Section 527 Political Organizations: Background and Issues for Federal Election and Tax Laws

Publication Date: February 2007

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Politics

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Abstract:

Congress has been examining the role of groups organized under Section 527 of the Internal Revenue Code (IRC) that are involved in federal elections, but are not operating under the requirements and restrictions of federal election law. Such groups were especially prominent players in the 2004 presidential election, raising and spending some $435 million and being widely seen as having an impact on the outcome of the race. In so doing, they triggered concerns about circumvention of federal election law and the continued role of soft money in federal elections, even after enactment of the Bipartisan Campaign Reform Act of 2002 (BCRA).

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. This is because prevailing judicial interpretation of Supreme Court precedent has permitted FECA regulation of only those communications containing express advocacy (i.e., explicit terms urging the election or defeat of clearly-identified federal candidates). By avoiding such terms, groups could arguably promote their issue positions in reference to particular federal elected officials without triggering FECA's disclosure, contribution limits, and source restrictions. At the same time, the groups qualified for the favorable tax treatment of Section 527 organizations because that benefit is not limited to groups that conduct express advocacy.

In 2002, 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 prior to the end of an election 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 Section 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 measures to add 527 political organizations to FECA's definition of political committee, unless involved exclusively 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 have been offered 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.