Since requirements for the disclosure of political action committees' (PACs) soft money expenditures became effective in 2000, there have been calls to exempt state and local PACs that report their expenditures to state election commissions. These efforts were renewed at the end of 2001, although no action was taken. House Ways and Means Committee Chair Bill Thomas (R-CA) has stated his support for some kind of exemption, and the issue can be expected to come up again in 2002.

The law requires nonprofits whose primary purpose is influencing elections (under Section 527 of the tax code) and who have annual receipts of $25,000 or more to register with the Internal Revenue Service (IRS). They must also disclose contributions of $200 or more and expenditures of $500 or more. In addition, PACs with incomes over $25,000 must file IRS Form 990, an information return that other nonprofits are also required to submit. There are three exceptions to these requirements: groups with annual gross receipts of less than $25,000, those exempt under Section 501(c), or those subject to FEC regulation.

The difficulty for state and local PACs arises because of the way soft money is often spent. Only "hard money" is subject to FEC regulation and soft money spent on federal elections is often mixed with soft money spent on state and local elections. ("Hard money" refers to funds spent directly advocating for or against a specific federal candidate.) The law's purpose is to force disclosure of soft money spent on federal elections. To do that the bill sweeps in all PACs to prevent mingling of soft money spent on federal, state and local elections to evade disclosure.

The result is that PACs that only work on state and local elections are forced to register with the IRS, disclose contributions and spending, and file the annual information returns, creating a burdensome, duplicative reporting scheme. The challenge for lawmakers this year will be to find ways to eliminate duplicative reporting for state and local PACs, while retaining the ability to capture information on soft money expenditures. One element of a solution would be to continue requiring state and local PACs to register with the IRS and file Form 990, so that the IRS and the public can know how soft money is being spent.