[Congressional Record Volume 146, Number 61 (Wednesday, May 17, 2000)]
[Senate]
[Pages S4110-S4114]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. LIEBERMAN (for himself, Mr. Levin, Mr. Daschle, Mr. 
        McCain, Mr. Jeffords, Mr. Feingold, Mr. Durbin, Mr. Cleland, 
        Mr. Kerry, Mr. Torricelli, Mr. Kennedy, Mr. Akaka, and Mr. 
        Bryan):
  S. 2582. A bill to amend section 527 of the Internal Revenue Code of 
1986 to better define the term political organization; to the Committee 
on Finance.
  S. 2583. A bill to amend the Internal Revenue Code of 1986 to 
increase disclosure for certain political organizations exempt from tax 
under section 527; to the Committee on Finance.


           legislation regarding section 527 of the tax code

  Mr. LIEBERMAN. Mr. President, I rise today to introduce two bills 
aimed at curtailing the newest threat to the integrity of our nation's 
election process: the proliferation of so-called stealth PACs operating 
under Section 527 of the tax code. These groups exploit a recently 
discovered loophole in the tax code that allows organizations seeking 
to influence federal elections to fund their election work with 
undisclosed and unlimited contributions at the same time as they claim 
exemption from both federal taxation and the federal election laws.
  Section 527 of the tax code offers tax exemption to organizations 
primarily involved in election-related activities, like campaign 
committees, party committees and PACs. It defines the type of 
organization it covers as one whose function is, among other things, 
``influencing or attempting to influence the selection, nomination, 
election, or appointment of any individual to any Federal, State, or 
local public office . . . .'' Because the Federal Election Campaign Act 
(``FECA'') uses near identical language to define the entities it 
regulates--organizations that spend or receive money ``for the purpose 
of influencing any election for Federal office''--Section 527 formerly 
had been generally understood to apply only to those organizations that 
register as political committees under, and comply with, FECA, unless 
they focus on State or local activities or do not meet certain other 
specific FECA requirements).
  Nevertheless, a number of groups engaged in what they term issue 
advocacy campaigns and other election-related activity recently began 
arguing that the near identical language of FECA and Section 527 
actually mean two different things. In their view, they can gain 
freedom from taxation by claiming that they are seeking to influence 
the election of individuals to Federal office, but may evade regulation 
under FECA, by asserting that they are not seeking to influence an 
election for Federal office. As a result--because, unlike other tax-
exempt groups like 501(c)(3)s and (c)(4)s, Section 527 groups don't 
even have to publicly disclose their existence--these groups gain both 
the public subsidy of tax exemption and the ability to shield from the 
American public the identity of those spending their money to try to 
influence our elections. Indeed, according to news reports, newly-
formed 527 organizations pushing the agenda of political parties are 
using the ability to mask the identities of their contributors as a 
means of courting wealthy donors seeking anonymity in their efforts to 
influence our elections.
  Because Section 527 organizations are not required to publicly 
disclose their existence, it is impossible to know the precise scope of 
this problem. The IRS's private letter rulings, though, make clear that 
organizations intent on running what they call issue ad campaigns and 
engaging in other election-related activity are free to assert Section 
527 status, and news reports provide specific examples of groups taking 
advantage of these rulings. Roll Call reported the early signs of this 
phenomenon in late 1997, when it published an article on the decision 
of Citizens for Reform and Citizens for the Republic Education Fund, 
two Triad Management Services organizations that ran $2 million issue 
ad campaigns during the 1996 elections, to switch from 501(c)(4) status 
(which imposes limits on a group's political activity) to 527 status 
after the 1996 campaigns. A more recent Roll Call report recounted the 
efforts of a team of GOP lawyers and consultants to shop an 
organization called Citizens for the Republican Congress to donors as a 
way to bankroll up to $35 million in pro-Republican issue ads in the 30 
most competitive House races. And Common Cause's recent report Under 
The Radar: The Attack Of The ``Stealth PACs'' On Our Nation's Elections 
offers details on 527 groups set up by politicians (Congressmen J.C. 
Watts and Tom DeLay), industry groups (the pharmaceutical industry-
funded Citizens for Better Medicare) and ideological groups from all 
sides of the political spectrum (the Wyly Brothers' Republicans for 
Clean Air, Ben & Jerry's Business Leaders for Sensible Priorities and a 
527 set up by the Sierra Club). The advantages conferred by assuming 
the 527 form--the anonymity provided to both the organization and its 
donors, the ability to engage in unlimited political activity without 
losing tax-exempt status, and the exemption from the gift tax imposed 
on very large donors--leave no doubt that these groups will proliferate 
as the November election approaches.

