Federal election commission

**11 CFR Parts 100, 102, 104, 106 and 114**

**\[Notice 2004 - 6\]**

**Political Committee Status**

**AGENCY:** Federal Election Commission.

**ACTION:** Notice of Proposed Rulemaking.

**SUMMARY:** The Federal Election Commission is seeking comment on
whether to amend the definition of "political committee" applicable to
nonconnected committees. The Commission is also considering amending its
current regulations to address when disbursements for certain election
activity should be treated as "expenditures." Related amendments to the
allocation regulations for nonconnected committees and separate
segregated funds are also under consideration to determine whether those
regulations need further refinement. While the Commission requests
comments on proposed changes to its rules, it has made no final
decisions on any of the proposed revisions in this Notice. Further
information is provided in the supplementary information that follows.

**DATES:** The Commission will hold a hearing on these proposed rules on
April 14 and 15, 2004, at 10:00 a.m. Commenters wishing to testify at
the hearing must submit their request to testify along with their
written or electronic comments by April 5, 2004. Commenters who do not
wish to testify must submit their written or electronic comments by
April 9, 2004.

**ADDRESSES:** All comments should be addressed to Ms. Mai T. Dinh,
Acting Assistant General Counsel, and must be submitted in either
electronic or written form. Commenters are strongly encouraged to submit
comments electronically to ensure timely receipt and consideration.
Electronic mail comments should be sent to
politicalcommitteestatus@fec.gov and must include the full name,
electronic mail address and postal service address of the commenter.
Electronic mail comments that do not contain the full name, electronic
mail address and postal service address of the commenter will not be
considered. If the electronic mail comments include an attachment, the
attachment must be in the Adobe Acrobat (.pdf) or Microsoft Word (.doc)
format. Faxed comments should be sent to (202) 219-3923, with printed
copy follow-up to ensure legibility. Written comments and printed copies
of faxed comments should be sent to the Federal Election Commission, 999
E Street, N.W., Washington, D.C. 20463. The Commission will post public
comments on its Web site. The hearing will be held in the Commission's
ninth floor meeting room, 999 E Street, N.W., Washington, D.C.

**for further**

**information**

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

**Supplementary**

**Information:**

####### I. INTRODUCTION

The Bipartisan Campaign Reform Act of 2002 ("BCRA"), which amended the
Federal Election Campaign Act ("FECA" or "the Act"), was signed into law
on March 27, 2002. The Supreme Court upheld most of BCRA in [McConnell
v. FEC,]{.underline} 540 U.S. \-\--, 124 S. Ct. 619 (2003).

[McConnell]{.underline} recognized that regulation of certain activities
that affect Federal elections is a valid measure to prevent
circumvention of FECA's contribution limitations and prohibitions.
Consequently, the Commission is undertaking this rulemaking to revisit
the issue of whether the current definition of "political committee"
adequately encompasses all organizations that should be considered
political committees subject to the limitations, prohibitions and
reporting requirements of FECA.

FECA, and the Commission's regulations, with certain exceptions, define
a political committee as "any committee, club, association, or other
group of persons which receives contributions aggregating in excess of
\$1,000 in a calendar year or which makes expenditures aggregating in
excess of \$1,000 during a calendar year." 2 U.S.C. 431(4)(A); 11 CFR
100.5(a). FECA subjects political committees to certain registration and
reporting requirements, as well as limitations and prohibitions on the
contributions they receive and make, that do not apply to organizations
that are not political committees. [See, e.g.,]{.underline} 2 U.S.C.
432, 433, 441a, 441b; 11 CFR part 102.

