[Federal Register: February 7, 2007 (Volume 72, Number 25)]
[Rules and Regulations]
[Page 5595-5606]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr07fe07-2]
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FEDERAL ELECTION COMMISSION
11 CFR Part 100
[Notice 2007-3]
Political Committee Status
AGENCY: Federal Election Commission.
ACTION: Supplemental Explanation and Justification.
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SUMMARY: In November 2004, the Federal Election Commission (``FEC'')
adopted new regulations codifying when an organization's solicitations
generate ``contributions'' under the Federal Election Campaign Act
(``FECA'' or ``the Act''), and consequently, require that organization,
regardless of tax status, to register as a political committee with the
FEC. Additionally, the Commission substantially revised its allocation
regulations to require the costs of voter drives, certain campaign
advertisements, and a political committee's general administrative
costs be paid for in whole or in substantial part with funds subject to
FECA's limits, prohibitions, and reporting requirements. Pursuant to
Shays v. FEC, 424 F. Supp. 2d 100 (D.D.C. 2006) (``Shays II''), the
Commission is publishing a supplemental Explanation and Justification
to provide a more detailed explanation of (a) The basis for the
measures it adopted and (b) the reasons it declined to revise the
regulatory definition of ``political committee'' to single out
organizations exempt from Federal taxation under section 527 of the
Internal Revenue Code (``527 organizations'') for increased regulation.
This document also discusses several recently resolved administrative
matters that provide considerable guidance to all organizations
regarding the receipt of contributions, making of expenditures, and
political committee status.
EFFECTIVE DATE: February 7, 2007.
FOR FURTHER INFORMATION CONTACT: Mr. J. Duane Pugh Jr., Acting
Assistant General Counsel, or Ms. Margaret G. Perl, Attorney, 999 E
Street, NW.,
[[Page 5596]]
Washington, DC 20463, (202) 694-1650 or (800) 424-9530.
SUPPLEMENTARY INFORMATION:
Explanation and Justification
On November 23, 2004, following an extensive rulemaking process,
the Commission adopted new regulations to ensure that organizations
that participate in Federal elections conduct their activities in
compliance with Federal law. This rulemaking generated an extraordinary
amount of public engagement on the issue of when organizations should
have to register with and report their activities to the FEC. The
Commission received and considered over 100,000 written comments,
including comments from approximately 150 Members of Congress, many
political party organizations, hundreds of non-profit organizations, as
well as academics, trade associations, and labor organizations.
Additionally, the Commission heard testimony from 31 witnesses during
two days of public hearings on April 14 and 15, 2004.\1\
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\1\ The comments and transcripts of the public hearing are
available at http://www.fec.gov/law/RulemakingArchive.shmtl under
``Political Committee Status (2004)''.
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At the end of this process, the Commission amended its regulations
in two significant ways. First, the Commission adopted a regulation
codifying when an organization's solicitations generate
``contributions'' under FECA, and consequently, may require an
organization to register as a political committee with the FEC. Second,
the Commission substantially revised its allocation regulations to
require that voter drives and campaign ads that target Federal
elections, as well as a substantial portion of a political committee's
administrative costs, be paid for with funds subject to Federal limits,
prohibitions, and reporting requirements. See Final Rules on Political
Committee Status, Definition of Contribution, and Allocation for
Separate Segregated Funds and Nonconnected Committees, 69 FR 68056,
68056-63 (Nov. 23, 2004) (``2004 Final Rules''); see also 11 CFR 100.57
and 106.6. The 2004 Final Rules also explained the Commission's
decision not to re-define the terms ``political committee'' in 11 CFR
100.5 and ``expenditure'' in 11 CFR 100.110 through 100.154, including
the Commission's decision not to establish a separate political
committee definition singling out 527 organizations.\2\ See 2004 Final
Rules, 69 FR at 68063-65. The 2004 Final Rules took effect January 1,
2005. Id. at 68056.
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\2\ Under the Internal Revenue Code, a 527 organization is ``a
party, committee, association, fund, or other organization (whether
or not incorporated) organized and operated primarily for the
purpose of directly or indirectly accepting contributions or making
expenditures, or both, for an exempt function.'' 26 U.S.C.
527(e)(1). The ``exempt function'' of 527 organizations is the
``function of influencing or attempting to influence the selection,
nomination, election, or appointment of any individual to any
Federal, State, or local public office or office in a political
organization,'' or the election or selection of presidential or vice
presidential electors. 26 U.S.C. 527(e)(2). Virtually all political
committees that register with the Commission under FECA are also tax
exempt under section 527 of the Internal Revenue Code, including
political party committees, authorized campaign committees of
candidates, separate segregated funds, and nonconnected committees.
See 11 CFR 1005.
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In 2004, an action was brought before the U.S. District Court of
the District of Columbia challenging the Commission's decision not to
revise the regulatory definition of ``political committee.'' See Shays
II, 424 F. Supp. 2d at 114-17.\3\ Plaintiffs sought a court order
directing the Commission to promulgate a rule specifically addressing
the political committee status of all 527 organizations. Id. at 116.
The district court rejected the plaintiffs' request to order the
Commission to commence a new rulemaking, concluding that nothing in
FECA, Congress's most-recent amendments in the Bipartisan Campaign
Reform Act of 2002 (``BCRA''),\4\ or the Supreme Court's decision in
McConnell v. FEC, 540 U.S. 93 (2003), required the Commission to adopt
such rules. Shays II, 424 F. Supp. 2d at 108. Case law, the Shays II
court explained, demonstrates ``that a statutory mandate is a crucial
component to a finding that an agency's reliance on adjudication [is]
arbitrary and capricious.'' Id. at 114. The district court found,
however, that the Commission ``failed to present a reasoned explanation
for its decision'' not to regulate 527 organizations specifically by
virtue of their status under the Internal Revenue Code, and remanded
the case to the Commission ``to explain its decision or institute a new
rulemaking.'' Id. at 116-17.
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\3\ Documents related to this litigation are available at http://www.fec.gov/law/
[fxsp0]litigation--CAA--Alpha.[fxsp0]shtml#shays--
04.
\4\ Pub. L. 107-155, 116 Stat. 81 (Mar. 7, 2002).
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The Commission did not appeal the district court's ruling. Instead,
the Commission is issuing this supplemental Explanation and
Justification to explain its decision not to use tax law
classifications as a substitute for making determinations of political
committee status under FECA, as construed by the courts. By adopting a
new regulation under which any organization may be required to register
as a political committee and by tightening the rules governing how
political committees fund activity for the purpose of influencing
Federal elections, the Commission has acted to prevent circumvention
not by just 527 organizations, but by groups of all kinds. As further
explained, the Commission's decision not to single out 527
organizations is entirely consistent with the statutory scheme, Supreme
Court precedent, and Congressional action regarding 527 organizations.
Political committee status, whether articulated in FECA, Supreme Court
interpretations of FECA, or the Commission's regulations, must be
applied and enforced by the Commission through a case-by-case analysis
of a specific organization's conduct. Existing regulations, bolstered
by the adoption of the 2004 Final Rules, leave the Commission with a
very effective mechanism for addressing claims that organizations of
any tax status should be registered as political committees under FECA.
The Commission's recent enforcement experience confirms this
conclusion.
Parts A and D of this document explain the framework for
establishing political committee status under FECA, as interpreted by
the Supreme Court. Parts B and C explain why reliance on a group's tax
exempt status under section 527 of the Internal Revenue Code cannot
substitute for an analysis of the group's conduct. Part E discusses the
new and amended rules the Commission adopted in 2004, which codified an
additional trigger for political committee status and increased the
Federal funding requirements to participate in certain election-related
activities. Finally, Part F describes the significance of several
recently resolved enforcement matters that illustrate the sufficiency
of the legal basis for the Commission's political committee status
determinations.
A. FECA Provides a Specific, Conduct-Based Framework for Establishing
Political Committee Status
Since its enactment in 1971, FECA has placed strict limits and
source prohibitions on the contributions received by organizations that
are defined as political committees. Under the Act, an organization's
conduct has always been the basis for determining whether it is
required to register and abide by the Act's requirements as a political
committee. Likewise, since its enactment in 1971, the determination of
political committee status has taken place on a case-by-case basis.
FECA defines a ``political committee'' as ``any committee, club,
association, or other group of persons which receives
[[Page 5597]]
contributions aggregating in excess of $1,000 during a calendar year or
which makes expenditures aggregating in excess of $1,000 during a
calendar year.'' See 2 U.S.C. 431(4)(A). FECA further defines the terms
``contribution'' and ``expenditure,'' limiting these terms to those
receipts and disbursements made ``for the purpose of influencing any
election for Federal office.'' 2 U.S.C. 431(8) and (9). Commission
regulations first promulgated in 1975 essentially repeat FECA's
definition of ``political committee.'' 11 CFR 100.5(a).\5\
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\5\ See H.R. Doc. No. 97-293, at 7-8 and 29-30 (1975) addressing
11 CFR 100.14 (1976), which was recodified as 11 CFR 100.5 in 1980.
See 45 FR 15080 (Mar. 7, 1980).
