Category Archives: tax law and election law

“Super PAC and its President Plead Guilty to Dark Money Scheme to File False Reports with the FEC”

campaign finance, tax law and election law

DOJ Release:

A Super PAC and its president pleaded guilty today to scheming to lie to the Federal Election Commission (FEC) about the true identities of donors.

According to court documents, Joseph Fuentes-Fernandez, 62, of Arlington, Virginia, and the Super PAC for which he served as president and treasurer, Salvemos a Puerto Rico, pleaded guilty today before U.S District Judge Joseph N. Laplante to one count of scheming to falsify and conceal material facts.

According to the admissions made in connection with their pleas, Fuentes was the president and treasurer of Salvemos a Puerto Rico, which was organized to raise funds to support the 2020 election campaign of Public Official-1, then a candidate for office in the executive branch of the government of Puerto Rico. Soon after Salvemos a Puerto Rico was organized, Fuentes and others also formed two shell § 501(c)(4) nonprofit social welfare organizations. These two § 501(c)(4) entities were registered within seven minutes of each other, listed the same mailing address, and shared some of the same officers.

Fuentes and others solicited hundreds of thousands of dollars of donations to the two shell nonprofit entities, which rapidly sent most of those funds on to Salvemos a Puerto Rico. Fuentes and Salvemos a Puerto Rico then reported to the FEC that the nonprofit organizations were the donors of those funds, rather than reporting the true source of the funds. The purpose of routing these donor funds through the nonprofit organizations was exclusively to conceal the true identities of the donors to Salvemos a Puerto Rico. For example, in October 2020, Fuentes sent this text message to a potential donor: “You can use a third party to not disclose the true donor.” By ensuring that many of the true donors to Salvemos a Puerto Rico remained anonymous, Fuentes and Salvemos a Puerto Rico deprived the people of the Commonwealth of Puerto Rico and the FEC of information about the true source of hundreds of thousands of dollars flowing into the Commonwealth of Puerto Rico’s political system.

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Court concludes California candidate tax disclosure law applies only to gubernatorial primaries, not recalls

ballot access, recall elections, tax law and election law

California recently enacted a law to compel presidential candidates and gubernatorial candidates to disclose their tax returns as a condition for appearing on the primary ballot. The presidential rule was targeted at Donald Trump; the gubernatorial rule added at the behest of Gavin Newsom, who was voluntarily disclosing tax returns anyway. While Jerry Brown had vetoed a similar bill, Newsom signed the bill. A federal district court and the California Supreme Court independently enjoined enforcement of the presidential primary component (which I discuss, among other things, in Weaponizing the Ballot, recently published in the Florida State University Law Review; enjoined, despite the serial assurances of its constitutionality mentioned in Newsom’s signing statement).

On the gubernatorial side, Division 8 of the Elections Code includes rules for the primary. Section 8902(a) provides, “Notwithstanding any other law, the name of a candidate for Governor shall not be printed on a direct primary election ballot, unless the candidate, at least 98 days before the direct primary election, files with the Secretary of State copies of every income tax return the candidate filed with the Internal Revenue Service in the five most recent taxable years, in accordance with the procedure set forth in Section 8903.”

Newsom now faces a gubernatorial recall election. A number of candidates filed to challenge him.

One might think that this tax disclosure provision would not apply to a recall election. After all, the Code uses the word “primary,” not “recall.” Ballot access for a recall election is governed by an entirely separate part of the Elections Code, Division 11. Professor Jessica Levinson at Loyola Law School noted that it’s “going to be hard to overcome a plain language problem.”

One might think. But it didn’t dissuade California’s Secretary of State from summarizing that “gubernatorial candidates,” not primary candidates, are required to disclose tax returns. And she enforced the rule, dutifully disclosing the sordid details of dozens of candidates, which you’re welcome to peruse here, and excluding any candidate who failed to comply.

One prospective candidate, Larry Elder, failed to comply with the law, apparently inadvertently failing to redact some information from his tax returns. He sued, and a state court found he should appear on the ballot. As the court said, “I don’t find that Mr. Elder was required to file tax returns at all.” By its plain text, the statute applies to primaries, not recalls.

Whether other candidates were improperly excluded from the ballot for failure to file tax returns remains to be seen. Did it “scare off” any candidates? Time will tell if the California recall ballot gets much longer in the days ahead as the recall election rapidly approaches and ballots need to be printed.