While the statutory and regulatory definitions of "political committee"
set forth above depend solely on the dollar amount of annual
contributions received and expenditures made, the Supreme Court, in
[Buckley v. Valeo]{.underline}, explained that to fulfill the purposes
of FECA, the definition of political committee "need only encompass
organizations that are under the control of a candidate or [the major
purpose of which is the nomination or election of a
candidate,]{.underline}" and does not "reach groups engaged purely in
issue discussion." [Buckley v. Valeo,]{.underline} 424 U.S. 1, 79 (1976)
(emphasis added). The Supreme Court has reaffirmed the applicability of
the "major purpose" test in subsequent opinions. [See FEC v.
Massachusetts Citizens for Life, Inc.,]{.underline} 479 U.S. 238
(1986)("[MCFL]{.underline}"). Therefore, the definition of "political
committee" arguably should have two elements: first, the \$1,000
contribution or expenditure threshold;[^1] and second, the major purpose
test for organizations not controlled by Federal candidates.

The FECA generally defines "expenditures" as "(i) any purchase, payment,
distribution, loan advance, deposit, or gift of money or anything of
value, made by any person for the purpose of influencing any election
for Federal office; and (ii) a written contract, promise, or agreement
to make an expenditure." 2 U.S.C. 431(9)(A). The definition also
includes a lengthy list of exceptions. 2 U.S.C. 431(9)(B). Commission
regulations at 11 CFR part 100, subparts D and E implement this
statutory definition. Since the enactment of the FECA, there have been
debates about whether certain activities, not specifically mentioned in
the statutory or regulatory definitions, were expenditures. BCRA did not
amend the definition of expenditure, but instead categorized certain
election-related activities into new statutory definitions.
[McConnell]{.underline} shed light on what the Supreme Court considered
to be activities that could affect Federal elections. [See
McConnell,]{.underline} 124 S. Ct. at 673-675 and 696-697 (upholding
BCRA's provisions concerning Federal election activity and
electioneering communications).

This notice of proposed rulemaking ("NPRM") explores whether and how the
Commission should amend its regulations defining whether an entity is a
nonconnected political committee[^2] and what constitutes an
"expenditure" under 11 CFR 100.5(a) or 11 CFR Part 100, Subparts D and
E. With respect to the second element of the definition of "political
committee," the Commission's regulations do not expressly incorporate
the "major purpose" test into 11 CFR 100.5(a). However, the Commission
does apply the "major purpose" test when assessing whether an
organization is a political committee. [See, e.g.,]{.underline} Advisory
Opinions ("AOs") 1994-25 and 1995-11. In this NPRM, the Commission is
seeking comment on whether to amend its regulations to incorporate the
major purpose test into the regulatory definition of "political
committee" in 11 CFR 100.5(a). Furthermore, the Commission seeks comment
on whether the effective date for any final rules that the Commission
may adopt should be delayed until after the next general election and
whether there is a legal basis for delaying the effective date. The
Commission also seeks comment on whether changing the definition of
basic terms such as "political committee," "expenditure," and
"contribution," in the middle of an election year would cause undue
disruption to the regulated community.[^3]

**II. EXPENDITURES**

In [Buckley,]{.underline} 424 U.S. at 62-63, the Supreme Court first
examined FECA's definitions of "expenditure" and "contribution" and
their operative phrase, which is "for the purpose of influencing any
election for Federal office." [See]{.underline} 2 U.S.C. 431(8) and (9).
The Supreme Court found that the ambiguity of this phrase posed
constitutional problems as applied to expenditures made by individuals
other than candidates and organizations other than political committees.
[Buckley,]{.underline} 424 U.S. at 77. To avoid the vagueness and
potential overbreadth of the statutory definition, [Buckley]{.underline}
adopted a narrowing construction so that FECA's definition of
"expenditure" reached "only funds used for communications that expressly
advocate the election or defeat of a clearly identified candidate."
[Buckley,]{.underline} 424 U.S. at 79-80.[^4]

**A. [McConnell v. FEC,]{.underline} 540 U.S. \-\--, 124 S. Ct. 619
(2003).**

The Supreme Court clarified in [McConnell]{.underline} that
[Buckley's]{.underline} "express advocacy" test is not a constitutional
barrier in determining whether an expenditure is "for the purpose of
influencing any Federal election." [McConnell,]{.underline} 124 S.Ct. at
688-89. The Supreme Court explained: "In narrowly reading the FECA
provisions in [Buckley]{.underline} to avoid problems of vagueness and
overbreadth, we nowhere suggested that a statute that was neither vague
nor overbroad would be required to toe the same express advocacy line."
[McConnell,]{.underline} 124 S.Ct. at 688.

