In a letter sent today to the Internal Revenue Service (IRS), the Campaign Legal Center and Democracy 21 called on the agency to promptly initiate a rulemaking proceeding to revise and clarify its regulations that spell out how much candidate campaign activity 501(c)(4) “social welfare” organizations can engage in under the Internal Revenue Code.

The privileged tax status has been widely embraced by special interest and political operatives to fund large scale political advertising campaigns on behalf of candidates.  The IRS has taken no public action to date as the number of, and spending by, these organizations continues to multiply.

On July 27, 2010, the Campaign Legal Center and Democracy 21 submitted a “Petition for Rulemaking on Campaign Activities by Section 501(c)(4) Groups” to the IRS, challenging the existing eligibility requirements for 501(c)(4) tax-exempt status.

“The inaction of the IRS is only serving to inspire further abuses of the tax code as 501(c)(4)s are misused by special interests and individuals seeking to buy influence in Congress and the White House without revealing their identities to the public,” said J. Gerald Hebert, Executive Director of the Campaign Legal Center.  “The IRS needs to establish a bright-line standard on eligibility for this privileged tax status or the already flagrant abuses will become even more widespread and the damage to our democracy will be made infinitely worse.”

“Organizations are ripping off the tax laws to hide from the American people the wealthy individuals and corporations financing their campaign activities,” said Democracy 21 President Fred Wertheimer.  “Yet as far as anyone knows, the IRS has failed to stop this.  We again call on the IRS to replace its ineffectual regulations and restore the integrity of the tax laws.  The IRS should adopt a new bright line standard, in accord with court decisions, to establish that groups spending more than an ‘insubstantial amount’ on campaign activities are not eligible for 501(c)(4) tax status.”

The letter cited additional egregious examples of abuses of 501(c)(4) tax status by groups running candidate ads across the country.  It also brought to the attention of the IRS comments made by an association of legitimate 501(c)(4) organizations that the widespread misuse of the tax-status was undermining both the credibility and the fundraising of groups for which the tax status was intended.

To read the full letter, click here.

The Campaign Legal Center, together with Democracy 21, filed comments today with the Federal Election Commission (FEC), urging the Commission to advise the organization ‘Free Speech’ that if it engages in its proposed activities it will have no choice but to register and report as a political committee.

As the comments filed by the Legal Center and Democracy 21 point out, the Free Speech request (AOR 2012-11) is absurd in light of the laws passed by Congress and upheld by the courts:

Notwithstanding Free Speech’s claims to the contrary, it is clear from the fact that every one of its proposed ads and solicitations is focused on federal candidates and elections (with many containing “magic words” express advocacy), Free Speech clearly has the “major purpose” of influencing federal elections.

Any group that has the major purpose of influencing federal elections that spends more than $1,000 disseminating the type of express candidate advocacy ads that Free Speech plans to air must register with the FEC as a “political committee.”

“The Free Speech request spells out textbook activities of a political committee and then asks the FEC to essentially ignore the law and allow the group to avoid registering and reporting as a political committee,” said Paul S. Ryan, Campaign Legal Center FEC Program Director.  “This is an open and shut case and the commissioners have no choice but to inform Free Speech that it cannot lawfully undertake the activities it proposes without registering and reporting as a political committee.”

“There is little question that Free Speech should be required to register and report as a political committee,” according to Democracy 21 President Fred Wertheimer.  “No reasonable person could conclude that its ads are anything other than campaign ads that contain express advocacy.  Given that its major purpose is to influence elections, it meets all of the standards for political committee status.”

To read the comments, click here.

Our organizations support the DISCLOSE Act introduced today by Senator Sheldon Whitehouse (D-RI) and a number of other Senators. We strongly urge Senators to promptly consider and pass this essential campaign finance disclosure legislation.

The organizations include: Americans for Campaign Finance Reform, the Brennan Center for Justice, the Campaign Legal Center, Citizens for Responsibility and Ethics in Washington, Common Cause, Democracy 21, the League of Women Voters, People For the American Way, Public Citizen and the Sunlight Foundation.

It is a cardinal principle of campaign finance laws that citizens have a basic right to know about the expenditures being made to influence their votes and the donors funding these expenditures.

