Campaign Finance Update Clears Congress

WASHINGTON – Senator Governmental Affairs Committee Chairman Joe Lieberman, D-Conn., Friday announced Senate passage of legislation to improve disclosure of campaign contributions and expenditures by so-called 527, tax-exempt political organizations.

The measure – which improves upon a reform bill passed two years ago – cleared the House earlier in the week. “This is another step toward fully identifying the special interests that try to influence our elections,” Lieberman said. “We have a good compromise here that will grant relief to those who were unfairly penalized under the old law while still requiring maximum disclosure of campaign contributions. I have no doubt passage of this legislation will help hold the line this fall, when soft money donors barred from contributing to the national parties by the McCain-Feingold reform bill will be looking for other outlets for their cash.”

In June 2000, Congress passed the first significant campaign finance reform measure in a quarter century which opened to sunlight the shadowy world in which 527 groups operated. Exploiting a loophole in federal election law, the 527 groups sought tax-exempt status from the IRS by claiming they existed to influence elections, but then avoided election disclosure laws by denying to the Federal Election Commission they were trying to influence elections. The result was a tax exemption for groups influencing campaigns but a lack of disclosure informing voters where the groups’ money came from or went to.

The law enacted in 2000 ended this contradiction by requiring groups to give notice of their intent to claim tax-exempt status; to disclose information about their large contributors and expenditures; and to file annual informational returns along the lines of those filed by virtually all other tax-exempt organizations.

Although the 2000 law has gone a long way to promote clean and open elections, experts also identified needed improvements. Public interest groups reported that additional information needed to be disclosed to understand 527s’ activities and that that information needed to be easily accessible. Concerns also were raised by state and local political organizations about duplicative filings. The bill passed by the Senate addresses these shortcomings by requiring groups to:

  • Provide the dates of contributions they receive and the expenditures they make and explaining the purpose of the expenditure.
  • Provide updated information on themselves if there is any material change in the basic identifying information they filed with the IRS.
  • File disclosures electronically, and the IRS will have to make those reports searchable on, and downloadable from, the Internet.
  • The measure also grants relief from the 527 reform law to a number of organizations that focus on state and local elections and that are regulated by state disclosure laws.
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