption to a new ethics law, supported by Gov. Andrew Cuomo. This law requires nonprofits to disclose those making donations in the thousands.

Like the NAACP decades before them, this Naral chapter contended its donors could be endangered by having their names revealed. No exemptions to the ethics law have occurred since Naral received its exemption in June.

A California ethics body, the Fair Political Practice Commission, is having interstate ramifications. In late 2012, California sued an Arizona nonprofit, Americans for Responsible Leadership (ARL), to force it to turn over its records, which contain donor names. The Arizona group had donated $11 million to a California PAC that was fighting Gov. Jerry Brown’s business proposals.

ARL appealed a lower California Court’s ruling in the State’s favor, but eventually lost. It was forced to send a letter declaring itself to be the intermediary and not the true source of the contribution. It identified the true source of the contribution as Americans for Job Security through a second intermediary, The Center to Protect Patient Rights.

Under California law, the failure to disclose this initially was campaign money laundering. At $11 million, this was the largest contribution ever disclosed as campaign money laundering in California history.

Other groups across the nation, both liberal and conservative, have been seeking exemptions to disclosure laws in the states in which they operate. The National Organization for Marriage, which opposes same-sex marriage, has sued in several states that require donor lists to be provided to the IRS.

Kelly Williams, the corporate general counsel at the Brennan Center for Justice, believes organizations should receive exemptions from disclosure when their donors could face threats or harassment, but not because there could be financial ramifications for their donors, such as a boycott.

The Alliance for Justice’s Action Campaign helps 501c(4)s to understand the legal framework within which they must function. It developed a fact sheet, available through afjactioncampaign.org, which describes common activities that could trigger various disclosure rules, such as:

  • Lobbying federal, state or local governments
  • Operating a Federal Separate Segregated Fund (SSF), another name for a PAC
  • Communicating with members on political matters and using general treasury funds
  • Supporting ballot measures, an activity governed by state campaign finance regulations, which vary from state to state.