The rush of litigation challenging campaign finance and disclosure laws continues nationwide in the wake of Citizens United.  For your reference, the Campaign Legal Center has updated a summary document of recent cases of interest at the federal, state and municipal level. The summary provides a brief description of pending and recently decided cases, and the Legal Center’s involvement in those cases.

To view a PDF of the summary, click here.

In a letter sent to the IRS today, the Campaign Legal Center and Democracy 21, submitted new information to the agency showing that Crossroads GPS is not entitled to tax-exempt status as a section 501(c)(4) “social welfare” organization.

According to the letter:

An article about Crossroads GPS in The New York Times this week strongly reinforces the conclusion that the organization, which was founded by Republican political operative Karl Rove, is, in essence, operating as a campaign arm of the Republican Party.  J. Peters, “Subtler Entry From Masters of Attack Ads,” The New York Times (May 22, 2012).

The article discusses a new anti-Obama campaign commercial by Crossroads GPS, entitled “Basketball,”that is the “centerpiece” of a $25 million ad campaign “in 10 swing states” and that “is expected to become one of the most heavily broadcast political commercials of this phase of the general election.”

According to the article, the anti-Obama ad is the result of “one of the greatest challenges for Republicans in this election: how to develop a powerful line of attack against a president who remains well liked even by people who are considering voting against him.”  The article notes that the “concept” for the ad “and even some of the lines” were “culled directly from focus groups of undecided and sometimes torn voters”  as part of “18 different focus groups and field tests” conducted by Crossroads GPS “over nearly a year.”

The article states, “In interviews with voters, Crossroads strategists picked up on some common sentiments that they concluded could provide a clear rationale for voters to deny Mr. Obama a second term.”  The article quotes Steven J. Law, the president of Crossroads GPS, as stating, “There are some who believe [Obama’s] made things worse; then there’s a larger group of people who are upset at him because he hasn’t fixed these problems.  . . .  And the larger point of these ads is that the agenda he’s pursued has not made things better.”

The letter further states:

Similarly, a recent article in The Los Angeles Times stated that “Crossroads GPS—along with its sister “super PAC,” American Crossroads—is the biggest among a network of conservative groups that have led the charge against Obama on the airwaves.  Together, the two Crossroads groups aim to spend $300 million for the 2012 campaign.”  M. Gold, “Crossroads GPS Fires Back at Obama with $25-million Ad Buy,” The Los Angeles Times (May 16, 2012).

According to the letter:

A legitimate section 501(c)(4) “social welfare” organization does not “engage in focus groups of undecided and sometimes torn voters” to determine the electoral weaknesses of a presidential candidate in order to run a $25 million ad campaign “in 10 swing states” five months before the presidential election.

A legitimate section 501(c)(4) “social welfare” organization does not participate in a combined campaign with its affiliated “super PAC” to spend “$300 million for the 2012 campaign.”

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

It is becoming increasingly clear that the abuses of 501(c)(4) tax status by these political committees in sheep’s clothing will only get worse until the IRS holds them accountable.  This ad is just the latest example of these so-called social welfare groups continuing to cross the line in violation of their tax status with Crossroads GPS leading the way.  We are hopeful that the IRS will act to curb these abuses before they grow even worse.

According to Democracy 21 President Fred Wertheimer:

Crossroads GPS is about electing Republicans and defeating Democrats.  This is the organization’s overriding and only real purpose. The assertion that Crossroads GPS is running “issue advocacy ads,” not campaign ads, is absurd on its face, and an affront to the intelligence of the American people.  Crossroads GPS’s claim to tax-exempt status as a “social welfare” organization does not pass the laugh test.

The information we have submitted today clearly shows that the tax laws and voters are being ripped off by Crossroads GPS in order to spend tens of millions of dollars to influence federal elections without letting voters know the identities of their donors. The IRS must act promptly to stop this.

The letter from the groups points out that in its recent tax filings Crossroads GPS had said its application for 501(c)(4) tax status is still “pending.” The letter said:

We strongly urge you to move promptly to deny the application of Crossroads GPS for section 501(c)(4) tax-exempt status and to make clear that they (and other similarly situated groups) cannot use this section of the IRC as the basis for refusing to disclose donors funding their campaign activities.

