Other Bulletins

Spring 2005
Health Law Bulletin

Overview of Federal and Massachusetts Campaign Finance Laws

Those in the health care industry are not immune to solicitations to contribute or spend money to support or oppose campaigns for candidates or legislative issues. The failure to comply with the myriad of laws and regulations pertaining to campaign contributions and expenditures can have serious consequences. Health care entities that are tax-exempt pursuant to § 501(c)(3) of the Internal Revenue Code (the “Code”), and their executives and employees, must be especially sensitive to additional limitations and prohibitions on political activities imposed by the Code.

Federal Contributions and Expenditures

Contributions and expenditures made in connection with Federal elections and campaigns are governed by the Federal Election and Campaign Act (“FECA”). Two major categories of contributions permitted by FECA are: (1) contributions from individuals; and (2) contributions from separate segregated funds (“SSFs”) established by corporations, labor organizations, national banks and incorporated membership organizations. FECA prohibits corporations from using general funds to make contributions directly or indirectly in connection with any Federal election.

A corporation or organization that is tax-exempt pursuant to § 501(c)(3) of the Code (a “tax exempt entity”) should not establish an SSF because the Code prohibits participation or intervention by a tax-exempt entity in any candidate’s campaign for public office. This prohibition applies to contributions to, and expenditures on behalf of, candidates for local, state and Federal public office. A violation of this prohibition could result in fines, taxes and the loss of an entity’s tax-exempt status.

Executives and employees of § 501(c)(3) tax-exempt entities, in their individual and private capacities, are not prohibited from making contributions and expenditures in connection with local, state or Federal elections and campaigns. But they should ensure that their actions or contributions are not attributable to the tax-exempt entity that employs them. The IRS has indicated that permissible individual political activities, which will not be imputed to jeopardize an entity’s tax-exempt status include those conducted on an employee’s personal time without relying on the entity’s facilities, personnel, supplies or other resources.

Political campaigns may also involve the determination of public policy matters by way of ballot or referendum questions, initiative petitions or constitutional amendments. Federal regulations permit intervention or participation by a tax-exempt entity in a campaign to determine such public policy matters subject to a “substantial part” limitation. A tax-exempt entity wishing to participate or intervene in such a campaign must ensure that those activities do not constitute a substantial part of its overall activities.

FECA also contains provisions that restrict certain expenditures by individuals in connection with Federal elections. Generally, expenditures are considered contributions and are limited, if they are made in cooperation with or at the suggestion of a candidate (or the candidate’s committee or a political party committee). There is no limit on the amount of “independent” expenditures (expenditures not made in cooperation or at the suggestion of a candidate or committee) by individuals that expressly advocate the election or defeat of a clearly identified Federal candidate. FECA also does not regulate independent expenditures by individuals for the purpose of advocating the support or defeat of non-identified candidates (e.g., political parties) or for the purpose of supporting or opposing political issues (e.g., tort reform).

SSFs may also make unlimited “independent” expenditures in connection with Federal elections (for candidates or issues). Although FECA contains language that purports to broadly prohibit corporations from making any independent expenditure directly from their general funds, courts have construed this language to prohibit only direct expenditures from general funds that constitute “express advocacy” regarding the election or defeat of a clearly identified candidate for Federal office. Courts have said that corporations may directly expend, without limitation, monies from their general funds to support or oppose political issues, political parties, or non-identified candidates, or a particular piece of legislation, but not to directly support or defeat an identified candidate.

Recently, the amounts that individuals and SSFs may contribute to a candidate’s campaign in Federal elections were increased to reflect an increase in the Consumer Price Index.

Massachusetts Contributions and Expenditures

Massachusetts campaign finance laws govern contributions and expenditures made in connection with state elections and campaigns. The Massachusetts laws do not permit any contributions or expenditures by or on behalf of a corporation for the purpose of promoting or preventing the election of any person to public office, or for the purpose of promoting or antagonizing the interest of any political party in connection with a state or local election. Therefore, corporate entities should not make contributions either directly or indirectly to a candidate or political party in Massachusetts. Corporations may make unlimited contributions to and unlimited expenditures on behalf of political committees organized on behalf of a ballot question in a Massachusetts election. Tax-exempt entities must still comply with the limitations imposed by the Code as discussed above.

The Massachusetts laws also include special limits (not found in FECA) on the amount of contributions made by legislative or executive agents (i.e., lobbyists) to Massachusetts candidates, candidates’ committees and all other political committees (except ballot question committees).

Individuals may make unlimited “independent” expenditures in a Massachusetts election that are not made in concert with or at the suggestion of a candidate. The Massachusetts laws do not regulate independent expenditures by individuals that expressly advocate the election or defeat of political parties and non-identified candidates or that expressly support or oppose ballot questions in connection with a Massachusetts election. The amounts that individuals and lobbyists are permitted to contribute in connection with Massachusetts campaigns and elections have not, to date, increased in 2005.

Conclusion

Penalties for the violation of either FECA or the Massachusetts campaign finance laws include substantial fines and imprisonment, so individuals and corporations must take care to ensure their compliance. In addition, tax-exempt entities may face additional fines and penalties, including the loss of tax-exempt status, for engaging in prohibited political activities. For more information, including on any particular campaign contribution or expenditure, contact the BR&G Government Strategies Practice Group at info@bulkley.com or call the group’s coordinator, Melinda M. Phelps, at (413) 272-6237.

Christopher J. Scott is an associate and a member of the Government Strategies Practice Group. He may be reached at cscott@bulkley.com or (413) 272-6254.