Campaign Finance and Prohibiting Contributions by Tax-Exempt Corporations: FEC v. Beaumont
CRS Report for Congress
Received through the CRS W eb
Camp aign Finance and Prohibiting
Contributions by Tax-Exempt Corporations:
FEC v. Beaumont
American Law Division
The Federal El ect i o n C am pai gn A ct (FEC A) prohibits corporations, i ncluding tax -
ex empt, advocacy corporations, from u sing treasury funds to make direct contributions
an d e x penditures i n connection with federal elections. C orporations seeking t o m a k e
such contributions and ex penditures m ay legally do so only t hro u gh a political action
committee o r P AC, 2 U.S.C. § 441b. The S upreme C ourt h as long upheld the b an on
corporate contributions, including those m ad e b y corporations that are t ax -ex empt under
the Internal R evenue Code. However, i n FEC v. Massachusetts Citizens f or Life, Inc.,
479 U.S. 238 (1986), t he Court created an ex cep tion for independent ex penditures m ade
by such entities t hat d o not accept s ignificant corporate o r l a b o r u n i o n money finding
that restrictions on contributions require less compelling j ustificat i o n u n der the First
Amendment t han restrictions on independent ex penditures. In FEC v. Beaumont, 123
S. Ct. 2200 (2003), North Carolina R igh t to Li fe (NCRL), a t ax -ex empt corporation,
unsuccessfully attempted t o ex t end t he MC FL ex ception t o contributions by tax -ex empt
corporations. Finding that limits on contribu tions are m ore clearly justified under t he
Fi rst Amendment t han limits on ex penditures, the C ourt reaffirmed the prohibition on
all c o r porations making direct treasury cont r i b u t i o n s i n c o n n e c t i o n w i t h f e d e r a l e l e c t i o n s
and upheld the b an on corporate contributions as applied t o NCRL. This report p rovides
an analys is of the C ourt’s d ecision, including a brief discussion of possible implications
for a pending Supreme C ourt case, McConnell v. FEC, which i nvolves t he
consti t u t i o n a l ity of the Bipartisan Campaign Reform Act (BCRA), also known asth
McCain-Feingold, P.L. 107-155 (H.R. 2356, 107 Cong.). R elated CRS reports include
CRS Report R S21551, Campaign Finance: Issues Before the Supreme C ourt i n
McConnell v. FEC, and CRS Report R L30669, Campaign Finance Regulation Under
the First Amendment: Buckley v. Valeo and its Supreme C ourt Progeny.
The Federal Election C ampaign Act (FECA) at 2 U.S.C. §441b prohibits
c o r p o r a tions, i ncluding non-profit corporations that are t ax -ex empt under t he In ternal
Revenue Code, from u sing treasury funds to make direct contributions and ex p enditures
Congressional Research Service ˜ The Library of Congress
in connection with federal el ections. C orporat i ons seeking t o m ake s uch contributions
and ex penditures m ay legally do so only t hrough a political action committee or P AC, 2
U.S.C. § 4 41b. FECA further restricts who can contribute t o s uch P ACs, limits the
amount of such contributions, and requires P AC s t o d isclose t heir activities t o t he Federal
Election C ommission (FEC). 1 The S upreme C ourt h as long upheld the b an on corporate
contributions, i ncluding those m ade b y Inter nal R evenue Code tax -ex empt corporations.
However, in FEC v. Massachusetts Citizens f or Life, Inc.2 t h e C ourt creat ed an ex cept i o n
for i ndependent ex pendi t u r e s m a d e b y s uch entities t hat d o not accept s ignificant
corporate o r l abor union money. Consistent with its opinion in the l andmark campaign
finance d ecision Buckl ey v. Val eo, 3 the MC FL Court found that restrictions on
contri b u t i o n s require less compelling j us tification under t he Fi rst Amendment t han
rest ri ct i ons on i ndependent ex pendi t u res because cont ri but i ons carry a great er r i sk of
Plaintiff NCRL brought suit in federal d ist r i c t c o u rt s eeking t o ex t end t he MC FL
ex ception t o t he Section 441b prohibition o n corporate t reasury fund direct contributions
as applied t o t ax -ex empt corporations. T he district court granted summary judgment to
NCRL and hel d t hat t he prohibition i s unconstitutional as applied t o NCRL.4 Li kewise,
the U.S. C ourt of Appeal s for the Fourth Circuit ruled that the ban was unconstitutional
as applied t o NCRL, rel yi ng primarily on the S upreme C ourt’s d e cision i n MC FL .
