Section 527 Political Organizations: Background and Issues for Federal Election and Tax Laws
Section 527 Political Organizations: Background
and Issues for Federal Election and Tax Laws
Updated February 8, 2008
R. Sam Garrett
Analyst in American National Government
Government and Finance Division
Erika Lunder and L. Paige Whitaker
American Law Division
Section 527 Political Organizations: Background and
Issues for Federal Election and Tax Laws
Several prominent groups organized under § 527 of the Internal Revenue Code
(IRC) were prominent players in the 2004 presidential election, raising and spending
approximately $435 million and being widely seen as having an impact on the
outcome of the race. Yet, some so-called “527” organizations remain outside the
purview of federal election law. Section 527, added to the IRC in 1975, provides tax-
exempt status to federal, state, and local political organizations. At first, it was
generally thought that, with respect to federal election activities, political
organizations correlated directly with political committees as defined under the
Federal Election Campaign Act (FECA). It became clear by 2000, however, that this
was not necessarily true because prevailing judicial interpretation of Supreme Court
precedent has permitted FECA regulation of only those communications containing
express advocacy (i.e., explicitly urging the election or defeat of clearly identified
federal candidates). By avoiding such terms, groups could arguably promote issue
positions in reference to particular federal elected officials without triggering FECA’s
disclosure, contribution limits, and source restrictions. Still, the groups qualified for
the favorable tax treatment of § 527 organizations because that benefit is not limited
to groups that conduct express advocacy.
In 2002, the Bipartisan Campaign Reform Act (BCRA) addressed express
advocacy, but regulated only messages broadcast within 30 days of a primary or 60
days of a general election that referred to a federal office candidate. BCRA left
unregulated such areas as broadcasts aired before elections and voter mobilization
efforts. Groups wishing to engage in these activities and still avail themselves of the
unlimited funding sources no longer available to political parties generally qualify
for tax-exempt status under IRC § 527. Supporters of BCRA have led the effort to
extend federal election law regulation to these types of 527 organizations, seeing the
enormous amounts of money raised and spent in recent years as a result of the FEC’s
failure to enforce existing law. BCRA critics, however, insist that what occurred
since 2004 was the predictable result of the ban on soft money activity by national
parties, thus redirecting massive amounts of unregulated money to outside groups
that are less accountable to the political system; they insist that many of these groups
not engaging in express advocacy cannot be constitutionally regulated.
In the 109th Congress, the House twice passed similar bills to add 527
organizations to FECA’s political committee definition, unless involved solely in
state and local elections. The Senate Rules and Administration Committee reported
a similar measure, but the Senate did not act on it. Similar bills (H.R. 420 and S.
that would affect 527s have also been introduced in the 110th Congress. This report
explores the evolution of the 527 issue and attempts to address it in the courts, the
Federal Election Commission, and Congress. It will be updated periodically to
reflect further developments.
In troduction ......................................................1
Foundations of the 527 Issue.........................................2
Federal Election Campaign Act...................................2
Key Provisions of FECA....................................2
Express Advocacy and the “Major Purpose Test”.................3
P.L. 93-625 and Section 527 of the Internal Revenue Code.............4
Emergence of Issue Advocacy Campaigns..........................5
Effect on Campaign Finance Reform Debate....................5
Emergence of the 527 Issue......................................7
527 Activity in 2000.......................................8
Congress’s Response to 527s and Issue Advocacy.......................10
527 Disclosure Requirements: P.L. 106-230 and P.L. 107-276 .........10
Bipartisan Campaign Reform Act of 2002 (BCRA)..................11
527 Activity in 2000 - 2006 Federal Elections..........................13
Fundraising by 527s in 2004................................18
Spending by 527s in 2004 and Its Impact......................19
Summary of 2000 - 2006 Data...................................22
Efforts to Regulate 527s............................................22
FEC-Proposed Rules in 2004 and Constitutional Concerns............23
Proposal to Redefine Political Committee......................23
Proposal to Redefine “Expenditure”..........................25
2004 FEC Rule and Related Litigation............................27
FEC Enforcement Action Against Three 527s for 2004 Activities.......29
Legislative Activity to Regulate 527s.............................30
Appendix. Summary of Internal Revenue Code Provisions Applicable to
List of Tables
Table 1. Top Ten 527s in 2000 Elections, Ranked by Receipts.............14
Table 2. Top Ten Donors to Key 527s in 2000 Elections..................14
Table 3. Top Ten 527s in 2002 Elections, Ranked by Receipts.............15
Table 5. Top Ten 527s in 2004 Elections, Ranked by Receipts.............17
Table 6. Top Ten Donors to Key 527s in 2004 Elections..................18
Table 7. Top Ten 527s in 2006 Elections, Ranked by Receipts.............21
Table 8. Top Ten Donors to Key 527s in 2006 Elections..................21
Table 9. Receipts and Disbursements by Federal-Related 527s: 2000-2006....22
Table 10. H.R. 420 (Meehan-Shays) and S. 463 (McCain-Feingold), the 527
Reform Act of 2007, Compared with Current Law...................33
Table 11. Disclosure Requirements under the Internal Revenue Code........36
Section 527 Political Organizations:
Background and Issues for Federal Election
and Tax Laws
In recent years, the terms “527 organizations,” “527 groups,” and “527s” have
been used interchangeably to describe groups that intend to influence federal
elections in ways that may be outside the scope of federal election law. The terms
stem from the fact that these organizations are provided tax-exempt status under
Section 527 of the Internal Revenue Code (IRC).2 These groups have become the
subject of controversy due to the different definitions used in federal election law and
tax law as to what constitutes political or election-related activity and the lack of
uniform opinion as to what election law itself regulates or may permissibly regulate.
Strictly speaking, IRC § 527 provides tax-exempt status to many more
organizations than just those that are colloquially referred to as 527s. The section
applies not only to organizations that are active in federal elections, but also to
organizations involved in state and local elections and certain non-electoral activities.
While IRC § 527 applies to a broad range of organizations, only the groups
colloquially referred to as 527s (i.e., those groups that intend to influence federal
elections in ways that may be outside the scope of federal election law) are the focus
of current controversy. This report discusses this limited subset of organizations
exempt under IRC § 527 and uses the terms 527 organizations, 527 groups, and 527s
interchangeably to refer to them.
Section 527 was added to the IRC in 1975 to provide tax-exempt status to
political organizations, as defined in that statute. At that time, it was generally
thought that, with respect to groups participating in federal elections, political
organizations correlated directly with political committees as labeled by and
operating under federal election law. Indeed, political committees — whether
political parties, political action committees (PACs), or candidate committees —
have tax-exempt status under IRC § 527. In 2000, however, it came to light that
some groups engaged in federal-election-related issue advocacy were claiming
exempt status under IRC § 527 while not being regulated under the Federal Election
Campaign Act (FECA). These groups were shrouded in mystery because no
disclosure was required under either the tax or election laws at that time.
1 Now-retired CRS specialist Joseph E. Cantor co-authored this report. CRS analyst R. Sam
Garrett provided recent updates.
2 26 U.S.C. § 527.
Foundations of the 527 Issue
Federal Election Campaign Act
Financial activity in federal elections is governed by the Federal Election
Campaign Act (FECA) of 1971, as amended, (2 U.S.C. §431 et seq.) as well as by
certain court rulings. Generally, FECA imposes limitations and prohibitions on
money from certain sources and requires public disclosure of money raised and spent
in federal elections. Due to the Supreme Court striking down spending limits as
unconstitutional in its landmark 1976 Buckley v. Valeo ruling,3 federal law does not
impose mandatory limits on campaign spending by candidates or groups.4
Key Provisions of FECA. Key features of federal election law regulation
include the following:
!Source Prohibitions — Unions and corporations are prohibited from
making contributions or expenditures in federal elections. The
corporate ban was first enacted in 1907, the labor ban in 1943.
While union treasury and corporate money may not be used in
federal elections, a separate segregated fund (i.e., political action
committee (PAC)) may raise voluntary contributions from
designated classes of individuals, to give or spend in federal
elections. [2 U.S.C.§ 441b] Foreign nationals are also prohibited
from contributing or spending money in any American election, at
the federal, state, or local level, with an exemption for permanent
resident aliens (i.e., green card holders). [2 U.S.C.§ 441b]
!Contribution Limits — Contributions to candidates, parties, and
PACs in federal elections are limited (e.g., for an individual —
$2,300 per candidate, per election; $5,000 per year to a PAC; and an
aggregate of $108,200 in a two-year election cycle to all federal5
candidates, parties, and PACs). Most PACs and party committees
may give a candidate $5,000 per election. (Parties may also make
coordinated expenditures to pay for campaign services or
advertisements for and with the cooperation of a candidate, subject
to formula-based limits, indexed for inflation.) [2 U.S.C.§ 441a]
3 Buckley v. Valeo, 424 U.S. 1 (1976).
4 Although such limits exist in presidential races (and in some states and localities), these
limits are accepted voluntarily by candidates, usually in exchange for public funds or
5 These limits are in effect for the 2007-2008 election cycle, as adjusted, where required by
law, for inflation.
!Disclosure Requirements — Candidates, PACs, and parties involved
in federal elections must register with the FEC and file periodic
reports on receipts and expenditures, itemizing for amounts over
$200. [2 U.S.C.§ 432-437]
Express Advocacy and the “Major Purpose Test”. Only money raised
and spent according to the requirements and restrictions of federal law may be used
to influence an election for federal office. Such funds are often referred to as hard
money. FECA defines both “contribution” and “expenditure” as monies or anything
of value “for the purpose of influencing any election for Federal office.”6 In order
to preserve the law’s regulation of contributions and expenditures against
invalidation for constitutional vagueness, the Supreme Court in Buckley v. Valeo
construed the terms “contribution” and “expenditure” to encompass only funds
donated for or spent for express advocacy (that is, voter communications using7
explicit phrases and words such as “vote for,” “vote against,” “elect,” and “defeat”).
Likewise, the Court construed the term “political committee” to include only
“organizations that are under the control of a candidate or the major purpose of which
is the nomination or election of a candidate.”8 In so doing, the Buckley Court
established the “major purpose test,” which determines whether or not an
organization, if it raises more than $1,000 in “contributions” or makes more than
$1,000 in “expenditures,” is subject to regulation under FECA as a “political
Neither FECA nor the Supreme Court, however, has yet defined precisely how
to ascertain the major purpose of an organization. Indeed, how the major purpose
test works, and to what groups it applies, are at the heart of a debate concerning the
circumstances under which non-party organizations, including 527s, can
constitutionally be considered FECA regulated “political committees.” For example,
some observers proffer that it is relevant to examine an organization’s activities
beyond express advocacy to ascertain its major purpose, while others maintain that
Supreme Court precedent still limits FECA regulation through the designation of
“political committee” status to only those organizations engaging in express10
6 2 U.S.C. § 431(8)(A), (9)(A).
7 Buckley, 424 U.S. at 44, n.52.
8 Id. at 79.
9 See 2 U.S.C. § 431(4)(A).
10 See, e.g., Edward B. Foley, The “Major Purpose” Test: Distinguishing Between Election-
Focused and Issue-Focused Groups, 31 N. KY. L. REV. 341, 355 (2004)(arguing that “it
makes no sense” to examine only whether an organization spends most of its funds on
express advocacy in order to determine whether its major purpose is nomination or election
of a candidate); and James Bopp, Jr. and Richard E. Coleson, The First Amendment is Still
not a Loophole: Examining McConnell’s Exception to Buckley’s General Rule Protecting
Issue Advocacy, 31 N. KY. L. REV. 289, 323 (2004) (arguing that “it is only proper” to
examine an organization’s express advocacy activity in order to determine whether its major
purpose is nomination or election of a candidate).
