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Whiteford Political Law Notes

Welcome to Whiteford Political Law Notes -- Whiteford, Taylor & Preston’s quarterly political law newsletter. Our objective is to provide our clients and friends with concise analysis of developments in the fast-changing field of federal and state campaign finance, lobbying, tax, and government ethics laws and rules. We will also provide practical tips for making strategic use of the laws and rules in this area to advance your organization’s political, advocacy and policy goals. In addition to our quarterly issues, we’ll distribute special bulletins as warranted by breaking developments. And all issues of Whiteford Political Law Notes will be posted on the firm’s website for easy reference. We hope you enjoy this newsletter and visit our website frequently.

New Government-Wide Ethics Rules
February 13th, 2017

The Office of Government Ethics (OGE) adopted new gift rules for all government employees, which went into effect on January 1, 2017.   Government employees are generally prohibited from accepting gifts from “prohibited sources” (e.g., persons regulated by or that have business before an agency), or gifts given because of the employee’s official position, unless allowed by a specific gift exception.  The amended rules leave some old rules in place, tighten some rules, and open up a few new opportunities for engagement with government officials. As in the past, a gift is defined broadly to include a meal or anything of value. 

OGE declined to increase the “de minimis” gift exception threshold (now 25 years old) to account for inflation.  As a result, a prohibited source can generally continue to offer government employees a gift valued at $20 per occasion, with a $50 annual aggregate limit.  On the other hand, government employees now have to obtain written agency approval before accepting an invitation to a widely attended gathering, such as an industry conference, from a prohibited source.  Event sponsors should anticipate government invitees asking for more information about widely attended gatherings in order to satisfy questions from their agency ethics officials.   

Event sponsors will be happy to learn that OGE now permits a government employee who speaks at an event to also attend a separate “speakers’ dinner” in conjunction with the event.  OGE is also permitting executive branch employees, like their Congressional colleagues, to accept informational materials related to their duties from outside sources.  Written agency approval will be required for informational materials valued at over $100 per year.    

President Trump Signs Lobbying & Ethics Executive Order
February 13th, 2017

Following up on his campaign promise to “drain the swamp” in Washington, President Trump signed an executive order on January 28 outling the ethics obligations of his appointees.   

The executive order strictly limits appointees’ ability to accept gifts from lobbyists – a restriction first imposed by President Obama.  As a result, President Trump’s appointees cannot take advantage of the full range of gift exceptions available to career employees under the OGE gift rules.  President Trump’s order also directs OGE to adopt rules to apply the executive order’s restrictive lobbyist gift ban to all government employees.  If the OGE Director follows through on this, significant additional changes to the government-wide gift rules will be required.  

The executive order’s “revolving door” provisions make it easier for lobbyists to join the administration, but they will generally be subject to greater restrictions when their employment ends.  An individual who was a registered lobbyist in the two years preceding appointment can now work for the agency he or she formerly lobbied.  President Obama had generally prohibited such employment.  However, the new order prevents an appointee from engaging in “lobbying activities” with respect to his former agency for 5 years after leaving service.  In addition, appointees have a lifetime ban on accepting work from foreign governments or foreign political parties which would require registration under the Foreign Agents Registration Act.  But, the order reduces from two years to one year the “cooling-off period” during which certain senior executive branch officials are prohibited from representing others before their former agency.   

It is not yet clear if other lobbying or ethics changes are on the way.  President Trump has previously suggested expanding the definition of a “lobbyist” to close loopholes. This might take the form of deleting the “two contacts” or “20 percent” of time thresholds that are parts of the current lobbyist registration test, which would greatly increase the number of organizations required to register under the LDA.

FEC Adjusts Some Political Contribution Limits for 2017-2018 Cycle
February 13th, 2017

The Federal Election Commission has made minor adjustments to some of the individual and PAC contribution limits for the 2017-2018 election cycle.  The amount that individuals and non-multicandidate PACs can give to federal candidates remains at $2700 per election to each federal candidate.  Since primary and general election contests are viewed as separate “elections,” an individual or a non-multicandidate PAC may contribute a total of $5400 to a federal candidate.  The $5,000 per year individual contribution limit to PACs is also not affected.

