Political Law Notes - October 2016

Date: October 13, 2016

Welcome to the inaugural issue of 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 please visit our website frequently.

For more information, please contact: Jim Kahl or Jeff Altman


Election 2016: The Homestretch 

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 

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 

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 

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 

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 

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.

Rhode Island Enacts Lobbying Reform Act 

This summer, the Rhode Island legislature passed significant changes to the state’s lobbying laws. The lobbying law now regulates efforts to influence executive branch actions as well as legislative lobbying activities. The new law also broadens the definition of lobbyist to include any employee, officer, or agent of a business entity or organization whose job responsibilities include lobbying. The new law does, however, exempt “persons appearing on behalf of a business entity by which they are employed or an organization for which they are associated, if that person’s regular duties do not include lobbying or government relations.” As a result, an executive who does not regularly lobby on behalf of a business entity or nonprofit organization, but who testifies at a hearing or has a single meeting with a legislator would not be required to register as a lobbyist.

The new lobbying law also gives the Secretary of State the authority to initiate an investigation into potential violations of the registration and reporting requirements.

Maryland Pay-to-Play Reports Due November 30 – New Attribution Rule in Effect 

The next filing deadline for Maryland public contractor contribution disclosure reports is November 30. This time around, a new attribution rule will be in effect. In the past, contributions by a subsidiary of the contractor had to reported if the subsidiary was at least 30% owned by the parent entity and the subsidiary itself had been awarded state or local government contracts. Under an amendment that became effective on October 1, the requirement that the subsidiary also have public contracts has been deleted. This may increase the number of contributions the contractor has to disclose in its November filing.