[Congressional Record (Bound Edition), Volume 146 (2000), Part 9]
[Senate]
[Pages 12848-12854]
[From the U.S. Government Publishing Office, www.gpo.gov]



                INTERNAL REVENUE CODE OF 1986 AMENDMENT

  The PRESIDING OFFICER. Under the previous order, the clerk will 
report the bill by title.
  The assistant legislative clerk read as follows:

       A bill (H.R. 4762) to amend the Internal Revenue Code of 
     1986 to require 527 organizations to disclose their political 
     activities.

  The Senate proceeded to consider the bill.
  The PRESIDING OFFICER. The Senator from Wisconsin.
  Mr. FEINGOLD. Mr. President, I am extremely pleased we have reached 
an agreement to consider and almost certainly pass H.R. 4762, which 
passed the House last night by an overwhelming vote of 385-39. Tomorrow 
will be a historic day. For the first time since 1979, the Congress is 
going to pass a campaign finance reform bill. The bill we are going to 
pass is by no means a solution to all the problems of our campaign 
finance system, but it is a start--and an important start--because it 
will close the loophole that was opened at the intersection of the tax 
laws and election laws that allows unlimited amounts of completely 
secret contributions to flow into our campaign finance system and 
influence our elections.

[[Page 12849]]

  I yield 3 minutes to the initial leader on this issue, the Senator 
from Connecticut, Mr. Lieberman.
  The PRESIDING OFFICER. The Senator from Connecticut.
  Mr. LIEBERMAN. I thank the Chair, and I thank my friend from 
Wisconsin.
  Mr. President, I rise to express my strong support for this bill, 
which contains nearly identical language to a bill I introduced earlier 
this session and to an amendment Senators McCain, Feingold, and I 
sponsored to the Defense authorization bill. This bill deals with 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 do not 
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.
  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?
  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 pose 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, 
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.
  The bill we are addressing today gives us hope for forestalling the 
conversion of yet another loophole into yet another sinkhole for the 
integrity of our elections. The bill aims 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.
  Opponents of this legislation claim that our proposal infringes on 
their First Amendment rights to free speech

[[Page 12850]]