  And none of us should doubt that the proliferation of these groups--
with their potential to serve as secret slush funds for candidates and 
parties, their ability to run difficult-to-trace attack ads, and their 
promise of anonymity to those seeking to spend huge amounts of money to 
influence our elections--poses a real and significant threat to the 
integrity and fairness of our elections. We all know that the identity 
of the messenger has a lot of influence on how we view a message. In 
the case of a campaign, an ad or piece of direct mail attacking one 
candidate or lauding another carries a lot more weight when it is run 
or sent by a group called ``Citizens for Good Government'' or 
``Committee for our Children'' than when a candidate, party or someone 
with a financial stake in the election publicly acknowledges 
sponsorship of the ad or mailing. Without a rule requiring a group 
involved in elections to disclose who is behind it and where the group 
gets its money, the public is deprived of vital information that allows 
it to judge the group's credibility and its message, throwing into 
doubt the very integrity of our elections. With this incredibly 
powerful tool in their hands, can anyone doubt that come November, we 
will see more and more candidates, parties and groups with financial 
interests in the outcome of our elections taking advantage of the 527 
loophole to run more and more attack ads and issue more and more 
negative mailings in the name of groups with innocuous-sounding names?
  But the risk posed by the 527 loophole goes even farther than 
depriving the American people of critical information. I believe that 
it threatens the very heart of our democratic political process. 
Allowing these groups to operate in the shadows poses a real risk of 
corruption and makes it difficult for us to vigilantly guard against 
that risk. The press has reported that a growing number of 527 groups 
have connections to--or even have been set up by--candidates and 
elected officials. Allowing wealthy individuals to give to these 
groups--and allowing elected officials to solicit money for these 
groups--without ever having to disclose their dealings to the public, 
at a minimum,

[[Page S4111]]

leads to an appearance of corruption and sets the conditions that would 
allow actual corruption to thrive. If politicians are allowed to 
continue secretly seeking money--particularly sums of money that exceed 
what the average American makes in a year--there is no telling what 
will be asked for in return.

  In the hopes of forestalling the conversion of yet another loophole 
into yet another sinkhole for the integrity of our elections, I am 
joined today by a distinguished bipartisan coalition in introducing two 
bills addressing the 527 problem. Our first bill--I think of it as our 
aspirational bill--would completely close the Section 527 loophole, by 
making clear that tax exemption under Section 527 is available only to 
organizations regulated under FECA (unless an organization focuses 
exclusively on State or local elections or does not meet certain other 
explicit FECA requirements). If this bill were enacted, groups no 
longer would be able to tell one thing to the IRS to get a tax benefit 
and then deny the same thing to the FEC in order to evade FECA 
regulation.
  Recognizing that a complete closing of the 527 loophole may not be 
possible to achieve this Congress, however, we are offering a narrower 
alternative--a pragmatic bill--aimed at forcing Section 527 
organizations to emerge from the shadows and let the public know who 
they are, where they get their money and how they spend it. The bill 
would require 527 organizations to disclose their existence to the IRS, 
to file publicly available tax returns and to file with the IRS and 
make public reports specifying annual expenditures of at least $500 and 
identifying those who contribute at least $200 annually to the 
organization. Although this won't solve the whole problem, at least it 
will make sure that no group can hide in the shadows as it spends 
millions to influence the way we vote and who we choose to run this 
country.
  No doubt opponents of this legislation will claim that our proposal 
infringes on their First Amendment rights to free speech and 
association. But, Mr. President, nothing in our bills infringes on 
those cherished freedoms in the slightest bit. Our bills do not 
prohibit anyone from speaking, nor do they force any group that does 
not currently have to comply with FECA or disclose information about 
itself to do either of those things. Our bills speak only to what a 
group must do if it wants the public subsidy of tax exemption--
something the Supreme Court has made clear no one has a constitutional 
right to have. As the Court explained in Regan v. Taxation with 
Representation of Washington, 461 U.S. 540, 544, 545, 549 (1983), 
``[b]oth tax exemptions and tax-deductibility are a form of subsidy 
that is administered through the tax system,'' and ``Congressional 
selection of particular entities or persons for entitlement to this 
sort of largesse is obviously a matter of policy and discretion . . .'' 
Under our bills, any group not wanting to disclose information about 
itself or abide by the election laws would be able to continue doing 
whatever it is doing now--it would just have to do so without the 
public subsidy of tax exemption conferred by Section 527.
  Mr. President, we have become so used to our campaign finance 
system's long, slow descent into the muck that it sometimes is hard to 
ignite the kind of outrage that should result when a new loophole 
starts to shred the spirit of yet another law aimed at protecting the 
integrity of our system. But this new 527 loophole should outrage us, 
and we must act to stop it. The bipartisan coalition joining with me 
today is doing just that. I hope all of our colleagues will join us in 
supporting these proposals, and ask unanimous consent that the text of 
both bills be printed in the Record.
  There being no objection, the bills were ordered to be printed in the 
Record, as follows:

