Congress Tells IRS to Make Political Action Committees Disclose Names of Their Contributors

Article excerpt

Just what do we know about most political action committees, or PACs?

You know, those political organizations that run TV commercials telling us that Senator So-and-So stands for such-and-such or is against this-and-that.

The answer often is "not much."

But the times, they are a'changing. Fresh off the presidential campaign trail, Sen. John McCain, R-Ariz., convinced the Senate to pass a bill that would require PACs to disclose their operating expenses and make public the names of their donors.

On Wednesday, the House of Representatives passed a revised version of that bill by an overwhelming 385-39 vote. Moving at lightning speed, the Senate on Thursday voted 92-6 to approve the House-passed bill. And President Clinton has indicated that he will sign it.

Perhaps even more amazing, the legislation would give the enforcement authority to the Internal Revenue Service -- you know, that feisty little agency that the Republican majorities usually say they want to abolish.

But turning to the IRS is not as strange as it seems. You see, political organizations rely on a tax exemption for their existence.

Internal Revenue Code section 527 was enacted in the 1970s to clarify the tax treatment of campaign committees and political party organizations.

The provision protects candidates from having to treat campaign contributions as income, and it exempts political organizations from tax as long as they spend the contributions to influence elections.

In short, like section 501(c)(3) charities, political organizations are exempt from tax on the contributions that they receive.

Of course, there are a number of important differences between charities and political organizations. In particular, donations to charities (like the University of Oklahoma, for example) are deductible, but donations to political organizations are not. And while charities can't engage in political activity or significant amounts of lobbying, section 527 political organizations are supposed to be organized and operated primarily for the purpose of accepting contributions and making expenditures to influence elections.

For no apparent reason, however, the Tax Code imposes more stringent filing and reporting requirements on section 501(c)(3) charities than on section 527 political organizations. For example, unlike most charities, political organizations do not have to apply for recognition of their tax-exempt status.

And unlike most charities, political organizations do not have to file annual information returns with the IRS (Form 990, Return of Organization Exempt from Income Tax).

Current law also requires 501(c)(3) organizations to make a copy of their application for recognition of tax-exempt status and their annual returns available for inspection by the public, but no such disclosures are required of section 527 political organizations.

Campaign finance reformers latched on to these filing and disclosure differences as a justification for imposing greater IRS filing and disclosure requirements on political organizations.

As passed by Congress, the new legislation (H. …