With this understanding of express advocacy, the Supreme Court found
constitutional Congress' regulation of two types of activities addressed
in BCRA: "Federal election activity," as defined in 2 U.S.C. 431(20),
and "electioneering communication," as defined in 2 U.S.C.
434(f)(3)(A)(i). [McConnell,]{.underline} 124 S.Ct. at 670-77 and
685-99. In upholding BCRA's amendments to FECA, the Supreme Court
discussed the effects that Federal election activities and
electioneering communications have on Federal elections.

> [1. Federal Election Activities]{.underline}

As the Supreme Court observed in [McConnell,]{.underline} "\[t\]he core
of \[section 441i(b)\] is a straightforward contribution regulation: It
prevents donors from contributing nonfederal funds to state and local
party committees to help finance 'Federal election activity.'" 124 S.Ct.
at 671.[^5] The Supreme Court noted that this regulation arises out of
Congressional recognition of "the close ties between federal candidates
and state party committees." [Id.,]{.underline} at 670. "Federal
election activity" encompasses four distinct categories of activities:
(1) voter registration activity during the 120 days preceding a
regularly scheduled Federal election; (2) voter identification,
get-out-the-vote ("GOTV"), and generic campaign activity that is
conducted in connection with an election in which a candidate for
Federal office appears on the ballot; (3) a public communication that
refers to a clearly identified Federal candidate and that promotes,
supports, attacks, or opposes a candidate for that office; and (4) the
services provided by certain political party committee employees.
[See]{.underline} 2 U.S.C. 431(20) through (24); 11 CFR 100.24 through
100.28. [McConnell]{.underline} referred to all four types of Federal
election activities as "electioneering," and found BCRA's definition of
Federal election activities to be "narrowly focused" on "those
contributions to state and local parties that can be used to benefit
federal candidates directly." [McConnell,]{.underline} 124 S.Ct. at 671
and 674.

Considering the first two types of Federal election activities, which
include certain voter registration, voter identification, GOTV and
generic campaign activities, the Supreme Court determined that all of
these activities "confer substantial benefits on federal candidates."
[McConnell,]{.underline} 124 S.Ct. at 675. The Supreme Court also stated
that "federal candidates reap substantial rewards from any efforts that
increase the number of like-minded registered voters who actually go to
the polls." [Id.,]{.underline} 124 S.Ct. at 674. [McConnell]{.underline}
described the factual record as "show\[ing\] that many of the targeted
tax-exempt organizations engage in sophisticated and effective
electioneering activities for the purpose of influencing elections,
including waging broadcast campaigns promoting or attacking particular
candidates and conducting large scale voter registration and GOTV."
[Id.,]{.underline} 124 S.Ct. at 678 n.68. Like the first two types,
public communications that promote, support, attack, or oppose a clearly
identified Federal candidate, "also undoubtedly have a dramatic effect
on Federal elections. Such ads were a prime motivating force behind
BCRA's passage. . . . \[A\]ny public communication that promotes or
attacks a clearly identified federal candidate directly affects the
election in which he is participating." [Id.,]{.underline} 124 S.Ct. at
675. Because the fourth type of Federal election activities applies on
its face only to certain political party committees, it is not
considered further in this proposal. 2 U.S.C. 431(20)(A)(iv).

