Political Activity by Tax-Exempt Entities: Compliance Tips for the 2014 Election Year

Transcription

1 Political Activity by Tax-Exempt Entities: Compliance Tips for the 2014 Election Year Dan Koslofsky l AARP Jim Kahl & Megan Wilson Womble Carlyle Sandridge & Rice, LLP April 10, 2014 l 12:30 2:00 PM

2 Dan Koslofsky PRESENTING PANEL Senior Attorney, AARP Jim Kahl Political Law Group, WCSR Megan Wilson Tax-Exempt Group, WCSR 2

3 Overview of IRS Rules TODAY S TOPICS Federal & State Lobbying Rules Supporting & Promoting Candidates Gift & Ethics Restrictions Top 5 Compliance Tips 3

4 COMPLIANCE OVERVIEW Complex, overlapping scheme of federal, state & local laws and rules Vary considerably across jurisdictions Laws impact companies and their officers, managers & employees Laws are changing rapidly at federal and state level legislation and court rulings Heightened media exposure; violations are newsworthy 4

5 TAX RULES OVERVIEW 5

6 SECTION 501(c)(3) ORGANIZATIONS Exempt Purpose Organized and operated exclusively for charitable or educational purpose Lobbying Limited, cannot be a substantial part of activities 501(h) election available (not for private foundations) Political Campaign Activity Prohibited, but certain activities ancillary to election cycle are permitted (i.e., voter education, get-out-the-vote drives) 6

7 Exempt Purpose SECTION 501(C)(4) & (C)(6) ORGANIZATIONS Operated primarily for purpose of bringing about civic betterments and social improvements Lobbying Unlimited if in furtherance of exempt purpose Political Campaign Activity Permitted if not primary activity Facts-and-circumstances test 7

8 SECTION 527 ORGANIZATIONS Exempt Purpose To accept contributions or make expenditures to influence the selection, nomination, election or appointment of an individual to public office Lobbying Permitted if not primary activity Facts-and-circumstances test 8

9 GUIDELINES FOR RELATED EXEMPT ORGANIZATIONS Separate entities, with separate EINs Honor corporate form with separate corporate records, business records and bank accounts If personnel, facilities or equipment are shared, then there must be: Reasonable allocations of expenses between the two entities based on arm s-length standards; and Records kept substantiating the allocations, including time spent by shared employees working for each organization. Overlapping boards permissible, to an extent 501(c)(3) must be vigilant to prevent loss of exempt status 9

10 IRS SCANDAL & DRAFT RULES New concept of candidate-related political activity includes Express advocacy communications Public communications made within 60 days of a general election or 30 days of a primary election that clearly identify a candidate for public office, as well as all other communications reported to the FEC Monetary and in-kind contributions to campaign, party, political committees or other organizations which engage in political activity Other election related activities such as voter registration, get-out-thevote drives, distribution of candidate materials and voter guides Requests comments on method to measure primary activities, and application to other tax-exempt organizations 10

11 LOBBYING 11

12 KEY LOBBYING ISSUES Expansion in definition of lobbying More disclosure about lobbying activities Registration/reporting triggers differ by jurisdiction federal, state & local More political contribution and gift restrictions imposed on lobbyists More collateral obligations, such as mandatory ethics training and wearing ID badges 12

13 WHO IS A FEDERAL LOBBYIST? Under federal law, entity must register if an employee satisfies all 3 of these requirements: 1) Employed to make or actually makes more than one lobbying contact with a covered legislative or executive official 2) 20% or more of employee s time for organization/client is spent on lobbying activity within any three month period 3) Salary, overhead, and other expenses for lobbying activity expected to exceed $11,500 in a calendar quarter (organization) or lobbying income expected to exceed $3000 in a calendar quarter (lobbying firm) 13

14 FEDERAL LOBBYIST OBLIGATIONS Quarterly reports (LD-2) on lobbying activities & expenses Semiannual reports (LD-203): Certify compliance with Congressional gift rules Disclose political contributions, donations, and other expenditures tied to covered legislative and executive branch officials Lobbying reports subject to random GAO audits Fines up to $200,000 per violation & possible felony liability Gift giving to Members/staffers banned (some exceptions) Lobbyist may not plan or request travel for Member & staff; may not accompany Member on a trip 14

15 STATE LOBBYING REGULATIONS State lobbying laws can differ greatly from federal law Just one communication to influence legislation or executive action may trigger registration and reporting Broad definitions of lobbying e.g., goodwill & procurement lobbying 15

