Section 527 of the Internal Revenue Code has come under intense scrutiny during this year's presidential election race - a campaign replete with examples of organizations using the shield of Section 527 to collect large sums of money and produce politically provocative television advertisements, documentary films, and radio and print ads.So far during this election year, Democratic/liberal groups have spent more than $120 million and Republican/conservative factions have spent more than $18 million on voter mobilization efforts and issue ads in their attempts to influence the presidential election.Although these numbers are probably small compared to actual expenditures, they are the amounts that thus far have been reported to the Internal Revenue Service by 527 groups.The 527 groups are required to report their contributions and their expenditures to the IRS, but the IRS reports do not have to duplicate information filed at the state level. There are reports that 527 groups have already amassed more than $240 million in the 2004 election.In August, the IRS unveiled an effort to improve reporting and disclosure by 527 political groups.The IRS initiative includes contacting 527s whose filings appear to be incomplete, were filed late, or were amended and are materially different from the original filing. The fact that a group is not contacted does not mean that the group's reports have been accepted as correctly filed."This effort will help improve the completeness and accuracy of these important public disclosures," said Steven T. Miller, commissioner of the IRS Tax-Exempt and Government Entities Division. "Our job is to ensure compliance with the law."IRC Section 527 establishes the rules under which organizations that engage in political activities are to be subject to income taxes.Section 527 exempts from taxation income that is received as contributions, membership dues, and proceeds from political fundraising or entertainment events. The section also specifically defines the term "exempt function" to mean "the function of influencing or attempting to influence the selection, nomination, election or appointment of any individual to any federal, state or local public office or office in a political organization, or the election of presidential or vice-presidential electors."Included among the 527 groups are the well-known MoveOn.org, a liberal group with which filmmaker Michael Moore (Fahrenheit 9/11) is associated, and Swift Boat Veterans for Truth, the conservative group that has produced a series of television advertisements questioning Democratic challenger Sen. John F. Kerry's accounts of his service in Vietnam.The campaign for President Bush filed a lawsuit last month accusing advocacy groups and supporters of Kerry of violating election laws, and seeks an emergency court order to stop their activities.The Bush campaign complained that at least five Democratic-leaning fundraising organizations - including MoveOn, Media Fund and America Coming Together - are violating the law by coordinating their efforts with Kerry's campaign and by raising unlimited funds from labor union, corporate and individual donors while expressly working to defeat Bush for reelection.Ironically, Bush defended 527s in a past interview on the CBS Sunday program Face the Nation, when his supporters from Texas started a 527 during his 2000 campaign and attacked then-presidential candidate John McCain during the Republican primary."That's part of the American process," Bush said. "There have been ads, independent expenditures. But that's what freedom of speech is all about."In 2002, he signed into law the McCain-Feingold Bipartisan Campaign Reform Act, a measure that specifically prohibited candidates for federal office from being involved in raising so-called "soft money" for political campaigns. Soft money is defined as money contributed in such a way as to avoid regulation by the United States government.McCain-Feingold prevented candidates from accepting large contributions that, while not specifically designated as candidate endorsements, could be used to assist candidates or attack opponents. Such contributions are ostensibly for political activities such as getting out the vote, as opposed to contributions for specific candidates, and are thus exempt from regulation.Instead of containing political contributions, however, McCain-Feingold seemed to open the door for unlimited funds to flow through the Section 527 groups, organizations that fall outside the scope of the Federal Elections Commission. Political action committees are among those that are not subject to federal regulation and can thus accept large contributions.The Federal Election Campaign Act, enacted in 1974, ruled that organizations whose major purpose is to influence federal elections and that spend more than $1,000 to do so are subject to federal campaign finance law and are thus subject to contribution limits and reporting requirements. Under the FECA, individuals are limited to annual contributions of $2,000 per candidate, $25,000 to a national party committee, and $5,000 to a political action committee. Meanwhile, the act permits individuals and groups to make unlimited independent expenditures, defined as expenditures for communications that expressly advocate the election or defeat of a clearly identified candidate and which are made independent of the candidate's campaign.While many have called for the FEC to pull in the reins on the 527s, other vocal opponents have argued that doing so would be a clear affront to First Amendment rights to freedom of speech. As it stands now, the FEC has been asked to rewrite the rules governing campaign contributions and spending. No action is expected to be taken to change the laws before this year's election.One executive director at the Center for Responsive Politics - a campaign reform advocacy concern - was quoted recently as agreeing with the Bush campaign suit that 527s are violating the law, "but it's happening on both sides, Democrat and Republican!"
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