> [2. Electioneering Communications]{.underline}

An "electioneering communication" is any broadcast, cable, or satellite
communication that refers to a clearly identified Federal candidate, is
publicly distributed for a fee within 60 days before a general election
or 30 days before a primary election or convention, and is targeted to
the relevant electorate. [See]{.underline} 2 U.S.C. 434(f)(3)(A)(i);
11 CFR 100.29. For communications that refer to congressional
candidates, targeting means the communication can be received by 50,000
persons in the relevant State or congressional district.
2 U.S.C. 434(f)(3)(C); 11 CFR 100.29(b)(5). For communications that
refer to presidential candidates in the nomination context, "publicly
distributed" means the communication can be received by 50,000 persons
in the relevant State prior to its presidential primary election or
anywhere in the United States prior to the presidential nominating
convention. 11 CFR 100.29(b)(3)(ii). BCRA establishes disclosure
requirements for persons who make electioneering communications.
2 U.S.C. 434(f); 11 CFR 104.20. [McConnell]{.underline} upheld
regulation of electioneering communications against a facial challenge,
explaining that the definition of "electioneering communication" serves
"to replace the narrowing construction of FECA's disclosure provisions
adopted by this Court in [Buckley,]{.underline}" which, for nonpolitical
committee groups, was the express advocacy construction.
[McConnell,]{.underline} 124 S.Ct. at 686 and 695. In so holding, the
Court observed that "the definition of 'electioneering communication'
raises none of the vagueness concerns that drove our analysis in
[Buckley]{.underline}." [Id.,]{.underline} at 689.

BCRA also amended the definition of "contribution or expenditure" in
2 U.S.C. 441b to include any payment for an electioneering
communication, thereby expressly prohibiting corporations and labor
organizations from using their general treasury funds to pay for
electioneering communications. [McConnell]{.underline} described
electioneering communications subject to 2 U.S.C. 441b as
"communications that are intended to, or have the effect of, influencing
the outcome of federal elections." [McConnell,]{.underline} 124 S.Ct. at
654.

BCRA further provides that any disbursement for an electioneering
communication that is coordinated with a candidate, candidate authorized
committee, or a Federal, State, or local political party committee shall
be treated as a contribution to the candidate or the candidate's party
and as an expenditure by that candidate or party.
2 U.S.C. 441a(a)(7)(C).

In rejecting various challenges to BCRA's electioneering communication
requirements, the Supreme Court addressed the purpose and effect of
electioneering communications in several instances.
[McConnell]{.underline} concluded that while advertisers seeking to
evade the express advocacy line create advertisements that "do not urge
the viewer to vote for or against a candidate in so many words, they are
no less clearly intended to influence the election."
[McConnell,]{.underline} 124 S.Ct. at 689. The Supreme Court also
referred a second time to the use of electioneering communications "to
influence federal elections" and quoted approvingly from the decision
below, which referred to electioneering communications as either
"designed to influence federal elections" or, in fact, "influencing
elections." [Id.,]{.underline} at 691 ([quoting]{.underline} [McConnell
v. FEC,]{.underline} 251 F.Supp.2d 176, at 237 (D.D.C. 2003)). The
Supreme Court also concluded that "the vast majority" of advertisements
that qualify as electioneering communications had an "electioneering
purpose," which the Court equated with advertisements that are "intended
to influence the voters' decisions and \[that\] have that effect."
[McConnell,]{.underline} 124 S.Ct. at 696. The Court considered such
advertisements to be "the functional equivalent of express advocacy."
[Id.]{.underline}

The Commission seeks comment on whether the Supreme Court's treatment of
Federal election activity or electioneering communications in
[McConnell]{.underline} requires or permits the Commission to change its
regulations defining "expenditure" and "contribution" in 11 CFR
part 100, subparts B, C, D and E to include those concepts. In the
alternative, the Commission seeks comment on whether
[McConnell]{.underline} recognizes additional activities that may be
constitutionally regulated by Congress, but in the absence of new
legislation doing so, the Commission is prohibited from expanding the
regulatory definitions of "expenditure" and "contribution."

