“New Stealth PACs” Secretively Spend Millions to Sway Elections;PhRMA Appears to Have Bankrolled Seniors Groups

Sept. 20, 2004

Revised Nov. 10, 2004

“New Stealth PACs” Secretively Spend Millions to Sway Elections;PhRMA Appears to Have Bankrolled Seniors Groups

Public Citizen Seeks IRS Probe of Potential Tax Law Violations; Launches New Web Site – www.stealthpacs.org– and Database to Track 501(c) Non-Profit Groups Active in Elections

WASHINGTON, D.C. – Exploiting loose regulations and lax oversight, “New Stealth PACs” have poured millions of dollars into elections without revealing the identities of their donors or how they spend their income to influence elections, according to a new report by Public Citizen.

Public Citizen estimates that at least $88.4 million – and almost certainly many millions more – was spent by 26 non-profit groups registered under Section 501(c) of the tax code to influence at least 117 contests in 2000 and 2002. However, these groups reported only $12.2 million in electoral expenditures to the IRS. In 2004, at least 13 501(c) groups have been active.

The report was compiled from information in a new Public Citizen Web site and database, The New Stealth PACs: Tracking 501(c) Non-Profit Groups Active in Elections, available at www.stealthpacs.org. The project is designed to monitor the activities of tax-exempt 501(c)(4) social welfare, 501(c)(5) labor and 501(c)(6) business groups seeking to influence the outcomes of elections while avoiding public scrutiny. The report analyzes the activities of 30 groups that have tried to influence elections since 2000.

Public Citizen believes that four seniors’ groups may have been heavily financed by the Pharmaceutical Research and Manufacturers of America (PhRMA) and may have engaged in enough activities intended to influence elections in 2002 to raise the question of whether they violated the prohibition against allowing political work to be their primary activity.

In letters to IRS Commissioner Mark Everson, Public Citizen today asked the agency to examine “its procedures for monitoring and enforcing the tax code when it comes to regulating electioneering activities of 501(c)(4)-(6) non-profit groups” because there “appears to be a considerable amount of confusion…as to what constitutes a political expenditure versus a lobbying expenditure.” Public Citizen also asked the IRS to “consider initiating a formal investigation into the financial transactions and electioneering activities” of the four seniors’ groups that appear to have been funded by PhRMA.

501(c) non-profit groups are permitted to make substantial political expenditures, which the IRS defines as expenditures intended to influence the outcomes of elections, but they are prohibited from making electoral activities their primary purpose. However, unlike traditional political action committees and Section 527 groups – which must abide by strict disclosure requirements – the 501(c) groups are able to operate with much secrecy while accepting unlimited contributions from corporations, unions and wealthy individuals.

“Section 527 groups like Swift Boat Veterans for Truth have been generating a lot of controversy and media attention of late,” said Frank Clemente, director of Public Citizen’s Congress Watch division. “Meanwhile, 501(c) groups are operating unregulated and under the radar, and are spending millions of dollars to influence elections. These new stealth PACs should not be allowed to operate with such impunity.”

Using an assortment of government documents and media reports, Public Citizen built a first-of-its-kind public database to track politically active 501(c) groups. The database contains more than 400 political advertisements and other election-related communications put out by the new stealth PACs, records of the groups’ expenditures and previously unpublished data disclosing the amounts of large contributions to the groups and the percentage of revenue they received from major donors. The report and database identify key personnel and funders of the stealth PACs, as well as their political affiliations and connections to other partisan organizations. The New Stealth PACs project found that:

  • The Republican-leaning 501(c) groups studied outspent Democratic groups by 63 percent to 37 percent during 2000 and 2002 and by more than a 3-to-1 ratio in 2002. Moreover, the stealth PACs are highly partisan. Of 27 groups that were active in elections from 2000 to 2003, 22 favored candidates from only one party. Outside of the primaries, no group favored a single party less than 80 percent of the time.
  • Purportedly “grassroots” groups are often funded by just a few big donors. Obtaining previously unpublished data showing the amounts of contributions to the 501(c) groups (but generally not donors’ names), Public Citizen learned of four groups that received more than 98 percent of their contributions in a given year from donors who gave more than $5,000 each.
  • Some stealth PACs appear to be violating their tax status. Although the lack of full disclosure prevents a definitive analysis, Public Citizen’s research raises substantial questions as to whether one third of the 30 groups studied exist primarily to influence elections. Such politically active groups should be ineligible for 501(c) protections from having to disclose the names of their contributors and how they spend their money.
  • PhRMA and the U.S. Chamber of Commerce may have violated IRS reporting requirements by failing to report grants given to stealth PACs in 2002.
  • Most stealth PACs fail to report any electioneering expenditures whatsoever to the IRS, despite documentation of sizable election spending. Of the 26 groups that apparently conducted election activities in 2000 and 2002, only seven reported any such expenditures to the IRS.

“This study only begins to tell the story of these groups’ activities,” said Taylor Lincoln, a senior researcher at Public Citizen’s Congress Watch division and primary author of the new report. “Congress and the IRS need to institute much-needed reforms that shine light into this haven for campaign finance abuses.”

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To view a chart of the New Stealth PACs’ 2004 electioneering activities organized by state, click here.