Order Code RL32954
CRS Report for Congress
Received through the CRS Web
527 Political Organizations:
Legislation in the 109th Congress
June 20, 2005
Joseph E. Cantor
Specialist in American National Government
Government and Finance Division
Erika Lunder
Legislative Attorney
American Law Division
Congressional Research Service ˜ The Library of Congress

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527 Political Organizations:
Legislation in the 109th Congress
Summary
The 109th Congress is examining the role of groups organized under section 527
of the Internal Revenue Code (IRC) that are involved in federal elections, but are not
operating under the requirements and restrictions of federal election law. While such
groups only recently emerged into public awareness, in 2004, they were widely seen
as major players in the presidential election, with more than $400 million spent
seeking to influence the outcome.
Strictly speaking, the term “527" refers to a section of the Internal Revenue
Code, which was added in 1975 to provide tax-exempt status to federal, state, and
local political organizations, as defined in that statute. While most 527s operating
today are also political committees operating under federal and state election law,
certain groups with 527 status are arguably not being so regulated because their
public communications do not contain express advocacy language which had
generally been held to be the standard for election law regulation. The controversy
over these 527 groups arises from two factors: the different definitions used in federal
election law and tax law as to what constitutes election-related activity and, further,
the lack of certainty as to what election law itself regulates or may permissibly
regulate.
Eight bills have been proposed in the 109th Congress to address the 527 issue:
H.R. 471, H.R. 513, H.R. 914, H.R. 1316, H.R. 1942, H.R. 2204, S. 271, and S.
1053. Two of these — S. 1053 (McCain-Feingold-Lott) and H.R. 1316 (Pence-
Wynn) — have been ordered reported by the respective Senate and House
committees. These bills reflect vastly different approaches to the 527 issue and to
campaign finance regulation in general. This report will be updated as further
developments so warrant.

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Contents
109th Congress Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Regulatory Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Deregulatory Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Comparison of the Two Major Approaches . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
527 Reform Act of 2005: S. 1053, H.R. 513, and S. 271 . . . . . . . . . . . . . . 18
Soft money (Non-federal funds) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Hard money (Federal funds) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
527 Fairness Act of 2005: H.R. 1316 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Soft money (Non-federal funds) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Hard money (Federal funds) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Bills to Regulate 527s through Disclosure Requirements . . . . . . . . . . . . . . . . . . 22
H.R. 471 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
H.R. 1942 and H.R. 2204 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Gift tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Copy of report to the FEC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
List of Tables
Table 1. H.R. 1316 (Pence-Wynn), S. 1053 (McCain-Feingold-Lott)
& H.R. 513 (Shays-Meehan) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Table 2. Other Bills to Regulate 527 Organizations . . . . . . . . . . . . . . . . . . . . . . 23

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527 Political Organizations:
Legislation in the 109th Congress
The 109th Congress is examining the role of groups organized under section 527
of the Internal Revenue Code (IRC) that are involved in federal elections, but are not
operating under the requirements and restrictions of federal election law. While such
groups only recently emerged into public awareness, by 2004, they were widely seen
as major players in the presidential election, with more than $400 million spent
seeking to influence the outcome.
Strictly speaking, the term “527" refers to a section of the Internal Revenue
Code, which was added in 1975 to provide tax-exempt status to federal, state, and
local political organizations, as defined in that statute. Until the 1990s, it was
generally thought that such status correlated directly with those groups labeled
political committees operating under federal and state election law. Indeed, political
committees — whether political parties, political action committees (PACs), or
candidate committees — have or are eligible for 527 status under the IRC. What has
made 527 groups the subject of controversy arises from two factors: the different
definitions used in federal election law and tax law as to what constitutes election-
related activity and, further, the lack of uniform opinion as to what election law itself
regulates or may permissibly regulate.
In 2000, it came to light that some groups engaged in federal election-related
issue advocacy were operating under section 527 of the IRC while not being
regulated under the Federal Election Campaign Act (FECA), ostensibly because their
communications with the public did not contain language expressly advocating the
election or defeat of clearly identified candidates. (Prevailing judicial interpretation
of Supreme Court precedent prior to and arguably since enactment of the Bipartisan
Campaign Reform Act of 2002, or BCRA, has created a conundrum by permitting
regulation of only those communications containing express advocacy, that is,
communications containing explicit terms urging the election or defeat of clearly
identified federal candidates.) Because no disclosure was required under either the
tax or election laws before 2000, these groups were shrouded in mystery. Congress
addressed the 527 issue that year by requiring disclosure to the Internal Revenue
Service (IRS), and amended the new requirements in 2002, primarily to exempt state
and local political organizations. Under these disclosure rules, 527 organizations are
required to report to the IRS information that is similar to what political committees
report to the Federal Election Commission (FEC).
But the continued activities of certain 527 organizations heightened concerns
about circumvention of federal election law and the continued role of soft money in
federal elections, even after enactment of BCRA. Title II of BCRA addressed the
express advocacy issue, but only with regard to broadcast advertisements in the
period just prior to federal elections, called “electioneering communications.” BCRA

