Super-size That Contribution: New Options for Savvy Corporations, Associations, and Politically-active Executives

Political giving used to be a lot simpler. Establish a budget, make a list of like-minded candidates, and write checks to their campaigns.

In 2012, savvy corporations, PACs, and politically-active executives have quite a few options. Careful planning can make the difference between a robust and effective government affairs strategy and one that attracts little attention.

So what has changed? While candidate committees and political parties must still abide by the old rules, new types of organizations can operate free of contribution limits and source restrictions. Super PACs are the fresh face on the scene, thanks to a Supreme Court ruling that swept aside a decades-old ban on corporate funding of election ads. Super PACs must register and file disclosure reports with the Federal Election Commission (FEC), but they may accept unlimited sums from corporations and individuals for ads that are not coordinated with a campaign or political party.

Other groups, such as 527s and 501(c)(4)s, do not register with federal or state election authorities or have to comply with election limits. Relying on arcane rules, these groups air ads that focus on a candidate’s position on issues, but do not expressly call for a vote for or against the candidate.

What’s more, not all political spending is subject to the same disclosure rules. The six-member FEC has been unable to agree when contributors must be disclosed by unregistered groups that finance election-related ads. The IRS requires 527s to publicly identify their contributors, but information may be withheld about a particular contributor merely by paying tax on that contribution. 501(c)(4)s, on the other hand, do not have to publicly disclose any of their donors.

Here are some tips for making the most of your political spending while staying in compliance with the law:

• Understand what the law allows. What type of organization is this, and does the law permit their planned activities? Do any limits apply – per election, per candidate, per year? Has the contribution been solicited from a permissible source and in a permissible manner? (A federal candidate, for example, may raise money for a friendly Super PAC, but only up to hard money limits.) Has the organization registered and filed reports with the appropriate election board or the IRS?
• Know the company you keep. Make sure that associating with the organization and its principals will not embarrass you or your organization. What public statements have the principals made? What causes does the group endorse? Who else has contributed to this group? For 527s and 501(c)(4)s that are not registered with a federal or state election agency, ask to see the annual information return (Form 990) that must be filed with the IRS and made available to anyone who asks.
• Determine whether your contribution will be disclosed and whether you have any control over that. Under federal laws and the laws of some states, donations to an organization made for the purpose of funding independent expenditures (i.e., ads that expressly advocate for the election or defeat of a candidate) must be disclosed by the recipient. On the other hand, contributions that are not earmarked for a specific use may not have to be disclosed.
• Be aware of state laws requiring donor reports or corporate authorization. A growing number of state laws impose reporting requirements not only on the recipient organization, but also on the contributor. Some states require corporations to obtain board of directors or other authorization before making corporate political contributions.
• Ask Super PACs, 527s, and 501(c)(4) organizations to certify, in writing, that they do not coordinate their spending with any candidate, campaign committee, or political party. If such an organization coordinates its ad strategy or spending with a campaign or party, there is no longer a basis for accepting corporate contributions and unlimited sums from individuals. While the government only infrequently launches full-scale investigations of coordination, such investigations can be lengthy and damaging.
• Finally, do not forget pay-to-play laws. Under state and local pay-to-play laws, government contracts may be voided (and bids disqualified) if the company, its PAC, or certain company officials makes certain political contributions. For the most part, these laws target direct contributions to candidates and political parties, and in some cases, leadership PACs. Under some state laws, however, contributions to Super PACs – particularly those that support a single candidate or small group of candidates – may also lead to sanctions.

CONTRIBUTING TO CANDIDATE CAMPAIGNS AND POLITICAL PARTIES? HOMEWORK IS REQUIRED THERE, TOO

Contributing to candidates and political parties – while more tried and true – also requires homework to avoid legal problems. For starters, limits on contributions vary considerably from one jurisdiction to another, and they frequently change. Also, some states permit a contribution for a candidate’s primary and general election campaigns, even before the primary is held, while others permit a general election contribution only after the primary.

Many jurisdictions also impose aggregate limits. Under federal law, for example, an individual is subject to a biennial limit of $117,000, $46,200 of which may go to candidates and $70,800 to PACS and political parties. Further complicating the matter, of the $70,800 that may be given to PACs and political parties only $46,200 may be given to PACs and state and local parties.

Also keep in mind that spouses have their own contribution limits, even if only one spouse has an income. However, when couples make a contribution through a single check drawn from a joint checking account, the entire contribution will be attributed only to the party signing the check. If the couple wants the contribution allocated between them, both of them must sign the check or the check must be accompanied by a letter, note, or donor card specifying their wishes.

Be careful when contributing to a “joint fundraising committee,” which is a popular vehicle for federal campaign fundraising, especially in a Presidential election year. A joint fundraising committee is a legal entity registered with the FEC that channels contributions, through a pre-arranged formula, to one or more candidates and political party committees. A contributor who has previously made contributions in the same federal election cycle should investigate how his or her contribution will be allocated. Otherwise a contribution to a joint fundraising committee may inadvertently exceed that individual’s limit for a particular candidate or the aggregate limits.

Finally, as discussed above, contributions by the company or its PAC, and personal contributions by certain company officials may result in the loss of contracts and the disqualification of bids. Some of these so-called “pay-to-play” laws also restrict contributions by the spouses of company officials. If you do business with the government, it is essential to have a compliance program that protects against this risk.

NEW GIFT RULES PROPOSED FOR FEDERAL EXECUTIVE BRANCH

The U.S. Office of Government Ethics (“OGE”) has proposed tighter rules on gifts to federal employees from lobbyists and organizations that employ them. Comments on the proposed rules must be submitted to the agency by December 14, 2011.

Under current rules, a federal employee may not accept a gift from a prohibited source (generally, an entity with interests that may be affected by the employee’s agency) or a gift given because of an employee’s official position. A number of exceptions apply, such as gifts from family members and friends, and gifts of free attendance at widely-attended gatherings. Shortly after President Obama took office, he issued an executive order barring political appointees from accepting gifts from lobbyists and their employers, regardless of whether they are prohibited sources or are giving the gift because of an employee’s official position. Only a handful of exceptions apply under the White House order. OGE is now poised to codify this executive order.

The proposed rules go even further, however, by preventing career employees from taking advantage of some of the usual gift rule exceptions when a prohibited source -- or a person giving a gift because of an employee’s official position – also happens to be a registered lobbyist or lobbyist employer. From such contributors, a career employee may not accept a gift valued at $20 per occasion and $50 per year, nor may the employee accept free attendance at widely-attended gathering, unless the employee is speaking or presenting with agency approval.

If the OGE rules are adopted, they would affect common gift-giving situations such as holiday parties and invitations to conferences attended by a large number of people from an industry or profession.

Notably, the proposed rules would not apply to organizations that merely hire outside lobbyists. The rules would also would not apply to 501(c)(3) organizations, public and non-profit institutions of higher education, and media organizations, if the gift is made in connection with the organization’s information gathering or dissemination activities.

Many of the gift rule exceptions are very detailed. Any company or trade association contemplating making a gift under federal ethics rules should look carefully at the facts and circumstances of each particular situation.