Guest column: Politicians get big favor with IRS-backed spending accounts

By Steve Harry

What are 527 accounts and why should the voters of Michigan care?

I've been all worked up about Lansing Mayor Virg Bernero's 527 account since September 2009, when I read an article in the Lansing State Journal by Derek Melot. I looked up the contribution and expenditure detail on the IRS website, typed it all into a spreadsheet and posted it to my own website for all to see.

The issue of City Administrative Account funds being spent on personal expenses also was addressed by Angela Wittrock of mlive.com earlier this year.

So what's so troubling about Bernero's "City Administrative Account"?

These 527 accounts are named for section 527 of the Internal Revenue Service Code, which pertains to political organizations. Essentially, it says income spent by an organization on political activities is exempt from taxation, and that includes expenditures relating to an elected office "which, if incurred by the individual, would be allowable as a deduction under section 162 (a)."

But Section 162, Trade or Business Expenses, has little to do with political organizations. It exempts "the ordinary and necessary expenses paid or incurred … in carrying on any trade or business ..." and holding public office can be considered a trade. Section 162 is mentioned in the description of purpose for the City Administrative Account in both its Notice of Section 527 Status for the IRS and its articles of incorporation for the Michigan Department of Licensing and Regulatory Affairs.

I think what's wrong with accounts like the City Administrative Account is that it appears that a lot of the money is being spent on Bernero's personal living expenses, rather than the "ordinary and necessary expenses" of carrying out his mayoral duties. On my website, there is a list of expenditures sorted by purpose, and all you have to do is see how many of them are for "meals" and "meals & entertainment" to make you think that the account is just a tax-free supplement to the mayor's salary. The fact that the money comes from companies that do business with the capital city is troubling, too, but it would be less so if it was actually spent on city business.

I've asked the Lansing City Council to pass an ordinance banning 527 accounts for Lansing's elected officials, but I've also reported Virg to the IRS. There is a form for that on the IRS website. If the IRS finds that any of those expenses are not job-related, he'll have to pay taxes on them out of his own pocket.

But he is far from the only elected official in Michigan to have a 527 account. Attorney General Bill Schuette has one. Schuette’s predecessor, Mike Cox, had one, too.

Does having these conduits between deep-pocketed businesses and individuals and our elected officials make Michigan a better place?