P.L. 93-625 and Section 527 of the Internal Revenue Code
Prior to 1975, the Internal Revenue Code was silent as to the tax treatment of
organizations whose primary purpose is influencing elections. The Internal Revenue
Service (IRS) did not generally require these organizations to file tax returns or pay
taxes. It appears this was because the IRS treated contributions to political
organizations as gifts,11 which meant that the organizations did not have taxable
income. By the early 1970s, it became apparent that these organizations had sources
of income other than contributions, such as investment income and gain from the sale
of donated property. In 1973, the IRS announced it would begin requiring political
committees and parties with investment and other types of income to file tax returns
and pay taxes.12 Parties and committees were taxed as corporations, trusts, or
partnerships, depending on the surrounding circumstances.13
In 1975, Congress responded to the IRS action by adding Section 527 to the
Internal Revenue Code (P.L. 93-625; 88 Stat. 2108).14 Section 527 as enacted by P.L.
93-625 is similar to the current version, with the exception of the reporting
requirements that currently exist (these are discussed below in the section on P.L.
Section 527 applies to “political organizations” which are those organizations,
including a party, committee, association, or fund, that are organized and operated
primarily to directly or indirectly accept contributions and/or make expenditures for
an “exempt function.” An exempt function is the influencing or attempting to
influence the selection, nomination, election, or appointment of an individual to a
federal, state, or local public office, to an office in a political organization, or as a
presidential or vice-presidential elector.
Section 527 political organizations are subject to tax only on “political
organization taxable income.” This is the organization’s gross income, excluding
“exempt function income,” less $100 and any allowable deductions. Exempt
function income is any amount received, to the extent that it is segregated to use for
an exempt function, as
!contributions of money or other property,
!membership dues, fees, or assessments,
!proceeds, which are not received in the ordinary course of business,
from political fundraising and entertainment events or from the sale
of campaign materials, and
!proceeds from conducting a bingo game.
11 See IRS Notice of Opportunity to Submit Written Comments and to Request Public
Hearing with Respect to the Tax Treatment of Contributions of Appreciated Property to
Committees of Political Parties, 37 Fed. Reg. 22,427-28 (October 19, 1972).
12 IRS Announcement 73-84, 1973-2 C.B. 461.
14 See H.Rept. 93-1502 at 104.
The tax rate is generally the highest corporate income tax rate. Under IRC § 527(h),
however, income of the principal campaign committee of a congressional candidate
is taxed using the graduated corporate tax rate schedule. This special rule does not
apply for campaign committees of candidates for state or local office.
Under P.L. 93-625, political organizations only had contact with the IRS if they
were required to file a tax return because they had taxable income. Thus, the law was
properly thought of as addressing the tax treatment of these organizations, rather than
regulating them. The lack of reporting requirements may have been because, at the
time of the law’s enactment, political organizations were generally thought of as
candidate funds and political parties and committees15 (i.e, the same types of entities
that, when involved in federal elections, are regulated by FECA).
Emergence of Issue Advocacy Campaigns
During the 1996 election cycle, a new phenomenon was seen in campaigns for
President and Congress that marked a turning point both in the way in which
campaigns for federal office are conducted and in efforts to regulate the flow of
money in federal elections. Political parties and interest groups had in 1995 and 1996
made broadcast communications that discussed candidates’ merits in conjunction
with particular issue positions, which, while technically not meeting federal election
law criteria for election-related activity, were widely viewed as intending to influence
federal races. As public policy messages without express advocacy language, such
activities were labeled issue advocacy. By not explicitly urging the defeat or election
of clearly identified candidates, entities could present information to the public which
encouraged more positive or negative views of public officials who also were
candidates. Not only could these communications be paid for with funds from any
source and in any amount (i.e., soft money), but they were not uniformly disclosed
While issue advocacy caught much of the political world by surprise in 1996,
it quickly caught on as the new growth area of money in politics. While the lack of
disclosure made it impossible to know for sure the extent of such activity, the
Annenberg Public Policy Center estimated that between $135 and $150 million was
spent on broadcast issue advocacy in 1996, rising to between $250 and $341 million
in 1998, and some $509 million in 2000.16
Effect on Campaign Finance Reform Debate. The highly visible and
increasing levels of “issue spending” in the 1996-2000 elections reinforced
perceptions of a major loophole by which politically interested groups were
15 See, e.g., H.Rept. 93-1642 at 22 (describing the provision that added IRC § 527 as
“provid[ing] that political parties or committees (and separate campaign funds) are to be
taxed on investment income and on income from a trade or business, but not on campaign
contributions they receive”).
16 Annenberg Public Policy Center, Issue Advertising in the 1999-2000 Election Cycle, at
[ h t t p : / / www.a n n e n b e r g p u b l i c p o l i c yc e n t e r . o r g/ IS S U EADS/02_01_2001_1999-2000issue
circumventing federal election law. But even before the evidence of a growing trend
was established, proponents of campaign finance reform recognized the potential for
such growth and responded quickly by redirecting their efforts toward addressing
During the 1980s and early 1990s, pressure had been building in Congress to
address concerns about the role of money in politics, primarily involving the high
costs of seeking office and the concomitant need for private sources of campaign
funds. Those interested in campaign finance “reform” — generally characterized by
favoring greater regulation — had focused their efforts during much of this time on
two issues: the rising costs of elections to federal office and the growing funding role
played therein by political action committees. The most prominent legislative
proposals came to feature provisions to curb, if not eliminate, PAC money as a
funding source in federal elections, and to impose voluntary spending limits in
congressional elections, in exchange for candidates’ receiving either public funding
or some form of cost-reducing public benefit (such as postal or broadcast rate
These provisions were key elements in comprehensive reform bills passed by
the House and Senate in the 101st, 102nd, and 103rd Congresses.17 While other aspects
of campaign finance law were included in these measures, such as ones dealing with
party soft money,18 the major point of contention was the insistence of the reform
advocates on spending limits and public funding or benefits. The dynamics of the
debate over PACs shifted over time, and even that provision eventually became
relatively less a point of contention.
On September 7, 1995, during the 104th Congress, Senators John McCain and
Russell Feingold introduced their first campaign finance reform bill, establishing
themselves as the leading reform advocates in the Senate. That bill, S. 1219, was the
successor to the reform bills that had passed in the previous three Congresses, and
it reflected the same pre-1996 consensus among advocates of campaign finance
reform that prioritized curbing the high cost of congressional elections and replacing
the need for private funds, especially PACs, with other funding sources. (S. 1219
also expanded on the earlier bills’ treatment of party soft money, with inclusion of
stricter curbs on the raising and spending of soft money by national and state and
local political parties.)
Following the watershed election of 1996, in which unregulated campaign
activity appeared to overshadow the regulated activity, the leading reform advocates
in Congress responded with significant changes in their proposed legislation at the
start of the 105th Congress. In S. 25, introduced by Senators McCain and Feingold,
17 In the 101st Congress — S. 137 and H.R. 5400; in the 102nd Congress — S. 3 and H.R.
3750; and in the 103rd Congress — H.R. 3 and S. 3. Only the 102nd Congress bills were
reconciled in conference (as S. 3) and sent to the President, who vetoed it on May 9, 1992.
18 Party soft money, since prohibited by BCRA, most commonly took the form of funds
raised by national parties from sources not permissible in federal elections and transferred
to states where such sources were permissible in state elections, and which could be
arranged in a manner suggesting an attempt to at least indirectly influence federal elections.
and its companion measure H.R. 493, offered by Representatives Christopher Shays
and Martin Meehan, provisions were added to their 104th Congress bills to redefine
“express advocacy” to allow federal regulation of more election-related activity. By
the fall of 1997, following the most intensive congressional activity on campaign
finance reform since the 1970s, a revised S. 25 was offered. As modified by floor
amendment, S. 25 featured provisions addressing the issues of party soft money and
issue advocacy. The provisions on congressional spending limits and public benefits,
and on PACs, the key elements of reformers’ objectives for at least the previous 10
years, were eliminated from the bill entirely. Thus, in one year’s time, the very
nature of the campaign finance debate had shifted from an attempt to improve the
existing regulatory system to saving it from becoming meaningless in the face of
newly emerging campaign practices. This debate, started in the wake of the 1996
elections, would continue until the enactment of the Bipartisan Campaign Reform
Act (BCRA) in 2002.
Emergence of the 527 Issue
Not only was 1996 the year in which issue advocacy emerged, but it was also
the year in which the IRS began issuing several private rulings on the types of
activities that qualify as influencing an election for purposes of IRC § 527.19 Under
these rulings, it became apparent that some of the issue advocacy activities described
above could qualify as election-influencing activities under IRC § 527. Thus, these
rulings helped create an awareness that groups participating in these issue advocacy
activities, while arguably not required to report to the FEC, could still qualify for the
benefit of tax-exempt status under IRC § 527.
After the 1996 election, media and congressional attention turned to groups with
527 status that were engaging in activities aimed at influencing federal elections
without conforming to FECA rules. Sporadic news accounts of their activities tended
to categorize them simply as tax-exempt groups, without the more specific label as
a 527.20 One 1997 news account, on the activities of Triad Management Services,
Inc., notably did make specific reference to 527 status. The article began as follows:
Call it the Cayman Islands of the campaign finance world. Several
politically active non-profit groups are abandoning their traditional tax-exempt
status with the IRS and reclassifying themselves as political groups, taking a bold
gamble that they will still remain outside of the reach of federal election law.
The groups have found a safe haven exactly at the point at which the tax
code intersects with federal election laws. Switching their tax status may allow
generous tax breaks for their largest donors while thickening the veil of secrecy
over the groups’ activities.
19 See Priv. Ltr. Rul. 9652026 (October 1, 1996); Priv. Ltr. Rul. 9725036 (March 24, 1997);
Priv. Ltr. Rul. 9808037 (November 21, 1997); Priv. Ltr. Rul. 199925051 (March 29, 1999).
20 Carles R. Babcock and Ruth Marcus, “For Their Targets, Mystery Groups’ Ads Hit Like
Attacks from Nowhere,” Washington Post, March 9, 1997, at A6; Leslie Wayne, “A Back
Door for the Conservative Donor,” New York Times, May 22, 1997, at A24; Jill Abramson
and Leslie Wayne, “Nonprofit Groups Were Partners to Both Parties in Last Election,” New
York Times, October 24, 1997, at A1, A28.
Two of the groups making the switch are Citizens for Reform and Citizens
for the Republic Education Fund — non-profit arms of the controversial Triad
Management Services, Inc., a conservative consulting and fundraising
organization that will soon be the subject of the Senate’s investigative hearings21
into the 1996 elections.
The emerging 527 groups also received some attention during the Senate
Governmental Affairs Committee’s investigation of illegal or improper activities in
connection with the 1996 federal election campaigns.22 In 1998, during the 105th
Congress, Senator Joseph Lieberman introduced a bill — S. 1666 — to, among other
things, “seek to better define the limits on the election-related activities of tax exempt
organizations.” In his floor statement, Senator Lieberman made reference to 527
A number of 501(c)(4) groups active in federal election campaigns apparently
have switched their tax status to Section 527, which offers tax benefits with
fewer restrictions on political activity. At the same time, these groups claim they
are not subject to FECA because they don’t engage in express advocacy of
particular candidates, even though FECA defines the groups it covers in23
essentially the same terms as Section 527.
