New election law may transform nonprofits

By CHRISTIAN BOURGE, UPI Think Tanks Correspondent  |  Jan. 9, 2003 at 6:36 AM
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WASHINGTON, Jan. 8 (UPI) -- A federal law aimed at curtailing the negative effects of unregulated donations on federal elections will reshape the relationship between political organizations and non-profit charities and social welfare organizations, according to participants at a think-tank forum.

Critics of the law say that the changes will ultimately do more harm than good.

"I think that we have taken a problem and moved it to another area," said Heidi Abegg, an attorney with Webster, Chamberlain and Bean and the local counsel to several plaintiffs challenging the 2002 Bipartisan Campaign Reform Act. "It is clear the BCRA electioneering ban will significantly impact the election activities of 501(c)4 (social welfare) organizations."

Abegg made the comments Tuesday during a debate at the liberal-leaning Urban Institute. The forum was convened to explore whether the BCRA will lead certain classes of non-profit organizations to become tools for political interests.

BCRA was designed to limit the impact that large donors can have upon elections and policymaking through so-called soft-money -- unregulated -- donations to political candidates and organizations.

Thomas Mann, a senior fellow in governance studies at the Brookings Institution, said that a pattern developed in the 1990s, in which large special interests took advantage of loopholes in federal election laws to contribute large amounts of money aimed at influencing elections and policy and, in Mann's words, to "extort" favors from public officials.

"The law is primarily directed at breaking, weakening, diminishing the nexus of political party, politician and donor interests," he said. "The fear was that there are distortions to democracy and public policy when there are not constraints on those relationships."

There are four provisions in BCRA regulations that affect tax-exempt organizations. These include bans on paying for electioneering communications (television or radio advertising on issues or candidates) 60 days prior to a general election and 30 days before a primary; bans on coordinated communications efforts; and bans on fundraising and contributions from political parties. The measure also limits fundraising by federal officeholders and candidates for office.

Under Internal Revenue Service regulations, several types of non-profits receive tax-exempt status, including charities, which are classified as section 501(c)3 organizations; social welfare groups (501(c)4 organizations); unions (501(c)5 organizations); trade associations (501(c)6 organizations); and political organizations, which are classified as Section 527 groups.

It is the BCRA exemptions for these non-profit groups that have some people worried. For one, all communications paid for by charitable non-profits are exempt from the paid advertising bans in the law.

Secondly, some non-profits -- created with the express purpose of promoting political ideas, yet also classified as social welfare groups -- can pay for political advertising past the 30-day and 60-day deadlines, but must file reports to the FEC showing their funding sources. They must, however, not have been formed by unions or business corporations, nor can they accept donations from such groups.

Abegg said she believes the law will lead charitable organizations to stretch the limit of the political actives they are allowed under IRS regulations.

Such criticisms are not limited to opponents of the bill. Frances Hill, a professor of law at the University of Miami and an expert on taxation and commercial law who supports the aims of BCRA, said that the exemptions in the new law create significant potential for exempt non-profits to become conduits for political money. She noted that since donors can contribute unlimited amounts of money to such groups, the exemptions could allow these potentially unlimited funds to find their way through the non-profits to political organizations. The limits placed on the political activity of such charitable groups by IRS regulations are ambiguous at best, she says.

"Certainly for federal income tax purposes, something is prohibited, but we have no idea what," Hill said. "The last guidance was issued over 20 years ago. There is some precedent but nothing a lawyer, candidate, or non-profit can rely on."

Mann said that while it is important to acknowledge that attempts will be made to circumvent the intent of the law, its actual impact still has to be gauged. He believes that given the highly public legal challenge in the McConnell case, politicians and non-profits will not push the envelope too far, at least in the beginning.

He also said that party leaders and elected officials will be wary about blatantly using nonprofits as funding intermediaries in the kinds of electioneering in which they have engaged in recent years. "I think it is just a mistake to say it (the BCRA exemptions) is just cover, and all the money will move somewhere else," he said.

Mann dismissed the idea that some of the large amount of soft money no longer legally available to political candidates will makes its way into the coffers of think tanks, most of which are classified at 501(c)3 non-profits, and which can influence policy. He said those funds were already earmarked to support the political motivations of donors, and were unlikely to be redirected to the policy arena.

According to Hill, if BCRA withstands the legal challenge, the 2004 presidential election will test the impact of the law on non-profits, as both politicians and non-profits examine what can be accomplished under its limits.

"I do think the 2004 election will be watershed at every level," she said.

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