by Robert L. Hess II¹

In its most recent and comprehensive campaign finance case, McConnell v. Federal Election Commission, the United States Supreme Court upheld the Bipartisan Campaign Reform Act of 2002 (BCRA) and approved sweeping measures aimed at minimizing the influence of federally unregulated funds - often called "soft money" - on federal elections.² The Court approved federal limits on such basic state and local political activities as get-out-the-vote efforts, voter identification, voter registration, and issue advertising because those activities may be used to curry favor with federal candidates.³ Rather than the strict scrutiny often applied to other forms of speech regulation (which almost always leads to invalidation of the regulation), the Court held that a minimal level of scrutiny applies to the regulation of campaign financing.⁴ The Court emphasized that measures designed to prevent "corruption" or the "appearance of corruption" in the political process are constitutional, and broadly defined "corruption" to include attempts to influence legislators.⁵ Under this lenient standard, most political regulations will survive constitutional challenge.^5a

As BCRA and the McConnell decision exemplify, modern political actors receive little special protection from the First Amendment. Politics, it seems, is just another industry.⁶ Like their cousins in the private sector, today's public servants and their supporters and opponents can be taxed,⁷ regulated,⁸ and sued for not paying their debts.⁹ In this environment, attorneys should recognize the different laws that affect state political committees and proactively monitor committee activities to ensure legal compliance.

I. State Political Committees Are Subject to a Myriad of Federal and State Regulations in Addition to State Campaign Finance Laws

Under Missouri's campaign finance laws, the basic unit for political activity is a "committee" - "a person" or group of "persons, who accepts contributions or makes expenditures" to influence elections.¹⁰ Candidates form "candidate committees;"¹¹ political parties form "political party committees;"¹² persons supporting ballot measures at one election form "campaign committees;"¹³ and most other persons form "continuing committees" to function as general political action committees.¹⁴ Committees must account for and publicly disclose their financial activities.¹⁵ The main revenue source for these committees is contributions from individuals, business entities, labor unions, and other committees. These funds are raised through personal, direct mail, and Internet solicitations, and at fundraising events. Committees ultimately spend these funds on public advertisements, grassroots political activities, and other efforts designed to mobilize and energize voters.

Traditionally, state political committees have focused their legal attention on their disclosure and accounting obligations under the state campaign finance law.¹⁶ But in soliciting and accepting contributions, contracting for services, hiring employees, and preparing public advertisements, committees must also consider other types of law. General business law, federal tax law, federal campaign finance law, and federal and state election laws affect a committee's activities as much as state campaign finance law and sometimes more.

This article discusses three types of law that state political committees and their lawyers are likely to overlook: (1) creditor liability, (2) federal income tax laws, and (3) federal campaign finance laws. The regulation of federal candidates and federal political committees is beyond the scope of this article. This article also does not discuss campaign activity by non-committees such as corporations, labor unions, and individuals.

II. Business Law 101

In 1991, Richard Thornburgh ran for United States Senator in a Pennsylvania special election.¹⁷ Thornburgh - a former United States Attorney General and former governor of Pennsylvania - never incorporated his committee and learned an important principle of campaign law at his personal expense: Members of an unincorporated political committee may be personally liable for committee debts.¹⁸

Thornburgh's committee obtained direct mail fundraising services from Karl Rove &Company.¹⁹ One of Thornburgh's long-time aides reached the agreement with Rove &Company.²⁰ Rove's fundraising campaign raised more than $750,000, netting $425,000 for the committee.²¹ Nonetheless, Thornburgh lost the election.²² His unincorporated committee was broke and still owed Rove approximately $170,000.²³ Rove sued Thornburgh and his aide for the debt (along with the committee).²⁴ In defense, Thornburgh argued that the federal campaign finance laws preempted state laws that would impose liability on a candidate and that, even if they did not, he was not personally liable for the debts of the committee because he was not a committee member and had not signed or otherwise assented to the contract.²⁵

The United States Court of Appeals for the Fifth Circuit rejected Thornburgh's defenses.²⁶ The court held that campaign finance laws were not intended to change the normal contract liability rules for political actors.²⁷ It noted that Thornburgh could have easily protected himself from personal liability by incorporating the committee.²⁸ In the alternative, the committee's contracts could have specified that creditors could look only to committee assets for satisfaction.²⁹ Having failed to incorporate, Thornburgh's committee was actually doing business as an unincorporated non-profit association.³⁰ Agency law determines the liability of members of an unincorporated non-profit association.³¹ Thornburgh ratified the agreement with Karl Rove & Company by engaging in acts that facilitated the direct mail fundraising.³² Therefore, he was personally liable for the $170,000 debt.³³ As an alternative basis for Thornburgh's personal liability, the court found that Thornburgh was liable as the principal of the aide who procured the fundraising services.³⁴

