A new study by the Campaign Finance Institute (CFI) examines the electoral and advocacy roles played by different types of nonprofit organizations, and suggests possible reforms. In a report released July 19, CFI found that nonprofit organizations often use 501(c)(4), 501(c)(5), and 501(c)(6) entities, as well as 527 organizations and federal political action committees (PAC)s, in an integrated fashion to advance political agendas. CFI conceded that nonprofits are not circumventing the law but noted that these "networks" are wielding a large amount of influence over elected officials. The study also calls for more clarity and enforcement of the "electioneering communications rule" established by the Bipartisan Campaign Reform Act and the Internal Revenue Service's "facts and circumstances" test. 527 Organizations The report addressed recent proposals to regulate 527 organizations and concerns over the "electioneering communications rule" established by BCRA. Language regulating 527 organizations is currently in H.R. 4975, the House-passed lobby reform bill that is awaiting conference with S. 2349, the Senate version of the bill that does not contain language regulating 527s. The study deals specifically with the question of whether the regulation of 527 organizations would force those activities to be carried out by 501(c)(4-6) organizations. CFI suggests that "most of the groups...had financially strong advocacy organizations that could potentially take over 527 activities without jeopardizing their primary advocacy missions." In the face of the potential flow of funds from 527 organizations to 501(c)(4-6) organizations, CFI calls for improved disclosure to the IRS, including:

• clarification of the "facts and circumstances test" that the IRS utilizes to determine whether a 501(c)(3) organization has engaged in political advocacy, and
• clarification on the definition of the "political expenditure" disclosure requirement on Form 990, the annual return nonprofits submit to the IRS. The study indicated that the 2002 requirement for 501(c) groups to disclose political spending has been largely ignored by 501(c)(4-6) organizations.

Electioneering Communications Rule While calling for increased regulation and enforcement, CFI reported positive findings regarding compliance with the electioneering communications rule. According to CFI, "almost all of the 501(c)s we looked at were, in their public statements, able to clearly identify a range of non-express advocacy communications (labeled "voter education", "voter guides", "get-out-the-vote", "issue discussion") including ads as part of their overall election programs". The findings illustrates that, while clearer guidance from the IRS on what distinguishes election advocacy from issue advocacy may be helpful to nonprofit organizations, those that expend large amounts of money are clearly already educated on the regulations. Some critics have taken issue with the reforms suggested in the report. According to BNA, Fred Wertheimer of Democracy 21, a nonprofit group focused on campaign finance, argued that proposals to rein in 527 organizations are adequate because current law limits the political activities of 501(c)(4-6) groups. In recent elections, both 501(c)(4-6) entities and 527 organizations have played a role in electoral politics, although neither 501(c)(4-6) nor 527 organizations can engage in express advocacy, such as encouraging voters to vote for or against a particular candidate. The report examined 12 interest groups that use multiple tax-exempt structures.