OMB Watch is a 501(c)(3) tax-exempt organization that promotes greater citizen participation in pursuing a more accountable, responsive, and just government. To a large extent, we work with and through the nonprofit sector because of its vital place in our communities and our faith that the sector can play a powerful role to invigorate our democratic principles. OMB Watch works with nearly 10,000 nonprofits around the country -- mostly 501(c)(3) organizations, but also 501(c)(4) organizations and unions -- on various issues, including the protection of the nonprofit advocacy voice. OMB Watch understands the potentially corrupting influence of money in politics, and recognizes the urgent need to revitalize public confidence in our democracy. Despite serious concerns about some of the recent suggestions for legislative action, we recognize the benefits of public disclosure of the sources of communications that are closely tied to candidates and elections, even if they fall short of the "express advocacy" standard permitting certain speech to be regulated and limited under the Federal Elections Campaign Act ("FECA"). A reporting scheme similar to that imposed on other nonprofit organizations would meet much of the legitimate public need for information about these entities. As for more extensive regulation, we believe that "soft money" issues, including the problems raised by unlimited contributions to political parties, need to be addressed as part of a comprehensive approach to campaign finance reform. Focusing only on the advocacy activities of nonprofit organizations fails to address substantial problems throughout the existing campaign finance system. As an initial matter, we note that nonprofit "political activities," the subject of much discussion in Congress, may refer to a broad range of communications. Depending on context, "political" may describe spending that expressly supports the election or defeat of a candidate; discussions of candidates that fall short of such express advocacy; discussion of public policy issues conducted in the course of an election campaign that may have some effect on the outcome of the election; direct or grass roots lobbying with no electoral link; advocacy for or against a ballot measure; attempts to influence the nomination or confirmation of executive branch appointees; or even non-legislative policy advocacy. The distinctions between these categories of political speech are often far from clear, and it will help focus our discussion to acknowledge that they may be qualitatively different, and susceptible to differing constitutional analyses. Disclosure of Nonprofit Political Activities Should be Limited in Scope to Narrowly-Defined Activities OMB Watch recognizes the legitimate interest in public disclosure of spending intended to influence the outcome of elections, even when the communications fall short of expressly advocating the election or defeat of candidates. Public disclosure of candidate contributions as well as other electoral expenditures allows the electorate to make more informed voting decisions; public scrutiny of the sources of influence on policy makers are important to the government accountability OMB Watch is committed to. As described in greater detail below, we fully support extending to tax code section 527 groups the same level of disclosure that is applied under current law to other nonprofit organizations. More detailed disclosure of expenditures for electoral purposes may even be merited. The interests of a free and vibrant democracy demand public accountability. But such accountability should not be advanced at the expense of freedom of association. Any disclosure requirements imposed on an organization that engages in political advocacy burden, to some extent, the exercise of First Amendment rights. In some circumstances the government's legitimate interest in disclosure even of express advocacy is not sufficient to outweigh the administrative burden required to establish a separate segregated fund for political campaign advocacy.(1) When the regulated speech falls short of express advocacy, the burden of detailed reporting is even more likely to be found to outweigh the public interest in disclosure. Any attempt to regulate political speech, whether that of individuals or citizens' groups, must tread very carefully. Unless the boundaries of regulated speech are drawn both narrowly and precisely, forced disclosure and additional administrative burdens threaten to undermine well-recognized rights of citizens to associate freely and to engage in political advocacy without fear of reprisal. The existing definition of political activities under tax code section 527(e), for instance, is both unclear and overbroad. It includes not only communications that are primarily intended to promote a candidate, but also speech that may have an electoral effect without being clearly electoral on its face. Still, let us assume for the moment that it is possible to define clearly a category of "electioneering" speech that falls just short of express advocacy. If the activity triggering the requirements is closely tied to speech that is clearly and unambiguously campaign-related, there is a strong governmental interest in requiring disclosure. Similarly, the more carefully the disclosure requirements are linked to the activity of concern, the less likely they are to infringe on other constitutionally protected speech. Unless a disclosure scheme is based on a carefully and narrowly crafted definition of electioneering speech, its reach is likely to be unconstitutionally vague or over broad. There are indeed many organizations that take advantage of existing legal rules to engage in advocacy falling just short of "express," yet is clearly intended and is understood to serve as an electioneering message. In principle, there may be no constitutional impediment to disclosure requirements limited to these candidate-related electoral communications falling just short of express advocacy. In practice, however, the goal of forcing disclosure of advocacy closely tied to electioneering without impermissibly burdening citizens' rights