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Exploratory Campaigns May Answer to IRS

By Lori Montgomery and Yolanda Woodlee
Washington Post Staff Writers
Thursday, February 3, 2005; Page DZ02

Outrage abounds these days over the peculiar habits of political exploratory committees. Under District law, they are permitted to accept contributions of any size, and they are not required to report them to the D.C. Office of Campaign Finance.

But it turns out there is someone who might take an official interest in the comings and goings of exploratory cash: the friendly folks at the IRS.

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Under Section 527 of the federal tax code, political organizations established to directly or indirectly affect an election are subject to taxation at a rate of 35 percent unless they file for tax-exempt status. A 527 organization that does not file financial disclosure reports with any other agency -- such as, for example, a state campaign finance office -- generally must make reports to the Internal Revenue Service, according to federal officials.

If the law were strictly applied, former D.C. Democratic Party chairman A. Scott Bolden, attorney Michael A. Brown, D.C. Council members Adrian M. Fenty (D-Ward 4) and Vincent B. Orange Sr. (D-Ward 5), and others who want to raise money to explore their chances in the 2006 mayor's race would have to identify their major donors to the IRS.

The next filing deadline for Form 8872 -- which requires listing every donor who has forked over at least $200 -- is July 31, and the public would have access to those filings.

The legal quirks of exploratory committees have attracted notice in recent weeks because an unprecedented number of potential candidates for mayor are using the committees to raise money and kick-start the 2006 campaign. Collectively, the four committees say they have raised nearly $300,000. Community activists say they have never seen such a flood of unregulated cash into D.C. politics.

This week, council member Phil Mendelson (D-At Large) introduced a bill to require exploratory committees to behave more like campaign committees. Mayoral exploratory contributions would be limited to $2,000 under the bill, and the committees would be required to file regular reports with the Office of Campaign Finance.

Meanwhile, there is Section 527. But Frances R. Hill, an expert on tax-exempt entities who teaches at the University of Miami School of Law, said the IRS has been reluctant to pursue local political committees. Hill said the IRS probably would conclude that an exploratory committee is just a version of a candidate campaign committee, which is automatically exempt from taxes and IRS reporting requirements.

"The District, by having no reporting requirements at all for exploratory committees, has raised an issue that is unresolved" in federal tax law, Hill said.

For the record, Bolden and Brown have filed papers claiming 527 tax-exempt status. Fenty and Orange have not filed with the IRS. Fenty has voluntarily published the names of many of his contributors.

Going After Code Violators

Newly elected D.C. Council member Vincent C. Gray (D-Ward 7) isn't wasting any time responding to an issue that has haunted a far Northeast corner of his ward.

Joined by Council member Jim Graham (D-Ward 1), Gray introduced emergency legislation Tuesday that would increase the penalties for builders, developers or residents who violate the city's housing code.

Under the measure, anyone who violates the code could pay up to $2,000 in fines and spend a maximum of 90 days in jail.

Gray said the previous penalties -- $300 per violation and up to 10 days in jail -- were not enough of a deterrent.

Dixon A. Oladele, a builder in Gray's ward, had been fined more than $200,000 since 2000.

After paying the fines, Oladele continued to build without obtaining building permits, city officials said. He was arrested and charged last month with 296 criminal violations for allegedly building a house without the proper permits.

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