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“Dark Money Darker? IRS Shutters Collection of Donor Data”

tax law and election law

Philip Hackney has posted this draft on SSRN (forthcoming Florida Tax Review). Here is the abstract:

The IRS ended a long-time practice of requiring most nonprofits to disclose substantial donor names and addresses on the nonprofit annual tax return. It is largely seen as a battle over campaign finance rather than tax enforcement. Two of the nonprofits involved, social welfare organizations and business leagues, are referred to as “dark money” organizations because they allow individuals to influence elections while maintaining donor anonymity. Many in the campaign finance community are concerned that this change means wealthy donors can avoid campaign finance laws and have no reason to fear being discovered. In this Article, I focus on whether the information is needed for the enforcement of the tax law and/or to support ancillary legal goals. I contend the IRS ought to collect this substantial donor information as it did for over 79 years. Though the collection of donor information may not be essential for groups such as social clubs, fraternities and sororities, and mutual ditch companies, the collection of this information non-publicly by the IRS is important in both enforcing tax-exempt requirements and in enforcing the tax law generally. Tax law prohibits the distribution of earnings from a nonprofit to those who control the organization. Substantial donors are classic suspects for seeking such improper receipts through their control. Thus, the information is key to IRS auditors. Considering the deficient budget of the IRS to ensure a properly enforced Code, the failure to collect that information puts the IRS in a disadvantaged position. While as a democratic matter, there may be some modest benefit from alleviating donors from the worry that the government will know about their political contributions, the harm to those who are not able to make use of these structures, the harm to those who are deprived of information regarding the biases associated with particular political activity, and the harm to the belief that the tax, campaign finance, and nonprofit law will be enforced equally upon all, is more significant. With these considerations in mind, the IRS and Treasury ought to rescind its most recent guidance on this matter. If not, Congress ought to require this information be disclosed by law.

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“Nonprofits helped organize the pro-Trump rally before the Capitol siege – but they probably won’t suffer any consequences”

chicanery, tax law and election law

The Conversation:

Editor’s note: Some of the money used to organize the Jan. 6 pro-Trump “March to Save America” came from social welfare groups. One of them, Women for America First, notably obtained a permit from the National Park Service for the rally – which preceded an assault on the Capitol in which at least five people died. The Conversation U.S. asked nonprofit law scholar Ellen Aprill, who served in the Treasury Department’s Office of Tax Policy in the late 1980s, about possible ramifications for these nonprofits.

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“Conservative nonprofit group challenging election results around the country has tie to Trump legal adviser Jenna Ellis”

tax law and election law

WaPo:

A conservative legal organization that has filed lawsuits challenging the election results in five states has a tie to President Trump’s legal team, raising questions about the independence of what has appeared to be an endeavor separate from the president’s last-gasp legal maneuvering.

Senior Trump campaign legal adviser Jenna Ellis serves as special counsel to the Thomas More Society, which has filed lawsuits through the newly formed Amistad Project alleging problems with the vote in Arizona, Georgia, Michigan, Pennsylvania and Wisconsin.

The Thomas More Society confirmed her relationship to the group but said she is playing no role in its election-related activities.

However, her affiliation with the organization — as well as other links between Trump’s team and the conservative group — suggest a coordinated effort to flood the nation’s courts with repetitive litigation that allows the president to claim the election results remain contested.

The first glimpse of the Amistad Project came late this summer, when the new legal outfit popped up in courts across the country, trying to stop county election officials from taking grants to bolster their operations amid the pandemic.

A lawyer who works with the group was also spotted encouraging Republican observers to challenge the absentee ballot count at Detroit’s TCF Center on Election Day.

The Thomas More Society, a Chicago-based nonprofit law firm focused on religious liberty issues, has said the Amistad Project is “dedicated to election integrity” in the public interest.

“As a tax-exempt organization, the Thomas More Society doesn’t support or endorse candidates, but when our election laws and even our constitution are under attack, we take action,” the group said in an October announcement.

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“A Popular Political Site Made a Sharp Right Turn. What Steered It?”

cheap speech, tax law and election law

NYT:

Interviews with current and former Real Clear staff members, along with a review of its coverage and tax filings, point to a shift to the right within the organization in late 2017, when the bulk of its journalists who were responsible for straight-news reporting on Capitol Hill, the White House and national politics were suddenly laid off. Though the staff always knew the website’s founders were conservative and harbored strong views about liberal media bias, several said they never felt any pressure from above to slant their stories.

“One day we were all called in and told it was over,” said Alexis Simendinger, who was the White House correspondent for Real Clear Politics. “It was a very surprising thing.”

They were never given much of an explanation why, the former employees said. But they were surprised to learn who was replacing them in some cases: writers who had worked in the conservative movement or for the Republican Party. One hire was the former chair of the Manhattan Republican Party and was married to a senior Trump administration official.

Top Real Clear executives also developed business ties with a hard-right conservative outlet, The Federalist, that is frequently promoted on the Real Clear flagship website. Public records and interviews show that The Federalist, whose funding sources have been largely secret, draws from the same pool of donor money as Real Clear. In their statement, Mr. McIntyre and Mr. Bevan emphasized the website’s independence but declined to address specific questions about their donors.