Karl Rove & Co. v. Thornburgh is the leading authority on the liability of candidates, treasurers, and other committee members for committee debts. The general rule is that, if the committee members do not incorporate or otherwise formalize their relationship, they are acting as an unincorporated non-profit association.³⁵ Principles of agency law determine the liability of committee members.³⁶ A member of an unincorporated non-profit association is personally liable for contracts that person enters on behalf of the association.³⁷ In addition, any other committee member who agrees, consents to, or ratifies a committee transaction is personally liable for that debt.³⁸ Missouri courts have applied these same rules to non-profit associations³⁹ and to political committees specifically.⁴⁰

Despite its campaign finance significance, the formation of a political committee does not afford its members any special protection from liability to creditors. A committee is not a unique business entity. Rather, a "committee" is merely "a person" or group of "persons" making contributions or expenditures to influence elections.⁴¹ The types of "persons" that can be committees include individuals, corporations, partnerships, and any other type of association.⁴² Groups of individuals acting for political purposes that do not incorporate are treated as unincorporated non-profit associations.⁴³

To protect committee members, a committee can include clauses in its contracts specifying that members are not personally liable for committee debts and that only committee funds are available to the creditor.⁴⁴ In the alternative, the committee can incorporate.⁴⁵ The limited liability of the corporation will shield committee members from personal liability for the committee's debts unless the creditor expressly bargains for the guarantee of a committee member.⁴⁶ However, if the committee will participate in federal elections, the corporate form may be a hindrance. Federal law strictly regulates, and in most cases prohibits, the use of corporate funds in federal elections.⁴⁷

Since political candidates, treasurers, and other committee members likely do not want to expose their personal assets - their cash, retirement savings, or homes - to creditors, committee organizers should carefully consider the business forms and contracts they use to conduct their activities. If this issue is ignored, committee members may be shocked to find that they may be personally liable for committee debts.

III. Federal Tax Law and Political Organizations

Multiple provisions of the Internal Revenue Code affect state political committees. When a political organization forms, it must determine its tax status under 26 U.S.C. §527. Each year, political organizations must file tax returns. Also, state committees with more than $100,000 in annual receipts must inform potential donors in their fundraising solicitations that contributions are not tax deductible.

A. Section 527 Determines the Tax Status of Most Political Committees

A specific provision of the Internal Revenue Code - 26 U.S.C. §527 - dictates the tax status of most political committees.⁴⁸ In 2000 and 2002, Congress amended §527 as the first step in federal campaign finance reform.⁴⁹ Based on federal court cases and Federal Election Commission (FEC) advisory opinions distinguishing between issue advocacy and express advocacy, many political groups had used issue advertisements (which did not trigger a FEC registration and reporting requirement) to influence federal elections without disclosing their funding sources.⁵⁰ These activities undermined federal disclosure laws and facilitated circumvention of the contribution limits.⁵¹ The current version of 26 U.S.C. §527 addresses this loophole by requiring disclosure from certain groups that seek to influence federal or state elections as a precondition to obtaining a tax exemption.⁵²

Section527 shields a "political organization" from most taxes if the organization files the required disclosures.⁵³ Organizations that file the disclosure are not taxed on their "exempt function income": contributions, membership dues, and proceeds from fundraisers that are used for "exempt functions."⁵⁴ The "exempt functions" of a political organization are its functions that influence or attempt to influence the selection process for any individual to a federal, state, or local public office or political organization office, regardless of whether the individual is "selected, nominated, elected, or appointed."⁵⁵ Business income unrelated to the organization's exempt functions, such as interest and rental income, remains taxable.⁵⁶

To be tax exempt, political organizations must file a notice (Form 8871) with the IRS and subsequently file periodic reports (Form 8872) of their receipts and expenditures (unless they qualify for an exception). The notice must be electronically filed within 24 hours of forming.⁵⁷ A number of committees are specifically excepted from the notice requirement: state and local political party committees, state and local candidate committees, political committees that file disclosure reports with the FEC, and organizations that do not expect to have more than $25,000 in annual gross receipts.⁵⁸ All other political organizations with more than $25,000 in actual or expected annual gross receipts must file Form 8871 to be tax exempt.⁵⁹ A committee that should but does not file the Form 8871 is subject to taxation on all of its receipts (including exempt function income) at the highest corporate tax rate (currently 35%) from the time it forms until it files the notice.⁶⁰

