During the second quarter of 2011, more than 50 individuals donated the legal maximum to Republican presidential candidate Mitt Romney and also dug into their pockets deeper and made additional contributions to Restore Our Future, a candidate-specific Super PAC formed to promote Romney's campaign for president.  

A new analysis by the Campaign Legal Center, Democracy 21 and the Center for Responsive Politics shows that 55 of the 75 individuals that donated to Restore Our Future also contributed to Romney's presidential campaign committee. These double-dipping donors represent almost three-quarters (73 percent) of all of Restore Our Future's individual donors. Their contributions to Restore Our Future ranged in size from as little as $3,500 to as much as $100,000, $500,000 and even $1 million. These contributions are far in excess of the $2,500 limit per individual, per election, that applies to contributions made to Romney or any other federal candidate.

Overall, these 55 donors to Romney’s presidential campaign contributed a combined total of $6.4 million to the Super PAC supporting Romney - a majority (52 percent) of all the money Restore Our Future raised as of June 30, the joint analysis shows.

Super PACs report semi-annually in an off election year, so there is no information available, for example, on the principal candidate Super PAC supporting Texas Gov. Rick Perry, which was formed after the June 2011 reporting deadline.

In the wake of the U.S. Supreme Court's Citizens United v. Federal Election Commission ruling last year, Super PACs are allowed to raise unlimited amounts of money from donors - individuals, corporations and unions - which they can use to fund political advertisements  for or against federal candidates and to otherwise support or oppose candidates. They cannot donate the money they raise directly to candidates, nor are they allowed to coordinate with candidates' campaigns, although FEC coordination rules are weak and ineffective.

“This analysis offers yet more proof that these candidate-specific Super PACs are nothing more than an end-around existing contribution limits,” said Paul S. Ryan, FEC Program Director at the Campaign Legal Center. “The revolving door of staff between candidates and the Super PACs supporting them makes clear the close relationships between the two. The Super PACs are simply shadow candidate committees. Million-dollar contributions to the Super PACs pose just as big a threat of corruption as would million-dollar contributions directly to candidates.”

"The information in the study being released today provides further evidence that confirms presidential campaigns and presidential candidate Super PACs are deeply intertwined and are, in reality, one entity to which the contribution limits applicable to a single federal candidate should be applied,” said Fred Wertheimer, president of Democracy 21, a nonprofit, nonpartisan organization that promotes campaign finance reform. "The presidential candidate Super PAC exists for one reason: to serve as an arm of the presidential campaign for big-money donors to launder unlimited contributions to support the presidential candidate and thereby evade and eviscerate the contribution limits for a presidential candidate enacted to prevent corruption."

"The data set reported so far is still small," added Sheila Krumholz, executive director of the Center for Responsive Politics, "but it demonstrates the largely uniform donor base shared by these ostensibly 'independent' Super PACs and the candidates they support. We will have a much better sense of this relationship after we can review the year-end reports that Super PACs must file on January 31, 2012."

This is the first presidential election in which Super PACs have existed - and the first where candidate-specific Super PACs are being used by donors to contribute far more money than the candidate contribution limits allow to directly support the candidate.

And Romney's supporters are not the only ones to be milking the new campaign finance landscape for all it’s worth.

According to the new analysis, during the second quarter of 2011, nine individuals donated to President Barack Obama's re-election campaign as well as the Super PAC designed to help keep him in the White House, which is named Priorities USA Action.

As of June 30, 24 individuals had donated to Priorities USA Action, meaning the double givers account for 37 percent of all individual donors to the group.

This handful of donors, though, is responsible for the vast majority of the money Priorities USA Action has raised. Collectively, these nine individuals donated $2.6 million to Priorities USA Action - or 82 percent of the total money the group raised.

One man alone is responsible for $2 million of that sum: Jeffrey Katzenberg, the chief executive officer of DreamWorks, who has not only "maxed out" to the Obama campaign but also bundled more than $500,000 for the Obama campaign and the Democratic National Committee so far this year.

And one other Obama bundler is among the donors to Priorities USA Action: Chicago media mogul Fred Eychaner, who donated $500,000 to Priorities USA Action and also bundled between $50,000 and $100,000 for the Obama campaign and the DNC during the second quarter.

As the presidential race heats up, expect even more money to flow into Super PACs and even more donors to be double dipping. As of June 30, Restore Our Future reported raising $12.2 million and Priorities USA Action reported raising $3.2 million -- but these groups have said they plan to raise tens of millions of dollars more.

Moreover, Restore Our Future and Priorities USA Action have been recently joined by Super PACs supporting the other presidential campaigns. Every major presidential candidate now has at least one-- if not more than one -- Super PAC aiding their own campaign efforts. And the first candidate-specific Super PAC already has been formed for a congressional candidate, Sen. Orrin Hatch (R-Utah), to support his Senate re-election campaign in 2012.

