Public Policy Advocacy Highlights – Mid-May Edition

Public Policy Advocacy Highlights – Mid-May Edition

This is a partial month’s PPA Highlights report, since the First Tuesday Lunch Group is meeting this week. Characterizations, editorial comments, abbreviations and shorthand references are solely PPA Highlights author Barnaby Zall’s, and do not represent the views or positions of the Public Policy Legal Institute or the First Tuesday Lunch Group or their members and participants. Suggestions and corrections welcome.

IRS

IRS Targeting Scandal Was “Imaginary” or “False?” Many of us lived through the Lois Lerner-era targeting scandal, courts have punished the IRS for it, technical details about it have been explained in great detail, but the idea that it wasn’t real refuses to die. One of the latest to try to weasel it away is Jonathan Chait, writer for New York magazine, who, on April 29, tweeted that it was “imaginary.” Completely wrong. As John Sexton wrote in Hot Air the next day: “This was not an imaginary abuse. It happened. People lost their jobs.” But on May 4, Sen. Sheldon Whitehouse opened a hearing on c4s and “dark money” (see item below under Congress) by saying that “no such unfair targeting occurred.” Whitehouse cited a 2017 TIGTA report, which actually shows that the targeting did occur. E.g., P. 102, email from Judy Kindell (who inherited Jack Riley’s perch as the IRS EO political activities maven) to Lois Lerner, July 18, 2012 (“Of the 199 (c)(4) cases, approximately ¾ appear to be conservative leaning while fewer than 10 appear to be liberal/progressive groups”). Fortunately, Ranking Member John Thune corrected the record about the TIGTA report and the scandal as a whole, and Philanthropy Roundtable offered a bit more history on past IRS targeting, as did Prof. Brad Smith’s testimony on behalf of the Institute for Free Speech.  

Nonprofit news outlets are playing a growing role in statehouse coverage; Private or Incidental Benefit? A recent extensive Pew Research Center report notes a ‘relatively new phenomenon: “Nonprofit news organizations are playing an increasingly important role in covering state capitols. … these journalists now account for 20% of the nation’s total statehouse press corps, up from 6% eight years ago. Nonprofit journalists are now the second-largest contingent of all statehouse reporters, following those who work for newspapers. … Many also allow other outlets to republish their original reporting, often at no cost.” (emphasis added.) Is this use of nonprofit resources without charge a form of private benefit to struggling for-profit news outlets, or an incidental benefit (in that the tax-exempt benefit could not be provided without also incidentally providing private benefit). See, IRS CPE 2001 Topic H01 for extensive discussion of the difficult task of determining whether qualitative or quantitative incidental benefit has been provided.

IRS Wants Public Input to Improve Its Website; Survey Filled Up Quickly: The IRS Exempts Organizations Division put out an email blast on May 3: “We want to make it easier for you to use our website by improving how it’s organized. Sign up to participate in our study and tell us how you want to find the information on IRS.gov that you need.” By the end of the day, the survey was full: “This study is full, but we will offer future opportunities. Thank you for your interest.”

IRS Seeking Nominations for Advisory Council: More information on this three-year appointment on the IRS Advisory Council’s page. Applications accepted through June 3.

FEC

FEC v. Ted Cruz For Senate Is Still Ripe For Decision: The Supreme Court of the U.S. always finishes its caseload by early July, so FEC v. Ted Cruz for Senate, No. 21-12, which was argued on January 19, should be decided in the next two months. Cruz is a First Amendment challenge to the FEC’s limits on use of post-election contributions to reduce campaign debt, but also raises significant questions about the “appearance of corruption” (amicus brief of PPLI), one of the few areas where First Amendment protections are determined by perceptions of public opinion (amicus brief of Institute for Free Speech) and campaign consultant testimony.

Dara Lindenbaum Confirmation Hearing Highlights FTLG Participants’ Letter; Committee Sends Nomination to Senate Floor: The Senate Rules and Administration Committee held an April 6 confirmation hearing for Dara Lindenbaum’s nomination to be a Commissioner on the FEC. At the outset of the hearing, Committee Chair Sen. Amy Klobuchar read from the letter sent by First Tuesday Lunch Group participants, describing them as “30 of the Nation’s top campaign finance lawyers.” (video beginning at 18:52 on the Committee’s web page). During her testimony, Lindenbaum said “I am proud to have the bipartisan support of 30 of my colleagues in the political law community, some of whom I have even opposed in court and recounts, and that position of respect is something that I try to bring to everything that I do.” (video beginning at 32:40; also, 41:10, 50:15, 1:04:22).

In her prepared remarks, after describing her family as politically divided but engaged, teaching her to seek consensus, Lindenbaum said:

I take the core mission of the FEC to heart: to protect the integrity of the federal campaign finance process by providing transparency and fairly enforcing and administering federal campaign finance laws. As Senator Blunt has said, we need the FEC to work so that candidates can run in a way that allows the discourse of the campaign to occur while protecting the system from those operating outside of the law.

If confirmed, I intend to be a consensus builder, and I am honored to have support from practitioners on both sides of the aisle. Both as a lawyer as well as a mother to three-year-old twins (for whom I consistently adjudicate disputes), I know that consensus will not come easily, but we must make every effort we can. The consideration of the facts and the law in front of me will be my guideposts as I seek to provide clarity to the regulated community, increase transparency, and collaborate with my fellow Commissioners to further the important mission of the FEC. It will be my duty to instill public confidence in the integrity of our system in a bipartisan manner as directed by Congress.

Under questioning from Sen. Ted Cruz, Lindenbaum committed to vote in favor of the FEC defending itself in lawsuits. (video at 55:49.) Georgia Attorney General Chris Carr urged the Committee to reject the nomination because of Lindenbaum’s support of politically-active Georgia clients, saying: “She has spent the last four years making fake claims of voter suppression and pushing conspiracy theories.”

The Committee sent the nomination to the Senate Floor on May 3. Just before the vote, Roll Call noted that Ranking Member Sen. Roy Blunt mentioned the FTLG participants’ letter as a reason he would vote for her nomination.

Cyber Experts Analyze Gmail SpamGate Controversy, Possibly “Explosive” Findings on Even Unintentional Bias in Filtering Out Republican Emails: Want a deep technical dive (that’s actually understandable) following up on last month’s revelatory Univ. of N. Carolina study that found that overwhelming anti-Republican bias in Google’s Gmail spam filters (and only Google had this problem, not Yahoo or Outlook), and its implications for the Republican Party’s complaint to the FEC? Cyberlawyer and former NSA official Stewart Baker’s May 2 Steptoe’s Cyberblog podcast discussed the possible explanations. Baker and Law Prof. Jane Bambauer, for example, (starting at 31:40 on the podcast) pointed out that the researchers were quite knowledgeable about spam filtering algorithms, and designed the study’s “Propensity Score Matching” process to account for unintentional factors that might have distorted the results. But if, as Baker hypothesized, the distortion was a “hostility to the message of the GOP” reaction to the Republican campaign content, reinforced over time in the algorithm, Prof. Bambauer responded: “That would be explosive. That would be shocking.” Baker responded that he wouldn’t be shocked at all.

So, what are the implications for the (likely technically-uninformed) FEC staff’s review of the GOP complaint against Google’s spam filtering? It all comes down to whether cutting off multiple political communications because of its content would be considered a “thing of value” to a campaign. And complicated as that type of analysis may be, it is something done by lawyers all the time, and could be done by the FEC here. The FEC has decades of experience with direct mail targeting and communications, to which Gmail and its associated advertising and targeting functions is very similar.

Was the Ohio Values/J.D. Vance Campaign Non-Coordination Really “New?” Citing a Politico article on J.D. Vance’s Senate primary campaign, Prof. Rick Pildes, one of the more thoughtful posters on ELB, recently lamented “reverse coordination” in the Ohio GOP Senate primary race: “Vance’s campaign itself was not raising large amounts of money, but the massive contributions from Peter Thiel and others were sent to a super PAC that was supporting Vance. The super PAC leaders decided they had to substitute, in essence, for the campaign. To receive unlimited donations, the super PAC must be independent and cannot coordinate directly with the campaign. So instead they set up a public website on which they posted data and analysis that they hoped the Vance campaign would follow.” Neither “new” nor bigger; the technique’s been around for a decade, but did blossom with the Hilary Clinton presidential campaign.  It’s bold, but legal: How campaigns and their super PAC backers work together – The Washington Post10 Ways Super PACs and Campaigns Coordinate, Even Though They’re Not Allowed To – The Atlantic. And even more sophisticated techniques have been the business model for American Bridge/Correct the Record for a long time. How a super PAC plans to coordinate directly with Hillary Clinton’s campaign – The Washington Post. Even the scale is not new: PAC Profile: American Bridge 21st Century • OpenSecrets. And the reputed strategist behind the Ohio Values, Luke Thompson, did the same sort of thing in 2016 for Jeb Bush’s presidential campaign.

COURTS

Supreme Court Denies Cert Asking If Family Campaign Contributions Violate First Amendment: Gerald Lundergan, a former head of the Kentucky Democratic Party, “was convicted in 2019 for making more than $200,000 in un-reimbursed contributions from his catering and events business to his daughter’s 2014 Senate campaign” against Mitch McConnell. As Courthouse News reported, Lendergan’s lawyers argued that the money should not have been classified as a corporate contribution because it was a closely-held family corporation and “the money was given to a family member.” That apparently did not impress the Court, which denied cert on May 2.

Boston Cannot Ban Religious Flag From Public Forum: In Justice Breyer’s likely final First Amendment opinion, Shurtleff v. Boston, he waxed eloquent about Boston architecture and virtues. See, e.g. Slip op. at 2 (“Built in the late 1960s, Boston City Hall is a raw concrete structure, an example of the brutalist style.”). Pictures of the “brutalist” City Hall and the offending flag are in Amy Howe’s SCotUSBlog article, along with detailed analysis.

He also delivered all Justices (though only six joined the main opinion; Justices Alito, Gorsuch and Thomas concurred only in the result; see below): “on balance, Boston did not make the raising and flying of private groups’ flags a form of government speech. That means, in turn, that Boston’s refusal to let Shurtleff and Camp Constitution raise their flag based on its religious viewpoint “abridg[ed]” their “freedom of speech.” Slip op. at 2.

Justice Breyer, as he often does, called for a multi-factor approach (somewhat akin to an IRS “facts and circumstances” test):

In answering these questions, we conduct a holistic inquiry designed to determine whether the government intends to speak for itself or to regulate private expression. Our review is not mechanical; it is driven by a case’s context rather than the rote application of rigid factors. Our past cases have looked to several types of evidence to guide the analysis, including: the history of the expression at issue; the public’s likely perception as to who (the government or a private person) is speaking; and the extent to which the government has actively shaped or controlled the expression. (emphases added by Prof. Josh Blackman).

