Disclosure of political donor groups proposed

Agency member opposes tax loophole that allows secret giving, spending

May 06, 2000|By David Folkenflik | David Folkenflik,SUN NATIONAL STAFF

WASHINGTON -- A member of the Federal Election Commission is proposing to force public disclosure on an emergent class of political groups that fly beneath regulatory radar without having to identify their donors or what the money is spent on.

The commissioner, Karl J. Sandstrom, a Democrat, said his proposal was needed to address the increasingly active organizations that flout the intent of post-Watergate reforms by taking advantage of a loophole in the tax code.

Sandstrom's proposal would also subject the groups to strict limits on the size of the donations they could receive and from whom they could receive money.

The new regulations were formally proposed Thursday, two days after House Democrats alleged in a racketeering lawsuit that the House majority whip, Rep. Tom DeLay of Texas, extorted money from corporations and funneled it through two of these groups.

Tony Rudy, DeLay's deputy chief of staff, promised to scrutinize Democratic fund-raising practices if the lawsuit moves forward.

"They are opening a Pandora's box of litigation," Rudy said. "They forgot who they were dealing with."

DeLay has denounced the charges, while James Bopp Jr., a lawyer for one of the new political groups, called the suit "an unprecedented assault on the ability of citizens to associate with members of Congress."

These new groups have flourished thanks to a loophole in Section 527 of the Internal Revenue Code, which grants tax-exempt status to politically active groups.

As long as they do not expressly advocate or oppose specific candidates, or contribute money toward individual campaigns, these Section 527 groups can receive and spend unlimited amounts of money to affect political races.

They can receive money directly from corporations, unions and foreigners. And they need not identify their contributors, how much they have received from those donors, or where they spend their money.

Political action committees are allowed to contribute directly to candidates and to explicitly endorse a candidate.

But the FEC strictly regulates PAC activity, requiring disclosure of donors and expenditures. Election law also restricts how much money PACs can receive from individual donors. And it bars contributions from corporations, unions and foreigners.

Sandstrom's proposed regulation would subject all Section 527 groups to the same regulations as PACs.

"What's important in a case like ours is to remove the ambiguity and replace it with objective rules," he said.

Several attorneys who practice election law said they believed his proposal could receive a chilly reception from the commission, which is split evenly between Republicans and Democrats.

"While there's a surface appeal to say things ought to be treated in the same way under the tax code and under election law, it usually doesn't work that way," said David M. Mason, a Republican on the FEC. "I don't think it will fly."

One of the Section 527 groups linked to DeLay, called Americans for Economic Growth, paid for televised ads critical of vulnerable House Democrats last fall.

Sen. John McCain, an Arizona Republican, and Vice President Al Gore, a Democrat, were attacked in ads this winter paid for by Section 527 groups established by Republicans.

The Sierra Club and the League of Environmental Voters have Section 527 organizations that will spend more than $8 million to aid selected lawmakers - most of them Democrats.

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