On January 21, 2010, the U.S. Supreme Court issued its long-awaited ruling in the case of Citizens United v. Federal Election Commission. The Court overruled its earlier decisions in Austin v. Michigan Chamber of Commerce and McConnell v. Federal Election Commission with respect to the following points:
There are a myriad of practical implications from the decision, which opens the door both for nonprofit and for-profit corporations to involve themselves in the political/electoral and policy debates during 2010.
However, it is important to understand not only what the decision changed, but also what parts of the law were left intact. The following is a quick summary of the decision and its implications.
Who Is Affected and How?
Corporations will now be permitted to make direct expenditures for communications related to candidates for office, both at the federal and state level, as long as such expenditures are independent from the candidates and their campaigns. Some of the types of communications that have previously been prohibited that are now allowable include (but are not limited to):
Nonprofit corporations such as 501(c)(6) trade associations and 501(c)(4) grassroots lobbying and social welfare organizations will now be permitted to spend corporate treasury funds to fund public communications that support and oppose candidates, legislation, government policies, and proposals. Public communications that discuss issues also can tie those specific policies and issues to specific candidates or officeholders proposing/opposing the policies, even within the period of time just prior to an election.
Some of the types of communications that have been prohibited under Federal Election Commission (FEC) and many state regulations but which will now be allowed include:
The opinion applies to candidate-related independent labor union expenditures, not just candidate expenditures by corporations. Chief Justice Roberts wrote in his concurring opinion, “Congress may not prohibit political speech, even if the speaker is a corporation or labor union.”
Qualified Nonprofit Corporations
Based on the Court’s decision, there is no longer the requirement for establishing a “qualified nonprofit corporation” in order for a 501(c)(4) organization to make independent expenditures expressly advocating election or defeat of candidates. A 501(c)(4) organization (and other types of nonprofits) may accept corporate contributions and use such contributions to fund public communications related to candidates. The MCFL exception to the prohibition against corporate candidate-related expenditures is no longer necessary, because the rule has now changed.
What Is Not Changed by the Court’s Decision?
As important to understanding what has changed under the Citizens United decision is a keen understanding of what has not changed.
Disclosure of Donors Is Still Required
The Court left intact the requirements for disclosure of donors to independent expenditures and electioneering communications. The current FEC regulations require that the identity of donors who were solicited to and whose contributions are used to pay for independent expenditures and electioneering communications are subject to disclosure to the FEC. It remains to be seen whether the FEC will deem it necessary to rewrite the regulations regarding disclosure of donors under specific circumstances. Bottom line: Disclaimers and disclosures are still required.
IRS Regulations Still Apply
While the campaign finance restrictions on use of corporate funds for candidate-related expenditures have been invalidated, the tax code provisions still apply. The basic requirements under the tax code that are still effective include:
Corporate Contributions to PACs and Candidates Are Still Prohibited
The Court’s decision applies to independent expenditures by corporations and does not change the law regarding contributions to federal candidates, political parties, and political action committees. All the FEC regulations and restrictions governing contributions from corporations and labor unions to federally regulated committees still apply.
The Court’s Decision Applies Only to Independent Expenditures
The “coordination” regulations that separate “independent” from “coordinated” expenditures are still applicable. The decision presupposes that the expenditures by corporations are made independently of candidates and political parties. The FEC is currently involved (again) in an ongoing rulemaking to define ”coordinated public communications,” the third time since the Bipartisan Campaign Reform Act of 2002 (BCRA) was enacted in 2002 that it has engaged in such a rulemaking. It is possible that the FEC will seek guidance from the Court with respect to the current or a future rulemaking. However, it suffices to say that the Citizens United decision rests on the understanding that a corporation’s candidate-related expenditures are made independent of the candidate, campaign, or political party.
Laws and Regulations Governing Reporting by Candidates, Political Parties, and PACs Are Unchanged
There is nothing in the Court’s decision that changes the fundraising and reporting obligations imposed by law on candidates, campaign committees, PACs, and political parties.
For More Information
For a more detailed discussion of this alert topic, Foley Political Law Partner Cleta Mitchell and Tax & Employee Benefits Partner Dick Riley, Jr. will conduct the Web conference, Citizens United: What the Decision Means for Companies & Nonprofits, at 2:00 p.m. – 3:30 p.m. (Eastern), Wednesday, February 3, 2010. Learn more and register.
Legal News Alert is part of our ongoing commitment to providing up-to-the-minute information about pressing concerns or industry issues affecting our clients and colleagues. If you have any questions about this alert or would like to discuss this topic further, please contact your Foley attorney or: