**FEDERAL ELECTION COMMISSION**

**11 CFR Parts 100 and 114**

**\[Notice 2002-20\]**

**Electioneering Communications**

**AGENCY:** Federal Election Commission

**ACTION:** Final rules and transmittal of regulations to Congress.

**SUMMARY:** The Federal Election Commission promulgates new rules
regarding electioneering communications, which are certain television
and radio communications that refer to a clearly identified Federal
candidate and that are publicly distributed to the relevant electorate
within 60 days prior to a general election or within 30 days prior to a
primary election for Federal office. The final rules implement a portion
of the Bipartisan Campaign Reform Act of 2002 ("BCRA") that adds to the
Federal Election Campaign Act ("FECA") new provisions regarding
electioneering communications. BCRA defines "electioneering
communications," exempts certain communications from the definition,
provides limited authorization to the Commission to promulgate
additional exemptions, and requires public disclosure of specified
information regarding who made the electioneering communication and its
cost. Additionally, BCRA prohibits corporations and labor organizations
from making electioneering communications, and the final rules also
implement this prohibition. Further information is provided in the
Supplementary Information that follows.

###### EFFECTIVE 

**DATE:** \[Insert date 30 days after the date of publication in the
[Federal Register]{.underline}\].

**FOR FURTHER**

**INFORMATION**

**CONTACT:** Ms. Mai T. Dinh, Acting Assistant General Counsel, Mr. J.
Duane Pugh Jr., Acting Special Assistant General Counsel, or Mr. Anthony
T. Buckley, Attorney, 999 E Street, N.W., Washington, DC 20463, (202)
694-1650 or (800) 424-9530.

**SUPPLEMENTARY**

**INFORMATION:** The Bipartisan Campaign Reform Act of 2002, Pub. L.
107-155, 116 Stat. 81 (Mar. 27, 2002), contains extensive and detailed
amendments to the Federal Election Campaign Act of 1971, as amended,
2 U.S.C. 431 [et seq.]{.underline} This is one of a series of
rulemakings the Commission is undertaking to implement the provisions of
BCRA.

Section 402(c)(1) of BCRA establishes a general deadline of 270 days for
the Commission to promulgate regulations to carry out BCRA. The
President of the United States signed BCRA into law on March 27, 2002,
so the 270-day deadline is December 22, 2002. The final rules will take
effect on November 6, 2002, which is the day following the November 5,
2002 general election, except the final rules do not apply to any runoff
elections required by the results of the November 2002 general election.
2 U.S.C. 431 note.

Because of the brief time period before the deadline for promulgating
these rules, the Commission received and considered public comments
expeditiously. The Notice of Proposed Rulemaking ("NPRM") on which these
final rules are based was made publicly available on the FEC's website
on August 2, 2002 and was published in the [Federal
Register]{.underline} on August 7, 2002. 67 FR 51,131 (Aug. 7, 2002).
The written comments were due by August 21, 2002 for those who wished to
testify or by August 29, 2002 for all other commenters. The names of
commenters and their comments are available at
[http://www.fec.gov/register.htm]{.underline} under "Electioneering
Communications." The Commission held a public hearing on the NPRM on
August 28 and 29, 2002, at which it heard testimony from 12 witnesses.
Transcripts of the hearing are available at
[http://www.fec.gov/register.htm]{.underline} under "Electioneering
Communications."[^1]

Under the Administrative Procedures Act, 5 U.S.C. 553(d), and the
Congressional Review of Agency Rulemaking Act, 5 U.S.C. 801(a)(1),
agencies must submit final rules to the Speaker of the House of
Representatives and the President of the Senate and publish them in the
[Federal Register]{.underline} at least 30 calendar days before they
take effect. The final rules on electioneering communications were
transmitted to Congress on October 11, 2002.

# **Explanation and Justification**

**Introduction**

BCRA at 2 U.S.C. 434(f)(3) defines a new term, "electioneering
communications." This term includes broadcast, cable, or satellite
communications: (1) that refer to a clearly identified Federal
candidate; (2) that are transmitted within certain time periods before a
primary or general election; and (3) that are targeted to the relevant
electorate, which is the relevant Congressional district or State that
candidates for the U.S. House of Representatives or the U.S. Senate seek
to represent. Those paying for electioneering communications cannot use
funds from national banks, corporations, foreign nationals,[^2] or labor
organizations to pay for electioneering communications.
[See]{.underline} 2 U.S.C. 441b(b)(2) and 441e(a)(2). They must also
meet certain disclosure requirements. [See]{.underline} 2 U.S.C. 434(f).
BCRA's sponsors have explained in the legislative debates and in their
comments on this rulemaking that these new "electioneering
communications" provisions, set out at 2 U.S.C. 434(f) and 441b(b)(2),
are designed to ensure that such communications are paid for with funds
subject to the prohibitions and limitations of FECA. According to the
sponsors, "putative 'issue ads'" have been used to circumvent FECA's
prohibition on the use of labor organization and corporate treasury
funds in connection with Federal elections. [See]{.underline} 148 Cong.
Rec. S2141 (daily ed. Mar. 20, 2002) (statement of Sen. McCain). In the
sponsors' view, this is accomplished by creating and airing
advertisements that avoid the specific language that the Supreme Court
said expressly advocates the election or defeat of a candidate.
[See]{.underline} 148 Cong. Rec. at S2140-2141; [see also Buckley v.
Valeo]{.underline}, 424 U.S. 1, 44 n.52 (1976); 11 CFR 100.22.[^3]

BCRA's principal sponsors cited various studies and investigations that
they say show that the express advocacy test does not distinguish
genuine issue ads from campaign ads. 148 Cong. Reg. at S2140-2141
(statement of Sen. McCain). For example, Senator McCain cited a study by
the Brennan Center for Justice, [Buying Time 2000,]{.underline} that
found that "97 percent of the electioneering ads reviewed" did not use
the words and phrases cited by the [Buckley]{.underline} Court, and that
more than 99 percent of the "group-sponsored soft money ads" studied
were in fact campaign ads. 148 Cong. Rec. at S2141. [See
also]{.underline} 148 Cong. Rec. S2137 (statement of Sen. Snowe
referencing Annenberg Public Policy Center, [Issue Advertising in the
1999-2000 Election Cycle]{.underline} (2001)). Senators Snowe and
Jeffords stated that, because the electioneering communications
provisions focus on the key elements of when, how, and to whom a
communication is made, rather than relying on the express advocacy test
or the intent of the advertiser, they are a clearer, more accurate test
of whether an advertisement is campaign-related. [Id.]{.underline} at
S2117-18 (statement of Sen. Jeffords); S2135-37 (statement of Sen.
Snowe).

The final rules add a new definition of "electioneering communication,"
located at 11 CFR 100.29. The new definition is added to current 11 CFR
part 100 because it has general applicability to Title 11 of the [Code
of Federal Regulations]{.underline}. The final rules also amend
11 CFR 114.2 and 114.10 and create new section 114.14 to address the
prohibition on corporations and labor organizations directly or
indirectly disbursing funds for electioneering communications. In
conjunction with these final rules, the Commission is also issuing
Interim Final Rules regarding a Federal Communications Commission
database that can be used to determine whether a communication is an
electioneering communication.

Please note that the reporting requirements for electioneering
communications are not part of the final rules. The Commission intends
to incorporate the revised proposed rules into a Consolidated Reporting
NPRM as discussed below in connection with 11 CFR Part 104. However, it
is important to note that the Commission agrees with a commenter who
observed that BCRA imposes reporting obligations and fund source
limitations and prohibitions on the person making the electioneering
communication, not on the broadcaster or satellite or cable system
operator who publicly distributes it.

# **I. Definition of "Electioneering Communication"**

# 

# [A. 11 CFR 100.29(a) Operative Definition of "Electioneering Communication"]{.underline}

The definition of "electioneering communication" at 11 CFR 100.29(a)
largely tracks the definition in BCRA at 2 U.S.C. 434(f)(3). Paragraph
(a) defines "electioneering communication" as any broadcast, cable, or
satellite communications that: (1) refers to a clearly identified
Federal candidate; (2) is publicly distributed within certain time
periods before an election; and (3) is targeted to the relevant
electorate, that is, the relevant Congressional district or State that
candidates for the U.S. House of Representatives or the U.S. Senate seek
to represent.

Paragraph (a)(2) refers to the "public distribution" of a communication,
while BCRA refers to the "making" of a communication. Making a
communication could be interpreted to mean any of a number of actions in
the process of issuing a communication, from the formulation of a
concept for the communication through the public distribution of a
communication. The regulation uses a different term than the statute to
clarify that the operative event is the dissemination of the
communication, rather than the disbursement of funds related to creating
a communication. All of the commenters who addressed this provision,
including the principal Congressional sponsors of BCRA, agreed with this
clarification.

# [B. Alternative Definition of "Electioneering Communication"]{.underline} 

BCRA at 2 U.S.C. 434(f)(3)(A)(ii) provides an alternative definition of
"electioneering communication" that would take effect in the event the
definition in 2 U.S.C. 434(f)(3)(A)(i) is held to be constitutionally
insufficient "by final judicial decision." The alternative definition of
"electioneering communication" is "any broadcast, cable, or satellite
communication which promotes or supports a candidate for that office, or
attacks or opposes a candidate for that office (regardless of whether
the communication expressly advocates a vote for or against a candidate)
and which also is suggestive of no plausible meaning other than an
exhortation to vote for or against a specific candidate."
2 U.S.C. 434(f)(3)(A)(ii). The Commission did not propose regulations to
implement this alternative statutory definition in the NPRM. 67
[FR]{.underline} 51,132. The Commission, however, did seek comment as to
whether it should promulgate an alternative definition as part of these
final rules. Specifically, the Commission inquired whether such a
regulation should simply reiterate the wording of the statute, or
whether it should provide additional guidance as to what types of
communications promote, support, attack, or oppose a candidate and
suggest no plausible meaning other than an exhortation to vote for or
against a candidate.

Most of the commenters who addressed BCRA's alternative definition of
"electioneering communication" agreed with the Commission's proposed
approach to promulgate regulations to implement this alternative
definition only when and if it becomes necessary to do so. In the
absence of a judicial decision invalidating the existing definition,
regulations related to the alternative definition would be potentially
confusing and premature or even entirely unnecessary, according to these
commenters. Additionally, some argued that any court decision regarding
2 U.S.C. 434(f)(3)(A) may provide guidance for the appropriate standard
that the Commission should use in promulgating regulations under the
alternative definition. Two commenters advocated promulgating
regulations now so that the pending litigation could be informed by the
manner in which the Commission would enforce the alternative definition.
They also argued that the period between a final decision in that
litigation and the 2004 elections is likely to be too short to permit
the Commission to complete a rulemaking in time to provide guidance, if
the operative definition is invalidated. They further argued that the
alternative definition's application to the entire election cycle, and
not just the 30- or 60-day periods to which the current definition is
limited, exacerbates the timing issue.

Because promulgating regulations that implement the alternative
definition is premature and may cause confusion, the Commission does not
intend to do so unless and until a final judicial decision makes it
necessary to do so by holding that 2 U.S.C. 434(f)(3)(A)(i) is
constitutionally insufficient. The Commission notes that if such a
decision issues, the statutory alternative definition would become
effective, and the decision may supplement the statute's language to
provide guidance until the Commission issues implementing regulations.

# [C. Terms used in "Electioneering Communication" definition]{.underline}

Paragraph (b) of 11 CFR 100.29 defines some of the terms used in
paragraph (a)'s definition of "electioneering communication." It has
been reorganized from the NPRM so that the terms are defined in the
order in which they appear in paragraph (a).

1\. 11 CFR 100.29(b)(1) Definition of "Broadcast, cable, or satellite
communication"

BCRA's legislative history establishes that electioneering
communications are limited to television and radio communications, and
not other media. The electioneering communication provisions originated
as an amendment to the predecessor of BCRA introduced by Senators Snowe
and Jeffords in 1998. That amendment, and all of the subsequent versions
of that amendment prior to the 107^th^ Congress, defined an
electioneering communication to include "any broadcast from a television
or radio broadcast station." [See]{.underline} 144 Cong. Rec. S938
(daily ed. Feb. 24, 1998); [see]{.underline} [also]{.underline} S.26
(106^th^ Congress), 145 Cong. Rec. S425 (daily ed. Jan. 19, 1999).
Likewise, the floor debates on the electioneering communications
provision during the 107^th^ Congress frequently referred to television
and radio ads. [See, e.g.,]{.underline} 148 Cong. Rec. S2117 (daily ed.
Mar. 20, 2002) (remarks of Sen. Jeffords). During a final explanation of
these provisions, Senator Snowe again stated that they would apply to
"so-called issue ads run on television and radio only." 148 Cong. Rec.
S2135 (daily ed. Mar. 20, 2002). During an early debate on the
amendment, Senator Snowe was asked whether the definition of
electioneering communication would "apply to the Internet." She replied,
"No. Television and radio." [See]{.underline} 144 Cong. Rec. S973 and
S974 (daily ed. Feb. 25, 1998). Consistent with Congressional intent,
new 11 CFR 100.29(b)(1) states that a broadcast, cable, or satellite
communication is a communication that is publicly distributed by a
television station, radio station, cable television system, or satellite
system. This definition limits the scope of electioneering
communications to television and radio. (The exclusion of the Internet
and other forms of communication is further discussed below in
connection with 11 CFR 100.29(c)(1).)

Proposed 11 CFR 100.29(b)(2) would have exempted Low Power FM Radio, Low
Power Television, and citizens band radio from inclusion in broadcast,
cable, or satellite communication. NPRM, 67 [FR]{.underline} 51,133. The
commenters were divided on whether these communications media should be
included or excluded. While many would probably agree with the commenter
who stated that BCRA was primarily aimed at "traditional" radio and
television, most who specifically mentioned Low Power FM Radio, Low
Power Television, and citizens band radio believed that BCRA provided no
authority to exclude these forms of radio and television. Among those
opposed to the exemption were the six principal Congressional sponsors
of BCRA. Considering BCRA's unqualified language, particularly in light
of the comments, the Commission has decided not to exclude these forms
of radio and television from the definition of "electioneering
communications" in the final rule. In doing so, the Commission notes
that any communication over these media would have to be received by
50,000 persons or more in the relevant Congressional district or State
before the communication could be considered an electioneering
communication. Additionally, the costs of the communication would have
to exceed \$10,000 before disclosure requirements applied. Finally, to
the extent a fee for the public distribution of a communication is not
charged, the communication is excluded from the definition of
"electioneering communication" pursuant to 11 CFR 100.29(b)(3)(i).

2\. 11 CFR 100.29(b)(2) Definition of "Refers to a clearly identified
candidate"

Section 100.29(b)(2) defines the phrase "refers to a clearly identified
candidate." This phrase is already defined in the Commission's rules at
11 CFR 100.17, which states that "clearly identified" means the
candidate's name, nickname, photograph, or drawing appears, or the
identity of the candidate is otherwise apparent through an unambiguous
reference such as "the President," "your Congressman," or "the
incumbent," or through an unambiguous reference to his or her status as
a candidate such as "the Democratic presidential nominee" or "the
Republican candidate for Senate in the State of Georgia." The final rule
tracks the language of the current rule in 11 CFR 100.17. This approach
appears to be consistent with legislative intent. [See]{.underline} 148
Cong. Rec. S2144 (daily ed. Mar. 20, 2002) (statement of Sen. Feingold
indicating that a communication "refers to a clearly identified
candidate" if it "mentions, identifies, cites, or directs the public to
the candidate's name, photograph, drawing or otherwise makes an
'unambiguous reference' to the candidate's identity"). Please note that
the definition would not be based on the intent or purpose of the person
making the communication. Of the six commenters who addressed this
issue, five supported the Commission's proposal, while the sixth found
it vague and too broad. Given the well-established body of law
construing this term, the Commission does not agree with this latter
comment.

3\. 11 CFR 100.29(b)(3) Definition of "Publicly distributed"

> a\. 11 CFR 100.29(b)(3)(i) General definition

Section 100.29(b)(3)(i) defines "publicly distributed" as "aired,
broadcast, cablecast or otherwise disseminated for a fee through the
facilities of a television station, radio station, cable television
system, or satellite system." Because BCRA applies expressly to "any
broadcast, cable, or satellite communication," the Commission intends
this definition to include any technological methods of disseminating a
communication through the facilities listed above. One commenter
cautioned that some telephone calls and email messages can be
transmitted, in part, through the facilities of a television station,
radio station, cable television system, or satellite system and might
therefore meet the definition of "publicly distributed" as proposed in
the NPRM. 67 [FR]{.underline} 51,145. However, a communication must be
available to 50,000 or more persons in a particular Congressional
district or State in order to be an electioneering communication, and it
is highly unlikely the communications the commenter addressed would be
so widely disseminated.

> b\. 11 CFR 100.29(b)(3)(i) "For a fee"

The Commission specifically asked in the NPRM if the definition of
"electioneering communication" should be limited to paid advertisements.
[See]{.underline} 67 [FR]{.underline} 51,136. Much of the legislative
history and virtually all of the studies cited in legislative history
and presented to the Commission in the course of this rulemaking focused
on paid advertisements in considering what should be included within
electioneering communications. [See, e.g.,]{.underline} 148 Cong. Rec.
S2112, S2114-16, S2117, S2117, S2124, S2135, S2140-41, S2154, and S2155
(daily ed. Mar. 20, 2002) (remarks of Sens. Schumer, Levin, Cantwell,
Jeffords, McConnell, Snowe, McCain, Feinstein, and Dodd, respectively);
Campaign Finance Institute Task Force on Disclosure, [Issue Ad
Disclosure: Recommendations for a New Approach]{.underline} (2001);
Annenberg Public Policy Center, [Issue Advertising in the 1999-2000
Election Cycle]{.underline} (2001); Craig B. Holman and Luke P.
McLoughlin, Brennan Center for Justice, [Buying Time 2000: Television
Advertising in the 2000 Federal Elections]{.underline} (2001), Executive
Summary [reprinted in]{.underline} 148 Cong. Rec. S2118 (daily ed.
Mar. 20, 2002); and Jonathan S. Krasno and Daniel E. Seltz, Brennan
Center for Justice, [Buying Time: Television Advertising in the 1998
Congressional Elections]{.underline} (2000).

Many commenters who addressed this specific issue agreed that the
legislative history abundantly documents that paid advertisements were
the focus of the electioneering communication provisions. One commenter
suggested that the electioneering communication regulations should cover
program-length, paid advertisements, known as "infomercials," as well as
the shorter paid advertisements, known as commercials. Several other
commenters discussed entertainment programming, educational programming,
or documentaries and argued that BCRA was not intended to reach these
communications.

One commenter argued, however, that limiting electioneering
communications to paid programming would permit corporations that
operate broadcast, cable, or satellite systems to distribute
communications that would be electioneering communications but for this
limitation, and that such a result is plainly inconsistent with BCRA.
This commenter also cited the \$10,000 threshold for reporting
electioneering communications, which provides partial relief to those
who distribute advertisements or programming without paying for
distribution costs.

Based on the legislative history of BCRA, the Commission has determined
that electioneering communications should be limited to paid
programming. The Commission has added an additional element to the
definition of "publicly distributed" in the final rules that was not in
the definition proposed in the NPRM. The final rule at 11 CFR
100.29(b)(3)(i) includes the qualifier "for a fee" to reflect the
Commission's determination that electioneering communications should be
limited to paid programming. By including this qualifier, the Commission
limits the definition of "electioneering communications" to those
communications for which the operator of a broadcast station, cable
system, or satellite system seeks or receives payment for the public
distribution of the communication.[^4] The Commission believes the
addition of "for a fee" to the definition of "publicly distributed"
implements the well-documented Congressional intent regarding which
communications are included within the definition of "electioneering
communications." As suggested by the question in the NPRM, the
Commission believes this is best accomplished by incorporating the
criterion in the definition, rather than creating an exemption from the
definition.

A communication's production costs will not be considered fees for this
purpose; the fees included in the definition are limited to charges for
distribution. Therefore, under this criterion both program-length paid
shows, including infomercials, and commercials are subject to the
electioneering communication requirements.

The Commission has carefully considered the concern that corporate-owned
broadcast, cable, or satellite systems could evade the prohibition on
corporate contributions by providing free airtime for communications.
The Commission notes that a broadcaster, or a cable or satellite system
operator's judgment to provide free distribution services shares some
characteristics of the broadcaster or system operator's editorial
judgments involved in the use of the news story exemption, which is
recognized in FECA, BCRA, and Commission regulations.
2 U.S.C. 431(9)(B); 2 U.S.C. 434(f)(3)(B)(i); and 11 CFR 100.132. Thus,
a broadcaster's decision to provide free airtime for communications will
not create liability for the person that produced the communication.

> c\. 11 CFR 100.29(b)(3)(ii) Additional definition for presidential
> primaries and conventions

BCRA defines electioneering communication to include communications that
"in the case of a communication which refers to a candidate for an
office other than President or Vice President, is targeted to the
relevant electorate." 2 U.S.C. 434(f)(3)(A)(i)(III). BCRA then defines
"targeting to the relevant electorate," referring to Congressional
candidates only. 2 U.S.C. 434(f)(3)(C). Thus, as discussed in the NPRM,
a plausible reading of BCRA is that a communication that refers to a
presidential or vice-presidential candidate does not need to be targeted
to the relevant electorate to qualify as an electioneering
communication. 67 [FR]{.underline} 51,134. Under this interpretation, a
communication that refers to a clearly identified presidential or
vice-presidential candidate and that meets the timing and medium
requirements for electioneering communications would be considered an
electioneering communication, without considering the number or
geographic locations of persons receiving the communication. For
example, a television ad that clearly identifies a presidential primary
candidate that is run anywhere in the United States could be considered
an electioneering communication if the ad aired within 30 days of a
primary election taking place anywhere in the United States, even if, in
the States in which the ad actually aired, the primary election were
months away or had already taken place.

The Commission expressed concerns regarding this interpretation in the
NPRM. Such a sweeping impact on communications would be insufficiently
linked to pending primary elections, may not have been contemplated by
Congress, and could raise constitutional concerns.[^5] So interpreted,
the restrictions on electioneering communications would take effect even
if an ad were aired only in a State that has already held its primary,
and thus would restrict ads more than 60 days before a general election,
arguably in contravention of BCRA.

The Commission invited comment on three different interpretations of
BCRA's requirements for an electioneering communication that refers to
presidential or vice-presidential primary candidates. The Commission
first proposed two alternative regulatory provisions addressing this
issue when it defines how a BCRA provision would apply with respect to
presidential candidates. 67 [FR]{.underline} 51,134. One alternative was
linked to BCRA's definition of "electioneering communications" as
communications "made within . . . 30 days before a primary . . .
election." 2 U.S.C. 434(f)(3)(A)(i)(II)(bb). In contrast to
2 U.S.C. 434(f)(3)(A)(i)(III), which is expressly limited to candidates
other than President or Vice President, section 434(f)(3)(A)(i)(I)
refers to "candidate\[s\] for Federal office" without qualification.
Thus, candidates for President are included among those contemplated in
section 434(f)(3)(A)(i)(I) and (II). Consequently, the express language
of the statute permits the Commission to define when a communication
that refers to a clearly identified candidate for President is made
within 30 days before a primary or national nominating convention.

The Commission proposed that a communication that refers to a clearly
identified candidate for President would be "publicly distributed within
30 days before a primary election, preference election, or convention or
caucus of a political party," only where and when the communication can
be received by 50,000 or more persons within the State holding such
election, convention or caucus. (This portion of the "electioneering
communication" definition was included as Alternative 1-B in proposed 11
CFR 100.29(b)(4).)

As an alternative means of addressing the concerns about the potential
sweep of the electioneering communication provisions to presidential
primary candidates, the Commission proposed that a communication would
be considered an electioneering communication only if it can be received
by 50,000 or more persons in either a State in which a presidential
primary will occur within 30 days, or nationwide if within 30 days of
the national nominating convention of that candidate's party. (This
provision appeared in the proposed rules as Alternative 1-A in
11 CFR 100.29(a)(1)(iv).)

Separately, the Commission sought comments on whether BCRA's
electioneering communications restrictions as applied to communications
depicting presidential and vice-presidential candidates could not be
triggered by a primary election, but would be limited to the 30 days
before a party's national nominating convention and the 60 days before
the general election. 67 [FR]{.underline} 51,135. This interpretation
was based on the phrasing of BCRA's limitation of electioneering
communications to those made "within 30 days before a primary or
preference election, or a convention or caucus of a political party
[that has authority to nominate a candidate,]{.underline} for the office
sought by the candidate." 2 U.S.C. 434(f)(3)(A)(i)(II)(bb) (emphasis
added). This interpretation viewed the restrictive adjective clause
"that has authority to nominate a candidate" as modifying all the
preceding objects: both "a convention or caucus of a political party"
and "a primary or preference election." Because the presidential
candidates of the two major parties can only be nominated at their
party's national nominating convention, no State primary or preference
election would satisfy this aspect of the definition. Thus, the only
communications that refer to major party presidential candidates that
could be considered electioneering communications are those within 30
days of the convention or 60 days of the general election.

Many commenters addressed this issue. Three commenters believe that any
effort by the Commission to make the 50,000 person standard applicable
to communications that refer to presidential candidates is inconsistent
with the plain language of the statute. Twelve commenters rejected this
view, supporting either Alternative 1-A or 1-B. Many of the comments
discussed the effect of the alternatives on national nominating
conventions. Most of those who favored Alternative 1-A, the addition to
the general definition of "electioneering communications," stated that
they did so because they approved of its express application to
communications 30 days before the national nominating convention. They
argued that the national nominating conventions are elections with a
national effect, so the relevant base of viewers or listeners for a
communication shortly before a convention is nationwide, like the
general election. One of those who favored Alternative 1-B, the
specification of how "made within 30 days before a primary election"
would apply to presidential primaries, suggested that the Commission
expand the alternative to cover ads 30 days prior to the conventions.
Another commenter who favored Alternative 1-A also stated that
Alternative 1-B would be sufficient if expanded to address explicitly
national nominating conventions. Only one commenter was opposed to
including national nominating conventions. That commenter argued that
because only delegates can vote at national nominating conventions, it
is inappropriate to require that the communication reach more than
50,000 persons nationally.

Commenters who rejected the interpretation that electioneering
communications cannot be related to presidential primaries because none
have "the authority to nominate a candidate" described the narrow
interpretation as plainly inconsistent with BCRA.[^6] In doing so, the
comments argued that the clause "that has authority to nominate a
candidate," modifies "a convention or caucus of a political party" only,
so that "a primary or preference election . . . for the office sought by
the candidate" is not modified by the "authority" clause. The enclosure
of the "authority" clause in a pair of commas supports this reading of
the provision, according to these commenters. The principal
Congressional sponsors of BCRA were among those who endorsed this
interpretation.

The Commission declines to interpret BCRA to exempt presidential
primaries from the electioneering communication provisions. The
Commission also rejects the interpretation of BCRA that would lead to a
nationwide application of the electioneering communication provisions
with respect to presidential primaries. Instead, the Commission has
determined that in defining "publicly distributed," the regulation will
further specify how a communication is publicly distributed within 30
days of a presidential primary or preference election or a national
nominating convention. Given the number of states that hold presidential
primaries over the course of several months using a variety of methods
to select delegates to the national nominating conventions, the
Commission is issuing clarifying regulations. Similarly, the multiple
days over which national nominating conventions generally are conducted
also call for specificity as to precisely when the 30-day period begins
and ends. New section 100.29(b)(3)(ii) incorporates the language from
Alternative 1-A in the NPRM and uses the device of Alternative 1-B,
which was defining "publicly distributed" in these circumstances. Thus,
under 11 CFR 100.29(b)(3)(ii)(A), in order to qualify as an
electioneering communication, a broadcast, cable, or satellite
communication that refers to a clearly identified candidate for his or
her party's nomination for President or Vice President must be publicly
distributed within 30 days before a primary election in such a way that
the communication can be received by 50,000 or more persons within the
State holding the primary election.

One commenter inquired whether the 30-day period prior to a national
nominating convention begins 30 days prior to the first or last day of
the convention. A plain language reading of BCRA leads to the conclusion
that the period to which the electioneering communication provisions
apply begins 30 days prior to the first day of a convention or caucus
and continues to the end of the convention or caucus. For each day
within this period, at least one day of the convention or caucus will be
in the subsequent 30 days. The Commission specifies in the final rule at
section 100.29(b)(3)(ii)(B) that the period begins running 30 days
before the first day of the national nominating convention.

The Commission notes that a caucus or convention that selects or
apportions delegates to a national nominating convention or expresses a
preference for the nomination of presidential candidates would be
considered a primary election pursuant to 11 CFR 100.2(c)(2),
100.2(c)(3), and 9032.7. In some States, caucuses or conventions that
occur prior to the statewide caucus, convention, or primary determine
the distribution of the statewide delegation to the national nominating
convention among candidates for President or Vice President. In such
cases, the Commission would likely consider the caucus or convention
that selects or apportions delegates to a national nominating convention
to be the triggering event for purposes of the 30-day period in 11 CFR
100.29(a)(2). In light of the variations in party procedures among the
States, and in order to avoid confusion over which event in a political
party's nominating process in a particular State will trigger the 30-day
electioneering communication period for candidates for President or Vice
President who seek that political party's nomination, the Commission
will publish on its website a list of the one event for each political
party in each State that triggers the 30-day period for candidates for
President or Vice President who seek that political party's nomination.

The Commission has also determined that a similar clarification for the
60 days preceding the general election is unnecessary because the date
of the general election does not vary across the States. Without the
ambiguity caused by the multiple dates and jurisdictions of the primary
elections, BCRA's plain language clearly establishes the time period for
electioneering communications related to the presidential general
election. 2 U.S.C. 434(f)(3)(A)(i)(II)(aa).

[4. 11 CFR 100.29(b)(4) Clarifying primary and general
elections]{.underline}

The Commission's current rules at 11 CFR 100.2 contain definitions of
"general election," "primary election," "runoff election," "caucus or
convention," and "special election" that will be applicable to 11 CFR
100.29. Under 11 CFR 100.2(f), a "special election" can be a primary,
general, or runoff election. BCRA, however, groups "special election"
with general and runoff elections for purposes of an electioneering
communication. In the NPRM, proposed section 100.29(a)(2) would have
clarified that, for purposes of section 100.29, "special elections" and
"runoff elections" would be treated consistently with 11 CFR 100.2(f);
that is, they could be considered primary elections, if held to nominate
a candidate; and general elections, if held to elect a candidate. 67
[FR]{.underline} 51,132.

Several commenters supported proposed section 100.29(a)(2). The
principal Congressional sponsors of BCRA were among the supporters, and
they also noted that Title II of BCRA will not apply to any runoff or
special election resulting from the 2002 general election.
[See]{.underline} 2 U.S.C. 431 note \[BCRA, section 402(a)(4), 116 Stat.
at 112\]. In order to be consistent with section 100.2(f), the final
rules incorporate the language of proposed section 100.29(a)(2).
However, the final rules place the provisions pertaining to special or
runoff elections in 11 CFR 100.29(b)(4).

One commenter found the Commission's definition of these terms, both in
existing regulations and in the proposed regulations, to be problematic.
This commenter argued that the definition of "election" should be
restricted to include only elections in which the candidate referred to
is running, citing another party's primary as an example that should be
excluded. The Commission agrees, and has added language to proposed
section 100.29(a)(2) to clarify that a primary, preference election,
convention or caucus held by a political party (including those that
constitute a special election or a run-off election) triggers a 30-day
period that is only applicable to candidates who seek the nomination of
that political party. Thus, for example, the date on which the
Libertarian Party's candidate for Senate is nominated would have no
bearing on communications that refer to a clearly identified candidate
who seeks the Democratic Party's nomination for the same Senate seat,
unless a candidate were to seek the nomination of both parties for that
Senate seat.

The same commenter also stated that no legitimate purpose is served by
including elections in which a candidate is unopposed, as required by
current 11 CFR 100.2(a). The final rules follow the proposed rules
because nothing in BCRA or its legislative history reflects any
Congressional intent to distinguish between elections in which a
candidate has opposition and those in which he or she does not.

A commenter requested clarification regarding "preference election" as
used in 2 U.S.C. 434(f)(3)(A)(i)(II)(bb) and 11 CFR 100.29(a)(2).
Section 100.2(c)(2) defines a "preference election" to be a primary
election, while, in contrast, BCRA's electioneering communication
provision refers separately to primary and preference elections.
However, the Commission believes no substantive difference was intended,
so the proposed regulation at 11 CFR 100.29(a)(2) follows the statute.

The same commenter also raised the issue of an independent candidate's
ability to choose when the primary is considered to occur pursuant to 11
CFR 100.2(a)(4). The final rule text does not specifically state the
Commission's intention in this regard, as the Commission decided it was
not necessary to address the issue at this time.

This commenter also expressed concern that the dates of non-major
parties nominating conventions may not be widely known among members of
the public. BCRA's reference to a convention of a political party that
has authority to nominate a candidate for the office sought by the
candidate is not limited to major party conventions. Consequently, the
Commission does not have the authority under BCRA to exclude non-major
parties by regulation.

Finally, the commenter questions the application of the timing
requirements for electioneering communications in States that may have
precinct, county, district, or regional caucuses or conventions that
select delegates to the statewide caucus or convention. As the commenter
points out, the statewide caucus or convention has the authority to
nominate a candidate, so the statewide caucus or convention satisfies
section 100.29(a)(2). If none of the earlier caucuses or conventions has
the authority to nominate a candidate, by definition, they would not
mark the end of a 30-day period under section 100.29(a)(2). This same
analysis also answers the commenter's concern about States that have
caucuses or conventions prior to a primary election. For example,
Connecticut and Utah have conventions prior to primary elections
scheduled for the 2002 Congressional races. BCRA's limitation on
"conventions and caucuses" to those "that \[have\] the authority to
nominate a candidate" addresses this situation by excluding convention
and caucuses that do not have that authority. As noted above in
connection with 11 CFR 100.29(b)(4), a caucus or convention that selects
or apportions delegates to a national nominating convention would likely
mark the end of a 30-day period of electioneering communications; the
Commission will provide guidance on its website on a State-by-State,
party-by-party basis.

