Federal District Court Opinion (PDF)...3/29/06 FEC 2004 Rule (PDF)....11/23/04 IS Position on FEC March 2004 Proposal IS Comments on the FEC's March 2004 Proposed Rule (PDF) Press Release For more information: Alliance for Justice Fact Sheet (PDF) IRS Guidance on political activity. IRS Revenue Ruling 2004-6 on election activities (PDF)

In response to a federal court decision, the Federal Election Commission has determined not to issue a new rule with respect to Section 527 organizations and political action committees, but it will issue a more thorough explanation of its decision. In March, a federal district court ordered the FEC to review its decision not to further regulate Section 527 organizations and to either issue new regulations or provide further explanation for its decision. The court found that the FEC failed to make a reasoned explanation for its decision to consider 527 activity on a case-by-case basis rather than by issuing a general rule to regulate such organizations.
Read the district court opinion....3/29/06
Read FEC's response...5/31/06
See below for more on past FEC consideration of 527s.

Bill to Restrict Section 527 Groups Passed
Meanwhile, the House passed a bill (H.R. 513) on April 5, 2006 that would require Section 527 organizations to register as political committees under federal election law and would limit the amount of money that can be donated to the organization by a single donor to $25,000. The bill also would repeal certain limits on what a political party can spend on behalf of candidates. The measure passed by a 218 to 209 vote. Similar provisions are included in lobbying reform legislation (H.R. 4975) introduced by the House Republican Leadership. Certain Section 527 groups that are involved in state elections or local ballot initiatives would be exempt. 
Read more about Section 527 legislation.

Under existing law, political committees are prohibited from raising money from corporations (including nonprofit corporations) or unions or from using contributions in excess of $5,000 from an individual to pay for electioneering activities.

FEC 527 Rule in 2004
The FEC issued a rule in November 2004 that imposed some new fundraising and expense allocation rules on groups organized under Section 527 of the tax code, but did not regulate them as political committees. The final rule (PDF) was much narrower in scope than draft rules proposed in March 2004 (discussed below). 

Solicitations
The rule requires that any funds raised through solicitation materials indicating that any portion of the funds received will be used to support or oppose the election of a clearly identified Federal candidate must be all counted as political contributions under federal election law. Nonprofits, including 501(c)(4)s and 527s, that combine political and nonpartisan messages in their fundraising materials must be aware of and comply with this rule. IRS rules prohibit 501(c)(3) organizations from engaging in any form of partisan electioneering and they may not endorse or oppose any candidate for public office.

Allocation  
The allocation rules would require a minimum of 50 percent of certain political committee expenses to be paid for with Federal funds (i.e., hard money). The allocation rules affect 527 organizations only.

Background
On May 13, 2004, the FEC decided not to issue new rules at that time to treat certain section 527 groups as political committees. The Commissioners also voted unanimously to further study questions raised by the current rulemaking for an additional 90 days. 

Since issuing a Notice of Proposed Rulemaking in March 2004, the FEC had been considering proposed regulations that would expand the definition of political committee to include section 527 groups not connected to a party or candidate. The FEC also considered whether the final rules would govern 501(c) organizations. The Commission held public hearings on the issue on April 14 and 15, 2004 and held the public meeting on May 13, 2004 to decide whether it would accept the proposed rule, a revised version of the rule, or take no action at this time.

On April 30, 2004 Commissioners Michael Toner (R) and Scott Thomas (D) submitted a proposal (PDF) that, unlike the Commission’s original draft, was narrowly tailored to regulate only section 527 groups. The FEC’s original proposal would have expanded the definition of political committees to include section 527 groups, but would also have affected some 501(c) organizations as well, subjecting nonprofits to strict fundraising rules and new reporting requirements that would likely mean they would opt to shy away from involvement in issue advocacy and voter education. The Toner-Thomas proposal was defeated by a 4-2 vote at the FEC's May 13 meeting. 