In Missouri, several types of committees are tax exempt without filing the notice. State candidate committees and political party committees are specifically excepted.⁶¹ Campaign committees or continuing committees which support or oppose ballot measures, but not candidates, are not political organizations as defined in § 527.⁶² Therefore, they are not generally subject to § 527.⁶³ By way of contrast, other Missouri committees that support state or local candidates and expect to receive more than $25,000 per year must file the Form 8871 notice with the IRS.⁶⁴

Section 527 also requires periodic reports of receipts and expenditures.⁶⁵ Political organizations do not need to file these disclosure reports if they are not required to file the Form8871 notice.⁶⁶ In addition, a committee that already files disclosure reports under state law may be exempt from filing regular reports if it is a "qualified State or local political organization."⁶⁷ To be qualified, a committee must file disclosure reports with a state or local authority that contain substantially the same information as Form 8872.⁶⁸ (A Missouri committee that files reports under § 130.041, RSMo, satisfies this requirement.⁶⁹) Moreover, the committee can only support or oppose state and local candidates (and no federal candidates).⁷⁰ If a federal candidate or officeholder solicits contributions for the committee, controls or materially participates in the organization, or directs the disbursements of the organization, that committee is not qualified and must file periodic reports with the IRS even though it already files reports with the Missouri Ethics Commission or a local election authority.⁷¹ Finally, to be qualified, the committee must make its state or local disclosure reports publicly available at its principal office during regular business hours and at any regularly maintained regional or district offices with more than three paid employees.⁷²

The financial consequences for not filing required reports can be very expensive.⁷³ For each report not filed, the committee may be taxed on its unreported receipts and disbursements at the highest corporate tax rate (currently 35%).⁷⁴ Thus, if a committee received $50,000, spent it all, and did not file the required disclosure report, the committee would be subject to tax of $35,000 or 70% of its receipts. Despite the severity of this provision, the United States Court of Appeals for the Eleventh Circuit recently upheld it against constitutional challenge.⁷⁵

B. Political Organizations Must File Federal Income Tax Returns

Political organizations also have tax return requirements. State committees that are not qualified must file a Form 990 informational return if they have more than $25,000 in annual receipts.⁷⁶ If the committee is qualified, it must file a Form 990 return if its annual receipts exceed $100,000.⁷⁷ Political party committees, state candidate committees, and committees with less than $25,000 in annual receipts are not required to file information returns.⁷⁸ If a committee does not file a required Form 990, it may be fined $20 or $100 per day depending on its annual gross receipts.⁷⁹

Any political organization (even those exempt from filing Forms 8871 and 8872 and information returns) must also file a Form 1120-POL tax return if it has taxable income of more than $100.⁸⁰ Common examples of taxable income for a political organization include investment income (i.e., interest) or rental income. Committees that do not file Form 1120-POL must pay an additional five percent for each month that the return is late.⁸¹

C. Political Organizations Must Inform Potential Donors That Contributions Are Not Tax Deductible

Federal tax law also regulates the solicitation of funds by certain political organizations.⁸² Since political contributions are not deductible as charitable contributions for federal income tax purposes, any political organization with more than $100,000 in annual receipts must include a disclaimer stating that fact when it solicits contributions.⁸³ The disclaimer must be included on television, radio, telephone, and written or printed solicitations.⁸⁴ The IRS has described safe harbor language for the disclaimer.⁸⁵ Failure to include the disclaimer could result in penalties of $1,000 per day, up to $10,000.⁸⁶ If the political organization intentionally disregards this section, the per day penalty is the greater of $1,000 or 50% of the cost of the solicitation, and the $10,000 upper limit does not apply.⁸⁷

State political committees and their attorneys need to be aware of these federal tax laws. Trouble with the IRS would be bad publicity for any committee, and could result in substantial penalties or tax assessments.