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was silent regarding interest groups’ involvement in such other election-related
activities as public communications through non-broadcast methods, broadcasts prior
to the last 30 days before a primary or 60 days before a general election, voter
identification, and get-out-the-vote and registration drives. These activities loom
particularly large in the wake of BCRA’s prohibition on national political party use
of non-federally-permissible funds (i.e., soft money) to pay for voter mobilization
activities.
In 2004, 527 groups extended their activities beyond the broadcast messages
containing election-related issue advocacy, for which they had become known in
2000, into grassroots voter mobilization efforts as well. Since the 2004 elections,
public attention has shifted to these new patterns of electioneering, raising questions
as to whether requiring disclosure to the IRS is sufficient.
109th Congress Activity
Eight bills have been proposed in the 109th Congress to address the 527 issue:
H.R. 471, H.R. 513, H.R. 914, H.R. 1316, H.R. 1942, H.R. 2204, S. 271, and S.
1053. In the spring of 2005, the House and Senate committees which oversee federal
election law held hearings and reported two bills with vastly different approaches to
the issue. These bills represent two distinctive schools of thought that have long
framed the debate on laws governing campaign finance. One approach fully favors
the regulation of money and politics, with the imposition of restrictions and
prohibitions justified as being conducive to a less corrupt electoral system or at least
one that can promote greater confidence by the electorate. The opposing view takes
a generally de-regulatory approach, based on the belief that money will always find
its way into politics and that the more one seeks to regulate, the more one contributes
to such unintended consequences as money flowing through less visible, less
accountable channels. These two schools of thought are reflected in the two principal
measures ordered reported by House and Senate committees.
Regulatory Approach
The initial response to the perceived 527 problems came from the sponsors of
the Bipartisan Campaign Reform Act of 2002 (BCRA) — Senators McCain and
Feingold and Representatives Shays and Meehan — who offered identical bills in
September 2004, at the end of the 108th Congress (H.R. 5127 and S. 2828) to require
that 527s involved in federal elections comply fully with federal election law by
adding 527 organizations to the FECA definition of “political committee.” Revised
versions of these bills were offered on February 2, 2005, in the 109th Congress, as the
527 Reform Act of 2005: H.R. 513 and S. 271. Senate sponsors were bolstered by
the addition of Rules and Administration Committee Chairman Trent Lott, who had
opposed BCRA but whose sponsorship of S. 271 appeared to signal a broadening of
support for this aspect of federal election law regulation.
On March 8, 2005, the Senate Rules and Administration Committee held a
hearing on S. 271 (McCain-Feingold-Lott) and on April 27 proceeded to a markup
of the bill. However, while the primary thrust of S. 271 was to apply the full scope

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of federal election law regulation to 527s involved in federal elections (source limits
and prohibitions and disclosure requirements), the bill ordered reported by the Rules
and Administration Committee expanded its focus considerably. Amendments were
added to loosen certain hard money restrictions, to lower broadcast rates, and to free
communications over the Internet from election law regulation. On May 17, an
original bill was reported from the Committee as S. 1053, thus supplanting S. 271,
and placed on the Senate’s legislative calendar.
Deregulatory Approach
On March 15, 2005, Representatives Mike Pence and Albert Wynn introduced
H.R. 1316, the 527 Fairness Act of 2005. Essentially, this bill adopted the converse
approach to the perceived 527 problem as was taken by sponsors of the 527 Reform
Act of 2005, i.e., to loosen restrictions on other players in the political process so that
they could assume a greater role and hence offset the perceived undue role played by
the 527s. By so doing, proponents expect that there would be less of an incentive for
political money to flow to 527 groups operating outside the framework of the FECA.
The House Administration Committee held a hearing April 20, 2005, on H.R.
1316 (Pence-Wynn) and H.R. 513 (Shays-Meehan), the companion to the McCain-
Feingold-Lott bill (and identical to S. 271 as introduced). On June 7, 2005, the
committee voted to report H.R. 1316, as amended by a committee substitute. The
version of H.R. 1316 ordered reported adds new provisions, many of which were
added to S. 1053 in committee before it was reported.
Comparison of the Two Major Approaches
Table 1 offers a comparison of H.R. 1316 (Pence-Wynn), S. 1053 (McCain-
Feingold-Lott), and H.R. 513 (Shays-Meehan), as well as relevant provisions of
current law. This table does not specifically address S. 271 because it has since been
supplanted by S. 1053. However, its provisions are identical to the House bill (H.R.
513) still under consideration in that body.
In order to highlight changes made in committee to the two bills ordered
reported, provisions added by committee are shown in italics. One can readily see
that there is substantial similarity between S. 1053 and H.R. 513 in the non-italicized
text, reflecting some fine-tuning of the substantive provisions of S. 1053 since S. 271
was introduced. One can also see significant similarity in the italicized portions of
S. 1053 and H.R. 1316, reflecting the deregulation provisions added to the Senate bill
in committee and then mirrored in the committee substitute in the House. A fuller
discussion of these proposals follows Table 1.

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Table 1.1 H.R. 1316 (Pence-Wynn), S. 1053 (McCain-Feingold-Lott) & H.R. 513 (Shays-
Meehan)2
H.R. 1316
S. 1053
H.R. 513
Current law
(Pence-Wynn)
(McCain-Feingold-Lott)
(Shays-Meehan)
SOFT MONEY
Political Parties
Generally prohibits state and
Removes voter registration
No provision
No provision
local party committees from
activities in the last 120 days of
spending money not subject to
a federal election from
limitations, prohibitions, and
definition of “federal election
reporting requirements of
activity,” and specifies that
federal election law for a
“federal election activity” does
“federal election activity”
not include either voter
[2 U.S.C. §441i(b)(1)]
registration activity or costs of
sample ballots in elections with
“Federal election activity” is
both federal and state or local
defined to include voter
candidates on the ballot
registration drives in last 120
[original provision modified
days of a federal election; voter
slightly by chairman’s
drives and generic activity in an
amendment]
election in which a federal
candidate is on ballot; “public
This provision would thus allow
communications” that refer to a
soft money to be used by state
clearly identified federal
and local parties for all voter
candidate and promote, support,
registration activities and for
attack, or oppose a candidate for
sample ballots, as specified,
that office; and services by a
subject to FEC allocation rules
state or local party employee
[Sec. 12]
who spends at least 25% of time
on federal elections)
[2 U.S.C. § 431(20)]
1 In Table 1, italicized text indicates provisions added by amendment in committee.
2 H.R. 513 is identical to S. 271, the McCain-Feingold-Lott bill, as originally introduced, but later supplanted by S. 1053.

