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Clark Hill Political Law Alert

By Charles R. Spies / May 29, 2014

IRS Subjects Politically Active Section 501(c)(4)

Organization Applicants to More Exhaustive Scrutiny;

Federal Court Strikes Regulation Limiting

Disclosure for Electioneering Communications;

FCC Orders Broadcasters to Post Political File Reports Online

The Internal Revenue Service (IRS) has recently subjected a number of politically active organizations applying for Section 501(c)(4) "social welfare group" status to additional, detailed scrutiny during the application process. As we wrote last year, the IRS has previously focused its attention on major donors to politically active 501(c)(4) organizations. Unlike that past scrutiny, the IRS is now focusing on the organizations themselves as they apply for 501(c)(4) status, requesting detailed information from the organizations.

The investigation has sparked the interest of major news publications, including the New York Times and the Associated Press . In fact, this scrutiny is likely a prelude to future IRS investigations into the tax-exempt status of current 501(c)(4) organizations, potentially including major groups supporting President Obama and Republican candidates.

At issue are the lengthy questionnaires and the detailed and voluminous amounts of information requested by the IRS, including specific questions related to political activity. Apart from general questions about internal structure and purpose, the IRS has asked for information on: the names of donors and amount of contribution, names of donees and amount of contribution, copies of correspondence with legislators, whether the organization has a "close relationship" with any candidate, copies of materials designed to influence legislation, descriptions of political events and candidate forums the organization is involved with, information on the groups' social networking publications, and descriptions of membership numbers and requirements.

Historically, the IRS has taken a more hands-off approach to non-profit advocacy groups but recent pressure from Democratic members of Congress, as well as the influx of millions of dollars to many of these organizations stemming in part from court cases in the aftermath of the Supreme Court's decision in Citizens United v. FEC , may have prompted the IRS to investigate more closely. Democratic members of Congress have actively called for IRS investigations, including on Feb. 16, 2012, when seven Democratic Senators wrote the IRS to inquire if it was "investigating or intends to investigate whether [Section 501(c)(4) organizations] are improperly engaged in a substantial or even a predominant amount of campaign activity." On March 12, the same Senators wrote the IRS again, urging the adoption of administrative regulations to tighten scrutiny on Section 501(c)(4) organizations. In response, 12 Republican Senators wrote the IRS on March 14, demanding an explanation for the additional scrutiny and whether the investigations were targeted evenhandedly across the political spectrum.

In general, Section 501(c)(4) organizations are legally permitted to engage in unlimited public issue advocacy and even specific legislative advocacy and lobbying if it is related to the group's exempt purpose. However, the law limits a 501(c)(4)'s ability to engage in political activity on behalf of or in opposition to candidates for public office, as political activities are not permissible as an organization's "primary purpose." The exact percentage of permissible political activity, less than 50 percent of the organization's total activity, remains a key legal question moving forward. The IRS's investigations demonstrate that, unlike last year's withdrawal of the investigation into major 501(c)(4) donors, it is now willing to aggressively investigate the composition and activities of politically active 501(c)(4) organizations, even during the application phase.

Federal Court Strikes Regulation Limiting Disclosure for Groups Engaging in Electioneering Communications

The IRS's 501(c)(4) investigations have even greater relevance in wake of the United States District Court for the District of Columbia's March 30, 2012, decision in Van Hollen v. FEC . In Van Hollen , the district court struck down Federal Election Commission (FEC) regulations that originally required disclosure of donors to an organization engaged in electioneering communication (i.e. broadcast ads that refer to federal candidates in the pre-election period) only if the donations aggregated $1,000 or more, and were specifically "made for the purpose of furthering electioneering communications." This has previously been interpreted to mean donations to a group that are earmarked for a specific communication and not donations to a group's general fund. The court's ruling strikes the last section of the provision, effectively mandating disclosure for all donors to such an organization, regardless of the purpose of the donation.

The decision has left politically active non-profit groups, corporations and labor unions uncertain as to what information they will need to disclose to the FEC if they fund electioneering in the lead-up to the 2012 elections. In light of the IRS's heightened scrutiny of 501(c)(4) political activity and new disclosure requirements resulting from the Van Hollen decision, these groups should consult political law counsel to ensure compliance with all applicable laws.

FCC Votes to Require Broadcasters to Post Political Ad Purchasing Information Online

In related political law news, the Federal Communications Commission (FCC) approved a new order requiring television broadcasters to post their "public file" on the internet. Since 1965, all television broadcasters were required to keep a public file at each station for inspection. The public file contains information such as the station license and service contracts. Crucially, the public file also includes a "political file," which contains a complete record of requests for political broadcast time, the result of such requests, the cost for the airtime, the date and times of the airtime, and whether any free airtime also was provided. Currently such information must be kept for two years after a political broadcast is made.

In the April 27, 2012 order, the FCC will now require broadcasters to publish their entire public file, including the political file, on a centralized FCC database. Full compliance is targeted for 2014 but the largest media organizations (ABC, CBS, NBC, FOX) are required to post political documents online as soon as possible. However, the order states that only newly generated political file documents created after today's order must be uploaded; current political file documents do not need to be scanned in and uploaded. Once online, the political information will be easily accessible by the public and the media regarding any and all political activity requests, purchases and airtimes made to public broadcasters.


For further information regarding the topics discussed in this political law alert, please contact your Clark Hill political law attorney.