and association. Nothing in our bills infringes on those cherished 
freedoms in the slightest bit. To begin with, the Supreme Court in 
Buckley versus Valeo made absolutely clear that Congress may require 
organizations whose major purpose is to elect candidates to disclose 
information about their donors and expenditures.
  Even without that opinion, the constitutionality of this bill would 
be clear for an entirely different reason. And that is that this bill 
does not prohibit anyone from speaking, nor does it force any group 
that does not currently have to comply with FECA or disclose 
information about itself to do either of those things. Instead, the 
bill speaks 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 versus 
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 this bill, 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.
  Let me address one final issue: that it is somehow wrong to apply 
this bill to 527s but not to other tax exempt groups. I believe deeply 
in the cleansing tide of disclosure, whether the contributing 
organization involved is a labor union, a business association, a for-
profit company or a tax-exempt organization. For that reason, I worked 
hard with a bipartisan bicameral group of reformers to come up with a 
fair proposal requiring across the board disclosure from all 
organizations that engage in election activity. I thought we had a good 
proposal, but we were unable to get enough support for it to see it 
pass the House at this time. We should continue to work to enact such 
disclosure, but we cannot let that goal stand in the way of passing 
this urgently needed legislation now, because there are real 
differences between 527 organizations and other tax exempts, and these 
differences justify closing the loophole, even if we can't enact 
broader reform.
  First and foremost, section 527 organizations are different because 
they are the only tax-exempts that exist primarily to influence 
elections. That is not my characterization. That is the statutory 
definition. 527s are not lobbying organizations. They are not public-
interest issue organizations. They are not labor organizations or 
business organizations. They are election organizations, plain and 
simple. You can't say the same about the AFL-CIO or the Chamber of 
Commerce, or Handgun Control or the NRA, whose primary purpose is to 
advocate a policy position or to represent specific constituencies. So 
I say to anyone who claims these groups are just like other tax-
exempts, ``Read the tax code.''
  Just as importantly, there is a greater need for improved disclosure 
by 527 organizations than there is for disclosure by other tax exempts. 
When the AFL or the Chamber of Commerce runs an ad, we know exactly who 
is behind it and where their money came from: union member dues in the 
case of the AFL, and business member dues in the case of the Chamber. 
These groups provide the basic information the public needs to evaluate 
the motivation of the messenger. The absolute opposite is the case with 
527s. The public can't know what hidden agenda may lie behind the 
message because so many 527s have unidentifiable names and are funded 
by sources no one knows anything about.
  In the best of all possible worlds, all money supporting election-
related activity would be disclosed. But we should not allow our 
inability to achieve that goal now to stand in the way of closing the 
most egregious abuse of our hard-won campaign laws that we have seen 
during this election cycle. We all agree the American people have an 
absolute right to know the identity of those trying to influence their 
vote. So why let another day go by allowing these self-proclaimed 
election groups to operate in the shadows. Let's work together, across 
party lines, to close the 527 loophole.
  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. On June 8, a bipartisan majority of the Senate said that we 
stand ready to do so when we adopted nearly this precise language as an 
amendment to the Defense authorization bill. An overwhelming majority 
of the House of Representatives did the same when it passed this bill 
on June 28. We cannot retreat from what we have already said we are 
ready to do. We must pass this bill now.
  I am thrilled to support this bill. I pay appropriate tributes to 
Senators McCain and Feingold for their principled and persistent 
leadership of this movement to bring some sanity, openness, limits, and 
control back to our campaign finance laws. I have been honored to work 
with them in the front lines of this effort.
  This is a turning point. The campaign finance laws of America adopted 
after Watergate say very clearly that individuals cannot give more than 
$2,000 to a campaign. Corporations and unions are prohibited by law 
from giving anything. Yet we know that unlimited contributions have 
been given by individuals, corporations, and unions, but at least that 
soft money, if anyone can say anything for it, is fully disclosed.
  In this cycle, we have seen increasing use of the most egregious 
violation of the clear intention of our campaign finance laws: So-
called 527 organizations that not only invite unlimited contributions 
from corporations, unions, and individuals, but keep them a secret.
  Finally, we have come to a point in the abuse of our campaign finance 
laws that Members can no longer defend the indefensible. This is a 
victory for common sense, for our democracy, for the public's right to 
know. It has value in itself. But I hope it will also be a turning 
point that will lead us to further reform of our campaign finance laws.
  I will say this: In the battle that has brought us to the eve of this 
victory--that we will enjoy tomorrow, I am confident--we have put 
together a broad bipartisan, bicameral group committed to cleaning up 
our election laws, our campaign finance laws.
  I hope and believe the debate tonight and the vote tomorrow are the 
beginning of finally returning some limitation, some sanity, some 
disclosure, some public confidence to our campaign finance laws.
  I thank the Chair and thank the leaders in this effort--Senator 
McCain and Senator Feingold--and am proud to walk behind them in this.
  Mr. President, I yield the floor.
  The PRESIDING OFFICER. The Senator from Wisconsin.
  Mr. FEINGOLD. I am delighted to yield 4 minutes to our fearless 
leader on this issue, the Senator from Arizona.
  The PRESIDING OFFICER. The Senator from Arizona.
  Mr. McCAIN. I thank my friend from Wisconsin.
  Mr. President, I am pleased that we are about to pass and send to the 
President the first piece of campaign finance legislation in 21 long 
years. This bill is simple, just, and the right thing to do in order to 
ensure that our electoral system is not further debased.
  My friend from Wisconsin and my friend from Connecticut have 
described the details of the bill. I just want to point out again that 
making these requirements a contingency for certain tax credit status 
ensures that these requirements are clearly constitutional. The 
Constitution guarantees freedom of speech and association, not an 
entitlement to tax-exempt status. Further, because of the simplicity of 
this approach, no vagueness problems will arise and compliance will be 
easy.
  What could be more American? What could be more democratic?

[[Page 12851]]