The Commission further seeks comment on whether, even if it may so amend
its regulations, the Commission should refrain from redefining such
fundamental and statutorily defined terms, in the absence of further
guidance from Congress. Is it consistent with BCRA to include all
Federal election activity within the regulatory definition of
"expenditure" when BCRA only added electioneering communications to the
definition of "contribution or expenditure" in 2 U.S.C. 441b(b)(2)? Does
BCRA's specification in 2 U.S.C. 441a(a)(7)(C) that coordinated
"disbursements" for electioneering communications can be contributions
provide any guidance regarding whether payments for electioneering
communications should be considered expenditures? Is it consistent with
Congressional intent for the Commission to categorize voter
registration, voter identification, get-out-the-vote and generic
campaign activities by a State or local candidate committee as "for the
purpose of influencing any election to Federal office?"

Does the definition of "independent expenditure" in 2 U.S.C. 431(17)(A),
which requires express advocacy, limit Commission's ability to define an
"expenditure" to communications that include express advocacy? If not,
can communications be considered "expenditures" if they fail to meet
both the definition of "independent expenditure" in 2 U.S.C. 431(17) and
the definition of "coordinated communication" under 11 CFR 109.21? Is
the function of the definition of "independent expenditure" in
2 U.S.C. 431(17)(A) limited to the 24-hour and 48-hour reporting
requirements in 2 U.S.C. 434(g)?

> **B. Proposed Regulations**

In this NPRM, the Commission considers whether, in light of
[McConnell,]{.underline} it should revise current regulations to reflect
that certain communications and certain voter drive activities have the
purpose of influencing Federal elections. This proposal includes several
alternatives. The Commission has not made any final decisions on any of
the proposed rules or alternatives, which are described below, and seeks
comment on all of them.

> [1. Proposed 11 CFR 100.5 \-- Definition of "political
> committee"]{.underline}

Current 11 CFR 100.5(a) specifies that any committee, club, association,
or other group of persons that receives contributions aggregating in
excess of \$1,000 or which makes expenditures aggregating in excess of
\$1,000 during a calendar year is a political committee. In addition to
considering amending this regulation to include [Buckley's]{.underline}
major purpose test, the proposal for which is discussed separately
below, the Commission is considering amending this definition so that
the first three types of Federal election activity and electioneering
communications would be counted toward the \$1,000 expenditure
thresholds.

Alternative 1-A would define those "expenditures" that count toward the
\$1,000 threshold, but this definition would not apply in any other
context in which the term "expenditure" is used in FECA or in the
Commission's regulations.

The Commission is considering a number of issues related to Alternative
1-A. Should persons other than political party committees be subject to
a rule that treats the first three types of Federal election activities
as "expenditures" for purposes of the \$1,000 threshold in the
definition of "political committee?" Should all of Federal election
activity and all electioneering communications count toward political
committee status, or should the Commission make distinctions to count
only certain types of Federal election activity or only certain
electioneering communications toward political committee status? For
example, should Federal election activity that does not refer to a
clearly identified Federal candidate count toward political committee
status? Would a definition of "expenditure" that includes voter drive
activities by State or local candidate committees on behalf of their own
candidacies be overly broad?

Should funds received for Federal election activities types 1 through 3
or electioneering communications count as contributions for purposes of
the \$1,000 threshold? If any disbursements for these activities should
count as expenditures, should the corresponding funds received to make
those disbursements count as contributions? Should the Commission treat
funds raised by a State or local candidate committee through
solicitations advocating their own election, as well as incidentally
expressly advocating the election or defeat of a clearly identified
Federal candidate, or promoting, supporting, attacking or opposing a
clearly identified Federal candidate, as funds contributed "for the
purpose of influencing any election for Federal office?" Please note
that none of the regulatory text set forth below relates to this
proposal regarding "contributions" as used in proposed
11 CFR 100.5(a)(1)(i).

Finally, should the Commission confine any reexamination of the
definition of "expenditure" to apply only as that term is used as part
of the definition of "political committee?" FECA already provides two
definitions of "expenditure," one in 2 U.S.C. 431(9) and a broader
definition in 2 U.S.C. 441b. Currently, "expenditure" in 11 CFR 100.5(a)
uses the definition in 2 U.S.C. 431(9) and 11 CFR part 100, subpart D.
Should the Commission create by regulation a third definition of
"expenditure" for determining political committee status?

