Order Code RL32954
527 Political Organizations:
Legislation in the 109th Congress
Updated January 24, 2007
Joseph E. Cantor
Specialist in American National Government
Government and Finance Division
Erika Lunder
Legislative Attorney
American Law Division

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527 Political Organizations:
Legislation in the 109th Congress
Summary
The 109th Congress examined 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. Although
such groups only recently emerged into public awareness, in 2004, they were widely
seen as major players in the presidential election, with some $435 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. Although 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.
Ten bills were 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, H.R. 4696, H.R. 4975,
S. 271, and S. 1053. Three of these — S. 1053 (McCain-Feingold-Lott), H.R. 1316
(Pence-Wynn), and H.R. 513 (Shays-Meehan) — were reported by Senate and House
committees. The Shays-Meehan language was also included in H.R. 4975 (Dreier),
the House Republican leadership’s lobby and ethics reform bill. These bills reflected
vastly different approaches to 527s and to campaign finance regulation in general.
On April 5, 2006, the House passed H.R. 513 (Shays-Meehan), as amended, by
a 218-209 vote. The bill, the 527 Reform Act of 2006, would subject 527 political
organizations involved in federal elections to regulation under the Federal Election
Campaign Act (FECA). It included an amendment added on the House floor, to
remove political party coordinated expenditure limits.
On May 3, 2006, the House passed H.R. 4975 (Dreier), the Lobbying
Accountability and Transparency Act of 2006, which included the text of H.R. 513,
as passed, plus an amendment to prohibit leadership PAC funds from being
converted to personal use but to allow them to be transferred without limit to national
party committees. After passing H.R. 4975, the House substituted it for the text of
S. 2349, the Senate-passed version of the bill, to enable a conference with the Senate.
The Senate-passed bill did not contain the 527 provisions, and the Senate resisted
considering 527s in the context of ethics reform. This conflict between the House
and Senate kept the issue from being resolved in the 109th Congress.
This report will be not be updated as it reflects the full extent of legislation and
activity in the 109th Congress.

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Contents
109th Congress Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Regulatory Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Deregulatory Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Comparison of the Two Major Approaches . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Regulatory Bills: 527 Reform Act (S. 1053, H.R. 513, H.R. 4975, S. 271)
and Restoring Trust in Government Act (H.R. 4696) . . . . . . . . . . . . . 20
Soft Money (Non-Federal Funds) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Hard money (Federal funds) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Deregulatory Bill: 527 Fairness Act of 2005 (H.R. 1316) . . . . . . . . . . . . . . 21
Soft money (Non-federal funds) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Hard money (Federal funds) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Bills to Regulate 527s through Disclosure Requirements . . . . . . . . . . . . . . . . . . 24
Gift Tax Provisions in H.R. 1942 and H.R. 2204 . . . . . . . . . . . . . . . . . . . . 29
List of Tables
Table 1. H.R. 1316 (Pence-Wynn), S. 1053 (McCain-Feingold-Lott),
and H.R. 513 (Shays-Meehan)/H.R. 4975 (Dreier) . . . . . . . . . . . . . . . . . . . . 5
Table 2. Other Bills to Regulate 527 Organizations . . . . . . . . . . . . . . . . . . . . . . 26

