Special Alert                                                                           May 17, 2002 Nonprofit Organizations Should Keep an Eye on Fast-track FEC Rulemaking Politically active nonprofits are watching carefully as the Federal Election Commission (FEC) works to implement the recently-enacted Bipartisan Campaign Reform Act (BCRA). But all exempt organizations should be aware that the proposed regulations could affect their fundraising programs. On May 9, the FEC approved for publication draft regulations implementing the soft-money limitations of BCRA. Although the focus of these provisions is on political parties, the statute also includes limitations on the ability of federal candidates and office holders (as well as national, state, and local party committees) to raise funds for tax-exempt organizations, including 501(c)(3)s. The full text is available as a Word document at http://www.fec.gov/register.htm. Restrictions on Individuals Raising Funds for Nonprofits The statute generally prohibits federal candidates and office holders from soliciting, directing, or spending any funds not subject to the prohibitions, limits, and reporting requirements of the Federal Election Campaign Act (FECA) "in connection with" a Federal election. This prohibition is followed by an exception allowing general solicitations for a 501(c) organization other than an entity whose principal purpose is to conduct certain election-related activities. The specific covered voter activities are voter registration (during the 120 days preceding a Federal election), "voter identification, get-out-the-vote activity, or generic campaign activity conducted in connection with an election in which a candidate for Federal office appears on the ballot." However, the proposed regulations do not exactly track the statute. Omitting the criterion that prohibited fundraising must be "in connection with a Federal election," they state that a Federal candidate, Federal office holder, or their agent may solicit funds for a tax-exempt organization only if all of three conditions apply. First, the solicitation may not specify how the funds will be spent; the organization's principal purpose may not be the described election-related activity; and the solicitation may not be "for" those activities. Thus, although the language of BCRA would permit a federal office holder or candidate to raise funds earmarked for a specific non-electoral program of a nonprofit, the proposed regulations as drafted do not permit the covered individual to participate in a solicitation that tells donors how their contributions will be spent. This could cause unintended consequences for nonprofits looking to prominent elected officials for help raising funds for specific programs (rather than as general support). Potentially Burdensome Clearance Processes A more troubling point is raised not in the proposed regulations themselves but in the introductory text. The Commission raises the question of "how to identify organizations whose principal purpose is to conduct the described Federal election activity." Suggestions thrown out are looking at the tax-exemption application and/or Form 990s, or requiring a certification from the organization that its principal purpose is not to conduct the described activity. Any overly broad or burdensome rule the Commission might adopt could potentially cause Federal officials simply to refuse to do any fundraising for nonprofit organizations. Certainly requiring an office holder to review recent tax returns before signing a fundraising letter or giving a speech at an event would create a disincentive to provide that assistance for nonprofits. Restrictions on National, State, and Local Parties Similar issues arise in setting out the restrictions on state and local party committees, which are not permitted to raise funds for or direct contributions to tax-exempt organization that conduct any activities in connection with a Federal election. The restriction applies to party committees, their officers, agents acting on their behalf, and entities they establish or control. Because of the large number of state and local party committees, if this prohibition is interpreted broadly it could have a significant impact on nonprofits whose board members or major donors are active in local politics. Potentially Broad Sweep of Covered Individuals and Entities The language of the proposed regulations, together with some questions raised in the notice, raise the possibility that some operative terms will be defined very broadly and extend the sweep of the fundraising limitations very far. "Agent," for example, may be defined to extend the candidate solicitation rules to cover volunteers and consultants, even when they are not acting on behalf of the candidate. This could limit nonprofits' solicitation efforts in unforeseen (and possibly unintended) ways. Organizations "directly or indirectly established" by a State or local party committee or its agent are subject to the same prohibitions as the party entities. Finally, the scope of "Federal election activity" may be defined broadly enough to cover certain public opinion polling that asks about political preferences. May 29 Deadline for Comments The FEC has been directed by Congress to adopt final soft money regulations by June 25, so this rulemaking is on a very fast track. Written comments on the proposed regulations are due May 29. There will be a public hearing June 4 and 5, and any request to testify at the hearing must be submitted with the comments. 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