ASAE Comments on Proposed Ruling on Section 527 Disclosure

September 8, 2000

[1] The American Society of Association Executives ("ASAE") is a Washington, D.C.-based association comprised of more than 25,000 professionals who manage approximately 11,000 trade, individual, and voluntary organizations. Almost all the associations represented by ASAE's membership are exempt from taxation under section 501(c)(3), 501(c)(4) or 501(c)(6) of the Internal Revenue Code. Approximately 30 percent of the organizations represented by ASAE's members have related political action committees ("PACs").

[2] ASAE welcomes the opportunity to comment on the proposed revenue ruling concerning Public Law 106-230 ("the Act") and its new reporting requirements for Section 527 organizations, issued by the Internal Revenue Service ("the Service") in Announcement 2000-72 on August 28, 2000. ASAE's comments, set forth below, are addressed to its members' specific areas of concern regarding this proposed revenue ruling.

A. FILING REQUIREMENTS FOR STATE PACs

[3] In Announcement 2000-72, the Service addressed an issue raised earlier by ASAE. Specifically, the Service's response to question 5 states: "Section 527(i) does not except political organizations that file reports with state or local agencies from the notice of status requirement. Therefore, unless the political organization meets one of the exceptions discussed above in Q&A-3, it must file Form 8871 with the Service."

[4] ASAE asks the Service to reconsider this response, given the clear intent by Congress to only require disclosure of information not otherwise available to the public. As you are by now aware, but may not have been at the time the proposed revenue ruling was drafted, 21 Members of Congress identifying themselves as drafters of the Act sent a letter dated July 25, 2000, to Commissioner Charles O. Rossotti spelling out Congressional intent. That letter states: "That law was intended to put a stop to the shameful practice of self-proclaimed election-related organizations taking the public subsidy of tax exemption under Section 527 of the tax code while claiming a right to hide from public view all information about their election-related activities." (Emphasis added.)

[5] While the focus of that letter was primarily on the statutory exemption for political committees that also report to the Federal Election Commission ("FEC") in Section 527(i)(6), the logic behind the creation of that exemption is equally true for the publicly available information reported by state and local PACs. The Service has at times exercised its powers to create common-sense exemptions from statutory requirements in instances when such requirements would result in unnecessary duplication. For an example in the exempt organizations arena, see Revenue Procedure 95-35, where the Service broadened an exemption under Section 6033(e)(3) to allow many exempt organizations to not be covered under lobbying tax reporting requirements. That Revenue Procedure stated that only Section 501(c)(5) agricultural organizations and organizations exempt under Sections 501(c)(6) and 501(c)(4) are required to adhere to lobbying tax reporting requirements. All other exempt organizations were deemed to fit the Section 6033(e) exception where substantially all of an organization's members' dues or similar amounts are not deductible. This regulatory action thus created a broader exemption than what was provided through statute, due to the Service's reasonable belief that a number of organizations would have otherwise faced a burdensome waiver procedure to prove to the Service they were not covered under the statute.

[6] If, however, the Service refuses to provide an exemption from the Form 8871 registration and Form 8872 reporting requirements for those state- and local-based PACs that already are required to report and make public substantially the same information as is called for in the Act, then ASAE urges the Service to provide a practical solution to ease the senseless duplication of efforts now required of such groups.

[7] That is, the Service should include a new rule covering those Section 527 organizations that already are required to periodically report to another government entity substantially all of the same information as is called for in the Act. Such organizations should be allowed to meet their Form 8872 filing requirements by merely filling in the identifying information in the heading of the Form 8872 and attaching a copy of their most recent such periodic report. Such a rule would be easy to craft and would be of immense benefit to state- and local-based PACs, many of which are small organizations with limited resources. A brief study of disclosures required by various states shows that most states actually require disclosure of more information than what is called for in the Act. In fact, each state's requirement for PAC itemization of expenditures is equal to or less than the threshold level contained in the Act. And, only two states have higher threshold levels for reporting of contributions.

[8] If such a burden-relieving rule were adopted, the Service would also be able to meet its obligations to make information available on the Internet by providing electronic hyperlinks from its web site to the sites of the various government agencies that post such information on the Internet, thus easing the burdens on the Service as well.