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527 Political Organizations:
Legislation in the 109th Congress
The 109th Congress examined 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 some $435 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 BCRA’s enactment. 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 non-broadcast public communications, 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
Ten bills were 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, H.R. 4696, H.R. 4975,
S. 271, and S. 1053. In 2005, the House and Senate committees which oversee
federal election law held hearings and reported three bills with vastly different
approaches to the issue. These bills (and H.R. 4975) represented two distinctive
schools of thought that have long framed the debate on laws governing campaign
finance. One approach fully favored 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 took 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 were reflected in the three principal measures 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, 2005,
an original bill was reported from the Committee as S. 1053, thus supplanting S. 271,
and placed on the Senate’s legislative calendar.
On June 29, 2005, the House Administration Committee held a markup of H.R.
513 (Shays-Meehan) and ordered it reported, as amended to reflect the sponsors’
changes, without recommendation.1 This set the stage for a House floor debate on
the two contrasting measures: H.R. 1316, reported favorably by the Committee a few
weeks earlier (see below), and H.R. 513.
On March 16, 2006, the House Republican leadership’s lobby and ethics reform
bill (H.R. 4975) was introduced by Representative David Dreier. The bill, the 527
Reform Act of 2006, incorporated the language of H.R. 513 (Shays-Meehan), as
reported by the House Administration Committee, to subject 527 political
organizations involved in federal elections to FECA regulation. (The bill also
included one provision unrelated to 527s, to remove the political party coordinated
expenditure limits in 2 U.S.C. §441a(d).)
One additional bill, offered in the second session, reflected a limited regulatory
approach. H.R. 4696 (Rogers) would prohibit 527 organizations that are not also
political committees under the FECA from making electioneering communications,
the most visible, but hardly the only, form of election-related issue advocacy.
On April 5, 2006, the House passed H.R. 513 (Shays-Meehan), as amended, by
a 218-209 vote. The bill, the 527 Reform Act of 2006, would subject 527 political
organizations involved in federal elections to regulation under the Federal Election
Campaign Act (FECA). The one amendment added on the House floor, to remove
political party coordinated expenditure limits, mirrored the provision included in
H.R. 4975 and H.R. 1316.
The text of H.R. 513, as passed, was also added to H.R. 4975, the Lobbying
Accountability and Transparency Act of 2006, which passed the House on May 3,
2006; it also included an amendment added by the House Rules Committee to
prohibit leadership PAC funds from being converted to personal use but to allow
them to be transferred without limit to national party committees (as is the case with
funds in principal campaign committees). After passing H.R. 4975, the House
substituted it for the text of S. 2349, the Senate-passed version of the bill, to enable
a conference with the Senate. The Senate-passed bill did not contain the 527
provisions, and the Senate resisted considering 527s in the context of ethics reform.
1 U.S. Congress, House Committee on House Administration, 527 Reform Act of 2005,
report to accompany H.R. 513, 109th Cong., 1st sess., H.Rept. 109-181 (Washington: GPO,
2005).

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This conflict between the House and Senate kept the issue from being resolved in the
109th Congress.
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 expected 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, H.R. 1316, as
amended by a committee substitute, was ordered favorably reported.2 The reported
version added new provisions, many of which had been 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 passed/H.R. 4975 (Dreier), 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. In order to highlight changes made
in committee to the bills, provisions added in committee are shown in italics. One
can readily see that there is substantial similarity between S. 1053 and H.R. 513/H.R.
4975 in the non-italicized text, reflecting only 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 bill. A fuller discussion of these proposals
follows Table 1.
2 U.S. Congress, House Committee on House Administration, 527 Fairness Act of 2005,
report to accompany H.R. 1316, 109th Cong., 1st sess., H.Rept. 109-146 (Washington: GPO,
2005).

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Table 1. H.R. 1316 (Pence-Wynn), S. 1053 (McCain-Feingold-Lott),
and H.R. 513 (Shays-Meehan)/H.R. 4975 (Dreier)
H.R. 1316
S. 1053
H.R. 513a (Shays-Meehan), as passed/
Current law
(Pence-Wynn)
(McCain-Feingold-Lott)
H.R. 4975 (Dreier), as passed *
SOFT MONEY
Political Parties
Generally prohibits state and local party
Removes voter registration activities in
No provision
No provision
committees from spending money not
the last 120 days of a federal election
subject to limitations, prohibitions, and
from definition of “federal election
reporting requirements of federal election
activity,” and specifies that “federal
law for a “federal election activity”
election activity” does not include either
[2 U.S.C. §441i(b)(1)]
voter registration activity or costs of
sample ballots in elections with both
“Federal election activity” is defined to
federal and state or local candidates on
include voter registration drives in last
the ballot
120 days of a federal election; voter
[original provision modified
drives and generic activity in an election
slightly by chairman’s amendment]
in which a federal candidate is on ballot;
“public communications” that refer to a
This provision would thus allow soft
clearly identified federal candidate and
money to be used by state and local
promote, support, attack, or oppose a
parties for all voter registration activities
candidate for that office; and services by
and for sample ballots, as specified,
a state or local party employee who
subject to FEC allocation rules
spends at least 25% of time on federal
[Sec. 12]
elections) [2 U.S.C. § 431(20)]