During this time period, 527s were established by such groups as the Sierra Club and
NAACP and as new entities, such as Citizens for Better Medicare, all to engage in
election-related issue advocacy campaigns.
527 Activity in 2000. By 2000, issue advocacy had emerged as the thorniest
issue of the ongoing campaign finance debate, owing to the conundrum based on
prevailing judicial interpretation of Supreme Court precedent. That interpretation
permitted regulation of only those communications containing express advocacy (i.e.,
communications containing explicit terms urging the election or defeat of clearly
identified federal candidates). By avoiding such terms, groups arguably could
promote their views and issue positions in reference to particular elected officials,
without triggering the disclosure and source restrictions of FECA.
It was into this environment of rapidly evolving methods of alleged
circumvention of federal election law restrictions that a group called Republicans for
Clean Air entered during the presidential primaries of 2000. As described in a March
A mysterious group called Republicans for Clean Air is broadcasting more than
$2 million worth of television commercials in presidential primary states
21 Damon Chappie and Amy Keller, “Several Political Groups Seek IRS Safe Haven,” Roll
Call, October 20, 1997, pp. 1, 24.
22 Notably, in 2005, a U.S. district court ordered Triad, generally considered to have been
the forerunner of the 527 groups at issue, to pay a fine to the FEC for failing to register as
a political committee, FEC v. Malenick, D.D.C., No. 02-1237, (July 26, 2005). See Kenneth
P. Doyle, “FEC Enforcement: After Decade-Long Pursuit by FEC, Court Orders Triad to
Pay Fine,” BNA Money & Politics Report, July 27, 2005.
23 144 CONG. REC. 1568 (1998) (statement of Sen. Lieberman).
attacking Senator John McCain and defending Texas Gov. George W. Bush’s24
While that article identified the sponsor of the ad (Texas businessman Sam Wyly),
it did not label the group as a 527 organization. Its activities did, however, call
attention to that section of the code in dramatic enough fashion that, within weeks,
news accounts were focusing specifically on 527 groups. A New York Times account,
at the end of March 2000, identified groups with 527 status across the political
spectrum and analyzed the advantages of various vehicles under the tax code for25
waging issue advocacy campaigns. A Wall Street Journal article in May 2000
outlined how the newly discovered 527 vehicle was by then being used to create soft26
money leadership PACs for elected officials. In a few months, the 527 issue had
burst on the scene.
When the 527 issue emerged in 2000, Congress was enmeshed in consideration
of BCRA, and opinion was still evolving about whether and how Congress could
regulate activity that was not express advocacy. With the emergence of 527s,
Congress was confronted with the practice of election-related issue advocacy by
groups receiving the benefit of tax-exempt status under the IRC. Rather than short-
circuit the debate on regulating non-express advocacy activity and begin yet another
on the also-complicated issue of differing definitions of political organization under
the IRC and political committee under the FECA, Congress adopted a different
approach by having regulation triggered not by the nature of the activity but by the
nature of the entity engaging in it. By simply requiring disclosure to the IRS by
groups with tax-exempt 527 status in P.L. 106-230 (discussed in next section),
Congress thus kept the debate going about standards for regulation under the election
law and addressed what was seen as the most urgent need at that point.
Sponsors of what was ultimately to become BCRA recognized the need for this
action as a provisional measure. In prepared testimony for the House Ways and
Means Subcommittee on Oversight, Senator Feingold stated,
I hope that the Ways and Means Committee and the full House will promptly
pass a bill that, if nothing else, will end the veil of secrecy behind which 527s
now hide. There is, of course, much more that can and should be done on the
campaign finance issue generally and to strengthen disclosure in particular.... I
want to make it very clear that none of us who support reform are under any
illusion that a positive resolution of the 527 problems is all that needs to be done
to cure the ills of the campaign finance system. It is a crucial first step, but only
a first step. Our fight in the Senate for more far reaching reform, including a ban
on soft money, will continue. At the same time, we cannot let our desire for
24 John Mintz, “‘Clean Air’ Group Clouds the Airwaves,” Washington Post, March 3, 2000,
25 John M. Broder and Raymond Bonner, “A Political Voice, Without Strings,” New York
Times, March 29, 2000, at A1, A18.
26 Leadership PACs refer to PACs set up and maintained by elected officials to promote not
only their political philosophies but their political ambitions also. Greg Hitt, “‘527 Groups’
Use Tax Loopholes to Promote Politicians,” Wall Street Journal, May 25, 2000, at A28.
more sweeping reform, or for broader disclosure, prevent us from dealing with27
the 527 problem in this Congress, and hopefully in the next few weeks.
Congress’s Response to 527s and Issue Advocacy
The 106th and 107th Congresses passed two laws addressing disclosure by 527
organizations and one law, BCRA, which addressed, among other things, the larger
question of election-related issue advocacy.
527 Disclosure Requirements: P.L. 106-230 and P.L. 107-276
Prior to 2000, the only time an organization exempt from tax under IRC § 527
had to disclose information to the IRS was if it had taxable income. Congress added
disclosure requirements in 2000 (P.L. 106-230; 114 Stat. 477) and 2002 (P.L. 107-
527 political organizations are required to report information to the IRS, the FEC, or
a state. Table 11, in the Appendix, summarizes the disclosure requirements as they
The first disclosure requirement added by P.L. 106-230 is that IRC § 527
organizations must notify the IRS of their existence within 24 hours of formation
unless an organization expects to have annual gross receipts of less than $25,000 or
is required to report to the FEC as a political committee. P.L. 107-276 amended the
requirement by adding an exemption for political committees of state and local
candidates and state and local committees of political parties.
In addition to the initial notification requirement, P.L. 106-230 also included a
provision that requires the periodic disclosure of contributions and expenditures to
the IRS.29 Under this provision, any organization that accepts a contribution or
makes an expenditure for a Section 527 exempt function during the year is required
to file a disclosure report with the IRS on either a quarterly or monthly basis. A
periodic report must include (1) the name, address, occupation, and employer of any
contributor who made a contribution during the reporting period and gave at least
$200 during the year, along with the amount and date of the contribution; and (2) the
27 Disclosure of Political Activities of Tax-Exempt Organizations: Hearing Before the
Subcomm. on Oversight of the House Comm. on Ways and Means, 106th Cong. 10 (2000)
(statement of Sen. Feingold).
28 The bill that became P.L. 106-230, H.R. 4762, was approved by a vote of 385 to 39 in the
House on June 28, 2000, and by a vote of 92 to 6 in the Senate on June 29, 2000. It was
signed into law on July 1, 2000. The bill that became P.L. 107-276, H.R. 5596, was passed
by unanimous consent in the House on October 16, 2002, and in the Senate on October 17,
29 In 2002, a U.S. district court held that most of the disclosure provisions were
unconstitutional. National Fed’n of Republican Assemblies v. United States, 218 F.Supp.2d
1300 (S.D.Ala. 2002), as amended by 2002 U.S. Dist. LEXIS 20845 (S.D.Ala. 2002). In
2003, however, the Court of Appeals for the Eleventh Circuit reversed and remanded the
decision with instructions to dismiss for lack of jurisdiction. Mobile Republican Assemblyth
v. United States, 353 F.3d 1357 (11 Cir. 2003).
amount, date, and purpose of each expenditure made to a person if the total annual
expenditures to that person was at least $500, along with the person’s name, address,
occupation, and employer. The disclosure requirements do not apply to any political
organization that is required to report to the FEC as a political committee, is a state
or local committee of a political party or a political committee of a non-federal
candidate, or expects to have gross receipts of less than $25,000. They also do not
apply to independent expenditures, which are expenditures that expressly advocate
for a candidate but are made without the candidate’s involvement or cooperation.
Additionally, P.L. 107-276 added an exemption for state and local political
committees if they are required to report similar information to a state.
P.L. 106-230 and P.L. 107-276 also changed the rules for when political
organizations must file tax and information returns. Under prior law, a political
organization only filed a tax return if it had political organization taxable income and
never had to file an information return. P.L. 106-230 required any organization with
at least $25,000 in gross receipts to file a tax return, regardless of whether it had
political organization taxable income, and required that any organization that filed
a tax return also file an information return. P.L. 107-276 amended both of these
provisions. With respect to tax returns, P.L. 107-276 reversed the change made by
P.L. 106-230, so that currently only organizations with taxable income are required
to file a tax return. With respect to information returns, P.L. 107-276 requires that
a political organization file a return if it has gross receipts of at least $25,000
($100,000 if a qualified state or local political organization) unless it is a state or
local committee of a political party or a political committee of a state or local
candidate, a caucus or association of state or local officials, an authorized committee
under FECA § 301(6) of a candidate for federal office, a national committee under
FECA § 301(14) of a political party, a congressional campaign committee of a
political party committee, or required to report to the FEC as a political committee.
Under P.L. 106-230, the initial notification of Section 527 status, the
expenditures and contributions disclosures, and the information return must be made
publically available by the organization and the IRS, and the IRS must post the
names and addresses of all organizations on the Internet. P.L. 107-276 imposes an
additional requirement that the IRS post all electronically submitted disclosure
reports on the Internet and also required the IRS to improve its online database.
While P.L. 106-230 had required that the tax returns be made public, this was
eliminated by P.L. 107-276.
Finally, P.L. 107-276 grants the IRS the authority to waive any notification or
disclosure penalty if the failure was due to reasonable cause and not willful neglect.
Bipartisan Campaign Reform Act of 2002 (BCRA)
On March 27, 2002, H.R. 2356, the Bipartisan Campaign Reform Act of 2002
(BCRA), was signed into law by President Bush, as P.L. 107-155 (116 Stat. 81).
Title II of BCRA addressed the express advocacy issue, but in a limited fashion, in
large measure to enhance its chances of withstanding judicial scrutiny. Without
amending FECA’s definition of “political committee,” “expenditure,” or
“contribution,” Title II created a new term in federal election law, “electioneering
communications” — political advertisements that refer to clearly identified federal
candidates, broadcast within 30 days of a primary or 60 days of a general election.
Generally, the law prohibits such communications from being funded with union or
corporate treasury funds, and disbursements of over $10,000 and donors of $1,000
or more are required to be disclosed to the FEC. BCRA did not address interest
group involvement in such other election-related activities as broadcasts prior to the
specified period before an election, public communications through non-broadcast
methods, voter identification, and get-out-the-vote and registration drives.
Shortly after BCRA was enacted, plaintiffs filed suit arguing that key portions
of the new law violated the First Amendment and other provisions of the U.S.
Constitution. Due to its regulation in the area of express advocacy, some
commentators predicted that Title II, in particular, was potentially vulnerable to being
struck down. In December 2003, however, the Supreme Court, in McConnell v.