In the wake of the Citizens United decision, however, more than $135 million in secret contributions were spent to influence the 2010 congressional races. This amount of secret money is expected to greatly increase in the 2012 national elections, absent new disclosure provisions.

The Supreme Court has repeatedly supported the constitutionality and importance of campaign finance disclosure laws. In Citizens United, the Supreme Court by an 8 to 1 vote upheld disclosure laws for outside groups making campaign-related expenditures stating:

The First Amendment protects political speech; and disclosure permits citizens and shareholders to react to the speech of corporate entities in a proper way.  This transparency enables the electorate to make informed decisions and give proper weight to different speakers and messages.

The Citizens United decision, however, combined with ineffective FEC disclosure regulations to open gaping loopholes in the campaign finance disclosure laws.

The DISCLOSE Act closes these loopholes with effective new disclosure requirements.

Unlike the DISCLOSE Act considered in 2010, the legislation introduced today focuses solely on disclosure provisions and does not contain any special exceptions for any group. The legislation also fixes the problem of untimely disclosure of donors to Super PACs that surfaced during the 2012 presidential primaries.

Polls show overwhelming public support for disclosure by outside spending groups and there are no legitimate policy or constitutional grounds for opposing the DISCLOSE Act. We strongly urge Senators to support the new DISCLOSE Act and to take all necessary steps to promptly enact the legislation.

Majority Leader Reid's decision to have the Senate pass the House version of the STOCK Act is disappointing and snatches away a critical opportunity to strengthen ethics laws for public officials and bring some oversight to those who mine the halls of Congress for “political intelligence” investors.

Of course, the insider trading provisions in the STOCK Act are important reforms aimed at ensuring that Members and staff are not permitted to use inside information gained from the position of public trust to enrich themselves.  But the Senate-passed version of the STOCK Act was so much stronger than the watered down version pushed by the House leadership.

Dropped from the Senate bill were the provisions to ensure better transparency for the growing "political intelligence" industry that is making millions from arranging face-time with Members and key staff.  And even more egregiously, also stripped from the House-passed version of the STOCK Act were the anti-corruptions provisions that were aimed at Members of Congress.  Without these changes, public officials intent on enhancing their lifestyle by accepting gifts, money and services from interested parties will continue to have no fear of criminal prosecution.

Insider trading by Members of Congress is clearly insidious, but refusing to ensure that our elected officials are subject to criminal penalties for defrauding the public and enriching themselves demonstrates why Congress is held in record low esteem by the public it is supposed to serve.  Sadly once again, Congress has done little more than the bare minimum to address the public anger unleashed by a scathing “60 Minutes” piece on congressional insider trading.

Nine government watchdog organizations today asked Republican presidential candidates Mitt Romney, Rick Santorum, Ron Paul and Newt Gingrich, as well as President Barack Obama, to reveal more details about fundraisers for their presidential campaigns who "bundle" contributions in amounts greatly exceeding what they're permitted to contribute on their own.

The request for more transparency comes during Sunshine Week, and in the midst of an election season during which the candidates, party committees and outside groups are expected to spend more than ever before.

Bundlers, who are often corporate leaders, lobbyists or Wall Street executives, can funnel hundreds of thousands of dollars, potentially even millions, to a campaign, despite the fact that individually they can give only $2,500 to a candidate for the primary season and the same for the general election. Despite the tremendous influence these individuals can have in a campaign -- and in an administration after the election -- the law requires only that campaigns disclose the names of bundlers who are registered lobbyists. While the Obama campaign has voluntarily disclosed the names of its bundlers and a general range of how much each has raised, it would be far more meaningful if all candidates identified precise, cumulative amounts for all their bundlers, the groups wrote in letters to each candidate.

The letters were signed by the Campaign Finance Institute, Campaign Legal Center, Center for Responsive Politics, Common Cause, Democracy 21, League of Women Voters of the United States, Public Citizen, Sunlight Foundation and U.S. PIRG.

The nine groups ask the candidates to divulge not only the names of their bundlers -- which Obama and Sen. John McCain, the Democratic and Republican nominees, did in 2008, and which Obama is doing again in the 2012 campaign -- but to disclose the exact amount that each bundler raises for their official campaign committees as well as joint fundraising committees that benefit the campaigns. The groups also urge the candidates to release bundlers’ locations by city and state, and their occupations and employers -- disclosure no more burdensome than what the Federal Election Commission requires for any donor contributing more than $200.