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H.R. 1316
S. 1053
H.R. 513a (Shays-Meehan), as passed/
Current law
(Pence-Wynn)
(McCain-Feingold-Lott)
H.R. 4975 (Dreier), as passed *
Notwithstanding prohibition on federal
Codifies FEC regulation by stating that
No provision
No provision
candidates and officeholders from raising
federal candidates and officeholders may
soft money, such individuals may attend,
speak without restriction or regulation at
speak, or be a featured guest at state or
state or local party fundraisers [Sec. 13]
local party 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 electioneering
Provides that an electioneering
No provision
No provision
communication and it is coordinated with
communication which refers to a federal
candidate or his/her authorized
candidate shall not be treated as a
committee, or a federal, state, or local
coordinated disbursement solely on the
party committee, or agents thereof,
ground that communication contains an
disbursement is to be treated as a
endorsement of a state or local candidate
contribution to candidate (or his/her
or ballot initiative or referendum (or if
party) supported by the communication
communication contains endorsement,
and as an expenditure by that candidate
that candidate reviewed, approved, or
or his/her party
otherwise participated in
[2 U.S.C. §441a(a)(7)(C)]
communication’s preparation or
dissemination) [Sec. 15]

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H.R. 1316
S. 1053
H.R. 513a (Shays-Meehan), as passed/
Current law
(Pence-Wynn)
(McCain-Feingold-Lott)
H.R. 4975 (Dreier), as passed *
Tax-exempt Organizations
Defines political committee (thus
No provision
Includes in definition of political
Includes in definition of political
triggering FECA regulation) as:
committee any IRC §527 organization,
committee any IRC §527 organization,
(A) a committee, club, association, or
unless it:
unless it:
other group of persons which receives
• has annual gross receipts of less than
• has annual gross receipts of less than
contributions or makes expenditures
$25,000;
$25,000;
aggregating in excess of $1,000 during a
• is a political committee of a state/local
• is a political committee of a state or
calendar year;
party or candidate;
local party or candidate;
(B) a separate segregated fund (PAC set
• exists solely to pay certain admin.
• exists solely to pay certain
up by a union, corporation, trade assoc.,
expenses or expenses of a qualified
administrative expenses or expenses of a
or membership group); or
newsletter;
qualified newsletter;
(C) a local committee of a party which
• is composed solely of state or local
• is composed solely of state or local
makes contributions or expenditures
officeholders or candidates whose voter
officeholders or candidates whose voter
aggregating in excess of $1,000 in a
drive activities refer only to state/local
drive activities refer only to state/ local
calendar year, receives contributions
candidates and parties;
candidates and parties; or
aggregating in excess of $5,000 in a
• is solely involved in voter drive
• is exclusively devoted to elections
calendar year, or makes payments
activities, incl. public communications
where no federal candidate is on ballot,
exempted from definition of
devoted to such, but does not engage in
to non-federal elections, ballot issues, or
contribution/expenditure in excess of
broadcast communications {Schumer
to selection of non-elected officials
$5,000 in a cal. year [2 U.S.C. § 431(4)]
amendment}; or
[Sec. 2/1002]
• is exclusively devoted to elections
where no federal candidate is on ballot,
to non-federal elections, ballot issues, or
to selection of non-elected officials
[Sec. 2]

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H.R. 1316
S. 1053
H.R. 513a (Shays-Meehan), as passed/
Current law
(Pence-Wynn)
(McCain-Feingold-Lott)
H.R. 4975 (Dreier), as passed *
No provision
No provision
Makes last 2 exemptions (above)
Makes last exemption (above)
inapplicable if the IRC §527 organization
inapplicable if the IRC §527 organization
spends more than $1,000 for:
spends more than $1,000 for:
• public communications that promote,
• public communications that promote,
support, attack, or oppose a clearly
support, attack, or oppose a clearly
identified federal candidate within one
identified federal candidate within one
year of the general election in which that
year of the general election in which that
candidate seeks office; or
candidate is seeking office; or
• for any voter drive activity conducted
• for any voter drive effort conducted by
by a group in a calendar year, unless:
a group in a calendar year, unless:
(1) sponsor confines activity solely to
(1) sponsor confines activity solely to one
one state;
state;
(2) non-federal candidates are referred to
(2) non-federal candidates are referred
in all voter drive activities and no federal
to in all voter drive activities and no
candidate or party is referred to in any
federal candidate or party is referred to
substantive way;
in any substantive way;
(3) no federal candidate or officeholder
(3) no federal candidate or officeholder
or natl. party official/agent is involved in
or natl. party official/agent is involved in
organization’s direction, funding, or
organization’s direction, funding, or
spending; AND
spending; AND
(4) no contributions are made by the
(4) no contributions are made by the
group to federal candidates [Sec. 2]
group to federal candidates [Sec. 2/1002]

