James Bopp Jr. Gets Creative
How does the conservative maestro of campaign finance fund his legal work?
Even more unusual is that Bopp appears to run the Center almost single-handedly, without significant oversight from a governing board. Since Bopp is an employee of the center, theoretically he shouldn’t direct the group on his own. But he told me that he himself manages daily operations and selects which cases are taken on for litigation. The board of directors doesn’t meet regularly; Bopp said he couldn’t remember the last time they did. And when I contacted Wanda Franz, listed on IRS records as the Center’s president every year between 2005 and 2010, the years with records available, she seemed surprised to be holding the position. “I’m a trustee,” she corrected. “I’m not the president. Where are you getting your information from?”
Kingsley said that while nonprofit governing boards don’t micromanage, the IRS does require them to guide major decisions. Since litigation is essentially the only activity the Center engages in, she found it surprising that the Board wouldn’t play an active role in selecting the cases it pursues. “I question whether there’s any real governance going on,” Kingsley said.
Bopp said the Madison Center’s board of directors had “delegated” management activities to him, because he has the most expertise in legal matters. He also said he’s free to pursue litigation on his own if the Center has the available funds. In an email to me, Bopp denied that the arrangement between his firm and the Center was out of the ordinary for small charities, and called the suggestion that his firm might be in violation of IRS rules “contrived.” While his firm performs a great deal of work for the Madison Center, handling “management, bookkeeping, filing IRS returns,” and legal services, Bopp said most of it is done at reduced rates or even for free. Bopp also pointed out that performing pro bono litigation is within the definition of a charitable activity.
The experts I spoke with said that even so, the Center could still be in violation of private benefit regulations. An individual can only receive an “incidental” benefit from a charitable organization; when all, or nearly all, of a group’s funds end up in one company’s coffers, it’s harder to argue the benefit is incidental. It’s a matter of degree, they said.
Bopp is by all accounts a talented lawyer, and as Richard Briffault, a professor at Columbia Law School, pointed out when we spoke, there’s no shortage of funding for attorneys looking to weaken campaign finance regulation. Without the Center’s help, Bopp likely wouldn’t have to go begging for finances; the arrangement just makes things easier. The center’s status as a 501(c)3 means that the group’s donors can deduct their contribution from their taxes, a benefit that could presumably convince benefactors to pry open their wallets. Nonprofit status also allows the Center to receive money from private foundations, which usually prohibit grant awards to entities not classified as charities by the IRS. According to the Foundation Center, a group that tracks charitable giving, at least three private foundations made grants to the Madison Center between 2003 and 2007, for a total of $125,000. Each of those foundations requires grant recipients to have 501(c)3 status.
And as Kingsley and all of the experts I spoke with pointed out, Bopp’s relationship with the Madison Center, convoluted as it is, might still pass muster under an IRS audit. Determining excessive private benefit can be a “squishy” endeavor, as Kingsley put it. And anyway, the IRS isn’t set up to go after what are ultimately small groups, even if they are violating the rules. Auditors are few and the potential payoff in fines and restitution doesn’t make nonprofits an attractive target.
In some ways the Madison Center operates like a public interest law firm, but there are important differences. Most public interest firms are for-profit ventures, and therefore can’t accept tax-deductible donations; they make their money from attorney fee awards when their cases are successful. About 60 percent of reported Madison Center funds, on average, do come from such awards. But it’s only recently that courts have embraced Bopp’s view of the law, and he ends up losing plenty of cases. Without the Madison Center underwriting those losses—through tax-deductible, mostly anonymous donations—Bopp’s firm might go broke litigating the losers.
OK, so it’s obvious, to anyone who looks under the hood, that there is little, if any, meaningful distinction between Bopp and the Madison Center, and that there’s something odd about the whole setup. But of course, these gray areas are Bopp's bread and butter. If his relationship with the Center breaks the IRS rules at the moment, no one is more qualified to change that than Bopp himself.
Jon Campbell is an independent journalist based in Southern California.