Citizens United v. Federal Citizens United v. Federal Citizens United v. Federal Citizens United v. Federal Election CommissionElection CommissionElection CommissionElection Commission

February 25, 2010

Presented by

Harvey Tettlebaum with Husch Blackwell Sanders

Daniel Mehan with the Missouri Chamber

Trey Davis with the Missouri Chamber

SpeakerRobert Hess

OverviewOverviewOverviewOverview

• Recent campaign finance history

• Citizens United decision

• Practical effects

• Legal requirements

• Future developments

Corporate Speech Before 2002Corporate Speech Before 2002Corporate Speech Before 2002Corporate Speech Before 2002

• Criminal prohibition against corporate political expenditures was upheld in Austin v. Michigan Chamber of Commerce, 494 U.S. 652 (1989)

• Exceptions:– PAC activity

– Issue ads without express advocacy

– MCFL not-for-profit advocacy corporations

Bipartisan Campaign Bipartisan Campaign Bipartisan Campaign Bipartisan Campaign Reform Act of 2002Reform Act of 2002Reform Act of 2002Reform Act of 2002

• Prohibited corporate funding of issue ads that were also “electioneering communications”

• Electioneering communications are

– broadcast, cable, or satellite communications

– referring to federal candidates

– within 30 days of a primary election or 60 days of a general election

– targeted to the relevant electorate

McConnell v. Federal Election McConnell v. Federal Election McConnell v. Federal Election McConnell v. Federal Election CommissionCommissionCommissionCommission, 540 U.S. 93 (2003) , 540 U.S. 93 (2003) , 540 U.S. 93 (2003) , 540 U.S. 93 (2003)

• The Court generally upheld most provisions of BCRA

• It specifically rejected a facial challenge to BCRA’s electioneering communications provision

• Austin was reaffirmed

Citizens United v. Federal Citizens United v. Federal Citizens United v. Federal Citizens United v. Federal Election CommissionElection CommissionElection CommissionElection Commission

• A non-profit corporation (Citizens United)

– Produced “Hillary: The Movie”

– Criticizing U.S. Senator and Democratic candidate for President Hillary Clinton

– Sought to distribute it during the Presidential Primaries

Procedural HistoryProcedural HistoryProcedural HistoryProcedural History

• The District Court ruled that the film was a prohibited electioneering communication

• The case was appealed to the United States Supreme Court

• The Court requested supplemental briefing and re-argument on the continuing validity of Austin and McConnell

Legal AnalysisLegal AnalysisLegal AnalysisLegal Analysis

• Individuals have

– a right to free speech

– a right to associate to engage in speech

• Prohibiting/criminalizing speech by one form of private association (a corporation) is censorship

Legal AnalysisLegal AnalysisLegal AnalysisLegal Analysis

• Unlike contributions, no risk of quid pro quo corruption or its appearance exists for independent expenditures

• Disclosure, however, can be compelled

Laws AffectedLaws AffectedLaws AffectedLaws Affected

• The federal bans on independent expenditures and electioneering communications are unconstitutional

• Entities affected: corporations generally and labor unions

• Similar state laws will also be invalid

Laws Not Affected by the Laws Not Affected by the Laws Not Affected by the Laws Not Affected by the Decision Decision Decision Decision

• Ban on corporate contributions to federal political committees

• Coordination rules

• Disclosure and speaker identification requirements

• PAC reporting and registration requirements

• IRS requirements

Practical EffectPractical EffectPractical EffectPractical Effect

Big pictureBig pictureBig pictureBig picture

• Federal contributions still prohibited

• Coordination still prohibited

• Corporations can speak freely about elections to– The public

– Their employees, shareholders, vendors and customers

• Disclosure may be required

Poll question #1

What will 2010 look like?What will 2010 look like?What will 2010 look like?What will 2010 look like?

• Federal– Similar to pre-BCRA corporate issue advocacy– Content limits have been removed (e.g., express advocacy is permitted)

– New options for communicating with customers and employees

• Missouri– Corporate political expenditures were already permitted for state-only communications

– Joint federal-state communications will be allowed, subject to federal disclosure requirements

– Fewer initiative petitions?

Political ImpactPolitical ImpactPolitical ImpactPolitical Impact

• Winners

– Businesses, advocacy organizations (on social issues) and labor unions

– Indirectly, new candidates

• Losers

– Anti-business groups (e.g., trial lawyers) and campaign finance reform advocates

– Indirectly, media corporations, labor unions, incumbent officeholders and political parties

Legal RequirementsLegal RequirementsLegal RequirementsLegal Requirements

Legal issuesLegal issuesLegal issuesLegal issues

• Committee vs. non-committee reporting

• Coordination rules

• Reporting requirements

• Identification/disclaimer requirements

• Taxation implications

• Other requirements

Poll question #2

Committee Registration and Committee Registration and Committee Registration and Committee Registration and ReportingReportingReportingReporting• A committee – is an entity with a major purpose of accepting contributions or expending funds to influence elections

– must register and file periodic reports of contributions and expenditures

• Federal committees are:– Subject to contribution limits– Able to contribute to federal candidates