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H.R. 1316
S. 1053
H.R. 513a (Shays-Meehan), as passed/
Current law
(Pence-Wynn)
(McCain-Feingold-Lott)
H.R. 4975 (Dreier), as passed *
FEC regulations that took effect Jan. 1,
No provision
Codifies 2005 FEC regulations and
Codifies 2005 FEC regulations and
2005, require PACs (non-candidate, non-
makes them applicable to 527s not
makes them applicable to 527s not
party political committees) — including
affected by current rules [Sec. 3]
affected by current rules [Sec. 3/1003]
those associated with non-FECA-
compliant 527 groups — 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. 513a (Shays-Meehan), as passed/
Current law
(Pence-Wynn)
(McCain-Feingold-Lott)
H.R. 4975 (Dreier), as passed *
No limits on funding sources for PACs’
No provision
Allows contributions to non-federal
Allows contributions to non-federal
non-federal accounts, but BCRA added a
accounts making allocations (above) only
accounts making allocations (above) only
provision to FECA that imposes some
by individuals and subject to limit of
by individuals and subject to limit of
regulation of special non-federal
$25,000 per year; prohibits fundraising
$25,000 per year; prohibits fundraising
accounts of state and local party
for such accounts by national parties and
for such accounts by national parties and
committees which may undertake certain
officials and federal candidates and
officials and federal candidates and
“federal election activities” using a mix
officeholders; states that funds in such
officeholders [Sec. 3/1003]
of federal and non-federal funds. These
non-federal accounts are not otherwise
so-called Levin accounts operate under
subject to FECA [Sec. 3]
several conditions 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 bearing
Same as S. 1053 [Sec. 5/1005]
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. 513a (Shays-Meehan), as passed/
Current law
(Pence-Wynn)
(McCain-Feingold-Lott)
H.R. 4975 (Dreier), as passed *
N.A.
No provision
Provides special expedited judicial
Same as S. 1053 [Sec. 6/1006]
review procedures, similar to BCRA’s,
for a challenge on constitutional grounds,
and allows any Member to bring or
intervene in any such case [Sec. 9]
• Bans union, corporate, or natl. bank
Removes “targeted communications”
No provision
No provision
funding of electioneering
exception to exemption of IRC
communications (broadcast, cable, or
§501(c)(4) and §527 organizations from
satellite ads that refer to a clearly
ban on electioneering communications by
identified federal candidate, are made
unions and corporations, thus allowing
within 60 days of a general election or 30
IRC §501(c)(4) and §527 corporations to
days of a primary, and, if for House or
make electioneering communications
Senate, are “targeted to relevant
with funds donated solely by individuals
electorate”) [2 U.S.C. §441b(a), (b)]
who are citizens, nationals, or permanent
•Exempts IRC §501(c)(4) and §527 tax-
resident aliens [Sec.10]
exempt corps. making electioneering
communications with funds solely
donated by 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. 513a (Shays-Meehan), as passed/
Current law
(Pence-Wynn)
(McCain-Feingold-Lott)
H.R. 4975 (Dreier), as passed *
Bans funding of an electioneering
Extends same authority granted to IRC
No provision
No provision
communication with funds from unions,
§501(c)(4) organizations with regard to
corporations, or national banks [2 U.S.C.
electioneering communications to IRC
§441b(a), (b)], but exempts IRC
§501(c)(5) and §501(c)(6) organizations
§501(c)(4) or §527 tax-exempt
(respectively, labor unions and trade
corporations making electioneering
associations) [Sec.10]
communications 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 relating to
Adds statement that the election law
No provision
No provision
electioneering communications and
provisions do not affect the tax treatment
tax-exempt organizations do not
of expenditures for electioneering
authorize the organizations to do
communications by tax-exempt
anything not allowed under the tax code
organizations [Sec. 10]
[2 U.S.C. § 441b(c)(5)]
Bans direct or indirect contributions from
Adds to existing ban a prohibition
No provision
No provision
foreign nationals (including soft money),
against foreign nationals contributing to
or their solicitation or receipt, or any
a 527 organization [Sec. 8]
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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CRS-13
H.R. 1316
S. 1053
H.R. 513a (Shays-Meehan), as passed/
Current law
(Pence-Wynn)
(McCain-Feingold-Lott)
H.R. 4975 (Dreier), as passed *
IRC generally requires 527s to make
Requires 527 organizations currently
No provision
No provision
periodic, scheduled disclosure of
required to file reports only with IRS to
financial activity to IRS, unless they are
file reports with FEC as well, in the same
PACs, or party or candidate committees
manner as is required for PACs (non-
already required to file under FECA.
candidate, non-party political
Reporting schedule mirrors that for
committees) under FECA [Sec. 9]
political 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)]
HARD MONEY
Individuals
Aggregate limit
Imposes aggregate limit on all
Removes aggregate limit on
No provision
No provision
contributions in a two-year election cycle
contributions by individuals [Sec. 2]
to federal 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) b [2 U.S.C. §441a(a)(3)]

