The Campaign Legal Center: Court Cases of Interest

On December 24, 2003 , the U.S. Court of Appeals for the 11th Circuit upheld a critical aspect of the nation's disclosure regime, ruling that Congress may require 527 political organizations to publicly disclose information about their contributors and expenditures. The case is Mobile Republican Assembly v. U.S . , No. 02-16283 (11th Cir. Dec. 24, 2003 ).

Political groups organized under Section 527 of the tax code need not declare contributions, dues or fundraising proceeds as income if the organization uses the funds for the "influencing or attempting to influence the election, nomination or appointment of any individual to any Federal, State or local public office." In 2000, Congress passed legislation requiring that as a condition of that exemption, these groups had to disclose the name, address and occupation of each contributor of more than $200 and the name and address of each recipient of more than $500, along with other requirements. A group failing to disclose a particular contribution or expenditure would have to pay the highest corporate tax rate on the "amount to which the failure relates."

Shortly after those requirements were signed into law, several 527 groups challenged them, arguing that the assessment of the highest corporate tax rate for failure to disclose would constitute an unconstitutional penalty. These groups grounded their argument on the notion that because many 527s would refuse to disclose both contributions and expenditures, and would be subject to the highest corporate tax rate on the amount of both, the cost of non-compliance would be greater than the benefit of the tax exemption itself. A federal district court concurred with that argument and enjoined enforcement of sections of the law requiring the disclosure of expenditures, as well as of contributions related to state and local electoral advocacy.

In reversing the lower court, the 11th Circuit unanimously held that the disclosure requirements, rather than imposing an unconstitutional penalty, were merely a condition placed upon the government subsidy of a voluntary tax exemption. The court noted that "any political organization uncomfortable with the disclosure of expenditures or contributions may simply decline to register" for the exemption in order to avoid the requirements. Further, the court reasoned, "the fact that the organization might then engage in somewhat less speech because of stricter financial constraints does not create a constitutionally mandated right to the tax subsidy."

On August 15, 2003, the U.S. Government filed its reply brief in Mobile Republican Assembly v. United States of America . The brief emphasizes that the disclosure provisions of 26 U.S.C. 527(j) are a permissible condition for a tax exemption and constitutional in all respects.

On July 25, counsel for the Mobile Republican Assembly filed briefs on behalf of appellees in Mobile Republican Assembly v. United States of America . The brief argues that the disclosure provisions of 26 U.S.C. 527(j) should not survive judicial scrutiny. It claims that Section 527 tax-exempt organizations did not pose a threat of corrupting the electoral process in the absence of the federal disclosure law, that the law violated equal protection by covering 527 organizations but not other politically active tax-exempt entities, and that required disclosure of state or local electoral advocacy to the IRS ran afoul of federalism principles.

The district court's decision in Mobile Republican Assembly et. al. v. U.S. et. al. was appealed to the U.S. Circuit Court of Appeals for the Eleventh Circuit. On February 12, 2003, the U.S. Department of Justice submitted its opening brief on behalf of the government, defending the constitutionality of all aspects of 26 U.S.C. 527(j). The brief emphasizes that this disclosure requirement imposed on political organizations is a permissible condition for receiving the benefit of exemption from taxation.

This case involves the constitutionality of the disclosure provisions of 26 U.S.C. 527(j). These disclosure provisions were enacted by Congress in 2000 (and adjusted in 2002) in response to the proliferation of 'stealth PACs' -- organizations enjoying exemption from taxation as political organizations, intervening in Federal elections, and yet avoiding the reporting requirements of the Federal Election Campaign Act of 1971 (largely by financing electioneering mass communications that avoided words expressly advocating an election result). A prominent example was 'Republicans for Clean Air' -- an organization which financed television ads attacking U.S. Senator John McCain's environmental record on the eve of the Super Tuesday presidential primaries in 2000. "Republicans for Clean Air" was but a front for two billionaire brothers from Texas, one of whom was a key fundraiser for Senator McCain's presidential primary opponent. 26 U.S.C. 527(j) requires these former 'stealth PACs' to disclose their contributors and expenditures over certain thresholds to the Internal Revenue Service.

A suit was brought by the Mobile Republican Assembly and other parties to invalidate 26 U.S.C. 527(j) on First, Fifth, and Tenth Amendment grounds. On August 27, 2002, the U.S. District Court for the Southern District of Alabama upheld portions of the law but struck down other components. It upheld the requirement that 527 organizations intevening in Federal elections disclose their contributors (and rejected the proposition that this requirement could constitutionally apply only insofar as their Federal electioneering constituted communications expressly advocating an election result). However, it struck down requirements that 527 organizations disclose their expenditures and invalidated the law as applied to state and local electoral advocacy.

Click here to view a copy of the district court's decision in its entirety.

Cases: Mobile Republican Assembly v. U.S.: Decisions / Orders