Justice Alito’s concurrence criticized this “holistic inquiry:”

treating these factors as a freestanding test for the existence of government speech artificially separates the question whether the government is speaking from whether the government is facilitating or regulating private speech. Under the Court’s factorized approach, government speech occurs when the government exercises a “sufficient” degree of control over speech that occurs in a setting connected with government speech in the eyes of history and the contemporary public, regardless of whether the government is actually merely facilitating private speech. This approach allows governments to exploit public expectations to mask censorship. . . .

And like any factorized analysis, this approach cannot provide a principled way of deciding cases. The Court’s analysis here proves the point. The Court concludes that two of the three factors—history and public perception—favor the City. But it nonetheless holds that the flag displays did not constitute government speech. Why these factors drop out of the analysis—or even do not justify a contrary conclusion—is left unsaid. This cannot be the right way to determine when governmental action is exempt from the First Amendment. (emphases again Prof. Blackman’s.)

CONGRESS

May 4 Senate Finance Committee, Subcommittee on Taxation and IRS Oversight, Hearing on Political Activities of Tax-Exempt Organizations: The Subcommittee, chaired by Sen. Sheldon Whitehouse, a determined foe of Republican use of tax-exempt entities for political purposes, heard from former FEC Commissioners Ann Ravel and Brad Smith, former IRS lawyer Phil Hackney, and Scott Walter from Capitol Research Center. The hearing featured witnesses invited by the Democratic majority speaking only to the majority Senators, and those invited by the Republican minority speaking only to the minority Senators. No actual dialogue or discussion, and many talking points, but little cross-ideological explanation. Witness statements and video available at the Subcommittee’s web page.

Joint Tax Committee Report on Campaign and Lobbying Activities of Tax-Exempt Organizations: In preparation for the May 4 Senate Finance Subcommittee hearing (see above), the staff of the Joint Tax Committee prepared an April 29 report explaining to Committee members and staff various elements of campaign and lobbying activities which different types of tax-exempt organizations can engage in. The 33-page report is moderate in depth, including such often-overlooked discussions as the application of IRC 527 tax on political activities of 501(c) organizations, when the prohibition on 501(c)(3) political intervention is not absolute, and the recent removal of the Schedule B filing requirement for non-c3s. The JCT report overlaps with, but does not duplicate, Sam Garrett’s (a former First Tuesday Lunch participant) 2021 Congressional Research Service report: The State of Campaign Finance Policy: Recent Developments and Issues for Congress.

STATES

Washington Supreme Court Takes Up Value Village Deceptive Fundraising Appeal, Pitting Sweeping State Consumer Protection Law Against Charitable Solicitation: If a for-profit company is the public-facing solicitation mechanism for charitable organizations, can a powerful state Consumer Protection statute over-ride the First Amendment right to charitable solicitation? That question was just accepted by the Washington Supreme Court for review in Washington v. TVI, No. 100493-1 (h/t Robert Tigner). As “Value Village,” the name used in most U.S. states, TVI operates for-profit thrift stores but donates on average $150 million annually to well-known charities such as Big Brothers Big Sisters; it puts up lots of posters informing consumers of the relationships between the for-profit and the charities. The trial court found that consumers would be deceived as to whether the stores were themselves charitable, which would violate the State’s sweeping Consumer Protection laws; the appeals court reversed on general First Amendment principles. The Washington Attorney General petitioned the state’s Supreme Court for review over “an issue of first impression involving the significant First Amendment implications of a state CPA enforcement action against a for-profit company misrepresenting charitable interests.”

Mississippi Gov. Vetoes Bill Transferring Power to Levy Campaign Finance Fines From Ethics Commission to Secretary of State: The Daily Journal from Northeastern Mississippi reports that Governor Tate Reeves vetoed legislation that would have transferred campaign finance law enforcement from the eight-member state Ethics Commission to the Secretary of State. “The potential for abuse of power by the eight-member Ethics Commission is far less when juxtaposed with a single elected official who could seek to unscrupulously weaponize the power to further his political ambitions,” Tate wrote in his veto message. Republican Secretary of State Michael Watson said in a statement that the legislation was needed to streamline the enforcement process, currently split between three agencies.

Florida Gov. Signs Anti-Ballot Harvesting Bill: According to the Village-News, from The Villages (a massive senior-living community in Florida), Florida “Governor DeSantis signed another election law in a bar in Spring Hill in Hernando County. If you are planning to help people with Mail in Ballots,” you need to be aware that the new law makes it a felony for anyone who “distributes, orders, requests, collects, delivers, or otherwise physically possesses more than two vote by-mail ballots per election in addition to his or her own ballot or a ballot belonging to an immediate family member, except [in] … supervised voting at assisted living facilities and nursing home facilities …” There’s also a similar felony penalty for anyone who knowingly signs someone else’s name on a petition for a ballot position or an issue.

Do Ballot Harvests Grow in Sunny Philadelphia? And in South Philadelphia, where it’s always sunny, apparently ballot harvesting is a problem, as the Inquirer notes:

City elections officials last week received applications from more than three dozen Republican voters across a pocket of the neighborhood. Those applications requested that mail ballots be delivered not to the voters’ homes, but to P.O. Box 54705, an address registered to a recently formed GOP political action committee, according to state data.

Many of those voters told The Inquirer they have no idea why their ballots were sent there. Some said they never even applied to vote by mail. And yet one out of every six Republican ballot requests in the 26th Ward … listed the post office box. That made it the largest single destination for ballots in the city other than nursing homes or elections offices.

GENERAL

DHS Forms “Disinformation Governance Board” or “DGB” Leads to Pandemonium: CNN: “Mayorkas responds to new disinformation board being compared to ‘1984.’” NY Post: “Disinformation board may be illegal and require vote of Congress, senator tells DHS.” NYT: “Partisan Fight Breaks Out Over New Disinformation Board. The board, an advisory group with the Department of Homeland Security, has become embroiled in the debate over the government’s role in policing online content.” WSJ: “Shut Up, the Disinformation Governance Board Explained.” And then word came that “DHS Standing Up Disinformation Governance Board Led by Information Warfare Expert:” Wilson Center’s Nina Jankowicz, as the DGB’s executive director. Jankowicz had, apparently, repeatedly cast Hunter Biden’s authentic laptop emails as Russian disinformation.  And, had enlisted Mary Poppins in a TikTok to “explain” disinformation in song. Really. (Make it stop!)

Perhaps Eugene Robinson at the Post summarized reactions across the board:

“I can see how disinformation requires monitoring. I can see how it requires fact-checking and refutation. But governance? How do you govern lies? Beyond the issue of the name is the still-mystifying question about what the board is supposed to do. At congressional hearings this past week, [DHS Secretary Alejandro] Mayorkas veered from pitching it as an effort to counteract Russian-style meddling in our elections to portraying it as an effort to protect Spanish-speaking migrants from lies told by the criminals who smuggle them into the country. He failed to make clear exactly how the board was supposed to accomplish either of these tasks.”

Bari Weiss Shakes Up Top Media Leaders at Milken Conference – “Do a Better Job:” Bari Weiss, former editor at the NYT, spoke fiercely to her former employer and other top media outlets on a panel, titled “Adapt or Die? News Media at a Crossroads,” at the May 2 Milken Institute’s Global Conference:

No, because often the people that are trying to grab people by the shirt lapels and tell them that they’re crazy in that it isn’t true also tried to tell us that, you know, that Donald Trump conspired with Russia to steal the election, which turned out to basically not be true. Basically, not be true, guys. Let’s be honest. Do you know how many resources at a place like the New York Times and the Wall Street Journal went into that story? I mean, there’s a reason that people are skeptical of the legacy press. And I think it’s important to acknowledge.

The way to repair it I don’t think is by shaking people and say, ‘You’re so crazy that you don’t trust whatever the New York Times, the CDC,’ we could go on and on and on, right? The way to do it is by just trying to do a better job, I think. By just trying to actually report about the world as it actually is. But a lot of the people I think, who are trying to wake people up about it themselves can’t look in the mirror and apologize for things that they’ve gotten wrong that have created or at least contributed to, let’s say, the disintegration and the deterioration of trust.

Portland Still Rocking Protests (a recurring topic): It’s been a while since we looked into the activities of protests and protestors in Portland, Oregon, but there has been news in the meantime. For example, on April 30, when a Republican gubernatorial candidate tried to hold a campaign rally in Portland before the May 17 primary elections, black-clad protestors, allegedly Antifa members, attacked rally attendees with “mortars,” fireworks, paint-filled balloons, and smoke grenades. Two campaign attendees were injured. Video and photos from the candidate rally were quite vivid [caution advised]. Portland Police, blaming funding cuts, took 20 minutes to arrive. Meanwhile, Willamette Week reports that Portland voters are “angry;” the accompanying picture – “how the sausage is made” – is worth viewing the short article.

Public Policy Advocacy Highlights from April 2022

Public Policy Advocacy Highlights from April 2022

Characterizations, editorial comments, abbreviations and shorthand references are solely PPA Highlights author Barnaby Zall’s, and do not represent the views or positions of the Public Policy Legal Institute or the First Tuesday Lunch Group or their members and participants. Suggestions and corrections welcome.

FEC

FEC v. Ted Cruz For Senate Is Ripe For Decision: The Supreme Court of the U.S. always finishes its caseload by early July, so FEC v. Ted Cruz for Senate, No. 21-12, which was argued on January 19, should be decided in the next two months. Cruz is a First Amendment challenge to the FEC’s limits on use of post-election contributions to reduce campaign debt, but also raises significant questions about the “appearance of corruption” (amicus brief of PPLI), one of the few areas where First Amendment protections are determined by perceptions of public opinion (amicus brief of Institute for Free Speech) and campaign consultant testimony.

End Citizens United v. FEC: Non-Enforcement Decision on Factual Interpretation Non-Justiciable: In End Citizens United v. FEC, Judge Tim Kelly of the U.S. District Court for D.C. dismissed a challenge to the FEC’s closing of a file even though the agency did not appear or defend its action.

          The D.C. Circuit has explained that this test reflects the Administrative Procedure Act’s requirement that courts should “hold unlawful and set aside agency action that is arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” Citizens for Resp. & Ethics in Washington v. FEC (“Commission on Hope”), 892 F.3d 434, 437 (D.C. Cir. 2018) (cleaned up). But under these circumstances, the Court cannot review the FEC’s nonenforcement decision. Despite FECA’s uncommon provision, an FEC nonenforcement decision is not reviewable if the nonenforcement is “based even in part on prosecutorial discretion.”  

Slip op. at 2.