IV. Federal Campaign Finance Laws

State political committees readily understand that the state campaign finance laws will pervasively affect their activities. Few committees, however, appreciate the changes that the Bipartisan Campaign Reform Act of 2002 has wrought for state and local election activity. Federal law now directly regulates grassroots political activity of state, local, and county political parties, and associations of state and local candidates.⁸⁸ BCRA strictly regulates most communications that support or oppose federal candidates (especially in the months before an election), including communications by state candidates.⁸⁹ State political committees that receive fundraising assistance from federal candidates and officeholders are also affected.⁹⁰

In sum, federal campaign finance law now applies to state political committees, exponentially complicating legal compliance for these committees. BCRA stiffened the penalties for violators, and should not be lightly disregarded. Now, certain knowing and willful violations of the law are felonies.⁹¹

A. BCRA Extensively Regulates Grassroots Political Activity of State, Local, and County Political Party Committees and Associations of State And Local Candidates

Congress passed BCRA to reduce the effect of "soft money" on federal elections.⁹² The term "soft money" means funds that are not federally regulated.⁹³ Hence, the funds are also called "non-federal funds."⁹⁴ State law may regulate the use of these funds, but federal law does not.⁹⁵ By way of contrast, "federal funds" have been raised consistent with federal law.⁹⁶ Federal funds must come from federally permissible sources (no corporate or labor union funds), cannot exceed federal contribution limits, and must be reported to the FEC.⁹⁷ Before BCRA, political parties and other committees used soft money to support their general election activities - get out the vote efforts, generic party advertising, and issue advertising.⁹⁸ Federal candidates prodigiously raised soft money for their political parties and other committees, because strong general election activities benefited everyone on the ticket.⁹⁹ Congress decided that the widespread use of soft money to influence federal elections had undermined the federal contribution limit and reporting system, and had given large soft money donors too much influence over legislators.¹⁰⁰ Since political parties were the chief conduits for soft money, BCRA severely restricts the ways in which national, state, and local political parties can use those funds.¹⁰¹

To do so, BCRA defined a new term of art - "federal election activity."¹⁰² This phrase is misleading in suggesting that these activities are specific to federal elections. In fact, federal election activity may encompass the most basic political functions - get out the vote activity, voter registration, and voter identification - even if no federal candidate is mentioned.¹⁰³ In addition, public communications that support or oppose a federal candidate, or that support or oppose a political party without mentioning a federal or non-federal candidate, are federal election activities.¹⁰⁴ Finally, the services of any employee who spends more than 25% of his or her time on federal election activity or other activities connected to federal elections are also federal election activities.¹⁰⁵ These federal election activities can be financed only with federal funds when conducted by a national, state, local, or district political party or associations of state and local candidates.¹⁰⁶ Non-federal funds cannot be used.¹⁰⁷ To prevent circumvention of this prohibition, state and local political parties are also prohibited from donating non-federal funds to state political committees and other groups that conduct federal election activity.¹⁰⁸

These severe restrictions jolt most people active with political parties. With the exception of the state committees, political party committees have traditionally been small organizations. Their main purpose has been to provide grassroots support for the party. Until now, these committees could assume that federal law did not generally affect them. But under BCRA, even local and district political party committees are extensively regulated and must structure their activities to comply with federal law.¹⁰⁹ Since these committees do not have the time, the staff, or the expertise to continuously monitor their activities for compliance with federal law, they need to be aware of these restrictions when they develop their election strategies. These committees can still effectively and legally participate in elections, but the activities on which they can spend their funds are more limited.¹¹⁰

B. BCRA Regulates Many Communications That Refer to Federal Candidates and Officeholders

In BCRA, Congress sought to staunch the use of non-federal funds for issue advertisements that nominally discuss a legislative issue but actually attack a federal candidate. Before the McConnell decision, many people thought that Congress could only regulate advertisements that expressly advocated the election or defeat of a federal candidate.¹¹¹ Issue advertisements were considered protected by the First Amendment and not subject to federal regulation.¹¹² McConnell squarely holds that this perception was wrong. The Supreme Court decided that most issue advertisements were shams, and were actually intended to influence federal elections.¹¹³ Therefore, it approved BCRA's regulation of these advertisements.¹¹⁴

For example, Congress feared that state candidates could become the next conduits for soft money.¹¹⁵ Therefore, BCRA requires state candidates to use federal funds for public communications that support or oppose federal candidates, even if a state candidate is mentioned.¹¹⁶ Based on a plain reading of these prohibitions, a Republican candidate for state treasurer cannot use non-federal funds to finance an advertisement attacking outgoing treasurer Nancy Farmer because she is a candidate for Untied States Senator. Likewise, a Democratic candidate for state treasurer cannot use non-federal funds to finance an advertisement supporting Farmer and vowing to continue her policies. For the same reasons, state candidates must also use federal funds for public communications opposing or supporting President Bush or Democratic nominee John Kerry.¹¹⁷