                                S. 2582

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. DEFINITION OF POLITICAL ORGANIZATION.

       (a) Definition of Political Organization.--Paragraph (1) of 
     section 527(e) of the Internal Revenue Code of 1986 (relating 
     to political organizations) is amended to read as follows:
       ``(1) Political organization.--
       ``(A) In general.--The term `political organization' means 
     a party, committee, association, fund, or other organization 
     (whether or not incorporated)--
       ``(i) organized and operated primarily for the purpose of 
     directly or indirectly accepting contributions or making 
     expenditures, or both, for an exempt function, and
       ``(ii) which is a political committee described in section 
     301(4) of the Federal Election Campaign Act of 1971 (2 U.S.C. 
     431(4)).
       ``(B) Exceptions.--Subparagraph (A)(ii) shall not apply in 
     the case of--
       ``(i) an organization described in subparagraph (C),
       ``(ii) any committee, club, association, or other group of 
     persons (other than a separate segregated fund established 
     under section 316 of the Federal Election Campaign Act of 
     1971 (2 U.S.C. 441b)) which accepts contributions or makes 
     expenditures (as defined in this subsection) during a 
     calendar year in an aggregate amount of less than $1,000, or
       ``(iii) any local committee of a political party which is 
     not a political committee (as so defined).
       ``(C) Certain organizations.--An organization is described 
     in this subparagraph if--
       ``(i) the activities of the organization are for the 
     primary purpose of influencing or attempting to influence--

       ``(I) the selection, nomination, election, or appointment 
     of any individual to any State or local public office,
       ``(II) the appointment of any individual to any Federal 
     public office, or
       ``(III) the selection, nomination, election, or appointment 
     of any individual to any office in a political organization, 
     and

       ``(ii) the organization does not engage in any activity 
     that is for the purpose of directly or indirectly influencing 
     or attempting to influence the selection, nomination, or 
     election of any individual to any Federal public office or 
     the election of Presidential or Vice Presidential electors.
     The preceding sentence shall apply whether or not an 
     individual described in subclause (I), (II), or (III) of 
     clause (i) or in clause (ii) of such sentence is selected, 
     nominated, elected, or appointed to such office.''.
       (b) Effective Date.--This section and the amendment made by 
     this section take effect on the date that is 30 days after 
     the date of enactment of this Act.
                                  ____


                                S. 2583

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. REQUIRED NOTIFICATION OF SECTION 527 STATUS.

