Election and Lobbying Slides
- 1. Trade Association Political / Lobbying Activities: Life After Citizens United v. FEC Matthew D. LoweO’Donnell Clark & Crew LLP
- 2. Citizens United v. FECOn January 21, 2010, the US Supreme Court issued its long-awaited ruling in the case of Citizens United v. Federal Election Commission pertaining to the rights of corporations and labor unions to directly engage in political campaign activities.There were basically two reactions…2
- 3. “Today’s decision is the most radical and destructive campaign finance decision in Supreme Court history”Fred Wertheimer, president of Democracy 21, a non- profit that works to remove the influence of private money from politics3
- 4. “This is a victory for Citizens United, but even more so for the First Amendment rights of all Americans”David N. Bossie, President Citizens United4
- 5. What Citizens United MeansThe Court’s decision struck down federal campaign finance laws pertaining to:The prohibition against independentexpenditures by corporations, including trade associations, and labor unions.“Independent expenditures” are any expenditure - at any time through any medium – that expressly advocates the election or defeat of a clearly identified candidate for federal office.The prohibition against electioneering communications by corporations, including trade associations, and labor unions.“Electioneering communications” are expenditures by corporations made within 60 days of a general election or 30 days of a primary election if the expenditure is used to fund a communication that is made by broadcast, cable, or satellite, and refers to a clearly identified candidate for federal office.5
- 6. What Citizens United MeansCoordinating election activities with a candidate will turn an independent expenditure into an in-kind contribution. The FEC uses a three-part test, all of which must be met, to determine coordination:Payment – The communication is paid for, in whole or in part, by someone other than a candidate.Content Standard – The communication is, generally, an electioneering or campaign-related communication relating to a federal candidate.Conduct Standard - Any of the following types of conduct, regardless of whether there is agreement or formal collaboration, will satisfy the test:Request or SuggestionMaterial Involvement Substantial DiscussionCommon VendorFormer Employees6
- 7. What Citizens United MeansPrior to the decision, trade associations could only engage in these types of communications in federal campaigns through their PACs, and could not use general treasury funds of the association to fund, in whole or in part, the association’s PAC.The Court upheld the existing reporting and disclaimer requirements relating to these types of expenditures.Must include disclaimer in communication stating who paid for communication (“____ is responsible for the content of this advertisement”).Must disclose amount and source of contributions relating to expenditures.7
- 8. Permissible Activities AfterCitizens UnitedTrade associations may use general treasury funds to make independent expenditures for express advocacy in federal campaigns, examples of which include:Running political advertisements on television, radio, cable, internet, etc.Placing endorsements on association web sites.Placing advertisements on corporate web sites.Using email blasts and membership lists to support candidates.8
- 9. Permissible Activities AfterCitizens UnitedTrade Associations intending to finance independent expenditures or electioneering communications relating to federal candidates must:Include disclaimers on communications, consistent with FEC regulationsDisclose independent expenditures on FEC Form 5Disclose electioneering communications on FEC Form 9.9
- 10. Citizens United Impact GenerallyUnknown at this time.History shows that large “national” corporations and trade associations tend to ride the fence and give to roughly equally to both democrats and republicans.Will large corporations and trade associations risk alienating the party in power?Paybacks in 2010 Legislative Session for organizations and individuals opposing Measure 66 and 67.Will large corporations and trade associations risk alienating shareholders and members?10
- 11. Citizens United Impact GenerallyNew Court decisions after Citizens UnitedSpeechNow.org v. FEC, March 26, 2010DC Circuit Court of Appeals ruled unanimously that no limits may be placed on contributions, individual or corporate, to so-called “independent expenditure groups.” Such groups must still publicly register and report expenditures.Republican National Committee v. FEC, March 26, 2010DC District Court panel upheld limits on so-called “soft money” donations to political parties.RNC to appeal decision directly to Supreme Court.11
- 12. Citizens United Impact in OregonNONE! (for non-federal candidates).Oregon is one of only six states with no limits on campaign donations to candidates.Both prior to, and after, Citizens United, trade associations have unlimited discretion in Oregon to run advertisements, make endorsements, and otherwise engage fully in the political process using general treasury funds.Caveat:Limited to State and local candidates in Oregon,All political contributions and expenditures must be properly disclosed and reported (to the extent necessary) on reports filed with the Oregon Secretary of State.12
- 13. Citizens United Impact on Tax LawNone!Trade associations that are exempt from taxation under Section 501(c)(6) of the Internal Revenue Code must still comply with federal laws and regulations governing their exempt status.In short, trade associations, and all exempt organizations, must conduct activities in furtherance of their exempt purposeExempt purpose for a 501(c)(6) organization, generally, is to promote a common business interest of its members and the improvement of business conditions of one or more lines of business.13
- 14. Citizens United Impact on Tax LawPolitical Campaign ActivityAny activities that favor or oppose candidates for public office, includingEndorsements of candidatesContributions to candidates and PACsPublic statements for/against a particular candidateDistributing materials prepared by trade association or others that favor or oppose candidates.14
