DC Circuit Refuses to Stay Lower Court Ruling Requiring Disclosure of Funders of "Electioneering Communications"

Late Monday night, a three-judge panel of the U.S. Court of Appeals for the D.C. Circuit refused to stay a federal district court's ruling in the Van Hollen case, which invalidated a 2007 Federal Election Commission rule regarding the disclosure of donors to organizations making "electioneering communications."  The D.C. Circuit's procedural decision means that the 2007 disclosure rule remains invalidated by the lower court ruling, at least until the D.C. Circuit reaches its own decision on the rule's validity later this year or until a request for a stay is granted by a higher court.

This development upends the settled disclosure practices of corporations, trade associations, and 501(c)(4) organizations that sponsor "electioneering communications" — radio/television advertisements that: (1) refer to a federal candidate; (2) are broadcast within 30 days of a primary election or within 60 days of a general election; and (3) are targeted to the relevant electorate.  Under the now-invalidated FEC rule, electioneering communication sponsors were required to disclose an underlying donor's name and information only if the donor had given $1,000 or more in a calendar year specifically "for the purpose of furthering electioneering communications."  Because this was a relatively narrow requirement, electioneering communication sponsors rarely disclosed their underlying donors in recent elections.

Now, corporations, trade associations, and 501(c)(4) organizations must decide whether to make electioneering communications and disclose their donors under the existing statute and an earlier version of the FEC's rule from 2003 that the district court reinstated, or to forego such advertising.
Groups that choose to run electioneering communications have two options to comply with the statutory requirement:
 

•  If the disbursement for an electioneering communication is paid out of a segregated bank account, the sponsor need only disclose the names and addresses of all those who contributed an aggregate of $1,000 or more to the segregated account; or
•  If the disbursement for an electioneering communication is not paid from a segregated bank account, the sponsor must disclose the names and addresses of all underlying "contributors who contributed" an aggregate of $1,000 or more in a calendar year to the sponsor.

Groups that choose to live with these rules will need to determine which contributors they are required to disclose.

Alternatively, entities seeking to engage in election-related activity in the sixty days before the general election without disclosing their underlying donors may be able to avoid disclosure by foregoing electioneering communications and instead sponsoring "independent expenditures" (communications that expressly advocate a candidate's election or defeat).  FEC rules require "independent expenditure" sponsors to disclose underlying donors under relatively limited circumstances.  However, sponsoring "independent expenditure" communications is clearly considered political campaign activity under federal tax law (whereas a narrow range of electioneering communications may not be, depending on their content and context) and may therefore adversely affect nonprofits, such as 501(c)(4) organizations and trade associations, seeking to meet IRS "primary purpose" tests while engaging in substantial candidate-specific advertising.

As always, we will continue to keep you apprised of any new and major developments on this fast-moving topic.

If you have any questions about this alert, please contact:

Trevor Potter at 202.862.5092 or tpotter@capdale.com
Matthew T. Sanderson at 202.862.5046 or msanderson@capdale.com
Bryson B. Morgan at 202.862.7836 or bmorgan@capdale.com

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