Similar provisions of BCRA regulate other communications that refer to federal candidates. Any person preparing an "electioneering communication" - another new BCRA term - must disclose information about the communication and cannot pay for it with corporate or labor union funds.¹¹⁸ BCRA also expanded the federal definition of "coordination."¹¹⁹ Now, any public communication that refers to a federal candidate or political party, is directed to the electorate for that candidate or political party, is publicly disseminated within 120 days of an election, and which the party or candidate approves or otherwise sanctions likely constitutes an in-kind contribution to that committee.¹²⁰

Basically, any communication that refers to a federal candidate may be affected by some provision of BCRA. Before preparing such communications, the committee should know how BCRA constrains financing and disclosure of the communication.

C. Non-Federal Fundraising By a Federal Candidate or Officeholder

Federal candidates and officeholders frequently endorse non-federal committees and help raise funds for them. Even though these funds will not be used for federal elections, BCRA regulates federal candidate or officeholder fundraising for these groups.¹²¹ Federal candidates or officeholders and their agents can solicit only non-federal funds that would comply with federal limits and source prohibitions.¹²² In other words, the federal candidate, officeholder, or agent can ask only for funds that would not exceed federal contribution limits and cannot ask for corporate or labor union donations (which are prohibited contribution sources under federal law).¹²³ While these funds must be raised subject to certain federal requirements, they are not federal funds because they do not have to be reported to the FEC.¹²⁴

The FEC has issued advisory opinions to describe permissible and non-permissible solicitations, including required disclaimer language for non-federal solicitations.¹²⁵ If a written communication asks for non-federal funds and the federal candidate consents to the use of his name or likeness in it, the contents of the solicitation are imputed to the candidate.¹²⁶ Therefore, when a state political committee enlists a federal candidate or officeholder to ask for funds for it, the solicitation should be carefully reviewed to ensure it is permissible.

V. Conclusion

The days of laissez faire politics have passed and the regulatory ethos has prevailed. State political committees must realize that they are participating in a highly regulated industry, with rapidly developing new rules. Without an appreciations of these rules, committees risk becoming mired in compliance issues. Civil fines, expensive litigation, and adverse publicity are likely. Criminal sanctions are possible. In this new world, ignorance of the relevant laws may divert the committee from its purpose, dilute its message, and get committee members into serious trouble.

Footnotes

¹ Robert L. Hess II is an associate in the Jefferson City office of Husch & Eppenberger, L.L.C. He practices health and administrative law, and advises state and federal political committees. He is a 2001 graduate of Vanderbilt University Law School, where he was a managing editor of the Vanderbilt Law Review and a member of the Order of the Coif. After law school, he clerked for the Honorable Duane Benton, Supreme Court of Missouri.

² 124 S. Ct. 619 (2003).

³ Id. at 674-75, 686-89.

⁴ Id. at 655-59.

⁵ Id. at 664-666; id. at 746 (Kennedy, J., dissenting) (suggesting that the principal opinion's broad definition of corruption "sweeps away all protections for speech that lie in its path").

^5a See, e.g., Majors v. Abell, 361 F.3d 349, 355 (7th Cir. 2004) (Posner, J.) ("Reluctant, without clearer guidance from the Court, to interfere with state experimentation in the baffling and conflicted field of campaign finance law without guidance from authoritative precedent, we hold that the Indiana statute is constitutional.")

⁶ Because of the First Amendment implications, this development is controversial to many. For example, according to the Washington Post:

The whole thing was "incomprehensible" to storied First Amendment lawyer Floyd Abrams, who felt the nearly 300-page ruling missed the fundamental importance of political speech. "It almost reads like a tax case rather than a First Amendment case," he said. "In style, tone and nature, it reads like an opinion about regulation by government of some sort of improper activity."

David Von Drehle, McCain-Feingold Ruling Angers Activists on Both Left and Right, Washington Post, Dec. 11, 2003, at A1.

⁷ I.R.C.. §527 (2003).

⁸ See generally chapter 130, RSMo 2000; 2 U.S.C. §441i (2003).

⁹ See, e.g., Karl Rove & Co. v. Thornburgh, 39 F.3d 1273, 1282-83 (5th Cir. 1994).

¹⁰ Section130.011(7), RSMo 2000. "Person" is defined to include individuals, business entities, government entities, unions, labor organizations, trade and business associations, political parties, and any other club or organization. Section130.011(22), RSMo 2000.