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CRS-14
H.R. 1316
S. 1053
H.R. 513a (Shays-Meehan), as passed/
Current law
(Pence-Wynn)
(McCain-Feingold-Lott)
H.R. 4975 (Dreier), as passed *
To PACs
Individuals may give up to $5,000 per
Increases limit to $7,500 per year on
Increases limit to $7,500 per year on
No provision
year to a PAC (non-candidate, non-party
contributions to a PAC [Sec. 4]
contributions to a PAC {Bennett
political committee), not indexed
Provides for indexing of limit for future
amendment} [Sec. 6]
[2 U.S.C. §441a(a)(1)(C)]
inflation [Sec. 5]
To state/local parties
Individuals may give up to $10,000 per
Indexes limit for future inflation [Sec. 5]
Indexes limit for future inflation {Bennett
No provision
year to a state party committee, not
amendment} [Sec. 6]
indexed for inflation
[2 U.S.C. §441a(a)(1)(D)]

---

CRS-15
H.R. 1316
S. 1053
H.R. 513a (Shays-Meehan), as passed/
Current law
(Pence-Wynn)
(McCain-Feingold-Lott)
H.R. 4975 (Dreier), as passed *
Political Parties
National and state party committees may
Removes limit on party coordinated
No provision
Removes limit on party coordinated
make coordinated expenditures on behalf
expenditures [Sec. 3]
expenditures [Sec. 4, added on House
of their general election nominees,
floor/1004]
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-16
H.R. 1316
S. 1053
H.R. 513a (Shays-Meehan), as passed/
Current law
(Pence-Wynn)
(McCain-Feingold-Lott)
H.R. 4975 (Dreier), as passed *
Political Action Committees (PACs)
Multicandidate political committees c
Increases limit to $7,500 per candidate
Increases limit to $7,500 per candidate
No provision
may contribute $5,000 per candidate per
per election
per election, with indexing for future
election, not indexed for inflation
[Sec. 4)
inflation {Bennett amendment}
[2 U.S.C. §441a(a)(2)(A)]
[Sec. 6]
Indexes limit for future inflation [Sec. 5]
Multicandidate political committees may
Increases limit to $25,000 per year on
Increases limit to $25,000 per year on
No provision
contribute $15,000 to a national party
contributions to a national party [Sec. 4]
contributions to a national party, with
committee, not indexed for inflation
indexing for future inflation {Bennett
[2 U.S.C. §441a(a)(2)(B)]
Indexes limit for future inflation [Sec. 5]
amendment}
[Sec. 6]
Multicandidate political committees may
Increases limit to $7,500 per year on
Increases limit to $7,500 per year on
No provision
contribute $5,000 per year to any other
contributions to another committee [Sec.
contributions to another political
political committee, not indexed for
4]
committee, with indexing for future
inflation

