[Congressional Record Volume 148, Number 137 (Thursday, October 17, 2002)]
[Senate]
[Pages S10779-S10781]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




       AMENDING SECTION 527 OF THE INTERNAL REVENUE CODE OF 1986

  Mr. REID. Mr. President, I ask unanimous consent that the Senate 
immediately proceed to the consideration of H.R. 5596.
  The PRESIDING OFFICER. The clerk will state the bill by title.
  The legislative clerk read as follows:

       A bill (H.R. 5596) to amend section 527 of the Internal 
     Revenue Code of 1986 to eliminate notification and return 
     requirements for State and local party committees and 
     candidate committees and avoid duplicate reporting by certain 
     State and local political committees of information required 
     to be reported and made publicly available under State law, 
     and for other purposes.

  There being no objection, the Senate proceeded to consider the bill.
  Mr. LIEBERMAN. Mr. President, I am very pleased that the Senate today 
is passing H.R. 5596, a compromise bill aimed at improving disclosure 
by Section 527 political organizations and relieving certain 527 
organizations from arguably duplicative filing requirements. I want to 
thank my colleague, Senator Hutchison, as well as our colleagues in the 
House, for working steadfastly with us to draft this bill in a manner 
that achieves its purpose, but does not open any loopholes in the 
original section 527 reform law.
  In June 2000, Congress passed the first significant campaign finance 
reform measure in a quarter of a century. The so-called Section 527 
reform bill dealt with a truly troubling development, one whereby 
organizations that received tax-exempt status by telling the IRS that 
they exist to influence elections denied the very same thing to the 
FEC.As a result, these self-proclaimed election organizations engaged 
in election activity without complying with any aspect of the election 
laws, influencing our elections without the American public having any 
idea who--or what--was behind them.
  The 527 reform law enacted in 200 put a stop to that, by requiring 
organizations claiming tax-exempt status under Section 527 of the 
Internal Revenue Code to do three things: (1) give notice of their 
intent to claim that status; (2) disclose information about their large 
contributors and their big expenditures; and (3) file annual 
informational returns along the lines of those filed by virtually all 
other tax-exempt organizations.
  During the approximately two years that the 527 reform law has been 
in effect, that law has blasted sunshine onto the previously shadowy 
operations of a multitude of election-related organizations. Through 
the filings Section 527 now mandates, the American public has learned a 
great deal about who is financing many of these organizations and how 
these organizations are spending their money. As outlined in report 
issued earlier this year by the group Public Citizen, the 527 reform 
law brought us the knowledge that 25 of the largest 527s raised over 
$67 million between July 2000 and December 2001, and that they spent it 
on a plethora of campaign activities--most significantly those pre-
election issue ads that we all know so well and that are often 
indistinguishable from candidate ads. We've also learned from these IRS 
filings the specifics about who was trying to influence particular 
elections and where their money came from. Were it not for the 527 
disclosure law, we probably wouldn't have any of this information, and 
we probably would have had a lot more shadowy groups operating in the 
election system--ones that slithered away on their own because they 
didn't want to face the disinfectant of sunshine.
  These filings will become all the more important come this November, 
when the Bipartisan Campaign Reform Act--the McCain-Feingold bill--goes 
into effect. As we all know, at least some of the soft money donors who 
will no longer be able to give to political parties will be looking for 
other ways to influence our elections. Donations to 527 groups will 
probably top many of their lists, because these are the only tax-exempt 
groups that can do as much election work as they want without 
jeopardizing their tax status. With the