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Congress has not materially amended the definition of ``political
committee'' since the enactment of section 431(4)(A) in 1971, nor has
Congress at any time since required the Commission to adopt or amend
its regulations in this area. Indeed, in 2002, when Congress made
sweeping changes in campaign finance law pursuant to BCRA, it left the
definition of ``political committee'' undisturbed and political
committee status to be determined on a case-by-case basis.
To address constitutional concerns raised when FECA was adopted,
the Supreme Court added two additional requirements that affect the
statutory definition of political committee. First, the Supreme Court
held, when applied to communications made independently of a candidate
or a candidate's committee, the term ``expenditure'' includes only
``expenditures for communications that in express terms advocate the
election or defeat of a clearly identified candidate for federal
office.'' Buckley v. Valeo, 424 U.S. 1, 44, 80 (1976).\6\ Second, the
Supreme Court mandated that an additional hurdle was necessary to avoid
Constitutional vagueness concerns; only organizations whose ``major
purpose'' is the nomination or election of a Federal candidate can be
considered ``political committees'' under the Act. Id. at 79. The court
deemed this necessary to avoid the regulation of activity
``encompassing both issue discussion and advocacy of a political
result.'' See, e.g., Buckley, 424 U.S. at 79; FEC v. Massachusetts
Citizens for Life, Inc., 479 U.S. 238, 262 (1986) (``MCFL'').
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\6\ The Supreme Court applies a different analysis to
coordinated expenditures. See Buckley, 424 U.S. at 46-47 (``They
argue that expenditures controlled by or coordinated with the
candidate and his campaign might well have virtually the same value
to the candidate as a contribution and would pose similar dangers of
abuse. yet such controlled or coordinated expenditures are treated
as contributions rather than expenditures under the Act.''). Cf. AO
2006-20 Unity '08 (finding monies spent on ballot access through
petition drives by an organization supporting only two candidates,
both yet to be selected, one for the office of President of the
United States and one for the office of Vice President, are
expenditures).
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Neither BCRA, McConnell, nor any other legislative, regulatory, or
judicial action has eliminated (1) The Supreme Court's express advocacy
requirement for expenditures on communications made independently of a
candidate or (2) the Court's major purpose test. In its 2003 McConnell
decision, the Supreme Court implicitly endorsed the major purpose
framework to uphold BCRA's regulation of political party activity
against vagueness concerns. See McConnell, 540 U.S. at 170 n.64 (``This
is particularly the case here, since actions taken by political parties
are presumed to be in connection with election campaigns. See Buckley,
424 U.S. at 79, 96 S. Ct. 612 (noting that a general requirement that
political committees disclose their expenditures raised no vagueness
problems because the term `political committee' `need only encompass
organizations that are under the control of a candidate or the major
purpose of which is the nomination or election of a candidate * *
*')'').
McConnell also addressed the Buckley expenditure framework,
finding, ``the express advocacy limitation, in both the expenditure and
disclosure contexts, was the product of statutory interpretation rather
than a constitutional command.'' McConnell, 540 U.S. at 191-92.
However, the Court made it clear that FECA continued to contain the
express advocacy limitation as to expenditures on communications made
independently of a candidate, because Congress, in enacting BCRA,
modified the limitation only insofar as it applied to ``electioneering
communications.'' The Court found:
Since our decision in Buckley, Congress' power to prohibit
corporations and unions from using funds in their treasuries to
finance advertisements expressly advocating the election or defeat
of candidates has been firmly embedded in our law * * * Section 203
of BCRA amends [2 U.S.C. 441b(b)(2)] to extend this rule, which
previously applied only to express advocacy, to all `electioneering
communications' covered by the definition of that term in [2 U.S.C.
434(f)(3)].
McConnell, 540 U.S. at 203-04.
Congress did not amend the definition of expenditure in BCRA, and
in fact, specified that ``electioneering communications'' are not
expenditures under the Act. 2 U.S.C. 434(f)(1) and (2) (treating
electioneering communications as ``disbursements''). Accordingly, while
BCRA, as interpreted by McConnell, did not extend Buckley's express
advocacy limitation to the regulation of ``electioneering
communications,'' it also did not alter that limitation as to
expenditures on communications made independently of a candidate.
Absent future Congressional action altering the definition of
``expenditure,'' the Supreme Court's limitation of expenditures, on
communications made independently of a candidate, to ``express
advocacy'' continues to apply.
Therefore, determining political committee status under FECA, as
modified by the Supreme Court, requires an analysis of both an
organization's specific conduct--whether it received $1,000 in
contributions or made $1,000 in expenditures--as well as its overall
conduct--whether its major purpose is Federal campaign activity (i.e.,
the nomination or election of a Federal candidate). Neither FECA, its
subsequent amendments, nor any judicial decision interpreting either,
has substituted tax status as an acceptable proxy for this conduct-
based determination.
The Commission has promulgated regulations defining in detail what
constitutes a ``contribution'' and an ``expenditure.'' See 11 CFR
100.51 to 100.94 and 100.110 to 100.155. Many administrative actions,
including the recently resolved actions against several 527
organizations that are described in Part F below, include substantial
investigations and case-by-case analyses and determinations of whether
a group's fundraising generated ``contributions'' and whether payments
for its communications made independently of a candidate constituted
``expenditures,'' as alternative prerequisites to a determination that
a group is a political committee, prior to any consideration of the
group's major purpose. Additional regulations defining ``contribution''
and ``expenditure'' would not obviate the need for a case-by-case
investigation and determination in a Commission enforcement proceeding.
Neither would a regulation defining ``major purpose'' that singled out
527 organizations, as the Shays II plaintiffs seek, obviate the need
for case-by-case investigations and determinations in the Commission's
enforcement process regarding the organization's major purpose.
B. Section 527 Tax Status Does Not Determine Whether an Organization Is
a Political Committee Under FECA
527 organizations are so named for section 527 of the Internal
Revenue Code, a section that exempts certain activities from taxation.
An organization's election of section 527
[[Page 5598]]
tax status is not sufficient evidence in itself that the organization
satisfies FECA and the Supreme Court's contribution, expenditure, and
major purpose requirements. As stated by a commenter, ``All that 527
status means is that the organization is exempt from federal income tax
to the extent it spends political income on political activities * * *
All federal political committees registered with the FEC are 527
organizations. So are the Republican National Committee and the
Democratic National Committee. So are John Kerry for President, Inc.
and Bush-Cheney '04, Inc. So is every candidate's campaign committee
right down to school board and dogcatcher.'' Thus, virtually all
political committees are 527 organizations. It does not necessarily
follow that all 527 organizations are or should be registered as
political committees.
The IRS's requirements for an organization to be entitled to the
tax exemption under section 527 are based on a different and broader
set of criteria than the Commission's determination of political
committee status. See note 2 above. Section 527 exempts political
organizations from tax on ``exempt function'' income, where the
Internal Revenue Code would impose tax on such activity when conducted
by other non-profit organizations, such as groups organized under
section 501(c)(4) (social welfare organizations), 501(c)(5) (labor
organizations), and 501(c)(6) (business leagues). See 26 U.S.C.
527(c)(1) and (f)(1). Accordingly, the definition of ``exempt
function'' is central to the reach of section 527. ``Exempt function''
is defined as the ``function of influencing or attempting to influence
the selection, nomination, election, or appointment of any individual
to any Federal, State, or local public office or office in a political
organization, or the election of Presidential or Vice-Presidential
electors.'' 26 U.S.C. 527(e)(2).
By definition, 527 organizations may engage in a host of State,
local, and non-electoral activity well outside the Commission's
jurisdiction. As noted by several commenters, the broad range of groups
availing themselves of the 527 exemption include, but are not limited
to the following: All Federal, State, and local candidate campaign
committees and party entities; Federal, State, and local political
action committees; caucuses and associations of State or local public
officials; newsletter funds operated by Federal, State, and local
public officials; funds set up to pay ordinary business expenses of a
public officeholder; political party officer committees; and groups
seeking to influence the appointment of judicial and executive branch
officials. A forthcoming tax law article states:
Once section 527 is placed in proper context, it becomes clear
that the tax law is not a very good mechanism for differentiating
between election-focused and ideological groups. Because of its
unique policies and idiosyncrasies, the tax law has an exceptionally
broad definition of ``political organization,'' one that has the
potential to capture ideological as well as partisan organizations.
Furthermore, section 527 should not be understood to convey any real
tax benefits to organizations that self-identify. Accordingly, the
reformers' mission to use section 527 as a campaign finance
instrument is misguided.
Gregg D. Polsky, A Tax Lawyer's Perspective on Section 527
Organizations, 28 Cardozo L. Rev. (forthcoming Feb. 2007).