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H.R. 1316
S. 1053
H.R. 513
Current law
(Pence-Wynn)
(McCain-Feingold-Lott)
(Shays-Meehan)
Notwithstanding prohibition on
Codifies FEC regulation by
No provision
No provision
federal candidates and
stating that federal candidates
officeholders from raising soft
and officeholders may speak
money, such individuals may
without restriction or regulation
attend, speak, or be a featured
at state or local party
guest at state or local party
fundraisers [Sec. 13]
fundraiser
[2 U.S.C. §441i(e)(3)]
FEC regulations state that such
individuals may speak at such
events without restriction or
regulation
[11 C.F.R. §300.64]
If a person makes an
Provides that an electioneering
No provision
No provision
electioneering communication
communication which refers to a
and it is coordinated with
federal candidate shall not be
candidate or his/her authorized
treated as a coordinated
committee, or a federal, state, or
disbursement solely on the
local party committee, or agents
ground that communication
thereof, disbursement is to be
contains an endorsement of a
treated as a contribution to
state or local candidate or ballot
candidate (or his/her party)
initiative or referendum (or if
supported by the communication
communication contains
and as an expenditure by that
endorsement, that candidate
candidate or his/her party
reviewed, approved, or
[2 U.S.C. §441a(a)(7)(C)]
otherwise participated in
communication’s preparation or
dissemination) [Sec. 15]

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H.R. 1316
S. 1053
H.R. 513
Current law
(Pence-Wynn)
(McCain-Feingold-Lott)
(Shays-Meehan)
Tax-exempt Organizations
Defines political committee
No provision
Includes in definition of political
Includes in definition of political
(thus triggering FECA
committee any IRC §527
committee any IRC §527
regulation) as:
organization, unless it:
organization, unless it:
(A) a committee, club,
• has annual gross receipts of
• has annual gross receipts of
association, or other group of
less than $25,000;
less than $25,000,
persons which receives
• is a political committee of a
• is a political committee of a
contributions or makes
state/local party or candidate;
state or local party or candidate;
expenditures aggregating in
• exists solely to pay certain
• exists solely to pay certain
excess of $1,000 during a
admin. expenses or expenses of
administrative expenses or
calendar year;
a qualified newsletter;
expenses of a qualified
(B) a separate segregated fund
• is composed solely of state/ or
newsletter; or
(PAC set up by a union,
local officeholders or candidates
• is exclusively devoted to
corporation, trade assoc., or
whose voter drive activities refer
elections where no federal
membership group); or
only to state/ local candidates
candidate is on ballot, to non-
(C) a local committee of a party
and parties;
federal elections, ballot issues,
which makes contributions or
• is solely involved in voter drive
or to selection of non-elected
expenditures aggregating in
activities, incl. public
officials [Sec. 2]
excess of $1,000 in a calendar
communications devoted to
year, receives contributions
such, but does not engage in
aggregating in excess of $5,000
broadcast communications
in a calendar year, or makes
{Schumer amendment}; or
payments exempted from
• is exclusively devoted to
definition of
elections where no federal
contribution/expenditure in
candidate is on ballot, to non-
excess of $5,000 in a cal. year [2
federal elections, ballot issues,
U.S.C. § 431(4)]
or to selection of non-elected
officials [Sec. 2]

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H.R. 1316
S. 1053
H.R. 513
Current law
(Pence-Wynn)
(McCain-Feingold-Lott)
(Shays-Meehan)
No provision
No provision
Makes last exemption (above)
Makes last two exemptions
inapplicable if the IRC §527
(above) inapplicable if the IRC
organization spends more than
§527 organization spends more
$1,000 for:
than $1,000 for:
• public communications that
• public communications that
promote, support, attack, or
promote, support, attack, or
oppose a clearly identified
oppose a clearly identified
federal candidate within one
federal candidate within one
year of the general election in
year of the general election in
which that candidate seeks
which that candidate is seeking
office; or
office; or
• for any voter drive activity
• for any voter drive effort in
conducted by a group in a
connection with an election in
calendar year, unless:
which a candidate for federal
(1) sponsor confines activity
office is on the ballot
solely to one state;
[Sec. 2]
(2) non-federal candidates are
referred to in all voter drive
activities and no federal
candidate or party is referred to
in any substantive way;
(3) no federal candidate or
officeholder or natl. party
official/agent is involved in
organization’s direction,
funding, or spending; AND
(4) no contributions are made by
the group to federal candidates
[Sec. 2]

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H.R. 1316
S. 1053
H.R. 513
Current law
(Pence-Wynn)
(McCain-Feingold-Lott)
(Shays-Meehan)
FEC regulations that took effect
No provision
Codifies newly effective FEC
Codifies newly effective FEC
Jan. 1, 2005, require PACs
regulations [Sec. 3]
regulations [Sec. 3]
(non-candidate, non-party
political committees) that make
disbursements for voter
mobilization activities or public
communications that affect both
federal and non-federal elections
to generally use at least 50%
hard money from federal
accounts to finance such
activities, but require that public
communications and voter drive
activities that refer to only
federal candidates be financed
with 100% hard money from a
federal account, regardless of
whether communication refers
to a political party
[11 C.F.R. §106.6]

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H.R. 1316
S. 1053
H.R. 513
Current law
(Pence-Wynn)
(McCain-Feingold-Lott)
(Shays-Meehan)
No limits on funding sources for
No provision
Allows contributions to non-
Allows contributions to non-
PACs’ non-federal accounts, but
federal accounts making
federal accounts making
BCRA added a provision to
allocations (above) only by
allocations (above) only by
FECA that imposes some
individuals and subject to limit
individuals and subject to limit
regulation of special non-federal
of $25,000 per year; prohibits
of $25,000 per year; prohibits
accounts of state and local party
fundraising for such accounts by
fundraising for such accounts by
committees which may
national parties and officials and
national parties and officials and
undertake certain “federal
federal candidates and
federal candidates and
election activities” using a mix
officeholders; states that funds
officeholders [Sec. 3]
of federal and non-federal funds.
in such non-federal accounts are
These so-called Levin accounts
not otherwise subject to FECA
operate under several conditions
[Sec. 3]
on the use of these funds and the
raising of money for them,
including that they accept no
more than $10,000 a year (or
less, if state law so limits) from
any person and that they use no
funds that were solicited,
received, directed, transferred,
or spent by or in the name of a
national party, federal candidate
or official, or joint fundraising
activities by two or more state or
local party committees
[2 U.S.C. §441i(b)]
N.A.
No provision
States that this act shall have no
Same as S. 1053 [Sec. 4]
bearing on FEC regulations, on
any definitions of political
organizations in Internal
Revenue Code, or on any
determination of whether a
501(c) tax-exempt organization
may be a political committee
under FECA [Sec. 8]

