Section 527 of the Internal Revenue Service tax code refers to a political organization that engages in issue advocacy at the local, state, or federal level. 527 groups are nonprofit and tax-exempt. However, contributions are not tax-deductible to the person making them. For the purpose of taxation, the IRS considers political party organizations, campaign organizations associated with candidates for office, political action committees (PACs), and other organized political entities as falling within the scope of section 527 (this would include super PACs). All 527 groups are required to file disclosure forms detailing their income sources and their expenses with the IRS on a routine basis. The Federal Elections Commission (FEC), however, only requires that political parties, candidates’ campaign organizations, and PACs disclose this information on a specified schedule; all other 527s are exempt from the strict schedule of FEC disclosure. This means that exempt 527 groups can operate with more secrecy than other 527 groups, at least in the short term.
While exempt 527 groups engage in electioneering activities similar to those of traditional PACs, they are subject to less regulation by the FEC. While PACs must have a minimum number of donors, and there are limits to how much an individual can contribute to a PAC, there are no such limits on exempt 527 groups. Thus, they have become attractive means for corporations, unions, other organized interests, and even individuals to spend large amounts of money on federal elections with much less scrutiny of their activities.
After the Bipartisan Campaign Reform Act of 2002 prohibited outside groups from making unlimited contributions to political parties for voter education and get-out-the-vote (GOTV) programs, 527 group activity surged. Stephen Weissman and Ruth Hassan estimate that federally focused 527 spending leaped from $151 million in 2002 to $424 million in the Campaign of 2004. In subsequent elections, 527 spending declined, totaling about $200 million in the Campaign of 2008. Nevertheless, 527 spending still accounted for half of all outside spending in the 2008 election, according to the Campaign Finance Institute. One of the primary reasons for the decline in 527 spending is that donors have been moving toward 501(c) groups, which are subject to far fewer regulations. This trend continued into the Campaign of 2012, when the Center for Responsive Politics estimates that federally focused 527 groups spent approximately $153 million on the election.
Some of the most notorious examples of 527 spending can be found in the Campaign of 2004, where Swift Boat Veterans for Truth and MoveOn were responsible for financing some of the most controversial ads in the election. In the Campaign of 2008, Democrats were the primary beneficiaries of 527 spending, and Republicans were the primary beneficiaries of 501(c) spending.
See also Campaign Finance Reform; Independent Advocacy Groups; Super PAC; Swift Boating
Center for Responsive Politics. “527s: Advocacy Group Spending.” https://www.opensecrets.org/527s/index.php?filter=F#split. Accessed September 29, 2015.
Center for Responsive Politics. “Types of Advocacy Groups.” http://www.opensecrets.org/527s/types.php. Accessed September 29, 2015.
Internal Revenue Service. “Tax Information for Political Organizations.” April 8, 2010. http://www.irs.gov/charities/political/index.html. Accessed September 29, 2015.
Malbin, Michael J. The Election after Reform: Money, Politics, and the Bipartisan Campaign Reform Act. Lanham, MD: Rowman & Littlefield, 2006.
Weissman, Steve, and Ruth Hassan. “BCRA and the 527 Groups.” In Michael J. Malbin, ed. The Election after Reform: Money, Politics, and the Bipartisan Campaign Reform Act. Lanham, MD: Rowman & Littlefield, 2006.
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.