According t o t he Fourth Circuit, the rationale behind the MC FL ex ception for independent
ex penditures m ade b y entities t hat d o not accept s ignificant corporate o r l abor union
money also applies t o contributions , and as an MC FL -type corpo r a t i o n, NRCL is
constitutionally ex em pt from t he prohibition.5
Supr eme Cour t Deci si on
On J une 16, 2003, in a 7 -2 decision, the S upreme C ourt i n FEC v . Beaumont 6
reversed the Fourth Ci rcu i t , and reaffirmed the prohibition on all corporations making
direct treasury contributions in connection with federal elections and upheld the b an on
corporate contributions a s a pplied t o NCRL. M ai ntai ning the distinction bet ween
contributions and ex p enditures, the C ourt found that limits on contribution s are m ore
clearly justified under t he First Amendmen t t han limits on ex penditures b ecause of their7
greater link t o corruption.
1 2 U.S.C. §§ 441a, 441b(b)(3),(4).
2 479 U.S. 238 (1986).
3 424 U.S. 1 ( 1976).
4 137 F. Supp. 648 (EDNC 2000).
5 278 F. 3d 261 (4th Cir. 2002).
6 Christine Beaumont is an eligible vote r i n No r t h Carolina who j oined NCRL in filing suit
7 FEC v. Beaumont, 123 S. Ct. 2200 (2003).
Writing for the C ourt, J ustice S outer said that any attack on the federal prohibition
against corporate contributions fr o m tr easury funds is contrary to a century of
congressional efforts t o curb t he potential o f corporate “deleterious influences on federal
elections.” The current law o rigi nated from public opinion in the l ate 1 9th cent u ry “t hat
aggregated capital unduly i nfluenced politic s, an influence not stopping short o f
corruption,” which resulted i n P resident Theodore R oosevelt s upporting enactment of the
Tillman Act of 1907, the first federal s tatute to prohibit corporate political contributions.
The C ourt noted that the public policy i nteres t behi n d t o d a y’s l aw still focuses on
restricting t he influence o f political war chests funneled t hrough t he corporate s tructure
t h at “t hreat en t h e i nt egri t y of t h e p o l i t i cal process.” 8 In elaborating o n t he rationale
b e h i n d the prohibition, the C ourt quoted from its 1990 decision in Aust i n v. Mi chi g a n
Chamber o f C ommerce:
St ate l aw gr ants corporations special advantages – such as limited liability, perpetual
life, and f avorable treatme n t o f t he accumulation and distribution of assets – t hat
enhance t heir ability to attract capital and t o d eploy their r esources in ways that
maximi ze t h e r eturn on t heir shareholders’ i nvestments. T hese state-created
advantages not only allow corporations to play a domina n t r ole i n t he Nation’s
economy, but also permit them to use ‘re s o u r c e s amassed i n t he economic9
marketplace’ t o obtain ‘ an unfair advantage in the political marketplace.’
The C ourt furt h er s t a t e d t h a t subsequent am endm ent s t o t h e federal el ect i o n l aw have
co n s i s t e ntly strengthen ed the o rigi nal, co re prohibition o n d irect co rporat e t reas ury
contributions and, as its decision in Austin v. Michigan Chamber o f C ommerce and o t h er
recent S upreme Court campaign fi n ance opi ni ons have dem onst rat ed, t he rat i onal e behi nd10
the p rohibition h as endured.
