Election 2016: Nonprofit Spending to Date; and Clinton, Trump, and the Perils of Personal Philanthropy for Politicians

Lost a bit in the continual “he/she said what?!?” news stories is the continued steady spending by nonprofits to influence this year’s elections. The Center for Responsive Politics reports that spending by outside groups (groups other than candidates or party committees) reported to the Federal Election Commission is already approaching $600 million and so is on pace to more than double the level of such spending in the 2011-12 cycle. While the overall amounts are still relatively modest compared to aggregate candidate and party spending, at least for federal offices, that spending is more significant than the proportion of total spending suggests for several reasons.

One reason is that unlike candidates and to some degree political parties, nonprofits can concentrate their spending on a relatively few, close races, sometimes even allowing them to spend more in those races than the candidates and parties. Another reason is a small portion of those reported funds – about $50 million to date – are from groups that do not disclose their donors and so the public cannot learn the original sources of those funds (this is the so-called “dark money”). A third reason is that this figures reflect only spending that groups are required by law to report to the FEC; there are many expenditures that relate to federal elections but are not reached by federal election law, as well as of course much spending aimed at state and local races (see the National Institute on Money in State Politics for data on the latter). It is therefore clear that absent some significant legal changes political spending by nonprofits is not going away anytime soon, although some states are enhancing state-level required disclosure of political spending. See, for example, the recent Delawareonline report on a federal appellate court decision upholding Delaware’s expansive Elections Disclosure Act against constitutional challenge, the expansive New York lobbying bill awaiting the governor’s signature (see TimesUnion article), and the recent paper by Linda Sugin (Fordham) titled “Politics, Disclosure, and State Law Solutions for 501(c)(4) Organizations,” 91 Chicago-Kent Law Review (forthcoming 2016).

But lest nonprofit legal practitioners and scholars become bored with this “just more of the same political spending,” this year’s election has also given us a host of allegations of wrongdoing relating to the philanthropic activities of both Hillary Clinton and Donald Trump. For those trying to keep score, here is a brief summary of where things stand (for previous recent coverage, see previous posts relating to charitable “gifts,” possible private benefit, and possible support of the presidential campaign):

• Clinton Foundation:  Alleged conflicts of interest while Clinton was Secretary of State (see this week’s NY Times story for the latest); a (almost certainly routine) IRS referral of GOP lawmaker allegations of public corruption to an audit group (see this Politico storyThe Hill). For a detailed consideration under federal tax law of the accusations raised by the GOP lawmaker, see the July and August blog posts by Philip Hackney (LSU) (spoiler alert: he concludes that even if the alleged facts are taken as true they simply do not rise to a level that could plausibly threaten the Foundation’s tax-exempt status).

• Trump Donations & Foundation: Journalists have been hammering away at Trump’s claims to have made substantial charitable contributions, none more assiduously than the now-banned-at-Trump-events Washington Post; see, for example, stories raising questions about general claims of giving millions to charity, whether Trump fulfilled pledges to donate the profits from various ventures, and an alleged $20 million gift to St Jude Children’s Research Hospital. Of course boasting about phantom charitable contributions is generally not illegal. More troubling from a federal tax perspective are therefore the fact that the Trump Foundation made an admitted contribution to a political organization (a taxable expenditure under Internal Revenue Code section 4945 as well as a violation of section 501(c)(3)) and allegations that Trump may have personally benefitted from certain Foundation expenditures, such as the purchase of a signed Tim Tebow helmet (which, if true, would constitute prohibited self-dealing under section 4941).

It remains to be seen how these various allegations shake out, but they underline the fact that politicians and potential politicians who engage in personal philanthropy risk having those philanthropic activities haunt them on the campaign trail.

And one last question: what will happen to their respective foundations if either candidate is elected President? To date, neither campaign has said, although Bill Clinton has publicly acknowledged the issue.

Lloyd Mayer