When does a 501(c)(6) trade association have to disclose its
members to the public? Not often, as the schedule of contributors
provided to the IRS is not a public document. California
– as is so often the case – has other ideas
about that. If a 501(c) organization makes independent expenditures
in California state races, or is involved in a ballot measure, new
rules from the California Fair Political Practices Commission will
require disclosure of certain members or contributors.
On May 19, 2012, the California Fair Political Practices
Commission's ("FPPC") new rules governing disclosure became
effective. These new rules require organizations, such as 501(c)(6)
trade associations, 501(c)(4) social welfare organizations, and
501(c)(3) charities, to disclose certain contributors or members if
those organizations are involved either in independent expenditures
supporting or opposing candidates or an effort to support or oppose
ballot measures (note that charities can only be involved in the
California law requires any entity that that raises,
contributes, or makes independent expenditures of over $1,000 to
register as a political committee. That has been the law for some
time. What is new is how these entities must disclose donors. There
are two types of donors that must be disclosed:
Any donor that "makes a payment in response to a message
or a solicitation indicating the organization's intent to make
a contribution or independent expenditure," will have to be
disclosed as a donor.
If the organization uses funds that were donated without that
knowledge, then the organization must disclose its donors using a
last-in-first-out accounting method until the amount of the
expenditure is fully accounted for.
The second prong is only triggered if the organization has made
an expenditure or contribution prior to the time the payment was
made. In other words, the FPPC's regulation takes the view that
such donors had constructive knowledge that their contribution
might be used for a political expenditure. If even these donors do
not cover the costs of the expenditure, then the organization lists
itself as the contributor.
An organization may avoid disclosing a donor based on
"evidence clearly establishing specific circumstances that
show the donor did not intend that its payment" would be used
political purposes. The rule is silent as to what type of evidence
would be sufficient.
Because these rules are so complicated, an example might help.
Imagine a trade association that raises $10,000 from donors with an
explicit ask that these contributions will be used for an IE. It
then contributes $9,000 to an independent expenditure committee.
The association itself will be treated as a political committee
subject to registration and reporting. It will disclose the $9,000
contribution out and the $10,000 in contributions in. Next the
association makes another contribution to an IE committee of
$5,000. It has disclosed $1,000 of the source of that contribution
(from the prior funds it solicited), but will now have to report
the last $4,000 in revenue it received from members who contributed
(e.g., through a dues payment) after the trade association made the
$9,000 contribution for the IE effort.
This new rule may require 501(c) organizations to disclose far
more about their donors if they are active in California.
Nonprofits will have to think carefully about their activities and
what they will have to disclose. Members and donors will have to be
careful to understand whether their contributions or even dues
payments may have to be disclosed – and linked to a trade
association or other group's political activity.
The rule is unlikely to accomplish much in terms of disclosure
– how much value is there in knowing which widget
manufacturers contributed to the Widget Manufacturers Association?
– but it certainly stands to complicate the relationship
between advocacy groups and their donors.
The Internal Revenue Service has recently published an IRS Large Business & International Directive, which updates an earlier directive to field agents addressing the examination of capitalization and repair costs issues.