The letter notes that the groups had already written a number of letters to the IRS “about the overtly campaign-related activities of Crossroads GPS and other similarly-situated groups claiming tax-exempt status under section 501(c)(4).  Seeletters from Democracy 21 and Campaign Legal Center dated October 5, 2010, September 28, 2011, December 14, 2011, March 9, 2012 and March 22, 2012.”

The letter states:

There is little doubt that the $25 million ad campaign being conducted by Crossroads GPS constitutes intervention and participation in the presidential campaign under IRS standards.  Even though the ad contains no express advocacy (it instead ends by saying “Tell President Obama to cut the job killing debt and support the new majority agenda”), the electoral message of the ad is clear and the circumstances surrounding the creation and placement of the ad plainly demonstrate its campaign purposes.

The IRS does not use an “express advocacy” test for judging whether an ad constitutes intervention or participation in a campaign.  See Rev. Rul. 2004-06, Rev. Rul. 2007-41.  Thus, any claim by Crossroads GPS that the “Basketball” ad is “issue advocacy,” not campaign intervention, simply because it omits a tag line like “vote against Obama,” is irrelevant for purposes of IRS review.

Any such argument also denies the reality of the ads run by Crossroads GPS, as well as the obvious overriding purpose of the organization to influence federal elections.

While section 501(c)(4) groups are not prohibited from engaging in campaign activities, the law does impose a ceiling on the extent to which they can do so.  In particular, the primary purpose of a section 501(c)(4) group must be to further its “social welfare” activities, which the IRS has determined do not include campaign activities.  Under applicable court rulings, section 501(c)(4) groups cannot participate in political campaigns to more than an “insubstantial amount,” as we have discussed at length in our previous letters.

As we have also previously noted, some believe that the IRS applies a “49 percent” test that permits a “social welfare” organization to spend up to nearly half of its resources on campaign-related activities.  This test is contrary to law.  But even if the IRS did apply this standard, Crossroads GPS would still not meet it.  We believe that a review of the activities, operations and spending by Crossroads GPS will demonstrate that its overriding purpose is to participate in political campaigns.  As such, Crossroads GPS is not eligible for section 501(c)(4) tax-exempt status.

The letter further states:

Crossroads GPS has an affiliated section 527 group, American Crossroads, that is free to engage in an unlimited spending to influence political campaigns.  Thus, American Crossroads could use its funds without restriction to pay for anti-Obama campaign ads, such as the “Basketball” ad discussed above.

But there is a critical distinction between conducting campaign activities through a section 527 group, such as American Crossroads, and conducting such activities through a section 501(c)(4) group, such as Crossroads GPS.

While American Crossroads is subject to disclosure requirements under the federal campaign finance laws, Crossroads GPS takes the position that it need not make its donors public because of its claim to status as a “social welfare” organization.  In its two recently filed tax returns, Crossroads GPS listed 23 separate donations of $1 million or more (with the largest being a single donation of $10.1 million), and did not disclose to the public the identity of any of these donors.  Crossroads GPS is using these secret contributions to fund its campaign advertising and it is providing a shelter for donors who want to fund campaign ads, but seek to do so secretly by evading the disclosure requirements of the law.

The letter concludes:

In your continuing review of that application, we call on the IRS to act as promptly as possible.  We also urge the IRS to conduct a thorough and searching examination of all spending by Crossroads GPS, and in particular its spending on political advertisements, such as the one discussed above.  The IRS needs to obtain transcripts of all ads sponsored by Crossroads GPS and review the ads to determine whether they constitute participation or intervention in political campaigns under IRS standards, without regard to an express advocacy test.  In light of that, the IRS must determine whether Crossroads GPS is engaged in more than an insubstantial amount of campaign activity, and whether its primary purpose is campaign intervention rather than social welfare activities.

Crossroads GPS is serving as a vehicle to funnel tens of millions of dollars of secret funds into the 2012 federal elections.  By the end of the year, this may be hundreds of millions of dollars of secret contributions.

The IRS should deny the pending application submitted by Crossroads GPS to obtain section 501(c)(4) tax status.  Crossroads GPS is anything but a “social welfare” organization.  It must not be allowed to play fast and loose with the tax laws in order to deny the American people full disclosure of the money it is spending to influence federal elections.

To read the full letter, click here.