The IRS has specifically determined that exempt function activity
can include disbursements for Federal electoral activity that does not
constitute express advocacy. IRS Revenue Ruling 2004-6 states (at 4):
``[w]hen an advocacy communication explicitly advocates the election or
defeat of an individual to public office, the expenditure clearly is
for an exempt function under [section] 527(e)(2). However, when an
advocacy communication relating to a public policy issue does not
explicitly advocate the election or defeat of a candidate, all the
facts and circumstances need to be considered to determine whether the
expenditure is for an exempt function under [section] 527(e)(2).'' Rev.
Rul. 04-6, 2004-1 C.B. 328. Accordingly, the IRS structure presumes
section 527 organizations will engage in non-express advocacy
activities. Indeed, organizations could easily qualify for 527 status
without ever making expenditures for express advocacy. However, as
discussed above, that activity is outside of the Commission's
regulatory scope under Buckley's express advocacy limitation for
expenditures on communications made independently of a candidate. See
Buckley, 424 U.S. at 44; see also 2 U.S.C. 431(8) and (9) (defining
contribution and expenditure as ``for the purpose of influencing any
election for Federal office'').
The IRS ``facts and circumstances'' test, if applied to FECA,
clearly would violate the Supreme Court's Constitutional parameters,
established in Buckley, and reiterated in MCFL and McConnell, that
campaign finance rules must avoid vagueness. See Buckley, 424 U.S. at
40-41; MCFL, 479 U.S. at 248-49; McConnell, 540 U.S. at 103. Because
the tax code definitions arise in the context of a grant of exemption,
which is viewed as a form of subsidy to the organization, a lower level
of scrutiny is applied than when the government regulates or prohibits
outright certain types of speech. See, e.g., Regan v. Taxation With
Representation, 461 U.S. 540, 549-50 (1983) (upholding limitation on
lobbying by 501(c)(3) organizations); Christian Echoes Nat'l Ministry,
Inc. v. United States, 470 F.2d 849, 857 (10th Cir. 1972) (upholding
501(c)(3) ban on campaign intervention). As one commenter noted:
The Internal Revenue Code (IRC) and its accompanying regulations
offer several different tests for what constitutes political
activity for tax-exempt organizations (including 527 organizations),
but all of these tests boil down to a vague ``facts and
circumstances'' standard. While constitutionally adequate * * * for
the enforcement of tax laws, the inherent uncertainty created by
such a contextual, subjective standard renders it wholly inadequate
to the task of providing a predictable standard for those required
to comply with [F]ederal election law * * * FECA regulates core
political speech and imposes criminal penalties for violations.
Thus, FECA is especially intolerant of vague standards. As the court
explained in Buckley: ``Due process requires that a criminal statute
provide adequate notice to a person of ordinary intelligence that
his contemplated conduct is illegal, for `no man shall be held
criminally responsible for conduct which he could not reasonably
understand to be proscribed.' When First Amendment rights are
involved, an even `greater degree of specificity' is required.''
As stated by a commenter, ``While IRC political organizations and
FECA political committees seem to have some similarities, [section] 527
`exempt function' activity is much broader than the activity that
defines FECA political committees. Consequently, IRS regulations
provide no guidance for FEC rulemaking.'' In fact, neither FECA, as
amended, nor any judicial decision interpreting it, has substituted tax
status for the conduct-based determination required for political
committee status.
As discussed further below in Part F, the Commission's enforcement
experience illustrates the inadequacy of tax classification as a
measure of political committee status. The Commission recently
completed six matters, including five organizations that were alleged
to have failed to register as political committees.\7\ The
[[Page 5599]]
Commission reached conciliation agreements with five of these
organizations--four 527 organizations and one 501(c)(4) organization--
in which the organizations did not contest the Commission's
determination that they had violated FECA by failing to register as
political committees. See Matters Under Review (``MURs'') 5511 and 5525
(Swiftboat Veterans and POWs for Truth (``Swiftboat Vets'')); 5753
(League of Conservation Voters 527 and 527 II (``League of Conservation
Voters'')); 5754 (MoveOn.org Voter Fund); 5492 (Freedom, Inc.). In the
sixth matter, the Commission determined that a 527 organization was not
a political committee under the statutory requirements, and dismissed
the matter. See MUR 5751 (The Leadership Forum). The Commission has
demonstrated through the finding of political committee status for a
501(c)(4) organization and the dismissal of a complaint against a 527
organization, that tax status did not establish whether an organization
was required to register with the FEC. Rather, the Commission's
findings were based on a detailed examination of each organization's
contributions, expenditures, and major purpose, as required by FECA and
the Supreme Court.
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\7\ See Press Release, Federal Election Commission, FEC Collects
$630,000 in Civil Penalties from Three 527 Organizations (Dec. 13,
2006), available at http://www.fec.gov/press/press2006/20061213murs.html
; Press Release, Federal Election Commission,
Freedom Inc. Pays $45,000 Penalty for Failing to Register as
Political Committee (Dec. 20, 2006), available at http://www.fec.gov/press/press2006/20061220mur.html
; Press Release, Federal
Election Commission, FEC Completes Action on Two Enforcement Cases
(Dec. 22, 2006), available at http://www.fec.gov/press/press2006/20061222mur.html
.
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Courts have cautioned the Commission against assuming ``the
compatibility of the IRS's enforcement * * * and FECA's requirements.''
See Shays v. FEC, 337 F. Supp. 2d 28, 128 (D.D.C. 2004) (``Shays I'').
The Commission is instead obligated to perform a detailed review of
differences in tax and campaign finance law provisions rather than
adopting the former as a proxy for the latter. Id. The U.S. District
Court recently reminded the Commission: ``It is the FEC, not the IRS,
that is charged with enforcing FECA.'' Shays I, 337 F. Supp. 2d at 126.
The detailed comparison of the Internal Revenue Code and FECA
provisions required by Shays I demonstrates that the ``exempt
function'' standard of section 527 is not co-extensive with the
``expenditure'' and ``contribution'' definitions that trigger political
committee status. Therefore, the use of the Internal Revenue Code
classification to interpret and implement FECA is inappropriate.
C. Congress Has Consistently Affirmed the Existing Statutory Framework
and Specifically Refused To Require All 527 Organizations To Register
as Political Committees
While Congress has repeatedly enacted legislation governing 527
organizations, it has specifically rejected every effort, including
those by some of the Shays II plaintiffs,\8\ to classify organizations
as political committees based on section 527 status. In refusing to
enact such legislation, Congress fully recognized that some 527
organizations not registered with the Commission were, and would
continue to be, involved with Federal elections. Nevertheless, in each
instance in which Congress regulated 527 organizations, whether through
amendments to the Internal Revenue Code or FECA, it (a) Chose not to
address the political committee status of these organizations, (b) left
the reporting obligations in the hands of the IRS, and (c) did not
direct the Commission to adopt revised regulations.
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\8\ In Shays II, the case filed by Representatives Shays and
Meehan was consolidated with a similar case filed by Bush-Cheney '04
challenging the Commission's 2004 rulemaking. See Shays II, 424 F.
Supp. 2d at 104-05.
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1. Congress Amended the Internal Revenue Code To Create a Reporting
Scheme for 527 Organizations That are Not Political Committees Under
FECA
In 2000, Congress passed a bill requiring section 527 organizations
that are not required to register as political committees under FECA to
register and report their financial activity with the IRS. See 26
U.S.C. 527(i)(6), (j)(5)(A); Public Law 106-230 (2000). Congress
ordered the IRS to disclose this information publicly on a searchable
database within 48 hours of receipt, requirements matching the FEC's
disclosure obligations. See 26 U.S.C. 527(k); 2 U.S.C. 434(a)(11)(B)
and 438a.\9\ At the same time, Congress considered, but rejected,
alternative bills that would have explicitly required the Commission to
regulate all 527 organizations. See, e.g., H.R. 3688, 106th Cong.
(2000); S. 2582, 106th Cong. (2000); see also H.R. Rep. No. 106-702
(2000). The alternative House bill was co-sponsored by two of the Shays
II plaintiffs. Additionally, Congress took no other action to otherwise
alter the statutory framework for determining political committee
status.
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\9\ See IRS Political Organization Disclosure database,
available at http://forms.irs.gov/politicalOrgsSearch/search/basicSearch.jsp
.
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In 2002, Congress modified the section 527 reporting requirements
to exempt organizations that were exclusively involved in State and
local elections from having to report with the IRS. See 26 U.S.C.
527(i)(5)(C), (j)(5)(C); Income Tax Notification and Return
Requirements--Political Committees Act, Public Law 107-276, 116 Stat.