FEC,30 largely upheld the entire law, including Title II.31 In upholding Title II, the
Court determined that its decision in Buckley v. Valeo construed FECA’s disclosure
and reporting requirements, as well as its expenditure limitations, to apply only to
funds used for communications that contain express advocacy of the election or
defeat of a clearly identified candidate.32 The McConnell Court held that neither the
First Amendment nor Buckley, however, prohibits BCRA’s regulation of
“electioneering communications,” even though electioneering communications, by
definition, do not necessarily contain express advocacy. The Court determined that
when the Buckley Court distinguished between express and issue advocacy it did so
as a matter of statutory interpretation, not constitutional command. Moreover, the
Court announced that, by narrowly reading the FECA provisions in Buckley to avoid
problems of vagueness and overbreadth, it “did not suggest that a statute that was
neither vague nor overbroad would be required to toe the same express advocacy
line.”33 “[T]he presence or absence of magic words cannot meaningfully distinguish
electioneering speech from a true issue ad,” the Court observed.34 The Supreme
Court in McConnell also specifically noted that even with the electioneering
provisions of BCRA intact, IRC Section 501(c) and 527 organizations would
continue to be involved in federal election activity. Such interest groups, according
to the Court, “remain free to raise soft money to fund voter registration, GOTV
activities, mailings, and broadcast advertising (other than electioneering
30 McConnell v. FEC, 540 U.S. 93 (2003).
31 For further discussion of McConnell v. FEC, see CRS Report RL32245, Campaign
Finance Law: A Legal Analysis of the Supreme Court Ruling in McConnell v. FEC, by L.
32 Buckley, 424 U.S. at 80.
33 McConnell, 540 U.S. at 192.
34 Id. at 193.
35 Id. at 187-188.
The activities not addressed by BCRA in Title II have loomed particularly large
in the wake of Title I’s prohibition on national political party use of non-federally-
permissible funds (i.e., soft money) to pay for voter mobilization activities. Groups
wishing to engage in these activities and still avail themselves of the unlimited
sources of money no longer available to political parties may qualify for tax-exempt
status under IRC § 527.
527 Activity in 2000 - 2006 Federal Elections
Enactment of P.L. 106-230 meant that data on the financial activity of 527
groups would become available for the first time, at least for the period after July 1,
2000, when the law took effect. Reports filed with the IRS under the new law
showed receipts of $73.5 million and expenditures of $103.0 million (the $30 million
difference owing largely to cash-on-hand at the start of the law’s coverage). Of
particular relevance, however, was the financial activity of groups solely involved in
federal elections. An examination of reports of all groups filing with the IRS by
PoliticalMoneyLine found that “key groups” (i.e., those that were clearly related to
federal elections) had receipts of $61.3 million and expenditures of $88.6 million.
Among these key groups, $39.7 million was raised by Democratic-oriented groups
and $21.6 million by Republican-oriented groups.36
The largest and most prominent 527 group during the 2000 elections was
Citizens for Better Medicare, which spent an estimated $40-$65 million on issue
advocacy.37 The aggregate totals, however, do not include this group’s activity, as
it stopped accepting contributions as of July 1, 2000, and switched to section
501(c)(4) status (where limited disclosure rules apply).38 Prominent, established
interest groups, such as the Sierra Club and the NAACP, also established 527s for
the 2000 election.39
Tables 1 and 2 provide data on the largest 527 groups filing with the IRS under
the new statute and the largest donors to those groups in the 2000 election cycle, as
compiled by PoliticalMoneyLine.
36 PoliticalMoneyLine, Money in Politics Databases: 527 Groups, at
[ h t t p : / / www.t r ay.com/ c gi -wi n / i r s_ef _527.exe?DoFn=&sYR=2000] .
37 Cigler, Allan J., “Interest Groups and Financing the 2000 Election,” in Financing the
38 CAMPAIGN FINANCE INSTITUTE TASK FORCE ON DISCLOSURE, ISSUE AD DISCLOSURE:
RECOMMENDATIONS FOR A NEW APPROACH A8-A9 (2001).
39 Cigler, supra note 36, p. 182.
Table 1. Top Ten 527s in 2000 Elections, Ranked by Receipts
1. Pro Choice Vote$12, 364,150
2. Planned Parenthood Votes$ 7,217,204
3. Bush-Cheney 2000, Inc. - Recount Fund$ 7,211,773
4. New York Senate 2000$ 6,337,785
5. Gore-Lieberman Recount Committee$ 3,685,287
6. Democratic Legislative Campaign Cttee.$ 3,542,722
7. Republican Leadership Council$ 3,059,730
8. Working Families 2000$ 2,954,655
9. EMILY’s List Non-federal$ 2,810,939
10. Democratic Governor’s Assn.$ 2,016,475
Source: PoliticalMoneyLine, 2000 Cycle 527 Committees, at
[ h t t p : / / www. t r a y . c o m / c g i - wi n / i r s _ e f _527.exe? Do Fn=&sYR=2000].
a. Figures represent gross receipts, reflecting some double-counting due to transfers among affiliated
Table 2. Top Ten Donors to Key 527s in 2000 Elections
1. Jane Fonda$11,955,000
2. Pro-Choice Vote$ 8,233,648
3. AFSCME$ 1,655,071
4. AFL-CIO$ 1,442,755
5. Dem. Congressional Campaign Cttee.$ 1,429,935
6. DNC Services Corp.$ 1,110,000
7. Alida Rockefeller Messinger$ 970,000
8. Service Employees Intl. Union$ 925,250
9. Steven T. and Michele Kirsch$ 750,000
10. Mr. And Mrs. John A. Harris, IV$ 652,500
Source: PoliticalMoneyLine, 2000 Cycle Large Donors to PoliticalMoneyLine’s Key 527 Groups,
a. Excludes transfers
Reports filed with the IRS showed receipts of $215.2 million and expenditures
of $229.5 million in the 2002 election cycle. The “key groups” identified by
PoliticalMoneyLine had receipts of $183.6 million and expenditures of $193.6
million; this represented more than double the level of spending by key groups in
2000. Among these key groups, $104.3 million was raised by Democratic-oriented
groups and $78.2 million by Republican-oriented groups.40
Tables 3 and 4 provide data on the largest 527 groups filing with the IRS under
the new statute and the largest donors to those groups in the 2002 election cycle, as
compiled by PoliticalMoneyLine.
Table 3. Top Ten 527s in 2002 Elections, Ranked by Receipts
1. Democratic Governor’s Association$16,115,035
2. Michael Steele for Maryland Cttee.$ 8,781,418
3. College Republican National Cttee.$ 8,435,903
4. Democratic Legislative Campaign Cttee.$ 7,421,456
5. IMPAC 2000$ 6,948,686
6. Republican Governors Association$ 6,729,860
7. EMILY’s List Non-federal$ 6,662,333
8. AFL-CIO COPE Treasury Fund$ 5,533,588
9. New American Optimists$ 4,621,154
10. New Democratic Network — Non-fed.$ 4,235,722
Source: PoliticalMoneyLine, 2002 Cycle 527 Committees, at
[ h t t p : / / www. t r a y . c o m / c g i - wi n / i r s _ e f _527.exe? Do Fn=&sYR=2002].
a. Figures represent gross receipts, reflecting some double-counting due to transfers among affiliated
40 PoliticalMoneyLine, Money in Politics Databases: 527 Groups, at [http://www.tray.com/
Table 4. Top Ten Donors to Key 527s in 2002 Elections
1. Gordon Humphrey$ 3,950,968
2. AT&T$ 2,667,240
3. Democratic Congressional Campaign Cttee.$ 2,500,329
4. AFSCME$ 2,452,000
5. Sierra Club$ 2,305,000
6. Democratic National Committee$ 2,094,826
7. Woodland Group Indiana L.L.C.$ 1,805,000
8. Mr. And Mrs. John A. Harris, IV$ 1,715,000
9. Stephen L. Bing$ 1,677,090
10. Republican National Committee$ 1,539,900
Source: PoliticalMoneyLine, 2002 Cycle 527 Committees, at
[ h t t p : / / www. t r a y . c o m / c g i - wi n / i r s _ e f _527.exe? Do Fn=&sYR=2002].
a. Excludes transfers
In the 2004 elections, several factors produced an exponential rise in both the
financial level and importance of 527 organizations: the unresolved issue of whether
federal election regulation reached beyond the “express advocacy” standard, the
examples set by 527s in the 2000 and 2002 elections, the ban on party soft money in
BCRA, and the extraordinary level of voter interest and intensity regarding the 2004
presidential election. According to a December 2004 study by the Center for Public
Although the 527 committees have been operating on the fringes of American
politics for at least the past three election cycles, election 2004 was the first time
they played a major role, perhaps a decisive role, in determining the outcome of41
a national election.
Reports filed with the IRS showed receipts of $582.1 million and expenditures
of $595.5 million in the 2004 election cycle. The “key groups” identified by
PoliticalMoneyLine had receipts of $431.5 million and expenditures of $434.9
million; this represented more than double the level of spending by key groups in
41 Center for Public Integrity, 527s in 2004 Shatter Previous Records for Political
Fundraising, at [http://www.publicintegrity.org/527/report.aspx?aid=435].
groups and $165.7 million by Republican-oriented groups.42 Tables 5 and 6 provide
data on the largest 527 groups filing with the IRS under the new statute and largest
donors to those groups in the 2004 election cycle, as compiled by
Table 5. Top Ten 527s in 2004 Elections, Ranked by Receipts
1. ACT NOW PAC Non-federal Account$79,795,487
2. Joint Victory Campaign 2004$71,811,666
3. The Media Fund$59,414,183
4. Progress for America Voter Fund$44,929,178
5. Service Employees Intl. Union (SEIU)$40,237,236
Political Education and Action Intl. Fund
6. Republican Governors Association$33,848,421
7. Democratic Governors Association $24,172,761
8. AFSCME Special Acct.$22,227,050
9. Swift Boat Veterans and POWs for$17,008,090
10. College Republican National Cttee.$12,780,126
Source: PoliticalMoneyLine, 2004 Cycle 527 Committees, at
[ h t t p : / / www. t r a y . c o m / c g i - wi n / i r s _ e f _527.exe? Do Fn=&sYR=2004].
a. Figures represent gross receipts, reflecting some double-counting due to transfers among affiliated
42 PoliticalMoneyLine, Money in Politics Databases: 527 Groups, at [http://www.tray.com/
Table 6. Top Ten Donors to Key 527s in 2004 Elections
1. Victory Campaign 2004$70,019,391
2. George Soros$27,030,105
3. Peter B. Lewis$23,997,220
4. Stephen L. Bing$13,952,682
5. Herbert M. and Marion O. Sandler$13,510,679
6. Service Employees Intl. Union$ 9,777,589
7. AFSCME$ 8,793,700
8. Bob J. Perry$ 8,090,000
9. US Chamber of Commerce$ 5,688,000
(and local branches)
10. T. Boone Pickens$ 5,620,000
Source: PoliticalMoneyLine, 2004 Cycle Large Donors to PoliticalMoneyLine Key 527 Groups, at
[ h t t p : / / www. t r a y . c o m / c g i - wi n / i r s _ e f _527.exe? Do Fn=&sYR=2004].
a. Excludes transfers
Fundraising by 527s in 2004. In studying the activity of groups active in
the 2004 elections, analysts have in part sought to understand what impact the
prohibition on party soft money in BCRA had in the upsurge in donations to 527s in
the 2004 elections. Certainly there had been the expectation by skeptics prior to
BCRA’s passage that the soft money ban would in fact lead to more unregulated
money flowing to outside groups. In the one major study thus far on sources of 527
funding in 2004, the Campaign Finance Institute found that while this did occur to
some extent, the groups “replaced part, but not the majority of soft money banned by
the McCain-Feingold law.”43 Looking at the big picture, the study contrasted what
it found to be a $273 million increase in 2004 receipts by 527s over 2002 receipts,
with the $591 million it found had been raised in soft money by all party committees
...[s]ince the 527s raised only $273 million more in 2004 than in the last year of
party and candidate soft money, this 527 money failed to replace $318 million44
of the $591 million.