In addition t o p reventing corruption o r t he appearance of corruption, the C ourt found
that the prohibition on corporat e t reas ury fund contributions protect s i ndividuals who
have paid money i nto a corporation for reasons other t han t o s upport candidates f rom
having their m oney u sed t o s upport candidates t o whom they may b e opposed. M oreover,
t h e C ourt det ermined that the prohibition protect s against a corporation s erving as a
conduit for “circumvention of [ valid] cont ri bution limits.”11 That is, t he perso n s w h o
creat ed, o wn, o r are em pl oyed by t h e corporat i o n coul d ex ceed t h ei r i ndi v i d u al
contribution limits by diverting m oney t hrough t he corporation, which could i n t urn m ake
political contributions. Invoking its recent decision regarding limits on coordinated
ex penditures by political parties, the C ourt cau t i oned, “ex perience ‘dem onstrat es how
candidates, donors, and p arties t es t t h e limits of the current law, and i t s hows b eyond
8 Id. at 2205-06, (citing United States v. Automobile Workers, 352 U.S. 567, 585 (1957)).
9 494 U.S. 652, 658-659 (1990)(quoting M assachusetts Citizens f or Life, 479 U.S. at 257).
10 Beaumont, 123 S. Ct . a t 2206, (citing FEC v. Na tional Right to Work Comm., 459 U.S. 197,
207 (1982); FEC v. Na tional Conserva tive Political Ac tion Comm. , 470 U.S. 480, 500-01
11 Id. a t 2207, (quoting FEC v. Colorado Republican Federal Campaign Comm., 533 U.S. 431,
serious doubt how contribution limits would be eroded i f i nducement t o circumvent t hem
In summarizing its findings, the C o u r t emphasized t hat its cam paign finance
deci si ons “represent respect for t he ‘l egi s l at i v e j udgm ent t h at t h e s peci al charact eri s t i cs
of the corporate s tructure require particular ly careful regu lation,’” and demonstrate t hat
the C ourt understands that such “deference to legi slative choice is particularly warranted
w h e n Congress regu lates campaign contributions, carrying as t hey d o a plain t hreat to
political integrity and a plain warrant to count er the appearance and reality of corruption
and t he misuse o f corporate a d v a ntages.”13 The C ourt also clarified that limits on
contributions are m ore clearly justified t han limits on other kinds of political spending,
“cor r u p t ion b eing understood not only as quid pro quo agreements, but also as undue
influence o n an o fficeholder’s judgment, a nd t h e appearance of such i n fl uence.”14
T u r n i n g t o t he specific question o f whether 2 U.S.C. §441b applies t o NCRL, t h e
Court d etermined that its holding in FEC v. National Right to Work Comm. , as i nt erpret ed
by subsequent Court d ecisions, generally approves o f t he applicability of the S ection 441b
prohibition t o t ax -ex empt corporations “wit hout great financial resources.” Fo r ex ample,
in FEC v. National Conservative Political Action C o m m . , t h e C ourt noted that it
interpreted National Right to Work as consistent with the “well es tablished constitutional
validity of ... regulat[ ing] c o r porate contributions,” including contributions by
membership corporations that “might not ex hibit all the evil t hat contributions by
traditional economically organi z ed corporations ex hibit.”15 Stating its refusal t o “second-
gu ess a le gi slative d etermination as t o t he need for p rophylactic measures where
corrupt i o n i s t he evi l feared,” t h e C ourt rej ect ed t h e argum ent t hat d efe r e n c e t o
congressional j udgments i s d etermined by wh ether t he corporations affected by a
regu lation are for-profit o r non-profit.16
The Fourth Circuit relied o n MC FL in concluding that Section 441b cannot
constitutionally apply t o a tax -ex emp t advo cacy corporation s uch as NCRL. However,
MC FL made an important distinction bet ween restrictions on contributions and
restrictions on ex penditures, i.e., “res trictions o n contributions require less compelling
justification t han res tricti ons on independent spending.”17 In Beaumont , t he Court found
that the “corrupting potential” underlyi ng th e b an on using corporate t reasury funds “may
indeed be i m p l i cat ed by advocacy corporat i ons.”18 Li k e f o r - p rofit corporations, non-profit
advocacy corporat i ons enj o y s ubst ant i al s t at e-conferred advant ages, are abl e t o am ass