       (a) In General.--Section 527 of the Internal Revenue Code 
     of 1986 (relating to political organizations) is amended by 
     adding at the end the following new subsection:
       ``(i) Organizations Must Notify Secretary That They Are 
     Section 527 Organizations.--
       ``(1) In general.--Except as provided in paragraph (5), an 
     organization shall not be treated as an organization 
     described in this section--
       ``(A) unless it has given notice to the Secretary, 
     electronically and in writing, that it is to be so treated, 
     or
       ``(B) if the notice is given after the time required under 
     paragraph (2), the organization shall not be so treated for 
     any period before such notice is given.
       ``(2) Time to give notice.--The notice required under 
     paragraph (1) shall be transmitted not later than 24 hours 
     after the date on which the organization is established.
       ``(3) Contents of notice.--The notice required under 
     paragraph (1) shall include information regarding--
       ``(A) the name and address of the organization (including 
     any business address, if different) and its electronic 
     mailing address,
       ``(B) the purpose of the organization,
       ``(C) the names and addresses of its officers, highly 
     compensated employees, contact person, custodian of records, 
     and members of its Board of Directors,
       ``(D) the name and address of, and relationship to, any 
     related entities (within the meaning of section 168(h)(4)), 
     and
       ``(E) such other information as the Secretary may require 
     to carry out the internal revenue laws.
       ``(4) Effect of failure.--In the case of an organization 
     failing to meet the requirements of paragraph (1) for any 
     period, the taxable income of such organization shall be 
     computed by taking into account any exempt function income 
     (and any deductions directly connected with the production of 
     such income).
       ``(5) Exceptions.--This subsection shall not apply to any 
     organization--
       ``(A) to which this section applies solely by reason of 
     subsection (f)(1), or
       ``(B) which reasonably anticipates that it will not have 
     gross receipts of $25,000 or more for any taxable year.
       ``(6) Coordination with other requirements.--This 
     subsection shall not apply to any person required (without 
     regard to this subsection) to report under the Federal 
     Election Campaign Act of 1971 (2 U.S.C. 431 et seq.) as a 
     political committee.''.
       (b) Disclosure Requirements.--
       (1) Inspection at internal revenue service offices.--
       (A) In general.--Section 6104(a)(1)(A) of the Internal 
     Revenue Code of 1986 (relating to public inspection of 
     applications) is amended--
       (i) by inserting ``or a political organization is exempt 
     from taxation under section 527 for any taxable year'' after 
     ``taxable year'',

[[Page S4112]]

       (ii) by inserting ``or notice of status filed by the 
     organization under section 527(i)'' before ``, together'',
       (iii) by inserting ``or notice'' after ``such application'' 
     each place it appears,
       (iv) by inserting ``or notice'' after ``any application'',
       (v) by inserting ``for exemption from taxation under 
     section 501(a)'' after ``any organization'' in the last 
     sentence, and
       (vi) by inserting ``or 527'' after ``section 501'' in the 
     heading.
       (B) Conforming amendment.--The heading for section 6104(a) 
     of such Code is amended by inserting ``or notice of status'' 
     before the period.
       (2) Inspection of notice on internet and in person.--
     Section 6104(a) of such Code is amended by adding at the end 
     the following new paragraph:
       ``(3) Information available on internet and in person.--
       ``(A) In general.--The Secretary shall make publicly 
     available, on the Internet and at the offices of the Internal 
     Revenue Service--
       ``(i) a list of all political organizations which file a 
     notice with the Secretary under section 527(i), and
       ``(ii) the name, address, electronic mailing address, 
     custodian of records, and contact person for such 
     organization.
       ``(B) Time to make information available.--The Secretary 
     shall make available the information required under 
     subparagraph (A) not later than 5 business days after the 
     Secretary receives a notice from a political organization 
     under section 527(i).''.
       (3) Inspection by committee of congress.--Section 
     6104(a)(2) of such Code is amended by inserting ``or notice 
     of status of any political organization which is exempt from 
     taxation under section 527 for any taxable year'' after 
     ``taxable year''.
       (4) Public inspection made available by organization.--
     Section 6104(d) of such Code (relating to public inspection 
     of certain annual returns and applications for exemption) is 
     amended--
       (A) by striking ``and Applications for Exemption'' and 
     inserting ``, Applications for Exemption, and Notices of 
     Status'' in the heading,
       (B) by inserting ``or notice of status under section 
     527(i)'' after ``section 501'' and by inserting ``or any 
     notice materials'' after ``materials'' in paragraph 
     (1)(A)(ii),
       (C) by inserting or ``or such notice materials'' after 
     ``materials'' in paragraph (1)(B), and
       (D) by adding at the end the following new paragraph:
       ``(6) Notice materials.--For purposes of paragraph (1), the 
     term `notice materials' means the notice of status filed 
     under section 527(i) and any papers submitted in support of 
     such notice and any letter or other document issued by the 
     Internal Revenue Service with respect to such notice.''.
       (c) Failure to Make Public.--Section 6652(c)(1)(D) of the 
     Internal Revenue Code of 1986 (relating to public inspection 
     of applications for exemption) is amended--
       (1) by inserting ``or notice materials (as defined in such 
     section)'' after ``section)'', and
       (2) by inserting ``and notice of status'' after 
     ``exemption'' in the heading.
       (d) Effective Date.--
       (1) In general.--Except as provided in paragraphs (2) and 
     (3), the amendments made by this section shall take effect on 
     the date of the enactment of this section.
       (2) Organizations already in existence.--In the case of an 
     organization established before the date of the enactment of 
     this section, the time to file the notice under section 
     527(i)(2) of the Internal Revenue Code of 1986, as added by 
     this section, shall be 30 days after the date of the 
     enactment of this section.
       (3) Information availability.--The amendment made by 
     subsection (b)(2) shall take effect on the date that is 45 
     days after the date of the enactment of this section.