43 Campaign Finance Institute (CFI), New CFI Study of “527” Groups, at
[ h t t p : / / www.c f i n s t .or g/ pr / p r Re l e a s e . a s px? Re l e a s e ID= 63] .
44 Steve Weissman and Ruth Hassan, “BCRA and the 527 Groups,” in The Election After
Reform: Money, Politics and the Bipartisan Campaign Reform Act, p. 81 (Michael J.
Malbin, ed., 2006).
Notwithstanding that conclusion, however, there is no doubt that BCRA did not
put an end to very large donations by wealthy individuals and entities. The Center
for Public Integrity study found that more than one-fourth of all receipts of 527s in
2004 came from the top 15 individual donors.45 Moreover, the Campaign Finance
Institute found that 73 of the 113 donors who gave at least $250,000 to 527s in 2004
had given soft money to the political parties in 2000 or 2002.46 The same study,
however, found that these donors gave three times more to the 527s in 2004 than they
had to the parties in 2000 and 2002 combined, indicating that soft money donations
had not merely transferred to 527s.47
Of the $405 million in 527 receipts found by the Campaign Finance Institute,
$256 million was from individual donors, $112 million was from labor unions, and
$30 million was from businesses (including corporations, trade associations, and
unincorporated entities). The business level actually dropped slightly from 2002, but
the union level doubled and the individual component rose sevenfold.48
Spending by 527s in 2004 and Its Impact. It appears that few observers
would disagree with preliminary findings of a study by Brigham Young University49
that 527s had “a substantial impact on the 2004 campaign ground and air wars.”
It found that major Democratic-leaning groups (the Media Fund, AFL-CIO, and
MoveOn) kept the presidential race close in the spring and summer of 2004, but that
Republican-leaning groups (notably Swift Boat Veterans For Truth and Progress for
America) organized later in the election had substantial impact in the fall campaign.
Noting that 527s placed a much greater emphasis on voter mobilization and
registration (i.e., the ground war) than they had before, the findings stated that “the
big story of 2004, in addition to the tremendous ground strategy run by the
Republican National Committee, was the ground work of the liberal America Votes
coalition.” Led by America Coming Together, the largest 527, this coalition included
the Sierra Club, the League of Conservation Voters, Planned Parenthood, NARAL
Still, it remains open to debate and a topic for further study whether the legal
prohibition against coordinating their activities with candidates and political parties
limited the potential effectiveness of the major 527s in 2004. Since some observers
credit the Bush victory in 2004 in part to the clarity of its campaign “message,” the
ability to coordinate the messages being communicated, whether by campaigns or by
45 Center for Public Integrity, 527s in 2004 Shatter Previous Records for Political
Fundraising, supra note 40.
46 CFI, New CFI Study of “527” Groups, supra note 42.
48 Weissman and Hassan, BCRA and the 527 Groups, supra note 43, pp. 11-12.
49 Center for the Study of Elections and Democracy, Brigham Young University, 527s Had
a Substantial Impact on the Ground and Air Wars in 2004, Will Return, at
[http://csed.b yu.edu/ Pr es s Rel eas es / Dec% 20% 2016% 20CSED% 20Pr e s s %20Release%
sympathetic outside groups, could well have had an impact on the final outcome.50
(Coordinating the 527’s messages with a candidate’s campaign would have
constituted an in-kind contribution to the candidate, thus placing the organization in
legal jeopardy.) It may well be that the most novel aspect of 527 activity in 2004
related to the voter mobilization efforts, an area traditionally dominated to a large
extent by the political parties. There seems to be widespread agreement that here at
least, 527 activity had a clear impact on the election.
Reports filed with the IRS showed receipts of $361.3 million and expenditures
of $395.6 million in the 2006 election cycle; these figures are likely to climb once
final reports are filed for 2006. The “key groups” identified by PoliticalMoneyLine
had receipts of $215.2 million and expenditures of $234.7 million; while this was
roughly half the level of financial activity in 2004, this represented an increase over
2002 (the last comparable midterm election). Among these key groups, $109.4
million was raised by Democratic-oriented groups and $103.0 million by Republican-
oriented groups, near parity between the parties for the first time since disclosure was
instituted in 2000.51
Tables 7 and 8 provide data on the largest 527 groups filing with the IRS under
the new statute and the largest donors to those groups in the 2006 election cycle, as
compiled by PoliticalMoneyLine.
50 Kenneth P. Doyle, “Leaders Say Nonparty Groups Obeyed Law But Had Major Impact
on 2004 Campaign,” Money & Politics Report, February 9, 2005.
51 PoliticalMoneyLine, Money in Politics Databases: 527 Groups, at
[ h t t p : / / www.t r ay.com/ c gi -wi n / i r s_ef _527.exe?DoFn=&sYR=2002] .
Table 7. Top Ten 527s in 2006 Elections, Ranked by Receipts
1. Republican Governors Association$40,763,546
2. Democratic Governors Association$28,045,313
3. SEIU Political Education and Action$22,367,120
4. Republican State Leadership Committee$19,122,544
5. AFSCME Special Acct.$17,410,657
6. EMILY’s List - Non-federal$11,775,201
7. Democratic Legislative Campaign$ 8,676,292
8. America Votes, Inc.$ 8,094,443
9. Club for Growth$ 6,346,665
10. Progress for America Voter Fund$ 6,175,025
Source: PoliticalMoneyLine, 2006 Cycle 527 Committees, at
[ h t t p : / / www. t r a y . c o m / c g i - wi n / i r s _ e f _527.exe? Do Fn=&sYR=2006].
a. Figures represent gross receipts, reflecting some double-counting due to transfers among affiliated
Table 8. Top Ten Donors to Key 527s in 2006 Elections
1. Bob J. Perry$12,300,000
2. Service Employees Intl. Union$10,239,703
3. Andrew Jerrold and Margaret$ 5,450,000
P e r e nc hi o
4. George Soros$ 4,067,500
5. AFSCME$ 3,720,000
6. US Chamber of Commerce$ 3,692,000
(and local branches)
7. Linda Pritzker$ 2,946,000
8. Peter B. Lewis$ 2,684,458
9. National Education Association$ 2,370,980
10. Richard and Betsy DeVos$ 2,060,000
Source: PoliticalMoneyLine, 2006 Cycle Large Donors to PoliticalMoneyLine Key 527 Groups, at
a. Excludes transfers
Summary of 2000 - 2006 Data
Table 9 summarizes data compiled by PoliticalMoneyLine on spending and
receipts by 527 organizations clearly involved in federal elections.
Table 9. Receipts and Disbursements by
Federal-Related 527s: 2000-2006
(dollars in millions)
Election CycleTotal SpendingTotalDemocratic-Republican-
oriented 527soriented 527s
2000 $88.6 $61.3 $39.7 $21.6
2002 $193.6 $183.6 $104.3 $78.2
2004 $434.9 $431.5 $264.0 $165.7
2006 $234.7 $215.2 $109.4 $103.0
Source: PoliticalMoneyLine, PoliticalMoneyLine’s Key 527 Groups, at
[ h t t p : / / www. t r a y . c o m / c g i - wi n / i r s _ e f _527.exe? D o Fn= &sY R= 2000].
Efforts to Regulate 527s
During and since the 2004 elections, efforts to address the activity of 527
organizations operating outside the regulatory framework of the FECA have been
underway on several fronts: in the courts, at the FEC, and in Congress. Supporters
of BCRA have led these efforts, insisting that existing federal election law requires
that groups working for the election or defeat of candidates for federal office must
register as political committees and comply with all aspects of that law, regardless
of the nature of the specific activities in which they engage. These BCRA advocates
have expressed dismay over the FEC’s failure to issue regulations to enforce that
view of the law and have filed court challenges to the activities of prominent 527
groups on that basis.
Concerns about this issue have by no means been limited to BCRA supporters.
The Bush-Cheney campaign filed its own lawsuit to block activities of some
prominent 527 groups during the 2004 elections; both the House Administration and
Senate Rules and Administration Committees held hearings in 2004 and 2005; both
committees reported bills to regulate 527 organizations under FECA in the 109th
Congress; and the House passed such legislation on two occasions in 2006. While
concern about the 527s has been voiced across the political spectrum, to some extent
those concerns have different origins. BCRA supporters have tended to see the
enormous amounts of money raised and spent in recent elections as a result of what
they argue is the FEC’s failure to enforce existing law, and they have also launched
an effort to replace the agency with what they see as a more effective enforcement
body.52 BCRA critics, however, insist that what has occurred has been the
predictable result of the ban on soft money activity by the national parties, thus
redirecting massive amounts of unregulated money to outside groups that are less
accountable to the political system.
FEC-Proposed Rules in 2004 and Constitutional Concerns
On March 11, 2004, the FEC issued a Notice of Proposed Rule Making
(NPRM), which presented various approaches for classifying 527 organizations as
regulated “political committees” under FECA.53 On April 14, 2004, the FEC held
two days of hearings regarding the NPRM and received a record 150,000 public
comments. The FEC voted to defer consideration of the NPRM for 90 days in May
2004, but when that deadline expired in August, the Commission considered two
alternative final rule proposals, neither of which garnered the requisite votes of four
of the six commissioners. Hence, the FEC did not adopt any new regulations prior
to the November 2004 presidential election that would have addressed the key issues
relevant to the regulation of 527 organizations, and with the exception of the political
committee rules adopted in October 2004, discussed below, it has not adopted any
such new regulations as of the date of this report.
Proposal to Redefine Political Committee. FECA generally defines a
political committee as any group that receives contributions or makes expenditures
exceeding $1,000 in the aggregate during a calendar year.54 It further defines
contributions and expenditures to apply when any gift or purchase is made “for the
purpose of influencing any election for Federal office.”55 In interpreting the
definition of political committee, the Supreme Court in its 1976 decision, Buckley v.
Valeo, cautioned that the phrase “for the purpose of influencing” an election or
nomination has the “potential for encompassing both issue discussion and advocacy
of a political result.”56 Therefore, in order to avoid overbreadth, the Court found that
“it need only encompass organizations that are under the control of a candidate or the
major purpose of which is the nomination or election of a candidate.”57 As has been
discussed, the second part of the court’s determination has come to be known as the
“major purpose test.”
In its NPRM, the FEC discussed whether and how it should amend its
regulations promulgated under FECA defining when an entity is considered a
nonconnected political committee (a PAC which is not sponsored by another entity,
52 See H.R. 421 (Meehan-Shays) and S. 478 (McCain-Feingold) in the 110th Congress.
53 Federal Election Commn., Notice of Proposed Rulemaking, 69 Fed. Reg. 11,736 (March
54 2 U.S.C. § 431(4).
55 2 U.S.C. §§ 431(8),(9).