  Before I go further, I want to take a moment to thank my colleagues 
in arms who fought so hard to bring this issue forward. I thank Senator 
Snowe and Senator Levin for their hard work. I thank my colleagues from 
the House: Congressmen Chris Shays, Marty Meehan, Mike Castle, Lindsey 
Graham, Amo Houghton, and others. Without their courage to stand up and 
demand to do what is right, we would not be here tonight and on the 
verge of the vote tomorrow.
  I especially thank Senators Feingold and Lieberman. Senator Lieberman 
was the author of legislation mandating 527 disclosure. It was his bill 
that served as the basis for this debate. And, of course, I must again 
thank Senator Feingold for all the courage he has shown in fighting for 
reform at any cost. I sincerely appreciate his efforts.
  Just yesterday, the House of Representatives overwhelmingly voted in 
favor of this modest reform by a vote of 385-39. I hope the Senate vote 
will be equally overwhelming.
  Would I have liked to accomplish more? Absolutely. Will I continue 
the fight, along with my good friend from Wisconsin, to enact more 
sweeping reform? I absolutely promise to do so. Will we continue to do 
whatever is necessary to restore the public's confidence in an 
electoral system perceived by many, if not most, to be corrupt? You can 
be assured of it.
  But tomorrow--I say to all those across this great land who want 
reform--will be a great first step. It will, indeed, be a great day for 
democracy and a government accountable to the governed.
  I yield the floor.
  The PRESIDING OFFICER. The Senator from Wisconsin.
  Mr. FEINGOLD. Mr. President, I yield 2 minutes of our time to the 
other co-initiator of this issue, Senator Levin.
  The PRESIDING OFFICER. The Senator from Michigan.
  Mr. LEVIN. Mr. President, first, I commend the real leaders in this 
effort, Senators McCain and Feingold. They have been extraordinary in 
their tenacity. We look forward to their continuing tenacity to close 
two egregious loopholes--the one we are closing through this bill, and 
the other one is the soft money loophole.
  I thank Senator Lieberman for his leadership in terms of the 527 
loophole itself. We are about to take a step on a long journey. It is a 
journey to bring back some limits on campaign contributions. Those 
limits have been destroyed by two loopholes: The soft money loophole 
and the so-called 527 loophole.
  We are about to shed some light, pour some sunshine on the 527 
loophole. And the public will respond, I believe, when they see just 
how egregious this loophole is. When the disclosure required by this 
bill becomes law--as it will--the public will respond to the unlimited 
contributions which are also hidden. That disclosure, I believe, will 
lead to the closure of this loophole. And for that, we commend the 
leaders in this effort.
  It is an ongoing struggle. It can only be said to be successful when 
the soft money loophole is closed, and when the 527 loophole is not 
just brought out into the sunshine but, hopefully, when it shrivels 
away and is closed because the public wants the restoration of limits 
on campaign contributions. They want them disclosed, but they want them 
limited.
  We have taken the important step of disclosure relative to one of 
those loopholes, and for that we have to thank Senators McCain, 
Feingold, and Lieberman. I very much express the gratitude of a 
bipartisan coalition to all of them.
  The PRESIDING OFFICER. The Senator's time has expired.
  The Senator from Kentucky.
  Mr. McCONNELL. Mr. President, I would like to make just a few 
comments about the legislation that is before the Senate.
  First, everyone in the Senate supports disclosure by any group that: 
contributes to a federal candidate, or expressly advocates the election 
or defeat of a federal candidate. And, I might add that currently every 
organization set up under section 527 of the Internal Revenue Code that 
contributes to federal candidates, or expressly advocates the election 
or defeat of a federal candidate does, in fact, publicly disclose their 
contributions and expenditures.
  So, let's be clear: nearly every 527 organization in America publicly 
discloses its donors and its expenditures.
  Second, the narrow legislation before this body would target a 
handful of tax-exempt organizations established under section 527 of 
the tax code that do not make contributions to candidates, or engage in 
express advocacy, and thus, are not required to publicly disclose 
contributors or expenditures.
  Although these 527 groups are small and few, the constitutional 
questions are real. The caselaw demonstrates that there are serious 
questions as to whether the government can require public donor 
disclosure of groups that are not engaging in express advocacy. In 
fact, the Supreme Court has rejected public disclosure of membership 
lists and contributors to issue groups as a violation of the First 
Amendment in landmark cases like Buckley v. Valeo, 424 U.S. 1, 80 
(1976) and NAACP v. Alabama, 357 U.S. 449, 462 (1958). And, less than 
two weeks ago, yet another federal court--the United States Court of 
Appeals for the Second Circuit--struck down an attempt to regulate 
groups that do not engage in express advocacy. I would like to have two 
items printed in the Record that explain in detail the constitutional 
concerns with this legislation. The first item is a letter from the 
American Civil Liberties Union, and the second item is testimony by 
election law expert, James Bopp, Jr., of the James Madison Center for 
Free Speech. Mr. Bopp's testimony from a Senate Rules Committee hearing 
this year cites a long string of court decisions striking down this 
type of regulation over the past quarter century.
  Mr. President, I ask unanimous consent that the material be printed 
in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                               American Civil Liberties Union,

                                     Washington, DC, June 8, 2000.
       Dear Senator: I am writing to communicate the American 
     Civil Liberties Union's opposition to the McCain Amendment 
     No. 3214 concerning disclosure by organizations covered by 
     Section 527 of the Internal Revenue Code.
       The American Civil Liberties Union supports certain methods 
     of disclosure for tax exempt issue organizations and for 
     organizations that engage in express advocacy. However, 
     different methods of disclosure are appropriate for express 
     advocacy groups that are not appropriate for groups that 
     engage in issue advocacy. It is appropriate to require a 527 
     group to provide the Internal Revenue Service (IRS) with the 
     name and address of the organization, the purpose of the 
     organization and other information that is now required of 
     other issue advocacy organizations such as 501(c)(4)s, 
     501(c)(3)s and 501(c)(5)s.
       However, it is certainly inappropriate and unconstitutional 
     to require issue organizations to report donor lists and 
     membership lists to the IRS, as they would be required to do 
     under the McCain Amendment. This is not about protecting 
     secrecy, this is about preserving the rights of all people to 
     express their opinions on issues without requiring them to 
     report to the government in order to do so. By participating 
     in groups that elevate a particular issue, citizens are 
     exercising their much cherished free speech rights. It would 
     greatly chill free expression if the IRS or the Federal 
     Election Commission (FEC) required donor lists of groups that 
     represent unpopular viewpoints, minority viewpoints or views 
     that are highly critical of government policies.