to engage in advocacy on issues may prove elusive. Donor Disclosure Has the Potential to Substantially Burden First Amendment Rights Many proposals have been put forward that would require disclosure of identifying information about contributors to organizations that engage in political advocacy (variously defined). Yet, mandating disclosure of the identity of donors to nonprofit organizations raises troubling implications for free association and speech. By banding together to speak collectively, members and supporters of nonprofit organizations enhance the exercise of their free speech rights. Particularly when addressing controversial issues, such organizations play a critical role in permitting effective advocacy. Viewpoints that might otherwise go unvoiced can compete in the "marketplace of ideas," and be evaluated on their merits. It is a fundamental tenet of this country's commitment to free speech that allowing many ideas to be heard and considered is inherently beneficial. Any action that would inhibit the expression of ideas should only be taken if it advances a truly compelling countervailing interest, and should be narrowly focused to limit as little speech as possible. Privacy is an essential element of free association, a right closely linked to free speech. Forced disclosure of membership in (or financial support of) nonprofit organizations substantially burdens the members' right to speak out on issues of public importance. It is an obstacle to the freedom of association which becomes the mechanism for the exercise of free speech. Congress has historically recognized the importance of shielding most nonprofit donor information from public disclosure. Section 501(c) organizations must report certain donor information to the IRS as part of their exemption applications and annual tax filings. Those documents must be made publicly available, but the names and addresses of donors are excluded from public disclosure.(2) The constitutional dimension of donor disclosure was most notably set out in NAACP v. Alabama,(3) which recognized the right of organizational members to join together to advocate on issues without revealing their individual identities. Subsequently, the Court in Buckley v. Valeo recognized the potential that donor disclosure has for infringing on First Amendment rights.(4) The record keeping, reporting, and donor disclosure requirements imposed by FECA on candidates and political committees were upheld only after a finding that they furthered government interests that were both significant and substantially related to the information required to be disclosed. Any attempt to mandate the disclosure of donors to nonprofit organizations must be evaluated in light of this standard. Requiring disclosure of contributions earmarked for narrowly-defined electioneering communications would probably be tailored to achieve the goal of making public information about what is perceived as "surreptitious" campaign spending. On the other hand, a requirement of the disclosure of all donors if an organization engages, as any part of its activity, in certain types of advocacy, sweeps far broader, imposes a greater burden on associational rights, and effectively penalizes groups for engaging in political speech at the core of the First Amendment's protections. Itemized Expenditure Disclosure Does Little to Further the Public Interest in Accountability Disclosure of itemized expenditures, either of an entire organization or for particular activities, raises similar First Amendment concerns. Mandating disclosure of the identity of those who receive payments from an organization could include potentially private information, such as employee reimbursements. As was recognized in Brown v. Socialist Workers '74 Campaign Committee(5), it is not only those who contribute to or join organizations representing unpopular causes who may be subject to harassment or intimidation; those who choose to do business with such groups may be targeted because of that connection as well. While disclosing which office supply store an entity patronizes is unlikely to have negative ramifications, the clients of individual consultants or small firms may very well reflect the consultant's political convictions. Working with a controversial organization is sometimes not just an economic statement. Further, is it unclear what interest highly detailed, itemized reporting of expenditures would serve. Even if the only burden on the exercise of free speech rights is the additional administrative hassle of tracking and reporting expenditures in detail, the burden on the organization must correlate to an important public interest. It is highly questionable that the public's ability to evaluate political speech would be meaningfully advanced by knowing the identity of the media consultant who helped an organization buy air time for an advertisement. In upholding FECA's disclosure requirements for independent expenditures, the Buckley Court suggested such requirements, if applied to an organization not operated primarily for political purposes, would be unconstitutionally over broad if extended to communications short of express advocacy. Thus, an expenditure disclosure scheme that applies to more broadly defined political speech must be carefully tailored to advance a compelling interest in disclosure. In addition to constitutional concerns, prudent policy suggests that potentially burdensome reporting requirements should not be imposed unless they are reasonably expected to provide a level of information that is useful to the public. Itemized expenditure reporting does not lead to significantly more useful information than can be obtained from reporting of general categories of expenses. In any case, it does not make sense to require detailed disclosure of expenditures for "political" activities unless the same requirement applies to all such expenditures by any entity. The public interest in obtaining information about political expenditures by nonprofit organizations is no greater than the interest in similar information about such activities by for-profit companies. If there is indeed a legitimate public need to know who paid whom how much to undertake specific political advocacy, it applies equally to all entities. Disclosure Limited to 527 Organizations Raises Problems of Public Confusion and Inconsistency Some proposals would limit their scope to entities exempt from taxation under section 527 that are not required to register and report under FECA. These organizations are by definition "operated primarily for the purpose of directly or indirectly ... influencing or attempting to influence" elections to public office.