Today, the Campaign Legal Center sent a letter to Senators addressing the “erroneous and misleading” legal criticisms of the DISCLOSE 2012 Act (S.2219) made by the U.S. Chamber of Commerce.  The letter from Executive Director J. Gerald Hebert and Policy Director Meredith McGehee was written in response to a letter sent to the Senate by the Chamber earlier this month which falsely describes the bill as unconstitutional and favoring unions.

The letter lays out the case for why the nation’s campaign finance disclosure system must be updated in the wake of Citizens United and explains why such efforts are directly in line with Supreme Court precedent.  The correspondence goes on to emphasize that the Chamber’s criticisms that the bill favors unions over business corporations are baseless, designed only to stoke partisan fears and should be rejected.

The read the full letter, click here.

On Friday, Campaign Legal Center President Trevor Potter joined with a number of former federal, state and local election officials in filing an amicus brief with the U.S. Supreme Court in support of Montana’s ban on corporate expenditures in elections, which is being challenged in American Tradition Partnership v. Bullock.

The brief urges the Court to deny the petition for certiorari, or if it grants the petition, to reconsider its holding in Citizens United v. FEC that independent expenditures do not result in corruption or the appearance of corruption.

“The political reality that has emerged since the Citizens United decision leaves no doubt that independent expenditures can and do lead to corruption or at the very least the appearance of corruption,” said Trevor Potter, President of the Campaign Legal Center.  “One need look no further than the rise of candidate-specific Super PACs to see that the Court’s decision has seriously weakened candidate contribution limits.  These entities, run by close allies of candidates and endorsed by the candidates themselves, are running shadow campaigns funded by multi-million dollar contributions thousands of times the $2,500 legal limit for campaign contributions.”

In the filing, Potter is joined by fellow former Federal Election Commission (FEC) Chairman Frank Reiche, two former FEC General Counsels, Larry Noble and Charles Steele, former Director and General Counsel of the Connecticut Elections Enforcement Commission, Jeffrey Garfield, former Executive Director of the New York City Campaign Finance Board, Nicole Gordon, and former General Counsel of the California Fair Political Practices Commission, Robert Stern.

The former election officials are represented in this case by former U.S. Solicitor General Seth Waxman of WilmerHale, Scott Nelson of the Public Citizen Litigation Group, Fred Wertheimer and Donald Simon of Democracy 21 and other attorneys from WilmerHale.

To read the brief filed by Trevor Potter and other elections officials, click here.

To read the Campaign Legal Center brief, click here.

To read other briefs in the case, click here.

On May 17, 2012, the Eleventh Circuit Court of Appeals upheld Florida’s “electioneering communications” disclosure law in National Organization for Marriage (NOM) v. Sec. State of Florida in a per curiam decision.

The Florida statute under challenge requires groups to register and report as an “electioneering communications organization” if they make over $5,000 of electioneering communications in a calendar year.  In August 8, 2011, a Florida district court upheld the law, finding that the disclosure requirements were neither vague nor overbroad, and the Eleventh Circuit affirmed this decision.

“Although the Supreme Court strongly endorsed the value of political transparency in Citizens United, disclosure laws at both the federal and state levels remain under fire,” said Tara Malloy, Campaign Legal Center Senior Counsel.  “We are pleased to see the Eleventh Circuit joining the First and Ninth Circuits in supporting the comprehensive disclosure of independent campaign spending in the post-Citizens United era.”

The case is the latest in a series of constitutional challenges to disclosure laws across the country.  Currently, the laws of over a dozen states, as well as the federal disclosure requirements applicable to independent spending, are being litigated.

On December 15, 2011, the Campaign Legal Center filed an amicus brief with the Eleventh Circuit in support of Florida’s electioneering communications disclosure law.

To read the decision, click here.

To read the Campaign Legal Center brief, click here.

Today, the Campaign Legal Center, joined by more than a dozen other organizations, urged the U.S. Supreme Court to let stand a lower court ruling upholding Montana’s restrictions on corporate expenditures in elections.  The groups filed an amici brief in support of Montana urging the U.S. Supreme Court to deny certiorari, or if it grants certiorari, to reconsider its holding in Citizens Unitedthat independent expenditures do not result in corruption or the appearance of corruption.