                        this is not a new issue

       Three years after it passed the Federal Election Campaign 
     Act of 1971, Congress amended the Act to require the 
     disclosure to the Federal Election Commission of any group or 
     individual engaged in: any act directed to the public for the 
     purpose of influencing the outcome of an election, or . . . 
     [who] publishes or broadcasts to the public any material 
     referring to a candidate (by name, description, or other 
     reference . . . setting forth the candidate's position on any 
     public issue, [the candidate's] voting record, or other 
     official acts . . . or [is] otherwise designed to influence 
     individuals to cast their votes for or against such 
     candidates or to withhold their votes from such candidates.
       Such issue advocacy groups would have been required to 
     disclose to the FEC in the same manner as a political 
     committee or

[[Page 12852]]

     PAC. They would have to make available every source of funds 
     that were used in accomplishing such acts. This 
     unconstitutional regulatory scheme is the template for the 
     McCain amendment now before you.
       The ACLU challenged this provision of the 1974 amendments 
     as part of the Buckley v. Valeo case. When the challenge came 
     before the US Court of Appeals for the DC Circuit, the law 
     was unanimously struck down because it was vague and imposed 
     an undue burden on groups engaged in activity that is, and 
     should be, protected by the First Amendment. The DC Circuit 
     Court ruling stated: to be sure, any discussion of important 
     public questions can possibly expert some influence on the 
     outcome of an election . . . But unlike contributions and 
     expenditures made solely with a view to influencing the 
     nomination or election of a candidate, issue discussions 
     unwedded to the cause of a particular candidate hardly 
     threaten the purity of the elections. Moreover, and very 
     importantly, such discussions are vital and indispensable to 
     a free society and an informed electorate. Thus the interest 
     group engaging in nonpartisan discussions ascends to a high 
     plane, while the governmental interest in disclosure 
     correspondingly diminishes.
       Because of the Court's unanimous and unambiguous ruling, 
     the FEC did not even attempt to appeal this aspect of the 
     courts ruling concerning issue group regulation disclosure, 
     and that defective section of the Act was allowed to die.
       The ACLU urges members of the Senate to vote against 
     Amendment No. 3214, the McCain Amendment on 527 group 
     disclosure.
           Sincerly,
                                                  Laura W. Murphy,
                                                         Director.

  Testimony of James Bopp, Jr., April 26, 2000, Senate Rules Committee


the reformers' attack on issue advocacy has another front--section 527 
                      of the internal revenue code

