Tuesday, November 27, 2012

States Take Lead on Forcing Disclosure of Political Donations

The use of 501(c)(4) nonprofits to support political campaigns was well-documented over the past election cycle (see, for example, LHM's prior post here).  Since 501(c)(4) organizations do not qualify for tax-deductible contributions under Section 170 (only "charitable" organizations - generally those exempt under 501(c)(3) plus government entities qualify), the issue with (c)(4)'s isn't about tax giveaways for contributions used for political purposes, but rather that the use of the (c)(4) format permits politically-engaged organizations to avoid the disclosure laws applicable to federally-defined political campaign organizations.

But as this article in the Los Angeles Times illustrates, some states have become far more agressive in requiring disclosure by nonprofit organizations engaged in political activity.  The aggressive stance began with California's crackdown on Americans for Job Security which was "unmasked as the source of an $11-million donation to oppose Gov. Jerry Brown's tax increase measure and support another measure intended to curb the ability of unions to raise money for political activity."  California state officials found that AJS had run its money through two other nonprofit organizations in order to hide its origin - an effort state officials called "campaign money laundering" (California officials apparently are still investigating AJS to find the original donors of the $11 million). 

California was not alone, however.  Prior to election day, a judge in daho upheld state efforts to require disclosure from a politically-involved nonprofit.   Secretary of State Ben Ysursa sued a group called Education Voters of Idaho, which spent some $200,000 for ads backing three state ballot measures, to force disclosure of its donors.  After the court ruled in favor of the state, "the organization revealed it had received money from New York Mayor Michael R. Bloomberg and Albertsons supermarket scion Joseph P. Scott, among others."

In Montana, the state supreme court upheld on state law grounds a law banning political expenditures by corporations in spite of Citizens' United, though the U.S. Supreme Court overruled that decision.  Subsequently, the voters of Montana passed Initiative 166, directing the Montana delegation to seek a constitutional amendment overruling Citizens' United.

Since the Supreme Court has indicated its support for disclosure (as opposed to expenditure limitations) in these kinds of situations, perhaps other states will step in with disclosure laws that Congress appears to have little interest in.   One can dream . . .



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