          And if the Commissioners issue a reasoned, legally-sufficient Statement of Reasons that explains their votes (even by less than a majority if issued by the Commissioners voting not to proceed), then the result is a final explained action, permitted under FECA. Slip op. at 2, quoting Citizens for Resp. & Ethics in Washington v. FEC (“New Models”), 993 F.3d 880, 882 (D.C. Cir. 2021) (quoting 52 U.S.C. § 30109(a)(8)(A), (C)). “Given this exercise of prosecutorial discretion, under the Circuit precedent outlined above, this Court ‘lack[s] the authority to second guess’ such a dismissal, and so may not enter default judgment against the FEC. New Models, 993 F.3d at 882.” Slip op, at 2, 3. IOW, a FACTUAL interpretation sufficient to block action is as important to American jurisprudence as a LEGAL interpretation. FECA non-enforcement access to the courts is governed by both interpretations, not just one. 

CLC v. FEC v. Correct the Record – D.C. Circuit Finds Standing to Sue Over Informational Injury Allegedly Caused by FEC Inaction: In contrast to the End Citizens United v. FEC case above, this decision was just about whether CLC had standing to challenge the FEC’s determination that Correct the Record’s and the Hilary for America campaign committee’s failure to report 2016 coordinated communications expenditures was excused because reporting of unpaid Internet communications was exempt from reporting. “‘The law is settled that a denial of access to information qualifies as an injury in fact where a statute (on the claimants’ reading) requires that the information be publicly disclosed and there is no reason to doubt their claim that the information would help them.’ Campaign Legal Ctr. & Democracy 21 v. FEC, 952 F.3d 352, 356 (D.C. Cir. 2020) (per curiam) (quoting Env’t Def. Fund v. EPA, 922 F.3d 446, 452 (D.C. Cir. 2019)).” See, also, FEC v. Akins, 524 U.S. 11, 21 (1998).

          In particular, CLC claimed that it needed more-detailed “disaggregated amounts” that should have been reported as individual coordinated in-kind contributions from CTR to H4A, but were not:

[D]isaggregation of Brock’s salary to show which portion was coordinated would in fact reveal the numerical amount of Correct the Record’s coordinated contribution to the Clinton campaign, information political committees are required by statute to make public. Appellants do not now know that numerical amount, nor did the District Court; the “suppose[d]” fifty percent or $2,260.78 that might have been contributed in the court’s example is made up; it is but a guess. See id. If Appellants prevail, the actual amount of Brock’s salary that was a contribution to the Clinton campaign would have to be disclosed, along with disaggregated amounts for a myriad of other lump sum expenditures Appellants believe involved coordinated contributions. There is no doubt that those numerical amounts constitute factual information and that FECA requires them to be disclosed.

Slip op. at 18.

Whether this decision will lead to more requests for disaggregation is unclear, but at the motion to dismiss stage on a standing defense, the D.C. Circuit precedents lean toward allowing remand for more information and analysis.

In L’Affaire “Steele Dossier,” FEC Fines Hillary for America and the DNC, Dismisses Some Allegations, Accepts Others, Deadlocks on Others. It’s complicated, but, in MURs 7291 and 7449, the FEC has made some decisions on Dan Backer’s complaints against DNC, Marc Elias, Perkins Coie, Hillary for America, etc., based on the Steele Dossier against Donald Trump containing flawed information about relationships with Russia. The Washington Post summarized the more-newsworthy findings here. Here’s just SOME of the Disposition list in MUR 7449 made public in the last week of April (read the whole thing to find out more details):

  • Voted 6-0: Dismiss the allegations that: 1. Christopher Steele violated 52 U.S.C. § 30121 and 11 C.F.R. § 110.20(b), (f) (g), and (i) (contributions by foreign nationals). 2. Marc Elias and Perkins Coie LLP and Hillary for America violated 52 U.S.C. § 30121 and 11 C.F.R. § 110.20(b) and (h)(1). 3. Fusion GPS violated 52 U.S.C. § 30121 and 11 C.F.R. § 110.20. 4. Approve the appropriate letters. 5. Close the files.
  • Voted 4-2: Find Probable Cause to believe that 1. Hillary for America violated 52 U.S.C. § 30104(b)(5)(A) (reporting detailed information about persons to whom expenditures were made and for what purpose) and 11 C.F.R. § 104.3(b)(4)(i) by failing to report the proper purpose of the funds HFA paid to Perkins Coie for opposition research performed by Fusion GPS. 2. DNC Services Corporation/Democratic National Committee violated 52 U.S.C. § 30104(b)(5)(A) and (b)(6)(B)(v) and 11 C.F.R. § 104.3(b)(3)(i) by failing to report the proper purpose of the funds the DNC paid to Perkins Coie for opposition research performed by Fusion GPS.
  • Voted 4-2:  Accept Various Conciliation Agreements with and Fine: 1. DNC Services Corporation/Democratic National Committee. 2. Hillary for America.
  • Voted 4-0: 1. Find Reason To Believe that Hillary for America, Inc. and DNC Services Corp./Democratic National Committee violated 52 U.S.C. § 30104(b)(5)(A) and (b)(6)(B)(v) and 11 C.F.R. § 104.3(b)(3)(i) and (b)(4)(i) by misreporting the purpose of funds paid to Fusion GPS through Perkins Coie LLP. 2. Dismiss the allegations that Marc Elias and Perkins Coie LLP violated 52 U.S.C. § 30104(b)(5)(A). 3. Not Take Action on several more allegations.
  • Deadlocked 2-2:  Failed to Find Reason To Believe that, by misreporting the payee of funds paid to Fusion GPS through Perkins Coie LLP: 1. Hillary for America, Inc. and DNC Services Corp./Democratic National Committee violated 52 U.S.C. § 30104(b)(5)(A) 2. Hillary for America, Inc. and DNC Services Corp./Democratic National Committee violated 52 U.S.C. § 30104(b)(5)(A) and (b)(6)(B)(v) and 11 C.F.R. § 104.3(b)(3)(i) and (b)(4)(i).

Meanwhile, Fox News reported H4A and the DNC sought to block federal Special Counsel John Durham from obtaining information from Perkins Coie, as part of Durham’s investigations of misconduct involving attempts to generate governmental pressure on the 2016 Trump campaign relating to alleged relationships with Russia. It’s not clear what effect the FEC Conciliation Agreements and Findings will have on this defense or other Durham investigations.  

Practice Tip: Be Careful How You Give Legal Advice – Involvement of Foreign National in $1.75 million SuperPAC Contribution Decision Resulted in $975,000 Record FEC Fine: In MUR 7613 (Wheatland Tube), the FEC settled a claim that a Canadian citizen who owned an American corporation  had conversations with a subsidiary company’s executives that resulted in prohibited foreign contributions to a SuperPAC. “The Commission has specifically determined that “no director or officer of the company or its parent who is a foreign national may participate in any way in the decision-making process with regard to making . . . proposed contributions.’” Id., at 6-7, quoting Advisory Op. 1989-20 (Kuilima) at 2; see also Advisory Op. 1985-03 (Diridon) (stating that no foreign national can have any decision-making role or control with respect to any political contribution made by a domestic company). The foreign national told the FEC that a corporate lawyer “suggested to [him] that a U.S.-based company with which [he is] affiliated should consider contributing” to the SuperPAC, and that suggestion “led [him] to believe that [he] could communicate with others about potential contributions.”

          This is a tricky line to discern. Compare, e.g., MURs 6959 (clerical duties in internship not foreign contribution), and 5987, 5995, 6015 (all involving Sir Elton John, volunteer fundraising services and name endorsement not foreign contributions), with MUR 6093 (Transurban Grp.) (U.S. subsidiary violated Act by making contributions after its foreign parent company’s board of directors directly participated in determining whether to continue political contributions policy of its U.S. subsidiaries); Conciliation Agreement, MUR 6184 (Skyway Concession Company, LLC) (U.S. company violated Act by making contributions after its foreign national CEO participated in company’s election-related activities by vetting campaign solicitations or deciding which nonfederal committees would receive company contributions, authorizing release of company funds to make contributions, and signing contribution checks); Conciliation Agreement, MUR 7122 (American Pacific International Capital, Inc. (“APIC”)) (U.S. corporation owned by foreign company violated Act by making contribution after its board of directors, which included foreign nationals, approved proposal by U.S. citizen corporate officer to contribute). Venable offers suggestions for compliance.

Complaint Filed Against Swiss Citizen Who Used Foundations to Contribute to Arabella Projects: Similarly, The Hill reports on a lawsuit filed against the FEC for failing to respond to a May 2021 complaint against a Swiss citizen who used two foundations to contribute to the Sixteen Thirty Fund and the New Venture Fund, parts of Arabella Advisors’ network. “The watchdog group [Americans for Public Trust] is suing the FEC in a push to get the agency, which oversees and enforces campaign finance law, to examine whether Wyss violated federal law with his contributions.”

Statement of Reasons Explains Conflict Between FECA and FEC Regulations on “Republication:” In MUR 7646, Commissioners Dickerson and Trainor explain their views that FECA makes republication of, in this case, YouTube video from a campaign an “expenditure,” while 11 C.F.R. § 109.23(a) makes it a “contribution,” with resultant differences in legal treatment. “To the extent that 11 C.F.R. § 109.23 treats non-coordinated republication as an in-kind contribution—this regulation contradicts FECA’s text and is therefore contrary to law. … Thus, in order to remain faithful to our enabling legislation, when the Commission enforces the republication provisions, it must establish actual coordination using the same standards applied to any other form of public communication.”

Is Google Making An In-kind Contribution When It Marks Republican Campaign Email as “Spam” 820% More Often Than Democratic Emails? The RNC, RNSC and RCCC jointly filed a complaint against Google based on an academic study from N.C. State which found that Gmail’s Spam Filtering Algorithm suppressed Republican campaign-related emails 820% more often than Democratic campaign emails. ““We further observe that Gmail marks a significantly higher percentage (67.6%) of emails from the right as spam compared to the emails from [the] left (just 8.2%). … Not only that, but as Election Day drew closer, and as voters began focusing more intently on political races, the disparity between how Gmail marked Republican and Democrat emails as spam only steadily grew.”

Complaint Filed Against Texas c4 For Failure to File FEC Reports: The Texas Tribune reports that a 501(c)(4), “the political arm of La Unión del Pueblo Entero, a nonprofit founded by the famed labor-rights activists César Chávez and Dolores Huerta,” is being accused of failing to file required FEC reports in a Democratic primary contest in the 15th Congressional District (Rio Grande Valley). According to the complaint, the c4 recruited a candidate, formed a PAC, received contributions and made expenditures, conducted an active campaign in support of its candidate, and more, but failed to disclose its campaign activities timely. Its candidate came in second in the primary, by only 302 votes, and forced a runoff election. The Tribune notes: “The runoff is being closely watched because the 15th District is Republicans’ top pickup opportunity in November as they push to make new inroads in South Texas.”