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H.R. 1316
S. 1053
H.R. 513
Current law
(Pence-Wynn)
(McCain-Feingold-Lott)
(Shays-Meehan)
N.A.
No provision
Provides special expedited
Same as S. 1053 [Sec. 5]
judicial review procedures,
similar to those in BCRA, for a
challenge to the act on
constitutional grounds, and
allows any Member to bring or
intervene in any such case [Sec.
9]
• Bans union, corporate, or natl.
Removes “targeted
No provision
No provision
bank funding of electioneering
communications” exception to
communications (broadcast,
exemption of IRC §501(c)(4)
cable, or satellite ads that refer
and §527 organizations from
to a clearly identified federal
ban on electioneering
candidate, are made within 60
communications by unions and
days of a general election or 30
corporations, thus allowing IRC
days of a primary, and, if for
§501(c)(4) and §527
House or Senate, are “targeted
corporations to make
to relevant electorate”)
electioneering communications
[2 U.S.C. §441b(a), (b)]
with funds donated solely by
•Exempts IRC §501(c)(4) and
individuals who are citizens,
§527 tax-exempt corps. making
nationals, or permanent resident
electioneering communications
aliens
with funds solely donated by
[Sec.10]
individuals who are U.S.
citizens or nationals or
permanent resident aliens
[2 U.S.C. 441b(c)(2)]
• Makes exemption inapplicable
if communication is “targeted
communication,” i.e., was
distributed from a broadcaster or
cable or satellite service and is
received by 50,000 or more
persons in state or district where
Senate or House election,
respectively, is occurring
[2 U.S.C. §441c(6)]

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H.R. 1316
S. 1053
H.R. 513
Current law
(Pence-Wynn)
(McCain-Feingold-Lott)
(Shays-Meehan)
Bans funding of an
Extends same authority granted
No provision
No provision
electioneering communication
to IRC §501(c)(4) organizations
with funds from unions,
with regard to electioneering
corporations, or national banks
communications to IRC
[2 U.S.C. §441b(a), (b)], but
§501(c)(5) and §501(c)(6)
exempts IRC §501(c)(4) or §527
organizations (respectively,
tax-exempt corporations making
labor unions and trade
electioneering communications
associations) [Sec.10]
with funds solely donated by
individuals who are U.S.
citizens or nationals or
permanent resident aliens
[2 U.S.C. §441b(c)(2)]
Provisions in election law
Adds statement that the election
No provision
No provision
relating to electioneering
law provisions do not affect the
communications and tax-exempt
tax treatment of expenditures for
organizations do not authorize
electioneering communications
the organizations to do anything
by tax-exempt organizations
not allowed under the tax code
[Sec. 10]
[2 U.S.C. § 441b(c)(5)]
Bans direct or indirect
Adds to existing ban a
No provision
No provision
contributions from foreign
prohibition against foreign
nationals (including soft
nationals contributing to a 527
money), or their solicitation or
organization [Sec. 8]
receipt, or any promise to make
such donations, in connection
with any U.S. election, to a
national party committee, or for
any expenditure, disbursement,
or independent expenditure for
an “electioneering
communication”
[2 U.S.C. §441e(a)]

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H.R. 1316
S. 1053
H.R. 513
Current law
(Pence-Wynn)
(McCain-Feingold-Lott)
(Shays-Meehan)
IRC generally requires 527s to
Requires 527 organizations
No provision
No provision
make periodic, scheduled
currently required to file reports
disclosure of financial activity to
only with IRS to file reports with
IRS, unless they are PACs, or
FEC as well, in the same
party or candidate committees
manner as is required for PACs
already required to file under
(non-candidate, non-party
FECA. Reporting schedule
political committees) under
mirrors that for political
FECA [Sec. 9]
committees under FECA: (1)
monthly in all years; or (2)
quarterly in election year, as
well as pre-election and post-
general election, and semi-
annually in non-election year
[26 U.S.C. § 527(j)(2)]

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H.R. 1316
S. 1053
H.R. 513
Current law
(Pence-Wynn)
(McCain-Feingold-Lott)
(Shays-Meehan)
HARD MONEY
Individuals
Aggregate limit
Imposes aggregate limit on all
Removes aggregate limit on
No provision
No provision
contributions in a two-year
contributions by individuals
election cycle to federal
[Sec. 2]
candidates, political parties, and
political action committees
(PACs): $101,400, with sub-
limits of $40,000 to candidates
and $61,400 to PACs and parties
(but no more than $40,000 to
PACs and state or local party
committees)3
[2 U.S.C. §441a(a)(3)]
To PACs
Individuals may give up to
Increases limit to $7,500 per
Increases limit to $7,500 per
No provision
$5,000 per year to a PAC (non-
year on contributions to a PAC
year on contributions to a PAC
candidate, non-party political
[Sec. 4]
{Bennett amendment} [Sec. 6]
committee), not indexed for
inflation
Provides for indexing of limit
[2 U.S.C. §441a(a)(1)(C)]
for future inflation [Sec. 5]
To state/local parties
Individuals may give up to
Indexes limit for future inflation
Indexes limit for future inflation
No provision
$10,000 per year to a state party
[Sec. 5]
{Bennett amendment} [Sec. 6]
committee, not indexed for
inflation
[2 U.S.C. §441a(a)(1)(D)]
3 These limits, established by BCRA, reflect the 2005 adjustments for inflation also mandated by BCRA.

