Supreme Court Denial Means More Donor Disclosure Required for 501(c)(4)s

We reported recently that the IRS will no longer require exempt organizations other than 501(c)(3)s to disclosure donor information. However, in the election law area, there has been a development toward more, not less donor disclosure. The U.S. Supreme Court has denied to stay a ruling of a lower court that requires the Federal Elections Commission (FEC) to eliminate a long-standing regulation that allowed nonprofits to keep most donors confidential.

The regulation at issue previously required donor disclosure only where donors earmarked their contributions for a particular independent expenditure (e.g., contributions for a specific ad or mailer for or against the election of a candidate). However, contributions to an organization like a 501(c)(4) for its general political purposes did not require donor disclosure. This meant that the bulk of contributions made to 501(c)(4)s like Crossroads GPS—the organization at issue in the recent FEC ruling—didn’t have to be disclosed even if used for independent expenditures for or against the election of a candidate.

Federal Judge Beryl A. Howell ruled against the FEC earlier this year, writing that the FEC’s regulation “blatantly undercuts the congressional goal of fully disclosing the sources of money flowing into federal political campaigns, and thereby suppresses the benefits intended to accrue from disclosure.” She gave the FEC a month and a half to prepare to comply, during which time Crossroads GPS tried to get the Supreme Court to issue an emergency stay until an appeal can be heard. The Supreme Court declined to do so.

At this time, no new rule has been issued by the FEC. The ruling will almost certainly be appealed, but this likely will not happen before midterm elections. It is anticipated that this development may cause a pullback in major giving to exempt organizations for political activity due to the current uncertainty.

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