     SEC. 2. DISCLOSURES BY POLITICAL ORGANIZATIONS.

       (a) Required Disclosure of 527 Organizations.--Section 527 
     of the Internal Revenue Code of 1986 (relating to political 
     organizations), as amended by section 1(a), is amended by 
     adding at the end the following new section:
       ``(j) Required Disclosure of Expenditures and 
     Contributions.--
       ``(1) Denial of exemption.--An organization shall not be 
     treated as an organization described in this section unless 
     it makes the required disclosures under paragraph (2).
       ``(2) Required disclosure.--A political organization which 
     accepts a contribution, or makes an expenditure, for an 
     exempt function during any calendar year shall file with the 
     Secretary either--
       ``(A)(i) in the case of a calendar year in which a 
     regularly scheduled election is held--
       ``(I) quarterly reports, beginning with the first quarter 
     of the calendar year in which a contribution is accepted or 
     expenditure is made, which shall be filed not later than the 
     15th day after the last day of each calendar quarter, except 
     that the report for the quarter ending on December 31 of such 
     calendar year shall be filed not later than January 31 of the 
     following calendar year,
       ``(II) a pre-election report, which shall be filed not 
     later than the 12th day before (or posted by registered or 
     certified mail not later than the 15th day before) any 
     election with respect to which the organization makes a 
     contribution or expenditure, and which shall be complete as 
     of the 20th day before the election, and
       ``(III) a post-general election report, which shall be 
     filed not later than the 30th day after the general election 
     and which shall be complete as of the 20th day after such 
     general election, and
       ``(ii) in the case of any other calendar year, a report 
     covering the period beginning January 1 and ending June 30, 
     which shall be filed no later than July 31 and a report 
     covering the period beginning July 1 and ending December 31, 
     which shall be filed no later than January 31 of the 
     following calendar year, or
       ``(B) monthly reports for the calendar year, beginning with 
     the first month of the calendar year in which a contribution 
     is accepted or expenditure is made, which shall be filed not 
     later than the 20th day after the last day of the month and 
     shall be complete as if the last day of the month, except 
     that, in lieu of filing the reports otherwise due in November 
     and December of any year in which a regularly scheduled 
     general election is held, a pre-general election report shall 
     be filed in accordance with subparagraph (A)(i)(II), a post-
     general election report shall be filed in accordance with 
     subparagraph (A)(i)(III), and a year end report shall be 
     filed not later than January 31 of the following calendar 
     year.
       ``(3) Contents of report.--A report required under 
     paragraph (2) shall contain the following information:
       ``(A) The amount of each expenditure made to a person if 
     the aggregate amount of expenditures to such person during 
     the calendar year equals or exceeds $500 and the name and 
     address of the person (in the case of an individual, include 
     the occupation and name of employer of such individual).
       ``(B) The name and address (in the case of an individual, 
     include the occupation and name of employer of such 
     individual) of all contributors which contributed an 
     aggregate amount of $200 or more to the organization during 
     the calendar year and the amount of the contribution.
     Any expenditure or contribution disclosed in a previous 
     reporting period is not required to be included in the 
     current reporting period.
       ``(4) Contracts to spend or contribute.--For purposes of 
     this subsection, a person shall be treated as having made an 
     expenditure or contribution if the person has contracted or 
     is otherwise obligated to make the expenditure or 
     contribution.
       ``(5) Coordination with other requirements.--This 
     subsection shall not apply--
       ``(A) to any person required (without regard to this 
     subsection) to report under the Federal Election Campaign Act 
     of 1971 (2 U.S.C. 431 et seq.) as a political committee,
       ``(B) to any State or local committee of a political party 
     or political committee of a State or local candidate,
       ``(C) to any organization which reasonably anticipates that 
     it will not have gross receipts of $25,000 or more for any 
     taxable year,
       ``(D) to any organization to which this section applies 
     solely by reason of subsection (f)(1), or
       ``(E) with respect to any expenditure which is an 
     independent expenditure (as defined in section 301 of such 
     Act).
       ``(6) Election.--For purposes of this subsection, the term 
     `election' means--
       ``(A) a general, special, primary, or runoff election for a 
     Federal office,
       ``(B) a convention or caucus of a political party which has 
     authority to nominate a candidate for Federal office,
       ``(C) a primary election held for the selection of 
     delegates to a national nominating convention of a political 
     party, or
       ``(D) a primary election held for the expression of a 
     preference for the nomination of individuals for election to 
     the office of President.''.
       (b) Public Disclosure of Reports.--
       (1) In general.--Section 6104(d) of the Internal Revenue 
     Code of 1986 (relating to public inspection of certain annual 
     returns and applications for exemption), as amended by 
     section 1(b)(4), is amended--
       (A) by inserting ``Reports,'' after ``Returns,'' in the 
     heading,
       (B) in paragraph (1)(A), by striking ``and'' at the end of 
     clause (i), by inserting ``and'' at the end of clause (ii), 
     and by inserting after clause (ii) the following new clause:
       ``(iii) the reports filed under section 527(j) (relating to 
     required disclosure of expenditures and contributions) by 
     such organization,'', and
       (C) in paragraph (1)(B), by inserting ``, reports,'' after 
     ``return''.
       (2) Disclosure of contributors allowed.--Section 
     6104(d)(3)(A) of such Code (relating to nondisclosure of 
     contributors, etc.) is amended by inserting ``or a political 
     organization exempt from taxation under section 527'' after 
     ``509(a))''.
       (3) Disclosure by internal revenue service.--Section 
     6104(d) of such Code is amended by adding at the end the 
     following new paragraph:
       ``(6) Disclosure of reports by internal revenue service.--
     Any report filed by an organization under section 527(j) 
     (relating to required disclosure of expenditures and 
     contributions) shall be made available to the public at such 
     times and in such places as the Secretary may prescribe.''.
       (c) Failure to Make Public.--Section 6652(c)(1)(C) of the 
     Internal Revenue Code of 1986 (relating to public inspection 
     of annual returns) is amended--
       (1) by inserting ``or report required under section 
     527(j)'' after ``filing)'',
       (2) by inserting ``or report'' after ``1 return'', and