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CRS-14
H.R. 1316
S. 1053
H.R. 513
Current law
(Pence-Wynn)
(McCain-Feingold-Lott)
(Shays-Meehan)
Political Parties
National and state party
Removes limit on party
No provision
No provision
committees may make
coordinated expenditures [Sec.
coordinated expenditures on
3]
behalf of their general election
nominees, subject to limits:
House candidate in a multi-
district state — $10,000 plus
COLA; Senate candidate or
at-large House candidate — the
greater of $20,000 plus COLA
or 2¢ per eligible voter plus
COLA; and presidential
candidate — 2 ¢ per eligible
voter plus COLA
[2 U.S.C. §441a(d)]
In 2004, parties could spend
$37,310 in House races in
multiple district states, $74,620
in at-large House races, from
$74,620 to $1.9 million in
Senate races, and $16.2 million
in presidential race. In
congressional races, state parties
may designate national party as
spending agent, thus in effect
doubling House and Senate
limits shown here

---

CRS-15
H.R. 1316
S. 1053
H.R. 513
Current law
(Pence-Wynn)
(McCain-Feingold-Lott)
(Shays-Meehan)
Political Action Committees (PACs)
Multicandidate political
Increases limit to $7,500 per
Increases limit to $7,500 per
No provision
committees4 may contribute
candidate per election
candidate per election, with
$5,000 per candidate per
[Sec. 4)
indexing for future inflation
election, not indexed for
{Bennett amendment}
inflation
Indexes limit for future inflation
[Sec. 6]
[2 U.S.C. §441a(a)(2)(A)]
[Sec. 5]
Multicandidate political
Increases limit to $25,000 per
Increases limit to $25,000 per
No provision
committees may contribute
year on contributions to a
year on contributions to a
$15,000 to a national party
national party [Sec. 4]
national party, with indexing for
committee, not indexed for
future inflation {Bennett
inflation
Indexes limit for future inflation
amendment}
[2 U.S.C. §441a(a)(2)(B)]
[Sec. 5]
[Sec. 6]
Multicandidate political
Increases limit to $7,500 per
Increases limit to $7,500 per
No provision
committees may contribute
year on contributions to another
year on contributions to another
$5,000 per year to any other
committee [Sec. 4]
political committee, with
political committee, not indexed
indexing for future inflation
for inflation [2 U.S.C.
Indexes limit for future inflation
{Bennett amendment} [Sec. 6]
§441a(a)(2)(C)]
[Sec. 5]
Allows unlimited transfers of
Allows unlimited transfers of
Allows unlimited transfers of
No provision
funds from a federal candidate’s
funds between leadership PACs
funds between leadership PACs
campaign to a national, state, or
(those established, financed,
(those established, financed,
local party committee
maintained, or controlled by a
maintained, or controlled by a
[2 U.S.C. §439a(a)]
federal candidate or
federal candidate or
officeholder) and national party
officeholder) and national party
Allows unlimited transfers of
committees [Sec. 6]
committees {Bennett
funds among national, state, and
amendment} [Sec. 6]
local committees of the same
political party
[2 U.S.C. §441a(a)(4)]
4 Most PACs qualify for multicandidate status (have at least 50 contributors, are registered for at least six months, and, except for
a state party, contribute to at least five federal candidates).

---

CRS-16
H.R. 1316
S. 1053
H.R. 513
Current law
(Pence-Wynn)
(McCain-Feingold-Lott)
(Shays-Meehan)
Corporations and unions may
Allows solicitations of restricted
Eliminates twice-a-year limit on
No provision
make up to two written
classes by communications (not
solicitations by unions and
solicitations per year to their
necessarily mail) addressed or
corporations of their restricted
restricted classes (stockholders,
otherwise delivered to their
classes {Bennett amendment}
executive/
residences [Sec. 11]
[Sec. 6]
administrative employees, and
their families for a corporation,
and union members and families
for a labor union) for funds for
their PACs. Solictations must
be by mail addressed to them at
their residence
[2 U.S.C. §441b(b)(4)(B)]
Allows trade associations to
Removes prior approval
Removes prior approval
No provision
solicit member corporations’
requirement and restriction that
requirement and restriction that
restricted classes but requires
only one trade association may
only one trade association may
that they have prior approval by
solicit a corporation’s restricted
solicit a corporation’s restricted
corporation and that no more
classes per year [Sec. 11]
classes per year {Bennett
than one association may solicit
amendment}
such classes in a calendar year
[2 U.S.C. §441b(b)(4)(D)]
OTHER FECA PROVISIONS
Advertising
Broadcasters must sell time to
No provision
• Makes TV, cable, and satellite
No provision
candidates during last 45 days of
LUR broadcast time non-
a primary and 60 days of a
preemptible, with rates based on
general election at lowest unit
comparison with prior 365 days;
rate (LUR) for same class and
• extends such rates to national
amount of time for same period
parties for time on behalf of
[47 U.S.C. §315(b)]
candidates;
• provides for random audits to
insure compliance {Durbin
amendment} [Sec. 4]

---

CRS-17
H.R. 1316
S. 1053
H.R. 513
Current law
(Pence-Wynn)
(McCain-Feingold-Lott)
(Shays-Meehan)
Defines “public
States that communications over
States that communications over
No provision
communication” as a
the Internet shall not be
the Internet shall not be
communication by broadcast,
considered “public
considered “public
satellite, or cable facility,
communications” (hence subject
communications” (hence subject
newspaper, magazine, outdoor
to regulation under FECA)
to regulation under FECA)
advertising facility, mass
[Sec. 14]
{Bennett amendment} [Sec. 5]
mailing, phone bank to general
public, or any other form of
general public political
advertising
[2 U.S.C. §431(22)]
Other
Defines political committee as:
Increases annual contribution
Increases annual contribution
No provision
(A) a committee, club, assoc.,
and expenditure threshold for
and expenditure threshold for
or other group which receives
determining political committee
determining political committee
contributions or makes
status to $10,000 in all instances
status to $10,000 in all instances
expenditures in excess of $1,000
enumerated in definition [Sec.
enumerated in definition
in a year; (B) a separate
7]
{Bennett amendment}
segregated fund; or (C) a local
[Sec. 6]
party committee which makes
contributions or expenditures in
excess of $1,000 in a year,
receives contributions in excess
of $5,000 in a year, or makes
payments exempt from
definition of
contribution/expenditure in
excess of $5,000 in a year
[2 U.S.C. §431(4)]