5\. 11 CFR 100.29(b)(5) Definition of "Targeted to the relevant
electorate"

BCRA defines "targeted to the relevant electorate" at 2 U.S.C.
434(f)(3)(C) as a communication that can be received by 50,000 or more
persons either in the Congressional district the candidate seeks to
represent, in the case of a candidate for Representative, Delegate, or
Resident Commissioner to the U.S. House of Representatives; or in the
State the candidate seeks to represent, in the case of a candidate for
the U.S. Senate. The NPRM included proposed section 100.29(b)(3) that
followed the statutory language, and that proposal is now made final at
11 CFR 100.29(b)(5). NPRM, 67 [FR]{.underline} 51,133. The commenters
who addressed this provision agreed with tracking the statutory language
in the regulation and focused their comments on the interpretative
questions posed in the NPRM.[^7]

The definition of "targeted to the relevant electorate" includes
communications that can be received beyond the relevant geographical
area. A communication that can be received by large numbers of persons
outside the relevant district or State is nonetheless a targeted
communication, as long as 50,000 persons in the relevant area can also
receive it. Conversely, an electioneering communication would not
include a communication that reaches fewer than 50,000 persons in the
State or district where the clearly identified candidate is running,
even if at the same time it also reaches 50,000 or more persons in a
State or district where the clearly identified candidate is not running.
The Commission noted this interpretation in the NPRM, and most of the
commenters who addressed it supported the interpretation. One commenter
suggested that the Commission address in the final rule what it deemed
an adjoining market problem. The commenter thought an ad that is
broadcast on stations intended for an audience in one State might reach
more than 50,000 persons in another State, for example, because media
markets may extend beyond State lines. The commenter posited the example
of an ad broadcast on Massachusetts television stations that is intended
to influence a Member of Congress from Massachusetts with respect to a
bill that is supported by the President. Such an ad might be broadcast
more than 30 days before the Massachusetts primary, so it would not be
an electioneering communication, even if it clearly identified the
Member who is seeking reelection. However, because several Massachusetts
television stations' broadcast signals reach a large audience in New
Hampshire, if the ad also clearly identifies a President seeking
reelection, it would constitute an electioneering communication if it is
broadcast within 30 days of the New Hampshire presidential primary
election. However, BCRA is clear: if a communication can be received in
a State or district by 50,000 or more persons, and if it meets the
timing, content, and medium requirements related to electioneering
communications, the communication is an electioneering communication,
regardless of how many potential audience members or what percentage of
the total potential audience reside in another State or district.
Therefore, the final rule at section 100.29(b)(5) does not reflect the
commenter's suggestion.

[D. The Federal Communications Commission and determining the size of a
potential audience]{.underline}

The subsidiary definitions proposed in the NPRM included a provision at
11 CFR 100.29(b)(5) that addresses how to obtain information about a
communication's potential audience. 67 [FR]{.underline} 51,134. The
proposed provision explained that the Federal Communications
Commission's website would provide information about the number of
individuals in Congressional districts or States that can receive a
communication publicly distributed by a television station, radio
station, cable television system, or satellite system. Based on this
proposal and the comments received on the issues raised by it, the
Commission is promulgating an Interim Final Rule in a separate
rulemaking.

# [E. Exemptions from definition of "electioneering communication" in BCRA]{.underline}

BCRA generally defines "electioneering communications" at
2 U.S.C. 434(f)(3)(A) and provides three exceptions to the definition in
section 434(f)(3)(B)(i) through (iii). BCRA also provides the Commission
with authority to promulgate regulations that exempt additional
communications from the definition of "electioneering communications."
2 U.S.C. 434(f)(3)(B)(iv). BCRA also imposes a significant limitation on
this authority: the Commission may exempt only communications that do
not promote, support, attack, or oppose a Federal candidate.
[Id.]{.underline}

In the Commission's regulations, 11 CFR 100.29(a) and (b) define
"electioneering communications," and section 100.29(c) provides for
exceptions to the definition. The exceptions in 11 CFR 100.29(c)(1)
through (4) are based on the express language of BCRA. The Commission
proposed a number of additional exemptions in the NPRM. After carefully
considering the extensive written comments and testimony, which
highlighted the difficulties involved in crafting permissible
exemptions, the Commission has decided to promulgate two exemptions: one
for State and local candidates, 11 CFR 100.29(c)(5), and another for
certain nonprofit organizations operating under 26 U.S.C. 501(c)(3). The
Commission has also decided not to promulgate any further exemptions.

1\. 11 CFR 100.29(c)(1) Communications other than broadcast, cable of
satellite

BCRA expressly limits electioneering communications to broadcast, cable,
or satellite communications. As discussed above in connection with
11 CFR 100.29(b)(1), the legislative history establishes that BCRA's
focus was on radio and television ads. Based on the statutory language
and the legislative history, the final rule at 11 CFR 100.29(c)(1)
provides examples of communications that are [not]{.underline} included
in the definition of electioneering communication. The list of
exemptions includes communications appearing in print media, including a
newspaper or magazine, handbills, brochures, bumper stickers, yard
signs, posters, billboards, and other written materials, including
mailings; communications over the Internet, including electronic mail;
and telephone communications.

Most of the comments received on proposed 11 CFR 100.29(c)(1) discussed
the exemption for the Internet. Those who did comment on the remainder
of the paragraph, including the principal Congressional sponsors of
BCRA, agreed that it conformed to BCRA.

The Internet is included in the list of exceptions in the final rules in
section 100.29(c)(1) because, in most instances, it is not a broadcast,
cable, or satellite communication. BCRA's legislative history, which is
discussed above in connection with 11 CFR 100.29(b)(1), establishes
Congress's intent to exclude communications over the Internet from the
electioneering communication provisions. The Commission concludes that
Congress did not seek to regulate the Internet in subtitle A of Title II
of BCRA. The relatively few commenters who opposed the Internet
exemption did not disagree with this conclusion; rather, they argued
that as the Internet develops, aspects of it might come to be used in a
manner like radio or television. To these commenters, this potential
evolution of the Internet calls for a more precise approach and makes
the exemption as proposed too broad a treatment of this issue. The
Commission has decided to include the exemption in the final rules,
rather than attempt to craft a regulation that responds to unknown,
future developments.

The NPRM noted that "webcasts" or other communications that are
distributed only over the Internet would be excluded from the definition
of electioneering communications, but television or radio communications
that are simultaneously "webcast" over the Internet or archived for
viewing or listening over the Internet would be included in the
definition of electioneering communications. 67 [FR]{.underline} 51,133.
Some comments on the definition of "broadcast, cable, or satellite
communication" in proposed section 100.29(b)(1) and the exemption in
proposed section 100.29(c)(1) suggest that a clarification is in order.
The discussion in the NPRM was intended to make clear that if a
communication meets the content, timing, media, and potential audience
criteria for an electioneering communication, webcasting that
communication, or archiving it for later viewing via the Internet, will
not remove the television or radio aspect of the communication from the
definition of "electioneering communication." Thus, the exemption for
communications on the Internet is not so broad that it could inoculate a
television and radio communication that otherwise satisfies the
electioneering communication criteria from the electioneering
communication rules, merely because the communications is also webcast
or archived for later viewing or listening over the Internet. The
Internet aspect of the communication, including the number of potential
recipients, will not be considered in determining whether a
communication meets the definition of an "electioneering communication."

The NPRM also asked how WebTV should be treated. 67 [FR]{.underline}
51,133. One commenter stated that WebTV is an alternative means of
accessing the Internet, so it would be subject to the Internet exemption
in section 100.29(c)(1). Another commenter argued that the regulation
should explain that the Internet exemption applies no matter what
equipment is used to access the Internet. The Commission agrees that
accessing the Internet with WebTV or any other technology is included
within the Internet exemption. Because the exemption is not limited to
any particular technology to access the Internet, the text of the final
rule follows the proposed rule.

Some argued that the exemption in proposed 11 CFR 100.29(c)(1) should be
expanded to include public access television and radio channels and
digital audio radio satellite. Others argued that because those services
are undeniably television, radio, and satellite, any exemption for them
would be contrary to the plain language of BCRA. The Commission agrees
with the latter viewpoint, so no specific exemption of this nature is
included in the final rules.

2\. 11 CFR 100.29(c)(2) Exemption for a news story, commentary or
editorial

The exemption for a news story, commentary or editorial in
11 CFR 100.29(c)(2) closely follows the statutory language from
2 U.S.C. 434(f)(3)(B)(i), which exempts such communications from the
definition of "electioneering communication," unless the facilities
distributing the communication are owned or controlled by any political
party or committee, or a candidate. The final rule adds that
communications distributed by such facilities are exempt from the
electioneering communication definition if the communications meet the
requirements of 11 CFR 100.132(a) and (b).

The commenters supported a rule that refers to the existing media
exemption. The commenters also supported the regulation's inclusion of
broadcast, cable, and satellite communications, in place of the
statute's reference to broadcast communications. The legislative history
gives no reason to narrow this particular aspect of electioneering
communications, and the commenters, including the principal
Congressional sponsors of BCRA, agreed with the consistent use of the
broader phrase.

Some of the comments suggested additional exemptions for documentaries,
educational programming, or entertainment, which apparently reflects a
concern that this exemption would be narrowly interpreted. The
Commission interprets "news story commentary, or editorial" to include
documentaries and educational programming in this context. Entertainment
programming is not mentioned in BCRA, so the final regulation does not
include it either. Please note, however, that the limitation of the
definition of "electioneering communications" to those in which a fee is
charged or paid for a public distribution will likely exempt from the
definition of "electioneering communications" nearly all of the
entertainment programming discussed by the commenters.

3\. 11 CFR 100.29(c)(3) Exemption for expenditures and independent
expenditures

Title II, subtitle A of BCRA also specifically provides an exemption for
communications that constitute expenditures or independent expenditures
under the Federal Election Campaign Act. 2 U.S.C. 437(f)(3)(B)(ii). In
the NPRM, two alternatives were proposed to implement this provision. 67
[FR]{.underline} 51,135-36. The first alternative reiterated the
statutory exemption as proposed in section 100.29(c)(3). Under this
alternative, any expenditure of a Federal political committee and any
independent expenditure would not be subject to the electioneering
communication reporting requirements, but would remain subject to FECA's
other reporting requirements and its prohibitions and limitations on
funding sources. The comments from BCRA's principal sponsors explained
that the electioneering communication provisions were "mainly concerned
with election-related disbursements that avoided regulation under FECA."
They stated that because expenditures and independent expenditures are
subject to regulation under FECA, the statutory exemption from Title II,
subtitle A of BCRA ensures that BCRA's Title II, subtitle A applies to
disbursements that are not subject to FECA's other requirements,
prohibitions, and limitations. The exemption's purpose, the sponsors
therefore argue, is to avoid requiring political committees to report
the same expenditures twice.

Most who commented on this issue urged the Commission to implement
Alternative 2-A, which repeats the statutory language. Only one
commenter preferred Alternative 2-B, which would have limited the
exemption to "candidate-specific expenditures" that are reportable as an
in-kind contribution or a party committee coordinated expenditure, or an
independent expenditure. This commenter preferred what it characterized
as duplicative reporting required under that alternative to a reporting
scheme it considered incomplete. The commenter agreed, however, that the
purpose of the exemption for expenditures was to avoid duplicative and
potentially conflicting reporting requirements. Because Alternative 2-B
would lead to duplicative reporting and because Alternative 2-A includes
BCRA's language, the Commission has decided that the final rule will
include Alternative 2-A's language, with one modification.

It is possible that a group could pay for an ad and claim that the
payment is an expenditure because it was for the purpose of influencing
a Federal election, as expenditure is defined in 2 U.S.C. 431(9). As
such, the group could claim that the ad was exempt from the definition
of "electioneering communication" as an expenditure pursuant to
2 U.S.C. 437(f)(3)(B)(ii). However, the group could simultaneously claim
that it does not meet the major purpose test, and therefore it is not
required to register as a political committee or to report its
expenditures. Thus, the group running an ad could invoke the BCRA
exemption for expenditures, which prevents double reporting, and
simultaneously claim the expenditure is not subject to FECA reporting
requirements because the group is not a political committee under FECA.
To prevent such a situation, the Commission has clarified the final rule
at 11 CFR 100.29(c)(3) to limit the exemption to expenditures and
independent expenditures that are required to be reported as such under
the Act and the Commission's regulations. This clarification follows
suggestions from several commenters, including the principal
Congressional sponsors of BCRA. Under this regulation, the campaign
committees of Federal candidates and the national party committees will
be totally exempt from the electioneering communications provisions.

[4. 11 CFR 100.29(c)(4) Exemption for candidate debates or
forums]{.underline}

BCRA includes an exemption at 2 U.S.C. 434(f)(3)(B)(iii) for a
communication that "constitutes a candidate debate or forum conducted
pursuant to regulations adopted by the Commission, or which solely
promotes such a debate or forum and is made by or on behalf of the
person sponsoring the debate or forum." The final rules in 11
CFR 100.29(c)(4) implement this provision and refer to 11 CFR 110.13,
which contains the Commission's current regulation on candidate debates.
All of the commenters that addressed this issue agreed with the proposed
rules in 11 CFR 100.29(c)(4), except that one commenter argued that the
requirements of section 110.13 should not apply in this context to limit
the exemption from the electioneering communication definition. However,
BCRA expressly refers to regulations adopted by the Commission in this
regard, and 11 CFR 110.13 applies to candidate debates. The Commission
finds no reason to adopt a different standard in the electioneering
communication exemption. Additionally, pursuant to the operation of
sections 110.13 and section 114.4(f),[^8] if the conduct of a debate
does not meet the requirements of section 110.13, any corporate or labor
organization funding for such a debate would constitute a prohibited
contribution or expenditure.[^9]

# [F. Regulatory exemptions from definition of "electioneering communication"]{.underline}

In addition to the exemptions expressly created by BCRA, the statute
also provides that "to ensure the appropriate implementation" of the
electioneering communication provisions, the Commission may promulgate
regulations exempting other communications from the "electioneering
communications" definition. 2 U.S.C. 434(f)(3)(B)(iv). However, the
statutory authorization to exempt communications is expressly limited in
two ways. The exemption must be promulgated consistent with the
requirements of the new electioneering communication provision, and the
exempted communication must not be a "public communication" that refers
to a clearly identified candidate for Federal office and that promotes
or supports a candidate for that office, or attacks or opposes a
candidate for that office. 2 U.S.C. 434(f)(3)(B)(iv) (referencing
2 U.S.C. 431(20)(A)(iii)).

Some of the commenters argued that the exemption authority provided to
the Commission is extremely limited. Relying upon legislative history,
the principal Congressional sponsors of BCRA explained the exemption
authority would "allow the Commission to exempt communications that
'plainly and unquestionably' are 'wholly unrelated' to an election and
do not 'in any way' support or oppose a candidate. In addition, any
exemption that applies to entities other than parties and candidates
must preserve the 'bright line' quality of the original provision."
[See]{.underline} 148 Cong. Rec. H410-411 (daily ed. Feb. 13, 2002)
(statement of Rep. Shays).

In its consideration of potential exemptions, the Commission has used
the express language of the statute as its guide for the extent of its
exemption authority. Thus, the Commission acknowledges that the statute
limits its exemption authority by providing that the Commission may not
exempt communications that promote, support, attack or oppose a
candidate. The Commission's exemption authority is also limited by
BCRA's use of "bright line" distinctions between electioneering
communications and other communications.

In the NPRM, the Commission proposed regulatory text for three
exemptions in addition to the statutory exemptions. Proposed
11 CFR 100.29(c)(5) through (7). Among these was a proposed exemption
available to State and local candidates. See NPRM, proposed 11 CFR
100.29(c)(7), 67 [FR]{.underline} 51,145. Additionally, several
commenters suggested an exemption for any communication made by a
tax-exempt organization described in 26 U.S.C. 501(c)(3). As described
in detail below, the Commission adopted only these two exemptions, one
for communications paid for by State or local candidates that is similar
to the exemption at proposed 11 CFR 100.29(c)(7), and the other for
communications paid for by certain nonprofit organizations operating
under 26 U.S.C. 501(c)(3).

1\. 11 CFR 100.29(c)(5): Exemption for State and local candidates

The Commission proposed an exemption in the NPRM that would cover
communications by State and local candidates and officeholders that
refer to a clearly identified Federal candidate, provided that mention
of a Federal candidate is merely incidental to the candidacy of one or
more individuals for State or local office. 67 [FR]{.underline} 51,136.
For example, under this approach, an ad for a State or local candidate
that featured such candidate's views on education would not have been
rendered an electioneering communication if the ad were to indicate
whether the candidate supported or opposed the President's education
policy.

Four commenters thought the Commission's formulation of such an
exemption was vague, subject to abuse, not supported by BCRA, and
therefore beyond the Commission's exemption authority. Nonetheless,
these same commenters supported an alternative formulation that exempts
communications by State or local candidates or State or local political
parties that refer to clearly identified Federal candidates, provided
the communications do not promote, support, attack or oppose a Federal
candidate. By using that standard, the commenters believed the exemption
would also serve to harmonize the operation of Title I and subtitle A of
Title II of BCRA as they apply to State and local parties and their
candidates.