(6) By limiting its reach to these political organizations, this approach minimizes its infringement of donors' rights; a contributor to a 527 organization is at least on notice that she is supporting an organization involved in election-related advocacy. In addition, this approach has the merit of addressing an unintended gap in existing reporting and disclosure laws. As discussed below, OMB Watch supports imposing registration and reporting requirements on 527 organizations similar to those for other nonprofit organizations. However, a more comprehensive disclosure regime limited to 527 organizations raises difficult issues. In recent years, IRS rulings have progressively extended the reach of activities covered by section 527(e).(7) This definition covers not only those communications that barely escape regulation by the Federal Election Commission (FEC), but also a wide array of issue advocacy that may only indirectly affect a candidate election. There must be a nexus to elections, but the link may be slight, and may not be evident on the face of a communication. The electoral connection may only be revealed upon close inspection of internal documents demonstrating the organization's intent in decisions regarding geographic targeting or message development. Rulings have found that 527 activities may encompass grassroots lobbying communications; mass media advertisements that do not identify specific legislators; ballot measure activities; and litigation. In many cases, the determination that these activities are "political" rests on evidence of subjective intent found only in internal records.(8) The contents of a communication may not overtly be linked to an election, but decisions made about targeting and distribution bring it into 527's ambit. The breadth of the IRS interpretation of 527(e) demonstrates a fact that courts in election law cases have repeatedly recognized: advocacy of issues and advocacy for or against candidates are often inextricably intertwined. Some 527 activity may be indistinguishable to the outside observer from pure issue advocacy activities conducted by 501(c)(4), or even 501(c)(3), nonprofit organizations.(9) We therefore believe that imposing detailed donor disclosure requirements on only one type of organization would lead to both inconsistency and public confusion. Furthermore, to the extent section 527 organizations engage in advocacy that reaches much further than a narrowly drawn category of almost-express advocacy, forced donor disclosure implicates the same constitutional concerns raised in NAACP v. Alabama. Citizens choose to maintain individual anonymity and engage in political advocacy through support of organizations for a variety of legitimate reasons. Their right to do so should not be abridged absent compelling countervailing concerns. Including all 527 organizations with their entire range of advocacy activities is not sufficiently narrowly tailored to the interest in providing the public with information about campaign expenditures to offset the infringement on their supporters' right to privacy in their political associations. Extending Disclosure to Other Organizations is Even More Problematic Other proposals would impose disclosure obligations on organizations that engage in covered "political" activity regardless of the type of organization. While this approach avoids the logical inconsistency of different disclosure requirements for organizations whose activities may appear indistinguishable, it does so at the expense of the First Amendment rights of supporters of organizations not organized primarily for electoral purposes. Requiring disclosure of donors who support the general activities of a nonprofit organization because that organization chooses to engage in legally permissible political advocacy effectively penalizes the exercise of free speech. Extending any disclosure requirement beyond donations earmarked for communications closely linked to candidates and elections invades donors' associational rights without furthering a compelling public interest substantially related to the required disclosure. There may be many reasons that individual donors would not want their support of an organization to become public knowledge. Contemporary issues, like public opinion and public tolerance for dissent, change swiftly. Even issues that are not unpopular today may one day become highly controversial. A disclosure system that makes public lists of individuals supporting various causes creates a potentially chilling legacy. We need only recall to the McCarthy era to realize the potential for misuse of such information. Some have suggested the harsh effects of donor disclosure requirements could be ameliorated by permitting an organization to establish a separate fund for covered "political" activities, and limit disclosure to contributors to that fund. This modification slightly reduces the infringement on free association, but it nonetheless establishes a significant burden on organizations wishing to engage in issue advocacy in the context of a political campaign. However, the administrative burden of maintaining a segregated account and separately raising funds for certain advocacy activities should not be underestimated. Requiring such specific earmarking in raising funds for different advocacy activities creates many difficulties. Donors typically give to support an organization's mission, trusting the nonprofit to use the funds as best it can to achieve those ends. Dividing the organization's activities into two (or more) pools requires that contributions be earmarked for one or the other. Rather than deciding on a day-to-day basis which activities best further the group's mission, funded by donors who support that mission, a nonprofit must solicit in advance specific contributions for specific activities. Donors are deprived of the ability to effectively provide general support for the organization. Any sort of earmarking scheme requires complex administration that reduces flexibility and impedes the ability to conduct program activities. Especially for an organization with a broad donor base, asking each contributor to designate the activities to be supported with her contribution creates a tremendous barrier to operating a unified organization. The tax code already provides for creation of separate segregated funds for nonprofits to engage in political activity.