1929 (2002). Those 527 organizations that were involved in Federal
elections, but that did not qualify as ``political committees'' under
FECA, continued to have to report their activities to the IRS. See
Public Law 107-276. This legislation was passed only a few months after
BCRA, which, as discussed below, did not change the requirements for
political committee status of 527 organizations. As stated by a
commenter, ``Congress explicitly recognized the differences in intent
and scope between the Internal Revenue Code and the Federal Election
Campaign Act when it drafted two separate statutes to address the
respective subjects; if Congress had intended the two bodies of law to
be congruous, Congress would have passed congruous provisions at the
outset.'' If, as some commenters suggested, all 527 organizations not
exclusively involved in State and local elections are required by FECA
to register as political committees, then the 2002 amendments to 26
U.S.C. 527 would have meant that no 527 organizations would continue to
report to the IRS. Such an interpretation of the two statutes would
effectively nullify the statutory requirement to report to the IRS.
These two provisions were passed, as noted by a commenter,
``[a]gainst a widely publicized backdrop of news reports concerning
non-federal [section] 527 groups,'' yet, ``Congress required these
organizations * * * to register and report with the IRS * * * Congress
was well aware that [section] 527 organizations that were not political
committees could affect Federal as well as other elections.'' The
legislative history of the 2000 amendment confirms the commenter's
assessment:
These enhanced disclosure and reporting rules are intended to
make no changes to the present-law substantive rules regarding the
extent to which tax-exempt organizations are permitted to engage in
political activities. Thus, the Committee bill is not intended to
alter the involvement of such organizations in the political
process, but rather it is intended to shed sunlight on these
activities so that the general public can be informed as to the
types and extent of activities in which such organizations engage.
H.R. Rep. No. 106-702, at 14 (2000). Senator Lieberman, a principal
author of the legislation, stated, ``nor does [the bill] force any
group that does not currently have to comply with FECA or disclose
information about itself to do
[[Page 5600]]
either of those things.'' See Statement of Sen. Lieberman, 146 Cong.
Rec. S5996 (June 28, 2000). Representative Archer stated, ``[T]his bill
does nothing but require disclosure. It does not change anything as to
how much money can be given or how it can be used, any of those other
substantive things in the law.'' See Statement of Rep. Archer, 146
Cong. Rec. H5285 (June 27, 2000).
A rule hinging on section 527 tax status could frustrate this
separate reporting scheme created by Congress in the 2000 and 2002
amendments to section 527. It could also have the effect of reducing
disclosure. If a rule singled out 527 organizations, those entities
could then either shift the same election-related conduct to a related
section 501(c)(4) organization that shares common management, or
perhaps even reorganize as a section 501(c)(4) organization in order to
avoid a rule that singled out 527 organizations.\10\ Several commenters
predicted that 527 organizations would do so. Because section 501(c)(4)
of the Internal Revenue Code requires almost no disclosure of receipts
and disbursements, migration of political conduct to section 501(c)(4)
groups would reduce the amount of information disclosed to the
public.\11\
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\10\ As commenters noted, a 501(c)(4) organization may engage in
the same political campaign activities as a 527 organization, as
long as these activiteis do not constitute the 501(c)(4)
organization's ``primary purpose'' as determined by the IRS.
\11\ Only 501(c)(4) organizations with $25,000 or more in annual
gross receipts must file annual tax returns with the IRS. See 26
U.S.C. 6012(a)(6); Judith Kindell & John Francis Reilly, Election
Year Issues: IRS Exempt Organizations Continuing Professional
Education Text at 444, 470-71 (2002), available at http://www.irs.gov/charities/nonprofits/article/0
,,id=155031,00.html (last
visited Jan. 31, 2007). The required annual return (Form 990)
includes a line for total amount of ``direct and indirect political
expenditures'' without requiring any further breakdown of the
expenditure amount. See IRS Form 990 Line 81a. Individual donors
need not be disclosed by 501(c)(4) organizations.
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2. BCRA Amended FECA and Addressed Federal Activity of 527
Organizations Without Requiring Political Committee Registration
In BCRA, Congress directly addressed the Federal activity of
unregistered 527 organizations, but again, declined to take any other
action to regulate 527 organizations as political committees or
otherwise alter the existing political committee framework. BCRA
prohibits national, State and local political parties from soliciting
for, or donating to ``an organization described in section 527 of [the
Internal Revenue] Code (other than a political committee, a State,
district, or local committee of a political party, or the authorized
campaign committee of a candidate for State or local office).'' See 2
U.S.C. 441i(d)(2) (emphasis added). This provision explicitly confirms
Congress's intent to retain separate regimes for those 527
organizations that must register with the Commission as political
committees and those 527 organizations that are not required to
register as political committees. Furthermore, if Congress had believed
that all 527 organizations (other than those operating at the State
level) were political committees, this BCRA prohibition would be
superfluous.
BCRA also included a limited exception from the prohibition on
corporations making electioneering communications for 527 organizations
(and 501(c)(4) organizations), as long as they were funded exclusively
from individual contributions. See 2 U.S.C. 441b(c)(2). This exception
was altered by the Wellstone amendment to BCRA, codified at 2 U.S.C.
441b(c)(6), which strictly limited the scope of the exception. Although
the exception was amended, this provision illustrates Congress's
knowledge that 527 organizations were raising funds outside FECA's
individual contribution limits and source prohibitions to produce
communications that referenced Federal candidates. And BCRA makes two
explicit determinations: electioneering communications are not
themselves ``expenditures'' (even when conducted by 527 organizations)
and such communications may not be paid for with corporate or labor
union funds during specific pre-election periods. Had Congress
determined that such communications constituted expenditures that
required registration as a political committee, the reporting
requirements and funding restrictions for the electioneering
communications provisions would have been duplicative and meaningless.
Yet, Congress chose to leave in place its decisions in 2000 and 2002
that some 527 organizations should report their activities to the IRS,
rather than register with the FEC.
BCRA's legislative history further confirms Congress's recognition
that 527 organizations (as well as 501(c)(4) organizations) could
engage in some Federal campaign activity and yet not have to register
as political committees. In defending BCRA's approach to 527
organizations, Senator Snowe stated:
[S]ome of our opponents have said that we are simply opening the
floodgates in allowing soft money to now be channeled through these
independent groups for electioneering purposes. To that, I would say
that this bill would prohibit members from directing money to these
groups to affect elections, so that would cut out an entire avenue
of solicitation for funds, not to mention any real or perceived
``quid pro quo.''
See Statement of Sen. Snowe, 148 Cong. Rec. S2136 (Mar. 20, 2002).
Senator Wellstone noted that 527 and 501(c)(4) groups ``already play a
major role in our elections'' and acknowledged that soft money would
shift from political parties to these organizations. See Statement of
Sen. Wellstone, 147 Cong. Rec. S2846-47 (Mar. 26, 2001). Senator Breaux
stated that 501(c)(4) and 527 organizations would continue to be able
to raise unrestricted money to be used in Federal elections. See
Statement of Sen. Breaux, 147 Cong. Rec. S2885-86 (Mar. 26, 2001).
Senator McConnell, who led the opposition to the passage of BCRA, was
clear on this point as well: ``this bill will greatly weaken the
parties and shift those resources to outside groups that will continue
to engage in issue advocacy, as they have a constitutional right to do,
with unlimited and undisclosed soft money.'' See Statement of Sen.
McConnell, 148 Cong. Rec. S2160 (Mar. 20, 2002). As stated in a comment
from a Governor who is also a former Member of Congress:
That perceived evil, the direct personal involvement of
[F]ederal and party officials in the raising of ``soft money''
funds, is not present with respect to donations made to non-profit
organizations--whether organized under section 527 or under section
501(c) of the Internal Revenue Code--acting independently from any
[F]ederal officeholder, candidate or political party. Congress did
not choose, in BCRA, to impose limits on those desiring to provide
financial support to such non-profit organizations. Congress was
well aware of the existence and activities of non-political
committee 527 organizations and yet the BCRA did not elect to
address such organizations other than to impose a prohibition on
[F]ederal officeholders actively participating in the solicitation
of funds for such groups.
Based on this history of Congressional action regarding section 527
and the enactment of BCRA, the Commission concludes that changing the
regulatory definition of ``political committee'' to rely explicitly
upon section 527 tax status would not be consistent with the
Commission's statutory authority. The Commission reaches this
conclusion regarding the scope of its regulatory authority because
Congress previously considered and rejected bills that would have
changed the political committee status of 527 organizations. See FDA v.
Brown & Williamson Tobacco Corp., 529 U.S. 120, 143 (2000) (``[A]
specific policy embodied in a later federal statute should control our
construction of the [earlier] statute, even though it ha[s] not been
expressly amended.''
[[Page 5601]]
(quoting United States v. Estate of Romani, 523 U.S. 517, 530-31
(1998))).
Furthermore, when Congress revises a statute, its decision to leave
certain sections unamended constitutes at least acceptance, if not
explicit endorsement, of the preexisting construction and application
of the unamended terms. See Cook County, Illinois v. United States ex
rel. Chandler, 538 U.S. 119, 132 (2003); Cottage Sav. Ass'n v. Comm'r,
499 U.S. 554, 561-62 (1991); Asarco Inc. v. Kadish, 490 U.S. 605, 632
(1989).
