If adopted, the interim rule would have taken effect immediately but only for a year while the FEC decided whether or not to make it permanent. The rule change was proposed by one of the commissioners in response to a petition (PDF) filed in February 2006 by Alliance for Justice, OMB Watch, the U.S. Chamber of Commerce, AFL-CIO, and the National Education Association.

The current electioneering communications rule, created by the Bipartisan Campaign Reform Act (BCRA), prohibits nonprofit organizations from running broadcast ads that refer to a candidate for federal office within 30 days of a primary or 60 days of a general election. The FEC originally exempted communications from 501(c)(3) organizations from the rule, but dropped that exemption as a result of a court challenge in Shays v. FEC.

The proposal rejected on August 29 would have created a grassroots lobbying exemption allowing nonprofit organizations to broadcast issue ads that mention federal candidates in the upcoming election period if the candidates are current office holders, the communications discuss a pending public policy issue, do not refer to an election or political party, and do not promote, support, attack or oppose any candidate for federal office.

FEC Drops 501(c)(3) Exemption
The FEC issued a final rule on electioneering communications on December 21, 2005, dropping a 501(c)(3) exemption that had been challenged in court.The FEC concluded that comments submitted by the public did not demonstrate "to a reasonable certainty" that the IRS restriction on political activity by 501(c)(3)s was sufficiently compatible with the Bipartisan Campaign Reform Act (BCRA) law to allow the exemption. IS filed comments in September 2005 urging the FEC to keep the exemption without a new "promote, support, attack, oppose" restriction.

The Commission also questioned the need for the exemption since no commenters provided any examples of broadcast ads by 501(c)(3)s that referred to a federal candidate. The final rule also changes the definition of electioneering communications so that it will now include public service announcements as well as communications that are broadcast for a fee. Final rule (PDF)

Independent Sector filed comments with the FEC in September 2005, urging the Commission to keep its current 501(c)(3) exemption from electioneering communications restrictions. The comments were in response to a proposed FEC rule that would change the type of issue ads nonprofits could broadcast around election time.

On August 24, 2005, the FEC issued a proposed rule in response to a District Court decision (Shays v. FEC) that sent back some of the agency's new campaign finance rules for revision. One of the rules that must be revised is the 501(c)(3) exemption from the electioneering communications regulations. Electioneering communications were defined in the original FEC rules as broadcast ads distributed for a fee that refer to a candidate for federal office aired within 30 days of a primary or 60 days of a general election. In addition to addressing the 501(c)(3) exemption, the Commission considered removing the phrase "for a fee" from the definition of electioneering communications to address the court’s concern that even public service announcements could be seen as promoting or supporting a candidate, and should therefore be subject to electioneering communications rules.

Among the options under consideration by the FEC were: narrowing the 501(c)(3) exemption; repealing it; or replacing it with a broad new exemption that covers all communications that do not "promote, support, attack or oppose" a federal candidate. The FEC is not proposing to further define the phrase "promote, support, attack or oppose."

At an October 20, 2005 hearing, the FEC considered how to revise its exemption for grassroots lobbying ads by 501(c)(3) organizations. Two panels of witnesses commented on the options under consideration by the FEC. Much of the discussion focused on whether the phrase "promote, support, attack or oppose" is so vague that charities would avoid lobbying ads completely rather than risk violating a regulation that contains that phrase. The Commissioners also took note of the fact that the U.S. Supreme Court will hear a case in early 2006 that challenges the constitutionality of the ban on grassroots lobbying ads during election times. Although the Commissioners discussed whether they should wait until the Supreme Court rules to revise their regulation, it did not appear that they were inclined to do so.

Background
The 501(c)(3) exemption from electioneering communications rules was based on the fact that such organizations are already barred by tax law from intervening in political campaigns on behalf of or in opposition to any candidate. The District Court in Shays, however, found a lack of compatibility between the IRS' interpretation of the ban on political intervention on one hand, and campaign finance law's restrictions regarding electioneering communications on the other. The Court also found it unclear "whether or not the IRS will conform its views on political activity under the tax laws to those regulated in the realm of campaign finance law," and that the FEC did not sufficiently address whether the IRS could effectively enforce the restrictions required by campaign finance law. The notice of proposed rulemaking lists three specific omissions from the FEC's record that were identified by the Court:

(1) it did not discuss whether or not public communications that promote, support attack or oppose a federal candidate would be viewed by the IRS as political activity in which section 501(c)(3) organizations may not engage;
(2) it did not discuss the risk, if any, that limited lobbying activity permitted for section 501(c)(3) organizations could give rise to advertisements that promote, support attack or oppose a federal candidate; and,
(3) it did not address the implications of allowing the IRS "to take the lead in campaign finance law enforcement."