(10) Creating such a fund allows an organization to avoid taxation of its investment income. The administrative burden of operating through such a fund does not offset the tax penalty of conducting political activities directly. A legislative proposal that would set donor privacy as the additional price of not administering a segregated fund for political activities seriously impedes the exercise of First Amendment rights. The administrative burden of establishing a PAC under the election law played a role in the determination that a ban on independent express advocacy by corporations violated MCFL's First Amendment rights.(11) Requiring a separate fund for political advocacy defined more broadly than express advocacy as the price of protecting donor privacy raises serious constitutional issues. It is important to recognize that existing FCC regulations already require that an organization making a communication via paid broadcast advertising identify itself. The print media, as a matter of policy, generally require identification of the sponsor of paid ads. Mandating disclosure of that organization's supporters may add incrementally to the information available to the public in evaluating its message, but only at the expense of a significant infringement on associational rights. Established nonprofit organizations are generally known to the public; their agenda is understood, and their position can be weighed accordingly. The public can also weigh the credibility of organizations that do not have an established reputation, or that represent only a small group of donors. The incremental benefit of public disclosure of donors to organizations that may only incidentally engage in political campaign advocacy does not support invading their supporters' privacy, associational, and speech rights. We also note the difficulty of defining appropriately covered activity. Several legislative proposals that have made an activity the trigger for disclosure rather than the type of organization have sought to capture communications that fall short of express advocacy, yet are sufficiently closely tied to candidates and elections to merit regulation. Yet in attempting to draw a bright line to give regulated entities adequate notice of covered activities, these definitions have inevitably swept too broadly. For instance, grassroots lobbying communications with no electoral intent (or effect) whatsoever must necessarily identify legislators whom the public is urged to contact regarding legislation. Yet legislators are frequently candidates. Distinguishing genuine lobbying messages from those that use legislation as an excuse to tarnish a candidate's character is no simple task. Indeed, some bills proposed would require disclosure of individual donors for organizations that make communications that do not even constitute political advocacy. Some of these proposals cover communications that "mention an individual holding Federal office or a clearly identified candidate for election for Federal office." Yet this definition includes not only lobbying messages, but even a public service announcement that features a well-known public figure and office holder encouraging screening for a particular health risk. Even if it is constitutionally possible to impose disclosure requirements on organizations based on participation in certain activities, the net should not be cast so wide as to capture non-electoral, or even wholly non-political, communications. We are also concerned that disclosure requirements imposed on activities that are entirely non-electoral would inevitably be extended to 501(c)(3) organizations. While 501(c)(3) charities may be exempted from disclosure initially, the inconsistency of a disclosure regimen triggered by advocacy of 501(c)(4), 501(c)(5), or 501(c)(6) organizations but not by similar advocacy by 501(c)(3)s will inevitably generate pressure to eliminate this inequity. If an election campaign disclosure measure is to avoid the risk of being extended to entities that are prohibited from engaging in campaigns, it must regulate only unambiguously electoral activity. Appropriate Disclosure for 527 Organizations Despite serious concerns about the potential scope of some of the proposals for donor disclosure related to political activities, OMB Watch does believe there is a need to address the legal anomaly that imposes no registration or reporting requirements on 527 organizations that fall outside the authority of the FEC. The form 1120-POL currently filed by these organizations does not provide sufficient information to evaluate them. However, the existing tax code framework for disclosure of other nonprofit organizations should, with a few modifications, serve to provide sufficient information to allow greater public understanding of these currently unregulated entities. Most 501(c) tax-exempt entities must file Form 990 with the IRS on an annual basis. They provide information about their financial condition, program activities, revenues, expenditures, names of officers and directors, and compliance with various legal restrictions. It certainly makes sense to extend this type of reporting scheme to 527 organizations, so that the different types of tax exempt organizations are subject to similar tax reporting requirements. Additionally, 527 organizations should file a registration statement