During the 2004 rulemaking, the Commission received a comment
signed by 138 Members of the House of Representatives, and a similar
comment signed by 19 Senators. Both comments stated, ``the proposed
rules before the Commission would expand the reach of BCRA's
limitations to independent organizations in a manner wholly unsupported
by BCRA or the record of our deliberations on the new law.'' The
comment submitted by the House Members further stated:
More generally, the rulemaking is concerned with new
restrictions on ``527'' organizations, primarily through the
adoption of new definitions of an ``expenditure.'' Congress, of
course, did not amend in BCRA the definition of ``expenditure'' or,
for that matter, the definition of ``political committee.''
Moreover, while BCRA reflects Congress' full awareness of the nature
and activities of ``527s,'' it did not consider comprehensive
restrictions on these organizations like those in the proposed
rules. There has been absolutely no case made to Congress, or record
established by the Commission, to support any notion that tax-exempt
organizations and other independent groups threaten the legitimacy
of our government when criticizing its policies. We believe instead
that more, not less, political activity by ordinary citizens and the
associations they form is needed in our country.\12\
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\12\ The Commission also received a comment signed by 14 members
of the Congressional Hispanic Caucus who opposed the proposed
changes to the regulations based on possible adverse effects on
grassroots voter mobilization efforts. This comment is available at
http://www.fec.gov/pdf/nprm/political_comm_status/mailed/57.pdf.
In upholding BCRA, the Supreme Court was also well aware that
BCRA's new provisions would not reach all interest group Federal
political activity. The McConnell Court observed that, unlike political
parties, ``[i]nterest groups, however, remain free to raise soft money
to fund voter registration, [get-out-the-vote] activities, mailings,
and broadcast advertising (other than electioneering communications).''
McConnell, 540 U.S. at 187-88.
Finally, at least two new bills requiring 527 organizations to
register as political committees were recently considered in Congress.
See, e.g., H.R. 513, 109th Cong. (2006); S. 2828, 108th Cong. (2004).
The introduction and consideration of these bills, including one
supported by two of the Shays II plaintiffs, demonstrates Congress's
and these plaintiffs' recognition that Congress has not acted in this
area. As with all past Congressional attempts to regulate all 527s as
political committees, Congress did not adopt these bills, or any other
bills altering the political committee framework. While the Commission
is authorized to regulate in order to give substance to otherwise
ambiguous provisions, ``[a] regulation, however, may not serve to amend
a statute, or to add to the statue something which is not there.'' See
Iglesias v. United States, 848 F.2d 362, 366 (2d Cir. 1988) (citations
omitted).
Thus, Congressional action regarding 527 organizations provides no
basis for the Commission to revise FECA and the Supreme Court's
requirements for political committee status by creating a separate
political committee definition singling out 527 organizations. Rather,
the Commission's decision to reject proposed rules based on section 527
tax status is consistent with all past Congressional action addressing
527 organizations.
D. Applying the Major Purpose Doctrine, a Judicial Construct
Established Thirty Years Ago, Requires a Case-by-Case Analysis of an
Organization's Conduct
The Shays II court expressed concern that, in the absence of a
regulation regarding the major purpose doctrine, the Commission was not
providing clear guidance to groups as to when they must register as a
political committee. See Shays II, 424 F. Supp. 2d at 115. Applying the
major purpose doctrine, however, requires the flexibility of a case-by-
case analysis of an organization's conduct that is incompatible with a
one-size-fits-all rule.
The Supreme Court has held that, to avoid the regulation of
activity ``encompassing both issue discussion and advocacy of a
political result'' only organizations whose major purpose is Federal
campaign activity can be considered political committees under the Act.
See, e.g., Buckley, 424 U.S. at 79; MCFL, 479 U.S. at 262. Thus, the
major purpose test serves as an additional hurdle to establishing
political committee status. Not only must the organization have raised
or spent $1,000 in contributions or expenditures, but it must
additionally have the major purpose of engaging in Federal campaign
activity.
The Supreme Court has made it clear that an organization can
satisfy the major purpose doctrine through sufficiently extensive
spending on Federal campaign activity. See MCFL, 479 U.S. at 262
(explaining that a section 501(c)(4) organization could become a
political committee required to register with the Commission if its
``independent spending become[s] so extensive that the organization's
major purpose may be regarded as campaign activity'').
An analysis of public statements can also be instructive in
determining an organization's purpose. See, e.g., FEC v. Malenick, 310
F. Supp. 2d 230, 234-36 (D.D.C. 2004) (court found organization
evidenced its major purpose through its own materials which stated the
organization's main goal of supporting the election of the Republican
Party candidates for Federal office and through efforts to get
prospective donors to consider supporting Federal candidates); FEC v.
GOPAC, Inc., 917 F. Supp. 851, 859 (D.D.C. 1996) (``organization's
[major] purpose may be evidenced by its public statements of its
purpose or by other means''); Advisory Opinion 2006-20 (Unity 08)
(organization evidenced its major purpose through organizational
statements of purpose on Web site). Because such statements may not be
inherently conclusive, the Commission must evaluate the statements of
the organization in a fact-intensive inquiry giving due weight to the
form and nature of the statements, as well as the speaker's position
within the organization.
The Federal courts' interpretation of the constitutionally mandated
major purpose doctrine requires the Commission to conduct
investigations into the conduct of specific organizations that may
reach well beyond publicly available advertisements. See, e.g.,
Malenick, 310 F. Supp. 2d at 234-36 (examining organizations' materials
distributed to prospective donors). The Commission may need to examine
statements by the organization that characterize its activities and
purposes. The Commission may also need to evaluate the organization's
spending on Federal campaign activity, as well as any other spending by
the organization. In addition, the Commission may need to examine the
organization's fundraising appeals.
Because Buckley and MCFL make clear that the major purpose doctrine
requires a fact-intensive analysis of a group's campaign activities
compared to its activities unrelated to campaigns, any rule must permit
the Commission
[[Page 5602]]
the flexibility to apply the doctrine to a particular organization's
conduct. After considering these precedents and the rulemaking record,
the Commission concluded that none of the competing proposed rules
would have accorded the Commission the flexibility needed to apply the
major purpose doctrine appropriately. Therefore, the Commission decided
not to adopt any of the proposed amendments to section 100.5.\13\
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\13\ Many prominent 527 organizations in 2004 were registered
political committees with Federal and non-Federal accounts. A new
rule addressing major purpose would not have required these
organizations to change their structures. The more relevant
questions for these organizations was whether particular expenses
could lawfully be paid with non-Federal funds from a non-Federal
account, which was sometimes a connected 527 organization not
registered with the Commission, and whether non-Federal funds could
be raised through solicitations that referred to clearly identified
Federal candidates. New section 100.57 and revised section 106.6, as
discussed below in Part E, address these questions.
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However, even if the Commission were to adopt a regulation
encapsulating the judicially created major purpose doctrine, that
regulation could only serve to limit, rather than to define or expand,
the number or type of organizations regarded as political committees.
The major purpose doctrine did not supplant the statutory
``contribution'' and ``expenditure'' triggers for political committee
status, rather it operates to limit the reach of the statute in certain
circumstances.
Moreover, any perceived shortcomings with the enforcement process
identified by the Shays II court would not be remedied by a change in
the regulatory definition of ``political committee.'' \14\ Any revised
rule adopted by the Commission would still have to be interpreted and
applied through the very same statutory enforcement procedures as
currently exist. In fact, all of the rules proposed in 2004 would have
required that factual determinations be made through the enforcement
process. See, e.g., proposed 11 CFR 100.5(a)(2)(iv), Notice of Proposed
Rulemaking on Political Committee Status, 69 FR 11736, 11748, 11757
(Mar. 11, 2004) (exemptions limited to 527 organizations that are
formed ``solely for the purpose of'' supporting a non-Federal candidate
or influencing selection of individuals to non-elective office). Even
if the Commission had simply adopted a rule in 2004 that listed the
factors considered in determining an organization's major purpose, the
rule would still have had to be enforced through investigations of the
specific statements, solicitations, and other conduct by particular
organizations. Furthermore, any list of factors developed by the
Commission would not likely be exhaustive in any event, as evidenced by
the multitude of fact patterns at issue in the Commission's enforcement
matters considering the political committee status of various entities
(``Political Committee Status Matters''). See, e.g., MURs 5511 and 5525
(Swiftboat Vets); 5753 (League of Conservation Voters); 5754
(MoveOn.org Voter Fund); 5492 (Freedom, Inc.); 5751 (Leadership Forum).
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\14\ As described in Part F, below, the Commission has resolved
several enforcement matters that involve 527 organizations alleged
to have unlawfully failed to register as political committees. The
Commission further notes that it has concluded action on the vast
majority of the 2004-cycle cases on its docket and posted record
enforcement figures in 2006. See Press Release, Federal Election
Commission, FEC Posts Record Year, Collecting $6.2 Million in Civil
Penalties, available at http://www.fec.gov/press/press2006/20061228summary.htmlprocess
.