16 EXPANDED DEFINITIONS Goodwill lobbying: Meet with public officials to build relationships, even if there is no attempt to influence a particular matter relationship building Procurement lobbying: Attempts to influence purchasing or procurement decisions by government agencies. In 2005, 18 states had procurement lobbying laws. Today, 26 states and many municipalities 16

17 POLITICAL CONTRIBUTIONS 17

18 GENERAL RULES FOR INCORPORATED ENTITIES No federal corporate contributions Candidates, parties, or PACs But direct and indirect independent expenditures permitted Citizens United v. FEC Corporate contribution rules vary by state Unlimited corporate contributions allowed in VA, UT, OR, MO Prohibited in about 20 states Others impose limits No limit on assn./corp. spending in support of or opposition to ballot measures 18

19 NO END RUNS ALLOWED Organization cannot reimburse contributions through salary increases, bonuses, or other means Birdsall Services Group: 7 top executives of NJ engineering firm indicted; 2 pled guilty; trying to get around state pay-to-play law 19

20 CORPORATE FACILITATION Organization s facilities or resources cannot be used for fundraising activities in support of federal officeholders or candidates (unless paid by permissible source) Result: illegal in-kind contribution Common violation Significant civil & criminal sanctions But, special rules permit certain onsite candidate appearances 20

21 POLITICAL ACTION COMMITTEE CONTRIBUTIONS Non-partisan, tax-exempt entity registered with FEC Funded with voluntary contributions from eligible employees & others restricted class Make contributions to officeholders, candidates, other PACs Host fundraising events for officeholders and candidates Receive solicitation & administrative financial support from organization Well-established safe way to contribute 21

22 FEDERAL PAC CONTRIBUTION LIMITS Multicandidate PAC $5,000 per candidate per election $15,000 per national party comm. per year $5,000 per state/local party or PAC per year Not Multicandidate PAC: $2600 per candidate per election $32,400 per national party comm. per year $10,000 per state/local party per year $5000 per PAC per year 22 22

23 SOLICITABLE INDIVIDUALS Individual association members Members of the association s restricted class Members of the restricted class of corporate members if corporate member gives permission Restricted class individuals who run an organization s business, such as officers, executives, managers, directors (usually), and members of the recognized professions; corporate stockholders; and immediate family members of these persons Note: Member corporation can authorize only one assn. PAC per year to solicit its restricted class 23

24 CORPORATE MEMBERS CAN HELP RAISE FUNDS Officer of member corporation can sign solicitation letters and forward association PAC materials Corporate members can use payroll withholding to collect and forward contributions Non-member corporation can use payroll withholding to collect contributions from employees/ assn. members if assn. pays costs in advance. AO (APTA) 24

25 FUNDRAISING & RAFFLES Assn and corporate members can: (1) donate funds to cover PAC administration and fundraising activities, such as dinners and luncheons, and (2) donate raffle items and door prizes for fundraising events Cost of prizes and raffle items cannot be disproportionately large in comparison to funds raised by raffle Amount by which the cost of prizes exceeds 1/3 of amount raised has to be returned to the association or corporate members 25

26 PAC FUNDRAISING AT CONVENTIONS 26

27 FEC SAFE HARBOR Association can solicit PAC contributions from a booth at the convention provided: Booth is not publicized prior to the convention Signs inform contributors of the solicitation restrictions Association maintains a list of corporate members that have approved solicitations for the current year; and Funds are not accepted from unsolicitable individuals and will be returned if received 27

28 CAUTION! Be careful when using federal PAC for state/local contributions check state/local laws first Association PACs cannot solicit contributions from the general public BUT Assn. PAC can encourage the public by web or to contribute to specified federal candidates AO (Utah Bankers) 28

29 EMPLOYEE POLITICAL ACTIVITY 29

30 PERSONAL CONTRIBUTIONS Generally permitted for US citizens and green card holders (foreign citizens prohibited) Varying state limits (candidate, cycle, annual) Often can host fundraisers at home and engage in other volunteer activities for candidates Note: Employee contributions cannot be coerced and personal contributions should not be considered in employee evaluations 30

31 INDIVIDUAL FEDERAL CONTRIBUTION LIMITS $2,600 per candidate, per election $5,000 per PAC, per year $10,000 per state/local party comm, per year $32,500 per national party comm, per year $123,200 biennial limit UNCONSTITUTIONAL! ($48,600/candidates & $74,600/PACs and parties) McCutcheon v. FEC decided 4/2/14 31