¹¹ Section130.011(9), RSMo 2000.

¹² Section130.011(25), RSMo 2000. The Missouri Ethics Commission has opined that the only permissible political party committees are the committees established by §115.603, RSMo. Mo. Ethics Comm'n Advisory Op. No. 96.01.112.

¹³ Section130.011(8), RSMo 2000.

¹⁴ Section130.011(10), RSMo 2000. This list of committee types is not exhaustive. Section130.011(7)(b), RSMo 2000.

¹⁵ See §§ 130.036.1 and130.041, RSMo 2000.

¹⁶ See, e.g., §130.041, RSMo 2000.

¹⁷ Karl Rove & Co. v. Thornburgh, 39 F.3d 1273, 1276 (5th Cir. 1994).

¹⁸ Id. at 1282-83.

¹⁹ Id. at 1277. At the time, Karl Rove was an aspiring Republican strategist. Now, he is President George W. Bush's political advisor. Rove's aggressive pursuit of this debt - which the Republican National Committee opposed - helped create his national reputation.

²⁰ Id. at 1276-77. The committee never formally signed the contract. Id. at 1277. No evidence indicated "that Thornburgh ever saw [the] agreement or knew of its terms and conditions." Id.

²¹ Id. at 1278.

²² Id. at 1277.

²³ Id. at 1279.

²⁴ Id.

²⁵ Id. at 1279-80, 1287.

²⁶ Id. at 1282-83, 1290-91.

²⁷ Id. at 1282-83, 1288-89.

²⁸ Id. at 1282-83.

[R]egardless of how harsh or anomalous the results dictated by application of the law of unincorporated nonprofit associations may appear to some, wary candidates can easily avoid this trap . by either incorporating their campaign committee or specifying in all committee contracts that the purveyors of goods or services may look only to committee assets for compensation.

²⁹ Id. at 1282-83, 1295.

³⁰ Id. at 1284.

³¹ Id.

³² Id. at 1293-95.

³³ Id.

³⁴ Id. at 1298.

³⁵ Id. at 1284.

³⁶ Id. at 1284-85 & n. 38 (citing authorities). Members of an unincorporated political association are not subject to strict joint and several liability like members of a business partnership. Id. at 1285 & n. 40; Stone v. Guth, et al., 102 S.W.2d 738, 740-41 (Mo. App. E.D. 1937).

³⁷ Id. at 1284-85. Traditionally, unincorporated non-profit associations could not be sued. Id. at 1285-86. Some states have specifically authorized suits against these associations. Id. To sue an unincorporated association in Missouri, the plaintiff must file a class action. Rule 52.10; State ex rel. Missouri State High School Activities Ass'n v. Ruddy, 643 S.W.2d 596, 598 (Mo. banc 1983).

³⁸ Id. at 1284-85.

³⁹ See, e.g., State v. Kansas City Firefighters Local No. 42, 672 S.W.2d 99, 124 (Mo. App. W.D. 1984); Krall et al. v. Light, 210 S.W.2d 739, 745 (Mo. App. W.D. 1948).

⁴⁰ Richmond v. Judy, 6 Mo. App. 465, 467 (Mo. App. E.D. 1879).

⁴¹ Section130.011(7), RSMo 2000.

⁴² Section130.011(22), RSMo 2000.

⁴³ Richmond, 6 Mo. App. at 467.

⁴⁴ Rove, 39 F.3d at 1282-83, 1295.

⁴⁵ Id. at 1282-83. In Missouri, non-profit corporations can be organized for a political purpose. Section355.025, RSMo 2000.

⁴⁶ Section355.197.1, RSMo 2000.

⁴⁷ 2 U.S.C. § 441b(a) (2003); 11 C.F.R. part 114 (2003). A federal political committee may incorporate for liability purposes only. 11 C.F.R. §114.12(a) (2003).

⁴⁸ 26 I.R.C. §527. See generally Rev. Rul. 2003-49, 2003-20 I.R.B. 903 (describing the requirements of § 527 in question and answer format).

⁴⁹ Pub. L. No. 107-276, 116 Stat. 1929 (2002); Pub. L. No. 106-230, 114 Stat. 477 (2000).

⁵⁰ See McConnell, 124 S. Ct. at 650-52.

⁵¹ Id.

⁵² I.R.C. §§527(i), (j).