inflation {Bennett amendment} [Sec. 6]
[2 U.S.C. §441a(a)(2)(C)]
Indexes limit for future inflation [Sec. 5]
Allows unlimited transfers of funds from
Allows unlimited transfers of funds from
Allows unlimited transfers of funds from
H.R. 4975: Allows unlimited transfers of
a federal candidate’s campaign to a
leadership PACs (those established,
leadership PACs (those established,
funds from leadership PACs (those
national, state, or local party committee
financed, maintained, or controlled by a
financed, maintained, or controlled by a
established, financed, maintained, or
[2 U.S.C. §439a(a)]
federal candidate or officeholder) to
federal candidate or officeholder) to
controlled by a federal candidate or
national party committees [Sec. 6]
national party committees {Bennett
officeholder) to national, state, and local
Allows unlimited transfers of funds
amendment} [Sec. 6]
party committees [Sec. 701]
among national, state, and local
committees of the same political party
H.R. 513: no provision
[2 U.S.C. §441a(a)(4)]

---

CRS-17
H.R. 1316
S. 1053
H.R. 513a (Shays-Meehan), as passed/
Current law
(Pence-Wynn)
(McCain-Feingold-Lott)
H.R. 4975 (Dreier), as passed *
Corporations and unions may make up to
Allows twice-a-year solicitations of
Eliminates twice-a-year limit on
No provision
two written solicitations per year to
expanded classes by communications
solicitations by unions and corporations
certain persons outside their restricted
(not necessarily mail) addressed or
of their expanded classes {Bennett
classes — non-managerial personnel and
otherwise delivered to their residences
amendment} [Sec. 6]
their families for a corporation, and non-
[Sec. 11]
union member employees of a
corporation and their families for a labor
union — for funds for their PACs.
Solicitations must be by mail addressed
to them at their residence
[2 U.S.C. §441b(b)(4)(B)]
Allows trade associations to solicit
Removes prior approval requirement and
Removes prior approval requirement and
No provision
member corporations’ restricted classes
restriction that only one trade association
restriction that only one trade
but requires that they have prior approval
may solicit a corporation’s restricted
association may solicit a corporation’s
by corporation and that no more than one
classes per year [Sec. 11]
restricted classes per year {Bennett
association may solicit such classes in a
amendment}
calendar year
[2 U.S.C. §441b(b)(4)(D)]
2 U.S.C. §439a prohibits candidates from
No provision
No provision
H.R. 4975: Prohibits leadership PAC
converting campaign funds to personal
funds from being converted to personal
use, but such conversions are not
use [Sec. 701]
expressly prohibited in the case of PACs
or other committees
H.R. 513: no provision

---

CRS-18
H.R. 1316
S. 1053
H.R. 513a (Shays-Meehan), as passed/
Current law
(Pence-Wynn)
(McCain-Feingold-Lott)
H.R. 4975 (Dreier), as passed *
OTHER FECA PROVISIONS
Advertising
Broadcasters must sell time to candidates
No provision
• Makes TV, cable, and satellite LUR
No provision
during last 45 days of a primary and 60
broadcast time non-preemptible, with
days of a general election at lowest unit
rates based on comparison with prior
rate (LUR) for same class and amount of
365 days;
time for same period [47 U.S.C. §315(b)]
• extends such rates to national parties
for time on behalf of candidates;
• provides for random audits to insure
compliance {Durbin amendment} [Sec. 4]
Defines “public communication” as a
States that communications over the
States that communications over the
No provision
communication by broadcast, satellite, or
Internet shall not be considered “public
Internet shall not be considered “public
cable facility, newspaper, magazine,
communications” (hence subject to
communications” (hence subject to
outdoor advertising facility, mass
regulation under FECA) [Sec. 14]
regulation under FECA) {Bennett
mailing, phone bank to general public, or
amendment} [Sec. 5]
any other form of general public political
advertising [2 U.S.C. §431(22)]