[[Page S4113]]

       (3) by inserting ``and reports'' after ``returns'' in the 
     heading.
       (d) Effective Date.--The amendment made by subsection (a) 
     shall apply to expenditures made and contributions received 
     after the date of enactment of this Act, except that such 
     amendment shall not apply to expenditures made, or 
     contributions received, after such date pursuant to a 
     contract entered into on or before such date.

     SEC. 3. RETURN REQUIREMENTS RELATING TO SECTION 527 
                   ORGANIZATIONS.

       (a) Return Requirements.--
       (1) Organizations required to file.--Section 6012(a)(6) of 
     the Internal Revenue Code of 1986 (relating to political 
     organizations required to make returns of income) is amended 
     by inserting ``or which has gross receipts of $25,000 or more 
     for the taxable year (other than an organization to which 
     section 527 applies solely by reason of subsection (f)(1) of 
     such section)'' after ``taxable year''.
       (2) Information required to be included on return.--Section 
     6033 of such Code (relating to returns by exempt 
     organizations) is amended by redesignating subsection (g) as 
     subsection (h) and inserting after subsection (f) the 
     following new subsection:
       ``(g) Returns Required by Political Organizations.--In the 
     case of a political organization required to file a return 
     under section 6012(a)(6)--
       ``(1) such organization shall file a return--
       ``(A) containing the information required, and complying 
     with the other requirements, under subsection (a)(1) for 
     organizations exempt from taxation under section 501(a), and
       ``(B) containing such other information as the Secretary 
     deems necessary to carry out the provisions of this 
     subsection, and
       ``(2) subsection (a)(2)(B) (relating to discretionary 
     exceptions) shall apply with respect to such return.''.
       (b) Public Disclosure of Returns.--
       (1) Returns made available by secretary.--
       (A) In general.--Section 6104(b) of the Internal Revenue 
     Code of 1986 (relating to inspection of annual information 
     returns) is amended by inserting ``6012(a)(6),'' before 
     ``6033''.
       (B) Contributor information.--Section 6104(b) of such Code 
     is amended by inserting ``or a political organization exempt 
     from taxation under section 527'' after ``509(a)''.
       (2) Returns made available by organizations.--
       (A) In general.--Paragraph (1)(A)(i) of section 6104(d) of 
     such Code (relating to public inspection of certain annual 
     returns, reports, applications for exemption, and notices of 
     status) is amended by inserting ``or section 6012(a)(6) 
     (relating to returns by political organizations)'' after 
     ``organizations)''.
       (B) Conforming amendments.--
       (i) Section 6104(d)(1) of such Code is amended in the 
     matter preceding subparagraph (A) by inserting ``or an 
     organization exempt from taxation under section 527(a)'' 
     after ``501(a)''.
       (ii) Section 6104(d)(2) of such Code is amended by 
     inserting ``or section 6012(a)(6)'' after ``section 6033''.
       (c) Failure to File Return.--Section 6652(c)(1) of the 
     Internal Revenue Code of 1986 (relating to annual returns 
     under section 6033) is amended--
       (1) by inserting ``or section 6012(c)(6) (relating to 
     returns by political organizations)'' after 
     ``organizations)'' in subparagraph (A)(i),
       (2) by inserting ``or section 6012(c)(6)'' after ``section 
     6033'' in subparagraph (A)(ii),
       (3) by inserting ``or section 6012(c)(6)'' after ``section 
     6033'' in the third sentence of subparagraph (A), and
       (4) by inserting ``or 6012(c)(6)'' after ``section 6033'' 
     in the heading.
       (d) Effective Date.--The amendments made by this section 
     shall apply to returns for taxable years beginning after June 
     30, 2000.