⁵³ I.R.C. §527(c). A political organization is a "party, committee, association, fund, or other organization (whether or not incorporated) organized and operated primarily" to support an exempt function. I.R.C. §527(e)(1); see also 26 C.F.R. §1.527-2(a) (2003).

⁵⁴ I.R.C.. §527(c)(3).

⁵⁵ I.R.C. § 527(e)(2). Notably, "exempt function" does not include activity supporting or opposing legislation, which is treated as lobbying.

⁵⁶ I.R.C. §§527(b), (c)(1).

⁵⁷ I.R.C. §527(i)(2).

⁵⁸ I.R.C. §527(i)(5)(B).

⁵⁹ I.R.C. §527(i)(1).

⁶⁰ I.R.C. §527(i)(4).

⁶¹ I.R.C. §527(i)(5)(C).

⁶² See I.R.C. §§527(e)(1), (e)(2) (defining "political organization" and "exempt function"). Groups that are primarily engaged in lobbying - rather than campaign activity - must qualify for tax exemption under some other provision of the Internal Revenue Code. See, e.g., I.R.C. §501(c)(4).

⁶³ However, if these committees are section 501(c) organizations and make expenditures for exempt functions, they may be taxed on those expenditures. See I.R.C.. §527(f)(1).

⁶⁴ I.R.C. §527(i)(1).

⁶⁵ I.R.C. §527(j).

⁶⁶ See I.R.C. §527(j)(5).

⁶⁷ I.R.C. §527(j)(5)(C).

⁶⁸ I.R.C. §527(e)(5)(A)(ii).

⁶⁹ Compare I.R.C. with §130.041, RSMo 2000.

⁷⁰ I.R.C. §527(e)(5)(A)(i).

⁷¹ See I.R.C. §527(e)(5)(D).

⁷² I.R.C. §527(e)(5)(A)(iii); I.R.C. §6104(d)(1)(A)(iii). If requested, the organization must copy its reports for the individual. I.R.C. §6104(d)(1)(B).

⁷³ I.R.C. §527(j)(1).

⁷⁴ Id.

⁷⁵ Mobile Republican Assembly v. United States, 353 F.3d 1357, 1361-62 (11th Cir. 2003).

⁷⁶ I.R.C. §6033(g)(1).

⁷⁷ Id.

⁷⁸ I.R.C. §6033(g)(3).

⁷⁹ I.R.C. §6652(c)(1).

⁸⁰ I.R.C. §6012(a)(6). Committees that are tax exempt under federal law are not required to file state income tax returns. Section143.441.2, RSMo 2000. If a committee has taxable federal income, it must also file a state income tax return. Id.

⁸¹ I.R.C. §6651(a)(1). The maximum penalty is 25 percent of the aggregate tax. Id.

⁸² I.R.C. § 6113.

⁸³ I.R.C. §6113(a).

⁸⁴ I.R.C. §6113(c)(1).

⁸⁵ I.R.S. Notice 88-120, 1988-2 C.B. 454.

⁸⁶ I.R.C. §6710(a) (2003).

⁸⁷ I.R.C. §6710(c).

⁸⁸ 2 U.S.C. §441i(b) (2003). The statutory phrase "association or similar group of candidates for State or local office or . individuals holding State or local office" is not defined by statute. See 2 U.S.C. §441i(b) (2003). In its BCRA rulemakings, the FEC asked for proposed definitions for this term but none were suggested. Prohibited and Excessive Contributions: Non-federal Funds or Soft Money, 67 Fed. Reg. 49064, 49096 (July 29, 2002). It remains undefined.

⁸⁹ See 2 U.S.C. §441i(f) (2003).

⁹⁰ 2 U.S.C. §441i(e)(1)(B) (2003).

⁹¹ 2 U.S.C. §437g(d)(1)(A)(i) (2003). A knowing and willful violation involving more than $25,000 is a felony. Id. Lesser violations may be misdemeanors. Id. §437g(d)(1)(A)(ii) (2003).

⁹² McConnell, 124 S. Ct. at 654.

⁹³ Prohibited and Excessive Contributions, 67 Fed. Reg. 49064 at 49065 (July 29, 2002).

⁹⁴ Id.

⁹⁵ Id.

⁹⁶ Id.

⁹⁷ 11 C.F.R. §300.2(g) (2003); see also 2 U.S.C. §441b(a) (2003).

⁹⁸ McConnell, 124 S.Ct. at 648-49.

⁹⁹ Id. at 650.

¹⁰⁰ E.g., id. at 653, 654, 664-65.