> [2. 11 CFR Part 100, Subpart D \-- Definition of
> "expenditure"]{.underline}

The Commission is also considering amendments to its general definition
of "expenditure" to reflect [McConnell's]{.underline} conclusion that
certain communications and certain voter drives have the purpose or
effect of influencing Federal elections.

One approach would be to add payments for the Federal election
activities described in 2 U.S.C. 431(20)(A)(i) through (iii) and
payments for electioneering communications to the definition of
"expenditure" in 11 CFR part 100, subpart D. In evaluating this approach
to amending its rules, the Commission will consider the same issues
raised above concerning BCRA's application of the concepts of Federal
election activities and electioneering communications in connection with
Alternative 1-A.

BCRA imposes prohibitions and restrictions related to Federal election
activities on national party committees (2 U.S.C. 441i(c)), State,
district, and local political party committees (2 U.S.C. 441i(b)),
Federal candidates (2 U.S.C. 441i(e)(1)(A), (e)(4)(A), and (e)(4)(B)),
and State candidates (2 U.S.C. 441i(f)). Consequently, most of the
Supreme Court's consideration of Federal election activities arose with
respect to political party committees. In this context, the "close
relationship" of Federal officeholders and candidates to their political
parties was part of the justification of the Government's interest in
regulating Federal election activities. [See McConnell,]{.underline} 124
S.Ct. at 668 and n.51. In fact, in disposing of an equal protection
claim that BCRA discriminates against political party committees in
favor of "interest groups," the Supreme Court acknowledged: "Interest
groups, however, remain free to raise soft money to fund voter
registration, GOTV activities, mailings, and broadcast advertising
(other than electioneering communications)." [Id.,]{.underline} 124
S.Ct. at 686.

The approach of including all funds disbursed for Federal election
activities in the definition of "expenditure," if adopted, would extend
restrictions related to Federal election activities beyond political
party committees and Federal candidates to all persons, including a
State or local candidate committee.[^6] Would such a regulation be
consistent with FECA, as amended by BCRA? Would it be consistent with
Congressional intent?

Similarly, BCRA amended the definition of "contribution or expenditure"
in the corporate and labor organization prohibitions to include payments
"for any applicable electioneering communication." 2 U.S.C. 441b(b)(2).
BCRA did not amend, however, the definition of "expenditure" with a
broader application in 2 U.S.C. 431(9). Would the approach of including
all payments for electioneering communications in the regulations
implementing the 2 U.S.C. 431(9) definition of "expenditure" be
consistent with FECA, as amended by BCRA? Would it be consistent with
Congressional intent?

The proposed rules that follow as Alternative 1-B present a narrower
approach. Although the Supreme Court's discussion of Federal election
activities in [McConnell]{.underline} was framed in the political party
and candidate context, it recognized that these same activities by
tax-exempt organizations do affect Federal elections.
[McConnell,]{.underline} 124 S.Ct. at 678 n.68. Given the Supreme
Court's conclusions that types 1 through 3 of Federal election
activities have a demonstrable effect on Federal elections, can the
Commission conclude that the same communications and the same activities
by actors other than political party committees and candidates are not
expenditures, [i.e.,]{.underline} payments for the purpose of
influencing a Federal election? In an effort to take the Supreme Court's
conclusions into consideration, Alternative 1-B would incorporate the
concepts of Federal election activities types 1 through 3, but would
also recognize that applying these concepts to actors other than
political party committees and candidates requires some tailoring of
Federal election activities.

