Overview

The Bipartisan Campaign Reform Act (BCRA) of 2002 was enacted, in part, to stanch the flow of corporate money into the political process. It prohibited unlimited (or soft money) contributions to national political parties and to committees controlled by federal officeholders. However, BCRA did not stop the flow of corporate money—it only changed the channels through which this money moves. In a similar way, the U.S. Supreme Court’s Citizens United v. Federal Election Commission decision in 2010 struck down some provisions of BCRA and realigned some of the money channels.

Today corporations remain free to contribute soft money to non-connected political committees, popularly referred to as 527s; to independent expenditure groups, known as super PACs; to state and local candidates and to political committees, including party committees, at the state level. Corporations are also free to use trade associations and other tax-exempt entities, including “social welfare” 501(c)(4) organizations, as vehicles for corporate political involvement.

This definition applies, but is not limited, to the following expenditures: 

·         Contributions to or expenditures on behalf of political candidates,

·         Contributions to or expenditures on behalf of political parties,

·         Contributions to or expenditures on behalf of political committees and other political entities organized and operating under 26 USC Sec. 527 of the Internal Revenue Code (i.e. Republican Governors Association and Democratic Governors Association).This includes any contribution made to a Super PAC,

·         Any portion of any dues or similar payments made to any tax exempt organization that is used for an expenditure or contribution that if made directly by the corporation would not be deductible under section 162(e)(1) of the Internal Revenue Code,

·         Payment for advertisements, printing and other campaign expenses,

·         Donation of company products or services to a political organization.

·         Reimbursing someone for a political contribution. 

Political Spending and Disclosure Requirements

Political Payments to Trade Associations and Other Tax-Exempt Organizations

Corporations can make unlimited payments to trade associations and other tax-exempt organizations. Trade associations are not required to disclose their members, and companies are not required to disclose their trade association memberships.  Under the tax code, civic leagues and “social welfare” organizations (501(c)(4) organizations) and business leagues and trade associations (501(c)(6) organizations) may engage in political campaign intervention, so long as the political activity does not comprise the group’s primary activity.  Groups that do so are required to pay taxes on their political expenditures or their group’s net investment income for the year, whichever is less.  “Social welfare” organizations are not required to publicly disclose their donors.

Independent expenditure-only committees, known as super PACs, sprang up in the wake of the U.S. Supreme Court’s Citizens United vs. Federal Election Commission decision and Speechnow vs. Federal Election Commission, a Federal Appeals Court for the District of Columbia decision, both issued in 2010. Super PACs may raise unlimited sums of money from corporations, unions, associations and individuals, then spend unlimited sums to advocate for or against political candidates. They must report their donors to the Federal Election Commission, but can escape meaningful disclosure when contributors route their contributions through intermediaries.

Compounding the problem of secret money, corporations are allowed to funnel their political activity through trade associations and other tax-exempt entities. As this section details, under current tax laws corporate political spending can be run through a trade association or 501(c)(4) organization with little risk that the corporate donors will ever be disclosed, and great risk that the corporate donors are not even aware of how their money is being used.  While the current regulatory regime does not require disclosure, there is a possibility that the law may change, posing a risk to contributors. An equal risk to corporate donors is that they may be kept in the dark about how their money is being used.

For further information on this topic, see our report: Corporate Political Spending: What It Includes, How It Is Defined.