The Supreme Court's recent ruling could have a big impact on associations and nonprofits. Here's why.
The U.S. Supreme Court's ruling in Citizens United vs. Federal Election Commission changes the way that corporations—both for profit and nonprofit, as well as unions—may spend money to support or oppose federal candidates during elections. While the implications of this ruling will play out over time, here are five things your association should know.
1. Federal restrictions on tax-exempt groups remain. The decision does not change any of the federal tax restrictions applicable to campaign activities by nonprofit organizations. Thus, for example, the decision does not change the restriction against engaging in partisan political activities applicable to 501(c)(3) organizations; the rest of this article applies primarily to 501(c)(6) trade and professional associations, which are allowed to engage in political activity.
Also, tax rules relating to nondeductibility of dues payments made to trade or membership organizations because of those organizations' lobbying expenses are not affected by the decision (in other words, the independent expenditures need to be included in the nondeductibility calculations).
2. Associations still cannot contribute directly to federal candidates.
At the instruction of Congressional leaders, Rep. Chris Van Hollen (D-MD) and Sen. Charles Schumer (D-NY) have released a legislative framework designed to mitigate the Supreme Court decision. While this framework will serve only as a guide in drafting legislation, the obvious intent is to restrict the influence of corporate and special interests in elections and to ensure that corporate spending in campaigns is fully disclosed to the public. In keeping with remarks delivered by President Obama during his State of the Union speech in January, Schumer and Van Hollen are also emphasizing banning political expenditures from foreign interests, federal contractors, and recipients of federal bailout funds.
The prohibition against political activity for Section 501(c)(3) organizations continues and is not changed by the Supreme Court's decision. The constitutionality of the prohibition has been previously addressed by the U.S. Supreme Court and confirmed. However, this prohibition could be reconsidered, or even overturned, in some future case, since the Supreme Court had also previously upheld the ban on corporate independent expenditures that it has now reversed in Citizens United.
Expect to see legal challenges to state and local laws that impose independent expenditure restrictions similar to the ones struck down in Citizens United.
The Federal Election Commission has made a statement that it is considering the impact of the Supreme Court's decision on existing FEC regulations and ongoing enforcement processes.
Nonprofit corporations are still prohibited from making contributions from organization funds directly to federal candidates, political committees, PACs, and national political parties. The Citizens United
ruling merely gives corporations, including associations, the ability to make unlimited independent expenditures and partake in electioneering communications from organization funds. (Note that associations may not coordinate such communications with a candidate, a party, or a representative of either.)
3. Association funds can be used to communicate to the public, organization employees, and members about federal candidates. For example, association funds could be used to print and mail brochures or fliers supporting or opposing specific federal candidates. Association funds can also be used to sponsor advertisements to expressly advocate the election or defeat of a federal candidate. Any such communications are subject to all applicable disclaimer requirements. Independent expenditures will also still be subject to reporting under the Federal Election Campaign Act of 1971.
4. Associations can now fund electioneering communications. Under the Bipartisan Campaign Reform Act of 2002, corporations were prohibited from making contributions or expenditures in support of "electioneering communications," defined as broadcast, cable, or satellite communications referring to a clearly identified federal candidate within 60 days of the general election or 30 days of the primary election where that candidate is seeking office. Associations may now use organization funds through the day of an election for advertisements which refer to a federal candidate but do not expressly advocate the election or defeat of the candidate. Such advertisements must comply with the disclaimer and disclosure requirements in the Federal Election Campaign Act of 1971 and the Bipartisan Campaign Reform Act of 2002.
5. Federal PACs are not directly affected. Federal PACs will continue to function as they did before. Those PACs can still make contributions directly to federal candidates, other political committees, and national political parties (within the same limits). Keep in mind that an association's PAC activities, particularly those involving sponsorship of events featuring a federal candidate, could be used as evidence of coordination if the organization makes independent expenditures in support of the same candidate, so associations should be very cautious here.
Jerald A. Jacobs is ASAE & The Center's general counsel and a partner with Pillsbury Winthrop Shaw Pittman LLP in Washington, DC, as well as the author of The Association Law Handbook. Email: [email protected]