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How soft money gets dirty in a way no one can trace

ASK THIS | August 24, 2004

Some political campaign groups play by the rules, registering their activities with the FEC, the IRS or both, writes freelance journalist Frank Smyth. Others, including ones that run vicious attack ads on TV, may skirt the law — or rely on lack of oversight by the IRS — to find ways of keeping secret the names of their contributors.

By Frank Smyth

Q. Are any non-profit, "social welfare" organizations buying or planning to buy airtime in your market?

Q. Are their ads obviously political?

Q. If so, is the IRS looking into revoking their status?

Q. What do these organizations' Form 990s say?

Suppose your favorite state or local candidate were to suddenly be attacked ten days before an election by a TV ad claiming that he or she was soft on sexual predators and child pornographers? That happened to Kirk Watson when he ran for Texas attorney general in 2002, and the group paying for the ads, the Law Enforcement Alliance of America, has yet to disclose where it got, or is still getting, its money. (See my Texas Observer article, July 30, 2004). Watson, running a close race before the ads started running, lost.

The Bipartisan Campaign Reform Act of 2002 (the McCain-Feingold Act) severed the link between federal officeholders and special interests that could give millions in "soft money" contributions to the political parties. Lately, there's been a lot of coverage of the so-called "527 groups," and their ability to affect the election. There are no spending or contribution limits on 527s – but they, at least, must disclose the amounts and sources of their contributions.

By contrast, campaign finance law has no provisions at all for so-called non-profit "social welfare organizations" or 501(c)(4) groups. (For more on the distinction between 527s and 501(c)(4)s -- and other advocacy groups -- see  opensecrets.org.)

One reason the Campaign Reform Act did not regulate such groups is that they are already limited by U.S. federal tax law in how much of their own money they can spend on politics. But if the 2002 elections in states across the nation are any indication, all such groups need to do is rely on the lack of IRS scrutiny, or stretch the law a little on their IRS tax forms. In the absence of any real IRS oversight, they can find a back-door way to pump millions of dollars into hard-fought races in many states.

The test in such cases is how active in politics the group behind the TV ads is. A social welfare organization, for instance, according to the IRS Web site, is not supposed to be involved in "direct or indirect participation in political campaigns on behalf or in opposition to any candidate for public office." Yet, the Law Enforcement Alliance of America (LEAA) calls its ads, like the one attacking Kirk Watson in the Texas attorney general race, "public education commercials" and the IRS so far has gone along with this description.

One thing reporters can do to try to find out at least a little about the finances of any non-profit group is to ask to see their tax returns (form 990), which are supposed to spell out how they spend their money and who directs the organization. These forms may have useful information, or they may reveal little, since the groups are not required to disclose their donors. (See IRC 6104(d)(1)(A)). Nevertheless, it's worth trying. Any such group is required by law to respond within 30 days to a written request, and on the same day if such a request is made in person. The IRS is also required to make the same forms available upon written request, but this always takes a while — sometimes a very long while. Neither the LEAA nor the IRS has yet to disclose the latest LEAA balance sheet — one that would cover, at least in general, the amount spent in 2002 on ads like those against Watson.

Reporters seeking form 990s and other forms filed with the IRS may search at GuideStar , a free national data base recommended by the IRS. For information about non-profits that may be violating the law, reporters may consult The Campaign Legal Center, a watchdog group staffed by some of the same attorneys who wrote the McCain-Feingold Act. To be found there are watchdog reports and complaints to the FEC and IRS about specific groups and their alleged campaign finance violations. Another group that monitors campaign activities by non-profit groups is the Center for Public Integrity.

Frank Smyth is a freelance journalist.

Texas Observer
Article by Frank Smyth on keeping secret the names of soft money contributors.

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