56 Buckley v. Valeo, 424 U.S. 1, 79 (1976).
57 Id. (emphasis added). In a subsequent opinion, the Court reaffirmed the applicability of
this “major purpose” test. See FEC v. Massachusetts Citizens for Life, Inc., 479 U.S. 238
such as a corporation or labor union). Current FECA regulations, at 11 CFR §
within the definition of “political committee.” The NPRM proposed to redefine
political committee to encompass the “major purpose test” so that, under the
proposed regulations, whether an organization is a political committee would be
determined by a two-part test: whether it receives contributions or makes
expenditures aggregating over $1,000 per calendar year, and whether it has “the
major purpose of nominating or electing a federal office candidate.”58
In defining how the FEC would ascertain whether an organization has “the
major purpose of nominating or electing a federal office candidate,” the proposed
regulation set forth three alternative tests for comment and consideration by the
regulated community. As stated in the NPRM, the FEC did not make a final decision
on a proposed regulatory test, and hence, sought comment on the three alternatives
it was considering: whether an organization has spent $10,000, $50,000, or 50% of
its total annual disbursements on a combination of contributions, expenditures
(including independent expenditures), electioneering communications, and federal
election activities.59 FECA defines “federal election activity” to include (1) voter
registration drives in last 120 days of a federal election; (2) voter identification, Get-
Out-the-Vote (GOTV) drives, and generic activity in connection with an election in
which a federal candidate is on the ballot; (3) public communications that refer to a
clearly identified federal candidate and promote, support, attack, or oppose a
candidate for that office (regardless of whether they expressly advocate a vote for or
against); or (4) services by a state or local party employee who spends at least 25%
of paid time in a month on activities in connection with a federal election.60
The FEC also sought comment on a fourth alternative method of determining
whether an organization has “the major purpose of nominating or electing a federal
office candidate,” that would specifically only apply to 527 organizations. The fourth
alternative consisted of two “sub-alternative” tests: Alternative 2-A would consider
that all 527s have the major purpose of nominating or electing federal office
candidates, with five exceptions: (1) if the 527 is the campaign organization of an
individual seeking nomination, election, appointment, or selection to a non-federal
office; (2) if the 527 is organized solely for the purpose of promoting the nomination
or election of a candidate to a non-federal office; (3) if the 527 is a group of persons
whose election or nomination activities relate solely to elections where no candidate
for federal office appears on the ballot; (4) if the 527 operates solely within one state
and, pursuant to state law, must file financial disclosure reports with the state
government, showing all activities within that state; or (5) if the 527 is organized
solely for the purpose of influencing the nomination or appointment of individuals
to a non-elected office or to political party leadership positions. In contrast,
58 Federal Election Commission, Notice of Proposed Rulemaking, 69 Fed. Reg. 11,736,
59 Id. at 11756-57.
60 2 U.S.C. § 431(20).
Alternative 2-B would categorize any 527 organization as meeting the major purpose
test, without any exemptions.61
If the FEC promulgates regulations classifying certain 527 organizations (other
than party committees, FEC-registered political committees, and candidate
committees) as political committees, they would be subject to FECA regulation. That
is, for example, such organizations would be required to register with the FEC and
file disclosure reports;62 corporations and labor unions would be required to use
separate segregated funds (political action committees or PACs) instead of
unregulated treasury funds, to make contributions to the organizations;63 and
individuals would be limited to contributing no more than $5,000 annually to such
organizations.64 Further, such organizations could contribute no more than $5,000
per candidate per election.65
Those opposing the proposed regulations argue that they risk subjecting too
many organizations, for example, 501(c) non-profit groups, to the status of political
committee and thus, erroneously and unconstitutionally subjecting them to FECA
regulation. Furthermore, they argue, such regulation will threaten grassroots
advocacy. On the other hand, those favoring greater regulation by the FEC reject the
argument that it will chill speech by non-profit groups because 501(c) organizations
cannot, by definition, have a major purpose of influencing federal elections. Hence,
proponents maintain, non-profits would not fall within the proposed definition and
accordingly, would not be subject to FECA regulation.66
Proposal to Redefine “Expenditure”. In addition to proposing options for
redefining what constitutes a political committee, the NPRM presented options for
amending FECA regulations to redefine the term expenditure. The definition of
expenditure is also critical for determining which organizations and activities are
subject to the FECA regulation of contribution limits, source restrictions, and
disclosure requirements.67 In Buckley, the Supreme Court found that the ambiguity
of the operative phrase, “for the purpose of influencing any election for Federal
office,” created constitutional problems as applied to expenditures made by68
individuals other than candidates, and organizations other than political committees.
Therefore, in order to avoid the vagueness and potential overbreadth of the statutory
61 Federal Election Commission., Notice of Proposed Rulemaking, 69 Fed. Reg. 11,736,
62 See 2 U.S.C. §§ 432, 433, 434.
63 See 2 U.S.C. § 441b(a), (b).
64 See 2 U.S.C. § 441a(a)(1)(C).
65 See 2 U.S.C. § 441a(a)(2)(A).
66 See, e.g., Federal Election Commission, Transcript from Hearing on Political Committee
Status (April 14, 2004), (visited January 8, 2007) [http://www.fec.gov/pdf/nprm/
67 Id. at 11756-57.
68 Buckley, 424 U.S. at 77.
definition, Buckley adopted a narrow construction so that FECA’s definition of
expenditure only applies to “funds used for communications that expressly advocate
the election or defeat of a clearly identified candidate.”69
Over time, many in the campaign finance reform community observed that the
Court’s express advocacy test articulated in Buckley failed to provide a meaningful
distinction between true issue ads and campaign ads. Indeed, when the Supreme
Court considered the constitutionality of BCRA in its 2003 decision, McConnell v.
FEC,70 it concluded that certain communications can have the purpose or effect of
influencing elections regardless of whether they contain express advocacy.
Clarifying the express advocacy standard, the court determined that it is not a
constitutional barrier in ascertaining whether an expenditure is “for the purpose of
influencing any Federal election.” That is, according to the court, “[i]n narrowly
reading the FECA provisions in Buckley to avoid problems of vagueness and
overbreadth, we nowhere suggested that a statute that was neither vague nor
overbroad would be required to toe the same express advocacy line.”71
In view of the Supreme Court’s jurisprudence in this area, in its NPRM, the FEC
also proposed to amend the definition of expenditure to include
a payment, distribution, loan, advance, or deposit of money or anything of value
made by, or on behalf of any person for a public communication, as defined in
(a) Refers to a clearly identified candidate for Federal office, and promotes
or supports, or attacks or opposes any candidate for Federal office; or72
(b) Promotes or opposes any political party.
Those opposing the proposed amended definition of expenditure argue that the
importation of the “promote, support, attack or oppose” standard risks categorizing
as political committees many non-party groups that make public communications,
thereby potentially creating a problem of overbreadth. On the other hand, those
favoring the change to the definition maintain that it is sufficiently narrowly tailored
and would pass constitutional muster.73
69 Id. at 79-80. In a footnote to the decision, the Court supplied examples of express words
of advocacy, “such as, ‘vote for,’ ‘elect,’ ‘support,’ ‘cast your ballot for,’ ‘Smith for
Congress,’ ‘vote against,’ ‘defeat,’ ‘reject.’” Id. at 44, n.52.
70 540 U.S. 93 (2003).
71 Id. at 93.
72 Federal Election Commission., Notice of Proposed Rulemaking, 69 Fed. Reg. 11,736,
73 See, e.g., Federal Election Commission, Transcript from Hearing on Political Committee
Status (visited January 8, 2007) [http://www.fec.gov/pdf/nprm/political_comm_status/
2004 FEC Rule and Related Litigation
While the FEC was unable to adopt new regulations central to the issues of 527
regulation, as a compromise, in October 2004, it adopted a new regulation relevant
to political committees.74 Accordingly, this new rule was in effect during the
November 2004 presidential election. Entitled “Funds received in response to
solicitations,” the new rule provides that political groups are regulated under FECA
based on whether they conduct fundraising with solicitations that include appeals to
“support or oppose” the election of a federal candidate. Funds or anything of value
collected as a result of such solicitations are considered a contribution under FECA.
Therefore, any organization with $1,000 or more in such contributions is subject to
FECA regulation.75 Notably, it has been reported that the FEC acknowledged that
the new rule failed to address the key question of if and when, based on their
solicitation messages, nonparty groups are required to register with the FEC as
The new rule also revised its allocation regulations requiring that such regulated
organizations pay at least 50% of their expenses for federal election related activities
— such as get-out-the-vote (GOTV) efforts — with federally regulated hard money.
Communications that support or oppose clearly identified federal candidates must be
paid entirely with federally regulated hard money.77
In January 2005, EMILY’s List, a nonconnected political committee, filed suit
in U.S. District Court for the District of Columbia seeking to enjoin the new FEC
rule. In its complaint, EMILY’s List argued that the FEC did not provide proper
notice for the new rule and that it violates the organization’s First Amendment rights,
particularly with regard to its state and local election activities. On February 25,
2005, the court denied the EMILY’s List motion for a preliminary injunction and
upheld the new rule.78 Citing the Supreme Court’s jurisprudence beginning with
Buckley v. Valeo in 1976, the court found that it is clear that the government has an
important interest in preventing corruption and the appearance of corruption in
elections and that the Supreme Court has upheld FEC action to prevent
circumvention of contribution limits designed to protect that interest. According to
the court, “it is apparent that the FEC promulgated these rules in an effort to close an
74 See 11 C.F.R. § 100.57 (2006).
75 FECA defines “political committee” as “any committee, club, association, or other group
of persons that receives contributions aggregating in excess of $1,000 during a calendar
year.” 2 U.S.C. § 431(4).
76 Kenneth P. Doyle, “FEC Faces Court Battles Over New Rule Imposing Limits on Section
Politics article, Liz Kurland, of the FEC’s information division, stated that the effect of the
new rule on 527 organizations that were involved in federal elections, but claimed
exemption from FEC regulation, is “going to be kind of a hairy issue, I have to admit.” Id.
77 11 C.F.R. § 100.57(b) (2006).
78 EMILY’s List v. FEC, 362 F. Supp. 2d 43 (D.D.C. 2005), aff’d, 170 Fed. Appx. 719 (D.C.
oft-exploited loophole in federal election law.”79 The court further determined that
the FEC appeared to have followed proper procedures in issuing its new rules, and
concluded that the regulations appeared to pass constitutional muster.
On February 1, 2007, the FEC issued a “Supplemental Explanation and
Justification,” entitled “Political Committee Status,” to more fully explain the basis
for its 2004 rule and the reasons it declined to revise the regulatory definition of
political committee in such a manner to specifically regulate 527 organizations.80
According to the FEC, Section 527 status under the Internal Revenue Code is
insufficient evidence alone to determine whether an organization is a political
committee under FECA. It found that an organization’s tax status under Section 527
does not necessarily satisfy “FECA and Supreme Court contribution, expenditure,
and major purpose requirements.”81 In addition, the Commission determined that the
IRS’s requirements for granting tax exemption under Section 527 are based on “a
different and broader set of criteria” than is used by the FEC in determining political
Pursuant to FECA and Supreme Court precedent, the FEC stated that it will
continue to determine political committee status based on whether an organization
received contributions or made expenditures over $1,000 in a calendar year and
whether the organization’s “major purpose” was campaign activity. To that end, the
FEC specifically noted that it will consider whether any of the organization’s
solicitations resulted in contributions “because the solicitations indicated that any
portion of the funds received would be used to support or oppose the election of a
clearly identified Federal candidate,” and will analyze whether any of the
organization’s expenditures for communications, made independently of a candidate,
“constituted express advocacy” under its regulations.83
In concluding, the FEC announced that its recent enforcement actions and
guidance, provided through publicly available advisory opinions and filings in civil
enforcement cases, evidence a “very effective mechanism for regulating
organizations that should be registered as political committees under FECA,
regardless of that organization’s tax status.” Moreover, the FEC announced, its new
and amended rules, the “Supplemental Explanation and Justification,” and its recent
enforcement actions “places the regulated community on notice of the state of the law
regarding expenditures, the major purpose doctrine, and solicitations resulting in
79 Id. at 57.
80 Federal Election Commission, Political Committee Status, (visited February 1, 2007)
[ h t t p : / / www.f ec.go v/ l a w/ cf r / ej _compi l a t i on/ 2007/ not i ce_2007-3.pdf ] .
