Supreme Court Denies Stay, Reshaping 501(c)(4) FEC Disclosure Rules

Do 501(c)(4) organizations need to disclose their donors? There are two overlapping regimes that dictate the answer: tax and federal election law.

As described in our prior post, earlier this year the IRS issued guidance that eliminated the requirement that non-charitable exempt organizations report the names of contributors on their tax returns. 

However, a new ruling in the campaign finance area, CREW v. FEC and Crossroads, now requires that the names of contributors to 501(c)(4)s be disclosed where the donations are used to fund independent expenditures for political campaigns. The Supreme Court in September denied a stay in the case, leading the way for an appeal on the merits.

To understand the ruling, it is necessary to step back to basic federal election law principles.

First, independent expenditures. These are defined as an expenditure for a communication that expressly advocates the election or defeat of a clearly identified candidate and which is not made in coordination with any candidate or his or her campaign or political party.

Second, the Federal Election Campaign Act (FECA).  FECA applies to federal elections. Sections 30104(c)(1) and (c)(2) set forth independent expenditure disclosure requirements. FECA requires organizations to report independent expenditures to the Federal Election Commission (FEC) if the expenditures were in excess of $250 in a calendar year. In addition to reporting independent expenditures, organizations are required to disclose their donors to the FEC if a donor contributes more than $200 per year with the intent to influence an election or to further an independent expenditure.

Under FECA, FEC issued regulations that narrowly interpreted the donor disclosure requirements, stating that disclosure was required only where an express link exists between a donation and a specific independent expenditure. In other words, FEC donor disclosure requirements would only apply when a donor earmarked their donation to fund a specific independent expenditure.

Enter Citizens for Responsibility and Ethics in Washington (CREW).  CREW brought an administrative complaint in 2012 requesting the FEC to investigate a 501(c)(4) named Crossroads Grassroots Policy Strategies for failing to disclose donor names after using the donations to fund independent expenditures. The FEC dismissed the complaint concluding that its regulations required an express link between the donations and the independent expenditure. Consequently, CREW sued the FEC alleging that the regulations were invalid because its disclosure requirements were too narrow to comply with Sections 30104(c)(1) and (c)(2) of FECA.

In its August 3rd decision, the U.S. District Court for the District of Columbia struck down the regulation, stating that its disclosure requirements were inconsistent with the disclosure requirements of Section 30104(c) of FECA. The Court observed that Section 30104(c)(1) requires organizations to identify each person who made a contribution in excess of $200 which was intended to influence elections. Furthermore, the Court observed that Section 30104(c)(2) required disclosure where donations over $200 were made for the purpose of furthering an independent expenditure. In contrast, the FEC regulations only require donor disclosure where the donations were given for the purpose of funding a specific independent expenditure.  

In determining the validity of the FEC regulations, the Court employed the two-step Chevron test.

Applying the test, the Court observed that the plain language of Sections 30104(c)(1) and (c)(2) requires disclosure even where there is no express link between a donation and an independent expenditure. The Court held that the FEC regulation’s narrow disclosure requirements circumvented the requirements of Section 30104(c).

This decision was immediately appealed for a stay in the order, but on September 18th, the Supreme Court denied the relief. The lower decision will likely be appealed on the merits, but not in time for the upcoming mid-term elections. For now, 501(c)(4) organizations[1] must disclose donor identity to the FEC when the donations are greater than $200 per year and intended to influence elections or to further an independent expenditure.

[1] Note that this article was written as a follow up to our prior post regarding 501(c)(4) organizations. However, the CREW decision and FECA disclosure requirements are not limited to 501(c)(4) organizations. Any person or entity that makes independent expenditures is subject to FECA disclosure requirements.

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