with the FEC upon their formation to provide the news media and members of the public with notice of its existence. The press has uncovered the existence of a number of 527 organizations even under current law, allowing the public to judge their communications accordingly. Mandating publicly available registration of all 527 groups would go far to shedding the light of public scrutiny on their activities. The information contained on a 990-style filing would provide a reasonable basis for the public to evaluate an entity sponsoring political advocacy activities, as it does for other nonprofit organizations. While individual donor identities are not subject to public disclosure, the form provides an overall picture of the organization's sources of support, financial situation, and activities. Similarly, the 990 requires reporting expenditures by category, rather than itemized detail. Surely the public interest in disclosure would be served by knowing the breakdown of funds spent on media buys, message development, staff, overhead, and fundraising costs; permitting an examination of each entry in a check register does not add a meaningful degree of public accountability. It might be appropriate to consider for 527s some modifications from the information required on the basic Form 990. Just as 501(c)(3)s must file Schedule A containing more detailed information considered particularly significant in evaluating their legal compliance, 990-style disclosure by 527s need not be strictly limited to the exact items required of 501(c)(4)s, 501(c)(5)s, or 501(c)(6)s. A supplemental schedule could provide additional information helpful to the public in evaluating 527 entities. One significant concern that has been raised about 527s is that they may represent the interests of only a small group of individuals, yet operate under a name that deceptively suggests they are organized to promote the public interest. It is not necessary to reveal the identities of individual donors to notify the public that these entities do not in fact represent a broader community. A measure similar to that used by 501(c)(3)s to demonstrate "public support" can indicate whether an organization receives broad public support or is likely to represent the interests of a small group of donors. Armed with this information, the public can evaluate the credibility of an organization's statements and the likelihood that it is seeking to advance a private agenda. In some cases, it may be appropriate to require individual disclosure of large expenditures. For instance, consultants may play a significant role in developing an organization's program activities. Just as the identity and compensation of officers, directors or key employees is disclosed on the 990, the identity of consultants (perhaps those compensated over a certain amount) can be important in determining the entity's agenda. Thus, just as 501(c)(3)s must disclose on Schedule A payments to consultants over $50,000, similar disclosure for 527 organizations, or for expenditures by other organizations undertaking 527 activities, may increase public accountability. The annual 990 submission may present two special problems when extended to 527 groups. First, an annual submission is not timely, particularly in the context of disclosure about actions to influence the outcomes of an election. To solve this problem, we think 527 groups making expenditures above a specific threshold should be required to report on a quarterly basis. This reporting should be done electronically to insure immediate and accurate disclosure. Second, the IRS is not structured to provide immediate release of information and is chronically underfunded in its tax-exempt enforcement area. Accordingly, we suggest that 527 groups should not only submit the 990 filing to the IRS, but also to the FEC. The FEC is more adequately prepared to provide prompt public access to information. We believe this type of disclosure -- absent donor disclosure -- can greatly enhance public accountability. Admittedly, it is not perfect. It may still be difficult to determine the extent to which a 527 organization is candidate controlled, even with disclosure of directors. It will not provide detailed FEC-type disclosure for communications falling just short of express advocacy but having nearly the same impact. But, as described earlier, we do not believe it is possible to create a bright line test of such activity without trampling on constitutional rights. Despite these limitations, our suggestions would allow the public to take notice of a newly registered 527 group. If the public contacts the newly registered group and they choose not to disclose certain information, that refusal may have some impact on the credibility and legitimacy given to the group's message. Combined with information from the 990, the public will be armed with information to hold the 527 group accountable, yet core constitutional principles will not be violated. 1. FEC v. Massachusetts Citizens for Life, 479 U.S. 238, 252-255 (1986) (hereinafter MCFL). 2. E.g., 26 U.S.C. §§ 6104(b), 6104(d)(3)(A). 3. 357 U.S. 449 (1958). 4. 424 U.S. 1, 64 (1976). 5. 459 U.S. 87, 96-98 (1982). 6. 26 U.S.C. § 527(e) 7. In fact, section 527 sweeps more broadly than expenditures directly and indirectly related to candidate elections, and may include some activities which even 501(c)(3) organizations may undertake, such as seeking to influence nomination and Senate confirmation of Executive branch appointees. We assume for purposes of this discussion that non-electoral 527 organizations and activities could somehow be carved out from the scope of any legislation, although this could be difficult. 8. E.g., Priv. Ltr. Rul. 1999-25-051 (Mar. 29, 1999). 9. For example, 501(c)(3) organizations may support or oppose referenda, which would be counted under its permissible lobbying activities. Unlike the 527 group, the 501(c)(3) is engaged to influence the policy, not an election. In this case, the difference between the two groups is one of intent, not action - and therefore indistinguishable to the public. 10. 26 U.S.C. §527(f)(3). 11. 479 U.S. at 252-255.