---

CRS-18
527 Reform Act of 2005: S. 1053, H.R. 513, and S. 271
Soft money (Non-federal funds). The key provision of the 527 Reform
Act of 2005 would add 527 organizations to the FECA definition of “political
committee,” thus subjecting them to the full scope of federal election law regulation:
source limits and prohibitions and disclosure requirements. The bills enumerate
activities which would exempt 527s from FECA regulation, generally those that seek
to affect state and local but not federal elections, as well as activities that would
negate such exemptions, generally ones that could be construed as having some
potential, substantive impact on federal elections. Additionally, the bills would
codify FEC regulations which took effect in January 2005 to require that at least 50%
of PAC spending for activities that benefit federal as well as state and local elections
be from hard money, and that donations to a PAC’s nonfederal account be limited to
$25,000 a year, from individuals only.
These provisions are the heart of all three bills entitled 527 Reform Act,
although the reported Senate bill reflects more fine-tuning to allow a greater range
of activities to avoid triggering regulation under FECA. Most notable of these is
reflected in the Schumer amendment to S. 1053, adopted despite the opposition of
bill sponsors, to allow a 527 group solely engaged in voter mobilization efforts but
no broadcast, cable, or satellite activities to escape from FECA regulation.
The bills thus seek to address the issues raised during the 2004 elections by
highly visible 527 groups, which raised money in amounts and from sources which
would have been prohibited were they regulated under the FECA. In a larger sense,
S. 1053, S. 271, and H.R. 513 attempt to reconcile the different regulatory
approaches of federal election and tax codes as well as different interpretations of
what constitutes election-related activity. Much like the sponsors of BCRA,
proponents of the 527 Reform Act were faced with the basic challenge of trying to
regulate in the area of protected free speech rights, requiring that provisions be
narrowly drawn so as to be easily understood by the regulated community and not be
overly broad and thus impinge on free speech. They also had to contend with the
prospect that by imposing greater regulation directly on 527s, they could provide
incentives for groups to reorganize as other tax-exempt entities to avoid onerous
regulation as 527s. Supporters and opponents of these bills reach very different
conclusions as to the bills’ success in meeting those goals.
Hard money (Federal funds). The bill emerging from the Senate Rules
and Administration Committee contained two amendments unrelated to the 527
issue. The Bennett amendment added several provisions to loosen some FECA hard
money restrictions, particularly affecting PACs. While BCRA had raised
contribution limits on individuals and parties, and provided for indexing for inflation,
money given to and by PACs was not affected. Under the Bennett amendment, such
limits would be raised and amounts indexed for future inflation. Corporations,
unions, and trade associations would be given freer authority to solicit restricted
classes for funds for their PACs, measures long favored by the business PAC
community. Leadership PACs would be given the right to transfer unlimited
amounts of money to a national political party, just as is the case for a candidate’s
principal campaign committee (often applicable to leftover funds of retiring federal
officeholders). Also, the Bennett amendment added language identical to several

---

CRS-19
bills in Congress seeking to exclude communications over the Internet from
regulation under the FECA.5
The Durbin amendment added a provision to lower broadcast costs for
political candidates by changing the way the lowest unit rate (LUR) is calculated,
making time purchased under LUR non-preemptible, and extending the rate to
national political parties buying time on behalf of their candidates. This measure had
been included in the Senate-passed version of BCRA in 2001 but was deleted by the
House before enactment in 2002.
527 Fairness Act of 2005: H.R. 1316
Both as introduced and in the version reported from the House Administration
Committee, H.R. 1316 is overwhelmingly aimed at deregulating both the hard and
soft money aspects of federal election law.
Soft money (Non-federal funds). IRC §501(c)(4) organizations are
generally referred to as “social welfare organizations”; IRC §501(c)(5) organizations
include labor unions; §501(c)(6) organizations include trade associations; and IRC
§527 organizations are political organizations. Under BCRA, IRC §501(c)(4) and
§527 organizations are exempted from the prohibition against corporations paying
for electioneering communications, unless, per the so-called Wellstone amendment,
they are for “targeted communications.” H.R. 1316 would repeal the targeted
communications exception, thus generally allowing incorporated §501(c)(4) and
§527 organizations to engage in electioneering communications. The bill would also
expand the exemption to include IRC §501(c)(5) and §501(c)(6) organizations.
There is no requirement in the tax laws that IRC §501(c)(4), §501(c)(5),
§501(c)(6), and §527 organizations be incorporated. Thus, for any of these
organizations that are not incorporated, the current law that relates to electioneering
communications is inapplicable, and such organizations would not be affected by the
amendments made by H.R. 1316 to those provisions. Most IRC §501(c)(4),
§501(c)(5), and §501(c)(6) organizations are incorporated, but it is rare for IRC §527
organizations to be incorporated.
Current law specifies that the provisions on electioneering communications
do not authorize any IRC §501(c) organization to take actions that are prohibited
under the tax laws. H.R. 1316 would also specify that the electioneering
communications provisions do not affect the tax treatment of expenditures for such
communications by IRC §501(c) organizations. Under the tax laws, if these
organizations make certain political expenditures, then they are subject to tax on the
lesser of their net investment income or the amount of the expenditure. Taxable
political expenditures could include expenditures for electioneering communications.
While this tax may provide a disincentive for organizations with substantial
investment income from making such expenditures, it may not affect organizations
with little or no investment income or those that make low-cost expenditures. H.R.
1316 would clarify that while the bill would allow incorporated IRC §501(c)(4),
5 H.R. 1605 and H.R. 1606 (Hensarling); S. 678 (Reid).

---

CRS-20
§501(c)(5), and §501(c)(6) organizations to make expenditures for electioneering
communications, the organizations could still be taxed on the amount of the
expenditures under the tax laws.
Two provisions added to H.R. 1316 in committee would impose further
regulation of 527 groups. One would prohibit foreign nationals from donating to
527s; the other would require 527s currently reporting only to the IRS to report to the
FEC as well, as though they were federally-registered PACs.

