WASHINGTON, Sept. 22 (UPI) -- The public interest organization Public Citizen reported this week that 30 non-profit groups spent at least $91 million under the U.S. tax code's 501(c) loophole to affect the elections in 2000 and 2002. Thirteen of these 30 groups are active in the 2004 election cycle. The AFL-CIO and the U.S. Chamber of Commerce are the two biggest players in this year's election cycle, Public Citizen said, and reportedly are budgeted to spend at least $40 million.
Much of the attention in the run-up to the 2004 elections has, however, revolved around the so-called 527s, neglecting the role of the 501(c)s in influencing the upcoming elections.
The 501(c) non-profits, under the tax code, are permitted to make substantial political contributions but are prohibited from making electoral activity their "primary" purpose. Unlike the 527s, the 501(c) groups do not have strict disclosure requirements and allow corporations, unions and wealthy individuals to donate millions to influence the outcome of the elections.
Frank Clemente, director of Public Citizen's Congress Watch, told a telephone news conference that under 501(c), these groups do not have to disclose the identities of their donors, or how and on what races the money was spent.
"Our estimates in terms of total expenditures are very conservative," said Craig Holman, Public Citizen's legislative representative. Estimates, he said, were based on publicly available information of only TV advertising, whereas the non-profit groups are engaged in hard-to-track activities such as direct mail, telemarketing, door-to-door contact and the Internet.
According to the report, titled "The New Stealth PACs: Tracking 501(c) Non-Profit Groups Active in Elections," the Pharmaceutical and Research Manufacturers of America appears to have donated nearly $41 million to four so-called stealth PACs in 2002. The report said the PhRMA and U.S. Chamber of Commerce may have violated IRS filing requirements by failing to report grants to the stealth PACs in 2002. Of the 26 groups that apparently reported election activities in 2000 and 2002, only seven disclosed their expenditures to the IRS, according to the report.
Though there are organizations that care about the issues they advocate, others like the Americans for Job Security and American Tax Payer Alliance have no websites and no publicly traded information are available on their activities, the report notes.
"They don't want any information to get out," Holman said. "These groups ... are particularly involved in affecting elections -- they are among the groups that we suspect might have crossed into the primary purpose category, and if these groups were required to disclose their donors, it would presumably have a minimizing effect in terms of the effectiveness of their ad campaigns to the public," he said.
In the earlier election cycles of 2000 and 2002, according to the report, 501(c) groups aligned with the Republican Party spent $55.8 million, while the Democratic groups spent $35.2 million. The former outspent the latter 61 percent to 39 percent during 2000 and 2002, and by a ratio of 3-to-1 in 2002.
And grassroots 501(c) groups reportedly received nearly all of their funding from a few big donors, the report says. The 60 Plus Association received 91.4 percent of its revenue ($11 million) from a single contributor in 2002, according to its tax form, though the donor's name was not known. The United Seniors Association is another example of a group that received 79.1 percent of its money ($20.1 million) from a single donor the same year, the report pointed out.
This is an un-enforced area by the IRS, said Clemente, adding that there is no monitoring going on, and because this is a small set of groups, even modest efforts could make a huge difference.
The report outlines a few recommendations, foremost of which is to ask the IRS to clarify the reporting requirements of 501(c) in terms of defining political versus lobbying expenditures.
Currently, the report said, the IRS lacks a clear standard to help distinguish between sham issue-advocacy ads, which are clearly designed to influence the election or defeat of candidates, from genuine issue-advocacy ads. Therefore, it suggests that the Form 990 should be modified to include a separate category where groups declare the amount of expenditures made for paid communications that depict a formal candidate for public office through electronic means, print, direct mail and telemarketing efforts that target the candidates' voting constituency. Also, it recommends that the IRS should create a searchable, sortable, downloadable electronic filing and disclosure system for Form 990 filings.
The report also recommends the Congress to increase funding for monitoring and enforcement of electioneering of 501(c) organizations by the IRS Exempt Organizations Division.