• Missouri has special requirements for out-of-state committees

Effect of CoordinationEffect of CoordinationEffect of CoordinationEffect of Coordination

• Expenditures are not “independent” if they are coordinated with a candidate

• Coordinated expenditures are in-kind contributions that

– are prohibited for corporations by federal law

– must be reported under Missouri law

Federal Coordination TestFederal Coordination TestFederal Coordination TestFederal Coordination Test

• Federal communications cannot be coordinated with candidates orpolitical party committees

• Federal test has three prongs: (1) payment, (2) content and (3) conduct

Federal Content StandardsFederal Content StandardsFederal Content StandardsFederal Content Standards

• Electioneering communications• Campaign materials• Public communications that expressly advocate the election or defeat of federal candidates

• Public communications referring to a House or Senate candidate that are distributed within 90 days of a federal election*

*This portion of the regulation was held invalid in Shays v. Federal Election Commission, 528 F.3d 914 (D.C. Cir. 2008) (Shays III). A new rulemaking is ongoing.

Federal Conduct StandardsFederal Conduct StandardsFederal Conduct StandardsFederal Conduct Standards

• Request or suggestion• Material involvement• Substantial discussion• Common vendor• Former employee or independent contractor• Dissemination, distribution or republication of campaign material

• Safe harbors for– Responses to inquiries about legislative or policy issues– Endorsements of or solicitations of funds for other candidates

– Firewall

Missouri Coordination TestMissouri Coordination TestMissouri Coordination TestMissouri Coordination Test

•Missouri has adopted an “independent expenditure” exception by advisory opinion

• An expenditure is not independent if a candidate

– requests, directs or controls it

– cooperates in or consents to it

SpeakerKyle Gilster

NonNonNonNon----committee reportingcommittee reportingcommittee reportingcommittee reporting

• Federal

– Independent expenditures

– Electioneering communications

•Missouri

– Expenditures

– Internal dissemination of information

Federal: Independent Federal: Independent Federal: Independent Federal: Independent Expenditure Reporting to FECExpenditure Reporting to FECExpenditure Reporting to FECExpenditure Reporting to FEC

• Report is required when expenditures expressly advocate for or against a clearly identified federal candidate

• Independent expenditures must be reported on – FEC Form 3X, Schedule E by political committees

– FEC Form 5 by other persons

• Report includes an affirmation under penalty of perjury that the communication is not coordinated

Federal: Independent Federal: Independent Federal: Independent Federal: Independent Expenditure ReportingExpenditure ReportingExpenditure ReportingExpenditure Reporting

• A report is required

– On the quarterly reporting schedule for political committees for independent expenditures of more than $250

– Within 48 hours for independent expenditures of $10,000 or more during a calendar year on or before the 20th day before an election

– Within 24 hours for independent expenditures of $1,000 or more during a calendar year after the 20th day before an election

Federal: Electioneering Federal: Electioneering Federal: Electioneering Federal: Electioneering Communication ReportingCommunication ReportingCommunication ReportingCommunication Reporting

• Electioneering communications trigger reporting obligations

• If the costs are more than $10,000, disclosure is required within 24 hours of public distribution

• FEC Form 9 is used

Missouri: NonMissouri: NonMissouri: NonMissouri: Non----committee committee committee committee ReportingReportingReportingReporting• Reporting is required for

– Expenditures for or against candidates or ballot measuresof $500 or more in the aggregate

– The internal dissemination of information for or against candidates or ballot measures to employees, members or shareholders of more than $2,000

• The report must be filed– Within 14 days, or within 48 hours for expenditures made within 14 days of the election

– With the appropriate agency (Ethics Commission or local election authority)

• Exception for contributions or coordinated expenditures that are reported by a committee

Identification/disclaimersIdentification/disclaimersIdentification/disclaimersIdentification/disclaimers

• “Paid for by” information must be included with the communication

• Federal– Applies to express advocacy, contribution solicitations and electioneering communications

– Non-authorization statement

• Missouri– Applies to “printed matter” relative to candidates and ballot measures

– Must identify the entity’s principal officer

– Incorporates FCC requirements for broadcast communications

Federal Tax IssuesFederal Tax IssuesFederal Tax IssuesFederal Tax Issues

SpeakerJohn Westmoreland

IRS RequirementsIRS RequirementsIRS RequirementsIRS Requirements

• Citizens United did not directly affect tax laws• Taxpayers, including corporations, are still not allowed to deduct:– Political campaign contributions or other campaign expenditures

– Expenditures to influence public opinion in connection with political campaigns

– Lobbying expenditures– Expenditures to influence the official actions of high-level executive branch officials

– NOTENOTENOTENOTE: Portion of any dues paid to trade associations and attributable to the items listed above may not be deductible

Tax Exempt OrganizationsTax Exempt OrganizationsTax Exempt OrganizationsTax Exempt Organizations

• Typical organizations engaged in advocacy activities:

