DFIA Incorporation Update

  DFIA Incorporation Update

By Jeffrey Goetz

I have had an opportunity today to speak with one of my law partners, Gordon Fischer (formerly Chair of the Iowa Democratic Party), Chris Warshaw (Political/Field Director for DFA in Burlington, VT) and Mark Naccarto (Democracy for Tennessee). Here is what I found out.

1)  The earlier concerns I and many others had back in 2004 regarding “coordination” between the Democratic Party and “527” organizations (like Moveon.org and ACT)is not a problem today and is not likely to be a problem in the future.  “Coordination” (in the 2004 context) meant the Democratic Party (county, state or national) and Moveon.org couldn't work together (like, we'll canvas the southern part of the county, and you canvass the northern part of the county).   There was no, and there is no “coordination” in the context of a party “volunteer” (like a member of a county central committee or precinct captain) “volunteering” to do some door-knocking for Moveon.org.

2)  Those who attended the DFA training in Iowa City last year might remember that I specifically raised the exact issue above at our session, and it was specifically addressed by Jim Dean and Chris Warshaw.  There are no problems or issues raised if I volunteer my time as a precinct captain and/or my precinct's representative on my county democratic central committee, (or do any other volunteer work for my county or state or national party) and also contribute money or volunteer my time to Moveon.org, ACT, Progressive Democrats, NARAL, ACLU (or any of the other progressive groups that I give money to, belong to, or volunteer time with).

3)  Remember, “527” organizations were “born” as a result of the federal McCain/Feingold reform act, and were so named because they had no other way to describe then (other than they were “political organizations” as defined by Internal Revenue Code Section 527).  Additionally, 527 organizations are “federal” organizations, and are “ruled” by the federal political rules (Federal Election Commission).  They are not “state” organizations (per se).

4) On the issue of formally incorporating DFIA, if the decision is made to “incorporate” DFIA in the State of Iowa, there are just 2 choices: as a “for-profit” domestic stock corporation, or as a “not-for-profit” corporation.  If the decision is to incorporate as a “not-for-profit” corporation (that's my recommendation at this point), then the next issue is whether the corporation will be “run” by only a board of directors (my recommendation at this time), or “owned” (and I use that word very loosely) by its “members” and “run” by its board of directors.  Even if the “board-only” option is selected, that does not mean there can't be “members” of DFIA.  For example, (if the decision is made), an individual could be a “member” of DFIA simply by “registering” and saying you want to be a member, or a “membership fee” or other obligation could be imposed (like you have to give your email address or attend a meeting to be a member, for example). Some of these decision points would have to be made soon, others later on.

5) Some may get confused about what it means to be a “not-for-profit” corporation.  We are all most familiar with the “charity” or “educational”-type of non-profit.  Those are technically called “tax-exempt” organizations.  In order to be one of those, the organization would have to submit a detailed application to the IRS and ask to be “tax-exempt” under Internal Revenue Code Section 501(c)(3).  That means “money given” to that type of organization entitles the “giver” to claim a “charitable tax deduction” on their personal income tax returns.  We do not want DFIA to be that type of non-profit, because a 501(c)(3) specifically can not do anything political.

6)  There are many other types of non-profits (neighborhood organizations, clubs, labor unions, social welfare or civic organizations), which, depending on the type, either the money received by the organization is “tax-exempt” or the money spent by the organization is “tax exempt”.

7)  If DFIA is incorporated as a non-profit, and it is a “political organization” (as opposed to a social welfare or civic organization or club), and if (and only if) it both “receives” money, and “spends” money, then its tax status will be “ruled” by IRS Section 527.  For the sake of this discussion, the money given to DFIA would not be “tax exempt” (no personal tax deduction for the giver), but the money “spent” by DFIA would be “tax-exempt”.  That means DFIA will not pay any income or other taxes to the IRS (provided it strictly does “political” things). 

8)  Going back to “what if” DFIA is incorporated, it could then make application to the IRS for a Federal Tax Identification Number “FEIN” (the functional equivalent of a Social Security Number for a non-individual, such as a corporation).  With an FEIN, DFIA could then open a bank account in its own name.  If DFIA did nothing else, it would have no obligation to file a state or federal tax return, or file any documents with the Iowa Ethics and Campaign Disclosure Board, or the FEC.  If DFIA received money or raised any money, it may have to file a “informational tax return” with the state and the IRS (but again, not have to pay any taxes provided it only does political things).

9) If at any point DFIA “spends” more than $750 on a state political candidate or issue, then it could be classified as a “State PAC”, and then it would have to make a filing with the Iowa Ethics and Campaign Disclosure Board.  If it doesn't spend any money for (or provide a benefit to a State or local candidate or issue), it would not have any filing obligations.

10)  If at any point DFIA provides any money or anything of benefit to a “federal” candidate, then it would have an obligation to file a Federal campaign finance disclosure form.  Everyone I have spoken to says you don't even want to think about doing this, because once you do, the FEC will keep its eye on you.  Plus the reporting requirements are so intense, that it will cost more to do the filing and maintain the compliance, than you are ever likely to give any candidate.  Chris Warshaw at DFA told me today they have 2 fulltime people there that just do their FEC filings and compliance.

11)  But this does not mean DFIA couldn't “help” federal (or any other) candidates or issues.  The FEC has said “websites” have no “value”. Therefore, Blog for Iowa (as DFIA's mouthpiece) could exort its “members” or followers or readers to “support” anybody or anything, with money from their personal wallets, or time volunteering.  That type of action is completely allowed. (thank god for free speech (atleast while we still have it)).

12)  Chris (in her comments below) relayed her concerns about people who “work” for a non-profit, who are then told they must stop their outside political “party activities” once they got hired.  I am not sure exactly what that situation involves, but it may have to do with the political activities prohibitions that truly “charitible” or “educational” organizations can't get involved in.  In the DFIA example, there would be no-such prohibitions (Isn't Jesse Jackson engaged in political activities and also involved with the Rainbow Coalition and his church?).  Chris, I want to assure you, you can be a member of, or on the Board of Directors of DFIA, and continue to be a member of the Polk County Democratic Central Committee, and a member and Chair of any State Party Caucuses.  You could even work as a paid employee of DFIA (if it ever gets large enough to hire employees) and continue your volunteer work for the county or state Democratic Party's (or vice versa).

It has been my intent here to shine some light on several rather complex issues.  I just hope that I didn't muddy up the waters even more. (apologies in advance for spelling, punctuation and gramatical errors)  Jeff. 

P.S.  My telephone call to Mark Naccarto of Democracy for Tennesse was very interesting and enlightening. One important point he made was how enviable of position Democracy for Iowa and Democracy for New Hampshire are in, for being first in the nation, and how all the candidate come to us first and often.  He had many good ideas on how we (as progressives) can capitalize on these facts.


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