12 Id. (quoting Colorado Republican Federal Campaign Comm., 533 U.S. at 457).
13 Id. (quoting National Right to Work Comm., 459 U.S. at 209-10).
14 Id. (quoting Colorado Republican Federal Campaign Comm., 538 U.S. at 440-41).
15 Id. at 2208 (quoting National Conservative Political Action Comm., 470 U.S. at 500-01).
16 Id. at 2209-10 (quoting National Right to Work Comm., 459 U.S. at 210).
17 Id. at 2209 (quoting National Right to Work Comm., 459 U.S. at 260).
18 Id. at 2209-10.
s i gn ificant funds for political use, and are also capable of serving as conduit s f o r
individuals attempting t o circumvent contribution limits.19
The Beaumont Court also clarified the s tandard for review applicable to cam paign
finance regulation under t he Fi rst Amendmen t. In the view of t he Court, determining t he
appropriate standard of review d e p e n d s on the n at ure o f t he act i v i t y bei n g regul at ed.
Commencing with its 1976 ruling i n Buckl ey, t h e C o u r t s a i d t hat i t h as t r eat ed t h e
regu l at i o n o f cont ri but i ons as onl y a “m argi nal ” speech rest ri ct i on, subj ect t o “rel at i v el y
complaisant review under t he Fi rst Amendment,” s ince co n t r i butions are a l ess d irect
form of speech t h an ex pendi t u res. 20 Hence, the C ourt concluded t hat i nstead of requiring
a contribution regulation t o p as s s trict s crutiny by m eeting t he requirement that it be
narrowly t ailored t o s erve a compelling governmental interest, a contribution regulation
involving “significant i nterference with associational rights” passes constitutional m uster
by merel y s a tisfying t he lesser requirement of “bei ng ‘closely drawn’ to match a
‘suffici ently important interest.’”21 With regard to the S ection 441b prohibition, the C ourt
hel d t h at i t passes t hi s l ower l evel o f s crut i n y b ecause i t does not render a com p l et e ban
on corporate contributions, i.e., corp o r at i o n s are s till permitted t o u se treasury funds to
establish, solicit funds for, and p ay the ad ministrative ex p enses o f a political action
committee or P AC, which can then in turn make contributions.22 Invoking its unanimous
holding in FEC v. National Right t o Wo rk, t h e C ourt rej ect ed t h e argum ent t hat t he
regu latory burdens on PACs, i ncluding restrictions on their ability to solicit funds, renders
a P AC unconstitutional as t he only way that a corporation can m a k e p o litical
In summary, t he Sup r e m e C ourt i n FEC v. Beaumont upheld the b an on corporate
cont ri but i ons as appl i ed t o NC R L because corporat e cam pai gn cont ri but i ons – i ncl udi ng
contributions by tax -ex empt advocacy cor porations – pose a risk o f h arm t o t he political
system; consequently, t he courts owe d eference to legi slative j udgments on how best to
address t heir risk of harm; and limit s o n contributions are m erely “marginal” s peech
restrictions subject to a “relatively compl aisant” o r l esser review under t he Fi rst
Amendment t han t he strict scrutiny s tandard of review.
In his dissent, J ustice Thomas, j oined by J ustice S calia, m aintaine d t h a t t he strict
scrutiny s tandard of review should apply i n Beaumont, and t hat under t ha t s t a n d a rd,
19 Id. at 2207. Indeed, t he Court f urther notes that some of the most powerful organizations in
the U.S. are tax-exempt, advocacy corporations s u c h as the American Association of Retired
Persons, t he National Rifle Association, and t he Sierra Club. Id. at 2209-10.
