Special Alert                                                                           March 9, 2004 Proposed FEC Regulations Could Limit All Nonprofit Advocacy In our last regular issue, the Nonprofit Navigator reported on a pending Federal Election Commission ("FEC") rulemaking that was expected to regulate section 527 political organizations [see NN 2-3/04]. It turns out the proposal under consideration is not limited to 527s. It contains many different options and alternatives, but some of the most extreme variants would cause even some 501(c)(3) and 501(c)(4) organizations to treated as federal PACs, unable to accept corporate or labor union funds and limited to a maximum annual contribution of $5000 from individuals. Some of the language under consideration would effectively prohibit incorporated nonprofits from commenting on policy proposals in a way that might be perceived as critical of a federal official. Technically, what the proposed rules do is to establish a new definition for a federal political committee ("PAC") subject to FEC regulation. Under current law, an organization becomes a PAC when it raises or spends $1000 or more to expressly advocate for or against federal candidates, and it has as its major purpose influencing federal elections. The new rules would allow the FEC to regulate an organization based on a determination of its major purpose even if it spends no funds on express advocacy. One option under consideration is to apply a new definition of "expenditure" only to organizations that meet the major purpose test. A more drastic alternative would redefine "expenditure" generally. This is critical for most nonprofits, because all corporations, nonprofit and for-profit alike, are prohibited from making federal expenditures. This alternative would include in the definition of regulated expenditures any payment for a communication by any person at any time that "promotes or supports, or attacks or opposes" any clearly identified Federal candidate. Based on prior discussion among the Commission, this would include supporting or opposing a policy position advocated by any person who happens to be a candidate if the person's name is mentioned. Another part of the rulemaking proposes several different ways to measure an organization's "major purpose." One proposal is to look at the organization's own statements about its purposes, although exactly how to measure the "major" purpose is not defined. Two other options look only at expenditures, setting measures of 50% of annual disbursements or $50,000 in a year. In each case, the measurement applies to any of the previous four calendar years. The activities measured include not only express advocacy and electioneering communications (the new term for 30/60 day issue ads, see [see NN 11/02], but also "federal election activity." "Federal election activity" was a term introduced by BCRA to apply only to political parties in an effort to prevent evasion of the soft money ban. It includes GOTV for an election where any federal candidate is on the ballot, voter registration in the 120 days before a federal election, and communications that "promote, support, attack or oppose" a federal candidate. The rules are complicated, so it may not be easy to understand from this brief summary what the potential effect is. Indeed, there are so many possible permutations of the different alternatives presented, and so many other questions raised in the 80-plus pages of introductory discussion, that it is nearly impossible to predict all the ways the final regulations may affect nonprofits. Some of the possibilities include: A 501(c)(3) organization that primarily encourages voter registration and voting among young people will be required to re-create itself as a federal PAC. An incorporated 501(c)(4) peace group would break the law by using its general funds to pay for any communications critical of the President's handling of foreign policy after the President had officially declared himself a candidate for reelection, more than a year before the next election. A children's advocacy organization that publishes a legislative report card covering all members of Congress on a broad range of issues that affect children would be unable to accept more than $5000 from any individual donor if the report indicates whether specific votes were good or bad for children. The Notice of Proposed Rulemaking asks for comment on literally dozens and dozens of questions. Two sets will be of particular interest to many nonprofits. First, the Commission asks whether it is appropriate to import tax code concepts and specifically address 527 organizations, or if it would be better to establish tests that apply to any organization engaged in electoral advocacy. Next, the proposal inquires whether 501(c) organizations should be exempted from application of the new definitions because of their tax status, or if the thresholds set out in new "major purpose" test (as low as $50,000 in a year on covered activities) are sufficient to protect them from being improperly reclassified as PAC. Organizations interested in weighing in on these or other relevant questions should address comments to Ms. Mai T. Dinh, Acting Assistant General Counsel. Comments may be sent electronically to politicalcommitteestaus@fec.gov, in the body of an e-mail or in PDF or Microsoft Word format; they may be faxed to 202-219-3923, or mailed to Federal Election Commission, 999 E Street NW, Washington, DC 20463. Commenters who wish to testify at a hearing to be held on April 14 and 15, 2004 must submit written comments by April 5, 2004. Those not wishing to testify have until April 9. By Elizabeth Kingsley This publication is designed to provide accurate and authoritative information about the subject matter covered. It is not distributed with the intent to render legal, accounting, or other professional advice. The services of a competent professional should be sought if legal advice or other expert assistance is required. Newsletter Home | HarmonCurran Home