In a letter sent today to the Internal Revenue Service, Democracy 21, the Campaign Legal Center and Public Citizen called on IRS Commissioner John Koskinen to clarify his remarks that Congress created a framework that allows 501(c)(4) groups to spend up to 49 percent of their expenditures on campaign activities.

According to a report in Tax Notes and Tax Analysis, Koskinen said on March 24, 2015:The framework Congress has is you get to pick where you want to be. If you spend at this point less than 49 percent of your money on politics, you can be a (c)(4).

The report stated that Koskinen “described 501(c)(4)s as being able to “spend a significant amount on politics,” and repeated, “This is the framework Congress has set up.”

According to the letter to Koskinen from the reform groups:

Contrary to your statements, however, this is not the framework Congress set up. Congress did not authorize section 501(c)(4) groups to spend 49 percent of their money, or even “significant” amounts, on political activities.

In fact, Congress did just the opposite in the statute it enacted. Congress provided that a social welfare organization must be operated “exclusively” for the promotion of social welfare.  As the IRS has long recognized, the “promotion of social welfare” does not include direct or indirect participation or intervention in political campaigns on behalf of or in opposition to any candidate for public office.”  Treas. Reg. § 1.501(c)(4)-1(a)(2)(ii).

The letter continued:        

The courts have interpreted the section 501(c)(4) standard that requires an organization to be “operated exclusively” for social welfare purposes the same way they have interpreted a parallel provision of section 501(c)(3) that requires an organization that is tax exempt under that provision to be “organized and operated exclusively” for charitable, education or similar purposes. 

Thus, any substantial non-exempt purpose is sufficient to disqualify an organization from exempt status under section 501(c)(4).  Many court decisions reflect this view. 

According to the letter:

However, the IRS, by regulation, replaced the statutory command that section 501(c)(4) organizations exclusively pursue social welfare goals with the very different requirement that they do so only primarily.  Treas. Reg. §1.501(c)(4)-1(a)(2)(i).  This regulation cannot be squared with the plain language of the governing statute. Nor can it be squared with court decisions interpreting the statute to allow, at most, insubstantial non-social welfare activity.  Far from reflecting the “framework” that Congress has established, the IRS regulation is in derogation of Congress’ mandate.

In the decades since the adoption of this regulation, the IRS has compounded the problem by failing to define “primarily.” Aggressive practitioners have argued that anything up to 49 percent would be permissible under the regulation, and this view has not been challenged by the IRS as it should have been.

Thus, your position that a social welfare organization can spend up to 49 percent of its expenditures on campaign activity and still be “exclusively” engaged in social welfare activity is contrary to the statute and to a long line of court decisions construing the relevant provisions of the Internal Revenue Code.

The letter stated:

Since 2010, the “49 percent” approach has resulted in the growing improper use of section 501(c)(4) organizations to hide the identity of donors whose money is used for campaign activities to influence federal elections.  In fact, section 501(c)(4) organizations have been the vehicle of choice for those who want to channel dark money into federal elections.

Unless the “49 percent” approach is eliminated, and IRS regulation and practice is conformed to the IRC statutory standard forbidding any spending for non-exempt purposes above a de minimis or insubstantial amount, section 501(c)(4) organizations will continue to spend hundreds of millions of dollars in secret contributions on campaign activities in contravention of the IRC.

The letter concluded:

Absent such a decision by the IRS, any other changes in IRS regulations governing section 501(c)(4) organizations will be ineffective in preventing such organizations from abusing the tax laws to improperly launder secret money into our elections.

In light of your recent comments, furthermore, we call on you to clarify that Congress did not create the “49 percent” approach and that there is no basis in law for that approach given the statutory provisions of the IRC and court decisions interpreting the provisions.

To read the full letter, click here.

The indictment of Sen. Bob Menendez (D-NJ) by the Public Integrity Section of the Justice Department is an encouraging sign as the details of the case and the conduct of the Senator have raised troubling questions for far too long.  The Public Integrity Section has been in a defensive crouch since misconduct by its prosecutors led to the overturning of the 2008 conviction of Sen. Ted Stevens (R-AK) for a series of well-documented misdeeds by the late Senator.  It is high time the Public Integrity Section step up and take a more active role in safeguarding our democracy and the public’s faith in its government officials.  To restore its tarnished image, the Public Integrity Section must send a clear message to the American people that no one is above the law no matter how high an office they hold.  The kind of cronyism reflected in the Menendez case -- you scratch my back, I'll scratch yours -- confirms what most Americans believe about Washington.  The question now is whether the prosecution can prove if Sen. Menendez has crossed the line into criminal activity. 