---

CRS-19
H.R. 1316
S. 1053
H.R. 513a (Shays-Meehan), as passed/
Current law
(Pence-Wynn)
(McCain-Feingold-Lott)
H.R. 4975 (Dreier), as passed *
Other
Defines political committee as: (A) a
Increases annual contribution and
Increases annual contribution and
No provision
committee, club, assoc., or other group
expenditure threshold for determining
expenditure threshold for determining
which receives contributions or makes
political committee status to $10,000 in
political committee status to $10,000 in
expenditures in excess of $1,000 in a
all instances enumerated in definition
all instances enumerated in definition
year; (B) a separate segregated fund; or
[Sec. 7]
{Bennett amendment} [Sec. 6]
(C) a local 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)]
Note: Italicized text indicates provisions added by amendment in committee.
* Section numbers for H.R. 513 are noted first, then for H.R. 4975 following the slash (/).
a. H.R. 513 is much the same as S. 271, the McCain-Feingold-Lott bill, as originally introduced, but later supplanted by S. 1053.
b. These limits, established by BCRA, reflect the 2005 adjustments for inflation also mandated by BCRA.
c. 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-20
Regulatory Bills: 527 Reform Act (S. 1053, H.R. 513,
H.R. 4975, S. 271) and Restoring Trust in Government
Act (H.R. 4696)
Soft Money (Non-Federal Funds). The key provision of the 527 Reform
Act of 2005/2006 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 enumerated
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 were the heart of all four bills (or bill sections) entitled 527
Reform Act, although the reported Senate bill reflected more fine-tuning to allow a
greater range of activities to avoid triggering regulation under FECA. Most notable
of these was 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 sought 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, H.R. 513, and H.R. 4975 attempted 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 reached very different
conclusions as to the bills’ success in meeting those goals.
One additional bill, offered in the second session, reflected a limited
regulatory approach. Among its other provisions, H.R. 4696 (Rogers), the Restoring
Trust in Government Act, would prohibit 527 organizations that are not also political
committees under the FECA from making electioneering communications. These
communications, broadcast during the final 30 or 60 days of an election, are the most
visible, but hardly the only, form of election-related issue advocacy.
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

---

CRS-21
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
bills in Congress seeking to exclude communications over the Internet from
regulation under the FECA.3
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.
Prior to House passage of H.R. 4975, an amendment was included by the
House Rules Committee to prohibit leadership PAC funds from being converted to
personal use but to allow them to be transferred without limit to national, state, or
local party committees (as is the case with funds in candidate committees).
H.R. 4975 (Dreier) and H.R. 513 included one provision aimed at
deregulating an aspect of campaign finance practice — the removal of political party
coordinated expenditure limits. (This provision was added to H.R. 513 before it was
passed by the House.) It will be discussed below under the Hard Money section of
H.R. 1316, which also contained it.
Deregulatory Bill: 527 Fairness Act of 2005 (H.R. 1316)
Both as introduced and in the version reported from the House Administration
Committee, H.R. 1316 was 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.
3 H.R. 1605 and H.R. 1606 (Hensarling); S. 678 (Reid).

---

CRS-22
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),
§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 addressed 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

---

CRS-23
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
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 is the removal of party
coordinated expenditure limits, a provision also included in H.R. 4975 (Dreier) and
H.R. 513 (Shays-Meehan) as passed, bills which would otherwise be classified as
reflecting a regulatory approach. This provision 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. In 2004, Democratic party committees (federal,
state, and local) made $33.1 million in coordinated expenditures and $176.5 million
in independent expenditures to promote their federal candidates; Republican party
committees made $29.1 million in coordinated expenditures and $88.0 million in
independent expenditures.
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. BCRA had contained a provision
to require a party to choose making either independent or coordinated expenditures

---

CRS-24
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)).4 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, corresponded with provisions added to S. 1053 in
committee. Provisions included in both H.R. 1316 and S. 1053 included 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
political parties; the increase in the dollar threshold for triggering “political
committee” status; and the removal of Internet communications from regulation
under FECA.
Bills to Regulate 527s through
Disclosure Requirements
Four bills in the 109th Congress sought 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 sought
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.
It is important to note that these four bills affected 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
4 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.

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CRS-25
state or local political committees that report similar information to a state.5 A
periodic report must include (1) the name, address, occupation, and employer of any
contributor who makes a contribution during the reporting period and has given at
least $200 during the year, along with the amount and date of the contribution, and
(2) the amount, date, and purpose of each expenditure made to a person during the
reporting period if that person has received at least $500 during the year, along with
the person’s name, address, occupation, and employer.6
5 IRC § 527(j)(5).
6 IRC § 527(j)(3). The disclosure requirement does not apply to independent expenditures
as defined by FECA. IRC § 527(j)(5)(F).