FEC to Start Enforcing Its Own Form of “True Source” Rule: In MUR 7454 (Blue Magnolia Investments), four Commissioners issued a Statement of Reasons discussing what LLCs, and by extension other entities, must disclose when reporting contributions. “The Commission’s rules for reporting attribution information for LLC contributions are intended to ensure that the source of a contribution is not obscured and that individuals may not use LLCs to avoid lawful disclosure.” Under 11 C.F.R. § 110.1(g)(5), the burden of sufficiently disclosing is on an LLC to “at the time it makes the contribution, provide information to the recipient committee as to how the contribution is to be attributed, and affirm to the recipient committee that it is eligible to make the contribution.” Penalties had not been issued before because of a concern that reporting requirements were not clear enough, but the Statement says that penalties will now be issued. Politico comments: “Good-government groups hailed the decision — where a Republican commissioner sided with liberal-leaning commissioners — as a hopeful sign that the often-deadlocked commission could start finding more common ground.”

New Crypto-supporting SuperPAC’s First FEC Filing Sparks Questions: Apparently, the FEC Commissioners’ concerns are well-founded. Politico reports: “Protect Our Future — a super PAC that’s spent millions supporting candidates ‘who take a long-term view on policy planning’ — disclosed $14 million in contributions from the Nevada-based fintech Prime Trust LLC in its quarterly filing on Friday. … So who is actually the source of the funds — and why the obfuscation in the first place? … Sam Bankman-Fried, 30-year-old founder of the crypto exchange FTX and emergent political megadonor, was responsible for $13 million” of the $14 million.

COURTS

Supreme Court Muddies Standard of Review for Sign Cases: In City of Austin v. Reagan Nat’l Advertising, No. 20-1029, a fractured Supreme Court reversed the Fifth Circuit’s finding that an ordinance treating signs differently depending on where they were located was content-based, and thus subject to strict scrutiny. In Reed v. Gilbert (2015), the Court struck down a sign code that treated some speech differently, including “ideological” or “political” speech, than signs promoting church services or educational events; the Fifth Circuit had held (as do most observers) that Reed ruled that a law which required reading the content of the sign to see if the sign was subject to restrictions under the law was content-based and was subject to strict scrutiny review. Justice Sotomayor’s majority opinion for five Justices said that was a “too extreme interpretation,” and that Austin’s ordinance took only location into account, rather than content. Justice Sotomayor also said that even if the less stringent “exacting scrutiny” standard was applied, however, the Court did not have enough information to determine whether the ordinance was drawn narrowly to advance a significant governmental interest, and remanded the case for more fact-finding. Justice Breyer concurred to complain that Reed “too rigidly ties” content to strict scrutiny, while Justice Alito concurred in the result but not in the standard of review in the majority opinion. Justice Thomas dissented, joined by Justices Gorsuch and Barrett, complaining that the majority’s analysis replaces Reed’s “clear rule” with “an incoherent and malleable standard.” Harvard Law Prof. Larry Tribe tweeted: “SCOTUS made a total mess of 1st Am law. Only the 3 dissenters, pointing to the agreement of scholars as far apart as Michael McConnell and me on the key legal point, came close to offering coherent guidance.” Prof. Eugene Volokh is less agitated, saying the cutback in content-based doctrine is “likely only a little bit.”

Supreme Court Rejects Latest Batch of Challenges to Mandatory Bar Membership and Non-germane Use of Dues; What’s Different This Time: The Supreme Court denied cert in four challenges to mandatory bar requirements and use of dues for matters not “germane” to the core functions of regulating the bar. Keller v. State Bar of Calif., 496 U.S. 1 (1990), remains in place, but is still not fully explained. The difference between earlier cert petitions (which sought to challenge Keller under Janus v. AFSCME, 585 U.S. ___ (2018) (compulsory union dues violate First Amendment rights)) and the latest batch is a stronger focus on what Keller and other cases identify as permissible (germane) uses of dues and what is non-germane use for which mandatory dues may not be used. The Fifth Circuit’s McDonald v. Firth and Boudreaux v. Louisiana State Bar (both of which held mandatory state bar uses of dues were non-germane and thus unconstitutional) remain in place, and circuits are still split on important questions.

Supreme Court Denies Cert to Challenge to Rhode Island Campaign Finance Law Requiring On-Ad Donor Disclosure: The Supreme Court denied review in Gaspee Project v. Maderos, No. 21-890, a case which challenged Rhode Island’s 2012 donor disclosure rules for organizations which made independent expenditures on issue ads. The First Circuit’s Sept. 2021 decision upholding the Rhode Island donor disclosure law said that listing an organization’s top five donors on-screen during issue ads only “burdens speech modestly.”

What’s a Victory That’s Reversed on Appeal? Kerfuffle over Marc Elias’s reporting as a “victory” lower court opinions despite those opinions being reversed on appeal. Rick Hasen fans flames: “Democratic and Voting Rights Organizations Ultimately Lost Election Law Cases ‘By a Ratio of More than 7 to 1’.” New Yorker article on Marc as a “middle-aged white guy living in Northern Virginia” stirs the coals. Hasen continues to quote anonymous commenter: “The New Yorker piece helpfully notes disagreement within the election law community. … Like most lawyers, athletes, and, for that matter, politicians whose profession depends on future success, Elias is inclined to play up past successes; and to play down past failures. … All of us who care about the vitality of American democracy are on edge; but litigation is no outlet for our primal scream.”

IRS

Supreme Court Tells Tax Court to Narrowly Read Jurisdictional Restrictions, Opening the Door Slightly for Equity Claims: For decades, the Tax Court has interpreted jurisdictional tolling statutes generously; for example, it would turn away Collection Due Process filings that were even one day late. But, in an opinion by Justice Amy Coney Barrett in Boechler v. Commissioner, No. 20-1472, the Supreme Court clarified that not all procedural requirements are jurisdictional. Non-jurisdictional rules “promote the orderly progress of litigation but do not bear on a court’s power.” Slip op. at 2-3 (cleaned up). “[W]e treat a procedural requirement as jurisdictional only if Congress ‘clearly states’ that it is. Slip op. at 3. Congress must “plainly … imbue[] a procedural bar with jurisdictional consequences.” Id. It’s in large part a grammatical review, as it was in this case, of what Congress wrote.

Why is this obscure case important to public policy lawyers? Though not stated plainly in Justice Barrett’s unanimous opinion, this decision is another step along the “square corners” path the Supremes are treading these days, and it is being again applied to the IRS and the Tax Court. “If individuals ‘must turn square corners when they deal with the government,’ the taxpayers insist, ‘it cannot be too much to expect the government to turn square corners when it deals with them.’ Niz-Chavez v. Garland, 141 S. Ct. 1474, 1486 (2021).” Mann Construction Co. v. U.S., 6th Cir., Mar. 3, 2022 (Sutton, C.J.). The Supreme Court apparently believes that using equitable rules to judge tolling is subject to the same rules.

Military Aid to Ukraine Charitable as “Lessening Burdens of Government?” Lively discussion on First Tuesday Lunch Group mailing list of how to treat military, as opposed to humanitarian, aid provided by a charity. Main takeaway: it is much harder today to demonstrate lessening of government burdens as a charitable purpose. Side note: after 2014 Russian invasion of Ukraine, one counsel was comfortable with providing protective vests to protestors, but not guns and bullets, even for defensive use.

CONGRESS

Senate Finance Committee, Subcommittee on Taxation and IRS Oversight, Hearing on Political Activities of Tax-Exempt Organizations: On May 4, the Subcommittee, led by Sen. Sheldon Whitehouse, an unrelenting foe of Republican use of tax-exempt entities for political purposes, will look at “Laws and enforcement governing the political activities of tax-exempt entities.” Witnesses include former FEC Commissioners Ann Ravel and Brad Smith, former IRS lawyer Phil Hackney, and Scott Walter from Capitol Research Center. Live video available at the Subcommittee’s web page.  

GAO Annual Report on Lobbying Disclosure Act – Low Compliance, Enforcement Action Slow and Rare: Covington reports that the 2021 LDA Report, compiled by the U.S. Attorney’s Office for D.C., has some interesting findings, including: almost three-quarters of all complaints reported to the USAO from 2012 to 2021 were still pending in 2022; an estimated 35% of registered lobbyists had not properly disclosed former governmental positions; and, USAO brought LDA charges against only one person in 2020 (who pled guilty).

DEPT OF JUSTICE

House Judiciary Hearing on Problems with FARA: Covington reports on April 7 Committee hearing on Foreign Agents Registration Act. “While the witnesses broadly acknowledged the problematic ambiguity and lack of clarity of the statute, they varied in their views about how to reform FARA and provide more certainty to the regulated community. … This divide between more aggressive enforcement of FARA and narrowing the statute was a common theme throughout the hearing, by both the witnesses and the members of the Subcommittee. There also seemed to be few substantive openings for bipartisan consensus. … Surprisingly, the hearing addressed very few substantive proposals that FARA practitioners and the Department of Justice have focused on recently in the context of DOJ’s Advance Notice of Proposed Rulemaking (“ANPRM”) to modernize FARA.”

STATES

California Legislation to Increase Donor Disclosure: Going against a trend in state legislation to protect donors in the wake of AFPF/TMLC v. Bonta, California’s Legislature is moving Senate Bill 1360, California’s Disclosure Clarity Act, jointly authored by Senators Thomas J. Umberg (D-Santa Ana), and Ben Allen (D-Santa Monica). The Orange County Breeze reports: “SB 1360 will give California the first law in the nation to require online image and banner ads to clearly and prominently show their top funder on the ad itself. It will also require formatting changes to make television and video ad disclosures more readable and stop committees from purposefully using extremely long committee names to make it difficult for voters to read the top three funders in the five seconds the disclosure is on the screen.”

California FPPC Tightens Reporting of Online “Amplification:”  Covington reports on new regulation of “amplification” of online advertising in California. “In the digital age, it has become common to accuse opponents of propping up their online presence through paying influencers, buying followers or likes, or of being supported by bots.  A California law new this year is looking to shed light on at least some of that activity.” New Fair Political Practices Commission rules “require committees with reportable expenditures for amplification measures to specifically describe the payments in their reporting statements.”

Tennessee Legislature Passes New Bill to Combat “Dark Money,” In Part By Limiting Unitemized Small Donations: The Tennessee Legislature overwhelmingly passed H.B. 1201/S.B. 1005, a controversial bill which contains a variety of changes to the state’s campaign finance rules. Some of the changes include requiring c4, 5 and 6 organizations to report all independent expenditures over $5,000 made in the 60 days before an election, candidates cannot have more than $2,000 of unitemized contributions in a reporting period, any person who personally controls a PAC’s expenditures is personally liable for any reporting or violation fines, and companies that provide campaign services will have to disclose if they pay a member of the general assembly or a staff member of the general assembly.

California Consumer Privacy Protection Board Holds First Meeting, Says Its Authorizing Legislation is “Unclear” About Its Authority: In 2020, California voters created the new agency tasked with helping consumers use new privacy tools and rights created by the California Consumer Privacy Act in 2018. The statute requires the new agency to issue its first regulations by July 2022. Neilsen Merksamer reported on the new agency’s first meeting, modestly predicting: “Due to California’s influential status domestically, as well as its massive economy, the agency is poised to become one of the most significant data privacy authorities and regulatory bodies in the world.”