[[Page S10780]]

potential for all this new money coming in, it is critical that we have 
a healthy 527 disclosure regime in place.
  Although the 2000 law has been a tremendous boon in the fight for 
clean and open elections, the 527 disclosure regime does have some 
problems. Public interest groups that use the disclosure reports tell 
us that those reports lack important information needed to understand 
527s' activities, and, more importantly, that the reports are hard to 
access and analyze. A new report by the nonpartisan Campaign Finance 
Institute's blue ribbon Task Force on Disclosure, for example, 
concludes that ``there is a serious lack of meaningful web disclosure'' 
by the IRS of 527 group activities, and calls upon Congress to mandate 
a fully searchable database and electronic filing. Put simply, the 
public needs more information to be reported and it needs the IRS to 
provide better access to it.
  Just as importantly, concerns have been raised about the law's impact 
on State and local political organizations that already fully disclose 
to the public all of the activities covered by the 527 reform law. When 
we first enacted the 527 reform law, we made clear that we believed 
that 527 organizations, as a condition of receiving the federal benefit 
of tax exemption, owed the public disclosure of certain information 
about themselves and their activities. A number of State and local 
political organization have now convinced us that they already disclose 
that information on the State level, thereby already serving the law's 
purpose, and that there is no reason to require them to report the same 
information again to the IRS.
  The bill we are considering today seeks to comprehensively address 
all these problems. First, it makes important and necessary 
improvements to the reporting and disclosure requirements, to enable 
the public to have better access to more information. For example, 
organizations will have to provide more information about the 
contributions they receive and the expenditures they make--providing 
the dates of both them, as well as the purpose of their expenditures. 
The added requirement to state the purpose of an expenditure will be 
particularly helpful in allowing the public to see whose money is 
supporting particular candidates. I hope that in implementing this 
provision, the IRS makes clear that organizations should state the 
purposes of expenditures with specificity, including whether particular 
expenditures are in support of, or opposition to, particular 
candidates, as well as the name and office sought by any such 
candidates. The bill we are considering today also requires 527s to 
provide updated information on themselves if there is any material 
change in the basic identifying information they filed with the IRS. 
This important change will make sure that the public can at all times 
locate these groups and know who is running them.

  At the same time, as we are improving the nature of the filings, we 
are also mandating better disclosure of them. From here forward, all 
527 filing reports on their contributors and expenditures will have to 
do so electronically, and the IRS will have to make those reports 
searchable on, and downloadable from, the Internet. This will vastly 
improve the public's access to information about, and understanding of, 
527 organizations and their activities.
  The second major feature of this bill is its elimination of arguably 
duplicative reporting requirements. In particular, it 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.
  First, the bill fully exempts from its mandates State and local 
candidate and party committees. Under the reform law, these committees 
must notify the IRS of their intent to claim Section 527 status, and 
they have to file annual information returns if they have over $25,000 
in gross receipts. They do not, however, have to file contribution and 
expenditure reports. Since the reform law went into effect, we have 
become convinced that the burden imposed on these committees by the two 
relevant disclosure mandates outweigh the public purpose served by 
requiring them to comply with these mandates.
  By exempting them from the contribution and expenditures reporting 
requirements that lie at the heart of the Section 527 law's disclosure 
regime, the original reform law recognized that State and local 
candidate and party committees do not generally pose the threats the 
527 law intended to address. In contract to other political committees, 
there is never any doubt as to who is running these committees or whose 
agenda they aim to promote. Just as importantly, State laws regulate 
and require disclosure from all of these committees.
  Different considerations apply to the case of so-called State and 
local PACs. The bill grants more limited relief to a carefully defined 
set of these groups. In granting this relief, we have walked a very 
fine line. On one hand, we want to recognize the fact that every State 
requires disclosure from political committees involved in that State's 
elections and that many State and local PACs covered by the 527 reform 
law therefore are already disclosing the information the 527 law seeks. 
On the other hand, we still believe that there is a strong public 
interest in knowing how the federal tax-exemption under Section 527 is 
being used by these organizations, and we most decidedly do not want to 
exempt from the law's disclosure requirements any State or local PAC 
that does not otherwise publicly disclose all of its activities.
  To exempt a State or local PAC merely it claims that it is involved 
only in State elections and files information about some of its 
activities with a State agency would risk creating a massive loophole 
that could undermine the 527 reform law. That is because just as prior 
to the passage of the 527 reform law, some 527 groups were claiming 
that they were trying to influence elections for the purposes of the 
tax code, but not for the purposes of the election laws, a broad 
exemption for State or local PACs could lead some groups to claim that 
they are influencing State elections for the purposes of Section 527 
but not for the purposes of the State disclosure laws.
  So, we have reached the following compromise. First, we are not 
exempting any of these organizations from the Section 527(i) 
requirement to notify the IRS of the intention to claim Section 527 
status. Unlike candidate and party committees, it is not always clear 
to the public who is behind these groups or what their purposes are, 
making the information filed in these notices important sources of 
otherwise unavailable information. Moreover, because we are not 
completely exempting these groups from the law's other disclosure 
requirements, the notice requirement will be critical in helping the 
IRS and outside groups monitor compliance with the law's other 
mandates. In light of that, we believe the minimal effort required to 
file the 527(i) notice is worth the tremendous value of giving the 
public some basic information about these groups.
  Second, we are granting an exemption from the Section 527(j) 
contribution and expenditure reporting requirements to some of these 
organizations, but only if they can meet certain strict requirements. 
The group's so-called exempt function activity must focus exclusively 
on State or local elections; a group that engages in even the smallest 
amount of activity related to a federal election will not be entitled 
to this exemption. The group also must file with a State agency 
information on every contribution and expenditure it would otherwise be 
required to disclose to the IRS. This requirement ensures that 
Congress' conditioning of tax exemption on complete and full disclosure 
is not compromised.
  In addition, these State filings must be pursuant to a State law that 
requires these groups to file the State reports; this requirement seeks 
to prevent organizations from hiding truly federal activity by 
voluntarily reporting to a State where reports may not be as readily 
accessible as are federal reports. Moreover, no group will be able to 
take advantage of this exemption if the State reports its files are not 
publically available both from the State agency with which the report 
is filed and from the group itself. Finally, this exemption also is not 
available to any organization in which a candidate for federal office 
or someone who holds elected federal office plays a role--whether 
through helping to run the organization, soliciting money for the 
organization or deciding how the organization spends its money. I 
should note here that the use of the word ``solicit''