"We recognize that our organizations are asking you to share more information than the law requires of presidential candidates," the letters say. "But it's not more than the American public deserves to know."

You can read the letters to the candidates here:

Letter to Gingrich

Letter to Obama

Letter to Paul

Letter to Romney

Letter to Santorum

In a letter sent to the IRS today, the Campaign Legal Center and Democracy 21 called on the agency to ignore any “pushback” against IRS investigations that are necessary to determine whether groups are attempting to improperly claim tax exempt status as 501(c)(4) “social welfare” organizations.

According to the letter, an article in The New York Times on March 6, 2012 stated:

In recent weeks, the I.R.S has sent dozens of detailed questionnaires to Tea Party organizations applying for nonprofit tax status, demanding to know their political leanings and activities. The agency plans this year to press existing nonprofits like American Crossroads, on the Republican side, and Priorities USA, on the Democratic side, to justify their tax-protected status as “social welfare” organizations, a status that many tax professionals believe is being badly abused.

The letter said that the Times article further stated that resistance to any such investigations is likely to be “fierce,” and quoted one lawyer as saying, the IRS is engaged in “‘McCarthyism’ tactics” and its investigation is “a coordinated effort by the I.R.S. . . . to stifle free speech activities.”

The letter sent by the watchdog groups to IRS Commissioner Douglas Shulman and Lois Lerner, Director of the IRS Exempt Organizations Division stated:

We strongly urge the IRS not to succumb to such arguments, or to any public or political pressure to back away from carrying out the agency’s statutory responsibilities to enforce the tax laws.

The IRS must enforce the law fairly and without partisan bias.  The agency also must not shrink from enforcing the law against violations of the tax code by political groups.  The stakes here – namely the integrity of our elections and of our tax laws – are much too high for the IRS to walk away from its responsibility to ensure that the tax laws are not being abused for political purposes.

According to J. Gerald Hebert, Executive Director of the Campaign Legal Center:

It is imperative that the IRS enforce the laws on the books and not shrink from political pressure or baseless criticisms leveled at the agency for doing nothing more than verifying that groups applying for special tax status are in fact eligible. Special interest groups and political players have been forming 501(c)(4) organizations so they can impact federal elections and conceal their donors from the public. Many of these organizations are not eligible for the special tax status. If the IRS does not act now to curb these abuses, then the latest vehicle for unlimited and undisclosed political spending will become even more widespread.

According to Democracy 21 President Fred Wertheimer:

We have submitted compelling evidence to the IRS that political groups, including Crossroads GPS, Priorities USA, American Action Network and Americans Elect, are primarily involved in campaign-related activities and are improperly claiming 501(c)(4) tax exempt status in order to keep secret the donors financing their campaign-related expenditures. We have called on the IRS to investigate these groups and the IRS has an obligation to ensure that groups claiming to be 501(c)(4) “social welfare” organizations are actually eligible for this tax exempt status. It is essential that the IRS not back down in the face of political pressure and that the agency properly enforce the tax laws. The integrity of our tax laws and our elections is at stake here.

To read today’s letter to the IRS, click here.

On September 28, 2011, the Campaign Legal Center and Democracy 21 called on the IRS to conduct an investigation into whether four groups claiming tax-exempt status under section 501(c)(4) of the Internal Revenue Code are ineligible for exemption under that provision because they are substantially engaged in campaign activities, not social welfare activities.  The groups discussed in our letter are Crossroads GPS, Priorities USA, American Action Network and Americans Elect.

To read the September 28 letter click here.

On December 14, 2011, the Legal Center and Democracy 21 supplemented their earlier request by providing additional information about the campaign activities conducted by three of the organizations.

To read the December 14 letter click here.

The letters emphasize that the law provides that section 501(c)(4) organizations are required to primarily engage in the promotion of social welfare in order to obtain tax-exempt status under section 501(c)(4).  Court decisions have established that in order to meet this requirement, section 501(c)(4) organizations cannot engage in more than an insubstantial amount of any non-social welfare activity, including direct or indirect participation or intervention in elections

Today, the Campaign Legal Center and other reform groups urged Senate Majority Leader Harry Reid (D-NV) to insist on a STOCK Act conference to restore key anti-corruption provisions to the legislation that were stripped out of the House version.