H.R. 1316 also addresses some of the soft money restrictions imposed under
BCRA. Whereas BCRA prohibits state and local parties from spending soft money
for voter registration activities in the last 120 days of a federal election, H.R. 1316
would remove that prohibition and allow state and local parties to spend nonfederal
funds, subject to allocation requirements, for any voter registration activity, as well
as for sample ballots. The bill would also allow federal candidates and officeholders
to endorse and appear in advertisements for state and local candidates without
constituting a coordinated disbursement by the federal candidate or officeholder. It
would also codify an existing FEC regulation that allows federal candidates and
officeholders to speak “without restriction or regulation” at state and local party
fundraisers.
Hard money (Federal funds). In the hard money arena, H.R. 1316 would
provide greater freedom for individuals, political parties, and PACs to influence the
electoral process, within the context of the federal election law’s regulatory system.
As such, it would provide the sources of funds with greater leverage in the hard
money arena, in order to make the less regulated soft money arena less appealing.
Perhaps no provision signals a move toward deregulation more than the
proposed removal of the aggregate limit on individual contributions. As originally
imposed in the 1974 Amendments to FECA, individuals were limited to $25,000 per
year on all contributions to federal candidates, parties, and PACs. BCRA raised the
limit to $95,000 per two-year election cycle (with specified sub-limits) and indexed
it for inflation; in 2005, that limit is $101,400. By removing the aggregate limit, the
bill would allow individual citizens to give substantially more money in two-year
period than they can now, while still subjecting them to the per entity limitations. In
other words, while an individual’s opportunity for influence with a particular
candidate, PAC, or party committee would be constrained as it is now, the
opportunity for an individual to gain greater stature in the political community would
be allowed to rise considerably.
While proponents favorably contrast the prospect of wealthy individuals
giving a considerable sum of regulated hard money with the many millions of dollars
given by some donors to 527 groups in 2004, opponents assert that the move toward
individuals giving much larger sums under federal law sends the wrong message to
the electorate. These opponents note that because BCRA prohibits federal candidates
and officeholders and national party officials from raising soft money, there is far less
chance for corruption when an individual donates large sums to an independent group
than when a policymaker raises large sums from a contributor. Hence, any move
toward substantial increases in hard money limits is particularly troubling to these

---

CRS-21
opponents. Supporters insist that the per entity limitations would remain in place,
thus mitigating concerns about potential for corruption.
The second most notable hard money provision — the removal of party
coordinated expenditure limits — may have less of a practical effect than first
appears to be the case. This form of spending, whereby a party makes expenditures
in coordination with a candidate’s campaign, has been subject to limits since the
1974 FECA Amendments. The limits are relatively high, compared with the limits
on contributions, with typical House candidates eligible for $74,620 in 2004 and a
Senate candidate as much as $3.8 million (in California) that year. Ever since the
Supreme Court ruling in Colorado Republican Federal Campaign Committee v. FEC
(518 U.S. 604 (1996)) which permitted parties to make independent expenditures on
behalf of their candidates, the importance of coordinated expenditures has been
diminished. The prospect of unlimited independent expenditures has been
increasingly appealing to the parties, and it has become common for parties to make
both independent expenditures and coordinated expenditures for the same candidates,
albeit from at least nominally different departments of a party committee. BCRA had
contained a provision to require a party to choose making either independent or
coordinated expenditures for one of its nominees, but not both; this, however, was
one of two BCRA provisions struck down by the Supreme Court in McConnell v.
FEC (549 U.S. 93(2003)).6
Hence, while abolishing the limit on coordinated expenditures would appear
to allow the parties to spend unlimited amounts on behalf of their candidates they
already have that right, albeit through expenditures that are technically made without
any coordination with the favored candidate. In a sense, the removal of these limits
could be seen as acceptance of the current reality. Opponents assert that, like
removing the aggregate individual limit, this provision sends the wrong message to
an electorate cynical about the role of money in politics. They further insist that the
national parties are now playing a significant role, especially in light of increased
hard money limits under BCRA, with a combined fundraising record of nearly $1.5
billion in the 2004 election cycle (all hard money), more than ever had been raised
in combined hard and soft money by the national parties.
Many other hard money provisions in H.R. 1316, either in the introduced
version or as added in committee, correspond with provisions added to S. 1053 in
committee. Provisions that are now in both H.R. 1316 and S. 1053 include: the
higher PAC limits; the indexing of all limits for inflation; the greater freedom given
to unions, corporations, and trade associations to solicit restricted classes for PAC
donations; the unlimited authority given to leadership PACs to transfer funds to
national parties; the increase in the dollar threshold for triggering “political
committee” status; and the removal of Internet communications from regulation
under FECA.
6 For further discussion of the Supreme Court’s ruling in McConnell, see CRS Report
RL32245, Campaign Finance Law: A Legal Analysis of the Supreme Court Ruling in
McConnell v. FEC, by L. Paige Whitaker.

---

CRS-22
Bills to Regulate 527s through Disclosure
Requirements
Four bills in the 109th Congress seek a more limited approach to the 527 issue
than reflected in the bills discussed above. To the extent that what has concerned
many observers about 527 groups’ activity is their lack of accountability relative to
organizations regulated under federal election law, these proposals seek to bolster the
disclosure requirements in the IRC and thus offer voters a greater opportunity to
know about these groups and who finances them.
Table 2 offers a comparison of these four bills — H.R. 471 (Larson), H.R.
914 (English), H.R. 1942 (Shaw), and H.R. 2204 (Shaw) — with each other and with
current law.

---

CRS-23
Table 2. Other Bills to Regulate 527 Organizations
Current law
H.R. 471 (Larson)
H.R. 914 (English)
H.R. 1942 (Shaw)
H.R. 2204 (Shaw)
PERIODIC DISCLOSURE to the INTERNAL REVENUE SERVICE of EXPENDITURES and CONTRIBUTIONS
Timing of Reports to the IRS
IRC §527 organizations
Requires IRC §527 orgs.
Requires IRC §527
Requires IRC §527
Requires IRC §527
that report to the IRS
with at least $25,000 in
organizations to disclose
organizations that
organizations to disclose
may choose to disclose
contributions and/or
on a monthly basis, with
disclose on a semi-
on a monthly basis, with
their expenditures and
expenditures to disclose on
special rules for
annual basis in non-
special rules for pre-
contributions on (1) a
a monthly basis in an
pre-election,
election years to
election, post-election,
monthly basis or (2) a
election year and
post-election, and
disclose on a quarterly
and year-end reports
quarterly basis in an
semiannually in non-
year-end reports
basis in those years.
[Sec. 2]
election year and semi-
election years. Requires
[Sec. 2]
Thus, such
annually in any other
IRC §527 organizations
organizations would
year. There are special
with less than $25,000 in
report on a quarterly
rules for pre-election,
contributions and/or
basis, regardless of
post-election, and year-
expenditures to disclose on
whether it is an election
end reports
a quarterly basis in an
year [Sec 2]
[26 U.S.C. § 527(j)(2)]
election year and on a semi-
annual basis in non-election
years. All organizations
would have special rules
for pre-election and post-
election reports. An
organization may elect to
file monthly reports, with
special rules for pre-
election, post-election, and
year-end reports [Sec. 1]