The FEC attempted with this rulemaking to address the Court's concerns listed above. In the notice of proposed rulemaking, the FEC reviewed comments it received in 2002 on this issue, including Independent Sector's comment that the IRS vigorously enforces the 501(c)(3) prohibition on intervention in political campaigns. However, the FEC also cites a 2002 GAO report that found that the IRS lacks the resources for adequate oversight and enforcement, and needs to improve monitoring of 501(c)(3) compliance. The FEC specifically requested "comments and other reports, documents or evidence" on the appropriateness of continuing to defer to IRS determinations in this area. The FEC also states that if it decides to keep a 501(c)(3) exemption, it must make a finding on a well-developed record that such organizations cannot make communications that promote, support, attack or oppose a federal candidate when acting lawfully within their tax status as a 501(c)(3).


Shays v. Meehan Decision
A U.S. District Court Judge ruled on September 18, 2004 that some of the Federal Election Commission's regulations do not adequately enforce the Bipartisan Campaign Reform Act (BCRA). One of the rules that Judge Kollar-Kotelly sent back to the FEC for further action is the exemption of 501(c)(3) organizations from the regulations governing electioneering communications (i.e., broadcast ads referring to a candidate for federal office that are aired within 30 days of a primary or 60 days of a general election). The FEC based its exemption on the fact that 501(c)(3) organizations are already barred by the Internal Revenue Code from participating or intervening in political campaigns on behalf of or in opposition to any candidate. In her ruling, Judge Kollar-Kotelly noted a lack of compatibility between the IRS’ interpretation of the ban on political activity by 501(c)(3)s and BCRA’s requirements regarding electioneering communications. She said that it is unclear “whether or not the IRS will conform its views on political activity under the tax laws to those regulated in the realm of campaign finance law,” and that the FEC did not sufficiently address whether the IRS could effectively enforce the restrictions required by campaign finance law.

In striking down 15 of 19 regulations challenged by Representatives Chris Shays and Martin Meehan, Judge Kollar-Kotelly found that some of the FEC’s rules actually undermine BCRA. The FEC will appealed some portion of the judge's ruling, and is making revisions to the regulations to address other portions. (full opinion PDF)


FEC Electioneering Communications Rule Approved in 2002
The electioneering communications regulations approved by the FEC on October 10, 2002 included the following provisions:

• The general definition of "electioneering communications," supported by IS, remained unchanged, except that it was modified to require that the communication be publicly distributed "for a fee" in order to exempt unpaid communications, as proposed by IS and others. The explanation to the regulations clarifies that "for a fee" is limited to a fee for the distribution (i.e., airtime), and does not include the costs of producing a communication.
  
• An exception for communications paid for by any organization operating under section 501(c)(3) was added.
  
• Communications clearly referring to presidential or vice presidential candidates are only electioneering communications with respect to primary elections (including conventions and caucuses) if they reach 50,000 people in the state where the primary is being held 30 days before the primary, a position supported by IS. Such communications are also electioneering communications if aired anywhere in the nation between 30 days of the start of a national convention and the conclusion of the convention, a position opposed by IS.
  
• The exceptions for print media, the Internet, news stories, commentaries and editorials, and candidate debates, all supported by IS, remained unchanged. The explanation to the regulations also clarifies, as IS requested, that the type of equipment used to access the Internet is irrelevant.
  
• The proposed exceptions for lobbying communications and for communications mentioning the popular name of legislation, which IS supported in certain forms, were deleted.
  
• The explanation to the regulations states that the FEC accepts the proposition, supported by IS, that non-financial affiliations between organizations, even if one organization is allowed to fund electioneering communications and the other is not, are permitted, as long as separate finances are maintained.
  
• A corporation or labor organization that provides funds that are then used for an electioneering communication will only have violated the prohibition on using such funds for such communications if it knew, had reason to know, or willfully blinds itself to the fact, that the funds would be so used.
  
• An organization that receives corporate or labor organization funds must be able to demonstrate through a reasonable accounting method that no such funds were used to pay for electioneering communications; a segregated bank account is not required, however.
   

Last Updated: August 30, 2006