Appeals Court Upholds 527 Disclosure Law

Posted January 2, 2004 at 5:09pm

A federal appeals court has upheld the constitutionality of an early campaign finance law forcing secretive political organizations to disclose their contributors and expenditures, ruling that Congress can impose requirements on nonprofits without violating free speech rights.

The decision by a unanimous three-judge panel of the 11th U.S. Circuit Court of Appeals was issued Dec. 24, two weeks after the Supreme Court upheld the broader Bipartisan Campaign Reform Act.

The appeals court overturned a lower court’s rejection of about three-quarters of a law requiring Section 527 organizations to report their contributors, expenditures and other identifying information to the Internal Revenue Service.

Responding to an explosive growth of 527 groups and the millions of unaccountable dollars being poured into them, Congress swiftly passed legislation in 2000 requiring tens of thousands of such political groups to disclose information about their activities.

The groups are known as 527s because they register under Section 527 of the tax code, which allows them to operate essentially tax-free. The law passed in 2000 conditioned the tax exemption on the disclosure of identifying information about the groups.

The Mobile Republican Assembly, a conservative grassroots group in Alabama, challenged the law on the grounds that it violates politically active nonprofit groups’ right to free speech. The organization won a key victory in 2002 when U.S. District Judge Richard Vollmer struck down most of the provisions of the law in a highly critical 68-page decision.

The appeals court viewed the law differently, brushing aside Vollmer’s extensive analysis of the law under the First, Fifth and 10th amendments by concluding that nonprofit groups do not enjoy a special right to what is essentially a tax subsidy and that Congress can decide how nonprofit groups should operate within the overall tax scheme.

“Congress has enacted no barrier to the exercise of the appellees’ constitutional rights. Rather, Congress has established certain requirements that must be followed in order to claim the benefit of a public tax subsidy,” Circuit Judge Rosemary Barkett wrote.

“Any political organization uncomfortable with the disclosure of expenditures or contributions may simply decline to register under section 527 and avoid these requirements altogether. The fact that the organization might then engage in somewhat less speech because of stricter financial constraints does not create a constitutionally mandated right to the tax subsidy,” Barkett wrote.

Vollmer, an appointee of then-President George H.W. Bush, died in March 2003.