  Mr. JEFFORDS. Mr. President, I would first like to thank Senator 
Lieberman for his hard work in focusing the attention of the nation on 
the problems Section 527 organizations are creating in our campaign 
finance system. Today, I join Senator Lieberman and others in 
introducing two legislative vehicles to address the problems these 
organizations are bringing to our already troubled campaign finance 
system.
  Many years ago, James Madison said, ``A popular government without 
popular information is but a prologue to a tragedy or a farce or 
perhaps both. Knowledge will forever govern ignorance and a people who 
mean to be their own governors must arm themselves with the power which 
knowledge gives.''
  In clearer terms, Francis Bacon conveys the same principle in the 
saying, ``Knowledge is Power.''
  Mr. President, most people don't know what a section 527 organization 
is, and that is understandable as it is a highly complex issue. But 
what many people do understand is that our campaign finance system is 
broken and that we must do something to fix it.
  I have long believed in Justice Brandeis' statement that, ``Sunlight 
is said to be the best of disinfectants.'' People deserve to know 
before they step into the voting booth which individuals or 
organizations are sponsoring the advertisements, mailings, and phone 
banks they may see or hear from during an election. We need to shine 
some sunlight on these secretive Section 527 organizations so that 
people will know who or what is trying to influence their vote.
  Mr. President, the passage of either of these important pieces of 
legislation would help arm the people with the knowledge they need in 
order to exercise their civic duty and sustain our popular government.
  We must close the loophole allowing so-called ``Stealth PAC's'' 
organized under Section 527 of the tax code, to hide their donors, 
activities, even their very existence from public view. Doing so would 
be an important first step in helping restore the public's confidence 
in our political system.
  Mr. President, passage of this legislation would be one small step in 
eventually achieving our ultimate goal, which is enactment of 
meaningful campaign finance reform that includes increasing disclosure 
requirements and the banning of soft money. It is time to work 
together. It is time to act. It is time to pass campaign finance 
reform.
  Mr. LEVIN. Mr. President, I am pleased to be joining Senators 
Lieberman, Daschle, McCain, Feingold, and others today in sponsoring 
this legislation to close the Section 527 loophole in our campaign 
finance and tax laws.
  Section 527 of the IRS Code was originally created by Congress in the 
1970's to provide a category of tax exempt organizations for political 
parties and political committees. While contributions to a political 
party or political committee are not tax deductible to the contributor, 
Congress did provide a tax exemption to the political organization for 
the money contributed. At the time Congress established the tax 
exemption, it assumed that since the sole stated purpose of such 
organizations is to influence elections, the organizations would be 
filing a more complete disclosure with the FEC under the campaign 
finance laws and consequently it wasn't necessary to require disclosure 
with the IRS. Once a federal court ruled in 1996 that coverage under 
the federal election laws required advocating the election or defeat of 
a specific candidate and not just seeking to influence the outcome of 
an election, the backbone of disclosure for Section 527 political 
organizations dissolved. Section 527 organizations could get the tax 
exemption for a political organization without having to follow the 
requirements--both the disclosure requirements and the contribution 
limits--of the federal election laws. Thus, an organization can state 
openly to the IRS that it is spending money for the sole purpose of 
