Tricks of the Trade: Campaign Loopholes Old and New
By Shellie Branco
Jim Drinkard (left)
and Larry Noble
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In campaign financing, there is the outright legal, and then there is the outright illegal. In between is a vast grey area occupied by an ever-growing number of politically tied organizations, so called 527 groups, after Section 527 of the IRS code.
For political reporters writing about campaign finance, those organizations are the most difficult to cover, Larry Noble, executive director of the Center for Responsive Politics, told attendees of the Knight Center seminar on campaign finance. He spoke along with USA Today political reporter Jim Drinkard.
Noble noted that most people don’t understand the difference between 527 groups and organizations formed under section 501(c)(3) or 501(c)(4) of the tax code, and reporters are reluctant to litter their stories with those numbers. So Noble gave quick definitions of each in an effort to ease the discomfort of describing them:
- 501(c)(3): A charitable organization that can’t use a substantial part of its activities to influence politics. Does not disclose its contributors.
- 501(c)(4): An organization that may engage in lobbying and political activity as long as it is not engaging in politics as its primary purpose. Also does not disclose its contributors.
- 527: An organization, whether incorporated or not, whose primary purpose is the election or reelection of candidates. Discloses its contributors.
The IRS is “notoriously lax” on 501(c)(3)s and 501(c)(4)s, Noble said. And the primary purpose of a 501(c)(4) is fuzzy, Drinkard added.
Noble said there has been much debate about 527s, including the difference between a political action committee and a 527. Many organizations are being formed as 527s so contributors can avoid paying gift taxes, he added.
At the heart of this debate is whether politics is a major purpose or the major purpose of a 527 organization. Noble noted that PACs are defined as groups that spend more than $1,000 and have election-related purposes aimed at the federal government. He said that some people believe that any 527 that spends more than $1,000 and “promotes, supports or attacks” candidates - a phrase taken from a Supreme Court ruling on political committee activities - should be categorized as a PAC.
Focusing on fund-raising efforts in the 2004 presidential campaign, Drinkard pointed out that the two major parties had raised a total of $316 million, more than was raised in the 2000 election in the comparable period.
Drinkard said some of the increase was due to “bundling” contributions, in which the parties had access to a well-connected person, such as a CEO or the managing partner of a large firm, with a large circle of contacts. These are people who are tough to say no to, Drinkard added, especially if the bundler is tapping business partners for contributions. Bundling networks can be geographical or by industry, such as a university.
Drinkard called President Bush the “heavyweight champ of bundling,” with $170 million raised so far. “[Bundling] offers incredible influence to practitioners,” he said. “It’s worth a lot to you to gain influence … just as good as soft money.”
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