81 Id. at 10.
82 Id. at 11.
83 Id. at 43, citing 11 C.F.R. §100.22(a) or 11 C.F.R. § 100.22(b).
84 Id. at 44.
FEC Enforcement Action Against
Three 527s for 2004 Activities
The FEC has assessed major fines for some 527 activities in recent elections.
In several notable cases, the FEC determined that certain 527s should have registered
as political committees and were subject to FECA regulation. On December 13,
2006, the FEC announced that it had reached settlements with three 527
organizations accused of violating FECA during the 2004 presidential election cycle.
The League of Conservation Voters 527 and 527II agreed to pay $180,000;
MoveOn.org Voter Fund agreed to pay $150,000; and Swiftboat Veterans and POWs
for Truth agreed to pay $299,500, all in civil penalties. By a unanimous vote of 6 to
0, the FEC determined that through their public statements, solicitations for
contributions, and other public communications, the organizations had established
that they were political committees, but had failed to register with the FEC, comply
with contribution limits and prohibitions, and file disclosure reports. According to
the FEC, “[i]f an organization receives contributions or makes expenditures in excess
of $1,000, and its major purpose is involvement in campaign activity, it must register
with the Commission and abide by the contribution restrictions and reporting
requirements of the Federal Election Campaign Act.”85
The FEC reached similar conclusions in two notable 2007 enforcement actions.
In August 2007, the FEC announced that it had reached a $775,000 settlement
agreement with America Coming Together (ACT) for certain 2004 campaign
activities. The FEC determined that ACT, which maintained both a federal PAC
account and a non-federal (527) account, had improperly spent non-federal funds on
federal election activities, including get-out-the-vote (GOTV) efforts that mentioned
clearly identified federal candidates — traditionally a trigger for FECA86
enforcement. In another case, the agency reached a conciliation agreement with
The Media Fund (TMF) in November 2007. The FEC determined that TMF, a 527,
had failed to register as a political committee and had accepted some contributions
that exceeded FECA limits or were from impermissible sources. TMF agreed to pay87
a $580,000 civil penalty. In these and other cases, the FEC has emphasized the
number of enforcement actions taken against 527s and the large fines assessed in88
some of those cases. Some campaign finance interest groups have countered that
the agency has been too slow to act on 527 enforcement matters and that even large
85 Federal Election Commission, FEC Collects $630,000 in Civil Penalties from Three 527
Organizations, at [http://www.fec.gov/press/press2006/20061213murs.html].
86 Federal Election Commission, “FEC To Collect $775,000 Civil Penalty From America
Coming Together,” press release, August 29, 2007; and Federal Election Commission,
Conciliation Agreement in Matters Under Review 5403 and 5466 at
87 Federal Election Commission, “Media Fund to Pay $580,000 Civil Penalty,” press release
November 19, 2007; and Federal Election Commission, Conciliation Agreement in Matter
Under Review 5440 at [http://eqs.nictusa.com/eqsdocs/000066D5.pdf].
88 As of November 2007, the FEC had reached conciliation agreements with 11 527s and
501(c)(4) organizations during the past year. Federal Election Commission, “Media Fund
to Pay $580,000 Civil Penalty,” press release November 19, 2007.
fines represented a small share of those organizations’ allegedly illegal campaign
Legislative Activity to Regulate 527s
108th Congress. The House Administration Committee began an
examination of the role of tax-exempt 527 political organizations since enactment of
BCRA. On November 20, 2003, the committee authorized its chairman to issue
subpoenas to compel testimony from several groups that had declined to testify in its
scheduled hearing that day. On May 20, 2004, the committee held an oversight
hearing on the FEC and the 527 rulemaking process, prompted by the agency’s
postponement of a decision on a proposed regulation to redefine “political
committee” to include activity by many 527 groups then in operation. The 527 issue
was also addressed on March 1, 2004, at a hearing by the Senate Rules and
Administration Committee, which, on July 14, 2004, also held an oversight hearing
on the FEC.
The initial legislative response to the perceived 527 problems came from the
sponsors of the BCRA — Senators McCain and Feingold and Representatives Shaysth
and Meehan — who offered identical bills in September 2004, at the end of the 108
Congress. The 527 Reform Act of 2004 (S. 2828 and H.R. 5127) sought to bridge
the differences in how federal election law and tax law defined who is covered under
the respective statutes, by specifically declaring that 527 organizations under the IRC
have the major purpose of influencing elections (unless they have annual receipts of
less than $25,000 or are exclusively devoted to non-federal elections). By thus
adding 527 organizations to the FECA definition of “political committee,” such
entities would have to fully comply with that law’s requirements.
Congress were introduced February 2, 2005, as the 527 Reform Act of 2005: H.R.
Senators McCain, Feingold, and Trent Lott. The bills proposed to treat 527
political organizations as political committees under FECA, unless they met certain
specified standards for exemption (such as involvement solely in non-federal
elections). In the revised bills, the “major purpose” standard contained in the 108th
Congress bills was dropped, apparently to address concerns voiced by § 501(c) tax-
exempt organizations that their activities could be subjected to FECA regulation as91
well. Senate sponsors were bolstered by the addition of Rules and Administration
Committee Chairman Lott, who had opposed BCRA but whose sponsorship of S. 271
89 See, for example, Democracy 21, “Democracy 21 and Campaign Legal Center Statement
on FEC Finding that The Media Fund Illegally Spent Over $50 Million in 2004 Election,”
press release, November 19, 2007. Democracy 21 filed an FEC complaint in The Media
90 For a more complete discussion of the legislation, see CRS Report RL32954, 527 Political
Organizations: Legislation in the 109th Congress, by Joseph E. Cantor and Erika Lunder.
91 Amy Keller, “527s Prepare Their Defense,” Roll Call, February 22, 2005.
appeared to signal a broadening of support for this aspect of federal election law
On March 8, 2005, the Senate Rules and Administration Committee held a
hearing on S. 271 (McCain-Feingold-Lott) and on April 27 proceeded to a markup
of the bill. While the primary thrust of S. 271 was to apply the full scope of federal
election law regulation to 527s involved in federal elections (source limits and
prohibitions and disclosure requirements), the bill ordered reported by the Rules and
Administration Committee expanded its focus considerably. Amendments were
added to loosen certain hard money restrictions, to lower broadcast rates, and to free
communications over the Internet from election law regulation. On May 17, 2005,
an original bill was reported from the committee as S. 1053, thus supplanting S. 271,
and placed on the Senate’s legislative calendar.
On March 15, 2005, Representatives Mike Pence and Albert Wynn introduced
H.R. 1316, the 527 Fairness Act of 2005. Essentially, this bill adopted the converse
approach to the perceived 527 problem as was taken by sponsors of the 527 Reform
Act of 2005 (i.e., to loosen restrictions on other players in the political process so that
they could assume a greater role and hence offset the perceived undue role played by
the 527s). By so doing, proponents expected that there would be less of an incentive
for political money to flow to 527 groups operating outside the framework of the FECA.
The House Administration Committee held a hearing April 20, 2005, on H.R.
1316 (Pence-Wynn) and H.R. 513 (Shays-Meehan). On June 7, H.R. 1316, as
amended by a committee substitute, was ordered reported favorably.92 The reported
version added new provisions, many of which had been added to S. 1053 in
committee before it was reported. On June 29, 2005, the House Administration
Committee held a markup of H.R. 513 (Shays-Meehan), and ordered it reported, as
amended to reflect the sponsors’ changes, without recommendation.93 This set the
stage for a potential House floor debate on the two contrasting measures: H.R. 1316
and H.R. 513. That debate never occurred, but on April 5, 2006, the House passed
H.R. 513 (Shays-Meehan), as amended, by a 218-209 vote. As passed, the bill, the
527 Reform Act of 2006, included one floor amendment, to remove political party
coordinated expenditure limits.
The text of H.R. 513, as passed, was later added to H.R. 4975, the Lobbying
Accountability and Transparency Act of 2006, which passed the House on May 3,
2006; it also included an amendment added by the House Committee on Rules to
prohibit leadership PAC funds from being converted to personal use but to allow
them to be transferred without limit to national party committees (as is the case with
funds in principal campaign committees). After passing H.R. 4975, the House
substituted it for the text of S. 2349, the Senate-passed version of the bill, to enable
a conference with the Senate. The Senate-passed bill did not contain the 527
provisions, and the Senate resisted considering 527s in the context of ethics reform.
92 See H.Rept. 109-146 (2005).
93 See H.Rept. 109-181 (2005).
This conflict between the House and Senate kept the issue from being resolved in the 109th
Another bill offered in the second session reflected a limited regulatory
approach. H.R. 4696, sponsored by Representative Mike Rogers, would prohibit 527
organizations that are not also political committees under the FECA from making
electioneering communications, the most visible, but hardly the only, form of
election-related issue advocacy. Four additional bills were offered in the 109th
Congress, seeking a more limited approach to the 527 issue than reflected in the bills
discussed above. To the extent that what has concerned many observers about 527
groups’ activity is their lack of accountability relative to organizations regulated
under federal election law, these proposals sought to bolster the disclosure
requirements in the Internal Revenue Code and thus offer voters a greater opportunity
to know about these groups and who finances them. These bills included H.R. 471,
sponsored by Representative John Larson; H.R. 914, sponsored by Representative
Phil English; and H.R. 1942 and H.R. 2204, sponsored by Representative Clay Shaw.
regulate 527s early in the 110 Congress. H.R. 420, sponsored by Representatives
Marty Meehan and Christopher Shays, and S. 463, sponsored by Senators John
McCain and Russell Feingold, the 527 Reform Act of 2007, are identical to the two
measures passed by the House in the 109th Congress, as they pertained strictly to 527s
(amendments on party coordinated expenditures and leadership PACs were omitted).
A summary of these bills, compared with current law, follows in Table 10.
Two other 527 bills have also been introduced in the 110th Congress.95 First, a
lobbying and ethics reform bill (H.R. 2316, Conyers) passed by the House in May
2007 would have required lobbyists to disclose certain contributions to non-political
committee 527s.96 However, the lobbying reform measure that ultimately became
law (P.L. 110-81) did not address 527s.97 Second, H.R. 1204 (English) would change
periodic disclosure requirements for those 527 organizations that report to the IRS
rather than the FEC. The bill would also amend the penalties for failing to file such
reports in a timely manner. Finally, the bill would require that the periodic disclosure
reports filed with the IRS also be filed with the FEC.
94 On campaign finance activity during the 110th Congress, see CRS Report RL34324, Campaign
Finance: Legislative Developments and Policy Issues in the 110th Congress, by R. Sam Garrett.
95 The text refers to two bills affecting non-political committee 527s. As noted elsewhere
in this report, political committees, as defined in FECA, are also considered 527s for tax
purposes. H.R. 3771 (Sensenbrenner), a bill affecting political-committee 527s (or state-
level equivalents), would permit taxation of state and local candidates’ principal campaign
committees at the same rate as congressional candidates’ principal campaign committees.
96 See H.R. 2316 as passed by the House, Sec. 204.
97 On 110th Congress lobbying reform, see CRS Report RL34166, Lobby Law and Ethics
Rules Changes in the 110th Congress, by Jack Maskell.
