Chapter VI: Operating a Nonconnected Federal PAC that is Not a Super PAC

Transcription

1 Chapter VI: Operating a Nonconnected Federal PAC that is Not a Super PAC The Connection Strategies for Creating and Operating 501(c)(3)s, 501(c)(4)s and Political Organizations Third Edition B. Holly Schadler

2 Contents INTRODUCTION: TYPES OF EXEMPT ORGANIZATIONS AND WHAT THEY MAY DO Chapter VI Endnotes 78 Alliance For Justice The Connection

3 CHAPTER VI. OPERATING A NONCONNECTED FEDERAL PAC THAT IS NOT A SUPER PAC Individuals associated with a 501(c)(3) or 501(c)(4) may establish a Nonconnected Federal PAC, 1 which is a PAC established by an independent group of individuals, not by a corporation. The major benefit of a Nonconnected Federal PAC is that, unlike an SSF, it may solicit the general public for contributions. A Nonconnected Federal PAC may not be affiliated with another nonprofit corporation, such as a 501(c)(4), or any other corporate entity. 2 Staff, directors, or members of a 501(c)(3) or 501(c)(4), as individuals, not as agents or members of the 501(c)(3) or 501(c)(4), may form or serve on the board of a Nonconnected Federal PAC to support local, state, or federal candidates. A Nonconnected Federal PAC must file its Statement of Organization with the FEC within 10 days of raising or spending $1, The process for creating a Nonconnected Federal PAC is similar in most respects to that for starting an SSF, with a few minor differences. (See Chapter IV.) A 501(c)(3) or 501(c)(4) with which the individuals are associated may not provide any financial support, directly or indirectly, to the Nonconnected Federal PAC. Rather, all costs of organizing and operating the PAC must be paid from voluntary individual contributions to the PAC. This separation is particularly important in the case of a 501(c)(3) because a 501(c)(3) is strictly prohibited under tax law from having an affiliated political organization that supports or opposes candidates. There is little clear guidance on the degree of separation required between a corporation and a Nonconnected Federal PAC to ensure that the PAC is treated as a Nonconnected committee. Numerous advisory opinions have considered the factors required to maintain separation between a corporation and a Nonconnected Federal PAC and have set out reasonably strict requirements for separation of governance, financial management, and activities. The recent opinions discussed in the previous chapter on Super PACs raise the question of whether the FEC s position has evolved in this respect. In two opinions issued to Nonconnected Super PACs, the only material difference between an SSF and a Nonconnected PAC is that in the case of the SSF the connected organization may pay, and not report to the FEC, the administrative and fundraising costs of the SSF. In contrast, the FEC s earlier opinions suggest that a greater degree of separation may be required for Nonconnected PACs that are not Super PACs, including diversified management and board members. It is absolutely clear, however, that a corporation may not pay for any of the fundraising, administrative, or other overhead costs of a Nonconnected Traditional PAC. Financial transactions between an exempt organization or any other corporation and a Nonconnected Federal PAC should be kept to a minimum and must always be at arm s length. In order to demonstrate separation, previous FEC advisory opinions suggest avoiding having the same persons managing both the Nonconnected Federal PAC and the exempt organization, or even to have a majority of overlapping directors. Individual board members or staff on their own time may serve on the board or as officers, but independence from the 501(c)(3) and 501(c)(4) is essential. The FEC has taken the position in one advisory opinion that the PAC should have a diversified leadership to avoid the situation in which individuals affiliated with a particular corporation form the majority of the PAC board. A 501(c)(3) that has no affiliated 501(c)(4) and a Nonconnected Federal PAC should, in most cases, avoid sharing space, equipment, or staff. Any sharing of resources could invite IRS scrutiny into whether the 501(c)(3) is indirectly or directly supporting the PAC. If a 501(c) organization and Nonconnected Federal PAC share any staff, equipment, or office Alliance For Justice The Connection 77

4 space, the PAC must pay fair market value for all of these resources in advance (for use of staff) or within a commercially reasonable time. The cost of any use of the corporation s lists by the PAC must be paid in advance. Failing to maintain separation between a Nonconnected Federal PAC and a taxexempt organization could convert the PAC into an SSF. If such an affiliation occurs, the Nonconnected Federal PAC would be subject to the restricted class fundraising and other restrictions of an SSF under federal law. This guide does not attempt to cover the full range of rules applicable to Nonconnected Federal PACs, because it focuses primarily on the complex structures of affiliated organizations. For more information, consult a legal advisor or the FEC Campaign Guide for Nonconnected Committees, available at Chapter VI Endnotes 1 See, e.g., FEC Advisory Opinions , , , , , and Federal Election Commission, Campaign Guide for Nonconnected Committees available at FEC Advisory Opinion U.S.C. 431(4), 433(a) (2012). 78 The Connection Alliance For Justice

5 About the Author HOLLY SCHADLER is a partner at the law firm Trister, Ross, Schadler & Gold, PLLC. Her practice includes representation of clients on nonprofit tax law, tax litigation, state and federal campaign finance and lobbying laws, and political ethics. She has represented clients in administrative cases before the Internal Revenue Service and the Federal Election Commission. Ms. Schadler is an author of numerous legal guides and articles for nonprofit organizations, including: Non-Profit Organizations, Public Policy, and the Political Process: A Guide to the Internal Revenue Code and Federal Election Campaign Act; The Effect of Citizens United on Tax and Campaign Laws Governing Tax-Exempt Organizations (coauthored with, Laurence Gold); No Free Lunch? The House and Senate Rules for Nonprofit Organizations ; The Courts Point the Way to Royalty Treatment for UBIT Purposes ; and Bipartisan Campaign Reform Act of 2002: How Will It Affect Nonprofits? In addition, Ms. Schadler assisted in the preparation of Alliance for Justice s publication Investing in Change: A Funder s Guide to Supporting Advocacy. Ms. Schadler has also lectured at numerous seminars sponsored by nonprofit and political organizations on the laws governing lobbying, political activities, and unrelated business income tax. Ms. Schadler has litigated before the U.S. Tax Court and U.S. Court of Appeals for the Ninth Circuit on behalf of the Sierra Club and other clients, successfully challenging the application of unrelated business income tax to mailing list rental and affinity credit card income. Prior to practicing law, Ms. Schadler was Associate Political Director of the Sierra Club. She received her law degree from George Washington University with honors and graduated from Vassar College with honors in Eastern European History. She can be contacted at: B. Holly Schadler, Esq. Trister, Ross, Schadler & Gold, PLLC 1666 Connecticut Avenue, NW Washington, DC hschadler@tristerross.com About Alliance for Justice ALLIANCE FOR JUSTICE is a national association of environmental, civil rights, mental health, women s, arts, and consumer advocacy organizations. Alliance for Justice works to secure access to justice for all Americans, strengthen the role of nonprofit organizations in public policy, and foster the next generation of advocates. Through Bolder Advocacy, its nonprofit advocacy program, Alliance for Justice works to increase nonprofits involvement in the policymaking process. In addition to publications like this one, Alliance for Justice supports nonprofit advocacy through workshops and individualized technical assistance. Alliance for Justice also monitors legislative activity related to nonprofit advocacy, providing information to the charitable community and lobbying to reduce restrictions on nonprofits. Copyright 2012 by Alliance for Justice. All rights reserved.