On March 4, 2004, the Commissioners approved a Notice of Proposed Rulemaking (NPRM—PDF), which was published in the Federal Register with a request for public comments. In addition to proposals specific to 527s, the FEC asked for comments on whether 501(c)(3) and 501(c)(4) organizations should be included in the definition of political committees. Political committees are prohibited from raising money from corporations (including nonprofit corporations) or unions or from using contributions in excess of $5,000 from an individual to pay for electioneering activities. Political committees must also disclose names of contributors in regular reports to the FEC, and contributions to such committees are not tax-deductible.

Independent Sector Position
IS worked with a group of members to prepare comments (PDF) on the FEC's proposed rule of March 2004 that were co-signed by 80 organizations. IS’s comments focus on the serious impact the proposed changes would have on 501(c)(3) and (c)(4) nonprofits and stress the following points:

1. 501(c)(3) and (c)(4) organizations should be excluded from the definition of political committees. Current tax law already limits the lobbying and partisan political activities of these groups.

2. The FEC should maintain its current, clear distinction between “express advocacy” communications (those that clearly call for a vote for or against a particular candidate or political party) and other nonpartisan communications. It should not adopt IRS standards for partisan advocacy, which were designed for a different regulatory and enforcement regime.

3. Voter registration and get-out-the-vote activities should only be considered political expenditures if they are clearly tied to a candidate or party. Activities targeted to specific populations (e.g., women, African Americans, a particular neighborhood, members of a particular organization) should not be considered political “expenditures” simply because those populations may be “more likely” to vote for a particular candidate or party.

4. The FEC should not issue rules without further guidance from Congress. Major changes such as those contemplated deserve full debate and action by elected representatives.

5. The FEC should not change rules in the midst of a heated election cycle and should not make rules retroactive. It would be unfair to organizations that have raised funds, made plans, and launched activities under current law to judge them by new rules.

Independent Sector Final Comments to the FEC (PDF)...4/9/04

Earlier Related Action by the FEC
On February 18, 2004, the Federal Election Commission spent a full day deliberating whether and how to revise and adopt an Advisory Opinion (AO 2003-37) affecting independent Section 527 political committees and signaled possible future action by the Commission with respect to 501(c)s.  The Commission considered tabling the Opinion and waiting to address the issue in upcoming regulations. After a motion to table the AO decision in favor of rulemaking was defeated by a 3-3 vote, the Commission proceeded to adopt a revised version of the AO that was prepared in response to a request by a specific 527 political committee, Americans for a Better Country (ABC), regarding the use of soft money for election-related activity. 

The approved Advisory Opinion makes clear that 501(c)(3)s are not the subject of this opinion. First, the Commission noted that "the fact that ABC is a political committee is particularly relevant. This opinion does not set forth general standards that might be applicable to other tax-exempt entities." Furthermore, the amended Opinion reads, "the Commission is in no way addressing the legal status of organizations that are not political committees under the Act, including organizations under Section 501(c)(3) and Section 501(c)(4) of the Internal Revenue Code. The Commission will address the legal status of such organizations in a rulemaking this spring."

In response to the important advocacy and legal issues raised in the draft AO, Independent Sector filed comments with the FEC on February 4, as did several other IS members and other nonprofit organizations. During the proceedings commissioners made reference to the hundreds of nonprofit groups that provided comments on this draft opinion.

The draft opinion expanded the current definition of electioneering “expenditures” that are subject to regulation under federal campaign finance law to include activities that praise or criticize elected officials who are running for federal office, even if the election is not mentioned or the official is not identified as a candidate. This would have included such activities as:

• Newsletters, websites, or emails praising or criticizing proposals by the president, a member of Congress, or state or local elected officials who are running for federal office;
• Awards or events honoring an elected official for past actions or positions if that official is now running for federal office. For example, events or articles honoring a sitting member of Congress or state legislator for his or her work in passing legislation affecting children, the environment, or other issues, could be considered to be electioneering “expenditures”'; and
• Fundraising appeals that mention the policies of the Bush administration or members of Congress who are running for re-election.

The term electioneering "expenditures" refers to activities paid for by a political committee for the purpose of influencing a federal election. Political committees are prohibited from raising money from corporations (including nonprofit corporations) or unions or using contributions in excess of $5,000 from an individual to pay for electioneering activities. 

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Last updated: March 11, 2008