New Uncertainty: Will Court or Regulatory Action Force Disclosure of Hidden Donors?

It is uncertain how long corporations and nonprofit groups will be able to rely on anonymity for certain undisclosed political donations, due to actions by a federal court and by the Internal Revenue Service.

Center for Political Accountability President Bruce Freed and outside counsel Karl Sandstrom predicted in a winter article published by The Conference Board Review that “a confluence of changes … could lead to confusing times for corporations that want to be engaged in politics.” Already, this confusion has begun in earnest.

U.S. District Judge Amy Berman Jackson ruled April 1 that the Federal Election Commission overstepped its legal authority when it declared in 2007 that corporations and nonprofits did not have to disclose the identities of those who finance ads that referred to a candidate for office but avoided expressly advocating the candidate's election or defeat.  Such are often highly critical of a candidate but avoid using word such as "vote for" or "defeat".

Judge Jackson’s opinion is likely to be appealed. In the meantime, corporations no longer can be confident that contributions paid to trade associations and public advocacy groups organized as tax-exempt nonprofits, and used for political purposes, will always be anonymous.

This kind of political spending has exploded. On April 25, for example, the Washington Post reported that almost all independent advertising aired for the 2012 general election campaign has come from interest groups that do not reveal their donors’ identities.

Rep. Chris Van Hollen, who had sued to challenge the FEC rule, said Judge Jackson’s ruling “creates a ray of sunshine in a sea of secret, outside spending and represents one part of our broader strategy to increase disclosure and restore the integrity of the American electoral process.” Van Hollen is a Maryland Democrat.

In addition, the IRS has mailed lengthy questionnaires to groups seeking nonprofit status as part of a larger IRS project to determine whether 501(c)(4)s are acting as political committees. Watchdog groups and lawmakers from both parties have asked the IRS to investigate the activities of these tax-exempt groups. Some lawmakers have asked the agency to determine whether groups “improperly engaged” in campaign activity.

For corporations, the outsourcing of campaign spending clearly is “dangerous terrain,” Freed and Sandstrom warned in The Conference Board Review article carrying that title.