Major Campaign Finance and Ethics Reform Bill: What PACs & Non-Profits Need to Know on July 1

June 29, 2022
Firm Publication

The 112th General Assembly adjourned sine die on April 28th, 2022, but many of the successful measures will become effective on July 1st. Public Chapter 1087 – one of the most weighty and intricate bills – made changes to ethics and campaign finance rules to bring greater transparency to political expenditures. With multiple effective dates, ranging from May 27th, 2022, to January 16th, 2023, changes will come in waves for existing and new political action committees (PACs), candidates, and organizations tax-exempt under the IRS as 501(c)(4),(5), and (6). Here, we highlight some of the most pressing issues.

PAC Organizational Transparency & Liability

Effective July 1, 2022, new multicandidate PACs, before conducting any financial activities, must certify the names and addresses of all officers and persons who “directly control campaign expenditures.” Existing PACs must make the same certifications by January 31, 2023. Changes in officer makeup must be reported no later than thirty days after the change. Additionally, such officers could be personally liable for civil penalties levied.

The meaning of “directly control campaign expenditures” is not defined in the bill, and formal guidance from the Registry of Election Finance is pending. In the meantime, informal guidance suggests that a PAC needs to identify any individual with the authority to direct expenditures independently. In some instances, this will be a candidate or a PAC treasurer, but in other cases, it may be a campaign manager or a political director. Where expenditures can only be directed by a board (i.e., no single individual has authority to control expenditures), then it is likely that the treasurer or chairman of the board would be the most appropriate individual to be identified as having this role.

The act also prevents a candidate or PAC from soliciting contributions from a person by using pre-marked boxes for future contributions. Furthermore, a PAC (including corporations making contributions totaling over $1,000 in aggregate in one calendar year to candidates in Tennessee) must hold funds in a separate and segregated account.

Additional PAC Reporting Requirements

Effective July 1st, 2022, candidates and PACs must make an additional disclosure for contributions between the tenth day before an election and the day of if contributions to the candidate reach certain dollar amount thresholds. The thresholds depend on the elected office sought. e.g., statewide office, senate, house, or local.

From a record-keeping perspective, the act adds additional requirements to retain certain information, including copies of money orders, wire or account transfer statements, and credit or debit statements.

Implications for 501(c)(4),(5), and (6) Organizations

Effective July 1, 2022, with limited exceptions, an organization that is tax-exempt under the IRS as a 501(c)(4),(5), or (6) entity is required to report expenditures during the remainder of the election year and certify the name and address of any person who directly controls expenditures along with specified identification if both of the following criteria are met:

  • The organization spends in aggregate $5,000 on certain communications that expressly “contain the name or visually depict the likeness” of a candidate in a primary or general election.
  • Such expenditures or communications occur within sixty days immediately preceding a primary or general election.

It is important to note that this does not require such organizations to report contributions made to them by donors. Rather, these changes focus on expenditures.

Criminal Implications

Beginning August 15th, 2022, it is a Class A misdemeanor for a person or entity to knowingly fail to file a disclosure or provide false information on the relevant form. Also, an officer or candidate must sign each disclosure or amendment under penalty of perjury.

If you have questions about any of the information above, please contact the authors.