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They seemed to appear out of nowhere in the 1994 presidential election, a handful of powerful and well-funded 527s that had a profound impact on the presidential race. The most famous of them, Swift Boat Veterans for Truth, attacked the Vietnam War record of Democratic presidential nominee Sen. John Kerry (D-Mass.), inflicting heavy damage on his candidacy. In fact, 527s�the term refers to the section of the federal tax code governing political committees�have been around in one form or another since 1975, when Congress formally exempted political organizations from federal taxation. And they are far more common than people realize. “All PACs and campaign committees are 527s,” explains Ki Hong, a partner at Skadden, Arps, Slate, Meagher & Flom who specializes in election law. “It’s the part of the tax code that allows a political organization to raise money without being taxed on it.” But it’s the subset of 527s that are not subject to federal election law guidelines and the spending limits they impose�including Swift Boat Veterans for Truth and America Coming Together, the Democratic 527 supported by George Soros�that have become the most controversial. If a 527 doesn’t cross the line and become a political action committee�by avoiding contributions to candidates or coordination with their campaigns�there are absolutely no limits on the amount of money it can raise from one individual or a corporation. Contributions of $200 or more, however, must be listed on publicly available reports filed with the Internal Revenue Service. Ironically, it was a good-government measure, the landmark McCain-Feingold Bipartisan Campaign Reform Act of 2002, and its ban on unlimited soft-money contributions that really made 527 a household word, at least inside the Beltway. In the pre-BICRA days, corporations and individuals could give unlimited amounts of money to the national party committees. Once that option was eliminated, the money flowed somewhere else�namely, to the coffers of 527s. “They squeezed it out of the party committees and it manifested itself in the 527s,” notes Kenneth Gross, a Skadden, Arps partner who has practiced election law for three decades. “The Democrats, like [former Clinton Deputy Chief of Staff Harold] Ickes and Soros, were first out of the box, then the Republicans perfected it.” But if the 2004 election was the moment of ascendancy for 527s, this year pales in comparison, at least on a federal level. According to the nonpartisan Center for Responsive Politics, 527 activity has shifted significantly from national issues to state elections. In some states, according to the center, 527s can expressly advocate for the election or defeat of statewide candidates, something they cannot do under federal election law. “George Soros, as far as we can tell, hasn’t given nearly as much money [to 527s] in 2006 as in 2004,” says the center’s acting executive director, Sheila Krumholz. Indeed, as of data available in late August, representing roughly the first 18 months of the 2006 election cycle, 527s that focused on national issues raised 55 percent less money than during a comparable period in 2004, falling to $96 million from $211 million. But state-focused 527s have shown the opposite result, raising $105 million by late August compared with $75 million during the same period two years earlier.
T.R. Goldman can be contacted [email protected].

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