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New Routes for Money to Sway Voters

501c Groups Escape Disclosure Rules

By Thomas B. Edsall and James V. Grimaldi
Washington Post Staff Writers
Monday, September 27, 2004; Page A01

In recent months, ads mocking Democratic presidential nominee John F. Kerry have been surfacing in battleground states and on national cable channels, paid for by a group called Citizens United.

In one television commercial playing off the MasterCard "Priceless" ads, the announcer describes Kerry's $75 haircuts, $250 designer shirts and $30 million worth of summer and winter homes. As a picture of Kerry and Sen. Edward M. Kennedy (D-Mass.) appears on screen, the announcer concludes: "Another rich, liberal elitist from Massachusetts who claims he's a man of the people. Priceless."



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The spot, more hard-edged than the ads run by the official Bush-Cheney '04 campaign, is in the same provocative vein as the controversial Swift Boat Veterans for Truth ads that have dominated much of the campaign since late August. There is one major difference, however: The Swift Boat group must disclose who is paying for its ads; Citizens United does not have to tell anybody where it got its money or how it is spent.

Neither does Project Vote, a group run by former Ohio Democratic Party chairman David J. Leland that hopes to register 1.15 million new voters in black, Hispanic and poor white communities. Nor do two major voter registration and turnout projects called "I Vote Values" and "The Battle for Marriage," backed by some of the largest organizations on the religious right that are coordinating a drive to register millions of evangelical Christians.

Unlike the campaigns of President Bush and Kerry, the two major parties, political action committees and the Swift Boat Veterans -- one of the "527" advocacy groups that have become part of the 2004 campaign lexicon -- Citizens United and Project Vote operate under the radar of regulation and public disclosure in what campaign finance expert Anthony Corrado of the Brookings Institution and Colby College described as "a real black hole."

Known as 501c groups, for a statute in the tax code, these tax-exempt advocacy and charitable organizations are conduits for a steady stream of secretive cash flowing into the election, in many respects unaffected by the McCain-Feingold legislation enacted in 2002. Unlike other political groups, 501c organizations are not governed by the Federal Election Commission but by the Internal Revenue Service, which in a complex set of regulations delineates a range of allowable activities that are subject to minimal disclosure long after Election Day.

A 501c (3) group can register voters, and donations to it are tax deductible, but it is prohibited from engaging in partisan or electioneering work. A 501c (4), (5) or (6) group can be involved in elections, but the cost of doing so must be less than one-half the group's total budget. Public Citizen, in a report last week titled "The New Stealth PACs," contended that many of the politically active 501c (4) groups regularly spend more than half their budgets on political activities in violation of IRS rules.

IRS rules also stipulate that electioneering by 501c (4), (5) and (6) groups cannot be "express advocacy" -- that is, telling people to vote for or against specific candidates. But such groups can run ads that address public issues such as immigration or taxes and that refer to the stands of candidates in ways that help or hurt them.

In the 2004 campaign, these legal distinctions have translated into two specific roles for these groups. One is to mobilize voters for Election Day. The other is to articulate criticism and orchestrate attacks that candidates and their parties may not want to launch themselves. That is the role assumed by Citizens United, whose president, David N. Bossie, is no stranger to hardball conservative politics.

Asked whether he would provide the names of his donors, Bossie said, "No, we follow the rules that are in place for 501c groups."

The rapid emergence of 501c and 527 groups in this election cycle is a direct consequence of the changes in political spending brought about by McCain-Feingold. The groups have essentially emerged to do what the law prevents parties from doing: They raise and spend unlimited contributions of "soft money" from corporations, unions and wealthy donors to influence federal elections.

Kent Cooper, who has watched the intricate ways money gets into the political system, first as chief of public records at the FEC and now as co-founder of PoliticalMoneyLine, said there is a growing need for more stringent regulation of 501c groups.

In the wake of the ban on party-raised soft money, Cooper said, evidence is mounting that money "is slithering through on other routes," as organizations "maintain various accounts, tripping over each other, shifting money between 501c (3)s, c(4)s and 527s. . . . It's big money, and the pendulum has swung too far in their direction."

Until 2000, neither 527s nor 501c organizations were required to list donors or account for expenditures. Sen. John McCain (R-Ariz.), angered at smears aimed at his presidential campaign by a 527 group, succeeded that year in passing legislation requiring the IRS to report the spending activities of 527s throughout the election cycle. That left the 501c organizations as the only groups with virtually no disclosure requirements.


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