       There is another bill that I want to discuss today that is 
     also part of the unrelenting attack on citizens' ability to 
     participate in public discourse. Not content with a frontal 
     assault through the FECA, reformers have turned their 
     attention to the Internal Revenue Code. HR 4168 proposes to 
     amend the Internal Revenue Code of 1986 to require that 
     federal election rules apply to groups formed under Sec. 527 
     of the Internal Revenue Code.
       Before I talk about the specific effects of House 
     Resolution 4168, some clarifying background information about 
     Sec. 527 and the FECA is necessary. Section 527 was added to 
     the Internal Revenue Code in 1974 to resolve long-standing 
     issues relating to inclusion of political contributions in 
     the gross income of candidates. Drafters were concerned that 
     candidates would use their campaign committees to earn 
     investment income free of tax, and so a tax on investment 
     earnings became the major limitation on the exemption 
     available under Sec. 527.
       Section 527 of the Internal Revenue Code provides an 
     exemption from corporate income taxes for political 
     organizations that are organized primarily to intervene in 
     political campaigns. Thus, to qualify for the tax exemption, 
     the organization must be a ``political organization'' that 
     meets both the organizational and operational tests under 
     Sec. 527.
       A ``political organization'' is a party, committee, 
     association, fund, or other organization organized primarily 
     for the purpose of directly or indirectly accepting 
     contributions or making expenditures for an exempt function 
     activity. Section 527(e)(1) of the Code defines the term 
     ``exempt function'' to mean, in relevant part, the function 
     of influencing or attempting to influence the selection, 
     nomination, election, or appointment of any individual to any 
     Federal, State, or local public office or office in a 
     political organization, or the election of Presidential or 
     Vice-Presidential electors, whether or not such individual or 
     electors are selected, nominated, elected or appointed. A 
     ``political organization'' meets the organizational test if 
     its articles of incorporation provide that the primary 
     purpose of the organization is to influence elections. Under 
     the operational test, a ``political organization'' must 
     primarily engage in activities that influence elections but 
     it need not do so exclusively.
       The IRS has issued no precedential guidance in this area, 
     but it has issued private letter rulings which provide an 
     indication of what constitutes evidence of political 
     intervention for purposes of Sec. 527. Activities that are 
     intended to influence, or attempt to influence, the election 
     of individuals to public office may include encouraging 
     support among the general public for certain issues, policies 
     and programs being advocated by candidates and Members of 
     Congress.
       Thus, the IRS has found that expenditures for issue 
     advocacy could qualify as intervention in a political 
     campaign within the meaning of Sec. 527(e)(2). Moreover, the 
     distinction between issue advocacy activities that were 
     educational within the meaning of Sec.  501(c)(3) and issue 
     advocacy activities that were not educational and therefore 
     qualified as Sec. 527(e)(2) expenditures intended to 
     influence the outcome of elections, was not based on major 
     differences in the nature of conduct of the activities. The 
     IRS instead pointed to the targeting of the activities to 
     particular areas, the timing of them to coincide with the 
     election, and the selection of issues based on an agenda. As 
     will be discussed in a moment, these factors have been 
     rejected by the courts as irrelevant to any determination of 
     whether an organization's speech, regardless of its tax 
     status, is express advocacy.
       In a recent private letter ruling to an organization under 
     Sec. 527, made public on June 25, 1999, the IRS determined 
     that a wide range of programs qualified as ``exempt 
     functions'' for a Sec. 527 political organization. The IRS 
     found a political nexus even though some of the materials to 
     be distributed, and techniques to be used, resembled issue 
     advocacy and other materials and techniques often used in the 
     past by charitable organizations without violating section 
     501(c)(3) of the Internal Revenue Code. However, because the 
     materials and techniques were designed to serve a primarily 
     political purpose and would be inextricably linked to the 
     political process, the political nexus was substantiated.
       Of particular interest is the IRS's conclusion that voter 
     education, which may include dissemination of voter guides 
     and voting records, grass roots lobbying messages, telephone 
     banks, public meetings, rallies, media events, and other 
     forms of direct contact with the public, can be apolitical 
     intervention when it links issues with candidates. Whether an 
     organization is participating or intervening, directly or 
     indirectly, in a political campaign, however, depends, in the 
     view of the IRS, upon all of the facts and circumstances. 
     Thus, while voter education may be both factual and 
     educational, the selective content of the material, and the 
     manner in which it is presented, is intended to influence 
     voters to consider particular issues when casting their 
     ballots. This intent was seen by the evident bias on the 
     issues, the selection of issues, the language used in 
     characterizing the issues, and in the format. The targeting 
     and timing of the distribution was aimed at influencing the 
     public's judgment about the positions of candidates on issues 
     at the heart of the organization's legislative agenda. These 
     activities are partisan in the sense that they are intended 
     to increase the election prospects of certain candidates and, 
     therefore, would appear to qualify under Sec. 527(e)(2).
       It is the perceived intersection between the Internal 
     Revenue Code and the FECA that reformers want to regulate. 
     Section 527 organizations must convince the IRS that they are 
     organized and operated for the exempt function of influencing 
     elections as required under Sec.  527(e)(2). However, because 
     the organization is engaged in only issue advocacy and does 
     not make contributions to candidates or engage in express 
     advocacy, the organization is not subject to the FECA. 
     However, H.R. 4168 would treat them as if they engaged in 
     such activities and require them to register as PACs under 
     the FECA.
       However, the Supreme Court has made it clear that an 
     organization cannot be treated as a PAC because it engages in 
     issue advocacy--which was one of the purposes of the express 
     advocacy test in the first place. The Supreme Court, in one 
     of its most oft-quoted footnotes, has provided an 
     illustrative list of which terms could be ``express words of 
     advocacy:'' ``vote for,' `elect,' `support,' `cast your 
     ballot for,' `Smith for Congress,' `vote against,' `defeat,' 
     `reject.' '' Since the Court's ruling in Buckley, district 
     and federal courts of appeal have followed this strict 
     interpretation of the express advocacy test and have struck 
     down any state or federal regulation purporting to regulate 
     based on intent or purpose to influence an election. These 
     courts have unanimously required express words of advocacy in 
     the communication itself before government may regulate such 
     speech.
       Furthermore, the organizations ``major purpose'' must be 
     making contributions and express advocacy communications to 
     be treated as a PAC. The FECA defines a ``political 
     committee'' as ``any committee, club, association, or other 
     group of persons which receives contributions aggregating in 
     excess of $1,000 during a calendar year or which makes 
     expenditures aggregating in excess of $1,000 during a 
     calendar year. In Buckley, the U.S. Supreme Court narrowly 
     construed this definition, holding that under the FECA's 
     definition of political committee, an entity is a political 
     committee only if its major purpose is the nomination or 
     election of a candidate.
       An organization's ``major purpose'' may be evidenced by its 
     public statements of its purpose or by other means, such as 
     its expenditures in cash or in kind to or for the benefit of 
     a particular candidate or candidates. Even if the 
     organization's major purpose is the election of a federal 
     candidate(s), the organization does not become a political 
     committee unless or until it makes expenditures in cash or in 
     kind to support a person who has decided to become a 
     candidate for federal office.
       Recently, the Fourth Circuit found a definition of 
     ``political committee,'' that included both entities that 
     have as a primary or incidental purpose engaging in express 
     advocacy, and those that merely wish to influence an election 
     (engage in issue advocacy), as being overbroad and 
     unconstitutional. The court found that the definition of 
     ``political committee'' could not encompass groups