Given the challenges of turning a profit in digital media, political publications often have a hard time existing on advertising revenue alone. Some right-of-center outlets like Real Clear and National Review, along with left-leaning ones like Media Matters for America and Mother Jones, fund part of their operations through foundations that can accept anonymous tax-deductible contributions.

Publishers and media scholars said that while these gifts provide a measure of financial stability, they can also cost an outlet its editorial independence — or the perception of independence. And accepting money from ideologically motivated donors, especially ones who wish to keep their giving private, opens the door to a host of ethical questions….

From 2016 to 2017, donations to the Real Clear Foundation more than quadrupled to $1.7 million, with nearly all of that coming from two entities that conservatives use to shield their giving from public disclosure requirements, Donors Trust and Donors Capital Fund. In 2018, the Real Clear Foundation had its best year yet, reporting more than $3 million in donations. One donor whose identity is disclosed on tax filings is Andrew Puzder, who was briefly Mr. Trump’s nominee for labor secretary and writes opinion pieces for Real Clear.

Public records from those years and interviews show how the leadership and donor base of Real Clear and The Federalist overlapped.

One of The Federalist’s major financial backers is the conservative, pro-Trump businessman Richard Uihlein, according to two people with knowledge of the website’s finances. Mr. Uihlein and his wife, Elizabeth, who runs their family’s multibillion-dollar packaging business, have been known to steer money toward hard-right candidates that many other Republicans have avoided, like Roy S. Moore, the former Alabama judge whose Senate campaign unraveled after women accused him of pursuing them and fondling them when he was in his 30s and they were teenagers.

Ms. Uihlein was also known for her outspokenness against public health lockdowns and revealed last week that she and her husband had contracted the coronavirus.

Together the couple have become one of the biggest sources of investment in conservative politics in recent years. They have given $250,000 to the Real Clear Foundation through their family nonprofit, tax records from 2017 and 2018 show.

The Federalist’s funding remains opaque, but its ties to Real Clear are detailed in public documents. Two top executives at Real Clear Politics were named in disclosures filed by Federalist entities. Mr. McIntyre, the Real Clear co-founder, is listed as a director of The Federalist’s umbrella corporation on a filing with the Securities and Exchange Commission that also bears his signature.

The Real Clear publisher David DesRosiers was listed as a director with The Federalist’s nonprofit foundation. And as reported by BuzzFeed and others, The Federalist has used the same address that Real Clear Politics uses as the location of its Chicago office.

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A Guide to Election Year Activities of Section 501(c)(3) Organizations

campaign finance, tax law and election law

Steven Sholk:

I am pleased to announce that an updated version of my article, A Guide to Election Year Activities of Section 501(c)(3) Organizations, has been published by Practising Law Institute as part of its 2020 Course Handbook for the seminar, Tax Strategies for Corporate Acquisitions, Dispositions, Spin-Offs, Joint Ventures, Financings, Reorganizations & Restructurings.

You can find it here.

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“Controversial organization led by Trump allies has tax-exempt status revoked by IRS”

tax law and election law

CNN:

A nonprofit organization started by two Trump administration allies that stirred up controversy earlier this year for holding cash giveaways in predominantly Black communities had its tax exempt status auto-revoked after failing to provide legally required forms to the Internal Revenue Service for three years in a row.

The organization, called the Urban Revitalization Coalition, Inc. and created to support President Donald Trump and his administration’s policies, was started by Pastor Darrell Scott, the co-chair of Black Voices for Trump, and Kareem Lanier, who works in real estate and business development. Both Scott and Lanier lead the National Diversity Coalition for Trump.

According to public information on the IRS website, the organization’s tax exemption status “was automatically revoked for not filing a Form 990-series return or notice for three consecutive years” effective May 15, 2020 and was placed on the “Automatic Revocation List” on August 11, 2020.

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“Trump allies are handing out cash to black voters”

campaigns, tax law and election law

Politico:

Allies of Donald Trump have begun holding events in black communities where organizers lavish praise on the president as they hand out tens of thousands of dollars to lucky attendees.

The first giveaway took place last month in Cleveland, where recipients whose winning tickets were drawn from a bin landed cash gifts in increments of several hundred dollars, stuffed into envelopes. A second giveaway scheduled for this month in Virginia has been postponed, and more are said to be in the works.

The tour comes as Trump’s campaign has been investing its own money to make inroads with black voters and erode Democrats’ overwhelming advantage with them. But the cash giveaways are organized under the auspices of an outside charity, the Urban Revitalization Coalition, permitting donors to remain anonymous and make tax-deductible contributions.

The organizers say the events are run by the book and intended to promote economic development in inner cities. But the group behind the cash giveaways is registered as a 501(c)3 charitable organization. One leading legal expert on nonprofit law said the arrangement raises questions about the group’s tax-exempt status, because it does not appear to be vetting the recipients of its money for legitimate charitable need.

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