influencing an election and get a tax exemption under Section 527, yet 
it can avoid registering with the Federal Election Commission because 
it can argue that its influence is not directed at a specific 
candidate. That's the kind of Alice-in-Wonderland logic we've got with 
this loophole.
  Today we are offering two alternative solutions to the Section 527 
problem. One bill would apply filing requirements to Section 527 
organizations that are required of other tax exemption organizations in 
the Tax Code and add new requirements to disclose contributions to the 
public; the other would require a Section 527 organization to comply 
with the federal election laws, as was originally contemplated when 
Congress created Section 527 in the first place. Given the limited 
number of legislative days remaining, we think it wise to pass, at a 
minimum, the bill requiring disclosure under tax code, although as a 
long-term solution, we favor the bill requiring disclosure and limits 
under the federal campaign laws.
  Mr. President, the Section 527 loophole in our federal campaign laws 
is a bipartisan problem that requires and deserves a bipartisan 
solution. Supporters of both parties have Section 527 organizations. 
This is a loophole in our laws that you can drive not only a truck 
through, but a convoy of trucks. And that's what's happening as we 
speak. Individuals and organizations that want to affect our federal 
elections but don't want to be restricted by our federal election laws 
are making tracks to Section 527 and establishing Section 527 
organizations to run their election ads--without disclosure, without 
contribution limits.
  Now those ads--like other sham issue ads--can't say ``vote for'' or 
``don't

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elect'', but they can go right up to that line and make essentially the 
same point.
  Mr. President, even if a Member of this body doesn't support campaign 
finance reform, he or she can support this legislation, because it is 
about disclosure and it eliminates an unintended consequence of the 
convergence of two laws--the tax laws and the campaign finance laws. 
Congress never intended to allow Section 527 organizations to escape 
both disclosure and campaign finance limits. Yet that's what's happened 
as a result of recent interpretations by the IRS and a U.S. District 
Judge. Our legislation reverses these interpretations and reinstates 
Congressional intent.
  In late January of this year, the staff of the Joint Committee on 
Taxation released a study of the Disclosure Provisions Relating to Tax-
Exempt Organizations. In that study, the bipartisan staff addressed 
Section 527 organizations and the JCT staff recommended: that 527 
organizations be required to ``disclose information relating to their 
activities to the public . . .''; and that 527 organizations ``be 
required to file an annual return even if the organizations do not have 
taxable income and that the annual return should be expanded to include 
more information regarding the activities of the organization.'' 
[Section 527 organizations currently aren't even required to file a tax 
return.]
  The JCT report said, ``This recommendation is consistent with the 
recommendation that all tax returns relating to tax-exempt 
organizations should be disclosable.''
  As the 2000 campaign evolves and we get closer to November, the 
American public is going to be seeing the consequences--the real life 
consequences of this loophole in our campaign finance laws. Candidates 
from both parties are going to be hit with ads by groups with names 
that sound like responsible civic organizations but which in reality 
are nothing more than well financed political opponents. But the damage 
from such ads will be incurred well before a candidate can even catch 
his or her breath much the less make any headway in identifying the 
source of the money behind the ads. That's why we need this legislation 
now.
                                 ______