You can download a detailed spreadsheet of these double-dipping donors here:

Please don't hesitate to use this information, but please credit the Campaign Legal Center, Democracy 21 and the Center for Responsive Politics if you do.
 

To read the full analysis, click here.

The Campaign Legal Center and Democracy 21 sent a letter today to the Internal Revenue Service (IRS) challenging the eligibility of four organizations engaged in campaign activity to be treated as 501(c)(4) tax exempt organizations.

The letter to the IRS called for prompt investigations and action by the IRS. The four organizations include Crossroads GPS, Priorities USA, American Action Network and Americans Elect. Democracy 21 took the lead in preparing the IRS letter.

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

The abuses of the tax code by these shadow campaign operations have mushroomed since the last election cycle with both Democrats and Republicans now in on the act and not even bothering to maintain a facade that they have any real purpose other than to elect members of their respective parties. To maintain that these groups are "social welfare" organizations is simply laughable. 

Spending millions of dollars running attack ads against vulnerable incumbents in non-election years does not constitute the “promotion of social welfare” that their tax status – and thus their ability to hide the identities of their funders - is dependent upon.  But until the laws on the books are enforced these groups will continue to flourish to the extreme detriment to the health of our democracy.

According to Fred Wertheimer, President of Democracy 21:

Section 501(c)(4) organizations are given tax exempt status to promote “social welfare.” The idea that these organizations are social welfare groups is nonsense. The overriding purpose of these groups is to participate in and influence elections, which makes them ineligible for tax exempt status. The groups have sought tax-exempt status under section 501(c)(4) in order to keep secret from the American people the donors financing their campaign expenditures.

These groups are misusing and abusing the tax laws at the expense of the American people. It is clear that these groups have little, if anything, to do with promoting “social welfare” and everything to do with electing and defeating candidates. It is incumbent on the IRS to put a stop to this charade and to act promptly to protect the integrity and credibility of the tax laws and the interests of the American people.

Secret money in American elections leads to scandal and corruption. Absent quick and effective action by the IRS to stop these abuses of the tax laws, secret money in our elections will grow dramatically and it will become commonplace for campaign operatives to establish 501(c)(4) organizations to launder secret contributions into elections. Scandal and corruption will invariably follow.

These four groups should be operating as 527 political organizations and disclosing their donors, instead of disingenuously posing as “social welfare” organizations to hide big money campaign givers. Appropriate penalties should be imposed by the IRS for violations the agency finds. The penalties need to take into account the need for strong deterrence to stop similar violations from occurring in the future.  

According to the letter sent to the IRS today by Democracy 21 and the Campaign Legal Center:

 Under the IRC, IRS regulations and court decisions interpreting the IRC, section 501(c)(4) organizations are required to primarily engage in the promotion of social welfare in order to obtain tax exempt status.  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, such as directly or indirectly participating or intervening in elections.  

Thus, the claim made by some political operatives and their lawyers that section 501(c)(4) organizations can spend up to 49 percent of their total expenditures on campaign activity and maintain their tax exempt status has no legal basis in the IRC and is contrary to court decisions regarding eligibility for tax-exempt status under section 501(c)(4).  An expenditure of 49 percent of a group’s total spending on campaign activity is obviously far more than an insubstantial amount of non-social welfare activity.

The IRS applies the “primarily engaged” test on the basis of the “facts and circumstances” of an organization’s formation and operations.  Here, we believe, the “facts and circumstances” show that each organization has engaged in far more than an insubstantial amount of participation or intervention in elections and that the overriding purpose of each organization is to influence elections.

Thus, under the IRC and court decisions interpreting the IRC, these organizations are not eligible to receive section 501(c)(4) tax exempt status.

The IRS letter further states:

In a 2008 Letter Ruling, the IRS stated that a group is not eligible for tax exempt status under section 501(c)(4) where the facts and circumstances show that the  group’s “first and primary emphasis” is to get candidates elected to public office.  

This standard is different than, and in conflict with, the standard applied by the courts. But even under this standard, we believe the “facts and circumstances” relating to the formation and activities of the four organizations discussed in this letter show that each group was organized and is operated for the overriding purpose of participating or intervening in elections.  

Therefore, none of the four groups meets the standard for tax exempt status under section 501(c)(4) because they are not primarily engaged in “the promotion of social welfare.”

By claiming tax-exempt status under section 501(c)(4), these groups allow their donors to evade the public disclosure requirements that would apply if the organizations were registered under section 527 as “political organizations.”  In fact, it appears that avoiding disclosure of their donors is the basic reason that these groups organized under section 501(c)(4).