On the other hand, individuals and non-multicandidate PACs can now give $33,900 per year to each national party committee (up from $33,400).  They can also give $101,700 per year (up from $100,200) to each of the national party committee accounts for presidential nominating conventions, election recount and legal proceedings, and national party headquarters buildings.

Contribution limits for larger PACs are not readjusted each election cycle. As a result, “multicandidate” PACs – those with 51 or more contributors that have contributed to 5 or more federal candidates – can still contribute $5000 per candidate per election, $15,000 per year to a national party committee, $5000 per year to other PACs, and $45,000 per year to each of the national party special accounts.  

The FEC also adjusted the reporting threshold for candidates, leadership PACs and political parties that receive lobbyist bundled contributions.  Now, they must report contributions aggregated by a lobbyist if they exceed $17,900 in a semiannual period.  

The 2017-2018 contribution chart is available here.  

On the Horizon in 2017: Are Political Spending Restrictions on Section 501(c)(3) Organizations Going Away?
February 13th, 2017

2017 is sure to bring more changes on the political law front.  Just last week, President Trump repeated his support for overturning the “Johnson Amendment” – a long-standing provision in the tax code that strictly prohibits churches and other Section 501(c)(3) charitable organizations from engaging in any political campaign activities.  If the law is changed, individuals and organizations may be able to support entities engaging in political speech with tax deductible deductions.  At the same time, the administration is also considering an executive order to loosen political restriction on churches. These changes could make religious organizations new vehicles for supporting and opposing candidates in 2018 and beyond.  

At this time, it is unclear whether any repeal of the Johnson Amendment would apply broadly to narrow or remove the prohibition against political activities for all Section 501(c)(3) organizations, or provide just a limited carve-out for churches and religious organizations.  Although the Administration can change the interpretation or enforcement of the current prohibition, any formal repeal of the statutory prohibition would require Congressional action.

We’ll be following this issue and other new developments closely in Political Law Notes. Also, you can view Jim Kahl and Jeff Altman’s recent webinar – Federal Lobbying & Ethics Rules in 2017here.  A PDF copy of the webinar PowerPoint can be downloaded here.    

Election 2016: The Homestretch
October 3rd, 2016

We’re entering the final stretch of the 2016 election. All organizations and their leaders need to know the rules of the road for engaging with public officials during an election year and responding to requests and opportunities to engage in candidate fundraising. Here are links to two articles we published earlier this year summarizing the Top 5 Political Law Compliance Tips and Rules for Hosting a Candidate Fundraiser. We hope you find them to be useful guidelines.

More DOJ Prosecutions of Illegal Contributions
October 3rd, 2016

Over the past few years, the Department of Justice has aggressively prosecuted illegal campaign contributions, particularly those that involve conduit schemes. That trend has continued in recent months –

  • In June, Bilal Shehu, a New Jersey man, pleaded guilty to receiving $80,000 from a foreign national and contributing it to an Obama joint fundraising committee. The goal of the scheme was for a foreign citizen to get a meeting with President Obama. Sentencing is set for October.
  • In August, the father of Rep. Ami Bera was sentenced to 18 months in prison for funneling illegal contributions to his son’s congressional campaigns. The elder Mr. Bera reimbursed over $268,000 in donations made during the 2010 and 2012 elections by approximately 90 straw donors around the country, including relatives and friends.
  • In September, a Mexican national and two U.S. citizens were convicted of making illegal contributions to campaigns in San Diego. Among other things, contributions were funneled through straw donors and the foreign national paid for consulting services provided to candidates.
FEC Commissioners Focused on Foreign Money
October 3rd, 2016

Federal campaign finance laws prohibit foreign nationals from making contributions and expenditures in connection with any election in the United States – federal, state or local. Two FEC Commissioners believe that this restriction is in need of some fortification.

FEC Commissioner Ann Ravel recently circulated a proposal to rescind a 2006 advisory opinion that permits domestic subsidiaries of foreign corporations to make contributions through their PACs or directly where permitted by state or local law. She is concerned that in a post-Citizens United world, foreign funds can find their way into U.S. elections through sham domestic corporations and U.S. subsidiaries. This proposal follows on a forum sponsored by FEC Commissioner Ellen Weintraub in June that focused on foreign money in the U.S. elections. Commissioner Weintraub has proposed requiring sponsors of campaign messages to certify that they are not using foreign money.

