IRS: Related ArticlesNew York Times Op-Ed: Congress's Charity Cases A REPORT issued last week by the minority staff of the Senate Finance Committee details how the fallen lobbyist Jack Abramoff exploited tax-exempt organizations — both sham nonprofits and otherwise legitimate charities — to move money from clients he disdained to congressmen he hoped to influence.
Why were charities Mr. Abramoff's go-to vehicles as he sought to transfer funds covertly through Washington's corridors of power? The primary attraction was their opacity: their ability to raise money in any amount, without limit, from any individual or entity anywhere in the world without disclosing the contributors to anyone.
This makes good sense for honest charities helping people in need. But Mr. Abramoff took advantage of this situation to circumvent campaign finance laws and Congressional ethics rules and provide illicit benefits to powerful politicians.
Though members of Congress are subject to strict rules regarding gifts, travel and entertainment, there have long been exceptions for "value received from charity" — ostensibly to permit officials to help charities raise money for worthy causes.
So the tax-exempt treasuries of willing nonprofits like Americans for Tax Reform, run by the Republican strategist Grover Norquist, became conduits through which funds from lobbyists like Mr. Abramoff and other special interests were transferred to elected officials, their families and their aides in the form of lavish travel, expensive meals, golf outings and tickets to sports and entertainment events.
The rules that govern charitable giving obscured the true source of these gifts, while at the same time affording lobbyists private access to the congressmen they were trying to influence.
In its 2003 decision upholding the campaign finance law, the Supreme Court repeatedly expressed its concern that tax-exempt organizations could be abused in just this way.
And now this grim report from the Senate Finance Committee's Democratic investigators should remind Congress and tax-exempt organizations that reform is overdue.
The guiding principle should be simple and direct: a politician's only relationship with a charity should be as a contributor. Elected officials should not accept travel or meals or golf course fees, even if they claim that participating in charity events will induce others to write checks for a good cause.
In order to put this principle into effect, Congress should begin by eliminating exceptions in ethics rules, campaign finance laws or lobbyist registration laws for benefits channeled to politicians through nonprofit, tax-exempt entities.
Any funds or benefits that a charity gives to a politician or a political committee should be traced back to the original contributor on regularly-filed disclosure reports. Just as important, politicians should be prohibited from raising money from third parties for charities they control, directly or indirectly.
If politicians help other charities raise money, they should accept absolutely nothing in return from those organizations or any organizations related to them. The same rules should apply to politicians' spouses, children and children's spouses, as well as to current and former staff members and their immediate families.
Finally, Congress should establish an electronic database where members list all their contributions to charities, benefits they receive from charities and their leadership positions in such groups.
As I.R.S. commissioner Mark Everson noted back in January, when the government announced Mr. Abramoff's plea agreement, "The mixing of politics, money and charities is, simply stated, a bad cocktail."
Indeed, it's distressing to see that in exchange for a taste of the high life, members of Congress were apparently selling what cannot be for sale in a representative democracy — access to the public policy process and possibly even their votes. Charities serve many indispensable purposes, but financing the livings of the powerful and privileged is not one of them.
Frances R. Hill, a professor of law at the University of Miami, is the director of the tax program at the Campaign Legal Center.
Public Citizen Seeks IRS Probe of Potential Tax Law Violations; Launches New Web Site and Database to Track "New Stealth PACs" Secretively Spend Millions to Sway Elections; PhRMA Appears to Have Bankrolled Seniors Groups
Public Citizen Seeks IRS Probe of Potential Tax Law Violations; Launches New Web Site - www.stealthpacs.org - and Database to Track
501(c) Non-Profit Groups Active in Elections
WASHINGTON, D.C. - Exploiting loose regulations and lax oversight, "New Stealth PACs" have poured millions of dollars into elections without revealing the identities of their donors or how they spend their income to influence elections, according to a new report by Public Citizen.
Public Citizen estimates that at least $91 million - and almost certainly many millions more - was spent by 26 non-profit groups registered under Section 501(c) of the tax code to influence at least 117 contests in 2000 and 2002. However, these groups reported only $12.2 million in electoral expenditures to the IRS. In 2004, at least 13 501(c) groups have been active.
Click here to view the entire press release on the report.
McConnell and the Code: Exempt Organizations and Campaign Finance - By Fran Hill In McConnell v. Federal Election Commission the Supreme Court upheld all of the major provisions of the Bipartisan Campaign Reform Act (BCRA) and, in the process, put tax-exempt organizations in the spotlight as significant players in campaign finance. This is a somewhat surprising turn of events for an opinion on federal election law. Nevertheless, the decision could not be more important to exempt organizations and to their professional advisers. This article by Fran Hill explains why.
(Posted with permission from Tax Analysts and the Exempt Organizations Tax Review. ) Click here to view the report.
The ABA Tax Section Comments on the Political Activities of Section 501(c)(4) Organizations The ABA Tax Section Comments on the Political Activities of Section 501(c)(4) Organizations, which is available below, leaves little doubt that section 501(c)(4) organizations will become major soft money surrogates during the 2004 election cycle and beyond.
The positions taken in the Comments are based on the premise that BCRA introduced "new barriers to the financing of transitional political parties" and to the assertion that "a great deal of money, energy, and popular interest is shifting to alternative vehicles for political activism, especially organizations tax-exempt under I.R.C. section 527 and section 501(c)(4)."
The Comments address the following issues:
Preserving the exempt status of section 501(c)(4) organizations by limiting the scope of activities that could be considered inconsistent with section 501(c)(4) exempt status
Defining a "safe harbor" for organizations that devote no more than 40 percent of their expenditures to political activities
Protecting large contributors from the gift tax by "suspending" application of the gift tax during the current election cycle and thereafter until the issue is clarified.
In light of the FEC decision to opt for inaction on exempt entities as political committees, these ABA Comments, which have been in process throughout 2003, should help readers, including policy makers at the FEC and in Congress, understand the efforts that are being made to ensure that tax law does not become an impediment to the development of yet another soft money surrogate based on tax exemption.
Click here to view the ABA's comments.
Articles on Section 527 Organizations The following two articles available from Tax Notes, which is a subscription service, discuss elements of section 527 that remain useful in understanding the current debate over treatment of section 527 organizations as political committees within the meaning of FECA.
The article by Cerny & Hill discusses the history and operation of section 527 as applied first to candidate committees, political party committees, and separate segregated funds and then discusses issues raised by section 527(f)(1), which applies to certain section 501(c) organizations. Section 527(f)(1) is the subject of Rev. Rul. 2004-6, which is also available on this website.
The article by Hill discusses the "new section 527 organizations" which are the type of section 527 organization at issue in the current FEC rulemaking. The article discusses the development of these organizations under tax law and the effort the creators of these entities made to avoid treatment as political committees under FECA.
Milton Cerny and Frances R. Hill, Tax Treatment of Political Organizations, Tax Notes (April 30, 1996).
Frances R. Hill, Probing the Limits of Section 527 to Design a New Campaign Finance Vehicle, 86 Tax Notes 387 (January 17, 2000).
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