Title I of BCRA permits State, district, or local party committees,
organizations, or their candidates to use non-Federal funds for
communications that clearly identify a Federal candidate, but do
[not]{.underline} promote, support, attack, or oppose any Federal
candidate. [See]{.underline} 2 U.S.C. 431(20)(A)(iii) and
11 CFR 100.24(b)(3) (defining Federal election activity to include only
those public communications that promote, support, attack or oppose a
clearly identified Federal candidate); 2 U.S.C. 441i(b)(1) and
11 CFR 300.32(a)(1) (association of State office candidates or
incumbents required to use Federal funds for Federal election activity);
2 U.S.C. 441i(b)(1) and 11 CFR 300.32(a)(2) (same for State, district,
and local party committees); 2 U.S.C. 441i(f)(1) and 11 CFR 300.71
(State and local candidates required to use Federal funds for a
communication that does promote, support, attack or oppose a Federal
candidate). Therefore, according to these commenters, absent an
exemption, if a State, district, or local party committee, organization,
or a State or local candidate creates and distributes a radio or
television communication that refers to a clearly identified Federal
candidate, but does [not]{.underline} promote, support, attack or oppose
any Federal candidate, and is not otherwise a contribution or
expenditure, Title I of BCRA would permit the use of non-Federal funds
to pay for that communication. However, if the same communication were
publicly distributed and met the timing and targeting requirements of
subtitle A of Title II, then the communication would also be an
electioneering communication, so the use of corporate or labor
organization funds to pay for it would be prohibited by subtitle A of
Title II. According to these commenters, this inconsistent result is
contrary to the intention of Title I in permitting the use of
non-Federal funds for these purposes. Additionally, the principal
Congressional sponsors argue that "effectively tak\[ing\] state
candidates and parties out of the Title II prohibitions and reporting
requirements . . . is consistent with the purposes of BCRA."

The Commission agrees that an exemption for State and local candidates
that is within the parameters of 2 U.S.C. 434(f)(3)(B)(iv) is
appropriate in order to harmonize Title I and subtitle A of Title II of
BCRA. Accordingly, the final rules include an exemption from the
definition of "electioneering communication" for communications that are
not described in 2 U.S.C. 431(20)(A)(iii) and that are paid for by State
or local candidates in connection with an election to State or local
office. [See]{.underline} 11 CFR 100.29(c)(5). Thus, this exemption
covers public communications by State and local candidates that do
[not]{.underline} promote, support, attack, or oppose federal
candidates. [See]{.underline} new 11 CFR 300.72 exempting these
communications from certain requirements of Title I of BCRA.

In contrast, however, State and local candidates making public
communications that satisfy the description set forth in 2 U.S.C.
431(20)(A)(iii) (i.e. public communications by State and local
candidates that promote, support, attack, or oppose Federal candidates),
are governed by Title I of BCRA and not by subtitle A of Title II of
BCRA. Thus, under 2 U.S.C. 441i(f), 11 CFR 100.5(a), and 11 CFR 300.71,
these communications must be paid for with Federal funds meeting the
limits, prohibitions, and reporting requirements of the Act, including
the contribution limits set forth at 2 U.S.C. 441a(a)(1)(C) applicable
to political committees that are not the authorized campaign committees
of Federal candidates. The reporting obligations of State and local
candidates making communications promoting, supporting, attacking, or
opposing federal candidates are governed by a number of provisions
depending on the exact nature of the communications and the persons
making them. [See, e.g.,]{.underline} 11 CFR 300.36(a)(associations and
groups of State and local candidates that are not political committees),
11 CFR 300.36(b)(associations and groups of State and local candidates
that are political committees), 11 CFR 300.71(individuals who are State
or local candidates), and 2 U.S.C. 434(g)(any person who makes an
independent expenditure).

[2. 11 CFR 100.29(c)(6): Exemption for 501(c)(3)
organizations]{.underline}

The Commission received comment from members of the non-profit community
expressing concern that subtitle A of Title II of BCRA could
inadvertently stifle the ability of charitable organizations to carry
out their core functions by limiting or prohibiting their advertising on
television and radio. One commenter wrote that a broad reading of BCRA
could mean that "\[c\]harities would be prohibited from broadcasting
fundraising appeals or public service announcements that feature people
who are candidates if the appeals run within 30 days of a primary or 60
days of a general election. Documentaries and other educational
programming featuring individuals who are candidates would also be
banned."

Several commenters requested that the Commission exercise its authority
to craft exemptions for communications that do not promote, support,
attack, or oppose a candidate for federal office when made by
corporations organized under 26 U.S.C. 501(c)(3). These commenters
pointed out that the tax code expressly prohibits organizations
described in section 501(c)(3) from "participat\[ing\] in, or
interven\[ing\] in ... any political campaign on behalf of (or in
opposition to) any candidate for public office." 26 U.S.C. 501(c)(3). As
such, noted another commenter, because "501(c)(3) organizations are
absolutely prohibited by the \[Internal Revenue Code\] from engaging in
or funding any activity that even insinuates support or opposition to a
candidate for public office, they are held to a demonstrably higher
regulatory standard than other corporations." Therefore, the commenter
concluded, "BCRA's application to 501(c)(3)s \[would\] prohibit\[\]
activity that is already forbidden," and the activities the Internal
Revenue Service permits 501(c)(3) organizations to engage in are
activities "that BCRA was not intended to reach."

Many commenters noted that the penalties for violating the Internal
Revenue Code prohibitions are severe, [viz.,]{.underline} "revocation of
tax-exempt status \[and\] other potential penalties ... including
substantial taxes on the electioneering activity and penalties that
personally apply to managers of an organization that knowingly violate
the prohibition."

Some supporters of BCRA submitted comments discouraging the creation of
a categorical exemption for 501(c)(3) organizations. Many such
commenters referred to statements made by Representative Shays, a chief
sponsor of the BCRA legislation, as definitive evidence that Congress
did not intend BCRA to give the Commission authority to create such an
exemption. See 148 Cong. Rec. H411 (daily ed. Feb. 13, 2002) (Statement
of Rep. Shays). In written comments to the Commission, however, the
congressional sponsors, including Representative Shays, drew a
distinction between Congress' decision not to include a statutory
exemption and the Commission's discretion to create a regulatory
exemption, based upon the Commission's understanding of the needs of
these organizations balanced against the past practices of non-profits
in this area. "\[W\]hile the issues of Public Service Announcements and
ads created by 501(c)(3) charities were raised during the drafting of
Title II, Congress did not create statutory exemptions for these types
of ads. Before doing so, the Commission must be convinced that such ads
have been run in the past during the pre-election windows and that
exempting them will not create opportunities for evasion of the
statute."

Testimony on these issues was elicited in a public hearing,
specifically, as to whether there is a history of ads run by 501(c)(3)
organizations close to elections and whether theses organizations tend
to violate the Internal Revenue Service prohibitions against political
activity. Witnesses agreed that this activity was rare, but also that
501(c)(3) corporations make extraordinary efforts to avoid Internal
Revenue Service prohibitions against political activity when ads are
run. The representative of one non-profit organization testified that
"\[t\]here's no demonstrated record of abuse by public charities in
terms of electioneering. That's not the group that the campaign finance
laws were meant to address...." The Commission also notes that all of
the examples mentioned in testimony as the type of ads that Congress
meant to limit were based on ads run by 501(c)(4) or other types of
organizations, not 501(c)(3) organizations.

More compelling, however, was the testimony of one non-profit
organization as to the effect on charitable organizations that could
arise should the Commission fail to provide an exemption. One witness
testified that, "already the tax rules are complicated enough. If you
throw in election law on top of that, there are many groups that will
just throw up their hands and say we're not going to get involved \[in
grassroots lobbying activity\], it's just too risky, it's too much to
take on."

Second, many commenters expressed concern that investigations under
BCRA, even when a complaint is without merit, could have a disastrous
effect on a charitable organization. One witness stated, "\[w\]e've
already seen some evidence of people on different sides of issues
reporting the groups that have opposed them on the issues to various
authorities looking for an investigation, and even if a non-profit had
in no way violated campaign finance laws, especially if it were a public
charity, just being investigated by the FEC would have a devastating
effect on the organization." The same witness also noted that the
Commission's advisory opinion process would not be a satisfactory
alternative, as too many organizations would fear that any request they
direct to the Commission would only raise with the Internal Revenue
Service the issue of whether they are contemplating electoral activity.
Other non-profit organizations testified that they did not have the
financial resources to retain legal counsel and seek an advisory opinion
from the Commission, although legal counsel is not required to seek an
advisory opinion. The Commission also notes that the rationale for
exempting 501(c)(3) organizations applies to all such organizations,
which makes a regulatory exemption more appropriate than an exemption
granted in an advisory opinion, which is necessarily limited to the
particular facts and circumstances of the request and is granted on a
case-by-case basis.

Section 501(c)(3) of the Internal Revenue Code exempts from taxation
certain trusts and corporations organized and operated exclusively for
religious, charitable, scientific, testing for public safety, literary,
or educational purposes, or to foster national or international amateur
sports competition, or for the prevention of cruelty to children or
animals. It is the communications of these organizations that the
Commission exempts from Title II, subtitle A of BCRA at 11 CFR
100.29(c)(6).

Section 501(c)(3) organizations are barred as a matter of law from being
involved in partisan political activity. The Commission believes the
purpose of BCRA is not served by discouraging such charitable
organizations from participating in what the public considers highly
desirable and beneficial activity, simply to foreclose a theoretical
threat from organizations that has not been manifested, and which such
organizations, by their very nature, do not do.

In exempting 501(c)(3) organizations from Title II, subtitle A of BCRA,
the Commission is not delegating enforcement of the electioneering
communication provisions to the Internal Revenue Service. Rather the
Commission anticipates that the Internal Revenue Service will continue
to review the activities of 501(c)(3) organizations to make sure those
organizations comply with the tax code, without reference to Title II of
BCRA. Should the Internal Revenue Service determine, under its own
standards for enforcing the tax code, that an organization has acted
outside its 501(c)(3) status, the organization would be open to
complaints that it has violated or is violating Title II of BCRA.
Additionally, under 2 U.S.C. 438(f), the Commission and the Internal
Revenue Service must work together to promulgate rules that are mutually
consistent. The final rules, including new 11 CFR 100.29(c)(6),
therefore, do not permit any activity that is prohibited under the
Internal Revenue Code and regulations prescribed thereunder.

### G. Other exemptions considered

In the NPRM, the Commission proposed for an exemption related to the
popular name of legislation. Proposed 11 CFR 100.29(c)(5). Four
alternatives, designated Alternative 3-A through 3-D, were included for
another exemption related to grass-roots lobbying. 11 CFR 100.29(c)(6).
Additionally, the Commission sought comment on several other potential
exemptions. 67 FR 51,136. As described in detail below, the Commission
has concluded that none of these exemptions is consistent with the
limited authority provided to the Commission by the statute to make
exemptions for communications that do not promote, support, attack or
oppose a Federal candidate. Consequently, the Commission is not
promulgating any of the other exemptions to the definition of
"electioneering communication" proposed in the NPRM.

[1. Proposed 11 CFR 100.29(c)(5): Popular name of
legislation]{.underline}

In the NPRM, the Commission proposed an exemption at 11 CFR 100.29(c)(5)
that would have exempted a communication that refers to a bill or law by
its popular name where that name happens to include the name of a
Federal candidate, if the popular name is the sole reference made to a
Federal candidate. 67 [FR]{.underline} 51,136. Many commenters were
opposed to this exemption.

The argument most frequently cited in opposition to this exemption is
the absence of an objective standard for the popular name of a bill or
law. This lack of an objective standard would make the proposed
exemption an easy means of evading the electioneering communication
provisions, because a constructed popular name could be used to link a
candidate to a popular or unpopular position. In the view of these
commenters, such communications could easily promote, support, attack or
oppose a Federal candidate, which would make an exemption for these
communications beyond the Commission's authority.

Even some of the supporters of this exemption acknowledged the problem
of the lack of an objective standard as to what constitutes a popular
name of a bill or law. Three supporters proposed responses: one
suggested that the Commission limit its exemption to only the original
sponsors of the legislation, which would exclude co-sponsors. Another
suggested that the Commission limit the exemption to "the unique name
generally used by the media." A third suggested that the exemption be
limited to communications publicly distributed nationwide. According to
this commenter, if such communications use a candidate's name as the
popular name of a bill, the nationwide audience would demonstrate the
purpose of the communication is truly related to the legislation, and
not the particular candidate's election because only a small portion of
the audience for a nationwide communication could vote for or against
the candidate. This rationale for this proposal applies only to
non-presidential candidates.

Opponents of this proposed exemption also argued it was unnecessary.
They observed that speakers who wished to communicate about a bill or
legislation could use the candidate's name and simply avoid that
candidate's particular State or Congressional district during the narrow
time period covered by the definition of "electioneering communication."
Additionally, even during that time and in that district, the commenters
pointed out that the legislation could be discussed without mentioning
the particular candidate. Thus, to these commenters, the absence of the
exemption would have a limited impact on speakers, but the presence of
an exemption would provide the opportunity for significant abuse.

The Commission is persuaded by the examples cited by the commenters and
other examples from its own history of enforcement actions that
communications that mention a candidate's name only as part of a popular
name of a bill can nevertheless be crafted in a manner that could
reasonably be understood to promote, support, attack or oppose a
candidate. Furthermore, this type of exemption is not necessary because
communications can easily discuss proposed or pending legislation
without including a Federal candidate's name by using a variety of other
means of identifying the legislation. In addition, the Commission
recognizes that there are valid concerns as to which names to include in
a bill's popular name, which are not necessarily resolved by the
mechanical use of the name of only the original sponsors. Nor would this
approach adequately address the names of the sponsors of amendments to
the legislation. Consequently, the final rules do not include an
exemption for such communications.

> [2. Proposed 11 CFR 100.29(c)(6) Exemption for lobbying
> communications]{.underline}

The Commission proposed four alternatives designated Alternatives 3-A
through 3-D in the NPRM that would exempt communications that are
devoted to urging support for or opposition to particular pending
legislation or other matters, where the communications request
recipients to contact various categories of public officials regarding
the issue. 67 [FR]{.underline} 51,136.

Alternative 3-A would have excluded any communication devoted
exclusively to urging support for or opposition to particular pending
legislation or executive matters, where the communication only requests
recipients to contact an official without promoting, supporting,
attacking, or opposing a candidate or indicating the candidate's
position on the legislation in question. Alternative 3-B would have
excluded any communication concerning only a pending legislative or
executive matter, in which the only reference to a Federal candidate is
a brief suggestion that the candidate be contacted and urged to take a
particular position, and no reference to a candidate's record, position,
statement, character, qualifications, or fitness for an office or to an
election, candidacy, or voting is included. Alternative 3-C would have
excluded any communication that does not include express advocacy, and
that refers either to a specific piece of legislation or to a general
public policy issue and contains contact information for the person whom
the communication urges the audience to contact. Alternative 3-D would
have excluded any communication that urges support of or opposition to
any legislation or policy proposal and only refers to contacting a
clearly identified incumbent candidate to urge the legislator to support
or oppose the matter, without referring to any of the legislator's past
or present positions.

A wide range of commenters addressed these alternatives, and none of the
alternatives was favorably received. The most frequently expressed
comments were that each of the alternatives could be easily evaded so
that a communication that met the requirements for an exemption
nonetheless would also promote, support, attack, or oppose a Federal
candidate. Each of the alternatives included terms that commenters found
vague. The "promote, support, attack, or oppose" standard was considered
inappropriate by some for this context, which will apply to entities
other than candidates and political party committees. Alternative 3-C's
exemption of all communications was singled out by some commenters who
argued it would completely undermine BCRA's requirement because it would
exempt virtually all of the ads that led Congress to enact the
electioneering communication provisions; however, this alternative was
also supported by other commenters who found it the least objectionable
of the four alternatives. Several commenters argued that the apparent
distinction between incumbent legislators and all other candidates in
Alternative 3-D could raise constitutional issues.

Some commenters urged the Commission to promulgate another proposal that
shares most of the elements of Alternative 3-B. With disagreement about
only one issue, these commenters proposed an exemption for
communications that contain the following elements: (A) the
communication is devoted exclusively to a pending legislative or
executive branch matter and (B) its only reference to a clearly
identified Federal candidate is a statement urging the public to contact
the Federal candidate or a reference that asks the candidate to take a
particular position on the pending legislative or executive branch
matter. The proposed formulation of the exemption advocated by these
commenters would [not]{.underline} extend to any communication that
included any reference to any of the following: any political party, the
candidate\'s record or position on any issue, or the candidate\'s
character, qualifications or fitness for office or to the candidate\'s
election or candidacy. Other commenters went further than this proposal
and also required that the candidate not be named or appear in the
communication; the candidate could only be identified as "Your
Congressman" or a similar reference that does not include the
candidate's name.

The Commission concludes that communications exempted under any of the
alternatives for this proposal could well be understood to promote,
support, attack, or oppose a Federal candidate. Although some
communications that are devoted exclusively to pending public policy
issues before Congress or the Executive Branch may not be intended to
influence a Federal election, the Commission believes that such
communications could be reasonably perceived to promote, support,
attack, or oppose a candidate in some manner. The Commission has
determined that all of the alternatives for this proposed exemption,
including those proposed by the commenters, do not meet this statutory
requirement.

