"I personally believe this scheme is a clear violation of the First Amendment..." House Majority Whip Tom DeLayQuoted in CQ Daily Monitor, June 23, 2000 (pg. 6) The House is quickly moving a "campaign finance reform" bill to address nonprofit "political" activities that is widely perceived as unconstitutional and would have significant impact on nonprofit organizations. In the span of roughly one week, there has been a hearing, a bill has been drafted and marked up -- H.R. 4717, the Full and Fair Political Activity Disclosure Act of 2000 -- and the House will vote on it. The speed with which this legislation is moving - and the acknowledgment that it has constitutional problems -- is stunning, and has led many to believe this is a partisan maneuver to kill meaningful disclosure. The House debate began as a bipartisan attempt to require disclosure of campaign activities and contributors of 527 organizations, so-called because of the Internal Revenue Code section that they are organized under. 527 groups exist for the primary purpose of influencing elections and operate with almost complete secrecy as long as they do not engage in "express advocacy" (directly calling for the election or defeat of a candidate by name). They are tax exempt, but like 501(c)(4) social welfare organizations, donors cannot take a tax deduction for contributions. Unlike contributions to 501(c)(4) organizations, however, donations to 527 groups are exempt from the gift tax, making it more attractive to give money to 527 groups. There is growing criticism that some 527 groups, which may be bankrolled by a small number of people, come very close to express advocacy, but stop just short. By technically engaging in "issue advocacy" they avoid disclosure. The debate in Congress started with a way of making 527 organizations that engage in "almost-express" advocacy disclose information equal to that required of those groups that engage in express advocacy. The difficulty is in protecting the constitutional right to engage in issue advocacy (e.g., speak out on issues) and the right of people to give money anonymously to organizations that engage in such activity while at the same achieving greater accountability in the electoral process. The House debate, however, has turned highly partisan and the resulting legislation is quite expansive, imposing disclosure requirements on all 527 organizations, as well as 501(c)(4) (social welfare), 501(c)(5) (unions) and 501(c)(6) (trade associations) organizations. This means that such disparate organizations as the Republicans for Clean Air, National Rifle Association, the Sierra Club, the United Auto Workers and the US Chamber of Commerce will be covered. But taxable entities that engage in electoral activities are not covered. Even those supporting campaign finance reform are cautious about H.R. 4717. Analysis of H.R. 4717 H.R. 4717 imposes disclosure requirements on covered 501(c) organizations that spend $10,000 annually on activities described below and all 527 groups no matter how muchthey spend. 501(c)(3) organizations are not covered by the bill (see below for comments on charities). All covered organizations must file reports with the IRS disclosing all contributions to (including membership dues or fees) and expenditures by the organization that exceed a specified threshold for covered activities. The threshold is $1,000 for covered 501(c) organizations and $200 for 527 organizations. Thus, a 527 group would be required to disclose the names of all contributors and members to the organization that give $200 or more, along with the name of anyone receiving a payment of $200 or more for covered activities. For a 527 group, a covered activity means all activities of the organization, including those activities that are not intended to influence the outcomes of an election.(1) It must also include a certification whether any expenditures are made in cooperation or consultation with a candidate, authorized committee of the candidate, or agent of the candidate or committee. A covered 501(c) organization that spends $10,000 annually on covered activities would be required to disclose the names of all contributors and members to the organization that give $1,000 or more, along with the names of those receiving payments of $1,000 or more for covered activities. A covered activity includes:

• "527-type" activities (which includes issue advocacy, as well as express advocacy). For example, advocating on nominations or selections of people for public offices or political organizations at the local, state or federal level. Thus, activities that may not be truly "electoral" would be included in the definition;
• Establishing, administering, contributing to, or soliciting contributions to a 527 group. For example, a 501(c)(4) is permitted, upon disclosure, to administer a PAC, which is a 527 group. If the 501(c)(4) were to do so under this bill, it would be required to disclose the organization's contributors and certain expenditures if above the $10,000 threshold even if it does not engage in any other covered activities;