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E. The 2004 Final Rules Clarify and Strengthen the Political Committee
Determination Consistent With the FECA and Supreme Court Framework
To best ensure that organizations that participate in Federal
elections use funds compliant with the Act's restrictions, the
Commission decided in the 2004 rulemaking to adopt two broad anti-
circumvention measures. The first expands the regulatory definition of
``contribution'' to capture funds solicited for the specific purpose of
supporting or opposing the election of a Federal candidate. See 11 CFR
100.57. An organization that receives more than $1,000 of such funds is
required to register as a political committee. The second rule places
limits on the non-Federal funds a registered political committee may
use to engage in certain activity, such as voter drives and campaign
advertisements, which has a clear Federal component. See 11 CFR 106.6.
The combined effect of these two rules significantly curbs the raising
and spending of non-Federal funds in connection with Federal elections,
in a manner wholly consistent with the existing political committee
framework. The effect of these changes on 527 organizations has already
been remarked. See Paul Kane, ``Liberal 527s Find Shortfall,'' Roll
Call (Sept. 25, 2006) (``a change in FEC regulations curtailed a huge
chunk of 527 money because, after the 2004 elections, the commission
issued a ruling that said all get-out-the-vote efforts in Congressional
races had to be financed with at least 50 percent federal donations,
those contributions that are limited to $5000 per year to political
action committees'').
1. The Commission Adopted a New Regulation That Requires Organizations
To Register as Political Committees Based on Their Solicitations
While Supreme Court precedent places strict parameters on the
breadth of the definition of expenditure, Supreme Court precedent
provides greater deference to contribution restrictions. See FEC v.
Beaumont, 539 U.S. 146, 161 (U.S. 2003) (upholding the
constitutionality of FECA's corporate contribution prohibition as
applied to a non-profit advocacy corporation and noting: ``Going back
to Buckley, restrictions on political contributions have been treated
as merely `marginal' speech restrictions subject to relatively
complaisant review under the First Amendment, because contributions lie
closer to the edges than to the core of political expression.'')
(citations omitted). Other judicial precedent specifically permits a
broader interpretation of when an organization has solicited
contributions. In FEC v. Survival Educ. Fund, Inc., 65 F.3d 285 (2d
Cir. 1995) (``SEF''), the appellate court held that a mailer solicited
``contributions'' under FECA when it left `` no doubt that the funds
contributed would be used to advocate President Reagan's defeat at the
polls, not simply to criticize his policies during the election year.''
Id. at 295. The Commission's new rule at 11 CFR 100.57 codifies the SEF
analysis. Section 100.57(a) states that if a solicitation ``indicates
that any portion of the funds received will be used to support or
oppose the election of a clearly identified Federal candidate,'' then
all money received in response to that solicitation must be treated as
a ``contribution'' under FECA. See 2004 Final Rules, 69 FR at 68057-58.
When an organization receives $1,000 or more in contributions,
including those that are defined under new section 100.57(a), the
organization will meet the statutory definition of a ``political
committee.'' An organization that triggers political committee status
through the receipt of such contributions is required to register the
committee with the Commission, report all receipts and disbursements,
and abide by the contribution limitations and source prohibitions.
Thus, section 100.57 codifies a clear, practical, and effective
means of determining whether an entity, regardless of tax status, is
participating in activity designed to influence Federal elections, and,
therefore, may be required to register as a political committee.
[[Page 5603]]
In addition, the new regulation contains a prophylactic measure at
section 100.57(b) to prevent circumvention of the solicitation rule by
registered political committees operating both Federal and non-Federal
accounts under the Commission's allocation rules. Section 100.57(b)
requires that at least 50%, and as much as 100%, of the funds received
in response to a solicitation satisfying the requirements of section
100.57(a) be treated as FECA contributions, regardless of references to
other intended uses for the funds received. See 11 CFR 100.57(b)(1) and
(2); 2004 Final Rules, 69 FR at 68058-59. Therefore, section 100.57(b)
prevents a political committee from adding references to non-Federal
candidates or political parties to its solicitation materials in order
to claim that most or all of the funds received are for non-Federal
purposes, and therefore, not ``contributions'' under FECA. The
regulation has the additional advantage of prohibiting registered
political committees from raising donations not subject to the
limitations from individual contributors or from prohibited sources
using solicitation materials that focus on influencing the election of
Federal candidates.
Moreover, the costs of these solicitations must be paid for with a
corresponding proportion of Federal funds. For example, if 100% of the
funds received from a solicitation would be treated as contributions
under section 100.57(b)(1), then 100% of the costs of that solicitation
must be paid with Federal funds. See 11 CFR 100.57(b); 11 CFR
106.1(a)(1); 11 CFR 106.6(d)(1); 11 CFR 106.7(d)(4).
In sum, section 100.57 codifies a broad method of establishing
political committee status with strong anti-circumvention protections,
providing clear guidance to the regulated community that any
organization, regardless of tax status, may be required to register as
a political committee based on its solicitations.
2. The Commission Adopted Anti-Circumvention Measures Requiring That
Campaign Ads and Voter Turn Out Efforts be Paid for With at Least 50%
Federal Funds and as Much as 100% Federal Funds
The 2004 Final Rules also include a comprehensive overhaul of the
Commission's allocation regulations, which govern how corporate and
labor organization PACs and nonconnected committees split the costs of
Federal and non-Federal activities such as campaign ads and voter
turnout efforts. See 11 CFR 106.6. Under Commission regulations, a
registered political committee that participates in both Federal and
non-Federal elections is permitted to maintain both Federal and non-
Federal accounts, containing funds that comply, respectively, with
Federal and State restrictions. See 11 CFR 102.5(a).
Because many activities that an organization may undertake will
have both a Federal and non-Federal component (such as a voter drive
where both the Federal candidate and the non-Federal candidate are
appearing on the ballot), previous Commission regulations had permitted
the committee to develop an allocation percentage based on a ratio of
Federal expenditure to Federal and non-Federal disbursements. This
allocation percentage would govern how payments for all activity of the
organization would be split between the two accounts.
Several commenters claimed that some registered political
committees were relying on these former allocation rules to pay for
Federal campaign ads and voter turnout efforts that could influence the
2004 Federal elections almost entirely with non-Federal funds. BCRA's
Congressional sponsors, including two of the Shays II plaintiffs,
argued that the previous allocation requirements ``allow[ed] for absurd
results'' and that ``[t]he Commission must revise its allocation rules
to require a significant minimum hard money share for spending on voter
mobilization in a federal election year.''
Several campaign finance reform groups, including counsel to two of
the Shays II amici, urged the Commission to curb these perceived
abuses. At the time, they stated it was ``essential for the Commission
to take this action as part of the [2004] rulemaking process.''
The 2004 Final Rules directly resolve these concerns by
establishing strict new Federal funding requirements for registered
political committees, as well as for entities that conduct activity
through both registered Federal accounts and unregistered non-Federal
accounts. The new rules require these groups to: (a) Use a minimum of
50% Federal funds to pay for get-out-the-vote drives that do not
mention a specific candidate, as well as public communications that
refer to a political party without referring to any specific
candidates, and administrative costs; (b) use 100% Federal funds to pay
for public communications or voter drives that refer to one or more
Federal candidates, but no non-Federal candidates; and (c) for public
communications or voter drives that refer to both Federal and non-
Federal candidates, use a ratio of Federal and non-Federal funds based
on the time and space devoted to each Federal candidate as compared to
the total space devoted to all candidates. See 11 CFR 106.6(c); 2004
Final Rules, 69 FR at 68061-63; 11 CFR 106.6(f). Notably, the
Commission's new allocation and contribution regulations are the
subject of pending litigation, where the Commission is charged not with
being too lenient, but being too restrictive. See EMILY's List v. FEC
(Civil No. 05-0049 (CKK)) (D.D.C. summary judgment briefing completed
July 18, 2005).\15\
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\15\ Material related to this litigation can be found at http://www.fec.gov/law/litigation_related.shtml#emilyslist_dc
.
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An additional change to the regulation will also significantly
shift political committees towards a greater use of Federal funds. The
new regulations require an organization to pay at least 50% of its
administrative costs with funds from the Federal account. This
regulatory adjustment will curtail longstanding complaints that the
Commission's allocation regulations have permitted non-Federal funds to
substantially subsidize the overhead and day-to-day operations of the
organization's Federal activity.
The revisions to section 106.6 prevent registered political
committees from fully funding campaign advertisements and voter drives
primarily designed to benefit Federal candidates with non-Federal funds
simply by making a passing reference to a non-Federal candidate.