GENERAL

More on Golden Globes’ Tax-Exemption: TheWrap reports that “The plan to reinvent the Golden Globes by turning the Hollywood Foreign Press Association into a for-profit company owned by billionaire Todd Boehly, the group’s interim CEO, raises a host of legal and ethical red flags, multiple legal experts told TheWrap.” [Partial paywall] Legal experts included First Tuesday Lunch participants.

Amazon Criticized for Sending Injured Workers to Charities During Their Recuperation: The Financial Times (paywall) and Engadget report that mega-corporation Amazon’s Community Together program sends injured Amazon workers to “charities like Salvation Army and Habitat for Humanity to do whatever work they’re capable of with their injuries. Over 10,000 workers have been placed at non-profits since the program launched in 2016, but Amazon had to scale back its operations during the pandemic.” The workers get full pay instead of lower compensation benefits and the charities get good workers, but critics contend that the program allows Amazon to report lower injury rates at the warehouses.

Is a “Nonprofit Industrial Complex” and “Donor Elite,” Having “Quashed” the American Right, Now Destroying the Democratic Party? An article in Table Magazine explores: “How the foundation-NGO complex quashed innovative thinking and open debate, first on the American right and now on the center left. … Having crowded out dissent and debate, the nonprofit industrial complex—Progressivism Inc.—taints the Democratic Party by association with its bizarre obsessions and contributes to Democratic electoral defeats, like the one that appears to be imminent this fall…. It is this donor elite, bound together by a set of common class prejudices and economic interests, on which most progressive media, think tanks, and advocacy groups depend for funding.”

BLM Leaders Call 990 “Triggering” and For Most People It Probably Is: At least in the classic sense of causing fear of negative consequences from being identified in tax reporting. Yahoo News reported that, confronted with public criticism over the organizations’ purchasing a $6 million mansion, “Patrisse Cullors, a BLM founder, said she found it ‘triggering’ — emotionally compromising — when she hears about financial documents being made public. ‘It is such a trip now to hear the term “990,”’ Cullors said at the Vashon Center for the Arts Friday. ‘I’m, like, ugh.’”

Will Increasing Partisan Polarization Result in Parties Not Reaching Outside Their Base Supporters? Provocative op-ed in The Hill from Nancy Jacobson, founder and CEO of No Labels, suggests that the 2024 Presidential battleground will see little or no appeals to independents and ideologically undecideds. “This time, a moderate independent third ticket could run and win.”

Practice Tip – Free Tacos For Everyone Is Not Criminal Inducement to Vote in California: Carefully threading the California criminal bans on inducing voting, candidate manages to offer free tacos to those showing up at the polls. Court opines on value of tacos: “the Court does not find the tacos to be materially different than the so-called ‘trinkets’ that candidates often hand out for free to generate goodwill. At most, each taco cost between $2.35 and $2.67. This is comparable to, if not less than, the cost of shirts, sweatshirts, baseball caps, pens, signs, or posters that are often given out for free by a candidate during an election. Moreover, unlike those items—which are usually emblazoned with the candidate’s name, logo, or slogan—nothing on the tacos or taco truck connected them to Lopez.” Slip op. at 17.

Public Policy Advocacy Highlights for March 2022 (Full Edition, including Ides of March Report)

Public Policy Advocacy Highlights for March 2022 (Full Edition, including Ides of March Report)

As always, characterizations, editorial comments, abbreviations and shorthand references are solely PPA Highlights author Barnaby Zall’s, and do not represent the views or positions of the Public Policy Legal Institute or the First Tuesday Lunch Group or their members and participants. Suggestions and corrections welcome.

DC

Glitch in DC Corporate Filings and a Workaround: Beth Kingsley reports DCRA wouldn’t issue a certificate of good standing to a corporation, even though they are in good standing, because the corporation had not yet filed its Biennial Report (which was not yet due, but which the system expected to receive). “It turns out there is a glitch in the system (which they acknowledge) and because the database is ready to accept 2022 Biennial Reports it won’t recognize that an entity is in good standing, even though the filing deadline is not yet here. … If your clients experience issues with this you can probably resolve it by filing this year’s report and then requesting the certificate from the online system.”

Who Must Be Listed on DC Biennial Reports? Tom Antonucci asks “I’m trying to confirm whether all directors (or just one director) needs to be listed on the [DC Biennial] report; and whether there is a separate requirement to list ‘beneficial owners’ on the report (ignoring for now the question of whether a home address needs to be included) [which has been much discussed in First Tuesday Lunch meetings recently]. … Notwithstanding the statutory language, DCRA’s form appears to combine/confuse ‘governors’ and ‘beneficial owners.’”  

IRS

Malone: Don’t Call Us, Don’t Mail Us About Delays: Recent First Tuesday Lunch Group meetings have discussed problems and delays in IRS’s Tax-Exempt Organizations and Government Entities Division. Ernst & Young reports from a TEGE Council meeting: “At a virtual TEGE Exempt Organizations Council meeting attended by EY on March 3, 2022, IRS Tax-Exempt and Government Entities division (TE/GE) director Robert Malone suggested that tax-exempt organizations (1) contact the IRS to request corrections to the Exempt Organizations Business Master File Extract (EO BMF), and (2) utilize IRS-website resources to check the status of applications for IRS recognition of tax-exempt status.” In other words, call IRS about their mistakes, not their delays. Of course, as often mentioned in FTLG meetings, if you qualify (in good faith) for expedited processing, a call is appropriate.

More on Remedying IRS Customer Service “Dumpster Fire:” The Hill reports that “The Internal Revenue Service (IRS) plans to add 10,000 new employees to its payroll, hiring 5,000 in the next few months and an additional 5,000 by the end of next year [emphasis added], to tackle the backlog of tax returns and unanswered phone calls caused by the pandemic. The aim is to shrink the agency’s to-do list from more than 23 million unprocessed forms and requests down to the accustomed level of about 1 million by the end of 2022.” In addition, some 700 existing Service employees will be re-tasked to process returns, another 6,000 will be eligible for overtime pay, and the Service will hire more independent contractors and utilize more computerized assistance functions. Total cost $225 million, or about 1.7% of the IRS budget. But, they’re not going to be done reducing the backlog until after “the end of next year”?!! That dumpster’s still pretty warm.

IRS Stops Mailing First Delinquency Notices For Forms 990, 1120-POL and Other Forms: On a related note (literally, an emailed note and not a release for exempt organizations), and blaming the overwhelming backlog of unprocessed returns (see above), the Service has suspended the automated mailing of a variety of First and Second Delinquency Notices to, inter alia, tax-exempt organizations. As of March 25, the EO-related forms include:

NumberName
CP214Reminder Notice About Your Form 5500-EZ or 5500-SF Filing Requirement
CP217Form 940 Not Required – Federal, State, and Local Government Agencies
CP259AFirst Taxpayer Delinquency Investigation Notice – Form 990/990EZ/990N
CP259BFirst Taxpayer Delinquency Investigation Notice – Form 990PF
CP259DFirst Taxpayer Delinquency Investigation Notice – Form 990T
CP259FFirst Taxpayer Delinquency Investigation Notice – Form 5227
CP259GFirst Taxpayer Delinquency Investigation Notice – Form 1120-POL
CP259HFirst Taxpayer Delinquency Investigation Notice – Form 990/990EZ
CP403First Delinquency Notice – Form 5500 or 5500-SF
CP406Second Delinquency Notice – Form 5500

IRS TE/GE Issues New Technical Guidance: The Service’s Tax-Exempt Organizations and Government Entities office has published three new comprehensive, issue-specific Technical Guides:

TG 3-8, Termination of Private Foundation Status, was renumbered TG 3-22 without substantive change.

Confused About the New 1099-MISC and NEC Forms? The Service offers a new video about the new non-employee compensation reporting forms.

Kiplinger Offers a DAF’s Guidance on Charitable Tradeoffs Between DAFs and Private Foundations: Kiplinger offers a fairly robust, though basic, description of choices for donors who want to increase charitable giving. Author is Lawson Bader, CEO of mega-Donor Advised Fund Donors Trust, which, entirely coincidentally, was repeatedly lambasted during the Jackson confirmation process for aiding “dark money” campaigns about judicial candidates. That alleged ability to become involved in contentious public policy advocacy, however, was not discussed as an advantage or neutral factor in Bader’s analysis, probably because Bader understands more about what a DAF can, and cannot, do than those commenting on Judge Jackson’s nomination process.  

Pandemic Relief Funds Might Trigger New Federal Audit Requirements: The IRS recently reported that “investigators have uncovered more than $1.8 billion in fraudulent activity related to federal COVID-19 stimulus funds. … the IRS said it has closed 660 criminal cases related to various stimulus bills prompted by the pandemic.” The Minnesota Reformer points out that many smaller EOs may not have realized that the receipt of significant federal funds might trigger new requirements that they obtain audits this year. “Nonprofits are facing fresh scrutiny in the face of the sprawling investigation of Feeding our Future and the large sums the federal government funneled through nonprofits to make sure people were fed and cared for during the pandemic. The U.S. Justice Department is investigating the Minneapolis nonprofit for allegedly misappropriating $65 million in federal food program dollars.”

DEPT OF JUSTICE

More On Recent FARA DoJ Opinions on Nonprofit Organizations: Venable has a new update piece explaining more about the recent academic institution-oriented DoJ opinions handed down on the Foreign Agent Registration Act. “Both opinions highlight the limits of the academic exemption and the importance of considering FARA with regard not only to an organization’s formal contracts and agreements, but also to the organization’s public statements about its work, including press releases, reports, and social media posts, as each of these can be used by DOJ in evaluating the application of FARA. What is interesting about the regulation limiting the scope of the academic exemption to nonpolitical activities is that that limit is not actually found in the statute.”

FEC

Statute of Limitations Blocks FEC Action on 501(c)(4)’s Alleged Campaign Expenditures: In MUR 7465 (Freedom Vote), the Federal Election Commission voted 4-2 to dismiss and close a complaint that Freedom Vote, a 501(c)(4) Ohio corporation, failed to register and report as a political committee. Commissioners Dickerson, Cooksey and Trainor said “By the time this Matter was presented to the Commission for a probable-cause determination, however, the five-year statute of limitations had expired on the bulk of Freedom Vote’s alleged FECA violations. In an exercise of our prosecutorial discretion, we declined to pursue the alleged violations that were not time-barred. …  the Respondent is a defunct, bankrupt entity accused of prior reporting violations, and there is no basis to believe that the allegedly impermissible conduct will recur.” Freedom Vote apparently settled an IRS audit controversy before going bankrupt.