B. THE FORM 990 FILING REQUIREMENT FOR PACs

[9] There has been some confusion about the new Form 990 filing requirements, especially as they relate to PACs constituted as separate segregated funds of Section 501(c) organizations. The answer to question number 38 of Announcement 2000-72 makes an opening reference to "[p]olitical organizations required under Section 6012(a)(6) to file an income tax return." Since much of the confusion over the new Form 990 filing requirements arises from varying interpretations of that same Section 6012(a)(6), as amended by the Act, ASAE believes that there should be further clarification.

[10] In the July 25, 2000, letter referenced above from the 21 Members of Congress, the Act's drafters state that ".the fundamental purpose of the Public Law 106-230 was to force disclosure of currently undisclosed election-related contributions and expenditures[.]" It urges the IRS to ".make clear that the law's disclosure mandates apply to any PAC account whose contributions and expenditures are not reported to the FEC." The chief mechanisms by which such unreported contributions and expenditures must now be disclosed is through the new requirements to file Forms 8871, 8872 and 990.

[11] The letter then goes on to explain the Act's exemption from its new disclosure obligations for any person or organization already require to file periodic reports with the FEC. The letter states that "[t]he reason we created this exemption is obvious: it is both unnecessary and inappropriately burdensome to force groups reporting their activity to one federal agency (the FEC) to file the precise same information with another (the IRS)."

[12] ASAE urges that the proposed revenue ruling should be as explicit as the 21 Members of Congress have been in their letter. Set forth below are three scenarios by which Section 501(c) organizations or their related PACs make political expenditures. The Service's final guidance should spell out the new Form 990 requirements as they apply to each of these scenarios.

I. SECTION 527 ORGANIZATIONS RELATED TO TRADE AND PROFESSIONAL

[14] The Act explicitly allows the Service under new Section 6033(g)(2) to exercise discretionary authority to make exceptions to the requirement for Section 527 organizations to file Form 990. Two clear reasons for such a discretionary exception are (1) where the filing requirement would be contrary to Congressional intent and (2) where the filing would be unnecessarily duplicative. That is certainly the case with PACs that already file (and thus make publicly available) detailed income and expenditure information with the FEC or a state election agency and are related to either tax- exempt Section 501(c)(6) or 501(c)(4) organizations that already file the annual Form 990.

[15] FECA requires PACs to list on FEC reports the full name of the Section 501(c) organization with which it is affiliated, so that information should be sufficient to allow interested members of the public to find the related organization's Form 990, listing the main entity's exempt purposes, activities, officers and officer compensation, and related organizations. Requirements to list controlling entities are also included as part of virtually all state disclosure rules.

II. SECTION 527 ORGANIZATIONS RELATED TO TRADE AND PROFESSIONAL

[17] Certainly, the required Form 8872 gives ample detail as to exempt purpose receipts and expenditures, and the required 1120-POL would disclose receipts not related to exempt purpose. The Form 990 of a Section 501(c) organization that controls the PAC would disclose much relevant information, including data regarding individual leaders of the controlling organization. If the IRS were to add to the Form 8872 a question as to the full name and Employer Identification Number of any Section 501(c) organization that created or controls the PAC, the reader would be able to find all other relevant information as to the main entity's exempt purposes, activities, officers and officer compensation, and related organizations. The only other information that a separate Form 990 for the PAC might capture would be responses to certain "yes/no" questions (81b, 83a, and 84b) as to whether the PAC itself, not just the controlling organization, complied with certain specific reporting and disclosure requirements such as whether it filed a Form 1120-POL, whether it complied with for public inspection requirements, and whether it disclosed that all contributions were not deductible as charitable contributions. These few questions could simply be added to the Form 8872.

III. SECTION 501(c) ORGANIZATIONS MAKING POLITICAL EXPENDITURES

C. CONCLUSION

[19] ASAE thanks the Service for providing the opportunity to comment on this proposal and looks forward to the Service adopting the changes indicated above. We would, of course, be pleased to assist the Service in any way as it works toward a final ruling.

Sincerely,