32 VOLUNTEER ON-SITE ACTIVITY Permitted: Occasional, isolated or incidental use of company facilities or resources Safe Harbor: 1 hour per week or 4 hours per month Internet Safe Harbor: Federal law permits unlimited use of work computers & Internet access, subject to company policy 32

33 NONCONNECTED PACS An independent political committee Not connected with an entity Cannot receive administrative or fundraising support from any entity Must have a diversified leadership structure Employees of a 501(c)(3) may serve on PAC board in personal capacity FEC & IRS have approved in past 33

34 CANDIDATE ADVOCACY BY THE TAX-EXEMPT ENTITY 34

35 INDEPENDENT EXPENDITURES No limits on funds incorporated entities can expend for ads that advocate for/against candidates & parties Expenditures may not be coordinated with candidate or party Contributions to candidates are prohibited under federal law and in some states Note: not an option for 501(c)(3) 35

36 MOST CORPORATE SPENDING THROUGH INTERMEDIARIES Associations - 501(c)(6) Social welfare/advocacy groups - 501(c)(4) Super PACs FEC registered committees 527 political organizations 36

37 KEY ISSUE: DISCLOSURE Organization must report the cost of communications it sponsors Rules vary on disclosure of contributions received by the organization and other groups to fund ads Great variety in federal & state rules on disclosure of payments to intermediaries FEC: payment must be for the purpose of furthering the communication (Commissioners views differ) Super PACs are not secret PACs contributions to these FEC registered committees are disclosed 37

38 CANDIDATE APPEARANCES 38

39 NOTE: SPECIAL RULES Association can pay the costs of candidate appearance before the restricted class Candidate or rep can solicit/collect contributions Association may suggest that restricted class members contribute, but cannot collect funds Note: for corporate members, restricted class covers corporate representatives with whom the trade association normally conducts activities Associations can co-host and split costs pro rata - AO (NFIB) 39

40 PUBLIC SERVICE ANNOUNCEMENTS Under applicable state law An in-kind political contribution? An independent expenditure? An electioneering communication? A gift? BEWARE - express statutes that prohibit candidate appearances in PSAs during an election cycle (KS) 40

41 GIFT RESTRICTIONS 41

42 GIFTS TO GOVERNMENT OFFICIALS Highly regulated federal, state & local Rules cover legislative & executive branch officials, and career employees Many states impose special gift restrictions on lobbyists and government contractors Gift may be anything of value review gift/ethics laws carefully Gift exceptions highly specific, but often allow wide range of permissible giving 42

43 FEDERAL GIFT RULES House & Senate Gift Rules Two sets of rules and exceptions All Executive Branch Employees No gifts from prohibited source unless a specific exception applies Obama Executive Order Political appointees cannot accept gift from lobbyists or their employers limited exceptions Office of Government Ethics Draft Rules Extend E.O. restrictions to all federal employees 43

44 COMMON GIFT RULE EXCEPTIONS Personal friendship and hospitality Widely-attended industry gatherings, site visits, and receptions Invitations to charitable fundraising events Promotional items Caps, plaques, commemorative items Informational materials Items of nominal value 44

45 HOW IT WORKS IN THE REAL WORLD During this year s spring meeting in Washington, DC, the Widget Manufacturers Association wants to: (1) train and have members visit their Congressional offices, (2) have an awards lunch honoring a Member of Congress, a Cabinet Secretary, and the Governor of VA for their support, (3) have an evening reception to include Government officials and staff, and (4) possibly a fund raising event for members of Congress who support the industry. Is this permissible? What are compliance concerns? 45

46 ISSUES SPOTTING FOR THE FLY-IN Lobbying activity: employees time may be reportable Gift rules: Awards/meals may impermissible or reportable gifts under federal and state laws PAC fundraising: subject to campaign finance rules and contribution limitation and prohibitions 46

47 TOP 5 COMPLIANCE TIPS 1. Know the contribution rules that apply to your organization 2. Make sure organization leaders understand the rules that apply to their personal conduct 3. Lobbying laws cover wider range of activity and have stiffer sanctions 4. Anything you give to a public official might be an illegal gift 47

48 5. HAVE A RISK MANAGEMENT STRATEGY Develop and disseminate clear policies & procedures Develop culture of Ask first who answers questions? Have tracking process for gifts, contributions & other reportable payments Remind employees that personal activities can impact the business Regular training key staff Conduct a compliance review to identify risk areas and prioritize compliance needs 48

49 CONTACT INFORMATION Jim Kahl Dan Koslofsky (202) (202) Megan Wilson (336)