527 GROUPS - THE SHADOWY REPLACEMENT FOR "SOFT MONEY"
Press Release:
citizen.org
April 9 - Outlawed Soft Money Likely to Flow to Shadowy "527 Groups" That Skirt Flawed Disclosure System
Shadowy "527" political organizations, which can accept unlimited contributions from unions, corporations and wealthy individuals, are likely to become conduits for soft money that political parties are now prohibited from collecting under a new campaign reform law, according to a new report released today by Public Citizen.
Public Citizen found that 527 groups – products of an exemption carved in Section 527 of the Internal Revenue Code – are already big and important players in federal politics. The top 25 of these private groups not connected to politician PACs raised $67.3 million in 18 months. This amount could increase dramatically when the ban on soft money contributions takes effect in November.......
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Executive Summary:
citizen.org
Deja Vu Soft Money: Outlawed Contributions Likely to Flow to Shadowy 527 Groups that Skirt Flawed Disclosure System
Executive Summary
The recently enacted McCain-Feingold/Shays-Meehan campaign reform law prohibits federal parties and officeholders from collecting "soft money" (unlimited contributions from corporations, unions and individuals). But huge amounts of soft money could still flow to shadowy and highly partisan "527" groups in the post-reform campaign finance system.
Public Citizen’s new investigation of 527 groups (which are named after a section of the Internal Revenue Code they are governed by) found that these groups are already big and important players in federal politics – although obscure and difficult to track under the current disclosure law. Today, the 527-disclosure system is so flawed that you can’t search for a contributor such as Enron and 527 groups skirt the disclosure law with impunity. It is crucial that these groups become more transparent in the future. For this to happen, the federal government will have to strengthen existing law, step up enforcement and expand its oversight of these groups.
This, Public Citizen’s second major investigation of 527s, is based on 18 months of disclosure by 527s (July 1, 2000 to December 31, 2001). The first report, released February 26, 2002, examined "politician 527s," or those controlled by members of Congress. The main findings of this report, focusing on the 25 largest known "non-politician 527s," include:
Non-politician 527s, which are primarily involved in influencing elections, are already major conduits for soft money. The top 25 non-politician 527s active in federal elections collected $67.3 million in soft money over the 18 months studied.
Non-politician 527s are important players in federal elections. Among the top 25 non-politician 527s the single biggest expenditure was for pre-election "issue ads" that focused on specific candidates and their positions on subjects such as abortion, the environment and taxes. The top 527 groups also paid for direct mail, phone banking and staff who trained campaign workers.
Individuals (as opposed to corporations and unions) were the biggest contributors to the top non-politician 527s. The largest donor to 527s, Jane Fonda, gave far more ($11.7 million) during September 2000 than any soft money donor to political parties in the entire 1999-2000 election cycle. However, corporations and unions were also major contributors and might become more important in the post-reform environment.
Non-politician 527s are highly partisan, making them potential vehicles for soft money that federal party committees and officeholders can no longer receive under the McCain-Feingold/Shays-Meehan campaign reform law. There is a danger that presidents, members of Congress and party officials will find ways to facilitate soft money contributions to partisan 527s. Much will depend on strengthening the weak Internal Revenue Service (IRS) 527 disclosure and enforcement systems and enforcing the new law that prohibits federal officeholders from soliciting for 527s and coordinating with them.
The IRS web-based disclosure system for 527s is vastly inferior to the Federal Election Commission (FEC) system governing federal candidates and party committees. In the 527 system you can’t search for a contributor such as Enron; instead you must open files for more than 14,800 groups registered with the IRS to find all of Enron’s possible contributions to 527 groups.
The current IRS system is not a searchable database. It is equivalent to an electronic file cabinet with 14,800 different, unlinked folders in it. This means you can’t search for 527 groups by affiliated organizations or politicians. You can only find them if you know their names and then you must enter the name in the same, sometimes quirky way as the IRS. For example, you can only find one of the AFL-CIO’s 527s if you search for "Working Fam."
Contributions to 527s cannot be aggregated; so, for example, it is impossible to know the total amount flowing to these groups without opening the links for more than 14,800 groups. Similarly, you cannot know which groups say they are active in federal politics as opposed to state and local politics without doing the same.
527 groups do not have to report the dates of contributions and expenditures, nor the purpose of expenditures. This makes it difficult to know whether individual contributions were "bundled" by interest groups or intended to influence pending legislation. It also makes it hard to determine what the money was actually spent on.
Some groups appear to be evading disclosure by failing to file entire reports. We found four leading non-politician groups that apparently failed to file entire reports or major sections of reports. The American Federation of State, County and Municipal Employees (AFSCME) was the worst offender, failing to file a disclosure report since March 31, 2001.
527s skirt the law by failing to disclose the occupation and employer of soft money donors. Among the top 25 non-politician 527s, occupation and employer information was missing for 67 percent of all itemized individual donors. The Republican Leadership Coalition did not provide the occupation and employer for any of its 2,019 itemized individual contributions.
Some 527s are vague or misleading when they state their purpose to the IRS. The Issues Advisory Group, for example, apparently was created to oppose Hillary Clinton’s U.S. Senate bid. Yet the group said its purpose was to reform health care, education and Social Security.
Some 527s fail to comply with the law and disclose the fact that they are related to other political entities, such as national party committees or federal political action committees (PACs).
The IRS can penalize delinquent 527s by levying fines equal to 35 percent of a group’s contributions and expenditures, but the IRS has not taken a single enforcement action yet against any 527 group. Public Citizen estimates that late-filing 527s could collectively owe the IRS more than $4 million in fines. In fact, the IRS still does not have a program in place to police 527s and compel them to comply with the law.
Because of these flaws in the disclosure and enforcement system – and the danger that 527s will become surrogates for outlawed soft money – Public Citizen makes the following policy recommendations:
The IRS should establish a fully searchable disclosure database for 527 groups on its current website, similar to what the FEC offers for campaign contributions. This database would allow for searching by key fields in 527 reports including organization name, state, zip code, custodian, directors, related entities, contributors to and recipients of 527 spending.
Congress should pass legislation, modeled on what it has mandated to the FEC, to require 527 organizations receiving or spending $50,000 a year to file electronic reports.
Congress should correct defects in the disclosure law, again modeling the disclosure law on what it has mandated to the FEC. It should require that the purpose of each expenditure be given, as well as the date of each contribution and expenditure. It should provide for timely updating of statements of organization as organizations change.
The IRS should review each report as it is received for accuracy and completeness and it should monitor and enforce compliance with the law.
The FEC should develop criteria for investigating 527s that may be surrogates for illegal soft money fundraising, or may be coordinating with the fundraising activities of federal politicians. Criteria should include: a check for people working for 527s who work, or worked, for federal parties or officeholders; large expenditures for such individuals; and a careful search for "related entities" connected to the federal politicians.
Finally, it must be noted that some members of Congress are trying to further weaken the already defective 527-disclosure requirements. Congress must resist this effort being led by Rep. Bill Thomas (R-Calif.), the chief sponsor of the "Taxpayer Protection and IRS Accountability Act of 2002" (H.R. 3991). A provision of H.R. 3991, passed by the House Ways and Means Committee on March 20, 2002, would have the effect of eliminating a number of important 527 group reporting requirements. This provision must be rejected by Congress.
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Full Report:
citizen.org
44 pages, for you dedicated types. <g>
Cheerio!
Ray |
