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Friday, July 27, 2012

Obama's Total War on Anonymous Speech & 501(c)(4) Groups

The cloak of secrecy over "social welfare" tax-exempt organizations which have been lawfully engaging in political activity, while shielding the identity of their contributors, will end, at least temporarily.  Under new federal policy, virtually all federal political activity will require donor disclosure.  

What It Means To You. Your right to speak anonymously without fear of reprisal or retaliation from enemies or opponents has just been compromised.

What It Is. The Federal Election Commission has just issued a new advisory stating it now requires disclosure of all donors giving $1,000 or more to an organization, such as one exempt under the Internal Revenue Code Section 501(c)(4), which engages in electioneering.  Notably, the disclosure will now be required, regardless of whether the donor intended to give to the entity for any electioneering purpose.  This closes the apparent disclosure safe harbor created by the landmark Citizens United Supreme Court case was decided two years ago, which allows organizations qualifying as exempt under the tax code's Section 501(c)(4) to make unlimited independent expenditures on behalf of a candidate as long as they were not "coordinated" with a candidate.

However, there are potential First Amendment violations as this new policy could potentially reach all speech,  By compelling contributor disclosure on potentially any speech -- because all speech could conceivably touch some "political" issue and hence relate to a candidate's or opponent's campaign -- the FEC policy could become the latest step towards the loss of your right to speak anonymously.

Targeting Anonymous Political Donors Making Unlimited Independent Expenditures. It is obvious that independent expenditure, unlimited expenditure 501(c)(4) organizations are the target. However, those groups are under the jurisdiction of the Internal Revenue Service. It just so happens that earlier this week, the IRS' Exempt Organizations Director, Lois Lerner, indicated that the IRS would soon issue revised policies specifically governing and restricting the tax-exempt eligibility of 501(c)(4) groups engaging in substantial political activities. It was a bit of a surprise to see the first restriction targeting 501(c)(4) groups come from the FEC, whose advisory advisory does not specifically mention 501(c)(4) organizations.  These groups have recently been the primary means for circumventing the FEC's total disclosure policy which covers candidates, candidate committees and political party groups. It raises a question as to the FEC's jurisdiction under the Federal Election Commission Act, and whether this apparent widening of the FEC's reach to independent expenditure groups -- which are not candidate or party committees -- can withstand court challenge.

As 501(c)(4) organizations must have a primary purpose of "social welfare," such as an educational or civic affairs purpose which may not be electioneering at all, this may deter some donors from giving to the organizations if the organizations do anything which the donors would not want to be associated with.  The "chilling effect" of disclosure upon independent expenditures may implicate First Amendment issues, and while federal courts have upheld the disclosure of campaign donors, it would not be surprising to see this revisited by the courts.  After all, the FEC could potentially reach any type of advocacy speech -- in other words, all opinion, which could be virtually all speech -- and try to tie it into some federal campaign in order to justify its jurisdiction over the speech it wants to regulate and compel disclosure.

In essence, this policy and enforcement change will mean that organizations and donors can avoid disclosure only by avoiding all political activity relating to federal campaigns.  This narrows -- if not eviscerates -- the difference between a 501(c)(4) organization, which may engage in some political activity, and a 501(c)(3) organization which is absolutely forbidden by the tax code from all political activity.

A District of Columbia district court case, which prompted the FEC's new enforcement policy, will be appealed.  The policy requiring the new disclosure will be in place pending the appeal.

I will continue my analysis on this breaking political development.

Eric Dixon is a New York attorney who handles legal and strategic affairs and confidential matters for businesses, individuals, political entities and nonprofit organizations.  Mr. Dixon is also on the Board of Directors of the Financial Policy Council, a nonprofit economic think tank headquartered in New York.

1 comment:

  1. Nice alert, Eric! I see this as a move by the two-party system elites to discourage challenges like that made by Americans Elect. While AE failed, this time, it or something like it could succeed in the future. But it might not have been possible if the donors had no privacy. I said that here:
    William J. Kelleher, Ph.D.
    Twitter: wjkno1
    Author: Internet Voting Now!