[3. Exemption for business advertisements]{.underline}

In the NPRM, the Commission invited suggestions on whether to promulgate
an exemption for communications that refer to a clearly identified
candidate in the context of promoting a candidate's business, including
a professional practice, for example. 67 [FR]{.underline} 51,136.
However, no draft exemption was included in the proposed rules.

The commenters who addressed this issue urged the Commission to adopt an
exemption for such advertisements, arguing that candidates who use
television or radio to promote their commercial interests have an
interest in continuing to do so during the relevant periods before
elections. One commenter suggested that a narrowly drawn exemption would
be appropriate and that it should be limited to ads that promote the
business's product or service and that identify the candidate only by
stating his or her name as part of the name of the business. This
commenter believed that if the candidate appeared or spoke in such ads,
they would constitute electioneering communications.

The Commission has determined that a narrow exemption for such ads is
not appropriate and cannot be promulgated consistent with the
Commission's authority under 2 U.S.C. 434(f)(3)(B)(iv). Based on past
experience, the Commission believes that it is likely that, if run
during the period before an election, such communications could well be
considered to promote or support the clearly identified candidate, even
if they also serve a business purpose unrelated to the election.

> [4. Ballot initiatives and referenda]{.underline}

In the NPRM, the Commission invited specific suggestions on whether
communications that promote a ballot initiative or referendum should be
exempt from the definition of "electioneering communications." 67
[FR]{.underline} 51,136. The NPRM did not, however, include regulatory
language for this potential exemption.

The comments received on this issue were divided. Supporters of this
exemption argued that the subject matters of these communications and
the purpose of those who sponsor these ads make them an unlikely vehicle
to be used to promote, support, attack, or oppose a Federal candidate.
One of the commenters argued that disbursements promoting or opposing a
ballot initiative or referendum represent "the type of speech
indispensable to decisionmaking in a democracy" and are therefore
entitled to the highest degree of First Amendment protection.
[See]{.underline} [First National Bank of Boston v.
Bellotti,]{.underline} 435 U.S. 765, 777 (1978). Opponents of the
exemption argued that such an exemption would be subject to abuse
because communications that promote, support, attack, or oppose a
Federal candidate could be tailored easily to qualify for any such
exemption. In fact, one commenter directly challenged the argument that
communications about ballot initiatives or referenda are unlikely to
relate to Federal candidates. This commenter stated: "Increasingly,
political consultants have been putting initiatives . . . on the ballot
specifically to \[affect\] candidate races. It is too easy to imagine an
initiative designed to provoke a backlash against a targeted candidate
for the House or Senate." This commenter distinguished
[Bellotti's]{.underline} protections as applying to communications about
referenda, but not necessarily communications that clearly identify a
Federal candidate.

No such exemption is included in the final rules. The Commission
believes that communications qualifying for a ballot initiative or
referendum exemption could well be understood to promote, support,
attack, or oppose Federal candidates. As ballot initiatives or referenda
become increasingly linked with the public officials who support or
oppose them, communications can use the initiative or referenda as a
proxy for the candidate, and in promoting or opposing the initiative or
referendum, can promote or oppose the candidate. Consequently, it would
be quite difficult to exempt such communications without violating the
limited exemption authority provided to the Commission by BCRA in
2 U.S.C. 434(f)(3)(B)(iv).

> [5. Public service announcements]{.underline}

The NPRM asked whether public service announcements should be exempted.
Generally speaking, public service announcements (or "PSAs") can be
communications for which the broadcaster or satellite or cable system
operator does not charge a fee for publicly distributing. 67
[FR]{.underline} 51,136. As such, these communications would not meet
the definition of "electioneering communications" pursuant to the
operation of 11 CFR 100.29(b)(3)(i). However, broadcasters, and
satellite and cable system operators do sometimes charge fees for
publicly distributing other communications commonly known as PSAs and
either the person who produced the PSA or some third party pays for its
public distribution. Because of this fee, these PSAs would be subject to
the definition of "electioneering communications," unless exempted. In
support of an exemption for all PSAs, several commenters pointed to the
many worthy causes that use PSAs to accomplish their missions and not to
influence Federal elections. Other commenters, however, did not dispute
the existence of PSAs that are not related to Federal elections, but
instead pointed to the possibility that such an exemption could be
easily abused by using a PSA to associate a Federal candidate with a
public-spirited endeavor in an effort to promote or support that
candidate. Other commenters explained that historically PSAs have been
used for "electorally related purposes" and that such communications are
"at the very heart of what the statute is trying to get to."

While the Commission acknowledges that many worthy causes use PSAs for
purposes wholly unrelated to Federal elections, the Commission
nonetheless concludes that television and radio communications that
include clearly identified candidates and that are distributed to a
large audience in the candidate's State or district for a fee are
appropriately subject to the electioneering communications provisions in
BCRA. Even without such an exemption, an enormous array of
communications could still promote PSA subject matters during the
periods before elections, so long as Federal candidates are not clearly
identified. Consequently, a PSA exemption is not included in the final
rules.

> [6. Local tourism]{.underline}

The NPRM asked if communications that use Federal candidates to
encourage local tourism should be exempted from the "electioneering
communications" definition. 67 [FR]{.underline} 51,136. Only a few
commenters addressed this issue, and they supported such an exemption.
However, the Commission believes that these communications could serve
two purposes: promoting local tourism, but doing so in a way that also
could be reasonably perceived to promote or support the Federal
candidate appearing in the communication. Because such an exemption may
encompass communications that could be viewed to promote, support,
attack, or oppose a Federal candidate, the Commission has decided not to
include such an exemption in the final rules.

## II. Ban on the Use of Corporate and Labor Organization Funds

BCRA amends 2 U.S.C. 441b by extending the prohibition on the use of
corporate and labor organization treasury funds to the financing,
directly or indirectly, of electioneering communications. The NPRM
proposed to implement this restriction in several ways: through the
amendment of 11 CFR 114.2 to reflect the stated restriction; through the
amendment of 11 CFR 114.10 to allow qualified non-profit corporations
("QNCs") to make not only independent expenditures, but also
electioneering communications; and through the creation of 11 CFR 114.14
to restrict the indirect use of corporate and labor organization
treasury funds to finance electioneering communications.

[A. 11 CFR 114.2 Prohibitions on Contributions and Expenditures by
Corporations and Labor Organizations.]{.underline}

In the NPRM, the Commission proposed to revise 11 CFR 114.2(b) by
restructuring the current provisions into paragraphs (b)(1) and
(b)(2)(i) and (ii). The proposed rule would also add a new paragraph
(b)(2)(iii) that would address electioneering communications by
corporations and labor organizations. For the reasons stated below, the
Commission has adopted the language of proposed section 114.2(b) in the
final rules. Therefore, paragraph (b)(1) states the general prohibition
on corporations and labor organizations making contributions; paragraph
(b)(2)(i) provides for the corresponding prohibitions on corporate and
labor organization expenditures; paragraph (b)(2)(ii) restricts express
advocacy by corporations and labor organizations to those outside the
restricted class; and paragraph (b)(2)(iii) prohibits electioneering
communications by corporations and labor organizations to those outside
the restricted class. Additionally, paragraph (b)(2)(iii) does not apply
to State party committees and State candidate committees that
incorporate under 26 U.S.C. 527(e)(1) and are not political committees.
The additional language to this paragraph is to ensure that these
incorporated State party and candidate committees are permitted to
engage in electioneering communications in the same manner as
unincorporated State party committees and candidate committees that are
not political committees. The prohibitions in paragraph (b)(2) do not
apply to qualified nonprofit corporations ("QNCs") as described in 11
CFR 114.10.

[1. Qualified Nonprofit Corporations]{.underline}

Several commenters addressed the application of 11 CFR part 114 to QNCs.
The Commission received three comments regarding the overall revisions
to section 114.2, one of which was from the sponsors of BCRA. All three
sets of comments agreed with the revisions that implement BCRA's changes
to 2 U.S.C. 441b, and specifically agreed with the proposed rules
permitting QNCs to make electioneering communications. Several other
commenters addressed only the provision that allows QNCs to make
electioneering communications. These commenters supported the proposal,
viewing this as a correct application of the Supreme Court's decision in
[FEC v. Massachusetts Citizens for Life, Inc.]{.underline}, 479 U.S. 238
(1986) (["MCFL"]{.underline}).

Two commenters responded in favor of a proposal in the NPRM that the
Wellstone amendment, which establishes rules for "targeted
communications," should not be read to apply to communications that
refer to a clearly identified candidate for President or Vice President.
[See]{.underline} 2 U.S.C. 441b(c)(6). Under this interpretation,
incorporated 501(c)(4) organizations that do not qualify as QNCs, and
incorporated section 527 organizations that are not political committees
registered with and reporting to the Commission, would be able to make
electioneering communications that refer to a clearly identified
candidate for President or Vice President, as long as they did not use
impermissible funds, because such communications are not "targeted."
These commenters both argued that this interpretation can be supported
by the language of the statute and that it would mitigate constitutional
concerns about the statute's application.

Two other commenters argued specifically against this view, one of whom
noted that this is an incorrect interpretation of 2 U.S.C. 441b(c)(6)
and that this section is properly interpreted to cover all
communications that mention candidates for President or Vice President.
The second commenter stated that, to the extent that the Commission
proposes to construe presidential primary elections to be subject to a
targeting requirement for purposes of the definition of "electioneering
communication," it should also construe the Wellstone amendment to apply
to such targeted communications. A third commenter argued that the
Wellstone provision is directly contrary to [MCFL]{.underline}, and
that, as a result, this commenter supported in principle the application
of the QNC exception.

Three commenters argued that the ban on corporate expenditures is
unconstitutional under the [MCFL]{.underline} ruling. According to one
of these commenters, Congress was aware of the [MCFL]{.underline} ruling
when it passed BCRA, and could have made an exemption for
[MCFL]{.underline} corporations if it had wanted to. Because Congress
did not create such an exemption, the Commission has no legal ability to
do so, according to this commenter. This commenter also stated that the
Commission should "follow a policy of non-enforcement with regard to
qualified non-profits." The other commenters presented similar
arguments. They argued that it was clear that "the purpose of the
provision was to close a 'loophole' that would allow all 'interest
groups,' regardless of their status, to run 'sham issue ads.'" [See,
e.g.,]{.underline} 147 Cong. Rec. S2846 (daily ed. Mar. 26, 2001)
(statement of Sen. Wellstone). These commenters further argued that,
"even supporters of BCRA recognized that the Wellstone amendment would
present constitutional problems in the wake of the Supreme Court's
decision in [MCFL]{.underline}. [See, e.g.,]{.underline} 147 Cong. Rec.
S2883 (Mar. 26, 2001) (statement of Sen. Edwards)." According to these
commenters, it is undeniable from the text of BCRA that Congress
intended to ban even [MCFL]{.underline} corporations from making
expenditures for electioneering communications, and the Commission
cannot save the statute from facial invalidity by promulgating
contradictory regulations.

With respect to the argument that the Commission cannot allow QNCs to
make electioneering communications because to do so would violate BCRA,
the Commission notes that, during the final passage of BCRA, additional
statements were made regarding the prohibition on corporate
expenditures. At that time, one of the principal sponsors of BCRA stated
that, "\[t\]he legislation does not purport in any way, shape or form to
overrule or change the Supreme Court's construction of the Federal
Election Campaign Act in [MCFL]{.underline}. Just as an
[MCFL]{.underline}-type corporation, under the Supreme Court's ruling,
is exempt from the current prohibition on the use of corporate funds for
expenditures containing 'express advocacy,' so too is an
[MCFL]{.underline}-type corporation exempt from the prohibition in the
Snowe-Jeffords amendment on the use of its treasury funds to pay for
'electioneering communications.' Nothing in the bill purports to change
[MCFL]{.underline}." 148 Cong. Rec. S2141 (daily ed. Mar. 20, 2002)
(statement of Sen. McCain).

Although Senator McCain referred to "Snowe-Jeffords" without mentioning
the Wellstone amendment, he clearly explained that under the proposed
legislation, an [MCFL]{.underline} corporation would be allowed to use
its treasury funds to pay for electioneering communications. He
specifically referred to that part of the Snowe-Jeffords amendment that
prohibits the "use of \[a corporation's\] treasury funds to pay for
'electioneering communications,'" the main provision of this amendment
that remains unaltered by the passage of the Wellstone amendment.
[See]{.underline} [id.]{.underline}

In addition, the original Snowe-Jeffords amendment applied to all
section 501(c)(4) and 527 corporations, not just [MCFL]{.underline}
corporations. Senator McCain's statement thus recognizes that
[MCFL]{.underline} will have the same effect under BCRA for
electioneering communications as it did under the FECA for independent
expenditures, which must contain express advocacy.

Further, the original Snowe-Jeffords amendment would not have allowed
the use of treasury funds that came from corporations and labor
organizations; rather, entities that accept corporate and labor
organization funds would have been required to pay for electioneering
communications exclusively with funds provided by individuals who are
United States citizens or nationals or lawfully admitted for permanent
residence, 2 U.S.C. 441b(c)(2), and unless a section 501(c)(4)
corporation deposited these funds into a separate account, the statute
would have considered that 501(c)(4) corporation to have paid for the
electioneering communication with impermissible corporate or labor
organization funds. 2 U.S.C. 441b(c)(3)(B). Senator McCain's reference
to treasury funds, therefore, manifests an understanding that the
[MCFL]{.underline} protections are built into the Snowe-Jeffords and
Wellstone amendments.

Thus, the Commission concludes that the legislative history indicates
that the intent of BCRA was to treat electioneering communications in a
similar manner as independent expenditures. Part of that treatment is
the application of [MCFL]{.underline} to electioneering communications
made by these QNCs.

2\. Affiliation of Entities Permitted to Make Electioneering
Communications with Those Entities That Are Not Permitted; Effect of
Prior Incorporation.

The Commission sought comments on whether an entity prohibited from
making an electioneering communication, [i.e.]{.underline} a labor
organization or a corporation that is not a QNC, may be affiliated with
an entity that is permitted to make electioneering communications,
provided that the entity permitted to make such communications received
no prohibited funds from the entity prohibited from doing so.

Several commenters offered interpretations of section 441b(c)(3)(A),
which treats an electioneering communication as made by a prohibited
entity if the prohibited entity "directly or indirectly disburses any
amount" for the cost of the communication. One commenter interpreted
this to mean that a permitted entity may not receive any funds or
financial support from a prohibited entity if the permitted entity
intends to make electioneering communications. Another commenter stated
that Congress expressly determined that corporate and union funds may
not be used by any person to make electioneering communications, but
that Congress stopped short of prohibiting "affiliated" organizations
from using funds from individuals to make electioneering communications.
That commenter also stated that it would be inappropriate for the
Commission to consider unilaterally imposing restrictions that are not
required by statutory language, particularly when Congress expressly
included provisions addressing closely related entities elsewhere. See,
e.g. 2 U.S.C. 323(d).

Other commenters, including BCRA's sponsors, did not specifically refer
to the affiliation question, but stated that corporations and labor
organizations must be prohibited from setting up, operating, or
controlling unincorporated accounts that are not federal political
committees. However, BCRA's sponsors and other commenters agreed that
BCRA does not prohibit corporations or labor organizations from using
their separate segregated funds to pay for electioneering
communications, even though corporate treasury funds may be used for the
establishment, administration, and solicitation of contributions to
these separate segregated funds. See 11 CFR 114.5(b). BCRA's sponsors
noted that this situation was specifically discussed during the Senate
debate concerning BCRA. [See]{.underline}, [e.g.]{.underline}, 148 Cong.
Rec. S2141 (daily ed. Mar. 20, 2002) (statement of Sen. McCain) ("Under
the bill, corporations and labor unions could no longer spend soft money
on broadcast, cable or satellite communications that refer to a clearly
identified candidate for federal office during the 60 days before a
general election and the 30 days before a primary, and that are targeted
to the candidate's electorate. These entities could, however, use their
PACs to finance such ads. This will ensure that corporate and labor
campaign ads proximate to Federal elections, like other campaign ads,
are paid for with limited contributions from individuals and that such
spending is fully disclosed.")

Several commenters argued that nothing in BCRA prevents an organization
that is prohibited from making an electioneering communication from
affiliating with an organization that can. One pointed out that
organizations that are not permitted to make electioneering
communications may be affiliated with a QNC, which is expressly
permitted to make electioneering communications.

One commenter supporting this position argued that, on at least one
occasion, the Supreme Court has "allowed Congress to restrict
constitutionally protected speech while noting that the organization
subject to the restriction was permitted to create an affiliate
organization that was not subject to the restriction," citing [Regan v.
Taxation With Representation]{.underline}, 461 U.S. 540 (1983) (where
the Supreme Court upheld statutory limits on lobbying by charitable
organizations, but noted that such organizations had the option of
creating an affiliated section 501(c)(4) organization to engage in
unlimited lobbying). This commenter also argued that [MCFL]{.underline}
demonstrated the Supreme Court's "reluctance to burden protected speech,
and, at the very least, suggests that the Court would reject any
restriction on organizations affiliating to expand the scope of
permissible communications."

