Chris Shays (R-CT) and Marty Meehan (ex-D-MA) lost their challenge of a Federal Election Commission decision on 527 organizations in a decision related to the Bipartisan Campaign Reform Act. The two, the House counterparts of McCain and Feingold regarding BCRA, wanted such organization defined as political committees under all circumstances; FEC retains its right to take them on a case-by-case basis. The issue was settled in the US District Court for the District of Columbia.
527s became a big issue during the 2004 presidential campaign, with groups such as MoveOn.org and Club for Growth using soft contributions to fund advertising efforts. The FEC had been slow to define such groups, named after a section of IRS tax code, and therefore did little in the way of regulating them in 2004.
But since then, it has declared many groups claiming 527 status to in fact be political action committees and has levied substantial fines against many for overspending.
In a release, the FEC explained, "In reaching this decision Judge Emmet G. Sullivan agreed with the Commission that judgments about whether the major purpose of an organization is influencing federal elections are complex and therefore the FEC’s decision not to draft a general rule but rather to consider this question on a case by case basis is within the agency’s discretion. The Court also noted that ‘the FEC has successfully brought enforcement actions against 527 groups since the [Court’s] 2006 opinion…’ The Commission has completed action against a number of such groups that were active in the 2004 election cycle, and these groups have agreed to pay a total of approximately 2.3M in civil penalties."
RBR/TVBR observation: MoveOn long ago dropped its 527 status and has been relying on small donations to keep its cash and advertising projects flowing, and the hefty fines that FEC has been issuing make it unlikely that many who used this loophole in the past will try to overtly do so again in the future. However, if such groups engage in issue advertising that can be argued to be not directly advocating the election or defeat of any specific candidate, we suppose they would be free and clear to do so under the recent Supreme Court ruling in the Wisconsin Right to Life case. It looks like while the 527 loophole has been closed for the most part, another big loophole was opened on the issues front. In the end, the cash flow into the political battle should continue full throttle.