Today the Campaign Legal Center, together with Democracy 21, filed comments with the Federal Election Commission (FEC), urging the Commission to reject an advisory opinion request  submitted by the Constitutional Conservatives Fund PAC (“CCF”), Senator Michael Shumway Lee’s (R-UT) Leadership PAC seeking to fundraise in a manner clearly prohibited by existing law.

Senator Lee’s Leadership PAC asks the Commission (AOR 2011-21) whether it can raise unlimited contributions from corporations, labor unions and individuals to use for “independent expenditures” supporting or opposing other federal candidates.  In other words, Senator Lee’s Leadership PAC asks the FEC if it can fundraise like a Super PAC.

“This is an easy question, which the Commission should answer with an unequivocal no,” said Campaign Legal Center FEC Program Director Paul S. Ryan. 

The “soft money” prohibition of the Bipartisan Campaign Reform Act of 2002 (BCRA) clearly states that a federal candidate or officeholder, or an entity directly or indirectly established, financed, maintained or controlled by a candidate or officeholder, shall not solicit, receive, direct, transfer, or spend funds in connection with a federal election unless the funds are subject to the limitations, prohibitions, and reporting requirements of the law.

“By its own admission,” Ryan said, “CCF is a Leadership PAC established by Senator Lee.  Therefore, it falls squarely within the BCRA soft money ban.  As such, CCF, like Senator Lee himself, may only solicit or receive contributions up to $5000 from individuals and federal PACs, and may not solicit or receive any corporate or union funds.”

“The answer to the Advisory Opinion Request submitted by Senator Mike Lee (R-UT) to the FEC is open and shut:  the federal campaign finance laws clearly and unequivocally prohibit the Leadership PAC of a Member of Congress from soliciting or receiving unlimited contributions,” said Democracy 21 President Fred Wertheimer. “Senator Lee’s Leadership PAC is flatly prohibited by law from raising unlimited contributions and Senator Lee should abandon this effort.”

The heart of the argument made by CCF is that recent court decisions permit federal PACs to accept unlimited contributions from individuals, corporations and unions so long as such contributions are used only for independent expenditures.  But these cases, which gave birth to Super PACs, apply only to PACs that are not established by federal candidates or officeholders.  These cases are inapplicable to CCF, which is established by a federal officeholder.

The FEC has already recognized precisely this distinction earlier this year, when two Super PACs, Majority PAC and House Majority PAC, sought an advisory opinion as to whether federal candidates and officeholders are permitted to solicit unlimited individual, corporate, and union contributions on their behalf.  By a unanimous 6-0 vote, the Commission correctly advised the Super PACs that the BCRA soft money ban was upheld by the Supreme Court in McConnell v. FECand remains valid since it was not disturbed by either Citizens United or SpeechNow.

The Campaign Legal Center and Democracy 21 urged the FEC to reaffirm its opinion that all federal candidates, officeholders and committees they established—including Senator Lee’s Leadership PAC, CCF—are prohibited from raising or spending funds in connection with a federal election unless the funds are subject to the limitations, prohibitions, and reporting requirements of federal law.

The Campaign Legal Center took the lead in preparing these comments.

To read the comments, click here.

Today, the Campaign Legal Center and Democracy 21 filed an amici brief with the U.S. Court of Appeals for the Fourth Circuit in The Real Truth About Obama (RTAO) v. FEC.   This case currently concerns the much-contested “subpart (b)” definition of “expressly advocating” (11 C.F.R. § 100.22(b)), as well as the FEC’s methodology for determining when a group has campaign activity as its “major purpose,” an important step in the larger determination of political committee status.

“This appeal is just one of many cases filed nationwide in an attempt to undermine existing disclosure laws and remove any sort of transparency or accountability for those making ‘independent expenditures’ on behalf of candidates,” Legal Center Associate Counsel Tara Malloy stated.  “The unstated goal of these challenges is a system where the sponsors and the candidates know who is buying the television ads, but the public is left completely in the dark.  Were this goal to be achieved, it would represent a grave threat to the overall health of our representative democracy.”

