IRS to Clamp Down on Reporting by Nonprofit Political Groups

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A new enforcement initiative by the Internal Revenue Service aims to give the public a clearer picture of who is contributing to tax-exempt political groups and how those donations are being spent.

The IRS has announced it will be taking a hard look at so-called "527s," nonprofit political groups named for Section 527 of the tax code that regulates them. Section 527 groups - through unlimited, individual soft-money contributions - are playing a big role in financing of the 2004 elections.

The IRS plans to immediately contact groups that have filed incomplete or late documents or those that are different than the original filing prior to upcoming reporting deadlines in September and October. The groups will be asked to provide additional information and make corrections in existing filings.

Errors are costly, with fines amounting to 35 percent of the incorrectly reported amount, the Wall Street Journal reported.

"The IRS is working to make sure this important information is available this fall and that these groups meet their public reporting responsibilities,” said Martha Sullivan, IRS Director of Exempt Organizations. Certain groups make their financial disclosures to the IRS instead of the Federal Election Commission (FEC).

Section 527 groups are coming under close scrutiny lately. Campaign finance reform in 2002 banned unlimited soft-money contributions to national political parties. Now, wealthy donors are contributing to the nonprofit 527s, which raised as much as $120 million by mid-year, the Center for Public Integrity has determined.

According to the Los Angeles Daily News, the Center for Public Integrity found big discrepancies in what the committees were reporting to the government.

Groups such as MoveOn.org, Club for Growth, America Coming Together and Emily's List can accept unlimited donations from individuals but cannot work directly with presidential campaigns. Some groups broadcast TV ads, others stage concerts, some mobilize voter registration.

The anti-Bush camp has used 527s most effectively. MSNBC has reported that according to the nonpartisan research group the Center for Responsive Politics, anti-Bush donor George Soros has donated $12.6 million so far to 527 groups. Of the top 10 individual donors to 527s, all are backing groups allied with Democrats or that oppose Bush.

The FEC is holding a hearing Thursday on proposed new limits on 527 groups for future elections.

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