F. Since the 2004 Rulemaking, the Commission's Enforcement Actions
Demonstrate the Application and Sufficiency of the FECA Political
Committee Framework, and Provide Considerable Guidance Addressing When
Groups Must Register as Political Committees
The Commission has applied FECA's definition of ``political
committee,'' together with the major purpose doctrine, in the recent
resolution of a number of administrative enforcement Matters involving
527 organizations and other groups. See MURs 5511 and 5525 (Swiftboat
Vets); 5753 (League of Conservation Voters); 5754 (MoveOn.org Voter
Fund); 5751 (The Leadership Forum); 5492 (Freedom, Inc.).\16\ In each
of these Political Committee Status Matters, the Commission conducted a
thorough investigation of all aspects of the organization's statements
and activities to determine first if the organization exceeded the
$1,000
[[Page 5604]]
statutory and regulatory threshold for expenditures or contributions in
2 U.S.C. 431(4)(A) and 11 CFR 100.5(a), and then whether the
organization's major purpose was Federal campaign activity. The
settlements in the Political Committee Status Matters are significant
because they are the first major cases after the Supreme Court's
decision in McConnell to consider the reach of the definition of
``express advocacy'' when evaluating an organization's disbursements
for communications made independently of a candidate to determine if
the expenditure threshold has been met. They are also significant
because they demonstrate that an organization may satisfy the political
committee status threshold based on how the organization raises funds,
and that the Commission examines fundraising appeals based on the plain
meaning of the solicitation, not the presence or absence of specific
words or phrases. Finally, the Political Committee Status Matters
illustrate well the Commission's application of the major purpose
doctrine to the conduct of particular organizations.
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\16\ Documents related to these and other Commission MURs cited
in this Explanation and Justification are available at http://eqs.nictusa.com/eqs/searcheqs
.
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As discussed in detail below, in these and other matters, the
Commission provides guidance to organizations about both the
expenditure and the contribution paths to political committee status
under FECA, as well as the major purpose doctrine. Any organization can
look to the public files for the Political Committee Status Matters and
other closed enforcement matters, as well as advisory opinions and
filings in civil enforcement cases, for guidance as to how the
Commission has applied the statutory definition of ``political
committee'' together with the major purpose doctrine. The public
documents available regarding the 527 settlements in particular provide
more than mere clarification of legal principle; they provide numerous
examples of actual fundraising solicitations, advertisements, and other
communications that will trigger political committee status. These
documents should guide organizations in the future as they formulate
plans and evaluate their own conduct so they may determine whether they
must register and report with the Commission as political committees.
To the extent uncertainty existed, these 527 settlements reduce any
claim of uncertainty because concrete factual examples of the
Commission's political committee status analysis are now part of the
public record.
1. The Expenditure Path to Political Committee Status
In the Swiftboat Vets and League of Conservation Voters Matters,
the Commission analyzed whether the organizations' advertising, voter
drives and other communications ``expressly advocated'' the election or
defeat of a clearly identified Federal candidate under the two
definitions of that term in 11 CFR 100.22.\17\ The Commission applied a
test for express advocacy that is not only limited to the so-called
``magic words'' such as ``vote for'' or ``vote against,''\18\ but also
includes communications containing an ``electoral portion'' that is
``unmistakable, unambiguous, and suggestive of only one meaning'' and
about which ``reasonable minds could not differ as to whether it
encourages actions to elect or defeat'' a candidate when taken as a
whole and with limited reference to external events, such as the
proximity to the election.\19\ The Commission was able to apply the
alternative test set forth in 11 CFR 100.22(b) free of constitutional
doubt based on McConnell's statement that a ``magic words'' test was
not constitutionally required, as certain Federal courts had previously
held. Express advocacy also includes exhortations ``to campaign for, or
contribute to, a clearly identified candidate.'' FEC v. Christian
Coalition, 52 F. Supp. 2d 45, 62 (D.D.C. 1999) (explaining why Buckley,
424 U.S. at 44 n.52, included the word ``support,'' in addition to
``vote for'' or ``elect,'' in its list of examples of express advocacy
communication). Thus, if the organization spent more than $1,000 on a
communication meeting either test for express advocacy, then the
statutory threshold of expenditures was met.
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\17\ In these Matters, the Commission used its enforcement
process to develop the factual record of what advertisements the
organizations ran, when and where they ran, and how much they cost,
and to reach the legal conclusions of whether the regulatory
standards were satisfied. Thus, even when the Commission codifies a
legal standard in its regulations, the enforcement process is the
vehicle for determining how that legal standard should be applied in
a particular case.
\18\ Under 11 CFR 100.22(a), a communication contains express
advocacy when it uses phrases such as ``vote for the President,''
``re-elect your Congressman,'' or ``Smith for Congress,'' or uses
campaign slogans or words that in context have no other reasonable
meaning than to urge the election or defeat of one or more clearly
identified candidates, such as posters, bumper stickers, or
advertisements that say, ``Nixon's the One,'' ``Carter '76,''
``Reagan/Bush,'' or ``Mondale!''.
\19\ 11 CFR 100.22(b). The Commission also recently resolved
another administrative action based on a determination that a
501(c)(4) organization's communications satisfied the ``express
advocacy'' definition in section 100.22(b). See MUR 5634 (Sierra
Club, Inc.).
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The Commission determined that Swiftboat Vets met the threshold for
``expenditures'' because it spent over $1,000 for fundraising
communications that ``expressly advocated'' the election or defeat of a
clearly identified Federal candidate under 11 CFR 100.22(a). In
addition, Swiftboat Vets spent over $1,000 for television
advertisements, direct mailings and a newspaper advertisement that
contained express advocacy under 11 CFR 100.22(b).\20\
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\20\ See MUR 5511 Conciliation Agreement, at paragraphs 23-28.
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The Commission also determined that two League of Conservation
Voter 527 organizations met the expenditure threshold because they
spent more than $1,000 on door-to-door canvassing and telephone banks
where the scripts and talking points for canvassers and callers
expressly advocated the defeat of a Federal candidate under 11 CFR
100.22(a). In addition, the League of Conservation Voters 527s spent
more than $1,000 for a mailer expressly advocating a Federal
candidate's election under both definitions in 11 CFR 100.22(a) and
(b).\21\
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\21\ See MUR 5753 Conciliation Agreement, at 8-9.
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2. The Contribution Path to Political Committee Status
With regard to the $1,000 threshold for ``contributions,'' the
Commission examined fundraising appeals from each organization in the
Swiftboat Vets, League of Conservation Voters and MoveOn.org Voter Fund
matters and determined that if any of the solicitations clearly
indicated that the funds received would be used to support or defeat a
Federal candidate, then the funds received were given ``for the purpose
of influencing'' a Federal election and therefore constituted
``contributions'' under FECA. See SEF. The Commission examined the
entirety of the solicitations and did not limit its analysis to the
presence or absence of any particular words or phrases. If any
solicitations meeting the test set forth in SEF resulted in more than
$1,000 received by the organization, then the statutory threshold for
contributions was met.
Swiftboat Vets received more than $1,000 in response to several e-
mail and Internet fundraising appeals and a direct mail solicitation
clearly indicating that the funds received would be used to the defeat
of a Federal candidate, which meant these funds were ``contributions''
under FECA.\22\ Similarly, the League of
[[Page 5605]]
Conservation Voters 527s each received more than $1,000 in response to
mailed solicitations, telephone calls, and personal meetings with
contributors where the organizations clearly indicated that the funds
received would be used to defeat a Federal candidate, which also meant
these funds were ``contributions'' under FECA.\23\ Finally, MoveOn.org
Voter Fund received more than $1,000 in response to specific
fundraising e-mail messages that clearly indicated the funds received
would be used to defeat a Presidential candidate, which constituted
``contributions'' under FECA.\24\
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\22\ See MUR 5511 Conciliation Agreement, at paragraphs 18-21.
\23\ See MUR 5753 Conciliation Agreement, at 5-7.
\24\ See MUR 5754 Conciliation Agreement, at 5-8.
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3. Application of the Major Purpose Doctrine
After determining that each organization in the Swiftboat Vets,
League of Conservation Voters, and MoveOn.org Voter Fund matters had
met the threshold for contributions or expenditures in FECA and
Commission regulations, the Commission then investigated whether each
organization's major purpose was Federal campaign activity. The
Commission examined each organization's fundraising solicitations, the
sources of its contributions, and the amounts received. The Commission
considered public statements as well as internal documents about an
organization's mission. Each organization's full range of campaign
activities was evaluated, including whether the organization engaged in
any activities that were not campaign related.
Recently resolved matters reflect the comprehensive analysis
required to determine an organization's major purpose. Swiftboat Vets'
major purpose was campaign activity, as evidenced by: (1) Statements
made to prospective donors detailing the organization's goals; (2)
public statements on the organization's Web site; (3) statements in a
letter from the organization's Chairman thanking a large contributor;
(4) statements by a member of the organization's Steering Committee on
a news program; and (5) statements in various fundraising
solicitations. The organization's activities also evidenced its major
purpose as over 91% of its reported disbursements were spent on
advertisements directed to Presidential battleground States and direct
mail attacking or expressly advocating the defeat of a Presidential
candidate, and the organization has effectively ceased active
operations after the November 2004 election.\25\
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\25\ See MUR 5511 Conciliation Agreement, at paragraphs 31-36.
