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THE MUSINGS OF A TRADITIONAL SOUTHERN DEMOCRAT

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Location: Douglas, Coffee Co., The Other Georgia, United States

Sid in his law office where he sits when meeting with clients. Observant eyes will notice the statuette of one of Sid's favorite Democrats.

Monday, October 18, 2010

Groups Push Legal Limits in Advertising

From The New York Times:

Before the Supreme Court’s landmark campaign finance ruling in January, nonprofit groups . . . , able to accept unrestricted contributions from individuals and corporations, had been limited to broadcasting “issue ads” and barred from “express advocacy,” advertisements that directly urge voters to elect or defeat specific candidates.

Now, in the aftermath of the court’s ruling in the Citizens United case, third-party groups in growing numbers have been flocking to this sharper form of messaging in the closing weeks of the campaign.

In the process, however, the groups are, as never before, pushing the legal limits that enable them to preserve the anonymity of their donors.

The basic rule of thumb for nonprofit groups organized under Section 501(c) of the tax code is that more than 50 percent of their annual activities cannot be political. Although it is a matter of debate how spending on traditional issue ads would be categorized by the Internal Revenue Service, it is indisputable that spending on express advocacy would be classified as political.

Even operating just under that dividing line, however, does not mean they are safe, because it is possible the I.R.S., in particular, could classify many of their issue ads as political too, Democratic and Republican campaign finance lawyers said.

It is possible that the groups will seek to stay under the 50 percent limit by increasing their nonpolitical spending after the election is over, a common tactic. They may, for example, broadcast a lot of advertisements during the lame-duck Congress.

The strategy can be risky, however, because it depends on organizations’ keeping money in reserve, or being able to raise enough money for such work after the election.

Several lawyers said that while the 50 percent limit is widely cited, the I.R.S. has never explicitly ruled that 50 percent is the official limit for political spending. It could, in fact, be less.

Under the law, nonprofit 501(c)(4) “social welfare” organizations, 501(c)(5) labor unions and 501(c)(6) trade associations are supposed to be primarily focused on those tax-exempt purposes, as opposed to influencing elections. The crucial question is how a group’s “primary purpose” is evaluated. Some tax lawyers advise their clients to keep their political spending to less than 40 percent of their budgets.

Another surprisingly murky issue is what, other than explicit appeals to voters about how they should cast their ballots, the I.R.S. actually considers political. Auditors weigh a host of factors, according to the agency, including whether an advertisement is part of a continuing series by the group on the same issue. If it is, the group could make a stronger case that the ad is an example of issue, not political, advocacy.

Problems with the I.R.S. could lead to tax penalties and revocation of tax-exempt status. But nonprofit groups engaging heavily in express advocacy could also run into issues with the Federal Election Commission. If the commission determines that a group’s “major purpose” is political, the group is required to register as a political committee and disclose its donors.

The commission’s three Republican members, however, are generally inclined to give these groups leeway, effectively deadlocking the commission because it is split along party lines, and a majority vote is required for it to act. But if most of a group’s spending seems to be on express advocacy, even the Republican commissioners would probably have to scrutinize the group, lawyers said.

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