“Claims by House Leaders that they had passed a stronger bill than the Senate fly in the face of reality,” said Meredith McGehee, Campaign Legal Center Policy Director.  “There are no two ways around the fact that they gutted the bill of multiple provisions that would have held Congress and other government officials accountable by restoring vital anti-corruption statutes.  A failure to include the anti-corruption provisions will only hammer home the public perception that Congress believes itself above the law and drive public approval ratings still lower.”

The anti-corruption provisions are the result of longstanding efforts in both houses of Congress to restore the ability of prosecutors to hold government officials accountable after a series of controversial court rulings have defanged anti-corruption statutes.  Both the House and the Senate Judiciary Committees have passed freestanding versions of this legislation during this Congress.  The anti-corruption provisions focus on honest services and illegal gratuities statutes and are the result of the partnership of Senators Leahy (D-VT) and Cornyn (R-TX) and Representatives Sensenbrenner (R-WI) and Quigley (D-IL) who have sponsored the legislation.

The organizations signing the letter with the Legal Center include, Citizens for Responsibility and Ethics in Washington, Common Cause, Democracy 21, Public Citizen and U.S. PIRG.

The full text of the letter follows below.

March 6, 2012
 
The Honorable Harry Reid
U.S. Senate
Washington, D.C. 20510
 
Dear Majority Leader Reid:

We strongly urge the Senate to restore critical anti-corruption provisions to the STOCK Act that  were stripped from the legislation before passed by the House of Representatives. While the bill as whole contains many laudable provisions, among the most significant was the Leahy-Cornyn amendment, which strengthened prosecutors’ ability to target public corruption.  These provisions, which also were approved by a unanimous House Judiciary Committee, amended the honest services fraud, illegal gratuities and bribery statutes.

The Supreme Court decision in Skilling v. United States, 130 S. Ct. 2896 (2010), eliminated an entire category of deceptive, fraudulent and corrupt conduct from the scope of what was known as the honest services fraud statute (18 U.S.C. § 1346).  For decades, §1346 was available to prosecute public officials who engage in malfeasance, such as undisclosed self-dealing.  Unfortunately, theSkilling decision effectively struck down as unconstitutionally vague the honest services language.  Consequently, there remains a gaping hole in the ability of federal prosecutors to address a vast swath of public corruption.

The language in the Senate-passed STOCK Act repairs the problem, It also heeds the Supreme Court’s directive for more clarity and specificity by borrowing existing language from 18 U.S.C. § 208, a well-established federal conflict-of-interest statute that already applies to the executive branch and has been upheld as constitutionally sound.[1] Notably, under the proposed statute, no public official could be prosecuted unless he or she knowingly conceals, covers up, or fails to disclose material information – which the official already is already required by law or regulation to disclose – with the specific intent to defraud.  Thus as crafted, it removes the risk that a public official can be convicted for unwitting conflicts of interest or mistakes.

The Leahy-Cornyn amendment also revises the illegal gratuities statute -- eviscerated by the Supreme Court in United States v. Sun-Diamond Growers, 526 U.S. 398 (1999) -- to make clear public officials may not accept gifts given because of their governmental positions.  In addition, responding to United States v. Valdes, 475 F.3d 1319 (D.C. Cir. 2007), the provision makes clear government officials who accept private compensation for using the powers their jobs afford them may be subject to criminal prosecution.

Given the wide bipartisan support of these measures in both the House and Senate, it is difficult to understand why House Majority Leader Eric Cantor chose to delete them before bringing them before bringing the STOCK Act to the floor.

In light of the recent congressional scandals, it is no wonder Americans have lost faith in their elected leaders. While the STOCK Act is not a panacea, enacting the strong anti-corruption sections included in the Senate bill would be a step in the right direction.  We strongly urge you to use your leadership to restore these provisions before final passage.

