As the 2018 mid-term season approaches, viewers may be seeing fewer issue advertisements paid for by so-called “dark money” groups.  In a consequential decision, a federal court in Washington, D.C. concluded yesterday that all “electioneering communications” presumptively count as political spending for purposes of determining whether a group should register as a political action committee and disclose its donors.  As a result of this decision, we expect that many donors concerned about public disclosure will demand that 501(c)(4) organizations and similar groups take a less aggressive approach to their election-related spending.

As background, both the Federal Election Commission and the Internal Revenue Service impose what amounts to a “major purpose” test on groups that air advertisements related to elections.  Following the Supreme Court’s landmark decision in Buckley v. Valeo, the FEC has for over forty years held that an organization does not become a political committee that must disclose its donors unless it is “under the control of a candidate” or its “major purpose [] is the nomination or election of a candidate.” Similarly, IRS rules provide that 501(c)(4) social welfare organizations and other groups cannot be “primarily” engaged in intervening in political campaigns.

There has always been uncertainty regarding what kinds of activities count toward the “political” side of the ledger for FEC and IRS purposes.  Advertisements that expressly advocate the election or defeat of a candidate undoubtedly count as political (e.g., “This November, Defeat Senator Jones”).  But what about advertisements that do not include express advocacy but encourage support or opposition to a candidate’s views or actions shortly before an election (e.g., “Senator Jones lacks the courage to stand up to big polluters.  Call him and tell him that it’s time to protect our environment.”)?  Political tax lawyers have long believed that these issue ads might count as “political” for IRS purposes, given the IRS’s “facts and circumstances” approach to evaluating these activities.  But, in recent years and especially in light of the Tea Party scandal, some 501(c)(4) groups have been willing to push the IRS envelope, taking an aggressive view and treating at least some issue ads as “non-political.”

Yesterday’s decision, Citizens for Responsibility & Ethics in Washington v. FEC, however, may compel these groups to take a more conservative approach, by shifting the focus from the IRS as the arbiter of what counts as “political” to the FEC. In the decision, the D.C. District Court held that all “electioneering communications” presumptively count toward the political side of the ledger for purposes of assessing whether the group’s “major purpose” is influencing elections and whether it must therefore register with the FEC as a political action committee and disclose its donors.  In only “rare” or “extraordinary” cases should an electioneering communication fall on the non-political side of the ledger for purposes of the applying the “major purpose” test, the court concluded.  The court described an electioneering communication that would likely be treated as non-political:  “[An ad] runs 60 days before a midterm election; it does not mention the election or even indirectly reference it (e.g., by cabining the message’s timeframe to ‘this November’); the meat of the ad discusses the substance of a proposed bill; the ad urges the viewer to call a named incumbent representative and request that she vote for the bill; but it does not make any reference to the incumbent’s prior voting history or otherwise criticize her.”  The consequence of this standard is that the type of hard-hitting issue ad we have grown accustomed to seeing shortly before an election will now almost certainly count toward the “political” side of the calculation of whether a group must register as a political committee.

The basis for the decision is likely to be challenged.  It relies primarily on the argument that Congress “clarified … that it viewed the vast majority of electioneering communications as corroborating a purpose of electing candidates to federal office” when it passed the Bipartisan Campaign Reform Act in 2002.  But while BCRA imposed reporting requirements on electioneering communications because of their potential electoral effect, it does not necessarily follow that Congress intended these ads to count as political spending under the “major purpose” test.  As a result, the Court’s reading of BCRA as reflecting an implicit Congressional decision to define the “major purpose” test is debatable.  Further, “electioneering communications” include only TV and radio advertisements.  The logic of the Court’s decision, therefore, suggests that direct mail or digital issue advertisements are not presumptively political while TV and radio advertisements with the same content distributed at the same time are presumptively political.

We therefore expect more twists and turns to this case before the issue is finally resolved.  (All four FEC Commissioners will be required to vote unanimously in favor of appealing the ruling, pursuing an enforcement case against the original respondent American Action Network, or finding some other grounds to decline to pursue the Complaint.  Given the current composition of the FEC, it seems unlikely that the Commission will take any of these approaches.)  But at least in the near term, we expect the decision will cause some 501(c)(4) groups to cut down on the volume of electioneering communications because of the increased risk  those advertisements will be treated just like independent expenditures for purposes of determining whether the group’s “major purpose” is political.  Some of this reduction may also be driven by donors who are concerned about the possibility of public disclosure.  While the Court’s decision may be challenged, it is unclear whether any challenge would succeed and, for at least now, the Court’s opinion sets forth a clear and binding judicial framework for assessing whether electioneering communications should be treated as “political.”  As a result, these donors may, for example, demand an explicit assurance that the groups are primarily engaged in non-political activities and that the group’s independent expenditures, electioneering communications, and other political expenditures account for less than 50 percent of the group’s total activities.