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The League of Conservation Voters 527s' major purpose was campaign
activity as demonstrated through: (1) Statements made in the
organizations' solicitations; (2) statements in organizational planning
documents, such as a ``National Electoral Strategic Plan 2004''; (3)
public statements endorsing Federal candidates; and (4) statements in
letters from the organizations' President describing the organizations'
activities. The organizations' budget also evidenced its major purpose
of campaign activity because 50-75% of the political budget for the
organizations was intended for the Presidential election.\26\
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\26\ See MUR 5753 Conciliation Agreement, at 9-10.
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MoveOn.org Voter Fund's major purpose was campaign activity as
evidenced by statements regarding its objectives in e-mail
solicitations. MoveOn.org Voter Fund's activities also demonstrated its
major purpose of campaign activity. MoveOn.org Voter Fund spent over
68% of its total 2004 disbursements on television advertising opposing
a Federal candidate in Presidential battleground states; the only other
disbursements from MoveOn.org Voter Fund in 2004 were for fundraising,
administrative expenses, and grants to other political organizations.
MoveOn.org Voter Fund spent nothing on State or local elections.
Lastly, MoveOn.org Voter Fund has effectively ceased active operations
after the November 2004 election.\27\
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\27\ See MUR 5754 Conciliation Agreement, at 8, and Factual &
Legal Analysis, at 11-13 (Aug. 9, 2006).
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527 organizations are not the only groups whose major purpose is
Federal campaign activity. The Commission recently conciliated a MUR
with a 501(c)(4) organization, Freedom Inc., which had failed to
register and report as a political committee despite conducting Federal
campaign activity during the 2004 election cycle. See MUR 5492. Freedom
Inc. made more than $1,000 in expenditures for communications that
expressly advocated a Federal candidate's election under section
100.22(a), and it conceded that its major purpose was campaign
activity.
4. Other FEC Actions
In addition to the Political Committee Status Matters discussed
above, the Commission filed suit against another 527 organization, the
Club for Growth, Inc. (``CFG''), for failing to register and report as
a political committee in violation of FECA. See FEC v. Club for Growth,
Inc., Civ. No. 05-1851 (RMU) (D.D.C. Compl. pending).\28\ The
Commission's complaint against CFG provides further guidance to
organizations regarding the prerequisites of political committee
status.
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\28\ Complaint available at http://www.fec.gov/law/litigation/club_for_growth_complaint.pdf
.
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The complaint shows that CFG made expenditures for candidate
research, polling, and advertising, including advertising that
expressly advocates the election or defeat of clearly identified
candidates. (Compl. at 10-11). Additionally, CFG made solicitations
indicating that funds provided would be used to support or oppose
specific candidates, which means the funds received were contributions
under FECA. (Id., at 8-9). Finally, the complaint reflects an extensive
examination of the organization, resulting in a determination that the
major purpose of the organization was to influence Federal elections
(id., at 12), including evidence such as: CFG's statement of purpose in
the registration statement submitted to the Internal Revenue Service
(id., at 6); other public statements indicating CFG'S purpose is
influencing Federal elections (id., at 6-7); CFG's use of solicitations
that make clear that contributions will be used to support or oppose
the election of specific Federal candidates (id., at 8-9); other
spending by CFG for public communications mentioning Federal candidates
(id., at 10-11); and the absence of any spending by CFG on State or
local races (id., at 10).
Just as findings of violations inform organizations as to what
kinds of activities will compel registration as a Federal political
committee, a Commission finding that there has been no violation
clarifies those activities that will not. For example, in MUR 5751 (the
Leadership Forum), the Commission made a threshold finding that there
was a basis for investigating (i.e., the Commission found ``Reason to
Believe'') whether the Leadership Forum had failed to register as a
political committee based on its 2004 election activity. The subsequent
investigation revealed that the Leadership Forum's only public
communications reprinted governmental voter information, without any
mention of Federal or non-Federal candidates or political parties.
Following the investigation, the Commission closed the matter because
it found no evidence that the Leadership
[[Page 5606]]
Forum had crossed the $1,000 threshold through expenditures or
contributions. Consequently, the Commission did not undertake a major
purpose analysis for the Leadership Forum.
All of these cases taken together illustrate (1) The Commission's
commitment to enforcing FECA's requirements for political committee
status as well as (2) the need for an examination of an organization's
activities under the major purpose doctrine, regardless of a particular
organization's tax status.
5. The Advisory Opinion Process
Any entity that remains unclear about the application of FECA to
its prospective activities may request an advisory opinion from the
Commission. See 2 U.S.C. 437f; 11 CFR part 112. Through advisory
opinions, the Commission can further explain the application of the law
and provide guidance to an organization about how the Commission would
apply the major purpose doctrine to its proposed activities, and
whether the organization must register as a political committee.\29\
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\29\ See McConnell, 540 U.S. at 170 n.64 (holding portions of
BCRA were not unconstitutionally vague, in part because ``should
plaintiffs feel that they need further guidance, they are able to
seek advisory opinions for clarification * * * and thereby `remove
any doubt there may be as to the meaning of the law''' (internal
citation omitted)).
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Under FECA, the Commission is required to provide an advisory
opinion within 60 days of receiving a complete written request and, in
some instances, within 20 days. See 2 U.S.C. 437f(a); 11 CFR 112.4(a)
and (b). Moreover, the Commission's legal analysis and conclusions in
an advisory opinion may be relied upon not only by the requestor, but
also by any person whose activity ``is indistinguishable in all its
material aspects'' from the activity in the advisory opinion. See 2
U.S.C. 437f(c); 11 CFR 112.5(a)(2). The Commission has considered the
major purpose doctrine in prior advisory opinions when assessing
whether an organization is a political committee.\30\
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\30\ See Advisory Opinions 2006-20 (Unity 08); 2005-16 (Fired
Up); 1996-13 (Townhouse Associates); 1996-3 (Breeden-Schmidt
Foundation); 1995-11 (Hawthorn Group); 1994-25 (Libertarian National
Committee) and 1988-22 (San Joaquin Valley Republican Associates).
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The advisory opinion process is an effective means by which the
Commission clarifies the law because it allows an entity to ask the
Commission for specific advice about the factual situation with which
the entity is concerned, often in advance of the entity engaging in the
contemplated activities.
Conclusion
By adopting a new regulation by which an organization may be
required to register as a political committee based on its
solicitations, and by tightening the rules governing how registered
political committees fund solicitations, voter drives and campaign
advertisements, the 2004 Final Rules bolstered FECA against
circumvention not just by one kind of organization, but by groups of
all kinds. As discussed above, the Commission's decision not to
establish a political committee definition singling out 527
organizations is informed by the statutory scheme, Supreme Court
precedent, and Congressional action regarding 527 organizations.
Accordingly, the Commission will continue to utilize the political
committee framework provided by Congress in FECA, as modified by the
Supreme Court.
Pursuant to FECA and Supreme Court precedent, the Commission will
continue to determine political committee status based on whether an
organization (1) Received contributions or made expenditures in excess
of $1,000 during a calendar year, and (2) whether that organization's
major purpose was campaign activity. See 2 U.S.C. 431(4)(A); Buckley,
424 U.S. at 79; MCFL, 479 U.S. at 262. When analyzing a group's
contributions, the Commission will consider whether any of an
organization's solicitations generated contributions because the
solicitations indicated that any portion of the funds received would be
used to support or oppose the election of a clearly identified Federal
candidate. See 11 CFR 100.57. Additionally, the Commission will analyze
whether expenditures for any of an organization's communications made
independently of a candidate constituted express advocacy either under
11 CFR 100.22(a), or the broader definition at 11 CFR 100.22(b).
As evidenced by the Commission's recent enforcement actions,
together with guidance provided through publicly available advisory
opinions and filings in civil enforcement cases, this framework
provides the Commission with a very effective mechanism for regulating
organizations that should be registered as political committees under
FECA, regardless of that organization's tax status. The Commission's
new and amended rules, together with this Supplemental Explanation and
Justification, as well as the Commission's recent enforcement actions,
places the regulated community on notice of the state of the law
regarding expenditures, the major purpose doctrine, and solicitations
resulting in contributions. In addition, any group unclear about the
application of FECA to its prospective activities may request an
advisory opinion from the Commission. See 2 U.S.C. 437f; 11 CFR part
112.
Dated: February 1, 2007.
Robert D. Lenhard,
Chairman, Federal Election Commission.
[FR Doc. E7-1936 Filed 2-6-07; 8:45 am]
BILLING CODE 6715-01-P