A federal court last week ruled that a small nonprofit, formed under Wyoming law to advocate positions on various political issues, may have to include certain federally-mandated disclosures on its ads and fundraising appeals, and may even have to register and report as a federal political committee.

The ruling is an important reminder that advocacy groups cannot always avoid Federal Election Commission rules merely by organizing themselves as a 501(c)(4), 527, or nonprofit established under state law.

The suit was filed by a group called “Free Speech,” which challenged the FEC’s policies for determining when fundraising appeals are subject to FEC rules and when an entity is a federal political committee, requiring it to register and file reports. The suit also challenged an FEC rule defining when an ad “expressly advocates” the election or defeat of a federal candidate, in which case the ad must contain certain disclosures and the ad’s sponsor must file an independent expenditure report. The court rejected each of Free Speech’s constitutional challenges and dismissed the suit.

Disclosures on Fundraising Appeals

The court agreed with the FEC that a federally-mandated disclosure statement must be included on a request for donations that clearly indicates the funds raised will be targeted to the election or defeat of a candidate for federal office. Before the suit, Free Speech had asked the FEC to rule on specific donation requests, but the FEC Commissioners were split over some of the requests and were unable to issue the requested Advisory Opinion. The court disagreed with Free Speech that the FEC deadlock showed that the test is unconstitutionally vague.

Disclosure and Reporting for Ads “Expressly Advocating” the Election or Defeat of Federal Candidates

The court upheld the FEC rule that draws a line between unregulated issue advocacy and express advocacy. Ads that “expressly advocate” for or against a federal candidate must contain a specified disclaimer and must be reported to the FEC through independent expenditure reports. 

Free Speech argued that the concept of express advocacy should be limited to communications containing words such as “vote for,” “defeat,” or “elect.” The FEC rule, however, also treats as express advocacy a communication that “could only be interpreted by a reasonable person as containing advocacy of the election or defeat of one or more clearly identified candidates,” and that has an “unmistakable” and “unambiguous” “electoral portion.” The court concluded that this latter test is similar to (and perhaps even narrower than) the “functional equivalent of express advocacy” test, which the Supreme Court has ruled is a proper basis for federal regulation.

When is a Group Considered a Federal Political Committee? 

Finally, the court upheld the FEC’s case-by-case approach to determining when an organization must register and file reports as a federal “political committee.” Under the FEC’s approach, a group making over $1,000 in “expenditures” or raising over $1,000 in “contributions” must register and file reports as a federal political committee whenever its “major purpose” is engaging in federal campaign activity. The FEC looks at various factors in evaluating a group’s major purpose, including its public statements, fundraising solicitations, government filings, and organizational documents. Free Speech argued that this multi-factor test is too nebulous to regulate First Amendment activity and chills political speech. But the court rejected this argument, too, concluding that this loose set of factors meets constitutional muster.    

Next Step for the Litigation

On May 7, the U.S. Court of Appeals for the Tenth Circuit is scheduled to hear arguments on the lower court’s earlier denial of a preliminary injunction. Free Speech has also appealed the final dismissal of the case, discussed above. The same issues are at stake in both appeals and therefore are likely to be resolved based on the May hearing. A ruling is likely to come sometime this Summer or Fall.