Sincerely,

Campaign Legal Center
Citizens for Responsibility and Ethics in Washington
Common Cause
Democracy 21
Public Citizen
U.S. PIRG

[1] United States v. Richard J. Nevers, 7 F.3d 59 (5th Cir. 1993).

More than 25,000 Americans have now joined the Legal Center and other reform groups in calling on President Barack Obama to nominate new Commissioners to the Federal Election Commission (FEC) through the White House petition process.  In a letter sent to the White House Today, the Campaign Legal Center and 11 other groups called on the President act on the petition and meet his own 2008 campaign commitment to appoint FEC Commissioners committed to enforcing U.S. election laws.

The letter emphasizes that five of the six Commissioners are continuing to serve even though their terms have expired.  The FEC is widely recognized as the most dysfunctional agency in the federal government, largely because three of the current Commissioners refuse to enforce the campaign finance laws because of their ideological opposition to the laws.  The FEC has long been an example of a “captive agency” – more responsive to those whom it is supposed to oversee – but the last few years have gotten even worse.

The letter notes that more than 25,000 individuals have now signed the “We the People” petition filed with WhiteHouse.gov and, according to the rules of the website, the President is supposed to respond to the petition.   While running for office, President Obama expressed his support for a stronger, more functional FEC and promised to put forward proposed Commissioners who would uphold the law.  To date, he has not done so.

The full text of the letter follows below.

February 28, 2012

The President
The White House
Washington, D.C. 20500

Dear Mr. President:

We write to follow up on our WhiteHouse.gov “We the People” petition, signed by over 25,000 individuals from around the country, calling on you to nominate new commissioners to the Federal Election Commission (FEC) prior to the 2012 elections who will faithfully enforce existing campaign finance laws and close existing loopholes.

The FEC is widely recognized as a dysfunctional agency that consistently refuses to enforce federal campaign finance laws enacted to prevent the corruption of federal officeholders and government decisions.  Five of the six current commissioners are serving despite expired terms, and three openly flaunt their routine refusal to enforce existing campaign finance laws, even where the FEC’s professional staff has called for an investigation.  This is an unacceptable situation.

During the 2008 presidential campaign you recognized the problems at the FEC and unequivocally called for new commissioners. In response to questions raised in September 2007, by the Midwest Democracy Alliance, you responded:

I believe that the FEC needs to be strengthened and that individuals named to
the Commission should have a demonstrated record of fair administration of the law and an ability to overcome partisan biases. My initial goal as president will be to determine whether we can make the FEC more effective through appointments. What the FEC needs most is strong, impartial leadership that will promote integrity in our election system.

You also promised to appoint commissioners committed to enforcing our nation’s election laws.  With the exception of one unsuccessful attempt in 2009, however, you have failed to nominate anyone to replace any of the five lame duck commissioners.

You have the opportunity and responsibility to address the dysfunction at the FEC; the agency will not change until you exercise your executive branch responsibility to nominate five new commissioners.  It is essential for these nominations to be based on merit, skills, qualifications, experience, background and professional reputation.  It is also essential for any nominee to have a basic commitment to enforcing the campaign finance laws as written by Congress and interpreted by the courts.  Individuals ideologically opposed to campaign finance laws must no longer be given the responsibility to enforce these laws.

Nominating commissioners based on merit and qualifications may well create a conflict with congressional leaders accustomed to choosing the commissioners themselves.  Given the completely dysfunctional state of the FEC and the enormous damage that has been done to our campaign finance laws, however, we believe this is a fight worth having.

Once appropriate nominations are made, the responsibility will pass to the Senate to address the FEC scandal.  Senators will face a clear choice: vote to confirm new FEC commissioners selected on the basis of merit and qualifications, or vote to perpetuate a system undermining enforcement of the nation’s campaign finance law at a time when there is growing public anger over the money pouring into federal elections.

The effort to remake the FEC and restore the integrity of our campaign finance laws cannot begin until you nominate five new commissioners.  We look forward to the White House official statement in response to our successful “We the People” petition. 

Thank you for your consideration.

Americans for Campaign Reform
Campaign Legal Center
Citizens for Responsibility and Ethics in Washington
Common Cause
CREDO Action Network
Democracy 21
League of Women Voters of the U.S.
MapLight
Public Campaign
Public Citizen
United Republic
U.S. PIRG