The Commission has concluded that section 441b(c)(3)(A) and its
legislative history support the determination that the general treasury
funds of a corporation or labor organization may not be used to
establish, administer, or solicit funds for, an affiliated organization
that would accept funds from individuals to pay for electioneering
communications. This is because the establishment, administration, or
solicitation of funds for, the affiliate would result in the indirect
payment of impermissible funds for electioneering communications.
Senator McCain's statement above reflects Congressional intent that
communications meeting the timing, content and audience elements of an
electioneering communication must be financed with permissible funds
contributed by individuals to separate segregated funds, and not with
corporate or labor organization funds. Such communications are
considered expenditures, not electioneering communications.
[See]{.underline} 11 CFR 100.29(c)(3). As expenditures, they are paid
for by an entity, the SSF, which is permitted under section 441b of the
FECA to use corporate or labor organization funds for its establishment,
administration, and for the solicitation of contributions. However, BCRA
provides no comparable opportunity for a corporation or labor
organization to establish, administer, or solicit for an entity that
makes electioneering communications.

The Commission does not, however, see any statutory basis for creating
restrictions on electioneering communications by a permitted entity
whose affiliation with a prohibited entity is based on non-financial
factors (e.g., overlapping officers or members). See 11 CFR 100.5(g). So
long as such entities maintain separate finances, the permitted entity's
electioneering communications would not be treated as having been made
by the prohibited entity, because there would be no direct or indirect
disbursement by the prohibited entity. Likewise, the Commission does not
see any basis for restricting individuals who work for entities barred
from making electioneering communications from pooling their own funds
to finance electioneering communications, provided no corporate or labor
organization funds are used.

The Commission also sought comment on whether a 501(c)(4) organization
or a 527 organization that was previously incorporated and has changed
its status to become a limited liability company or similar type of
entity under State law would be permitted to pay for electioneering
communications with funds that were donated by individuals to the
organization during the time it was incorporated. One commenter who
addressed this question argued that these funds should be considered
corporate funds that cannot be used to pay for electioneering
communications. The Commission agrees.

[B. 11 CFR 114.10 Exemption for Qualified Nonprofit
Corporations]{.underline}

[MCFL's]{.underline} exemption for QNCs to make independent expenditures
is codified in 11 CFR 114.10.[^10] In the NPRM, the Commission proposed
revising 11 CFR 114.10 to set out standards for establishing QNC status
for those section 501(c)(4) corporations wishing to make electioneering
communications as well as independent expenditures. For the reasons
stated below, the Commission has decided to incorporate the language of
the proposed rules, with certain modifications for filing certification
of QNC status, into the final rules. Therefore, the title of section
114.10 is redrafted to reflect its application to electioneering
communications, as is the discussion of the scope of section 114.10
found in paragraph (a). The title of section 114.10 is slightly
different from what was proposed in the NPRM. There are no changes to
paragraphs (b) and (c). Paragraph (d) is redesignated as "Permitted
corporate independent expenditures and electioneering communications."
Paragraph (d)(1) remains unchanged substantively, but contains a
correction to the citation of the definition of "independent
expenditure." Paragraph (d)(2) tracks the language of paragraph (d)(1),
except that it substitutes "electioneering communication" for
"independent expenditure," and it references the definition of
"electioneering communication" at 11 CFR 100.29. Former paragraph (d)(2)
is redesignated as paragraph (d)(3), with an additional reference to
paragraph (d)(2).

[1. Certifying QNC Status]{.underline}

The NPRM also proposed that the procedures for the certification of
qualified nonprofit corporation status be revised to provide separate
procedures for those making electioneering communications. The
Commission has decided to adopt the proposed rules pertaining to these
procedures. Thus, the procedures for corporations making independent
expenditures, which were found at 11 CFR 114.10(e)(1)(i) and (ii), are
now redesignated as 11 CFR 114.10(e)(1)(i)(A) and (B). Paragraphs
(e)(1)(ii)(A) and (B) are added to describe the procedures for
demonstrating qualified nonprofit corporation status when making
electioneering communications. These provisions are similar to the
provisions for qualified nonprofit corporations making independent
expenditures, except that the threshold for certification is \$10,000.
Further, corporations are not required to submit certifications prior to
making independent expenditures or electioneering communications. The
pre-BCRA rules are being modified to permit corporations that have
received a favorable judicial ruling concerning their QNC status, in
litigation in which the same corporation was a party, to certify that
application of that ruling to the corporation's activities in subsequent
years confers QNC status. Advance certifications are not necessary given
that the Commission anticipates that reporting will be tied to the date
that the independent expenditure is publicly disseminated or the
electioneering communication is publicly distributed. The Explanation
and Justification for the Commission's decision to adopt the proposed
revisions to 11 CFR 114.10 are discussed in further detail below.

Several commenters asserted that the threshold for certifying QNC status
should be lower, and they specifically mentioned setting it at the same
level as that for QNCs that wish to make independent expenditures. One
commenter argued that setting the level at \$10,000 would only make
sense if a corporation could only spend \$10,000 of its treasury funds
on electioneering communications before encountering the 2 U.S.C. 441b
prohibition. Another commenter stated that the level for certifying
should be set at \$250 for the QNC "to establish its right to spend any
corporate funds on electioneering communications," and that "an
[MCFL]{.underline} corporation can spend its funds on electioneering
communications only if it establishes it is qualified to do so, even if
its spending never reaches the \$10,000 threshold amount." The sponsors
of BCRA also argued that the threshold for certifying QNC status should
be \$250, using the same reasoning as above.

Certain commenters suggested that the Commission should establish a
different QNC standard for corporations that wish to make electioneering
communications than the standard for those that wish to make independent
expenditures, noting, in one instance, that "the MCFL exemption must be
expanded . . . in response to the greater speech burden at issue in the
context of 'electioneering communications' versus express advocacy."
According to this commenter, "\[w\]ith respect to express advocacy, the
Government's regulatory interest (however weak) is at its zenith, and
the category of speech that is burdened is strictly defined.
'Electioneering communications,' however, constitute a much larger
category of political expression that is further removed from advocating
for a particular candidate; the Government's regulatory interest is
therefore even more attenuated and the burden upon political speakers'
expression is heightened." Another commenter argued that "the regulatory
regime managing any exemption from coverage should be tailored to
reflect the much weaker interests at stake." This commenter also stated
that, under the proposed regulations, groups can never know in advance
whether their QNC certification will be accepted, thus leaving them to
"speak at their peril."

Several commenters, as noted above, argued that the Commission could not
create an exception for [MCFL]{.underline} corporations. By extension,
these commenters opposed the certification procedure at 11 CFR 114.10.

The Commission concludes that the proposed rule is better left intact in
the final rules. Several reasons lead to this conclusion. First, the
Commission is aware of nothing suggesting that Congress intended a
threshold lower than \$10,000 for filing the certification, and setting
the certification threshold at the level that first triggers reporting
under the statute minimizes the burden on QNCs. In this respect, the
certification threshold for electioneering communications is comparable
to the certification threshold for independent expenditures. Further, as
noted above, the Commission has concluded that statements of
electioneering communications need not be filed until the communication
is publicly distributed, because until such time as the communication
can be received by 50,000 persons, it is not an "electioneering
communication." Likewise, until a person makes an electioneering
communication, the Commission has no reason to seek certification of QNC
status. Further, the threshold provides a clear rule that is easy to
follow.

Moreover, while one commenter argued that "an [MCFL]{.underline}
corporation can spend its funds on electioneering communications only if
it establishes it is qualified to do so," this misconstrues the
certification of QNC status. Corporations may spend funds for
electioneering communications as long as they meet the requirements of
qualified non-profit corporation status. If they spend \$10,000 or more,
they must certify to the Commission that they meet this status. However,
they need not obtain prospective approval of QNC status prior to making
electioneering communications or, for that matter, independent
expenditures.[^11] Further, if a corporation does not qualify for QNC
status, it is not permitted to use any general treasury funds for
electioneering communications, and there was nothing in the proposed
rules, nor is there anything in the final rules, to suggest otherwise.

Further, the commenters advancing the argument that the Commission
should create an entirely different standard for QNC status with respect
to electioneering communications, than the standard for QNC status with
respect to independent expenditures, miss a central point that concerned
the sponsors of BCRA: that certain communications that do not
necessarily expressly advocate for a candidate's election or defeat, may
nevertheless have an impact on an election. There is no indication that
Congress intended the [MCFL]{.underline} exception to apply differently
to groups making electioneering communications than to those making
independent expenditures. The qualifications for QNC status in pre-BCRA
11 CFR 114.10(c) are objective qualifications that would be apparent to
any corporation contemplating whether to make an electioneering
communication.

Nevertheless, the Commission recognizes that certain courts have held
that organizations incorporated under 26 U.S.C. 501(c)(4) that do not
meet all of the strictures contained in the Commission's regulations at
11 CFR 114.10(c)(1) through (c)(5) may still make independent
expenditures without violating the prohibition at 2 U.S.C. 441b(a). It
is appropriate for the Commission to allow the prevailing organization
to certify its status based on the court ruling. Accordingly, the
Commission is modifying pre-BCRA 11 CFR 114.10(e)(1) (new paragraph
114.10(e)(1)(i)(B)), to allow organizations that prevail in litigation
to certify their QNC status based on the favorable ruling. This
modification to the rules does not require any modification to the
current certification on the Commission's Form 5 for independent
expenditures, and on the new form the Commission intends to create for
electioneering communications, Form 9. On Form 5, that certification
reads, in relevant parts: "\[I\]f the independent expenditures are
reported herein were made by a corporation, I certify that the
corporation is a \[QNC\] under the Commission's regulations." This
statement would remain true regardless of the reason for QNC status:
either compliance with the Commission's standards in section 114.10(c)
of the regulations, or pursuant to judicial decision, as contemplated by
new paragraph (e)(1)(i)(B) of section 114.10. Because paragraph
(e)(1)(i)(B) is referenced by the paragraph that addresses certification
for QNCs making electioneering communications, paragraph (e)(1)(ii)(B),
this holds equally for electioneering communications.

[2. Disclaimers]{.underline}

Section 11 CFR 114.10(g) is revised to require qualified nonprofit
corporations to comply with the requirements of 11 CFR 110.11 regarding
non-authorization notices ("disclaimers") when making electioneering
communications. The final rule mirrors the proposed rule. BCRA amended
2 U.S.C. 441d to require disclaimers for electioneering communications.
No comments were received regarding this provision.

[3. Segregated Bank Account]{.underline}

Identical in substance to the proposed rule, section 114.10(h) states
that qualified nonprofit corporations may establish a segregated bank
account for the purpose of depositing funds to be used to pay for
electioneering communications, as identified in 11 CFR part 104. The one
revision is a change to correct the citation to where the rules address
the segregated bank account. This proposal met with general approval by
the commenters.

Proposed paragraph 114.10(i) would track the language in 2 U.S.C.
441b(c)(5), which states that nothing in 2 U.S.C. 441b(c) shall be
construed to authorize an organization exempt from taxation under 26
U.S.C. 501(a) to carry out any activity that is prohibited under the
Internal Revenue Code. No comments were received regarding this
paragraph; this paragraph appears in the final rules.

[4. "De Minimis" Standard]{.underline}

The Commission also sought comment on whether a provision should be
added to the rules incorporating a [de minimis]{.underline} standard for
QNCs, in light of court decisions such as [Minnesota Citizens Concerned
for Life, Inc. v. FEC]{.underline}, 936 F. Supp. 633 (D. Minn. 1996),
[aff'd]{.underline}, 113 F.3d 129 (8th Cir. 1997)
(["MCCL"]{.underline}). [MCCL]{.underline} allowed QNCs to engage in a
certain amount of business activity, accept a [de minimis]{.underline}
amount of funds from corporations and labor organizations, and still
qualify for QNC status. In making this ruling, the court of appeals
relied on its previous ruling in [Day v. Holahan]{.underline}, 34 F.3d
1356 (8^th^ Cir. 1994), in which the court addressed a Minnesota statute
that had been based on the Supreme Court's [MCFL]{.underline} ruling,
and which was similar to the Commission's rules at 11 CFR 114.10. In
[Day]{.underline}, the court noted that the key issue was "the amount of
for-profit corporate funding a nonprofit receives, rather than the
establishment of a policy not to accept significant amounts. . . .
\[T\]he facts before us in this case present no risk of 'the corrosive
and distorting effects of immense aggregations of wealth that are
accumulated with the help of the corporate form and that have little or
no correlation to the public's support for the corporation's political
ideas.' The state, far from having shown that MCCL is amassing great
wealth as a result of corporate donations, implicitly concedes that MCCL
has not received any significant contributions from for-profit
corporations." [Day]{.underline}, 34 F.3d at 1364 (citation omitted).

Several commenters opposed a [de minimis]{.underline} exception. One of
these commenters cited the Supreme Court's language in
[MCFL]{.underline} regarding the policy of the organization against
accepting contributions from corporations or labor organizations. The
second commenter argued that the Commission does not have the authority
to write a [de minimis]{.underline} standard, suggesting it could only
do so if BCRA is unconstitutional, and further asserting that only the
courts may pass on the constitutionality of legislation passed by
Congress. This commenter further argued that there has been no court
case that has addressed whether a [de]{.underline} [minimis]{.underline}
standard is required for electioneering communications. Further, this
commenter stated that [MCFL]{.underline} did not contemplate such an
exception. BCRA's principal sponsors also argued that no section
501(c)(4) organization that accepts even a [de]{.underline}
[minimis]{.underline} amount of corporate or labor organization funds
can meet the definition of a QNC. They argue that this position is
consistent with [MCFL]{.underline}, and nothing in the legislative
history of BCRA suggests a contrary intent.

Other commenters supported a [de minimis]{.underline} exception. One
commenter argued that the Commission should apply the [MCCL]{.underline}
standards. This commenter maintained that [MCCL]{.underline} expands the
reach of [MCFL]{.underline}, but is constitutionally consistent with it.
The commenter further argued that, without such an allowance,
organizations that accept a small amount of corporate or labor
organization funding would face uncertainty about their status as QNCs
and their ability to make electioneering communications.

Another commenter also supported allowing corporations that accept "a
modest or incidental or [de]{.underline} [minimis]{.underline} amount"
of corporate or labor organization funds to qualify for QNC status,
stating that many organizations that accept such funds remain
overwhelmingly supported by individual members and contributors who
subscribe to the views and advocacy of the organization. Other
commenters argued that the failure to adopt such a provision would
result in a failure to cure the unconstitutionality of the
electioneering communications provisions. Another commenter argued that
the consensus view of the courts of appeals that have considered the
question is that there should be a [de]{.underline}
[minimis]{.underline} standard. This commenter further argued that the
Commission should adopt the standard articulated in [North Carolina
Right to Life v. Bartlett]{.underline}, 168 F.3d 705 (4^th^ Cir. 1999)
(where the court determined that the acceptance of up to eight percent
of overall revenues did not preclude North Carolina Right to Life from
qualifying for a state [MCFL]{.underline} exemption because the
corporate funds were "but a fraction of its overall revenue" and were
not "of the traditional form").

The final rules maintain the prohibition against QNCs accepting any
funds from corporations or labor organizations and do not allow them to
accept a [de minimis]{.underline} amount. The Commission has previously
considered the issue of whether to allow QNCs to accept a [de
minimis]{.underline} amount of corporate or labor organization funding.
[See]{.underline} [Explanation and Justification for Regulations on
Express Advocacy; Independent Expenditures; Corporate and Labor
Organization Expenditures]{.underline}, 60 [FR]{.underline} 35,292 (July
6, 1995). At that time, the Commission noted that "\[t\]he
[MCFL]{.underline} Court was concerned that business corporations and
labor organizations could improperly influence qualified nonprofit
corporations and use them as conduits to engage in political spending,"
and that "the Court saw MCFL's policy of not accepting business
corporation or labor organization donations as the way to address these
concerns." 60 [FR]{.underline} at 35,301. Further, the Commission cited
the Supreme Court's decision in [Austin v. Michigan Chamber of
Commerce]{.underline}, 494 U.S. 652 (1990), to support a complete ban on
the acceptance of corporate or labor organization funds, noting the
Court's concerns that "the danger of 'unfair deployment of wealth for
political purposes' exists whenever a business corporation or labor
organization is able to funnel donations through a qualified nonprofit
corporation." 60 [FR]{.underline} at 35,301. Accordingly, the Commission
determined that qualified nonprofit corporations should not be allowed
to accept any funds from corporations or labor organizations.

The Commission recognizes that certain courts of appeals have recognized
a [de]{.underline} [minimis]{.underline} exception permitting the
acceptance by QNCs of corporate and labor organization funds. These
circuit courts, however, have not defined the exception in the same
terms, and therefore, two circuits would not necessarily apply the [de
minimis]{.underline} exception to the same set of circumstances.
[Compare MCCL]{.underline}, 936 F. Supp 633 (D. Minn. 1996)
(MCFL-corporation status allowed where organization has not received
"any significant contributions from for-profit corporations")
[with]{.underline} [NCRL]{.underline}, 168 F.3d 705 (4^th^ Cir. 1999)
(MCFL-corporation status allowed where up to eight percent of the
organization unspecified overall revenues came from corporations, where
such corporate payments were "not of the traditional form"). Although
the Commission does not believe it is appropriate to establish a [de
minimis]{.underline} exception at this time, the Commission retains the
discretion to revisit this issue in a subsequent rulemaking proceeding
or otherwise. [See]{.underline} 62 [FR]{.underline} 65,040 (Dec. 10,
1997) (pending [MCFL]{.underline} Petition for Rulemaking). Court
rulings regarding the effect of de minimis corporate funding on QNC
certifications for specific organizations are discussed, above, and are
addressed in the final rules at 11 CFR 114.10(e)(1)(i)(B).