• Any "mass media" communication, including mass mailings, that "mentions" a clearly identified candidate for Federal office, the party of a candidate, or contains the picture or likeness of a candidate. Communications with bona fide members would be excluded unless the communication urges members to take action. Thus, distributing an analysis of legislation that mentions a member of Congress after they have announced their re-election intentions would be considered a covered activity. Given the bill has no limit on how far back this reaches, it would suggest that airing a nonpartisan Public Service Announcement today that was developed a few years ago with First Lady Hillary Clinton, for example, would be covered, since she is now a Senate candidate; and
• Contributing to a 501(c)(4), 501(c)(5) or 501(c)(6) that has engaged in disclosable activities anytime in the current year or any of the preceding three years;

In essence, virtually all 501(c)(4) organizations would be required to disclose the names of their contributors, even for contributions that are general support donations above the threshold. The bill allows covered 501(c) organizations to create a separate segregated fund if donors specifically earmark their contributions. Under such circumstances, only the donors to the segregated fund are disclosed. For most 501(c)(4) organizations this would require contacting their contributors -- including general support donors -- that give $1,000 or more and ask if they want all or a portion of their funds earmarked for covered activities under the bill. This would be an administrative nightmare, not to mention bad policy. But beyond that, this legislation raises substantial constitutional concerns over free speech, association, and privacy because it impedes issue advocacy and requires disclosure of donors. The definition of covered activities is extremely broad and covers far more than election-related communications, the stated purpose of the bill. Imagine someone who donates to a group who advocates on controversial issues - say gay rights. The group attempts to hold Congress accountable for their voting actions by informing the public through ads about the actions of certain members (assuming the members had declared their candidacy for another term). The danger emerges if the donor's name is suddenly disclosed, thereby trampling on the donor's right to anonymously associate with the organization. Will that chill the donor's participation in the group? Does it invade the donor's privacy? The answer to both is Yes. H.R. 4717 also requires 527 organizations to register within 10 days of being formed, and provide the IRS with information containing the organization's name and address, the name and address of anyone who exercises substantial influence over the organization's activities, the name and address of the treasurer and book keeper, and a listing of "all banks, safety deposit boxes, and other depositories" used by the organization. Concerns for 501(c)(3) Organizations Although 501(c)(3) organizations are excluded from disclosing names of donors under this legislation, there are two reasons why they should be concerned. First, many nonprofits undertake activities similar, if not identical, to 527 groups (e.g., lobbying on referenda or nominations). Thus, to the public the activities may look identical, but the reporting would not be. It would then be only a matter of time before Congress would debate parity for all 501(c) groups. Second, the notion of an organization that is engaged in issue advocacy being required to disclose the names of donors for the entire organization is poor public policy or likely to be unconstitutional. Charities should raise their collective voice to express concern about such ill-advised policy proposals. Conclusion This legislation is extremely broad and would greatly harm the ability of nonprofits to carry out legitimate issue advocacy. OMB Watch supports greater disclosure in order to reduce the influence of money in politics. But until a clearer definition of almost-express advocacy is developed that does not trample on basic constitutional rights, we believe a more reasoned approach is to extend the same type of disclosure regime that most 501(c) organizations currently fall under. 527 groups should be required to register and file reports similar to the Form 990, but modified to obtain information relevant to election-related activities could be required without constitutional problems and modified to report more frequently than the normal annual cycle. For more information on OMB Watch's position on disclosure of "political" activities, click here. 1. 527 groups may engage in referenda in exactly the same manner as 501(c)(3) organizations. For 501(c)(3) organizations, attempting to influence the outcome of referenda would be considered permissible lobbying. The only difference is one of intent: a 501(c)(3) organization is intending to influence the policy; the 527 group may be intending to influence the election of a candidate which is associated with the referenda.