Absent timely and appropriate action by the IRS, widespread abuses of the tax code by  groups organized under section 501(c)(4) are likely to become commonplace in the 2012 presidential and congressional races. These abuses will come at the expense of the integrity and credibility of the tax laws and of the right of the American people to know the identity of the donors providing money to influence elections.

Accordingly, we request that the IRS promptly investigate the groups discussed in this letter and take appropriate enforcement action and impose appropriate penalties for any violations of section 501(c)(4) that the agency may find.

The letter states that under IRS rules, communications are not required to contain express advocacy or the functional equivalent of express advocacy in order to constitute campaign activity.

Campaign activity is defined under IRS rules as “direct or indirect participation or intervention in political campaigns on behalf of or in opposition to any candidate for public office.”

According to the letter:

IRS regulations make clear that “direct or indirect participation or intervention in political campaigns on behalf of or in opposition to any candidate for public office” is not limited to activities or communications which contain express advocacy or the functional equivalent of express advocacy. Thus, so-called “issue ads” that promote, attack, support or oppose a candidate fall with the meaning of direct or indirect participation or intervention in political campaigns.

The letter states:

Revenue Ruling 2004-6 explains that, because section 501(c)(4) public policy advocacy “may involve discussion of the positions of public officials who are candidates for public office, a public policy advocacy communication may constitute an exempt function (a political activity) within the meaning of § 527(e)(2).”  Rev. Rul. 2004-6 at 1.  The Ruling states:

All the facts and circumstances must be considered to determine whether an expenditure for an advocacy communication relating to a public policy issue is for an exempt function under § 527(e)(2). When an advocacy communication explicitly advocates the election or defeat of an individual to public office, the expenditure clearly is for an exempt function under § 527(e)(2). However, when an advocacy communication relating to a public policy issue does not explicitly advocate the election or defeat of a candidate, all the facts and circumstances need to be considered to determine whether the expenditure is for an exempt function under § 527(e)(2).   (emphasis added)

Thus, even if an ad discussing an issue does not express advocacy, it may nonetheless be treated as “exempt function” electioneering activity under IRS regulations, depending on the “facts and circumstances.”  Therefore, even where an ad discusses an “issue,” and where the ad does not contain express advocacy or the functional equivalent of express advocacy, it can still be treated as “direct or indirect participation or intervention in political campaigns” under IRS standards for purposes of determining whether a 501(c)(4) organization is “primarily engaged” in the promotion of social welfare.

The letter to the IRS concludes:

In the 2010 congressional races, section 501(c) organizations spent more than $135 million on campaign activities that were financed by secret contributions.  The bulk of these expenditures were made by section 501(c)(4) organizations.  The amount of secret contributions funding campaign expenditures by section 501(c)(4) organizations is expected to grow dramatically in the 2012 presidential and congressional races.

Crossroads GPS, Priorities USA, American Action Network and Americans Elect are each organized under section 501(c)(4) of the Internal Revenue Code.  Based on the information about each organization set forth above, the IRS should conduct an investigation of whether each such organization has engaged in more than an insubstantial amount of non-exempt activity by participating or intervening in political campaigns and accordingly is not primarily engaged in the promotion of social welfare. The IRS should also conduct an investigation of whether each organization’s primary activity is campaign activity and is accordingly not primarily engaged in the promotion of social welfare.

If the IRS investigation determines that the facts and circumstances show that the organizations discussed above are not primarily engaged in “the promotion of social welfare,” because they have engaged in more than an insubstantial amount of campaign activity or because the organization’s primary activity is campaign activity, the organizations should be denied or should lose tax-exempt status. In addition, appropriate penalties should be imposed by the IRS for violations the agency finds. The penalties should take into account the need for strong deterrence to stop similar violations from occurring in the future.  

Today, the Campaign Legal Center filed an amicus brief in Texas Democratic Party, et al. v. King Street Patriots, et al. to defend the constitutionality of Texas’s campaign finance laws. 

The Texas Democratic Party  filed an action seeking damages and declaratory and injunctive relief in connection to several violations of state campaign finance laws allegedly committed by the King Street Patriots.  The Texas Democratic Party alleges that the King Street Patriots, a non-profit 501(c)(4) corporation, made in-kind contributions to the state Republican Party in violation of Texas’s restriction on corporate political contributions, and failed to register as a “political committee” and comply with state disclosure law.  In response to the suit, the King Street Patriots filed a counterclaim challenging numerous provisions of Texas campaign finance law, including the state restriction on corporate contributions to candidates, officeholders and political committees, and the disclosure and organizational requirements applicable to political committees.

