527 Information (boring as all get out Alert)

[TheRovingGourmet]

A brief yet interesting (in a dull way) definition and history of 527 organizations can be found here:


http://www.brookings.org/gs/cf/headlines/527_intro.htm

I. Introduction

A political organization under the Internal Revenue Code (26 U.S.C. § 527) is defined as a party, committee, association, fund, or other organization (whether or not incorporated) organized and operated primarily for the purpose of directly or indirectly accepting contributions or making expenditures, or both, for an exempt function. Id. The "exempt function" of a "political organization" is defined as "influencing or attempting to influence the selection, nomination, election or appointment of an individual to a federal, state, or local public office or office in a political organization. . . ." § 527(e)(2).

II. Brief History of 527 Political Organizations

Section 527 was added to the Internal Revenue Code ("Code") in 1974 to provide an exemption from federal income tax and gift tax to "political organizations." In creating Section 527, Congress reasoned that campaigns, party committees, and PACs should not pay taxes on funds contributed to such political entities and used for political purposes. Presumably because these political organizations already registered and reported their contributions and expenditures to the Federal Election Commission ("FEC") or state agencies, Congress created no special registration and disclosure provisions for Section 527 political organizations at the Internal Revenue Service ("IRS"). In fact, the only report they were required to file with the IRS was a (confidential) tax return.

In 1996, the IRS was asked whether an "issue advocacy" organization that was not registered as a candidate committee, party committee, or PAC could qualify for Section 527 "political organization" tax exempt status if its principle purpose was to influence elections. In several private letter rulings, the IRS said that groups seeking to influence elections through candidate-specific issue advertising would qualify as political organizations, regardless of whether they were registered with the FEC or state election agencies. The IRS reasoned that Congress intended Section 527 of the tax code to cover all political entities, whether or not their activities also fell within federal or state election law. The IRS also apparently was motivated by a desire to have election-influencing activities done by Section 527 groups, rather than by Section 501(c)(4) organizations.

The problem with this approach became all too apparent in the 1998 election cycle and the 2000 presidential primaries: advertising that attacked specific candidates (but avoided using "magic" words such as "vote for" or "oppose") from new Section 527 political organizations with generic names like "Americans for Better Government" flooded elections. These groups (frequently called "Stealth PACs") often had no apparent existence beyond a registered agent and a post office box and filed no registration statements. Accordingly, their officers and contributors (and often even motives) were a mystery.

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For a look at 527 organizations from a tax standpoint and presented in a non-technical way can be found here:

http://www.irs.gov/pub/irs-drop/rr-04-6.pdf


26 CFR 1.527-2: Definitions.
(Also § 501.)
Rev. Rul. 2004-6
Organizations that are exempt from federal income tax under § 501(a) as organizations described in § 501(c)(4), § 501(c)(5), or § 501(c)(6) may, consistent with their exempt purpose, publicly advocate positions on public policy issues. This advocacy may include lobbying for legislation consistent with these positions. Because public policy advocacy may involve discussion of the positions of public officials who are also candidates for public office, a public
policy advocacy communication may constitute an exempt function within the meaning of § 527(e)(2). If so, the organization would be subject to tax under § 527(f).

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Doing a search using the following will provide lots more info.


26 C.F.R. §§ 1.527-2(a)(2)-(3)

[TheRovingGourmet]

1. Okay, it wasn't that dull.

[TheRovingGourmet]

2. More good information here:

From: The Exempt Organization Tax Review
http://www.campaignlegalcenter.org/attachment.html/Fran+Tax+Notes+Article+for+Posting.pdf?id=1209

Why do exempt organizations prefer regulation by the Service under the code and attempt to use tax law as the basis for a claim that FECA should not apply to them? The planning strategy becomes apparent if one compares the two compliance systems. The most important differences between FECA and the code is that FECA reporting and enforcement are geared to the timing of federal elections, while tax reporting and enforcement are geared to the appropriate taxable year without regard to the timing of federal elections. To argue that only the code should apply to the election activities of organizations exempt from federal income tax means that all reporting and enforcement activities will occur after the relevant federal election. To argue that FECA also applies means that reporting and enforcement will be conducted on a timetable that protect the purposes of FECA. There are other important differences as well. Tax exempt organizations are not subject under the code to disclosure of their contributors or their expenditures, with the exception of the disclosure requirements enacted in 2000 and applying to certain section 527 organizations that do not report to the FEC. Exempt organizations are subject to no limitations on the identity of contributors or the amount of contributions, contrary to the limitations imposed on contributors and contributions under FECA. The Service has no formal complaint process akin to that available under FECA, and no third party has standing to challenge the exempt status of an exempt organization. All tax audits of exempt organizations are confidential, while the adjudicatory actions of the FEC are conducted in public. If an entity wishes to choose a statute and an agency to oversee its electoral campaign activities, the code administered by the Service offers distinct advantages. The consequence of these differences in the two statutes is that money can be collected and deployed by an exempt organization subject only to the code for the same activities that are regulated as to disclosure, source, and amount if collected and spent by a political committee. Failure to bring all organizations that engage in the same activities under FECA means that the FEC yet again will facilitate the creation of multiple forms of political money with no statutory basis just as it did in creating soft money. Money collected by those section 527 organizations that do not report to the FEC is, under tax law, "semi hard" money subject only to disclosure but not subject to limitation on the identity of contributors or the amount of the contribution. Money collected by section 501(c) organizations is "softer money" that is not subject to disclosure of any kind. Perhaps one could call money collected by section 501(c)(3) public charities "the softest money" because the contributors qualify for a charitable contribution deduction./162/ The argument must be
that FECA provides no place for such money in federal elections and the FEC has no more authority to create semi-
hard money or softer money than it had to create soft money in the 1970s. The code cannot be used to circumvent
FECA.

Exemption is a tax status, not a claim of privilege on either Constitutional or statutory grounds. Exemption is not a
safe-harbor from FECA. To the extent that the FEC regulations on electioneering communications suggest that section
501(c)(3) status is such a safe- harbor, they are misguided and should be corrected./163/