\u3cem\u3eCitizens United\u3c/em\u3e and Taxable Entities: Will Taxable Entities Be the New Stealth Dark Money Campaign Organizations?

The electoral process in the United States is going through a major transition as money increasingly pours into non-candidate independent groups (“IGs”). Before 2000, IGs could engage in significant electoral advocacy without having to disclose the IG’s donors or its expenditures. Congress sought to address the lack of disclosure by requiring section 527 political organizations to disclose their contributions and expenditures. IGs quickly sought an alternative organizational form for engaging in political advocacy. The alternative organizational form of choice has been the tax-exempt section 501(c)(4) social welfare organization. In a 2007 article, I explored whether such tax-exempt entities would be the next loophole used by IGs to avoid disclosure of contributions and expenditures. I concluded then that taxable entities would not be an attractive vehicle because there would be significant tax implications if an entity forwent tax-exempt status, and because taxable corporations were prohibited from expressly advocating the election or defeat of a candidate. The Supreme Court, however, overturned the ban on independent corporate spending in Citizens United v. Federal Election Commission. Taxable entities are now a far more attractive vehicle for campaign activity than they were in 2007. Social welfare organizations and other tax-exempt entities are now subject to increased scrutiny. In the campaign finance arena, regulation in one area often entices entities to conduct activities in another. As Congress and the Service consider further regulation of social welfare groups, they must also consider whether further regulation of tax-exempt organizations will encourage IGs to reorganize as taxable organizations. Since taxable entities are subject to less regulation, they will be attractive vehicles as long as the tax consequences to the IGs do not outweigh the economic and regulatory benefits of forgoing tax-exempt status. The key question is a tax question, not an election law question: Can taxable entities engage in campaign activity without incurring significant tax liability