[[Page S10781]]

in this case is meant broadly; if a federal candidate or office holder 
suggests that money be given to a committee or directs it there in 
anyway, then federal disclosure is mandated.
  In short, this bill exempts from Section 527(j)'s contribution and 
expenditure reporting obligations only those groups that truly and 
legitimately engage in exclusively State and local activity and only 
when they already report to their State on all of the information the 
527 law seeks. This latter condition is important not just because it 
precludes the hiding of federal activity, but also because we believe 
that even those groups involved in exclusively State and local 
elections should face some disclosure requirement if they are to take 
the federal benefit of tax exemption under Section 527.
  Finally, the bill makes a small change to these State and local 
groups' obligation to file an annual information return when they do 
not have taxable income. Under the current law, they must file such 
returns when they have $25,000 in annual receipts; the bill increases 
that trigger to $100,000. Like all other 527 organizations, though, 
they still will have to file such returns if they have taxable income.
  To help walk my colleagues through this bill, I am attaching at the 
end of my statement a section-by-section of the bill and ask unanimous 
consent that it be printed in the Record after my statement.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  (See exhibit 1.)
  Mr. LIEBERMAN. Again, let me thank Senator Hutchison in particular 
for her efforts on this bill. I believe we have worked out a good 
compromise, one that grants relief where it is warranted, but does not 
in any way threaten to open up a loophole in the law. I thank her for 
that, and I yield the floor.

