The Problem With 527
Organizations Is Some Transparency
527 organizations (a broad category that includes Super PACs) have been an open charade in the democratic process for years, avoiding direct support of candidates while producing material that could only support their chosen candidates. For example the 527 organization Swift Boat Veterans for Truth attacked presidential candidate John Kerry during the 2004 election, without actually expressing direct support for President Bush.
In June 2010, Karl Rove and American Crossroads founded Crossroads GPS (Grassroots Policy Strategies) that, as a 501(c)(4), had even fewer constraints. American Crossroads was one of 1,500 applicants for 501(c)(4) status in 2010.
In 2012 there were some 3,400 applications.
According to the Internal Revenue Code passed by Congress, 501(c)(4) status is reserved for "civic leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare" [emphasis added]. In 1959, during the Eisenhower administration, the IRS decided to ignore the letter of the law, and wrote rules for 501(c)(4) organizations requiring only that they be primarily for the promotion of social welfare.
Supreme Court Puts
Money-ocracy Over Democracy
The difference between "exclusively" and "primarily" created a loophole even a non-lawyer could exploit, but it became most useful to $100 million outfits like American Crossroads only after the Supreme Court, with its January 2010, 5-4 decision in Citizens United (558 US 310), opened the American political process to virtually any money from any source, with almost no duty to disclose anything.
Similarly, the emergence of 527 organizations derived from another Supreme Court decision, Buckley v Valeo (424 US 1) in January 1976, representing the court's pushback against federal election laws passed by Congress to address some of the recent Watergate abuses. Issued as an anonymous decision "by the court" (with two, opposing dissents), Buckley effectively gave money the same legal standing as speech, complete with First Amendment protection, albeit with some restrictions.
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