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Jan 31, 2003 -- LEGAL CENTER WEEKLY REPORT January 31, 2003
Legal Center Calls For More Disclosure by Tax-Exempt Groups
Critical to Ensuring Compliance with Restrictions on Campaign Activity
On Tuesday, January 28, the Campaign and Media Legal Center filed comments with the Internal Revenue Service, in response to the agency's request for input on potential improvements to the Form 990 annual information return for tax-exempt organizations. The Legal Center called for the IRS to require expanded disclosure of fund transfers and relationships among 501(c)(4), 501(c)(5), 501(c)(6), and 527 tax-exempt organizations in order to enhance public understanding of the political activities of these organizations. Additional disclosure should also serve to deter, and help the public detect, violations of the tax and election laws that restrict the campaign activity of these groups.
The Internal Revenue Code prohibits 501(c)(3) tax-exempt organizations from participating or intervening in campaigns. 501(c)(4), 501(c)(5), and 501(c)(6) tax-exempt organizations may engage in some campaign activity, so long as it does not constitute their primary purpose. 527 tax-exempt organizations engage in campaign activity as their primary purpose. Moreover, Federal campaign finance law prohibits corporations (including incorporated 501(c) and 527 tax-exempt organizations) and unions (501(c)(5) tax-exempt organizations) from engaging in certain electioneering activities -- including using their treasury funds to finance "electioneering communications" or campaign activity that is coordinated with Federal candidates and political parties.
The existing IRS and FEC disclosure regime is aimed at ensuring compliance with these restrictions and promoting public awareness of the activities and funding sources of politically active tax-exempt organizations. However, that regime contains a number of gaps that frustrate these purposes.
For example, 501(c) tax-exempt organizations are not required to itemize their spending on electioneering activity on IRS Form 990, the principal public disclosure form for these organizations. Indeed, in many cases, even required Form 990 disclosures of aggregate spending on electioneering activities by these organizations are patently understated. A Federal law requiring 527 organizations to disclose certain contributors and expenditures to the IRS does not remedy this particular problem, as it does not cover spending by or transfers among 501(c) organizations. Moreover, while new Federal campaign finance law disclosure requirements for entities that finance "electioneering communications" will provide important information to the public and regulators, these requirements do not cover all campaign activities by tax-exempt organizations (and indeed, the FEC has exempted 501(c)(3) organizations from the new "electioneering communications" disclosure rules).
The IRS specifically requested comment on whether 501(c)(4), 501(c)(5), 501(c)(6), and 527 organizations should have to fill out Schedule A of Form 990. Schedule A - currently completed only by 501(c)(3) organizations and certain trusts - requires disclosure of transfers to other tax-exempt organizations and the identification of related organizations.
In its comments, the Legal Center endorsed the idea of requiring these tax-exempt organizations to fill out key elements of Schedule A. The Legal Center's comments noted that enhancing the existing disclosure regime for campaign activity by tax-exempt organizations would be particularly timely, given ongoing efforts by the political parties and their operatives to spawn tax-exempt entities to carry on the raising and spending of soft money in connection with the 2004 elections. Moreover, the Legal Center expressed concern about the prospect of 501(c)(4), 501(c)(5), 501(c)(6) and 527 organizations' using fund transfers to 501(c)(3) organizations to exploit the FEC's exemption for 501(c)(3)'s from new "electioneering communications" financing and disclosure rules.
To view the Legal Center's comments to the IRS on disclosure enhancements, please click here.
Legal Center Calls for End of Leadership PACs
On Friday, January 31, the Campaign and Media Legal Center filed comments with the FEC calling for the agency to end the use of so-called "Leadership PACs" to evade limits on contributions to Federal candidates and officeholders. The comments were submitted in response to a Notice of Proposed Rulemaking on Leadership PACs initiated by the Commission in December of 2002.
Leadership PACs are political organizations set up and controlled by Federal candidates and officeholders, apart from their principal campaign committees. They enable Federal candidates and officeholders to receive political contributions in excess of the amounts permitted to be given to their principal campaign committees. Funds donated to Leadership PACs are commonly used by Federal candidates and officeholders to finance contributions to other candidates, payments to consultants, travel expenses, get-out-the-vote activity, and polling. Leadership PACs have often had hard money and soft money accounts -- with the former allowed to receive limited contributions only from individuals and other Federal political committees, and the latter able to receive unlimited contributions (including donations from Federally prohibited sources such as unions and corporations).
While the FEC has long had regulations on the books that treat donations to and from "affiliated" committees as subject to one contribution limit, it has inexplicably failed to treat Leadership PACs as affiliated with Federal candidates' and officeholders' campaign committees. The Commission's interest in re-evaluating its prior treatment of Leadership PACs as separate from campaign committees follows the enactment of Bipartisan Campaign Reform Act of 2002, which bans soft money Leadership PACs. The Commission's Notice of Proposed Rulemaking contains alternative proposals designed to determine when even hard money Leadership PACs should be treated as affiliated with Federal officeholders' and candidate's campaign committees and thus subject to a single contribution limit.
In its comments, the Legal Center applauded the FEC's interest in re-evaluating the legal status of Leadership PACs and urged the Commission to proceed in putting an end to this method of evading contribution limits. Along these lines, the Legal Center proposed additional regulatory provisions for the Commission to consider, which are designed to secure the treatment of Leadership PACs as affiliated with Federal candidates' and officeholders' campaign committees. The Commission is considering holding hearings on this issue on February 26, 2003.
To read the Legal Center's comments to the FEC on Leadership PACs, please click here.
Upcoming Events
Friday, February 7: Legal Center Associate Legal Counsel Glen Shor will be a panelist at an E-Voter Institute event on the future of political campaigns on the Web.
Where: Washington Post Building, 1150 15th St. NW, 9th Floor
When: Friday, Feb. 7, 1:30 p.m. - 6:00 p.m.
Reception 4:30 p.m. - 6:00 p.m.
Panels: Role of the Internet in Political Campaigns
* Michael Zimbalist, Becki Donatelli, Hal Malchow
E-Voter 2002 Research
* Cyrus Krohn, Bent McGoldrick, ChrisYoung, Michael Bassik, Joe Rothstein
Bipartisan Campaign Finance Reform
* Glen Shor, Joe Sandler
Lessons for the Next Election
* Ira Teinowitz, Mike Connell, Doug Bailey, James Vaugh, Rand Ragusa, Brian Reich
Contact: Karen Jagoda at (202) 338-2430 or Karen@e-voterinstitute.com
Reg. fee: $125
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