The Center for Public Integrity

The Center for Public Integrity's ongoing analysis of 527 committees provides comprehensive documentation of a little-known, but well-oiled backdoor to political financing. Here is how our researchers do it.

Vetting the committees

Beginning in August 2000, the Internal Revenue Service was required to obtain detailed registration and financial activity reports from groups structured under Section 527 of the tax code regulating not-for-profit political organizations.

Since then, more than 20,000 groups registered as 527 committees. The vast majority of those were not actually 527 committees because they were already filing with state or federal election authorities. Center researchers narrowed this field in search of money raised and spent outside of federal and state campaign finance regulation. By focusing on organizations possessing one or more of the following traits, the Center was able to identify 628 committees to include in its study of "true" 527s:

• The committee is not required to report financial activities to state or federal election authorities.
• The committee is tied to or formed by a federal lawmaker.
• The committee is active in many states and spends most of its money on election-related activities such as broadcast advertisements, mailings and political research.

Some of the committees included in this database have registered with state election authorities but were added either because they have connections to prominent state and federal politicians or because they spent money in states that require outside entities to file with elections authorities.

Hours after Rep. Tom DeLay, R-Texas, was indicted by a Texas grand jury, he went on national television to refute the charges and to tell viewers that he was not alone: other members of Congress had made transactions similar to those that led to his prosecution.

"The Democrats do it. The Republicans did it," he told a commentator for Fox News, adding that such transactions are not only common but "very legal."DeLay was indicted by a Texas grand jury in late September on charges of conspiracy to violate state campaign finance laws, which prohibit the use of corporate money in state elections. The indictment alleges that his non-federal group—Texans for a Republican Majority—accepted $190,000 from six corporations and transferred the money to the Republican National Committee, which then used it to fund state candidates.

While the Texas courts have yet to decide if DeLay broke any state campaign finance laws, a study by the Center for Public Integrity1 shows that the former House majority leader was right about one thing: his committee's actions are hardly unique.

At least 30 other current members of Congress accepted a total of $7.8 million in corporate donations to their non-federal leadership committees from 2000 to 2002, the study has found. These organizations then transferred a combined $3.5 million to national party committees, which later gave $14 million to candidates in state elections.

The state laws governing such transactions are not uniform: 23 states prohibit corporate donations to candidates in state elections, while 27 allow some use of corporate funds. Of the $14 million contributed by national parties to state candidates, $5 million went to those in states which ban corporate donations.

Actions Similar to DeLay's Disputed Transactions

With $51 million in the bank for 2005 so far, 527 committees are riding high in the off-year election cycle. On the campaign trail, though, many of these political nonprofit organizations are running afoul of state regulators and election authorities.

So-called 527 committees—nicknamed for the section of the tax code under which they receive a tax exemption—can spend money in support of specific issues but not for the election of particular candidates. Some have been fined, forced to open their books or left to dissolve after months of battling state officials.

Take the Club for Growth, for example. The popular free-market political group—a top earner among 527s with $2.6 million raised so far this year—is being sued by the Federal Election Commission for failing to register as a political committee with the agency while spending money to influence congressional races.

Other 527 groups have found themselves in similar hot water with local officials because those in charge either sidestepped or misunderstood strict state campaign finance laws. Some alleged infractions include illegally contributing corporate money to state races, supporting a candidate rather than advocating an issue, forgetting to register with the state along with the IRS, and failing to disclose financial donors to the appropriate authorities.