- 15. Citizens United Impact on Tax LawLobbyingAttempting to influence legislation through:Directly contacting members of a legislative bodyEncouraging the public to contact members of a legislative bodyAdvocating a position on a public referendumGeneral AdvocacyInfluence public opinion on issuesInfluence non-legislative governing bodies (executive branch officials, regulatory agencies)Encourage voter participation (voter registration, get out the vote drives, voter guides, candidate debates)15
- 16. Citizens United Impact on Tax LawPolitical campaign activity by a trade association is not an exempt purpose activity, but is permitted so long as it does not constitute the association’s primary activity.Lobbying can be considered an exempt purpose activity and is permitted in unlimited amounts to the extent such lobbying efforts are in furtherance of the association’s exempt purpose.General advocacy is unlimited to the extent in furtherance of the association’s exempt purpose.16
- 17. Citizens United Impact on Tax LawTrade associations may also be subject to taxation under Section 527 (f) of the Internal Revenue Code on expenditures, directly or indirectly, for an “exempt function.”“Exempt function" means the function of influencing or attempting to influence the selection, nomination, election, or appointment of any individual to any Federal, State, or local public office or office in a political organization, or the election of Presidential or Vice-Presidential electors, whether or not such individual or electors are selected, nominated, elected, or appointed.17
- 18. Citizens United Impact on Tax LawUnder Section 527(f), the tax is imposed at the highest corporate tax rate on the lesser of:The association’s annual net investment income (income from interest, dividends, rents, and royalties, and gains from the sale or exchange of assets minus the losses for such assets and investment management expenses); orThe aggregate amount expended on “exempt functions” during the year.18
- 19. Citizens United Impact on Tax LawTaxation under Section 527(f) is complicated.Policy rationale is to avoid use of untaxed investment income for political activities.By placing tax on lesser of investment income or political expenditures, law assumes that exempt organizations will use investment income for political expenditures.Thus, when association contributes general treasury funds to PAC, either the amount of the contribution, or a lesser amount representing net investment income, may be subject to taxation.19
- 20. Citizens United Impact on Tax LawGiven the potential for taxation of otherwise “tax-free” investment income (under UBIT rules), and while no longer required after Citizens United, many trade associations are likely to continue to form and use PACs (a.k.a. “political organizations” under Section 527) to receive outside contributions so as to avoid taxation on such amounts under Section 527(f).20
- 21. “The Lobbying Tax Law”26 U.S.C. 162(e)While trade associations can engage in unlimited lobbying and a substantial amount of political campaign activity without risking their tax-exempt status, 26 U.S.C. 162(e) denies a business tax deduction for all lobbying and political campaign activity expenses incurred by businesses.Trade associations must provide annual information disclosure to members estimating the portion of dues that are allocable to lobbying and political activities, and are thus nondeductible.Note that organizations that can show that 90% or more of their members do not deduct their dues are not required to provide notice to their members of the non-deductibility of lobbying expenses, or to report the amount on their Form 990.Association may be liable for a proxy tax to the extent actual lobbying and political activity expenses exceed the estimated allocable amount of the expenditures provided to members.Failure to provide any reasonable notice of anticipated lobbying and political activity expenses allocable to dues will result in the association being subject to the proxy tax on its aggregate lobbying and political activity expenditures for the entire year.Proxy tax rate is equal to the highest corporate tax rate.21
- 22. “The Lobbying Tax Law”26 U.S.C. 162(e)Denial of deduction for certain lobbying and political expenditures (1) In general No deduction shall be allowed under subsection (a) for any amount paid or incurred in connection with— (A) influencing legislation, (B) participation in, or intervention in, any political campaign on behalf of (or in opposition to) any candidate for public office, (C) any attempt to influence the general public, or segments thereof, with respect to elections, legislative matters, or referendums, or (D) any direct communication with a covered executive branch official in an attempt to influence the official actions or positions of such official. (2) Exception for local legislation In the case of any legislation of any local council or similar governing body— (A) paragraph (1)(A) shall not apply, and (B) the deduction allowed by subsection (a) shall include all ordinary and necessary expenses (including, but not limited to, traveling expenses described in subsection (a)(2) and the cost of preparing testimony) paid or incurred during the taxable year in carrying on any trade or business— (i) in direct connection with appearances before, submission of statements to, or sending communications to the committees, or individual members, of such council or body with respect to legislation or proposed legislation of direct interest to the taxpayer, or (ii) in direct connection with communication of information between the taxpayer and an organization of which the taxpayer is a member with respect to any such legislation or proposed legislation which is of direct interest to the taxpayer and to such organization, and that portion of the dues so paid or incurred with respect to any organization of which the taxpayer is a member which is attributable to the expenses of the activities described in clauses (i) and (ii) carried on by such organization. (3) Application to dues of tax-exempt organizations No deduction shall be allowed under subsection (a) for the portion of dues or other similar amounts paid by the taxpayer to an organization which is exempt from tax under this subtitle which the organization notifies the taxpayer under section 6033(e)(1)(A)(ii) is allocable to expenditures to which paragraph (1) applies. (4) Influencing legislation For purposes of this subsection— (A) In general The term “influencing legislation” means any attempt to influence any legislation through communication with any member or employee of a legislative body, or with any government official or employee who may participate in the formulation of legislation. (B) Legislation The term “legislation” has the meaning given such term by section 4911(e)(2). 22