[C. 11 CFR 114.14 Further Restrictions on the Use of Corporate and Labor
Organization Funds for Electioneering Communications]{.underline}

In the NPRM, the Commission proposed a new rule, 11 CFR 114.14, to
implement the provisions in 2 U.S.C. 441b(b)(2), (c)(1) and (c)(3)
prohibiting corporations and labor organizations from directly or
indirectly disbursing any amount from general treasury funds for any of
the costs of an electioneering communication. Proposed 11 CFR 114.14(a)
would have contained the prohibition that applies to corporations and
labor organizations generally. The rule is meant to eliminate any
instance of a corporation or labor organization providing funds out of
their general treasury funds to pay for an electioneering communication,
including through a non‑Federal account. This met with general approval
from the commenters and remains in the final rule as paragraph (a)(1).
As noted in the NPRM, the Commission does not view BCRA as in any way
prohibiting or restricting payments for electioneering communications
from otherwise lawful funds raised and spent by the Federal account of a
separate segregated fund.

[1. Contributor Liability by Corporations and Labor
Organizations]{.underline}

The NPRM also sought comments on the standards to be employed to
determine liability of the corporation or labor organization providing
the funds. One commenter stated that the standard should be whether the
corporation or labor organization intends that the person to whom it
supplies the funds will use them for an electioneering communication, or
whether it knows or should know that the funds will be used for an
electioneering communication. Another commenter suggested that, if the
funds are provided for another purpose, that should, absent evidence to
the contrary, lead to the conclusion that this regulation has not been
violated. Further, if the funds are provided subject to a prohibition
against their use to pay for electioneering communications, that should,
absent evidence to the contrary, lead to the same conclusion. Another
commenter suggests that a corporation or labor organization should be
liable if it "specifically directs" or "suggests" that the funds be used
for electioneering communications, or if it knows or should know that
the funds will be used for electioneering communications. The sponsors
of BCRA also suggested this latter standard.

Paragraph (a)(2) sets forth the standards to be applied in determining
whether the knowledge requirement exists by providing three alternative
ways, any one of which would establish that a corporation or labor
organization has knowingly given, disbursed, donated, or otherwise
provided, funds used to pay for an electioneering communication.

The first knowledge standard is that of actual knowledge. The second
standard requires awareness on the part of the corporation or labor
organization of certain facts that would lead a reasonable person to
conclude that there is a substantial probability funds will be used to
pay for an electioneering communication. This second standard is in
effect a "reason to know" standard, and is different from a "should have
known" standard. Restatement (Second) of Agency, sec. 9, cmts. d and e
(1958). The third standard addresses situations in which the corporation
or labor organization is or becomes aware of facts that should have led
any reasonable person to inquire about the intent of the person
receiving the funds for their use, however, the corporation or labor
organization failed to so inquire. This third alternative is in effect a
willful blindness standard covering situations in which a known fact may
not equal a substantial probability of illegality but at least should
prompt an inquiry.

The final rules at new 11 CFR 114.14(b), like the proposed rule,
prohibit any person who accepts corporate or labor organization funds
from using those funds to pay for an electioneering communication, or to
provide those funds to any other person who would subsequently use those
funds to pay for all or part of the costs of an electioneering
communication. The rule is intended to effectuate BCRA's treatment of an
electioneering communication as being made by a corporation or labor
organization if such an entity indirectly disburses any amount for the
cost of the communication from their general treasury funds. 2 U.S.C.
441b(c)(3)(A). No commenter addressed this rule.

Proposed paragraph (c) of 11 CFR 114.14 would have provided certain
limited exceptions to allow corporations or labor organizations to
provide funds that might subsequently be used for electioneering
communications. These exceptions are salary, royalties, or other income
earned from [bona]{.underline} [fide]{.underline} employment or other
contractual arrangements, including pension or other retirement income;
interest earnings, stock or other dividends, or proceeds from the sale
of the person's stocks or other investments; or receipt of payment
representing fair market value for goods or services rendered to a
corporation or labor organization. No commenter suggested any other
instances of corporate or labor organization general treasury funds that
might properly be used to pay for electioneering communications other
than those listed at paragraphs (c)(1) through (3), and the proposed
exceptions received general support from the commenters. These
exceptions are being included in the final rules.

> 2\. Accounting of Funds to Ensure That No Funds Received From
> Corporations or Labor Organizations Are Used for Electioneering
> Communications

Section 114.14(d)(1), like the proposed rules, requires persons who
receive funds from a corporation or a labor organization that do not
meet the exceptions of paragraph (c) to demonstrate through a reasonable
accounting method that no such funds were used to pay for any portion of
an electioneering communication. The Commission sought comment on
whether a specific accounting method should be required, such as
first-in-first-out, last-in-first-out, or any other method. Several
commenters did not propose specific methods, but urged the Commission to
require "a more specific and stringent accounting method," or "a higher
standard of accounting than 'reasonable' methods." The principal
sponsors of BCRA stated that the Commission "should insist on a high
level of certainty in any accounting method used to make this
demonstration."

Further, commenting on the special account available to QNCs at 11 CFR
114.10(h), several commenters suggested that this option be available to
all persons who make electioneering communications. One commenter stated
that it interpreted paragraph (h) to permit non-QNC entities to set up
such an account. Likewise, the sponsors of BCRA noted that QNCs are not
the only entities that might want to set up such accounts.

While the Commission did not intend to exclude non-QNCs from
establishing segregated bank accounts similar to those described at
paragraph (h), the proposed rules were not explicit that non-QNCs may do
so. Moreover, as section 114.10 applies only to QNCs, some non-QNCs may
not realize that such an account would be available to them.

Accordingly, the Commission has added a provision to 11 CFR 114.14(d)
that specifically allows any person who wishes to make electioneering
communications to establish a separate bank account from which it pays
for electioneering communications. 11 CFR 114.14(d)(2). This account
must only contain funds contributed directly to it by individuals who
are United States citizens or nationals or lawfully admitted for
permanent residence. If persons use only funds from such an account to
pay for an electioneering communication, then they will have
demonstrated against any charge to the contrary that they did not use
funds from a corporation or labor organization to pay for the
communication, and their disclosure of their contributors will be
limited to the names and addresses of those persons who donated or
otherwise provided funds to the account. However, if a person uses any
other funds from outside of this account to pay for the electioneering
communication, then it will have to disclose the names and addresses of
all persons who contributed to the entity, as required by 11 CFR
104.171(c)(8), and will have to provide a more detailed accounting to
demonstrate that the funds used did not come from a corporation or labor
organization. The ability to establish this segregated bank account is
also intended to address, in part, the concerns of those commenters who
objected to disclosing their entire donor base.

**III. Reporting Requirements**

In the NPRM, the Commission stated that one of the other BCRA-related
rulemaking projects is reporting. 67 [FR]{.underline} 51,131. This
reporting rulemaking is intended to consolidate all of the proposed
amendments to 11 CFR part 104 included in the various BCRA-related NPRMs
into one NPRM. Because public disclosure is one of the most important
aspects of the FECA, the Commission concluded that a consolidated
rulemaking on reporting would allow the public, especially those
required to file reports and statements under the FECA and BCRA, to
review, understand, and comment on the new and revised reporting
requirements as the result of BCRA in a comprehensive manner.

Consequently, the final rules on electioneering communications do not
include the changes to 11 CFR 100.19, 104.19, and 105.2 that were part
of the proposed rules. Rather, a brief discussion of the major issues
and comments relating to the reporting of electioneering communications
is included in this Explanation and Justification. [See]{.underline}
below. The Consolidated Reporting NPRM will include revised proposed
rules for electioneering communications reporting that will take into
consideration the comments that the Commission received in response to
the Electioneering Communications NPRM.

## [A. Disclosure Date]{.underline}

BCRA requires persons who make electioneering communications to file
disclosure statements with the FEC within 24 hours of the disclosure
date. 2 U.S.C. 434(f)(1). In the previously published NPRM, proposed
section 104.19(a)(1)(i) and (ii) would define "disclosure date" as the
date on which "a person has made one or more disbursements, or has
executed one or more contracts to make disbursements, for the direct
costs of producing or airing electioneering communications aggregating
in excess of \$10,000." NPRM, 67 [FR]{.underline} at 51,145. The NPRM,
however, sought comment on whether the disclosure date should be the
date on which the electioneering communications are publicly
distributed. Thus, under this scenario, an organization could make
disbursements or enter into a contract to make disbursements that exceed
\$10,000 but would not be required to disclose the disbursements or
contract until the electioneering communication is aired, broadcast or
otherwise disseminated by television, radio, cable, or satellite.

All nine commenters who addressed this issue disagreed with the proposed
rule and advocated adopting a final rule that would define "disclosure
date" as the date of the airing of the electioneering communication.
They argued that there is no electioneering communication, and therefore
no reporting requirement, until the communication is actually aired or
otherwise publicly distributed. One witness at the hearing did
acknowledge that in some cases it may be difficult to ascertain when an
electioneering communication airs for purposes of triggering the 24‑hour
reporting period because some contracts may not specify a time that the
communication will be aired or because in some instances the broadcaster
may fail to air the communication during the block of time specified in
the contract. This issue will be further explored in the consolidated
reporting NPRM.

## [B. Direction or Control]{.underline}

The previously published NPRM included two proposed alternatives,
identified as Alternative 4-A and Alternative 4-B, to implement the BCRA
requirement to disclose "any person sharing or exercising direction or
control over the activities" of the person making the disbursement for
electioneering communications. [See]{.underline} 2 U.S.C. 434(f)(2)(A);
67 [FR]{.underline} 51,146 (Aug. 7, 2002). Many of the commenters
expressed the belief that both alternatives are vague and could
encompass a large number of people, especially if the communications are
made by membership organizations. Some of the commenters were also
concerned that disclosing this information may reveal sensitive or
confidential information and the decision-making process of
organizations, especially non-profit organizations, thereby placing them
at a competitive disadvantage. For these reasons, these commenters
argued that the Commission should require limited, if any, disclosure of
persons who share or exercise direction or control over the person who
makes disbursements for electioneering communications or the activities
involved in making electioneering communications.

In contrast, several commenters, including the Congressional sponsors of
BCRA, disagreed with both alternatives, arguing that neither would
disclose sufficiently the information required by BCRA. [See
id.]{.underline} They argued that the purpose of this disclosure
requirement in 2 U.S.C. 434(f)(2)(A) is to reveal not only those who
have direction or control over the electioneering communications but
also those who have direction or control over the organization that
makes the electioneering communications.

This issue will be further explored in the consolidated reporting NPRM.

## [C. Identification of Candidates and Elections]{.underline}

Under 2 U.S.C. 434(f)(2)(D), candidates clearly identified in the
electioneering communications, and the elections to which the
electioneering communications pertain, must be disclosed in 24‑hour
statements filed with the Commission. The previously published NPRM
provided two alternatives to proposed 11 CFR 104.19(b)(5), identified as
Alternative 5-A and Alternative 5-B, that would implement this statutory
provision. 67 [FR]{.underline} 51,146. Both alternatives would require
disclosure of the election and each clearly identified candidate that
would be referred to in the electioneering communication, but contain
different language. Commenters preferred the language of Alternative 5-B
because it would be easier to read and would be more consistent with 2
U.S.C. 434(f)(2)(D). This will be further explored in the consolidated
reporting NPRM to follow.

## [D. Disclosure of Contributors and Donors]{.underline}

BCRA requires persons who make electioneering communications and who
establish segregated bank accounts for electioneering communications to
disclose the names and addresses of contributors who contribute an
aggregate of \$1,000 or more to that segregated bank account. 2 U.S.C.
434(f)(2)(E).[^12] If the organization that makes electioneering
communications does not use a segregated bank account, then BCRA
requires it to disclose the names and addresses of all contributors who
contribute an aggregate of \$1,000 or more to that organization from the
beginning of the preceding year through the disclosure date. 2 U.S.C.
434(f)(2)(F). In reading these two sections of BCRA together with 2
U.S.C. 441b(c)(3)(B), the Commission stated in the NPRM that these
disclosure requirements for segregated bank accounts appear to apply
only to qualified nonprofit corporations organized under 26 U.S.C.
501(c)(4). [See]{.underline} 67 [FR]{.underline} 51,143. Therefore,
previously proposed 11 CFR 104.19(b)(6) would have required only QNCs to
disclose their contributors for purposes of electioneering
communications.

The NPRM explained that proposed section 104.19(b)(7) would clearly
state that all persons who are permitted to make electioneering
communications under BCRA, including QNCs that do not use segregated
bank accounts, would be required to disclose their contributors who
contribute an aggregate of over \$1,000 during the given time period. 67
[FR]{.underline} 51,143. Nevertheless, some commenters interpreted
proposed section 104.19(b)(7) to apply only to QNCs and objected to
limiting the disclosure requirements to only QNCs. They argued that BCRA
does not limit the requirements of 2 U.S.C. 434(f)(2)(E) and (F) to just
QNCs. Consequently, they recommended that all persons who may make
electioneering communications should be required to disclose their
contributors under proposed section 104.19(b)(7), and that the option
for segregated bank accounts in proposed section 104.19(b)(6) should be
extended to all persons who may make electioneering communications. This
topic will also be addressed in the consolidated reporting NPRM to be
published shortly.

One commenter argued that the members of the organizations it
represented could be subject to negative consequences if their names are
disclosed in connection with an electioneering communication. As a
preliminary matter, the Commission notes that any group may opt to use a
separate bank account under 11 CFR 114.14(d)(2), which would provide
limited disclosure. The FECA provides for an advisory opinion process
concerning the application of any of the statutes within the
Commission's jurisdiction or any regulations promulgated by the
Commission, and such a group could also seek an advisory opinion from
the Commission to determine if the group would be entitled to an
exemption from disclosure that would be analogous to the exemption
provided to the Socialist Workers Party in Advisory Opinions 1990-13 and
1996-46 (both of which allowed the Socialist Workers Party to withhold
the identities of its contributors and persons to whom it had disbursed
funds because of a reasonable probability that the compelled disclosure
of the party\'s contributors\' names would subject them to threats,
harassment, or reprisals from either government officials or private
parties). BCRA's legislative history recognizes the need for limited
exceptions in these circumstances. [See]{.underline} 148 Cong. Rec.
S2136 (daily ed. Mar. 20, 2002) (remarks of Sen. Snowe).

##### E. NPRM on Consolidated Reporting

As stated above, the Consolidated Reporting NPRM will include revised
proposed rules for reporting electioneering communications. The
Commission appreciates the comments that it received and anticipates
that they will prove useful in revising the proposed rules. The
Commission encourages the commenters, as well as others who did not
comment on the initial proposed rules, to review the revised proposed
rule that will be part of the Consolidated Reporting NPRM and to submit
comments at the appropriate time.

**Certification of No Effect Pursuant to 5 U.S.C. 605(b) (Regulatory
Flexibility Act)**

The Commission certifies that the attached final rules do not have a
significant economic impact on a substantial number of small entities.
The bases of this certification are several. First, the only burden the
final rules impose is on persons who make electioneering communications,
and that burden is a minimal one, requiring persons who make such
communications to provide the names and addresses of those who made
donations to that person, when the costs of the electioneering
communication exceed \$10,000. If that person is a corporation that
qualifies as a QNC, then it must also certify that it meets that status.
The number of small entities affected by the final rules is not
substantial.

The Commission has adopted several rules that seek to reduce any burden
that might accrue to persons who must file reports. First, the
Commission has interpreted the reporting requirement such that no
reporting is required until after an electioneering communication is
publicly distributed. In many cases, this will only require that person
to file one report with the Commission. Also, the Commission has allowed
all persons paying for electioneering communications to establish
segregated bank accounts, and to report the names and addresses of only
those persons who contributed to those accounts. Further, the Commission
has interpreted the statute to not require that a certification of QNC
status be filed until the person is also required to file a disclosure
report. These are significant steps the Commission has taken to reduce
the burden on those who would make electioneering communications. The
overall burden on the small entities affected by the final rules will
not amount to \$100 million on an annual basis.

Furthermore, because the Commission has interpreted BCRA to mean that
political committees do not, by definition, make disbursements for
electioneering communications, neither BCRA nor the final rules require
any additional reports by any type of Federal political committee.
Moreover, the requirements of these final rules are no more than what is
strictly necessary to comply with the new statute enacted by Congress.

**List of Subjects**

[11 CFR Part 100]{.underline}

Elections.

[11 CFR Part 114]{.underline}

Business and industry, elections, labor.

For the reasons set out in the preamble, subchapter A of chapter I of
title 11 of the [Code of Federal Regulations]{.underline} is amended as
follows:

**PART 100---SCOPE AND DEFINITIONS (2 U.S.C. 431)**

1\. The authority citation for 11 CFR part 100 is revised to read as
follows:

Authority**:** 2 U.S.C.  431, 434, 438(a)(8).

