After the passage of the Bipartisan Campaign Reform Act of 2002, which banned soft-money contributions to political parties and retained limits on PAC and individual contributions, many political analysts predicted that unions, corporations, and other organized interests would use 527 groups to advance their political agendas. As long as 527 groups were engaging in independent issue advocacy (rather than promoting a specific candidate), contributions to such groups were not subject to any limits, and there were no limits on their election spending. However, they must disclose their contributors. Many political analysts believed that large donors would still want to influence election outcomes, and if they could not contribute large sums directly to political parties anymore, they would contribute to other groups that would engage in the same types of activities.
While 527-group donations and expenditures did surge after 2002, hitting a high mark of $424 million in the Campaign of 2004, they quickly abated as large donors sought to conceal their identities. Such donors seeking greater anonymity have turned in recent years to section 501(c) of the federal tax code. The 501(c) designation—in particular, the 501(c)(4) designation—is reserved for charitable and social welfare organizations, and such are not permitted to have electioneering as a primary purpose. These 501(c) organizations are beyond the regulatory scope of the Federal Elections Commission (because they are not deemed campaign organizations), and the IRS does not require that they disclose the identity of their donors.
In 2004, 501(c) groups spent approximately $60 million on federal elections, according to the Campaign Finance Institute (CFI). CFI estimates that in the Campaign of 2008, overall 501(c) spending tripled as donors increasingly sought to conceal their identities. They found that many industries and interest groups that had previously utilized 527 groups were redirecting their resources toward 501(c) groups, particularly those groups associated with conservative causes. Republican-leaning 501(c) groups spent twice as much as Democratic-leaning 501(c) groups in 2008. However, Democratic-leaning 527 groups outspent Republican-leaning 527 groups at a similar rate, suggesting that many liberal-leaning groups had yet to make the transition to 501(c) groups. This asymmetry continued into the Campaign of 2012. The Center for Responsive Politics estimated that in the 2012 election, liberal-leaning non-disclosing groups (their term for 501(c) groups) spent approximately $33.6 million, while conservative-leaning groups spent approximately $265.5 million. While the IRS had initially indicated that it would be enforcing the rules on groups claiming to be 501(c)(4)s more strictly in future elections, in the spring of 2015, it backed off of proposed new regulations, delaying any discussion of reform until well after the Campaign of 2016.
See also Campaign Finance Reform; Independent Advocacy Groups; Super PAC
Center for Responsive Politics. “Types of Advocacy Groups.” q. Accessed September 29, 2015.
Weissman, Steve, and Suraj Sazawal. “501(c) Groups Emerge as Big Players Alongside 527s.” Campaign Finance Institute, October 31, 2008. http://www.cfinst.org/press/PReleases/08-10-31/Outside_Soft_Money_Groups_in_2008_Election.aspx. Accessed September 29, 2015.
Weissman, Steve, and Suraj Sazawal. “Soft Money Political Spending by 501(c) Nonprofits Tripled in 2008 Election.” Campaign Finance Institute, February 25, 2009. http://www.cfinst.org/press/releases_tags/09-02-25/Soft_Money_Political_Spending_by_Nonprofits_Tripled_in_2008.aspx. Accessed September 29, 2015.