- 23. “The Lobbying Tax Law”26 U.S.C. 162(e)(5) Other special rules (A) Exception for certain taxpayers In the case of any taxpayer engaged in the trade or business of conducting activities described in paragraph (1), paragraph (1) shall not apply to expenditures of the taxpayer in conducting such activities directly on behalf of another person (but shall apply to payments by such other person to the taxpayer for conducting such activities). (B) De minimis exception (i) In general Paragraph (1) shall not apply to any in-house expenditures for any taxable year if such expenditures do not exceed $2,000. In determining whether a taxpayer exceeds the $2,000 limit under this clause, there shall not be taken into account overhead costs otherwise allocable to activities described in paragraphs (1)(A) and (D). (ii) In-house expenditures For purposes of clause (i), the term “in-house expenditures” means expenditures described in paragraphs (1)(A) and (D) other than— (I) payments by the taxpayer to a person engaged in the trade or business of conducting activities described in paragraph (1) for the conduct of such activities on behalf of the taxpayer, or (II) dues or other similar amounts paid or incurred by the taxpayer which are allocable to activities described in paragraph (1). (C) Expenses incurred in connection with lobbying and political activities Any amount paid or incurred for research for, or preparation, planning, or coordination of, any activity described in paragraph (1) shall be treated as paid or incurred in connection with such activity. (6) Covered executive branch official For purposes of this subsection, the term “covered executive branch official” means— (A) the President, (B) the Vice President, (C) any officer or employee of the White House Office of the Executive Office of the President, and the 2 most senior level officers of each of the other agencies in such Executive Office, and (D) (i) any individual serving in a position in level I of the Executive Schedule under section 5312 of title 5, United States Code, (ii) any other individual designated by the President as having Cabinet level status, and (iii) any immediate deputy of an individual described in clause (i) or (ii). (7) Special rule for Indian tribal governments For purposes of this subsection, an Indian tribal government shall be treated in the same manner as a local council or similar governing body. (8) Cross reference For reporting requirements and alternative taxes related to this subsection, see section 6033(e). 23
- 24. “The Lobbying Tax Law”26 U.S.C. 162(e)“Lobbying” includes five broad categories of activities:Influencing legislation – Any attempt to influence legislation through communication with members or employees of Congress, members or employees of the state legislature, or any federal or state government official or employee who may participate in the formulation of legislation.Grassroots lobbying – Any attempt to influence the general public, or segments thereof, with respect to elections, legislative matters, or referenda.24
- 25. “The Lobbying Tax Law”26 U.S.C. 162(e)Communications to covered executive branch officials – Any direct communication with a covered federal executive branch official in an attempt to influence the official actions or positions of such official.Political activities – Any activity which constitutes participation or intervention in any political campaign at the federal, state or local level, the expenditures of which are not already subject to tax under Section 527(f) of the Internal Revenue Code.Supporting activities – All research, preparation, planning and coordination (including deciding whether to make a lobbying communication) engaged in for a purpose of making or supporting a lobbying communication or political activity is treated as carried out in connection with such communication or activity.25
- 26. “The Lobbying Tax Law”26 U.S.C. 162(e)Understanding precisely what does, and does not, constitute lobbying and political campaign activity is critical to maximizing members’ deductibility of dues, and minimizing the risk of paying the proxy tax.All association expenses related to political campaigns and PACs must be counted as lobbying for purposes of the Lobbying Tax Law.Includes association-incurred expenses to administer and solicit contributions to the association’s PAC.Expenses incurred to engage in Lobbying on “local legislation” need not be included as part of the non-deductible portion of members’ dues.An accurate calculation of expenses typically includes:Tracking employees’ time spent on lobbying and political activities;Allocating overhead costs to lobbying and political activities;Factoring actual lobbying expenses (e.g., travel, payments to outside consultant, publications, etc.)26
- 27. “The Lobbying Tax Law”26 U.S.C. 162(e)The “Lobbying Tax Law” and the IRS definition of lobbying is different than the definitions under the federal Lobbying Disclosure Act and Oregon law.Separate reporting obligations to Congress and the Oregon Government Ethics Commission of lobbying activity exist under both federal and state law.27
- 28. SummaryFederal campaign finance law no longer bars use of general treasury funds of the association to fund certain political activities, as long as those activities are not coordinated with a federal candidate.All registration and reporting obligations remain in the law.Oregon’s campaign finance system was not affected by Citizens United.28
- 29. SummaryFederal tax law application to trade associations was not affected by Citizens United.Must still act in furtherance of your exempt purposes.May be subject to taxation on amounts expended by association on “exempt functions.”Associations must continue to provide notice to members as to the allocation of their dues between political/lobbying activities, and non-political/lobbying activities for purposes of the deductibility of those dues.29