FEC Fines Govt Contractor Marathon Petroleum Corp $85,000 in Conciliation Agreement for $1M Contributions to Leadership PACs: CLC filed a complaint in October 2020, which became MUR 7843; Covington represented the company. Marathon argued that a subsidiary of the company was a contractor and its compliance attorneys had been “unaware” of that contract; it also argued that the statutory prohibition against government contractors contributing to SuperPACs was unconstitutional under Citizens United and Speechnow. The FEC agreed 5-0 to accept the Conciliation Agreement.

FEC Issues New Form 1 for IE-only (“SuperPACs”) and Hybrid Committees Using Separate Bank Accounts: On March 3, 2022, the Federal Election Commission proposed for Congressional review revised forms to allow independent expenditure-only and hybrid committees to register without filing separate statements (discussed at an earlier First Tuesday Lunch meeting). “The revised form introduces voluntary provisions for registering independent expenditure-only political committees (commonly known as “Super PACs”) and hybrid PACs, which intend to establish separate bank accounts to make contributions and to raise unlimited amounts to make independent expenditures.” The proposed form revisions will go into effect unless Congress intervenes.

Does the FEC Inappropriately Conflate Individuals and Corporations? Federal Election Commission Chair Allen Dickerson pens a separate Statement of Reasons in MUR 7707 (Friends of Bill Posey) explaining his repeated “concern that the Commission is insufficiently attentive to the law governing corporations.”

COURTS

Supreme Court – First Amendment “Cannot Be Used As A Weapon To Silence”: In Houston Community College System v. Wilson, 595 U.S. __ (March 24, 2022), the Supreme Court said that the HCC Board of Directors’ verbal censure of one of its members did not offend the First Amendment. “The First Amendment surely promises an elected representative like Mr. Wilson the right to speak freely on questions of government policy. But just as surely, it cannot be used as a weapon to silence other representatives seeking to do the same. …When the government interacts with private individuals as sovereign, employer, educator, or licensor, its threat of a censure could raise First Amendment questions. But those cases are not this one.” Slip op. 9, 11.

Government Agencies, Including the IRS, Must Also “Turn Square Corners”; IRS Can’t Legislate Major Financial Penalties and Reporting Requirements Without Complying With Basic APA Rules: Not so long ago, before the 2013 Lois Lerner targeting scandal, there was significant communication and cooperation between the Service and practitioners that helped both the regulators and regulated organizations understand, enforce and comply with the rules; no longer, and now the Service is suffering from both congressional and judicial challenges. For example, Chief Judge Jeff Sutton of the U.S. Court of Appeals for the Sixth Circuit is on a roll recently, writing several influential opinions in important cases. On March 3, in Mann Construction v. U.S., he took on the age-old tradition of deferring to IRS informal guidance (we used to call that deference “we have 200 million taxpayers and we don’t have time to do things the hard way other agencies use”), and rejected the Service’s claims that it could establish a new “listed transaction” reporting rule without following the “baseline” rules of the Administrative Procedures Act. Instead of the traditional deference, Sutton applied the Supreme Court newly-invigorated “square corners” doctrine: “The taxpayers claim that the IRS failed to meet a reporting requirement of its own by skipping the notice-and-comment process before promulgating this legislative rule. If individuals ‘must turn square corners when they deal with the government,’ the taxpayers insist, ‘it cannot be too much to expect the government to turn square corners when it deals with them.’ Niz-Chavez v. Garland, 141 S. Ct. 1474, 1486 (2021). … The question is whether Congress amended the APA’s prerequisites, not whether the IRS did. … But the U.S. Supreme Court has already rejected the idea that tax law deserves special treatment under the APA. In its words, ‘we are not inclined to carve out an approach to administrative review good for tax law only.’ Mayo Found. for Med. Educ. & Rsch. v. United States, 562 U.S. 44, 55 (2011).” Slip op., 1, 10, 11.

Court Holds Wyoming’s EC Statute Unconstitutionally Vague and Not Narrowly Tailored Under Exacting Scrutiny Analysis: In Wyoming Gun Owners v. Buchanon, U.S. District Court Judge Scott Skavdahl held Wyoming’s electioneering communications statute “does not survive exacting scrutiny and violates the First Amendment.” Slip op. 28. WyGO’s 2020 radio ad mentioned two state Senate candidates, one favorably, the other less so; the Wyoming Secretary of State’s Election Division imposed a $500 fine for failing to register and report, “because the ad identified two candidates up for election with less than thirty days before the primary and could only be reasonably interpreted as an appeal to vote for Bouchard and against Johnson.” The Court held that, while the government had an important interest in EC reporting, the statute was void for vagueness (“statute provides no guidance for what expenditures or contributions ‘relate to’ electioneering communications.”), slip op. 13-14, and, citing AFPF/TMLC v. Bonta, failed the narrow tailoring prong of exacting scrutiny because “compelled disclosure of donors who make political contributions or expenditures … pose a significant threat to associational freedom.” Slip op. 18. “If the statute is written in such a way that organizations like WyGO are required to design specific bookkeeping systems to comply with the statute, it is not clearly written or narrowly tailored. It is on the state of Wyoming to prove they have narrowly tailored the statute to meet their interests and putting the responsibility on WyGO to keep proper records does not meet that burden.” Slip op. 24.

District Court Rejects Injunction Against FEC Requiring Disclosure of All Donors to Organizations Making IEs Because Current FEC Interpretation Unlikely to Cause Injury: The FEC has traditionally interpreted 52 U.S.C. § 30104(c), governing disclosure of donors to organizations that make independent expenditures, to mean disclosing only donors who make donations for the purpose of furthering such IEs. The D.C. Circuit, part of a long chain of cases, decided in Citizens for Responsibility & Ethics in Wash. v. FEC, 971 F.3d 340, 350 (D.C. Cir. 2020) (CREW III), that the FEC regulation inappropriately narrowed the statute, and required the disclosure of all donors. The FEC, on the other hand, apparently has used the definition of “contribution” to narrow the class of donors back to its traditional model. On March 22, in Wisconsin Family Action v. FEC, Judge William Griesbach of the Eastern District of Wisconsin agreed with the FEC and found that not all donors who give to organizations which run IEs must be disclosed, citing AFPF/TMLC v. Bonta, 141 S. Ct. 2373, 2382 (2021). Griesbach refused to grant an injunction against the FEC because the FEC basically said it will only require the disclosure of donors who earmark their donations for the purpose of supporting the IEs. Slip op. 22, 23 (“But based on the FEC’s interpretation of § 30104(c), the FEC will not require WFA to disclose all of its donors simply because it makes independent expenditures exceeding $250 in a calendar year. … the Court is ill equipped and without authority to provide an advisory opinion as to whether disclosure will be required”). The Court told WFA to get an FEC Advisory Opinion defining a “contribution” that might trigger the disclosure requirement. But, of course, the reason for all this legal fighting is that the FEC has been deadlocked and unable to obtain enough votes to act on the question. See, e.g., Slip op. 6 (after the original court decision, FEC issued a press release instead of amending the regulations).

Jury Rejects Prosecutors’ Claim That $1 Million Pro-Clinton Committees’ Donation Was Illegal Foreign Contribution: Politico reports that a DC federal jury “acquitted one man of a conspiracy to use straw donors and pass-throughs to donate millions of dollars to political funds backing Hillary Clinton in the 2016 presidential race, but jurors may be deadlocked on the fate of another man on trial in the case. … outside the presence of the jury, prosecutors said they believed that the original source of the money was actually the government of the United Arab Emirates.” Meanwhile, Reuters reports that a Ukrainian businessman was sentenced to a year in prison for helping a Russian oligarch funnel money to U.S. candidates who could help his cannabis company he was building with Lev Parnas, a former associate of Rudy Giuliani.

Omaha TV Station Reports on Cong. Fortenberry’s Novel Defense Against Charges of Foreign Campaign Contributions – “He Didn’t Need the Money:” KETV in Omaha, Nebraska, recounts differences between Cong. Jeff Fortenberry’s defense counsel’s and the prosecution’s positions on $30,000 in financial support which allegedly could be traced to foreign money. Fortenberry’s campaign issued a statement about the testimony, including: “Even the government’s own witness, the Congressman’s FEC attorney at the time, testified that Rep. Fortenberry is an honest person and that if he had actually heard that donations to his campaign had been illegal he would have taken action.” UPDATE: That defense didn’t work: On March 25, “Fortenberry was convicted of one count of scheming to falsify and conceal material facts and two counts of making false statements to federal investigators.”

NY AG Loses Bid to Close Down NRA: On March 2, the Supreme Court of New York, Commercial Division (which is a New York intermediate appellate court), denied the NY Attorney General’s attempt to close down the National Rifle Association as a remedy for alleged financial mismanagement and insider reports of exploitation of exempt assets. “Her allegations concern primarily private harm to the NRA and its members and donors, which if proven can be addressed by the targeted, less intrusive relief she seeks through other claims in her Complaint. The Complaint does not allege that any financial misconduct benefited the NRA, or that the NRA exists primarily to carry out such activity, or that the NRA is incapable of continuing its legitimate activities on behalf of its millions of members. In short, the Complaint does not allege the type of public harm that is the legal linchpin for imposing the ‘corporate death penalty.’ Moreover, dissolving the NRA could impinge, at least indirectly, on the free speech and assembly rights of its millions of members.” Slip op., 2. Only the claims that would have dissolved the NRA were dismissed; other claims remain viable. Id.

“Is Justice Kagan Done With Stare Decisis?” Richard Re blogs at Re’s Judicata about a potentially important change in Justice Kagan’s views and approach to precedent: “Justice Kagan has recently been the Court’s most steadfast proponent of stare decisis. And that commitment to precedent has expressly extended to questions of method and interpretation, such as Auer deference and stare decisis itself. So for Kagan to suggest ‘toss[ing] out’ all substantive canons — a set of legal principles that are indeed ‘all over the place’ — is surprising.”

Why WA AG Settled on $9 Million Fine After Winning $18 Million in Failure to Report Win: Washington State Attorney General Bob Ferguson announced on March 2 that he has settled a campaign finance reporting claim against the Consumer Brands Association (formerly the Grocery Manufacturers Association) for $9 million, less than a month after the Washington Supreme Court upheld a record $18 million fine against the group. Why? Ferguson told the Seattle Times that the SCoWA “ruling came on a divided, 5-4 vote, raising the prospect that the conservative majority on the U.S. Supreme Court might strike down the fine — and even put the state’s campaign-finance laws in jeopardy.” The Seattle Times article, following a common error in media coverage, referenced AFPF/TMLC v. Bonta, the U.S. Supreme Court’s July 2021 decision to strike down a California Attorney General’s rule that imposed a “dragnet” sweep of charitable donors, although the rules for charitable and political donor disclosures are different.

