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Public Citizen Submits Comments to the FEC Calling for Regulation of Section 527 Groups

April 7, 2004

Public Citizen Submits Comments to the FEC Calling for Regulation of Section 527 Groups

FEC Should Expand the Class of Political Committees Subject to Reporting Requirements and Contribution Limits to Include Section 527s But Not 501(c) Non-Profit Groups

WASHINGTON, D.C. – Public Citizen has submitted comments to the Federal Election Commission (FEC) supporting the agency’s proposal to regulate Section 527 electioneering groups under federal campaign finance laws to prevent a flood of “soft money” from special interest groups from flowing into federal elections. Public Citizen also criticized the proposed regulation as too sweeping and urged the agency to narrow its scope so that 501(c) non-profit groups would not be captured under the regulation, since these groups usually are legitimate advocacy organizations.

Public Citizen submitted comments in response to the FEC’s proposed regulation to expand the definition of a “political committee,” which is subject to federal contribution limits, to non-profit groups, which currently are not subject to the limits. Under federal campaign finance laws as amended by the new McCain-Feingold law, political committees are not entitled to use “soft money” – money from corporate or union treasuries or from individuals and PACs in excess of the contribution limits – to pay for electioneering for or against federal candidates. Many electioneering groups have avoided the contribution limits by registering as Section 527 groups under the tax code, rather than as political committees under the election code. Because 527 groups fall outside the campaign finance laws, these groups can raise and spend unlimited soft money, and many are planning on doing exactly that in the 2004 presidential election.

“Section 527 groups, whose primary purpose is to influence elections, should not be exempt from campaign finance laws,” said Joan Claybrook, president of Public Citizen. “It is time to close this gaping hole.”

Public Citizen urged the FEC not to adopt an overly broad definition of political committee that could falsely capture legitimate advocacy organizations, such as 501(c) non-profit groups. Some of the regulatory options being debated by the commission – such as classifying any group that spends more than $50,000 supporting or attacking an officeholder as a committee subject to federal campaign finance laws – are far too sweeping and could endanger the right of citizens and groups to discuss serious political issues and criticize officeholders for their positions on these issues.

“The right of 501(c) advocacy groups to challenge officeholders and candidates on the issues of the day must be protected,” said Craig Holman, legislative representative with Public Citizen’s Congress Watch division.

Public Citizen urged the FEC to act quickly on the proposed regulation so that political players know the rules before the flurry of campaign activity begins this summer. The group recommended that the FEC promulgate this regulation by May of this year or consider delaying its implementation until after the 2004 elections.

Public Citizen’s comments also reflect its strong concerns about protecting the advocacy rights of the non-profit community. It noted that some political operatives abuse the tax code and conceal their primary purpose of electioneering under 501(c) tax status. This abuse is likely to become more common if the FEC does, in fact, close the 527 loophole. As a result, Public Citizen further encouraged the FEC to advise the IRS to enhance its disclosure requirements of 501(c) non-profit groups so total “electioneering expenditures” are distinguished from total “lobbying expenditures.” Currently under the tax code, both types of expenditures are aggregated as “lobbying expenditures,” making it impossible to detect shadow electioneering groups.

Such an improved disclosure system for the non-profit community would not penalize groups with extensive expenditures that praise or criticize candidates and officeholders – the type of advocacy work expressly permitted for 501(c) non-profits. But it would help the IRS flag potential abuses of the tax code by groups primarily seeking the election or defeat of candidates for closer scrutiny under the “facts-and-circumstances” of each individual case.

To read the full comments of Public Citizen regarding political committee status, click here.