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Public Interest Groups Call on the IRS to Lift the Veil of Secrecy Over Political Activities of Non-Profits

Feb. 3, 2003

Public Interest Groups Call on the IRS to Lift the Veil of Secrecy Over Political Activities of Non-Profits

Non-Profit Organizations Are Becoming the New Conduit for Soft Money and Cloaked Electioneering Activities

WASHINGTON, D.C. – Public Citizen, Common Cause, Democracy 21 and the Center for Responsive Politics have joined forces in calling for reforms in the disclosure of electioneering activities by non-profit entities. Responding to a request for public comment by the IRS in amending the disclosure forms for non-profits (particularly, IRS Form 990), the four groups on Jan. 28 recommended a series of changes that would open records about money spent for electioneering activities by 501(c) non-profit organizations to public inspection.

“Non-profit groups are quickly becoming the vehicle of choice for evading the campaign finance law,” said Frank Clemente, director of Public Citizen’s Congress Watch. “Corporations, unions and other groups that want to conceal their involvement in campaigns can do so through a 501(c) non-profit organization.”

Corporations, unions and special interest groups routinely create affiliated 501(c) non-profit groups to lobby or make political expenditures on their behalf. The reporting requirements for these non-profits, however, are very lax. Non-profit groups file annual tax forms in paper form, which are not made available on the Internet and are accessible to the public only upon request in person or in writing. Further, these tax forms (Form 990) divulge very little useful information, making it impossible to determine the extent of a non-profit group’s electioneering activities from the IRS filings alone.

It used to be that Section 527 groups (a “political organization” under the tax code) —popularly known as “stealth PACs” — were the evasion of choice for corporations, unions and special interest groups that wanted to promote or attack candidates while concealing the sources of their funds. Recent changes in the Internal Revenue Code, however, imposed extensive disclosure requirements on Section 527s, even to the point of posting itemized contributions and expenditures on the IRS Web site. This 527 disclosure law, along with the new ban on the use of soft money by federal parties and candidates, has been turning 501(c) non-profit groups into the latest preferred vehicle for evading federal campaign finance laws.

“None of the financial disclosure forms of the major political non-profits groups — like the United Seniors Association and Americans for Job Security — revealed how much they spent on political advertising for and against candidates,” said Craig Holman, legislative representative for Public Citizen. “We know from news accounts and from seeing their television ads on the air that these groups spent millions on electioneering activity in recent elections, but you won’t see that in their IRS financial disclosure reports.”

The public interest groups recommended a series of reforms to the IRS reporting requirements for non-profits that would make a tremendous difference in lifting the veil of secrecy over these shadow groups. These reforms include:

  • Requiring non-profit groups to clearly distinguish on their financial activity forms expenditures made for lobbying and expenditures made for electioneering. Currently, most non-profits combine all these expenses into one total, making it impossible to determine how much was spent on which activity.
  • Requiring that all non-profit groups disclose how they spent their electioneering dollars. Currently, only charities and Section 527s must report a breakdown of political expenditures. Since 501(c) non-profits are the most rapidly expanding vehicle for soft money dollars in politics, all non-profits should report their political activities.
  • Revamping the financial activity forms (Form 990) so that the flow of money between non-profit groups must be disclosed. Now, the financial activity forms provide very little information on transfers of funds between groups.
  • Placing all this information on the IRS Web site so that it is easily accessible to the public and the press. As it now stands, a person must show up in person at the central headquarters of the non-profit group, write to the organization or write to the IRS in Ogden, Utah, to obtain a copy of the non-profit’s annual financial activity reports.

“With the new ban on soft money to the national parties and federal candidates, non-profit groups are going to be playing a larger role in the flow of money into politics,” Holman said. “The public has a right to know who is spending how much money to influence elections. In making a few simple reforms, the IRS could shed some light on these political players.”

To view the groups’ comments to the IRS, click here.