QUESTION PRESENTED
Do contributions to and expenditures from a newsletter fund established under 26 U.S.C. § 527(g) that are used solely for the preparation and circulation of a newsletter, consistent with the terms of § 527(g), constitute “contributions” or “expenditures” under the Campaign Finance Act that must be disclosed under the Act?
BACKGROUND
Section 527(g) of the federal Internal Revenue Code provides:
(g) Treatment of newsletter funds
(1) In general. For purposes of this section, a fund established and maintained by an individual who holds, has been elected to, or is a candidate (within the meaning of paragraph (3)) for nomination or election to, any Federal, State, or local elective public office, for use by such individual exclusively for the preparation and circulation of such individual’s newsletter shall, except as provided in paragraph (2), be treated as if such fund constituted a political organization.
(2) Additional modifications. In the case of any fund described in paragraph (1) —
(A) the exempt function shall be only the preparation and circulation of the newsletter, and
(B) the specific deduction provided by subsection (c)(2)(A) shall not be allowed.
(3) Candidate. For purposes of paragraph (1), the term “candidate” means, with respect to any Federal, State, or local elective public office, an individual who —
(A) publicly announces that he is a candidate for nomination or election to such office, and
(B) meets the qualifications prescribed by law to hold such office.
26 U.S.C. § 527(g) (sometimes “I.R.C. § 527(g)”).
Treating a newsletter fund as a “political organization” under § 527(g) exempts the fund from taxation if the fund only collects or expends money on “exempt functions.” See I.R.C. § 527(c)(1) (“gross income” for a defined “political organization” excludes “exempt function income”). For newsletter funds, exempt functions are “only the preparation and circulation of the newsletter,” id. at (g)(2)(A), and include, among other things, secretarial services, printing, addressing, and mailing. 26 C.F.R. § 1.527-7(c). Significantly, the Code of Federal Regulations expressly provide: “Newsletter fund assets may not be used for campaign activities.” 26 C.F.R. § 1.5277(d).
Section 527 political organizations are generally required to file monthly or quarterly disclosures related to the contributions they receive and the expenditures they make via the filing of an IRS Form 8872 disclosure. See I.R.C. § 527(j). However, this disclosure is not required if the 527 organization is, among other things, a “qualified State or local political organization.” Id. at (j)(5)(C). Nonetheless, to be a “qualified state or local political organization” the entity or fund must be:
(ii) … subject to State law that requires the organization to report (and it so reports) —
(I) information regarding each separate expenditure from and contribution to such organization, and
(II) information regarding the person who makes such contribution or receives such expenditure, which would otherwise be required to be reported under this section, and
(iii) with respect to which the reports referred to in clause (ii) are (I) made public by the agency with which such reports are filed, and (II) made publicly available for inspection by the organization in the manner described in section [I.R.C. §] 6104(d).
26 U.S.C.S. 527(e)(5). Thus, if the newsletter fund does not report under State law, it is required to report under federal law. On the other hand, if it is required to report under State law – and does so report – then it is likely not required to file reports under federal law.
On April 28, 2016, Robert Highsmith of Holland & Knight LLP, requested an advisory opinion as to whether a public officer and/or candidate for public office, in this instance a member of the Georgia General Assembly, must report Georgia’s Campaign Finance Act contributions to and expenditures from a newsletter fund established under I.R.C. § 527(g).