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FEC to Take up 527 Regulation Again

The Federal Election Commission this week will take another stab at the dicey question of whether 527 groups ought to be subject to regulation under federal campaign finance laws and, if so, how to go about it.

In a proposal unveiled Friday, the watchdog agency’s top lawyers said they would not recommend relying solely on a group’s status under Section 527 of the tax code for qualification as a federal political committee.

Rather, the FEC’s Office of the General Counsel urged commissioners to look at both a group’s “avowed purpose” and its spending to ascertain whether it is a political committee with a major purpose of influencing federal elections and therefore subject to regulation.

Several Democratic-leaning 527 groups — including America Coming Together and the Media Fund — are playing a significant role in this year’s presidential election as they openly raise money to fund get-out-the-vote and voter registration efforts, as well as message campaigns intended to help defeat President Bush.

But if the commissioners adopt their lawyers’ recommendations, such groups may have to be careful about how they portray their activities.

“This office reasoned that it is eminently fair to impute the purpose of an organization, and therefore the purpose for which it gathers and uses funds, from how the organization describes itself to the public,” top FEC lawyers argued.

Among the statements that the commission would take into account, under this sort of approach, would be communications by the group’s high-level employees or decision-makers as well as the organization’s formal filings with government agencies.

“All of these communications are firmly within the group’s control,” FEC lawyers noted in their 47-page draft proposal.

The OGC also suggested that a group’s financial disbursements be used as a test of a group’s mission and suggested that commissioners implement an approach whereby the percentage of spending of federal election-related activities would have to exceed more than 50 percent of the group’s non-administrative or non-overhead spending.

“Under this approach, an organization may have only one major purpose that is greater than 50 percent of its overall purpose,” the FEC lawyers recommended.

What remains to be seen is how the agency’s three Republicans and three Democrats will react to the new proposal when it comes up for discussion at an open meeting Thursday.

The FEC had attempted to address this tricky question earlier this year, but was unable to reach an agreement and stalled consideration of new rules amid complaints from many in the nonprofit community that attempts to regulate 527s could infringe on the activities of other tax-exempt groups.

Some commissioners, such as Democrat Ellen Weintraub, expressed extreme caution about changing rules in the middle of an election cycle.

That angered campaign finance reform proponents such as Sen. John McCain (R-Ariz.), who contends that some organizations operating under Section 527 of the tax code are evading campaign finance laws by raising large amounts of soft money in an effort to influence the November elections.

“Ms. Weintraub has no business looking at the election calendar,” McCain charged in July at a Senate Rules and Administration Committee hearing on the future of the FEC. “What is her business is to enforce existing law.”

While Weintraub has urged caution on the 527 front, other commissioners such as Scott Thomas, a Democrat, and Michael Toner, a Republican, have been pushing for action sooner, rather than later.

The general counsel’s office suggested that FEC officials ought to clarify when 527 groups are required to register with the FEC for two reasons.

“First, because all existing non-connected political committees are 527 organizations, focusing on these organizations ensures that this rulemaking will have a predictable effect on existing organizations and will not cause committees that currently register and report to the Commission as political committees to cease doing so,” the legal memo stated.

“Second, an organization’s decision to avail itself of 527 status is inherently indicative of its choice to engage principally in electoral activity,” the draft continued. “It remains for the [FEC] to determine whether the organization’s predominant focus is on Federal elections or some other election, selection, nomination or appointment.”

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