---

CRS-24
Current law
H.R. 471 (Larson)
H.R. 914 (English)
H.R. 1942 (Shaw)
H.R. 2204 (Shaw)
Penalty Tax for Failure to Meet Disclosure Requirements
IRC §527 organizations
No provision
No provision
Creates new penalty
Same as H.R. 1942 [Sec.
that report to the IRS and
that applies in addition
3]
fail to make the periodic
to existing penalty.
disclosures are subject to
Under the new penalty,
a penalty equal to the
IRC §527 organizations
highest corporate income
that report to the IRS
tax rate multiplied by the
and fail to make the
amount to which the
periodic disclosures are
failure relates
subject to a penalty tax
[26 U.S.C. § 527(j)(1)]
equal to 30% of the
amount to which the
failure relates. The
organization’s
managers are jointly
and severally liable for
the tax [Sec. 3]
Coordination with the FEC
IRC §527 organizations
No provision
No provision
No provision
Requires IRC §527
that report to the IRS are
organizations that report
not required to file copies
to the IRS to
of periodic disclosure
simultaneously file
reports with FEC [26
copies of periodic
U.S.C. § 527(j)(5)(A)]
disclosure reports with
FEC [Sec. 4]
Both the FEC and IRS
Requires the FEC and
No provision
No provision
No provision
are required to maintain
Treasury Department to
public databases that
improve the linkage of their
contain disclosure
databases and report their
reports filed with that
actions to Congress [Sec. 2]
agency
[26 U.S.C. § 527(k);
2 U.S.C. § 438, 438a]

---

CRS-25
Current law
H.R. 471 (Larson)
H.R. 914 (English)
H.R. 1942 (Shaw)
H.R. 2204 (Shaw)
Denial of Gift Tax Exclusion7
Contributions to 527
No provision
No provision
Provides that
Same as H.R. 1942
organizations are not
contributions to 527
[Sec. 3]
subject to the gift tax
organizations that
[26 U.S.C. § 2501(5)]
report to the IRS would
be subject to the gift tax
in any year the
organization fails to
make periodic
disclosures to IRS. The
organization must
notify contributors
within 90 days after
IRS has determined the
failure occurred
[Sec. 3]
7 The reference in H.R. 1942 and H.R. 2204 to IRC § 2501(a)(4) should be to IRC § 2501(a)(5).

---

CRS-26
The four bills in Table 2 affect only IRC §527 organizations that must file
periodic disclosure reports with the IRS. Under current law, IRC §527 organizations
must periodically disclose contributions and expenditures to the IRS unless they (1)
report to the FEC as a political committee, (2) have less than $25,000 in annual gross
receipts, (3) are political committees of a state or local candidate or state or local
committees of a political party, or (4) are qualified state or local political committees
that report similar information to a state.
H.R. 471
H.R. 471 creates special filing rules for IRC §527 organizations that make
expenditures or receive contributions of no more than $25,000 in a year.
Specifically, these organizations would have to file quarterly disclosure reports with
the IRS in an election year and semi-annual reports in any other year. Under existing
law, these organizations may be exempt from the disclosure rules because they have
less than $25,000 in annual gross receipts.8 Since the organizations described in the
bill’s special filing rules and the existing exemption may overlap, it may be unclear
as to how the two provisions would interact.
H.R. 1942 and H.R. 2204
Gift tax. Under the federal gift tax, an individual is taxed on the amount of
gifts made over his or her lifetime. Not all gifts are subject to tax. First, some
transfers are excluded from the gift tax; e.g., contributions to IRC §527 organizations
are not subject to the tax.9 Second, an individual is able to give annually a certain
amount that is free from tax. The annual exclusion amount is $10,000 per donee, and
it is adjusted for inflation ($11,000 in 2005).10 For example, in 2005, an individual
who gave three donees each gifts of $11,001 would have made only $3 in taxable
gifts. Third, an individual is able to give $1 million in taxable gifts during his or her
lifetime without being subject to tax — it is not until that threshold is passed that the
individual is taxed.11 Thus, the individual who made $3 in taxable gifts would only
be currently taxed on that amount if he or she had already given more than $1 million
in taxable gifts over his or her lifetime. Regardless of whether he or she owes tax,
the individual would be required to file a gift tax return reporting the $3 in gifts.
Under H.R. 1942 and H.R. 2204, contributions to IRC §527 organizations
would be taxable gifts An individual would be able to make tax-free donations that
did not exceed the annual exclusion amount ($11,000 in 2005) to an unlimited
number of IRC §527 organizations, subject to the campaign finance laws. Any
contributions that exceeded the annual exclusion amount would be considered a
8 IRC §527(j)(5)(D).
9 IRC §2501(a)(5).
10 IRC §2503(b).
11 IRC §2505(a). The gift tax and estate tax are unified, so that any taxable gifts given by
an individual during his or her lifetime decrease the amount of his or her estate that may
pass tax-free [the estate tax, but not the gift tax, is repealed in 2010; it is scheduled to return
in 2011]. IRC §2102(c)(3)(B).

---

CRS-27
taxable gift, although the individual would not be subject to the gift tax in the current
year unless he or she had already given more than $1 million in lifetime taxable gifts.
Regardless of whether the donor was subject to the gift tax in the current year, the
donor would need to file a gift tax return if he or she had given more than the annual
exclusion amount to any IRC §527 organization.
Copy of report to the FEC. H.R. 1942 and H.R. 2204 would require IRC
§527 organizations to file a copy of their IRS periodic disclosure reports with the
FEC. It would appear that an organization that failed to file the copy would be
subject to the existing penalties that apply for failure to file a report with the FEC12
and that the FEC would need to disclose the copy on its public database.13
12 2 U.S.C. §437g.
13 2 U.S.C. § 438a.

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