No Campaign Contributions Limits in Alaska: Following Thompson v. Hebdon, a July 2021 Ninth Circuit finding that Alaska’s campaign contributions were unconstitutionally low, the Alaska Public Offices Commission eliminated all limits on campaign contributions to most statewide and municipal elective offices. The APOC staff had recommended simply raising the limits to a level acceptable to the Ninth Circuit, but there were not enough affirmative votes on the Commission to adopt the staff’s proposal.

Chinese Communist Party Tries to Attack U.S. Congressional Candidate: And speaking of foreign influence on U.S. elections, why stop with straw donors, when you can try more direct means? Daily Beast quotes FBI wiretaps in arrest warrant requested for Chinese government attempting to undermine the U.S. Congressional campaign former Tiananmen Square dissident now living in exile in New York. While they don’t cover how to avoid “honey pots” and other snares, the FEC and FBI do offer information on how campaign committees can protect themselves from foreign influence campaigns.

Pro-Tip – What Are Appropriate Qualifications and Actions for an Exempt Org’s General Counsel: Of note in the New York v. NRA decision (above) is the court’s discussion of the qualifications and actions of John Frazer, the NRA’s General Counsel since 2015. Slip op. 8, 28-29. “Whether Frazer in fact was qualified to hold these positions is a concern raised in the Complaint. At the time of his appointment, Frazer had been licensed as an attorney for seven years, but spent most of that time working in a non-legal position at the NRA. Frazer had been in private practice, as a solo practitioner, for only 18 months when he became the NRA’s General Counsel.” Slip op., 8. No discussion of how hard it is to hire an experienced exempt org. GC in many cases. Perhaps that is moot, however, since the NY AG alleged that the NRA’s Executive Vice President “allegedly hired Frazer without seriously vetting his qualifications.” Id. And, would inadequate qualifications absolve an attorney or officer who allegedly certified filings without actually reviewing or confirming them (especially if he supposedly had knowledge of misconduct that would have precluded certification)? Slip op., 27-29, 35-37. Of course, at this motion to dismiss stage in the proceedings, these are just allegations and no wrongdoing has been proven.

CONGRESS

Congressional Letter Requests IRS Investigation of Hollywood Foreign Press Association: Following a 2021 Los Angeles Times investigation of the tax-exempt sponsor of the Golden Globes awards, Cong. Joyce Beatty and Brenda Lawrence asked the Service to look into “seemingly corrupt and unacceptable deal making patterns of HFPA.” Concerns included self-dealing and what might have been IRC § 4958 violations, and “failure to embrace robust diversity and inclusion practices that we are now seeing being implemented in Hollywood and across all business and government sectors.”

STATES

Term Limits Redux? Prof. Derek Muller asks in ELB whether Tennessee’s passage of a multi-year residency law for congressional candidates (with “nearly unanimous” bipartisan support) heralds an attempt to convince the U.S. Supreme Court to revisit its 1995 decision in U.S. Term Limits v. Thornton, 514 U.S. 779 (1995), which throttled the then-powerful and widely-supported term limits initiative movement. USTL held that states cannot add to the qualifications set out in the Constitution, but Muller points out that Justices Thomas, Kavanaugh and Gorsuch (who wrote a 1991 law review article) might argue that term limits might not be prohibited “qualifications” but permissible “manner” regulations of holding elections.

Covington Releases 400-Page Pay2Play State-by-State Survey: Where applicable, for all capital cities, all cities with a population of over 100,000 (200,000 for California and New Jersey) and many counties. For Purchase. Venable (via FTLG participant Ron Jacobs) highlights new Delaware County, Pennsylvania, P2P rules. In a FTLG email, Eric Wang points out a 2010 SEC adopting release explanation of its P2P rules excludes advisers’ directors from these rules “unless the contributions were made by these persons for the purpose of avoiding application of the rule, which could result in the adviser’s violation of a separate provision of the rule.”

Covington Releases 300-Page Survey of State Campaign Finance, Lobbying and Ethics Rules: A lot of practitioners routinely do these surveys, and some offer them for purchase or subscription by others. Some of the most helpful offer not just the rules, but also contact information within each relevant state office. Covington is offering its 2022 edition survey for purchase in a national or individual state versions.

GENERAL

What’s Happening at the New York Times? Editorial Against Cancel Culture, Acknowledgement of Hunter Biden’s Laptop: The storied Gray Lady’s March 18 editorial, America Has a Free Speech Problem, says, inter alia, “People should be able to put forward viewpoints, ask questions and make mistakes and take unpopular but good-faith positions on issues that society is still working through — all without fearing cancellation.” It should be read alongside Bari Weiss’s July 2020 resignation letter, which says: “a new consensus has emerged in the press, but perhaps especially at this paper: that truth isn’t a process of collective discovery, but an orthodoxy already known to an enlightened few whose job is to inform everyone else.” Phillip Bump from the Washington Post gives his reaction and definitions of various terms in the discussion: “The real threat, as always, isn’t 20 people chiding someone in Twitter mentions but, instead, in passing laws to restrict what people do on Twitter in the first place.” Matt Taibi blogs “In an inane sequel to the Harper’s Letter fiasco, a New York Times editorial ignites a fury proving its anodyne thesis.” Ken White in Popehat says the editorial is “vexingly unserious.” And the NYT belatedly acknowledges that Hunter Biden’s emails were not Russian disinformation. The WSJ responds: “You don’t say.”

Libraries Walk A Fine Line On First Amendment “Audits:” According to the American Library Association’s Office for Intellectual Freedom, an increasing number of public library visitors are attempting to film “First Amendment audits” of the libraries’ book collections and public activities. “‘What are they looking for? Every single one of them is different. Some auditors are looking for fame and fortune on YouTube and other auditors are looking for confrontation,’ said Deborah Mikula, executive director of the Michigan Library Association (MLA). ‘They’re looking to be confronted, either by the staff or by police, and they’re creating those videos to claim a violation of their First Amendment rights.’”

Continuing Attacks on Legal Counsels: Part of a trend we’ve discussed before, Axios reports that the 65 Project, counseled by David Brock, of “oppo” organization American Bridge, but also conservative Republicans and others, is “targeting 111 attorneys in 26 states who were involved to some degree in efforts to challenge or reverse 2020 election results. They include lawyers at large national law firms with many partners and clients and lawyers at smaller, regional firms. … It plans to spend about $2.5 million in its first year and will operate through an existing nonprofit called Law Works. Brock told Axios in an interview that the idea is to ‘not only bring the grievances in the bar complaints, but shame them and make them toxic in their communities and in their firms.’”

Careful About Characterizing Support: Houston Chronicle (paywall) reports the Texas Election Commission levied a $30,000 fine on an unsuccessful City Council candidate whose campaign flyer suggested that Harris County Black Democratic News had endorsed him without disclosing that the source of the funds for the endorsement mailer was the candidate.

Popular Advocacy Doesn’t Always Translate Into Donations: The Nonprofit Times reports that “More than two out of five people and nearly half of single women supported the 2020 racial justice protests but a much smaller portion, about 1 in 7, actually donated money to racial justice causes, according to a new study.”

You Probably Won’t Be Using This New Tax Ruling: Business Insider reports that: “Ukrainian authorities have reassured citizens that they don’t need to declare captured Russian tanks or any equipment they pick up as personal income. ‘Have you captured a Russian tank or armored personnel carrier and are worried about how to declare it? Keep calm and continue to defend the Motherland!’ a statement from the Ukrainian National Agency on Corruption Prevention seen by Interfax-Ukraine said.” The announcement (available only in Ukrainian) noted that the value of a captured tank would likely be less than the Ukraine living wage.

Public Policy Advocacy Highlights for March 2022 (Ides of March Edition)

Public Policy Advocacy Highlights for March 2022 (Ides of March Edition)

(Note: The recent flood of public policy advocacy highlights continued apace in early March. Because the lengthy last few Highlights reports overloaded our mailing list server, PPLI is serving up fresh news early this month. As always, characterizations, editorial comments, abbreviations and shorthand references are solely PPA Highlights author Barnaby Zall’s, and do not represent the views or positions of the Public Policy Legal Institute or the First Tuesday Lunch Group or their members and participants. This list will be updated later in March. Suggestions and corrections welcome.)

DC

Glitch in DC Corporate Filings and a Workaround: Beth Kingsley reports DCRA wouldn’t issue a certificate of good standing to a corporation, even though they are in good standing, because the corporation had not yet filed its Biennial Report (which was not yet due, but which the system expected to receive). “It turns out there is a glitch in the system (which they acknowledge) and because the database is ready to accept 2022 Biennial Reports it won’t recognize that an entity is in good standing, even though the filing deadline is not yet here. … If your clients experience issues with this you can probably resolve it by filing this year’s report and then requesting the certificate from the online system.”

IRS

Malone: Don’t Call Us, Don’t Mail Us About Delays: Recent First Tuesday Lunch Group meetings have discussed problems and delays in IRS’s Tax-Exempt Organizations and Government Entities Division. Ernst & Young reports from a TEGE Council meeting: “At a virtual TEGE Exempt Organizations Council meeting attended by EY on March 3, 2022, IRS Tax-Exempt and Government Entities division (TE/GE) director Robert Malone suggested that tax-exempt organizations (1) contact the IRS to request corrections to the Exempt Organizations Business Master File Extract (EO BMF), and (2) utilize IRS-website resources to check the status of applications for IRS recognition of tax-exempt status.” In other words, call IRS about their mistakes, not their delays. Of course, as often mentioned in FTLG meetings, if you qualify (in good faith) for expedited processing, a call is appropriate.

IRS TE/GE Issues New Technical Guidance: The Service’s Tax-Exempt Organizations and Government Entities office has published three new comprehensive, issue-specific Technical Guides:

TG 3-8, Termination of Private Foundation Status, was renumbered TG 3-22 without substantive change.

Confused About the New 1099-MISC and NEC Forms? The Service offers a new video about the new non-employee compensation reporting forms.

More on Remedying IRS Customer Service “Dumpster Fire:” The Hill reports that “The Internal Revenue Service (IRS) plans to add 10,000 new employees to its payroll, hiring 5,000 in the next few months and an additional 5,000 by the end of next year [emphasis added], to tackle the backlog of tax returns and unanswered phone calls caused by the pandemic. The aim is to shrink the agency’s to-do list from more than 23 million unprocessed forms and requests down to the accustomed level of about 1 million by the end of 2022.” In addition, some 700 existing Service employees will be re-tasked to process returns, another 6,000 will be eligible for overtime pay, and the Service will hire more independent contractors and utilize more computerized assistance functions. Total cost $225 million, or about 1.7% of the IRS budget. But, they’re not going to be done reducing the backlog until after “the end of next year”?!! That dumpster’s still pretty warm.

