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States Target Politically Active Nonprofits

Tax-exempt groups that spent hundreds of millions on the 2012 elections without disclosing their donors have stirred no response from federal regulators but have drawn the ire of state officials who are moving aggressively to restrict them.

From California to Idaho, Montana to Maine and New York, state attorneys general and election officials are fighting in court to force big-spending tax-exempt organizations to comply with their disclosure laws.

State officials and lawmakers have also proposed new disclosure rules, in the form of regulations or legislation, along the lines of the DISCLOSE Act, the campaign finance transparency bill that stalled last year in Congress.

By contrast, the IRS and the Federal Election Commission have largely ignored a long string of complaints by watchdog groups that big-spending nonprofits violated tax and campaign finance laws in the recent election.

In the first presidential election since the Supreme Court’s 2010 Citizens United v. FEC ruling, outside groups spent record sums, many without disclosing their donors.

“It’s clear that because of the failure of the federal government to act in this arena, it’s necessary for the states to become more active,” said Ann Ravel, chairwoman of the California Fair Political Practices Commission.

While states have no jurisdiction over whether groups violated federal tax or campaign finance laws, they have the right to enforce their own disclosure rules, said Paul S. Ryan, senior counsel at the Campaign Legal Center.

“They can’t undo this unlimited money” following Citizens United, Ryan said. “But the Supreme Court has strongly supported disclosure. And the states have broad latitude to require groups that are spending money to influence their state’s election to disclose where they’re getting that money.”

The Fair Political Practices Commission won a court battle last year to force an Arizona-based nonprofit dubbed Americans for Responsible Leadership to disclose its donors. The group had given $11 million to a California committee that engaged in two ballot initiative fights involving tax hikes and labor union fundraising. But the money had originated and passed through two other non-disclosing tax-exempt groups.

“While that information was better than nothing, it was nevertheless not satisfactory to us,” Ravel said. Her office is drafting legislation that would give the commission the authority to better distinguish political organizations from legitimate social welfare groups. Some half-dozen California legislators have also proposed campaign finance disclosure bills.

In July, Rhode Island enacted a DISCLOSE-style transparency bill. Similarly, New York Attorney General Eric Schneiderman has proposed regulations that would require 501(c)(4) social welfare groups to report what percentage of their expenditures go to elections, and who finances them.

“In an election, voters have the right to know what special interests are trying to influence elections before they cast their ballots,” Schneiderman said in an email. “By shining a light on this dark corner of the political process, New York can serve as a model for other states, and for the federal government, to protect the integrity of our election system.”

Schneiderman is encouraging other attorneys general to follow his lead. In July he sent letters to 22 politically active nonprofits asking about their activities in New York state. The letters could be “a prelude to formal investigation and enforcement actions,” according to a source familiar with the inquiry.

The groups receiving letters included Crossroads GPS, the conservative nonprofit organized by GOP operative Karl Rove and allied with the American Crossroads super PAC; the GOP-friendly American Action Network; and American Bridge 21st Century Foundation, the nonprofit arm of a pro-Democrat super PAC.

An American Bridge spokesman said the group has responded to Schneiderman, but he declined to elaborate on the interaction. Organizers with Crossroads GPS and American Action Network have said they are complying fully with tax and election laws.

“I think they want to discourage large-dollar donors from giving contributions to groups that are going to be active in policy or politics because they want to shut it down,” conservative election lawyer Jason Torchinsky said of the state efforts.

A partner with Holtzman Vogel Josefiak, Torchinsky has represented several groups defending their right to spend and speak without disclosing donors.

Indiana lawyer James Bopp Jr., who has also been on the vanguard of legal challenges to the campaign finance restrictions, concurred. Bopp said campaign finance laws require groups to disclose their donors only when their primary purpose is political activity.

“After Citizens United, they can’t prohibit groups from doing political activity,” Bopp said of officials seeking to curb groups. “So now what they’re using is disclosure as a weapon against advocacy groups, to try to quash their political speech.”

Groups under fire from state officials have often countersued. Both Montana and Maine have beaten back legal challenges to their campaign finance laws. Montana has engaged in a string of suits and countersuits with a conservative group known as American Tradition Partnership, involving both the constitutionality of the state’s campaign finance rules and the group’s compliance with state disclosure rules.

In Maine, the Commission on Governmental Ethics and Election Practices has gone to court to force disclosure by the National Organization for Marriage, which spent millions on a ballot initiative involving same-sex marriage.

In Idaho, Secretary of State Ben Ysursa has gone to court to force a tax-exempt group known as Education Voters of Idaho Inc. to register and report as a political committee.

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