¹⁰¹ Id. at 654. See generally 2 U.S.C. §441i (2003); 11 C.F.R. part 300 (2003).

¹⁰² 2 U.S.C. §431(20) (2003).

¹⁰³ 2 U.S.C. §431(20)(A) (2003). The FEC defined these terms in 11 C.F.R. §100.24(b) (2003). They are only federal election activities at certain times. Id.

¹⁰⁴ 2 U.S.C. §§431(20)(A)(iii), 431(21) (2003); 11 C.F.R. §§100.24(b)(2), (b)(3), 100.25-.28 (2003). Public communications that support or oppose a political party are called "generic campaign activity" and are only federal election activity at certain times. 11 C.F.R. §§100.24(b)(2), 100.25 (2003). Public communications that support or oppose federal candidates are always federal election activity. 11 C.F.R. §100.24(b)(3) (2003).

¹⁰⁵ 2 U.S.C. §431(20)(A)(iv) (2003); 11 C.F.R. §100.24(b)(4) (2003). These employee services are federal election activity at any time during the election cycle. Id.

¹⁰⁶ 2 U.S.C. §441i(b)(1) (2003); 11 C.F.R. §300.32(a) (2003). In some cases, a new hybrid class of funds - called Levin funds - can be used. 2 U.S.C. §441i(b)(2) (2003). The Levin fund provisions are very complicated and few committees have elected to use them.

¹⁰⁷ 2 U.S.C. §441i(b)(1) (2003).

¹⁰⁸ 2 U.S.C. §441i(d) (2003); 11 C.F.R. §300.51 (2003). Non-federal contributions to state candidates are permitted if the contribution is not designated to pay for federal election activity. 11 C.F.R. §§100.24(c)(2), 300.51(a)(3)(iii) (2003).

¹⁰⁹ Missouri's local political party committees are its congressional, senatorial, legislative, judicial district, and county political party committees. Section115.603, RSMo 2000; see also 11 C.F.R. §100.14 (2003) (defining district and local committees of political party committees).

¹¹⁰ See, e.g., 11 C.F.R. §100.24(c) (listing exceptions to the definition of federal election activity).

¹¹¹ McConnell, 124 S. Ct. at 650-51, 687.

¹¹² Id.

¹¹³ Id. at 650, 684, 689.

¹¹⁴ Id. at 688-89.

¹¹⁵ Id. at 684.

¹¹⁶ 2 U.S.C. §441i(f)(1) (2003); 11 C.F.R. §300.71 (2003).

¹¹⁷ The mere endorsement of a candidate for state or local office by a federal candidate does not necessarily convert an advertisement into one that supports or opposes the federal candidate. McConnell, 124 S. Ct. at 684 & n.71; Fed. Election Comm'n Advisory Op. No. 2003-25. However, that advertisement will probably be a coordinated communication if it is disseminated within 120 days of a federal election, and thus count as an in-kind contribution to that federal candidate. See Fed. Election Comm'n Advisory Op. No. 2004-1.

¹¹⁸ 2 U.S.C. §§434(f), 441b(b)(2) (2003). An electioneering communication is a broadcast, cable, or satellite communication that refers to a federal candidate, is publicly distributed within 60 days of a general election or 30 days of a primary election, and is targeted to the relevant electorate. 11 C.F.R. § 100.29 (2003).

¹¹⁹ 2 U.S.C. §441a(a)(7)(B) (2003); 11 C.F.R. Part 109 (2003).

¹²⁰ 11 C.F.R. §109.20(b); see also Fed. Election Comm'n Advisory Op. No. 2004-1.

¹²¹ 2 U.S.C. § 441i(e) (2003).

¹²² 2 U.S.C. §441i(e)(1)(B) (2003); 11 C.F.R. §300.62 (2003).

¹²³ Fed. Election Comm'n Advisory Op. No. 2003-3. A limited exception permits federal officeholders and candidates to attend and speak without restriction at political party fundraising events. 2U.S.C. §441i(e)(3) (2003); 11 C.F.R. §300.64. This exception does not extend to fundraising that is not connected to a specific event. Id.

¹²⁴ If a person or entity gives funds from a federally prohibited source or that exceed federal contribution limits in response to a lawful solicitation, no violation results. Fed. Election Comm'n Advisory Op. No. 2003-3.

¹²⁵ Fed. Election Comm'n Advisory Op. Nos. 2003-3, 2003-36, 2003-37, available at http://ao.nictusa.com/ao/ao.html.