“This is just one case in an aggressive nationwide litigation offensive seeking to invalidate a broad swath of state campaign finance laws in the wake of Citizens United,” said Legal Center Counsel Tara Malloy.  “But Citizen United simply does not support the radical result the King Street Patriots and other anti-reform litigants seek.  The Supreme Court did not consider a corporate contribution restriction in Citizen United, and eight of the nine Justices actually strongly endorsed disclosure in that opinion.  We hope the district court affirms the constitutionality of Texas’s law, as it should.” 

The Legal Center was supported in the case by the law firm of Gray and Becker in Austin, Texas.

Both parties have filed cross-motions for summary judgment on the King Street Patriots’s counterclaim.  The motions will be heard by the District Court of Travis County, Texas on November 8, 2011.

To read the Legal Center’s amicus brief opposing the King Street Patriots’s counterclaim, click here.

Today reform groups asked Sen. Richard Durbin (D-IL), Chairman of the Senate Appropriations Subcommittee on Financial Services and General Government, to fight efforts to terminate or defund the presidential public financing system.  The letter praised Sen. Durbin’s leadership on public financing issues and asked that he continue to guard against efforts to do away with the system like those already introduced this year or that will likely come up going forward in the appropriations process.

The letter cites legislation introduced in the Senate as well as two measures already passed in the House that would end the longstanding and highly successful program that was created in the wake of the scandals the engulfed the Nixon Administration in the Watergate era.

The organizations signing the letter include the Campaign Legal Center, Americans for Campaign Reform, Brennan Center for Justice, Common Cause, Citizens for Responsibility and Ethics in Washington, Democracy 21, League of Women Voters, People For the American Way, Public Citizen and U.S. PIRG.
 

The full letter follows below.

September 12, 2011

The Honorable Richard Durbin, Chairman
Senate Appropriations Subcommittee on Financial Services and General Government
U.S. Senate
Washington, D.C. 20510

Dear Chairman Durbin:

Our organizations support public financing of elections and greatly appreciate the outstanding national leadership you have provided on behalf of this essential reform.

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

We are writing to ask for your help and leadership in blocking any efforts made in Congress to repeal and kill the presidential public financing system.

As Chairman of the Senate Appropriations Subcommittee on Financial Services and General Government, this matter could come before you when your subcommittee or the full Senate Appropriations Committee considers the FY 2012 appropriations for the Treasury Department and/or the Federal Election Commission.

House Republicans already have twice passed legislation in this Congress to end the presidential public financing system.  

On January 26, 2011, they passed a free standing bill to kill the presidential public financing system.  On February 17, 2011, they passed an amendment to H.R. 1, the FY 2011 spending bill, offered by Representative Tom Cole (R-OK), to prohibit any funds from being used to implement the presidential public financing system. H.R. 1 passed the House on February 19, 2011.

On January 26, 2011, Senate Republican Leader Mitch McConnell also introduced legislation to kill the presidential public financing system, similar to the Cole legislation passed on that day by the House.

Congressional opponents may try again to kill the presidential system by attaching a rider to the Appropriations legislation for FY 2012 that funds the Treasury Department and the Federal Election Commission when the legislation is considered in Committee or on the floor in the House or Senate. Or opponents may try to attach a rider to kill the presidential system to the Continuing Resolution for FY 2012 that Congress is expected to pass.

This effort is not just intended to kill the presidential system. It also represents a full scale attack on the very concept of public financing and an effort to get Congress on record in opposition to public financing of elections.

It is essential to the long term goal of repairing the presidential public financing system and to the effort you are leading in Congress to establish a system for congressional public financing that the effort to kill presidential public financing be defeated.

The presidential public financing system served the nation and presidential candidates of both major parties well for most of its 36-year existence, until it became outdated in recent years. The system has protected against government corruption and has given average citizens and small donors a vital role to play in our presidential elections.

The presidential system today needs to be repaired, not repealed.  As the Obama Administration stated in opposition to the Cole legislation to repeal the presidential system:

The Administration strongly opposes House passage of H.R. 359 because it is critical that the Nation's Presidential election public financing system be fixed rather than dismantled.

……..

After a year in which the Citizens United decision rolled back a century of law to allow corporate interests to spend vast sums in the Nation's elections and to do so without disclosing the true interests behind them, this is not the time to further empower the special interests or to obstruct the work of reform.

As the national leader for public financing of congressional elections and as Chairman of the relevant Appropriations Subcommittee, you are in a unique position to lead the effort in Congress to prevent congressional opponents from repealing the presidential public financing system.

We would greatly appreciate your leadership in Congress to ensure that the presidential public financing system is not killed. We also would like to again express our great appreciation for your outstanding leadership on behalf of congressional public financing.

Americans for Campaign Reform         Democracy 21
Brennan Center for Justice                    League of Women Voters
Campaign Legal Center                        People For the American Way
Common Cause                                     Public Citizen
Citizens for Responsibility and              U.S. PIRG
Ethics in Washington