[[Page 12853]]

     that engage only in issue advocacy and groups that only 
     incidentally engage in express advocacy.
       Thus, only an organization that engages primarily in excess 
     advocacy triggers FECA reporting and disclosure requirements. 
     Issue advocacy in the context of electoral politics does not 
     cause an organization to be deemed a political committee. 
     Merely attempting to influence the result of an election is 
     not enough. This classic form of issue advocacy, influencing 
     an election without express words of advocacy, does not cause 
     an entity to be subject to the reporting and disclosure 
     requirements of political committees under the FECA. Only 
     those expenditures that expressly advocate the election or 
     defeat of a clearly identified candidate do so.
       Thus, it is perfectly consistent that an organization may 
     qualify for exemption under Sec. 527 of the Internal Revenue 
     Code yet not qualify as a PAC under the FECA. Tax law 
     provides for exemption from corporate tax and a shield 
     against disclosure of contributors. Election law mandates 
     PACs to report all their contributors and expenses, subjects 
     them to contribution limits, and prohibits them from 
     receiving corporate or labor union contributions. These 
     burdens on a PAC cannot be constitutionally applied to an 
     issue advocacy organization.
       Therefore, as discussed above, Sec. 527 casts a wider net 
     than does the FECA. The FECA bases its requirements on 
     narrowly defined activities, not on tax status. Thus, 
     activities deemed political by the Internal Revenue Service, 
     for purposes of determining tax exempt status, are not 
     considered ``political'' under the FECA when there is no 
     express advocacy of the election or defeat of a federal 
     candidate.
       With this background of how the provisions of Sec. 527 and 
     the FECA work, it is apparent that the reformers are yet 
     again attempting to regulate citizen participation in the 
     form of protected issue advocacy. As a result of the IRS's 
     amorphous definitions of ``social and welfare activities'' 
     and ``political intervention,'' many Sec. 501(c)(4) 
     organizations are now forced to organize under Sec. 527 for 
     tax purposes. In fact, the Christian Coalition has filed suit 
     against the IRS challenging its overbroad interpretation of 
     what is political intervention which caused it to be denied 
     its Sec. 501(c)(4) exemption.
       House Resolution 4168, however, would require issue 
     advocacy organizations exempt under Sec. 527 to be treated as 
     PACs under the FECA. However, it is unconstitutional to 
     require issue advocacy groups to register as PACs. What the 
     government may not do directly, it may also not do indirectly 
     by bootstrapping onto the Internal Revenue Code a requirement 
     of ``political committee'' registration and reporting 
     requirements. In other words, Congress may not condition a 
     tax exempt status on reporting and disclosure requirements of 
     issue advocacy when it may not constitutionally require in 
     the first instance.
       The fact that issue advocacy groups may engage in 
     activities which influence an election, or even admit that 
     their purpose is to influence an election, is totally 
     irrelevant to the analysis. What is pertinent is whether 
     these groups engage in any express advocacy. The Buckley 
     Court left intact, as constitutionally protected, speech that 
     influences an election.
       To make it clear that speech that only influences an 
     election, but does not contain express words of advocacy, is 
     completely free from regulation, the Supreme court explicitly 
     stated this both positively and negatively. First, the Court 
     stated that ``[s]o long as persons and groups eschew 
     expenditures that in express terms advocate the election or 
     defeat of a clearly identified candidate, they are free to 
     spend as much as they want to promote the candidate and his 
     views. Second, the Court explained that the FECA did ``not 
     reach all partisan discussion for it only requires disclosure 
     of those expenditures that expressly advocate a particular 
     election result.
       Therefore, in order to protect speech, especially speech 
     that may influence an election, the Court drew a bright-line 
     so that the speaker would know exactly when he crossed into 
     regulable territory--the express advocacy realm. Anything on 
     the other side of the line, speech that may influence an 
     election, whether intentionally or not, was to be protected 
     from government regulation so as to promote the free 
     discussion of issues and candidates. Thus, speech free from 
     explicit words of advocacy, whether made with the intent to 
     influence an election or not, is perfectly appropriate and 
     legitimate.
       This is not to say that Congress is completely without 
     power to lawfully regulate Sec. 527 organizations. The Joint 
     Committee on Taxation's recommendation that Sec. 527 
     organizations should be required to disclose tax returns 
     (except for donor information) would create parity between 
     Sec. 527 organizations and Sec. 501(c)(3) and Sec. 501(c)(4) 
     organizations. However, any disclosure that goes beyond the 
     public disclosure of tax returns violates the constitutional 
     protection of issue advocacy.