DEPT OF JUSTICE

More On Recent FARA DoJ Opinions on Nonprofit Organizations: Venable has a new update piece explaining more about the recent academic institution-oriented DoJ opinions handed down on the Foreign Agent Registration Act. “Both opinions highlight the limits of the academic exemption and the importance of considering FARA with regard not only to an organization’s formal contracts and agreements, but also to the organization’s public statements about its work, including press releases, reports, and social media posts, as each of these can be used by DOJ in evaluating the application of FARA. What is interesting about the regulation limiting the scope of the academic exemption to nonpolitical activities is that that limit is not actually found in the statute.”

FEC

Statute of Limitations Blocks FEC Action on 501(c)(4)’s Alleged Campaign Expenditures: In MUR 7465 (Freedom Vote), the Federal Election Commission voted 4-2 to dismiss and close a complaint that Freedom Vote, a 501(c)(4) Ohio corporation, failed to register and report as a political committee. Commissioners Dickerson, Cooksey and Trainor said “By the time this Matter was presented to the Commission for a probable-cause determination, however, the five-year statute of limitations had expired on the bulk of Freedom Vote’s alleged FECA violations. In an exercise of our prosecutorial discretion, we declined to pursue the alleged violations that were not time-barred. …  the Respondent is a defunct, bankrupt entity accused of prior reporting violations, and there is no basis to believe that the allegedly impermissible conduct will recur.” Freedom Vote apparently settled an IRS audit controversy before going bankrupt.

FEC Issues New Form 1 for IE-only (“SuperPACs”) and Hybrid Committees Using Separate Bank Accounts: On March 3, 2022, the Federal Election Commission proposed for Congressional review revised forms to allow independent expenditure-only and hybrid committees to register without filing separate statements (discussed at an earlier First Tuesday Lunch meeting). “The revised form introduces voluntary provisions for registering independent expenditure-only political committees (commonly known as “Super PACs”) and hybrid PACs, which intend to establish separate bank accounts to make contributions and to raise unlimited amounts to make independent expenditures.” The proposed form revisions will go into effect unless Congress intervenes.

Does the FEC Inappropriately Conflate Individuals and Corporations? Federal Election Commission Chair Allen Dickerson pens a separate Statement of Reasons in MUR 7707 (Friends of Bill Posey) explaining his repeated “concern that the Commission is insufficiently attentive to the law governing corporations.”

COURTS

Government Agencies, Including the IRS, Must Also “Turn Square Corners”; IRS Can’t Legislate Major Financial Penalties and Reporting Requirements Without Complying With Basic APA Rules: Not so long ago, before the 2013 Lois Lerner targeting scandal, there was significant communication and cooperation between the Service and practitioners that helped both the regulators and regulated organizations understand, enforce and comply with the rules; no longer, and now the Service is suffering from both congressional and judicial challenges. For example, Chief Judge Jeff Sutton of the U.S. Court of Appeals for the Sixth Circuit is on a roll recently, writing several influential opinions in important cases. On March 3, in Mann Construction v. U.S., he took on the age-old tradition of deferring to IRS informal guidance (we used to call that deference “we have 200 million taxpayers and we don’t have time to do things the hard way other agencies use”), and rejected the Service’s claims that it could establish a new “listed transaction” reporting rule without following the “baseline” rules of the Administrative Procedures Act. Instead of the traditional deference, Sutton applied the Supreme Court newly-invigorated “square corners” doctrine: “The taxpayers claim that the IRS failed to meet a reporting requirement of its own by skipping the notice-and-comment process before promulgating this legislative rule. If individuals ‘must turn square corners when they deal with the government,’ the taxpayers insist, ‘it cannot be too much to expect the government to turn square corners when it deals with them.’ Niz-Chavez v. Garland, 141 S. Ct. 1474, 1486 (2021). … The question is whether Congress amended the APA’s prerequisites, not whether the IRS did. … But the U.S. Supreme Court has already rejected the idea that tax law deserves special treatment under the APA. In its words, ‘we are not inclined to carve out an approach to administrative review good for tax law only.’ Mayo Found. for Med. Educ. & Rsch. v. United States, 562 U.S. 44, 55 (2011).” Slip op., 1, 10, 11.

Jury Rejects Prosecutors’ Claim That $1 Million Pro-Clinton Committees’ Donation Was Illegal Foreign Contribution: Politico reports that a DC federal jury “acquitted one man of a conspiracy to use straw donors and pass-throughs to donate millions of dollars to political funds backing Hillary Clinton in the 2016 presidential race, but jurors may be deadlocked on the fate of another man on trial in the case. … outside the presence of the jury, prosecutors said they believed that the original source of the money was actually the government of the United Arab Emirates.” Meanwhile, Reuters reports that a Ukrainian businessman was sentenced to a year in prison for helping a Russian oligarch funnel money to U.S. candidates who could help his cannabis company he was building with Lev Parnas, a former associate of Rudy Giuliani.

NY AG Loses Bid to Close Down NRA: On March 2, the Supreme Court of New York, Commercial Division (which is a New York intermediate appellate court), denied the NY Attorney General’s attempt to close down the National Rifle Association as a remedy for alleged financial mismanagement and insider reports of exploitation of exempt assets. “Her allegations concern primarily private harm to the NRA and its members and donors, which if proven can be addressed by the targeted, less intrusive relief she seeks through other claims in her Complaint. The Complaint does not allege that any financial misconduct benefited the NRA, or that the NRA exists primarily to carry out such activity, or that the NRA is incapable of continuing its legitimate activities on behalf of its millions of members. In short, the Complaint does not allege the type of public harm that is the legal linchpin for imposing the ‘corporate death penalty.’ Moreover, dissolving the NRA could impinge, at least indirectly, on the free speech and assembly rights of its millions of members.” Slip op., 2. Only the claims that would have dissolved the NRA were dismissed; other claims remain viable. Id.

Pro-Tip – What Are Appropriate Qualifications and Actions for an Exempt Org’s General Counsel: Of note in the New York v. NRA decision is the court’s discussion of the qualifications and actions of John Frazer, the NRA’s General Counsel since 2015. Slip op. 8, 28-29. “Whether Frazer in fact was qualified to hold these positions is a concern raised in the Complaint. At the time of his appointment, Frazer had been licensed as an attorney for seven years, but spent most of that time working in a non-legal position at the NRA. Frazer had been in private practice, as a solo practitioner, for only 18 months when he became the NRA’s General Counsel.” Slip op., 8. No discussion of how hard it is to hire an experienced exempt org. GC in many cases. Perhaps that is moot, however, since the NY AG alleged that the NRA’s Executive Vice President “allegedly hired Frazer without seriously vetting his qualifications.” Id. And, would inadequate qualifications absolve an attorney or officer who allegedly certified filings without actually reviewing or confirming them (especially if he supposedly had knowledge of misconduct that would have precluded certification)? Slip op., 27-29, 35-37. Of course, at this motion to dismiss stage in the proceedings, these are just allegations and no wrongdoing has been proven.

Why WA AG Settled on $9 Million Fine After Winning $18 Million in Failure to Report Win: Washington State Attorney General Bob Ferguson announced on March 2 that he has settled a campaign finance reporting claim against the Consumer Brands Association (formerly the Grocery Manufacturers Association) for $9 million, less than a month after the Washington Supreme Court upheld a record $18 million fine against the group. Why? Ferguson told the Seattle Times that the SCoWA “ruling came on a divided, 5-4 vote, raising the prospect that the conservative majority on the U.S. Supreme Court might strike down the fine — and even put the state’s campaign-finance laws in jeopardy.” The Seattle Times article, following a common error in media coverage, referenced AFPF/TMLC v. Bonta, the U.S. Supreme Court’s July 2021 decision to strike down a California Attorney General’s rule that imposed a “dragnet” sweep of charitable donors, although the rules for charitable and political donor disclosures are different.

No Campaign Contributions Limits in Alaska: Following Thompson v. Hebdon, a July 2021 Ninth Circuit finding that Alaska’s campaign contributions were unconstitutionally low, the Alaska Public Offices Commission eliminated all limits on campaign contributions to most statewide and municipal elective offices. The APOC staff had recommended simply raising the limits to a level acceptable to the Ninth Circuit, but there were not enough affirmative votes on the Commission to adopt the staff’s proposal.

CONGRESS

Congressional Letter Requests IRS Investigation of Hollywood Foreign Press Association: Following a 2021 Los Angeles Times investigation of the tax-exempt sponsor of the Golden Globes awards, Cong. Joyce Beatty and Brenda Lawrence asked the Service to look into “seemingly corrupt and unacceptable deal making patterns of HFPA.” Concerns included self-dealing and what might have been IRC § 4958 violations, and “failure to embrace robust diversity and inclusion practices that we are now seeing being implemented in Hollywood and across all business and government sectors.”

STATES

Covington Releases 400-Page Pay2Play State-by-State Survey: Where applicable, for all capital cities, all cities with a population of over 100,000 (200,000 for California and New Jersey) and many counties. For Purchase. Venable (via FTLG participant Ron Jacobs) highlights new Delaware County, Pennsylvania, P2P rules.

GENERAL

Libraries Walk A Fine Line On First Amendment “Audits:” According to the American Library Association’s Office for Intellectual Freedom, an increasing number of public library visitors are attempting to film “First Amendment audits” of the libraries’ book collections and public activities. “‘What are they looking for? Every single one of them is different. Some auditors are looking for fame and fortune on YouTube and other auditors are looking for confrontation,’ said Deborah Mikula, executive director of the Michigan Library Association (MLA). ‘They’re looking to be confronted, either by the staff or by police, and they’re creating those videos to claim a violation of their First Amendment rights.’”

Continuing Attacks on Legal Counsels: Part of a trend we’ve discussed before, Axios reports that the 65 Project, counseled by David Brock, of “oppo” organization American Bridge, but also conservative Republicans and others, is “targeting 111 attorneys in 26 states who were involved to some degree in efforts to challenge or reverse 2020 election results. They include lawyers at large national law firms with many partners and clients and lawyers at smaller, regional firms. … It plans to spend about $2.5 million in its first year and will operate through an existing nonprofit called Law Works. Brock told Axios in an interview that the idea is to ‘not only bring the grievances in the bar complaints, but shame them and make them toxic in their communities and in their firms.’”

Careful About Characterizing Support: Houston Chronicle (paywall) reports the Texas Election Commission levied a $30,000 fine on an unsuccessful City Council candidate whose campaign flyer suggested that Harris County Black Democratic News had endorsed him without disclosing that the source of the funds for the endorsement mailer was the candidate.

You Probably Won’t Be Using This New Tax Ruling: Business Insider reports that: “Ukrainian authorities have reassured citizens that they don’t need to declare captured Russian tanks or any equipment they pick up as personal income. ‘Have you captured a Russian tank or armored personnel carrier and are worried about how to declare it? Keep calm and continue to defend the Motherland!’ a statement from the Ukrainian National Agency on Corruption Prevention seen by Interfax-Ukraine said.” The announcement (available only in Ukrainian) noted that the value of a captured tank would likely be less than the Ukraine living wage.