Today, on April Fools’ Eve, the Campaign Legal Center, joined by Democracy 21, filed complaints with the Federal Election Commission (FEC) against Jeb Bush, Martin O’Malley, Rick Santorum and Scott Walker claiming reason to believe they are violating federal campaign finance laws.

“These 2016 presidential contenders must take the American people for fools—flying repeatedly to Iowa and New Hampshire to meet with party leaders and voters, hiring campaign staff, and raising millions of dollars from deep-pocketed mega donors, all the while denying that they are even ‘testing the waters’ of a presidential campaign,” said Paul S. Ryan, Campaign Legal Center Senior Counsel.  “But federal campaign finance law is no joke and the candidate contribution limits kick in as soon as a person begins raising and spending money to determine whether they’re going to run for office. Bush, O’Malley, Santorum and Walker appear to be violating federal law.”

The four complaints filed today document in detail the political activities of each of these presidential aspirants: traveling extensively to early primary/caucus states, battleground states and fundraising hotspots; building campaign infrastructures; fundraising to pay for these activities and to bankroll a formal presidential campaign. These activities constitute “testing the waters” under federal law and must be paid for with funds raised under the federal candidate contribution limits and restrictions (no more than $2,700 per individual donor, no corporate/union funds). Bush, O’Malley, Santorum and Walker are all raising funds above the $2,700 candidate limit, providing reason to believe they are violating federal law.

The complaints further allege that Bush, Santorum and Walker have actually crossed the threshold to become “candidates” as defined in federal law, by referring to themselves publicly as candidates and/or by amassing campaign funds that will be spent after they formally declare their candidacies. Consequently, they are currently violating candidate registration and reporting requirements, contribution limits and restrictions, as well as federal “soft money” prohibitions.

“Publicly denying that they are candidates does not exempt these presidential hopefuls from federal election laws passed by Congress to keep the White House off the auction block,” said Paul S. Ryan, Campaign Legal Center Senior Counsel.  “Jeb Bush is reportedly aiming to raise more than $50 million for his super PAC. Wisconsin Governor Scott Walker has opened an office in Iowa and is raising millions for a political group he created in January. Rick Santorum’s own aide is referring to him as a ‘candidate.’ These individuals are ‘candidates’ under the law.”

The four individuals named in complaints today are not alone in the 2016 field in violating federal campaign finance laws. There are a number of additional White House hopefuls who appear to be in violation of the same campaign finance laws and more complaints will be forthcoming.  So far only Ted Cruz has officially announced his candidacy.  Hillary Clinton, Ben Carson, Lindsey Graham and Jim Webb have acknowledged that they are officially “testing the waters” and appear to be complying with federal law requirements; in the event they chose to run for president, we will examine their first campaign disclosure report to verify compliance with federal law “testing the waters” requirements.

To read the complaint against Jeb Bush, click here.

To read the complaint against Martin O’Malley, click here.

To read the complaint against Rick Santorum, click here.

To read the complaint against Scott Walker, click here.

Today, the Campaign Legal Center joined with other reform groups in urging Members of the House and Senate to co-sponsor the DISCLOSE Act, legislation responding to the unprecedented amounts of anonymously-funded political spending triggered by the Supreme Court’s decision in Citizens United v. FEC.  The bills introduced by Rep. Chris Van Hollen (D-MD) (H.R. 430) and Sen. Sheldon Whitehouse (D-RI) (S. 229) would reveal the contributors behind ‘dark money’ political spending and allow voters to make informed decisions at the polls as the Supreme Court envisioned in its Citizens United ruling.                      