  Mr. McCONNELL. The Senate has precious few legislative days this year 
to finish the important business of the American people, and there is 
no time for a meaningful debate on campaign finance reform. I think 
that even my colleagues on the other side would concede that there are 
not sixty votes on substantive issues like the antiquated hard money 
limits and the soft money question. In fact, after two weeks of 
discussions, neither the House nor the Senate could cobble together a 
majority for broad and meaningful disclosure.
  But I do commend Senator Gordon Smith for his efforts to find a 
reasonable middle ground. His bill, the Tax-Exempt Political Disclosure 
Act, sought a compromise between the McCain-Lieberman 527-only bill and 
the broad bill reported out of the House Ways and Means Committee that 
went so far as to cover tax-exempt social welfare organizations like 
the AARP, the NAACP, and the Disabled American Veterans.
  The Smith bill targeted the key tax-exempt groups in America: labor 
and business organizations set up under sections 501(c)(5) and (c)(6) 
of the tax code, like the Chamber of Commerce, the Teamsters and the 
National Education Association. Recent news stories underscored the 
need for meaningful disclosure of tax-exempt labor and business 
organizations. Documents reviewed by the Associated Press demonstrate 
that the National Education Association has spent millions of tax-
exempt dollars to influence elections while simultaneously reporting to 
the IRS that the organization has spent no money on political 
activities. This gross reporting disparity has prompted the filing of 
formal complaints with the IRS and the Federal Election Commission 
against the NEA. And, I think we all can agree to the obvious: neither 
the National Education Association nor any labor union will be covered 
or affected in any way by this legislation. They can continue to spend 
millions of dollars on political activity with no meaningful 
disclosure.
  Nevertheless, I have chosen to allow this matter to move forward for 
a vote without offering amendments or extended debate. The Senate needs 
to focus on the important business of the American people and return to 
our first priority of ensuring that all of our appropriation bills are 
passed on time.
  I plan to vote against this legislation because I believe that the 
best and most constitutionally sound solution is to require 527 issue 
advocacy organizations to file public returns with the IRS similar to 
those filed by issue advocacy organizations organized under section 
501(c)(4) of the Internal Revenue Code. Such public returns would 
include, among other things: the name and address of the organization, 
including an electronic mailing address; the purpose of the 
organization; the names and addresses of officers, highly-compensated 
employees, members of its Board of Directors, a contact person and a 
custodian of records; and the name and address of any related entities.
  I also would require the Secretary of the Treasury to make this 
information publicly available on the Internet within 5 business days 
after receiving the information. However, Mr. President, I would not 
cross the constitutional line of requiring that the organizations' 
confidential donor lists be made public.
  Again, Mr. President, I think this is an important debate, but 
respectfully disagree with my colleagues on the constitutional 
propriety of requiring public disclosure of confidential donor lists 
for groups that do not contribute to federal candidates or engage in 
express advocacy.
  With that, I yield back the remaining amount of time.
  The PRESIDING OFFICER. The Senator from Wisconsin.
  Mr. FEINGOLD. Mr. President, the Senator from Kentucky said that 
nearly every 527 publicly discloses their contributors and 
expenditures. I don't know how the Senator from Kentucky can make that 
claim because he doesn't know. No one knows how many 527 organizations 
there are. They currently don't file any reports whatsoever, so we 
can't know that. They currently don't even notify the IRS that they 
exist. That is exactly what this bill will change.
  I now yield 2 minutes to one of our strongest allies on this issue 
and on

[[Page 12854]]

