In a move designed to close an existing loophole that currently permits certain nonprofits from not having to disclose expenditures made in connection with political activity, the New York Attorney General's Office recently proposed new regulations that would require nonprofit groups, including 501(c)(4) "social welfare organizations" that are registered with the state, to disclose the percentage of their expenditures that go to federal, state and local political campaigns on an annual basis.
Using its oversight authority over nonprofit organizations, the rules are an attempt by the Attorney General's Office to bring more transparency to the political process by imposing new disclosure requirements on nonprofits who otherwise are not required to disclose political expenditures. During the last election, 501(c)(4) social welfare organizations, exempt from federal and state taxes, were widely used as vehicles for political activity.
The 2010 United States Supreme Court's ruling in Citizens United v. Federal Election Commission overturned the long-standing ban on independent spending by corporations for political purposes. In the aftermath of that decision, non-profit corporations, such as 501(c)(4)s, have increasingly become a conduit for engaging in electioneering activity disguised as "promoting social welfare" without having any legal obligation to disclose funding sources. According to the Attorney General's Office, 501(c)(4) corporations are attractive conduits because they can raise and spend unlimited money on a tax-free basis while concealing who supplies the money. The new disclosure requirements announced by the Attorney General are aimed squarely at closing this loophole by expanding reporting requirements on all nonprofit organizations that engage in "electioneering activities" and who are registered with the Attorney General.
"Electioneering activities" are defined broadly under the new regulations to include both express advocacy (advertisements and other communications that specifically call for the election or defeat of a candidate) and issue advocacy (communications made within 180 days of an election that identify or depict particular candidates but do not specifically call for their election or defeat).
Under state law and regulations, any organization that gets $25,000 in annual donations from New York sources (including residents, foundations, corporations, government agencies and other entities) is required to register with the Attorney General's office and file annual reports of receipts and expenditures.
The new rules supplement these filing requirements by requiring registered nonprofits that may participate or intervene in political campaigns to also disclose information concerning expenditures and donations relating to such political activity as part of their annual financial reports that are submitted to the Attorney General. The rules also will require registered nonprofits that spend $10,000 or more in a year in connection with New York state and local elections to file an itemized schedule with its annual financial report disclosing (1) each expenditure it made in connection with a New York state or local election, including the expenditure's recipient, date, amount and purpose; and (2) each contribution of $100 or more it received, including the contributor's name, employer and address and the amount and date of the contribution, subject to certain donor privacy exceptions. The information will be made publicly available.
The Attorney General's Office has announced its intentions to adopt the new rules in the early part of 2013. Members of the public will have until March 6, 2013 to provide written comments to the Attorney General's office. Thereafter, the rules are expected to be adopted and go into effect immediately. Registered nonprofits that fail to comply with the rules could face suit from the Attorney General's Office or have their registrations to operate as a charity in New York revoked. More campaign finance reform initiatives are expected to be introduced in the state legislature this year.
Hiscock & Barclay has a team of attorneys that can provide assistance with this complex and ever-changing area of the law. For a copy of the proposed rules or if you have questions regarding the foregoing or otherwise related to lobbying or election law compliance, please contact one of our Lobbying & Election Law Compliance Practice Area members.