“This lawsuit represents an effort to eliminate campaign finance disclosure requirements that have long been deemed essential to protect against corruption and to provide the public with information they have a basic right to know,” according to Democracy 21 President Fred Wertheimer.  “In our brief, we make clear that the plaintiffs in this case are attacking the constitutionality of campaign finance standards developed by the Supreme Court itself.  The Court of Appeals is bound to follow the law as developed by the Supreme Court and should do so by affirming the lower court decision and ignoring the frivolous claims made by the plaintiffs.”

The Fourth Circuit appeal is the latest stage of the long-running proceedings in RTAO v. FEC.   Originally, RTAO challenged a number of FEC rules, including the rule implementing the electioneering communications funding restriction that was adopted after the Supreme Court’s 2007 decision in Wisconsin Right to Life v. FEC (11 C.F.R. § 114.15).   The district court and Court of Appeals upheld all of the challenged rules in 2008 and 2009.  Subsequent judicial decisions, most notably Citizens United v. FEC, mooted the much of the case, however.  In April 2010, the Supreme Court vacated the 2009 Court of Appeals’ decision, and remanded the case for further consideration in light of Citizens United and “the Solicitor General’s suggestion of mootness.”  Upon remand, the district court again considered and rejected the two remaining claims relating to the “subpart (b)” definition of “expressly advocating” and the FEC’s “major purpose” methodology in June 2011.  The current Fourth Circuit proceedings are the appeal of this decision.

On October 18, 2010, the Legal Center, along with Democracy 21, filed an amici brief with the district court supporting the challenged regulation and policy.  Prior to the remand, the two organizations filed two other amici briefs in the case dating back to 2008.

The Campaign Legal Center took the lead in preparing the brief.

To read the brief filed today, click here.

Today, the Campaign Legal Center, along with Democracy 21, filed an amici brief with the U.S. Court of Appeals for the Fourth Circuit in U.S. v Danielczyk, an appeal of a controversial district court decision overturning the century-old federal restriction on corporate contributions to candidates and political parties.

The corporate contribution restriction overturned in the case dates back to the Tillman Act of 1907, signed into law by President Teddy Roosevelt in the wake of the Gilded Age, an era awash in political corruption and campaign finance scandals.  Since that time the restriction on corporate political contributions has been upheld repeatedly by the U.S. Supreme Court, most recently in FEC v Beaumont in 2003.  The May 2011 lower court decision overturning the 104-year-old law, issued by Judge Cacheris of the U.S. District Court of the Eastern District of Virginia, failed to consider or even cite Beaumont.  Criticism of the action led to a rebriefing of the case, though Judge Cacheris eventually reaffirmed his earlier decision, refusing to abide by Beaumont and other controlling Supreme Court precedent.

“This judicial overreach, if left standing, will authorize large-scale circumvention of existing contribution limits and give rise to political corruption and the appearance of corruption,” said Campaign Legal Center Associate Counsel Tara Malloy.  “In the post-Citizens United world, corporate vehicles are already being misused to avoid disclosure and the district court’s Danielczyk decision invites the additional evasion of contribution limits.  We do not need another decision that will further undermine public faith in their elected officials and the judiciary.”

“The corporate contribution ban was upheld by the Supreme Court less than a decade ago in FEC v. Beaumont, and a federal district judge cannot overrule direct rulings by the Supreme Court,” said Democracy 21 President Fred Wertheimer.  “Furthermore, the district court judge was clearly wrong in saying that the ‘logic’ of the Supreme Court’s misguided Citizens United decision also requires the invalidation of the ban on corporate contributions.  The Supreme Court, which has long distinguished between contribution restrictions and spending restrictions, never addressed the corporate contribution ban in Citizens United and did not overturn the Beaumont decision which remains the law of the land.”

The case, U.S. v. Danielczyk, is a criminal matter concerning a number of alleged campaign finance violations, including that the defendants illegally directed corporate contributions to Hillary Clinton’s 2008 Presidential campaign.

The Campaign Legal Center took the lead in preparing the brief.

To read the brief, click here.

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.