the entire issue of campaign finance reform, the Senator from New York, 
Mr. Schumer.
  The PRESIDING OFFICER. The Senator from New York.
  Mr. SCHUMER. I thank the Senator from Wisconsin for yielding.
  Both to the Senator from Arizona and the Senator from Wisconsin, 
kudos on their exemplary leadership on this issue and the general issue 
of campaign finance reform, as well as my colleagues from Connecticut, 
Michigan, and Maine who have been such reform leaders.
  A Chinese proverb says that a trip of 1,000 miles begins with the 
first step. This is the first step, but we do have 1,000 miles to go. 
It is the first step, and it is a significant one. Until this proposal 
becomes law, organized crime, drug lords, and other various bottom 
crawlers in society unknown to any of us could influence the political 
process by contributing money and running ads that we all know are, for 
all practical purposes, political ads. To have no disclosure, let alone 
no limits, on these kinds of activities puts a dagger in the heart of 
democracy. Sunlight is the disinfectant we need. Sunlight is the 
disinfectant provided by this provision. It does no less; it does no 
more.
  We have many more miles to go. The distinction between hard money and 
soft money, the fact that these days candidates don't have to worry 
about a $1,000 limit because soft money is so prevalent and so 
available and because of, in my judgment, recent misguided Supreme 
Court decisions that allow political parties to do political ads--we 
all know they are political ads; simply because they don't say vote for 
candidate X, they are not classified as political ads--makes our system 
a joke, makes our system a mockery.
  What we are doing here is simply returning to the status quo of a 
year ago before these 527 accounts were founded. We have a very long 
way to go. The only confidence I have is that we do have leaders such 
as the Senator from Arizona and the Senator from Wisconsin to help us 
move forward.
  If we were to rest on our laurels, if we were to think we had now 
cleaned up the system because we passed this legislation, we would be 
sadly mistaken. It is very much need because this is the part of 
campaign finance that remains under a rock with all the worms and 
critters crawling undiscovered. At the same time, we need to go much, 
much further. I will be glad to follow the banner of Senators McCain 
and Feingold to try to help make that a reality.
  I thank the Chair and the Senator from Wisconsin.
  The PRESIDING OFFICER. The Senator from Wisconsin.
  Mr. FEINGOLD. Mr. President, I thank the Senator from New York for 
everything he has done on this matter. I ask the Chair how much time 
remains on our side.
  The PRESIDING OFFICER. Three minutes.
  Mr. FEINGOLD. Mr. President, I ask unanimous consent for an 
additional 5 minutes.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. FEINGOLD. Mr. President, let me note that there is no 
constitutional argument against this bill because these organizations 
receive a tax exemption. The public is entitled to this information in 
exchange for the substantial tax benefit these groups receive. I am so 
pleased this matter will be demonstrated in the courts because this 
bill is going to actually become law.
  I would like to use the remaining time to remind my colleagues and 
the public of the scope of the loophole we are about to get rid of. 
This has been called the ``mother of all loopholes.'' If left 
unchecked, literally millions upon millions of dollars originating from 
foreign governments, foreign companies, and even, theoretically, 
organized crime could be spent in our elections without a single 
solitary bit of reporting and accountability--totally secret money in 
unlimited amounts, and no one would know where the money was coming 
from. It is hard to imagine anything that would be worse for the health 
of our democracy.
  We have a chart here containing, word for word, what is essentially 
an advertisement by one of these groups. It is as plain as day. This 
group solicits contributions from extremely wealthy individuals and 
groups. Contributions, it says, can be given in unlimited amounts. They 
can be from any source. They are not political contributions and are 
not a matter of public record. They are not reported to the FEC, to any 
State agency, or to the IRS.
  Today, we are wiping out what might be the most important part of 
this advertisement, that the contributions are not a matter of public 
record. From now on, these groups will disclose their contribution to 
the IRS. The public will be able to see where their money is coming 
from and understand what is behind the message.
  I do want to mention a number of people who have been central to this 
effort. Of course, my friend and colleague, Senator McCain, deserves a 
huge amount of the credit for putting forward our original amendment to 
the DOD bill and tenaciously continuing to push until it became law. 
Senators Lieberman and Levin developed the original bill on 527s, 
recognizing the huge threat these stealth PACs posed. Their work over 
the past few weeks to make sure we finish the job has been 
extraordinary. Senator Snowe, who has long been concerned about getting 
disclosure of phony issue ads run in the last days before an election, 
was a key supporter, as was Senator Schumer and many others. On the 
House side, Representative Shays, who is in the Chamber now, as well as 
Representatives Meehan, Houghton, Castle, Doggett, and Moore were 
crucial to getting the bill passed there, over the strong opposition of 
the House leadership. I am proud of how we worked in a bipartisan and 
bicameral fashion to get the bill done and close this loophole. This 
effort bodes well for the future of campaign finance reform.
  This is my final point, Mr. President. This is not the end of the 
fight, as we have said. It is just the beginning. Now that we have 
cracked the wall of resistance to any reform at all, I think we are 
ready to move forward on truly cleaning up the corrupt campaign finance 
system. Now that we have disclosure of the unlimited amounts that are 
going to outside groups, I think we are ready to address the unlimited 
contributions from corporations, unions, and wealthy individuals that 
the soft money loophole permits to be given to the political parties.
  Mr. President, I should have also mentioned Senator Jeffords, who is 
present in the Chamber, for his help on this issue.
  I know that many of my colleagues want to clean up this system and 
are willing to work in good faith to find a way that we can do that.
  In the few seconds I have remaining, I thank a number of staff for 
their incredibly hard work and dedication to the campaign finance issue 
and to this 527 disclosure will. We have not had many wins, and they 
are the ones responsible for keeping us in this fight. Mark Buse, Ann 
Choinere, Lloyd Ator of Senator McCain's staff, Laurie Rubenstein of 
Senator Lieberman's staff, Linda Gustitus with Senator Levin, Jane 
Calderwood and John Richter from Senator Snowe's staff, Andrea LaRue 
with Senator Daschle, and Bob Schiff of my own staff worked very long 
hours to make sure that we got to this point, and we appreciate all of 
their efforts and look forward to future victories together.
  I yield the floor.
  The PRESIDING OFFICER. Does the Senator yield back his remaining 
time?
  Mr. FEINGOLD. Yes.
  The PRESIDING OFFICER. The bill is before the Senate and open to 
amendment. If there be no amendment to be proposed, the question is on 
the third reading and passage of the bill.
  The bill (H.R. 4762) was ordered to a third reading and was read the 
third time.

                          ____________________