– Section 501(c)(3): Charitable Organizations

– Section 501(c)(4): Social Welfare Organizations

– Section 501(c)(5): Labor Organizations

– Section 501(c)(6): Business Leagues

– Section 527: Political Organizations

• Types of Advocacy: Political Campaign Activity, Lobbying and Other Advocacy

Political Campaign ActivityPolitical Campaign ActivityPolitical Campaign ActivityPolitical Campaign Activity

• Any activities that favor or oppose candidates for public office, including:

– Endorsements of candidates

– Contributions to candidates or PACs

– Public statements for/against a candidate

– IRS considers all facts and circumstances in making determination

LobbyingLobbyingLobbyingLobbying

• Attempting to influence federal, state and local legislation through:

– Directly contacting members of a legislative body

– Encouraging the public to contact members of a legislative body

– Advocating a position on a public referendum or ballot measure

Other AdvocacyOther AdvocacyOther AdvocacyOther Advocacy

• Influence public opinion on issues

• Influence non-legislative governing bodies (e.g., executive branch or other regulators)

• Encourage voter participation:

– Voter Registration

– Voter Guides

– Candidate Debates

– Get Out the Vote Drives

501(c)(3) Organizations501(c)(3) Organizations501(c)(3) Organizations501(c)(3) Organizations

• Political Campaign Activity: Strictly prohibited

• Lobbying: Cannot be substantial activity of organization

• Other Advocacy: Permitted by IRS as general “educational” activity

Tax Consequences Tax Consequences Tax Consequences Tax Consequences –––– 501(c)(3) 501(c)(3) 501(c)(3) 501(c)(3) OrganizationsOrganizationsOrganizationsOrganizations

• Political campaign expenditures subject to tax under Section 4955

• Excess lobbying expenditures subject to tax under Section 4911 or Section 4912

• Possible revocation of exempt status by IRS if engage in political campaign or more than insubstantial lobbying

501(c)(4), 501(c)(5) and 501(c)(4), 501(c)(5) and 501(c)(4), 501(c)(5) and 501(c)(4), 501(c)(5) and 501(c)(6) Organizations501(c)(6) Organizations501(c)(6) Organizations501(c)(6) Organizations

• Political Campaign Activity: Permitted so long as it does not constitute primaryactivity of organization

• Lobbying: Unlimited amount allowed in furtherance of exempt purpose allowed

• Other Advocacy: Unlimited amount allowed in furtherance of exempt purpose

Tax Consequences Tax Consequences Tax Consequences Tax Consequences ---- 501(c)(4), 501(c)(4), 501(c)(4), 501(c)(4), 501(c)(5) and 501(c)(6) Organizations501(c)(5) and 501(c)(6) Organizations501(c)(5) and 501(c)(6) Organizations501(c)(5) and 501(c)(6) Organizations

• Tax under Section 527(f) on political campaign expenditures

• Proxy tax under Section 6033(e) possible on lobbying, political campaign and certain other expenditures

• Possible revocation of exempt status if political campaign and other non-exempt activity considered primary activity

Section 527 OrganizationsSection 527 OrganizationsSection 527 OrganizationsSection 527 Organizations• Political Campaign Activity: Permitted as exempt function activity

• Lobbying: Limited amount permitted provided not substantial

• Other Advocacy: Limited amount permitted provided not substantial

• NOTE: If lobbying or other advocacy expenditures substantial, these non-exempt function expenditures may invalidate exempt status and subject allamounts received by organization to tax

Future DevelopmentsFuture DevelopmentsFuture DevelopmentsFuture Developments

Poll question #3

SpeakerRobert Hess

Pending CasesPending CasesPending CasesPending Cases

• Republican National Committee v. Federal Election Commission (D.D.C. pending) –challenges ban on corporate contributions for non-federal activities of national parties

• SpeechNow.org v. Federal Election Commission (D.C. Cir. pending) – challenges the constitutionality of contribution limits for groups that only make independent expenditures

News Rules and LegislationNews Rules and LegislationNews Rules and LegislationNews Rules and Legislation

• FEC rulemaking on coordination in response to Shays v. Federal Election Commission, 528 F.3d 914 (D.C. Cir. 2008) (Shays III)

• FEC rulemaking to address Citizens United

• Schumer-Van Hollen federal legislative response to Citizens United

Likely New RequirementsLikely New RequirementsLikely New RequirementsLikely New Requirements

• Ban on expenditures by government contractors and recipients of public funds

• Amplified donor disclosure requirements

• Extension of stand-by-your-ad disclaimer to corporate communications

• More stringent coordination rules

• New IRS requirements

• Corporate law governance (e.g., explicit officer approval of political expenditures)

Dan Mehan, President/CEOdmehan@mochamber.com

573-634-3511

Trey Davis, Vice President of Governmental Affairstdavis@mochamber.com

573-634-3511

Harvey TettlebaumHarvey.tettlebaum@huschblackwell.com

573-761-1107

Robert HessRobert.hess@huschblackwell.com

573-761-1113

Kyle GilsterKyle.gilster@huschblackwell.com

202-378-2303

John WestmorelandJohn.westmoreland@huschblackwell.com

314-480-1726

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