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CRS-26
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 that
Requires IRC §527 organizations
Requires IRC §527
Requires IRC §527
Requires IRC §527
report to the IRS may choose to
that report to the IRS and have at
organizations that report to the
organizations that report to the
organizations that report to the
disclose their expenditures and
least $25,000 in contributions or
IRS to disclose on a monthly
IRS on a semi-annual basis in
IRS to disclose on a monthly
contributions on (1) a monthly
expenditures to disclose on a
basis, with special rules for
non-election years to disclose
basis, with special rules for pre-
basis or (2) a quarterly basis in
monthly basis in an election year
pre-election, post-election, and
on a quarterly basis in those
election, post-election, and year-
an election year and semi-
and semiannually in non-election
year-end reports
years. Thus, such
end reports
annually in any other year.
years. Requires IRC §527
[Sec. 2]
organizations would report on
[Sec. 2]
There are special rules for pre-
organizations that report to the IRS
a quarterly basis, regardless of
election, post-election, and year-
with less than $25,000 in
whether it is an election year
end reports
contributions or expenditures to
[Sec 2]
[26 U.S.C. § 527(j)(2)]
disclose on a quarterly basis in an
election year and on a semi-annual
basis in non-election years.7 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]
7 Under existing law, these smaller organizations may be exempt from the disclosure rules because they have less than $25,000 in annual gross
receipts. It may be unclear as to how the bill’s provision and the existing exemption would interact.

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CRS-27
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 that
No provision
No provision
Creates an additional penalty.
Same as H.R. 1942 [Sec. 3]
report to the IRS and fail to
IRC §527 organizations that
make the periodic disclosures
report to the IRS and fail to
are subject to a penalty equal to
make the periodic disclosures
the highest corporate income tax
are subject to a penalty tax
rate multiplied by the amount to
equal to 30% of the amount to
which the failure relates
which the failure relates.
[26 U.S.C. § 527(j)(1)]
While the tax is imposed on
the organization, its managers
are jointly and severally liable
for the tax [Sec. 3]
Coordination with the FEC
IRC §527 organizations that
No provision
No provision
No provision
Requires IRC §527
report to the IRS are not
organizations that report to the
required to file copies of
IRS to simultaneously file
periodic disclosure reports with
copies of periodic disclosure
the FEC [26 U.S.C. §
reports with the FEC [Sec. 4]8
527(j)(5)(A)]
8 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 FEC [2 U.S.C. §437g] and that the FEC would need to disclose the copy on its public database [2 U.S.C. § 438a.].

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CRS-28
Current law
H.R. 471 (Larson)
H.R. 914 (English)
H.R. 1942 (Shaw)
H.R. 2204 (Shaw)
Both the FEC and IRS are
Requires the FEC and IRS to
No provision
No provision
No provision
required to maintain public
improve the linkage of their
databases that contain
databases and report their actions to
disclosure reports filed with that
Congress [Sec. 2]
agency
[26 U.S.C. § 527(k);
2 U.S.C. § 438, 438a]
Denial of Gift Tax Exclusion
Contributions to IRC §527
No provision
No provision
Provides that contributions to
Same as H.R. 1942
organizations are not subject to
527 organizations that report
[Sec. 3]
the gift tax
to the IRS would be subject to
[26 U.S.C. § 2501(5)]
the gift tax in any year the
organization fails to make
periodic disclosures to the
IRS. The organization must
notify contributors within 90
days after the IRS has
determined the failure
occurred
[Sec. 3]

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CRS-29
Gift Tax Provisions in H.R. 1942 and H.R. 2204
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.10 For 2006, the exclusion amount is $12,000. Therefore, an
individual who gives three donees each gifts of $12,001 in 2006 will 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 taxable gifts.
Under H.R. 1942 and H.R. 2204, contributions to an IRC §527 organization
would be taxable gifts if the organization failed to periodically disclose expenditures
and contributions to the IRS. In such a situation, any contributions to the
organization that were not greater than the annual exclusion amount ($12,000 in
2006) would not be subject to tax.12 Any contributions to the organization that
exceeded the annual exclusion amount would be considered taxable gifts and the
donor would need to file a gift tax return; however, the donor 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.

9 IRC §2501(a)(4).
10 IRC §2503(b).
11 IRC §2505(a).
12 Thus, in 2006, a donor could give contributions of $12,000 to an unlimited number of IRC
§527 organizations that report solely to the IRS and would not have any gift tax
consequences, regardless of whether any of the organizations filed the periodic disclosure
reports.

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