On the other hand, Republican Commissioner Matthew Petersen has proposed a more modest change in policy regarding foreign contributions. He favors creating a “safe harbor” that would allow a Super PAC to lawfully accept funds from a corporate donor if the PAC receives a certification that (1) the company is organized under the laws of and is located in the U.S., (2) foreign nationals did not direct, control or participate in the contribution, and (3) only U.S.-generated net earnings were used to make the contribution.

The FEC has not been able to achieve consensus around any of these proposals. In late September, however, the Commission allowed a U.S. citizen living abroad to solicit contributions in a foreign country for candidates and political party committees. The FEC noted that in some circumstances the individual would have a duty to inquire about the potential contributors’ citizenship.

Foreign spending is sure to remain a hot button issue through the 2016 election and beyond. In this environment, U.S. subsidiaries of foreign corporations that contemplate forming PACs or contributing in states or localities where corporate contributions are permitted, would be well advised to adhere scrupulously to the FEC rulings governing their activities. Missteps could result in having to respond to an FEC investigation. And, while the FEC often deadlocks, the Department of Justice is quite willing to prosecute when it has evidence of impermissible foreign spending in U.S. elections.

New IRS 501(c)(4) Filing Requirements
October 3rd, 2016

The PATH Act, which was enacted at the end of 2015, requires a 501(c)(4) organization to notify the IRS within 60 days of organizing of its intent to operate under that section of the IRC. The notification must be submitted on Form 8976, which can only be filed electronically. The first filings, for organizations that were formed prior to July 8, 2016, were due last month. The IRS portal for submitting the form can be accessed at this link.

New filers should note that the electronic filing portal cannot be accessed using the URL cited in Revenue Procedure 2016-41 – use the link above. Law firms, accountants and other third-party filers will be happy to learn that one individual can file notifications for many organizations at the filing portal. There is a $50.00 fee for filing the notification, and a late fee of $20 per day (up to $5000 maximum).

Corporation May Not Deduct Charitable Matching Funds Linked to Employee PAC Contributions
October 3rd, 2016

A recent IRS Private Letter Ruling (PLR 201616002) concluded that a corporation could not deduct as a business expense under IRC Section 162 the matching funds it contributed to charities as a part of a corporate PAC charity match program. The IRS found that the employee contribution to the PAC was a prerequisite for the corporation’s matching contribution, thus making the PAC contribution and the corporation’s charitable matching contribution inextricably linked. As a result, the IRS was of the view that the matching contributions were in connection with political campaigns and could not be deducted as an ordinary and necessary business expense.

Gov. Cuomo Signs New York Campaign Finance and Lobbying Reform Bill
October 3rd, 2016

On August 24, Governor Andrew Cuomo signed a new law that significantly expands the reach of New York’s campaign finance and lobbying laws.

In the campaign finance area, the law restricts a candidate, or the candidate’s agents from (1) participating in the creation or management of an independent expenditure committee, (2) appearing at a fundraising event of the independent expenditure committee, or (3) renting space from the independent expenditure committee. In addition, an independent expenditure committee is limited in its ability to (1) engage in strategic discussions with the candidate or her committee, or (2) retain or employ one of the campaign’s vendors or former employees. In addition, a person or entity must register as an independent expenditure committee before sponsoring candidate advocacy communications.

Lobbying organizations and tax-exempt entities in New York are now subject to expanded disclosure requirements:

  • An organization that lobbies on its own behalf or retains a lobbyist that spends $15,000 on lobbying during a year (down from $50,000) and at least 3% of whose total expenditures during the period are devoted to lobbying, must disclose the names of and amounts contributed by each source that provides more than $2500 (down from $5000) for lobbying. Membership dues are exempt from this disclosure.
  • 501(c)(3) organizations making in-kind contributions to 501(c)(4) advocacy organizations must disclose the names of certain persons who control and contribute to the organization.
  • 501(c)(4) organizations advocating for or against a clearly identified elected official or the position of an elected official on pending legislative or administrative matters have to disclose the names of certain individuals who control and contribute to the organization.