“We are now entering our fourth election cycle since Citizens United and ‘dark money’ spending continues to grow exponentially each cycle as influence is bought and sold behind closed doors in Washington,” said Meredith McGehee, Campaign Legal Center Policy Director.  “Americans deserve to know who is buying special access and influence with their elected representatives.  The DISCLOSE Act will restore some honesty and integrity to the political process and it is long overdue.  Critics have somehow managed to keep straight faces and say this legislation stifles free speech and even gone so far as to liken Karl Rove’s secret billionaires club, Crossroads GPS, to the NAACP in the Jim Crow South which was exempted from revealing its membership rolls for obvious reasons.”

In addition to the Campaign Legal Center, the reform groups signing the letters include the Brennan Center for Justice, Citizens for Responsibility and Ethics in Washington, Common Cause, Democracy 21, Demos, Issue One, League of Women Voters, People For the American Way, Public Citizen and the Sunlight Foundation.

To read the letter, click here.

Today, the Campaign Legal Center, joined by Democracy 21, Common Cause in Wisconsin and the League of Women Voters of Wisconsin, submitted an amici brief to the Wisconsin Supreme Court, to be filed upon leave of the court, in Three Unnamed Petitioners v. Peterson.  The brief urges the court to find Wisconsin’s restrictions on the coordination of expenditures between candidates and outside groups constitutional.  The consolidated case centers around a challenge to a so-called John Doe investigation of alleged illegal coordination between the campaign of Wisconsin Governor Scott Walker and outside groups.  That investigation has been halted until various challenges are resolved.

The court is considering the argument that if coordinated expenditures do not expressly advocate the election or defeat of candidates, then they cannot be subject to regulation or limitation.  The U.S. Supreme Court specifically rejected that argument in McConnell v. FEC, holding that “there is no reason why Congress may not treat coordinated disbursements for electioneering communications,” i.e., a form of non-express advocacy, “in the same way it treats all other coordinated expenditures.”

“The Supreme Court has been unambiguous in its recognition that expenditures coordinated by outside groups with candidates are little more than ‘disguised contributions’ made to the candidates themselves,” said Tara Malloy, Campaign Legal Center Senior Counsel.  “These coordinated expenditures do not cease to be ‘disguised contributions’ to candidates simply because the audience is not expressly instructed to vote for or against a candidate.  Striking down Wisconsin's restrictions on coordinated spending would in effect strike down contribution limits to candidates altogether.”

The Legal Center was assisted in the filing of the amici brief by Susan Crawford of Cullen Weston Pines & Bach LLP.

To read the amici brief filed today by the Campaign Legal Center, Common Cause in Wisconsin Democracy 21 and the League of Women Voters of Wisconsin, click here.

Today, the Campaign Legal Center joined with other reform groups in urging House Members to co-sponsor H.R. 425, the Stop Super PAC-Candidate Coordination Act, introduced in this Congress by Representatives David Price (D-NC) and Chris Van Hollen (D-MD).

The bill would prevent candidates from soliciting contributions for Super PACs and define common-sense coordination standards to prevent the widespread abuse currently occurring not only at the presidential level but at the congressional level as well.  

"Super PACs have eviscerated the contributions limits upheld by the Supreme Court, even under Chief Justice Roberts, to protect against corruption or the appearance of corruption,” said Meredith McGehee, Campaign Legal Center Policy Director.  “That 'protection' is now a farce and a fiction. Corruption and the appearance of corruption are in full swing. Candidates are personally soliciting contributions for Super PACs and those PACs are receiving million dollar checks.  Those writing seven-figure checks expect to be given a return on their investment.  This is a system rigged for the wealthy elite that is corrosive to American democracy and disempowers more than 99% of Americans. This is how oligarchies are run, not vibrant democracies.”

The proposed legislation defines coordination between a candidate campaign and an outside spender like a Super PAC to include the elements establishing the close ties that exist between a candidate and their individual-candidate Super PAC.  The bill would also strengthen the general rules prohibiting coordination between candidates and outside groups by treating as coordinated communications any payments for campaign ads made by any person pursuant to any general or particular understanding, or based on discussions with the candidate or the candidate’s agents about the payments or communications.

The groups signing the letter along with the Campaign Legal Center included the Brennan Center for Justice, Citizens for Responsibility and Ethics in Washington, Common Cause, Democracy 21, Demos, Issue One, League of Women Voters, People For the American Way, Public Citizen and U.S. PIRG.

To read the full letter, click here.