“Montana has a long history of corporate exploitation of its political bodies, resulting in corruption so rampant as to help lead to the passage of the 17th Amendment to the U.S. Constitution.  Unsurprisingly, its highest court recognized the danger inherent in lifting the corporate spending restrictions,” said Tara Malloy, Campaign Legal Center Senior Counsel.  “If the Supreme Court chooses not to uphold the state Supreme Court ruling then it should grant certiorari and revisit the practical application of its own Citizens United ruling, which at the least, has led to the anonymous funding of shadow campaigns by special interests, and at worst, may result in outright corruption and political quid pro quos.”

The Legal Center website has briefs from both sides in the case including a joint brief from Senator John McCain (R-AZ) and Senator Sheldon Whitehouse (D-RI) and another from a group of former FEC and state and local campaign finance and enforcement officials, including former FEC Commissioner and Chairman Trevor Potter, President of the Campaign Legal Center.

The organizations joining the Legal Center on the brief include: AARP, Center for Responsive Politics, Chicago Lawyers’ Committee for Civil Rights Under Law, Citizens for Responsibility and Ethics in Washington, Common Cause, Illinois Campaign for Political Reform, League of Women Voters of the United States, Michigan Campaign Finance Network, National Institute on Money in State Politics, Progressives United, Sunlight Foundation, U.S. PIRG Education Fund and Wisconsin Democracy Campaign.

The brief filed by the Legal Center a focuses on three primary points that undermine the rationale behind the Citizens United decision to allow corporations and unions to make independent expenditures.  First, amici argue that existing law accommodates relationships so close that “independent expenditures” are not in reality independent.  Second, the brief illustrates that current tax and campaign finance laws enable corporations to deny citizens the information necessary to “hold corporations and elected officials accountable and make informed decisions on Election Day.”  Last, even when there is disclosure of independent spending, campaign finance data is often neither accessible, nor timely enough to allow voters to make informed decisions at the polls.

“The Citizens United ruling and the justifications behind it simply have not held water in the real world,” added Malloy. “The regulatory status quo simply does not require the level of independence and disclosure from independent spending that the Court recognized as vital to the health of our democracy.”

To read the Legal Center brief, click here.

To read other briefs in the case, click here.

Late yesterday, a three-judge panel of the D.C. Circuit Court of Appeals denied a motion to stay a lower court ruling in Van Hollen v. FEC that requires comprehensive disclosure of funders for groups making “electioneering communications.”  Millions of dollars have already been spent this cycle on electioneering communications and those funding them will now have to be revealed.

“This is a huge victory for voters, for disclosure, and for democracy because Americans deserve to know who is trying to buy results in our  elections,” said Trevor Potter, Campaign Legal Center President.  “This decision is an important step towards fulfilling the Supreme Court's promise in Citizens United that all spending in our elections will be fully disclosed -- disclosure that has been frustrated until now by the FEC.”

The case was brought by Representative Chris Van Hollen (D-MD) to challenge a 2007 FEC regulation that narrowed the scope of federal disclosure requirements connected to electioneering communications. On March 30, 2012 the district court granted summary judgment for Van Hollen and struck down the regulation, holding that it was arbitrary, capricious and contrary to the federal campaign finance statute it purports to implement.

“Electioneering communications” are broadcast advertisements that name a candidate and air within 30 days of a primary election or 60 days of a general election.  Groups making electioneering communications are now required to disclose all their donors of more than $1,000 or establish and use a segregated fund for electioneering communications.

“The FEC gutted the law passed by Congress to the point that compliance with it became optional,” added Potter.  “Assuming these Court decisions hold, funding of many of these electioneering communication ads will no longer be secret.  That is not the end of the legal road--the FEC regulations of funding of "independent expenditure" advertising still contain loopholes that are contrary to the disclosure mandated by Congress--but this is an important step towards full disclosure."

On April 26, 2012, the FEC announced that it would not appeal the district court decision.  However, the two corporate funded non-profit groups that have intervened in the case appealed the decision to the D.C. Circuit Court of Appeals and moved both the district court and the Court of Appeals to stay the district court decision pending their appeal.  On April 27, 2012, the district court denied the motion for a stay.

The Legal Center and Democracy 21 are part of Rep. Van Hollen’s pro bono legal team, led by Roger Witten of the law firm WilmerHale.

To read the Circuit Court’s order, click here.

To read the District Court filings and decision, click here.