                               Exhibit 1


                           SECTION-BY-SECTION

       Section 1 exempts State and local candidate and party 
     committees from the requirement to notify the IRS of their 
     Section 527 status (Form 8871) and makes that exemption 
     retroactive to the date of the 2000 law's enactment.
       Section 2 exempts qualified State or local PACs from the 
     requirement to file reports with the IRS detailing their 
     contributions and expenditures (Form 8872). It defines a 
     qualified State or local political organization as one which: 
     (a) focuses solely on State or local elections; (b) reports 
     and discloses information about all of its sizable 
     contributions and expenditures under State law; and (c) does 
     not have a federal candidate or elective office holder 
     playing any material role in the organization or raising 
     money for it. The provision makes clear that an otherwise 
     qualified exempt State or local PAC does not lose its 
     exemption simply because there are certain variations between 
     State and federal law with respect to reporting of 
     contributor and expenditure information.
       Sections 3(a)-(b) repeal certain changes the 2000 law made 
     to the requirements governing the filing of tax returns (Form 
     1120) by political organizations. Although political 
     organizations are exempt from taxation on most of their 
     income (such as contributions), certain income may be subject 
     to federal tax. Prior to the 2000 law, only Section 527 
     groups with taxable income had to file the Form 1120. The 
     2000 law required most 527s to file the form, whether or not 
     they had taxable income. Section 3(a) restores the pre-2000 
     law and puts 527s on a similar footing to other tax-exempt 
     organizations with respect to the 1120 Form by requiring 
     filing of the form only if the organization has taxable 
     income. Section 3(b) restores the pre-2000 law by making 
     clear that the tax returns of 527s with taxable income are 
     confidential.
       Section 3(c) exempts a number of organizations from the 
     requirement to file the Form 990 annual information return. 
     Exempt groups will now include State or local candidate and 
     party committees, associations of State or local officials 
     and groups filing with the FEC. The section also provides 
     that qualified State and local PACs must file the 990 only if 
     they have at least $100,000 in annual gross receipts (other 
     non-exempt groups must file the 990 if they have at least 
     $25,000 in annual gross receipts). Finally, the section 
     directs the Treasury Secretary to adapt the 990 form, which 
     was not developed for political organizations, to seek 
     information relevant to the activities of Section 527 
     organizations.
       Section 4 directs the Treasury Department to work with the 
     FEC to publicize the 527 law's reporting requirements.
       Section 5 authorizes the Treasury Secretary to waive 
     amounts imposed for failing to file 8871 notices or 8872 
     reports if he concludes that the failure to file was due to 
     reasonable cause and not willful neglect.
       Sections 6(a), (b) and (d) modify existing law regarding 
     noncompliance. Section 6(a) provides that organizations that 
     fail to notify the IRS of their intent to claim Section 527 
     status will have all of their so-called exempt-function 
     income subject to taxation, regardless of whether that income 
     was segregated for use for an exempt function. Section 6(b) 
     provides that the procedures used for collecting amounts 
     imposed for failing to comply with the 8872 contributor/
     expenditure reporting requirement are akin to those used to 
     collect penalties from tax-exempt organizations that fail to 
     file the form 990 (this section affects the process of 
     collection, not the amount collected). Section 6(d) makes 
     clear that the tax code's existing criminal fraud penalties 
     for anyone who willfully furnishes information to the IRS he 
     knows is false or fraudulent also applies to 8871 and 8872 
     filings.
       Sections 6(c), (e), (f) and (g) make changes to certain 
     disclosure requirements. Section 6(c) streamlines the 8871 
     notice requirement by eliminating the need to file the notice 
     in writing; only electronic reporting of the notice will 
     remain. Section 6(c)(1) adds the date and purpose of 
     expenditures and the date of contributions as required 
     information on the Form 8872. Section 6(e)(2) mandates 
     electronic filing of the 8872 contributor/expenditure 
     reports, and Section 6(e)(3) requires that the IRS make 
     information in those reports available to and searchable by 
     the public on the Internet and downloadable to personal 
     computers. Section 6(f) amends the 8871 notice to require 
     filers to note whether they intend to claim an exemption from 
     the 8872 contribution/expenditure reporting requirement or 
     the form 990 annual return requirement. Finally, Section 6(g) 
     requires organizations to file amended 8871 notices within 30 
     days of any material change of the information on the 
     previous 8871.
       Section 7 provides that forms already filed and made public 
     by the IRS under current law will remain public after this 
     bill becomes law. This provision is needed because many of 
     the bill's exemptions are retroactive, and without Section 7, 
     the IRS could be found in violation of taxpayer 
     confidentiality rules for posting filings that were public 
     under the original law but will no longer be public after 
     this bill's enactment.

  Mr. REID. Mr. President, I ask unanimous consent that the bill be 
read the third time and passed, the motion to reconsider be laid upon 
the table, and that any statements related thereto be printed in the 
Record.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The bill (H.R. 5596) was read the third time and passed.

                          ____________________