20 The Court explained t hat “[w]hile contributions may r esult i n political expression if spent by
a candidate or an association ..., the t ransformation of contributions into political debate involves
speech by some one other t han t he contributor.” Id. at 2210 (quoting Buckl ey, 424 U.S. at 20-21).
21 Id. (quoting Buckl ey, 424 U.S. at 25; cf. Austin, 494 U.S. at 657).
22 In the C o u r t ’ s view, “[t]he PAC option allows co rporate political participation without the
temptation t o use corpora t e f unds for political influence, quite possibly at odds with the
sentimen ts of some shareholders or members, and i t l ets t he government regulate campaign
ac t i vity through r egistration and disclosure, s ee §§ 432-434, without j eopardizing t he
associational r ights of advocacy organizations’ members.” Id. at 2211.
23 Id. (citing National Right to Work, 459 U.S. at 201).
Section 441b would be unconstitutional. J ustice Anthony Kennedy wrote a concurrence
agreei n g with the m aj ority on the s peci fic prohibition at i ssue, but noting t hat i f a
comprehensive ex amination of t he distinction bet ween contributions and e x p en ditures
were under review, he might have joined with the d issent. 24
Possi bl e I mpl i cati ons for BCRA i n McConnel l v. FEC
The S upreme C ourt’s ru l i n g i n FEC v. Beaumont has prompted commentary
regarding possible implications for t he pending cam paign finance litigation, McConnell
v. FEC, where t he Court will be considering t he constitutionality of major provisions of
the recently enacted Bipartisan Campaign Reform Act (BCRA), P . L. 107-155. Although
BC R A pl aces si gn i fi cant rest ri ct i ons on corpo r a t i o ns, i ncl udi ng a b an on corporat i ons
using t reasury funds to pay for “electioneering communications” 3 0 d ays b efore a p rimary
and 6 0 d ays b ef ore a general election (Section 203), i t does not affect the s tatutory
provision that was upheld in Beaumont. Among other provisions, BCRA also prohibits
political parties from rai sing unregulat ed soft money contributions from corporations and
labor unions (Section 101).
On the one hand, commentators s upporting BCRA infer from t he Beaumont ruling
t h at t h e C ourt wi l l cont i nue t o ex erci se “deference t o l e gi sl at i v e choi ce” i n order t o
uphold key provisions of BCRA. 25 In addition, BC R A s u pporters note t hat Beaumont
ex pressly hel d t hat prohibiting corporat e t reas ury contributions does not violat e t he Fi rst
Amendment b ecause corporations are s till permitt e d t o use t reasury funds to establish,
solicit funds for, and p ay t h e administrative ex p enses o f a PAC, which can then in turn
make political contributions.26
On the other hand, commentators challenging the constitutiona lity of BCRA
em phasi z e t h at t h e Beaumont deci sion narrowly affirms corporat e contribution limits and
is restrict ed to the i ssue of cam paign contributions , while the McConnell case i nvolves
political ex penditures. 27 Any i m p l i c ations for BCRA, t hey m aintain, are ex t remely
24 Id. at 2211.
25 Linda Greenhouse, Supreme Court Roundup; Ban on Corporat e Contributions Is Upheld, N.Y.
T IMES, J une 17, 2003.
26 Eliza Newlin Carney, R ules of t he Game, Beaumont’s Clues f or McConnell, NATI ONAL
J OURNAL , J une 30, 2003.
27 Id. (citing statements by election l awyer J ames Bopp, J r ., who argued on behalf of plaintiff
North Carolina Right to Li fe, Inc. i n Beaumont and r epresents clients i n McConnell v. FEC).
28 Fr ank J . M urray, Campaign-Fund Caps Impos e d o n Non-profits, T HE W ASHI NGTON T IMES,
J une 17, 2003 ( c iting statements by Kenneth W. Starr, who represents Senator McConnell in
McConnell v. FEC.)