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The third way

How to plug New York’s glaring “LLC loophole”? Let’s count the ways.

First, state Board of Elections could rescind its 1996 decision that created the loophole, under which New York election law treats limited liability companies as individuals and allows them to contribute as much as $150,000 a year to candidates and political committees combined. The board in April considered this move, but ultimately decided that only the Legislature could reverse a decision the board itself made.

So, that’s the second option: The Legislature could close the loophole. Yet for all their professed determination to cure Albany’s money culture, lawmakers have not pursued this simple fix.

Which brings us to the third way: Ask the courts to do what the Board of Elections and Legislature can’t bring themselves to do.

Tired of waiting, this week the Brennan Center for Justice at New York University School of Law filed suit against the elections board. Joining as co-plaintiffs were several current and former state legislators from both parties.

Their action contends LLC loophole undermines the Legislature’s intent to control campaign contributions by limiting the donations allowed and requiring full disclosure of donors. Indeed, “loophole” hardly does justice to a reading of the law that allows virtually unlimited donations from a single contributor who can set up multiple LLCs.

And the problem is getting worse. LLCs contributed more than $118.6 million to candidates, parties and PACs from 1999 to 2014—but nearly half of that amount came from 2011 to 2014.

The state Tax Department treats LLCs as either partnerships or corporations, depending on the federal tax status they elect. The Board of Elections could do the same, while also stating clearly that no individual can use multiple LLCs to get around contribution limits.

Attorney General Eric Schneiderman has called the LLC loophole “the exception that swallows the rule.” That pretty much sums it up.

Let’s hope the courts tell the Board of Elections it’s high time to fix a nearly 20-year-old error.

7/24/15 (c) 2015 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or email rbj@rbj.net.

One comment

  1. Don’t we want more government intrusion? Maybe you do, but I don’t–regardless of the reason!

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