2\. New section 100.29 is added to read as follows:

**§ 100.29 Electioneering communication (2 U.S.C. 434(f)(3)).**

\(a\) [Electioneering communication]{.underline} means any broadcast,
cable, or satellite communication that:

\(1\) Refers to a clearly identified candidate for Federal office;

\(2\) Is publicly distributed within 60 days before a general election
for the office sought by the candidate; or within 30 days before a
primary or preference election, or a convention or caucus of a political
party that has authority to nominate a candidate, for the office sought
by the candidate, and the candidate referenced is seeking the nomination
of that political party; and

\(3\) Is targeted to the relevant electorate, in the case of a candidate
for Senate or the House of Representatives.

\(b\) For purposes of this section\--

\(1\) [Broadcast, cable, or satellite communication]{.underline} means a
communication that is publicly distributed by a television station,
radio station, cable television system, or satellite system.

\(2\) [Refers to a clearly identified candidate]{.underline} means that
the candidate's name, nickname, photograph, or drawing appears, or the
identity of the candidate is otherwise apparent through an unambiguous
reference such as "the President," "your Congressman," or "the
incumbent," or through an unambiguous reference to his or her status as
a candidate such as "the Democratic presidential nominee" or "the
Republican candidate for Senate in the State of Georgia."

\(3\) (i) [Publicly distributed]{.underline} means aired, broadcast,
cablecast or otherwise disseminated for a fee through the facilities of
a television station, radio station, cable television system, or
satellite system.

\(ii\) In the case of a candidate for nomination for President or Vice
President, [publicly distributed]{.underline} means the requirements of
paragraph (b)(3)(i) of this section are met and the communication:

> \(A\) Can be received by 50,000 or more persons in a State where a
> primary election, as defined in 11 CFR 9032.7, is being held within 30
> days; or
>
> \(B\) Can be received by 50,000 or more persons anywhere in the United
> States within the period between 30 days before the first day of the
> national nominating convention and the conclusion of the convention.

\(4\) A [special election]{.underline} or a [runoff
election]{.underline} is a primary election if held to nominate a
candidate. A [special election]{.underline} or a [runoff
election]{.underline} is a general election if held to elect a
candidate.

\(5\) [Targeted to the relevant electorate]{.underline} means the
communication can be received by 50,000 or more persons---

> \(i\) In the district the candidate seeks to represent, in the case of
> a candidate for Representative in or Delegate or Resident Commissioner
> to, the Congress; or
>
> \(ii\) In the State the candidate seeks to represent, in the case of a
> candidate for Senator.

\(c\) [Electioneering communication]{.underline} does not include any
communication that:

\(1\) Is publicly disseminated through a means of communication other
than a broadcast, cable, or satellite television or radio station. For
example, electioneering communication does not include communications
appearing in print media, including a newspaper or magazine, handbill,
brochure, bumper sticker, yard sign, poster, billboard, and other
written materials, including mailings; communications over the Internet,
including electronic mail; or telephone communications;

\(2\) Appears in a news story, commentary, or editorial distributed
through the facilities of any broadcast, cable, or satellite television
or radio station, unless such facilities are owned or controlled by any
political party, political committee, or candidate. A news story
distributed through a broadcast, cable, or satellite television or radio
station owned or controlled by any political party, political committee,
or candidate is nevertheless exempt if the news story meets the
requirements described in 11 CFR 100.132(a) and (b);

\(3\) Constitutes an expenditure or independent expenditure provided
that the expenditure or independent expenditure is required to be
reported under the Act or Commission regulations;

> \(4\) Constitutes a candidate debate or forum conducted pursuant to 11
> CFR 110.13, or that solely promotes such a debate or forum and is made
> by or on behalf of the person sponsoring the debate or forum;
>
> \(5\) Is not described in 2 U.S.C. 431(20)(A)(iii) and is paid for by
> a candidate for State or local office in connection with an election
> to State or local office; or
>
> \(6\) Is paid for by any organization operating under
> section 501(c)(3) of the Internal Revenue Code of 1986. Nothing in
> this section shall be deemed to supersede the requirements of the
> Internal Revenue Code for securing or maintaining 501(c)(3) status.

#### 

#### PART 114  CORPORATE AND LABOR ORGANIZATION ACTIVITY

3\. The authority citation for part 114 is revised to read as follows:

Authority**:** 2 U.S.C. 431(8)(B), 431(9)(B), 432, 434, 437d(a)(8),
438(a)(8), 441b.

4\. In section 114.2, paragraph (b) is revised to read as follows:

**§ 114.2 Prohibitions on contributions and expenditures.**

\* \* \* \* \*

\(b\) (1) Any corporation whatever or any labor organization is
prohibited from making a contribution as defined in 11 CFR 100.7(a). Any
corporation whatever or any labor organization is prohibited from making
a contribution as defined in 11 CFR 114.1(a) in connection with any
Federal election.

\(2\) Except as provided at 11 CFR 114.10, corporations and labor
organizations are prohibited from:

\(i\) Making expenditures as defined in 11 CFR 100.8(a);

\(ii\) Making expenditures with respect to a Federal election (as
defined in 11 CFR 114.1(a)), for communications to those outside the
restricted class that expressly advocate the election or defeat of one
or more clearly identified candidate(s) or the candidates of a clearly
identified political party; or

\(iii\) Making payments for an electioneering communication to those
outside the restricted class. However, this paragraph (b)(2)(iii) shall
not apply to State party committees and State candidate committees that
incorporate under 26 U.S.C. 527(e)(1), provided that:

\(A\) The committee is not a political committee as defined in 11 CFR
100.5;

\(B\) The committee incorporated for liability purposes only;

\(C\) The committee does not use any funds donated by corporations or
labor organizations to make electioneering communications; and

\(D\) The committee complies with the reporting requirements for
electioneering communications at 11 CFR part 104.

\* \* \* \* \*

5\. In section 114.10, the section heading and paragraphs (a), (d), (e)
and (g) are revised and paragraphs (h) and (i) are added to read as
follows:

**§ 114.10 Nonprofit corporations exempt from the prohibitions on making
independent expenditures and electioneering communications.**

\(a\) [Scope]{.underline}. This section describes those nonprofit
corporations that qualify for an exemption in 11 CFR 114.2. It sets out
the procedures for demonstrating qualified nonprofit corporation status,
for reporting independent expenditures and electioneering
communications, and for disclosing the potential use of donations for
political purposes.

\* \* \* \* \*

\(d\) [Permitted corporate independent expenditures and electioneering
communications.]{.underline}

\(1\) A qualified nonprofit corporation may make independent
expenditures, as defined in 11 CFR 100.16, without violating the
prohibitions against corporate expenditures contained in 11 CFR part
114.

\(2\) A qualified nonprofit corporation may make electioneering
communications, as defined in 11 CFR 100.29, without violating the
prohibitions against corporate expenditures contained in 11 CFR part
114.

\(3\) Except as provided in paragraphs (d)(1) and (d)(2) of this
section, qualified nonprofit corporations remain subject to the
requirements and limitations of 11 CFR part 114, including those
provisions prohibiting corporate contributions, whether monetary or
in-kind.

\(e\) [Qualified nonprofit corporations; reporting
requirements]{.underline}.

\(1\) [Procedures for demonstrating qualified nonprofit corporation
status]{.underline}.

\(i\) If a corporation makes independent expenditures under paragraph
(d)(1) of this section that aggregate in excess of \$250 in a calendar
year, the corporation shall certify, in accordance with paragraph
(e)(1)(i)(B) of this section, that it is eligible for an exemption from
the prohibitions against corporate expenditures contained in 11 CFR part
114.

\(A\) This certification is due no later than the due date of the first
independent expenditure report required under paragraph (e)(2)(i) of
this section.

\(B\) This certification may be made either as part of filing FEC Form 5
(independent expenditure form) or, if the corporation is not required to
file electronically under 11 CFR 104.18, by submitting a letter in lieu
of the form. The letter shall contain the name and address of the
corporation and the signature and printed name of the individual filing
the qualifying statement. The letter shall also certify that the
corporation has the characteristics set forth in paragraphs (c)(1)
through (c)(5) of this section. A corporation that does not have all of
the characteristics set forth in paragraphs (c)(1) through (c)(5) of
this section, but has been deemed entitled to qualified nonprofit
corporation status by a court of competent jurisdiction in a case in
which the same corporation was a party, may certify that application of
the court's ruling to the corporation's activities in a subsequent year
entitles the corporation to qualified nonprofit corporation status. Such
certification shall be included in the letter submitted in lieu of the
FEC form.

\(ii\) If a corporation makes electioneering communications under
paragraph (d)(2) of this section that aggregate in excess of \$10,000 in
a calendar year, the corporation shall certify, in accordance with
paragraph (e)(1)(ii)(B) of this section, that it is eligible for an
exemption from the prohibitions against corporate expenditures contained
in 11 CFR part 114.

\(A\) This certification is due no later than the due date of the first
electioneering communication statement required under paragraph
(e)(2)(ii).

\(B\) This certification must be made as part of filing FEC Form 9
(electioneering communication form).

\(2\) [Reporting independent expenditures and electioneering
communications.]{.underline}

\(i\) Qualified nonprofit corporations that make independent
expenditures aggregating in excess of \$250 in a calendar year shall
file reports as required by 11 CFR part 104.

\(ii\) Qualified nonprofit corporations that make electioneering
communications aggregating in excess of \$10,000 in a calendar year
shall file statements as required by 11 CFR 104.14.

\* \* \* \* \*

\(g\) [Non-authorization notice]{.underline}. Qualified nonprofit
corporations making independent expenditures or electioneering
communications under this section shall comply with the requirements of
11 CFR 110.11.

\(h\) [Segregated bank account.]{.underline} A qualified nonprofit
corporation may, but is not required to, establish a segregated bank
account into which it deposits only funds donated or otherwise provided
by individuals, as described in 11 CFR part 104, from which it makes
disbursements for electioneering communications.

\(i\) [Activities prohibited by the Internal Revenue Code.]{.underline}
Nothing in this section shall be construed to authorize any organization
exempt from taxation under 26 U.S.C. 501(a), including any qualified
nonprofit corporation, to carry out any activity that it is prohibited
from undertaking by the Internal Revenue Code, 26 U.S.C. 501, et seq.

6\. Section 114.14 is added to read as follows:

**§ 114.14 Further restrictions on the use of corporate and labor
organization funds for electioneering communications.**

\(a\) (1) Corporations and labor organizations shall not give, disburse,
donate or

otherwise provide funds, the purpose of which is to pay for an
electioneering communication, to any other person.

\(2\) A corporation or labor organization shall be deemed to have given,
disbursed, donated, or otherwise provided funds under paragraph (a)(1)
of this section if the corporation or labor organization knows, has
reason to know, or willfully blinds itself to the fact, that the person
to whom the funds are given, disbursed, donated, or otherwise provided,
intended to use them to pay for an electioneering communication.

\(b\) Persons who accept funds given, disbursed, donated or otherwise
provided by a corporation or labor organization shall not:

\(1\) Use those funds to pay for any electioneering communication; or

\(2\) Provide any portion of those funds to any person, for the purpose
of defraying any of the costs of an electioneering communication.

\(c\) The prohibitions at paragraphs (a) and (b) of this section shall
not apply to funds disbursed by a corporation or labor organization, or
received by a person, that constitute -

\(1\) Salary, royalties, or other income earned from bona fide
employment or other contractual arrangements, including pension or other
retirement income;

\(2\) Interest earnings, stock or other dividends, or proceeds from the
sale of the person's stocks or other investments; or

\(3\) Receipt of payments representing fair market value for goods
provided or services rendered to a corporation or labor organization.

\(d\) (1) Persons who receive funds from a corporation or a labor
organization that do not meet the exceptions of paragraph (c) of this
section must be able to demonstrate through a reasonable accounting
method that no such funds were used to pay any portion of an
electioneering communication.

\(2\) Any person who wishes to pay for electioneering communications
may, but is not required to, establish a segregated bank account into
which it deposits only funds donated or otherwise provided by
individuals, as described in 11 CFR part 104. Use of funds exclusively
from such an account to pay for an electioneering communications shall
satisfy paragraph (d)(1) of this section. Persons who use funds
exclusively from such a segregated bank account to pay for an
electioneering communication shall be required to only report the names
and addresses of those individuals who donated or otherwise provided an
amount aggregating \$1,000 or more to the segregated bank account,
aggregating since the first day of the preceding calendar year.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

David M. Mason

Chairman

Federal Election Commission

DATED: \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

BILLING CODE: 6715‑01‑P

[^1]: Oral testimony at the Commission's public hearing and written
    comments are both considered "comments" in this document.

[^2]: The ban on foreign national funds is being addressed in a separate
    rulemaking. [See]{.underline} NPRM on Contribution Limitations and
    Prohibitions, 67 [FR]{.underline} 54,366, 54,372-75 and 54,379 (Aug.
    22, 2002).

[^3]: "Express advocacy" was first defined by the Supreme Court as
    "communications containing express words of advocacy of election or
    defeat, such as 'vote for,' 'elect,' 'support,' 'cast your ballot
    for,' 'Smith for Congress,' 'vote against,' 'defeat,' 'reject.'"
    [Buckley,]{.underline} 424 U.S. at 44 n.52. The Supreme Court
    created the express advocacy test to save the statutory phrase "for
    the purpose of . . . influencing" \-- the "critical phrase" within
    the definitions of "expenditure" and "contribution" at 2 U.S.C.
    431(8) and (9) \-- from unconstitutional vagueness and overbreadth
    while furthering the goal of Congress "to insure both the reality
    and the appearance of the purity and openness of the federal
    election process." [Buckley,]{.underline} 424 U.S. at 77-78. The
    Supreme Court\'s express advocacy test marks the dividing line
    between candidate advocacy regulated by the FECA and issue advocacy.
    [Id*.*]{.underline} at 42, 44, 80.

[^4]: Thus, the maker of an electioneering communication cannot avoid
    the definition of "electioneering communications" by failing to pay
    the distributor's fee.

[^5]: Considering the 2000 calendar, such an interpretation would have
    resulted in nationwide application of the electioneering
    communication rules to communications mentioning a presidential or
    vice-presidential candidate for more than 270 days between
    late-December of 1999 to the election in November 2000.

[^6]: The lone commenter who supported the interpretation preferred it
    because of the more limited result.

[^7]: One commenter claimed that BCRA's targeting definition is
    backward. This commenter argued that targeting should be limited to
    ads crafted specifically for a particular district or State. Such a
    focus would ensure that the ad's purpose was to influence the
    election in a manner objectively discernible, and it would
    distinguish an electioneering communication from an issue ad, which
    presumably would seek a broader audience. However, even this
    commenter recognized at the Commission's hearing that the Commission
    must use BCRA's targeting definition.

[^8]: Nonprofit corporations are permitted by 11 CFR 114.4(f) to use
    their funds and funds donated by corporations or labor organizations
    to stage debates in accordance with 11 CFR 110.13.
    11 CFR 114.1(a)(2)(x) exempts any activity specifically permitted by
    11 CFR part 114 from the definition of "contribution and
    expenditure."

[^9]: The Commission received a Petition for Rulemaking from a number of
    corporations owning and operating news organizations, television
    stations, newspapers, cable channels, and other media ventures, as
    well as media trade associations. The petition asked the Commission
    to amend its regulation on sponsorship of candidate debates to "make
    clear that it does not apply to the sponsorship of a candidate
    debate by a news organization or a trade organization composed of,
    or representing, members of the press." The petition asserts that
    any regulation of the sponsorship of debates by news organizations
    or related trade associations is contrary to the clear intent of the
    U.S. Congress, irreconcilable with other FEC decisions, in conflict
    with the regulatory decisions of the Federal Communications
    Commission, and unconstitutional. A Notice of Availability for the
    petition was published on May 9, 2002. 65 [FR]{.underline} 31,164.
    Two comments were received by the end of the public comment period,
    on June 10, 2002. Some commenters on the Electioneering
    Communications rulemaking urged the Commission to accelerate
    consideration of the petition. However, the Commission intends to
    defer consideration of whether to issue a Notice of Proposed
    Rulemaking until after the statutorily required BCRA rulemakings are
    completed by the end of the year. In the meantime, the Commission's
    debate regulations remain in effect.

[^10]: In filing for QNC status, a corporation certifies that it meets
    five qualifications: 1) that it is a social welfare organization as
    described in 26 U.S.C. 501(c)(4); 2) that its only purpose is issue
    advocacy, election influencing activity or research, training or
    educational activities tied to the corporation's political goals; 3)
    that the corporation does not engage in business activities; 4) that
    the corporation has no shareholders or persons, other than employees
    and creditors, who either have an equitable or similar interest in
    the corporation or who receive a benefit that they lose if they end
    their affiliation; and 5) that the corporation was not established
    by a corporation or labor organization, does not accept direct or
    indirect donations from such organizations and, if unable to
    demonstrate that it has not accepted such donations, has a written
    policy against accepting donations from them. [See]{.underline} 11
    CFR 114.10(c)(1) through (5).

[^11]: Of course, corporations are free to file for QNC status before
    making electioneering communications if they are concerned about
    "speaking at their peril."

[^12]: Please note that this discussion uses the terms "contributors"
    and "contribute." However, in certain circumstances, it may be more
    appropriate to refer to "donors" and "donations." This distinction
    will be addressed in more detail in the consolidated reporting NPRM
    to follow.