Table 10. H.R. 420 (Meehan-Shays) and S. 463
(McCain-Feingold), the 527 Reform Act of 2007,
Compared with Current Law
H.R. 420 (Meehan-Shays)
Current lawS. 463 (McCain-Feingold)
Defines political committee (thusIncludes in definition of political
triggering FECA regulation) as:committee any IRC §527 organization,
(A) a committee, club, association, orunless it:
other group of persons which receives has annual gross receipts of less than
contributions or makes expenditures$25,000;
aggregating in excess of $1,000 during a is a political committee of a state or
calendar year;local party or candidate;
(B) a separate segregated fund (PAC set exists solely to pay certain
up by a union, corporation, trade assoc.,administrative expenses or expenses of a
or membership group); orqualified newsletter;
(C) a local committee of a party which is composed solely of state or local
makes contributions or expendituresofficeholders or candidates whose voter
aggregating in excess of $1,000 in adrive activities refer only to state/ local
calendar year, receives contributionscandidates and parties; or
aggregating in excess of $5,000 in a is exclusively devoted to elections
calendar year, or makes paymentswhere no federal candidate is on ballot, to
exempted from definition ofnon-federal elections, ballot issues, or to
contribution/expenditure in excess ofselection of non-elected officials [Sec.
$5,000 in a cal. year [2 U.S.C. § 431(4)]2/1002]
No provisionMakes last exemption (above)
inapplicable if the IRC §527 organization
spends more than $1,000 for:
public communications that promote,
support, attack, or oppose a clearly
identified federal candidate within one
year of the general election in which that
candidate is seeking office; or
for any voter drive effort conducted by
a group in a calendar year, unless:
(1) sponsor confines activity solely to one
(2) non-federal candidates are referred to
in all voter drive activities and no federal
candidate or party is referred to in any
(3) no federal candidate or officeholder
or natl. party official/agent is involved in
organization’s direction, funding, or
(4) no contributions are made by the
group to federal candidates [Sec. 2/1002]
H.R. 420 (Meehan-Shays)
Current lawS. 463 (McCain-Feingold)
FEC regulations that took effect Jan. 1,Codifies 2005 FEC regulations and
2005, require PACs (non-candidate, non-makes them applicable to 527s not
party political committees) — includingaffected by current rules [Sec. 3/1003]
those associated with non-FECA-
compliant 527 groups — that make
disbursements for voter mobilization
activities or public communications that
affect both federal and non-federal
elections to generally use at least 50%
hard money from federal accounts to
finance such activities, but require that
public communications and voter drive
activities that refer to only federal
candidates be financed with 100% hard
money from a federal account, regardless
of whether communication refers to a
political party [11 C.F.R. §106.6]
No limits on funding sources for PACs’Allows contributions to non-federal
non-federal accounts, but BCRA added aaccounts making allocations (above) only
provision to FECA that imposes someby individuals and subject to limit of
regulation of special non-federal accounts$25,000 per year; prohibits fundraising
of state and local party committees thatfor such accounts by national parties and
may undertake certain “federal electionofficials and federal candidates and
activities” using a mix of federal andofficeholders [Sec. 3/1003]
non-federal funds. These so-called Levin
accounts operate under several conditions
on the use of these funds and the raising
of money for them, including that they
accept no more than $10,000 a year (or
less, if state law so limits) from any
person and that they use no funds that
were solicited, received, directed,
transferred, or spent by or in the name of
a national party, federal candidate or
official, or joint fundraising activities by
two or more state or local party
committees [2 U.S.C. §441i(b)]
N.A.States that this act shall have no bearing
on FEC regulations, on any definitions of
political organization in Internal Revenue
Code, or on any determination of whether
a 501(c) tax-exempt organization may be
a political committee under FECA
N.A.Provides special expedited judicial
review procedures, similar to BCRA’s,
for a challenge on constitutional grounds,
and allows any Member to bring or
intervene in any such case [Sec. 9]
If the 110th Congress chooses to address 527s, a key question will be whether
additional regulation should occur via legislation, new FEC or other regulation, or
enforcement of existing regulations. Regardless of how policy change occurs,
perhaps most importantly, it remains unclear whether the courts would uphold
additional attempts to regulate 527 activity. Indeed, whether regulation of 527
activity needs to be limited to only those organizations engaging in express advocacy
is a topic of much controversy and debate. Nevertheless, there is likely to be
continued criticism that activity by 527s in the manner seen in recent elections
threatens to undermine the effectiveness of regulation under federal election law.
Another issue that has received attention is whether, in the event that Congress
does require further regulation of 527 organizations, money might flow to other types
of tax-exempt organizations, such as IRC § 501(c)(4) social welfare organizations98
and § 501(c)(6) trade associations. These types of organizations may engage in
political campaign activity so long as it is consistent with the organization’s exempt
purpose. There are, however, two limitations in the IRC that would make these
organizations less efficient than Section 527 political organizations for carrying on
election-related activities. First, the IRC implicitly restricts the amount of political
campaign activity that these organizations may conduct — specifically, participating99
in political campaign activity cannot be the organization’s primary activity.
Second, under IRC § 527(f), IRC § 501(c) organizations are subject to tax if they
make an expenditure for an IRC § 527 exempt function. As discussed above, an
exempt function is influencing or attempting to influence the selection, nomination,
election, or appointment of an individual to a federal, state, or local public office, to
an office in a political organization, or as a presidential or vice-presidential elector.
Under IRC § 527(f), the organization is taxed at the highest corporate rate on the
lesser of the organization’s net investment income or its total amount of exempt100
function expenditures. Finally, it should be noted that tax-exempt organizations
must also abide by any applicable election laws. For example, since campaign
finance laws ban unions and corporations from making any contribution or
expenditure in connection with federal elections, IRC § 501(c)(5) labor unions and
any incorporated tax-exempt organizations are generally prohibited from doing so,
98 For more information on the political activity restrictions on tax-exempt organizations,
see CRS Report RL33377, Tax-Exempt Organizations: Political Activity Restrictions and
Disclosure Requirements, by Erika Lunder.
99 See Treas. Reg. § 1.501(c)(4)-1(a)(2)(ii); IRS Gen. Couns. Mem. 34233 (December 30,
100 IRC § 501(c) organizations may set up a separate segregated fund under IRC § 527(f)(3).
Assuming the fund is set up and administered properly, it will be treated as an IRC § 527
political organization and the IRC § 501(c) organization will not be subject to tax.
Appendix. Summary of Internal Revenue Code Provisions Applicable to 527 Organizations
Table 11. Disclosure Requirements under the Internal Revenue Code
Notification of 527 StatusDisclosure of Expendituresand ContributionsInformation ReturnTax Return
ormForm 8871Form 8872Form 990Form 1120-POL
cription of RequirementOrganization must notify theOrganization that accepts aOrganization must file anOrganization with political
IRS of its existence. contribution or makes aninformation return with the IRS. organization taxable income
iki/CRS-RL33888Notification must include theexpenditure for an exemptReturn includes suchmust file a tax return with the
g/worganization’s name, address,function must file a disclosureinformation as theIRS.
s.orand purpose; names andaddresses of certain employeesreport with the IRS. Reportincludes (1) name, address, andorganization’s revenue sourcesand functional expenses.[IRC § 6012(a)(6)]
leakand directors; and name of andemployer of a contributor whoContributions of at least $5,000
://wikirelationship to any relatedentities. gives during the reportingperiod and has given at leastmust be reported on the return’sSchedule B.
http[IRC § 527(i)]$200 during the year, and the[IRC § 6033]
amount of the contribution; and
(2) the amount and purpose of
each expenditure made to a
person during the reporting
period if that person has
received at least $500 during the
year, along with the person’s
name, address, and employer.
[IRC § 527(j)]
Notification of 527 StatusDisclosure of Expendituresand ContributionsInformation ReturnTax Return
Once — the organization mustEither on a quarterly basis in aAnnuallyAnnually
notify the IRS within 24 hoursyear with a regularly scheduled
of its formation.election and semi-annually in
any other year or a monthly
basis. Additional requirements
for pre-general election, post-
general election, and year-end
a Yes Yes Yes No
iki/CRS-RL33888sed to the Public?
g/wceptionsAny organization that Any organization thatAny organization that:Any organization with less than
s.or- anticipates having gross- is not required to or did not- has gross receipts of less than$100 in political organization
leakreceipts of less than $25,000 forfile a Form 8871, or$25,000 ($100,000 if a qualifiedtaxable income.
any year- is a state or local politicalstate or local political
://wiki- is a political committee of aorganization that reports similarorganization);
httpstate or local candidate or a stateinformation to a state agency. - is a state or local committee of
or local committee of a politicalThe requirement also does nota political party or a political
party, orapply to any expenditure that iscommittee of a state or local
- is required to report to thean independent expenditurecandidate,
FEC as a political committee.(i.e., an expenditure that- is required to report to the FEC
expressly advocates for aas a political committee,
candidate but is made without- is a caucus or association of
the candidate’s cooperation).state or local officials,
- is an authorized committee
under FECA § 301(6) of a
candidate for federal office,
- is a national committee under
FECA § 301(14) of a political
- is a Congressional campaign
committee of a political party
Notification of 527 StatusDisclosure of Expendituresand ContributionsInformation ReturnTax Return
lty for failing to file theOrganization will be subject toOrganization will be subject to aOrganization will be subject to aOrganization will be penalized
ely or accuratetax on all income for the periodpenalty that equals the highestpenalty of $20 per day, not tofor each month the return is late
annerbetween its formation and thecorporate tax rate multiplied byexceed the lesser of $10,000 orin an amount that equals 5% of
filing. An organization that failsthe amount of contributions5% of the organization’s grossthe tax due, not to exceed 25%
to notify the IRS within thirtyand/or expenditures to whichreceipts (for organizations withof the tax due. [IRC §b
days of any material change tothe failure relates. more than $1 million in gross6651(a)(1)]
the reported information will notreceipts, the penalty is $100 per
be treated as a 527 organizationday and is limited to $50,000.)An organization that is late in
for the period between the[IRC § 6652(c)(1)(A)] paying its taxes will be
iki/CRS-RL33888change and the notification. penalized for each month thepayment is late in an amount
g/wthat equals 0.5% of the unpaid
s.ortax, not to exceed 25% of the
://wiki[IRC § 6651(a)(2)]
httpPenalties will not be assessed if
the failure was due to reasonable
cause, but will be increased for
negligence or fraud.
[IRC § 6662 and 6663]
e IRS and 527 organization must make Forms 8871, 8872, and 990 publicly available. An organization that fails to do so is subject to a penalty of $20 per day, which is limited
to $10,000 for failures relating to Forms 8872 and 990. The IRS must post electronically-submitted Forms 8871 and 8872 in an on-line database within 48 hours of their filing.
The database also includes some organizations’ Forms 8871, 8872, and 990 that were submitted on paper. The database is available at [http://www.irs.gov].
der IRC § 6652(c)(1)(A), the penalty for failing to file Form 1120-POL is the same penalty that applies for failing to file Form 990. It appears to be the IRS position that the penalty
under IRC § 6651 applies rather than the penalty under IRC § 6652 and that “[a] technical correction may be needed to clarify that penalties under § 6652 that apply to failure
to file Form 990 ... do not apply to a failure to file Form 1120-POL.” Rev. Rul. 2003-49, 2003-1 C.B. 903.