A proposal to regulate Federal election activities by persons other than
political party committees and candidates requires a reexamination of
those activities in order to determine whether those activities carried
out by such persons are the functional equivalent of the same activities
when carried out by political party committees and candidates. Inherent
in any activities conducted by political party committees or candidates
is a partisan purpose, as the Supreme Court has recognized in other
contexts. [See]{.underline} [FEC v. Colorado Republican Federal Campaign
Committee,]{.underline} 533 U.S. 431, 450 (2001) (noting "the seemingly
unexceptionable premise that parties are organized for the purpose of
electing candidates" and agreeing that "political parties are dominant
players, second only to the candidates themselves, in federal
elections"). When the proposed rules in Alternative 1-B consider Federal
election activities conducted by other persons, they attempt to be
consistent with [McConnell]{.underline} by limiting the activities
included in the "expenditure" definition to those with a partisan
purpose.

Are the proposed rules consistent with [McConnell?]{.underline} Do they
limit the activities included in the "expenditure" definition to those
activities that have a partisan purpose? Is Alternative 1-B's treatment
of a State or local candidate committee's partisan activities consistent
with BCRA? Is Alternative 1-B consistent with 2 U.S.C. 441i(e)(4), which
permits Federal candidates to solicit up to \$20,000 per individual for
certain Federal election activities or for an entity whose principal
purpose is to conduct certain Federal election activities?

> [a. Proposed 11 CFR 100.115 \-- Federal election activity: Partisan
> voter drives.]{.underline}

Because the Supreme Court recognized that voter registration activity
that takes place within 120 days before a Federal election, voter
identification, and get-out-the-vote activities "confer substantial
benefits on federal candidates" and because voter drives may be for the
purpose of influencing Federal elections even when performed by
tax-exempt organizations, Alternative 1-B would incorporate these
aspects of Federal election activities in the definition of
"expenditure." [See McConnell,]{.underline} 124 S.Ct. at 675, 678 n.68,
and the discussion above in Part II, A., 1. Proposed section 100.34
would define "partisan voter drives," and proposed section 100.115 would
include payments for voter registration, voter identification, and GOTV
activities into the regulatory definition of "expenditure," subject to
the exceptions described below.

As reflected in FECA, the proposed rules in Alternative 1-B would
distinguish partisan from nonpartisan Federal election activities. FECA
exempts "nonpartisan activity designed to encourage individuals to vote
or register to vote" from the definition of "expenditure."
2 U.S.C. 431(9)(B)(ii). In order for voter drives to be "nonpartisan,"
Commission regulations currently require that no effort is or has been
made to determine the party or candidate preference of individuals
before encouraging them to vote. 11 CFR 100.133.

Alternative 1-B includes proposed changes to section 100.133. First, the
proposal would expressly state that if voter registration or
get-out-the-vote activities included a communication that promotes,
supports, attacks, or opposes a Federal or non-Federal candidate or if
it promotes or opposes a political party, then the voter registration or
get-out-the-vote activities is partisan. [See]{.underline} proposed
11 CFR 100.133(a). Second, the proposal would add a provision that if
information concerning likely party or candidate preference has been
used to determine which voters to encourage to register to vote or to
vote, the voter registration and get-out-the-vote activities would be
partisan. [See]{.underline} proposed 11 CFR 100.133(b).

These proposed changes would achieve more harmony between the
Commission's approach to this issue and the Internal Revenue Service's
("the IRS's") approach. The IRS regulations provide that "to be
nonpartisan, voter registration and 'get-out-the-vote' campaigns must
not be specifically identified by the organization with any candidate or
political party." 26 CFR 1.527-6(b)(5). In a private letter ruling, the
IRS determined that a voter drive was partisan, even though the
activities "may not be specifically identified with a candidate or party
in every case." It did so due to "the intentional and deliberate
targeting of individual voters or groups of voters on the basis of their
expected preference for pro-issue candidates, as well as the timing of
the dissemination and format of the materials used." Priv. Ltr.
Rul. 99-25-051 (Mar. 29, 1999). Should the Commission otherwise clarify
this rule or consider any other criteria?

Should voter identification be considered part of get-out-the-vote
activities subject to section 100.133? If so, what changes to the
proposed rules, if any, are necessary?

The proposed new rules for voter registration and get-out-the-vote
activities at 11 CFR 100.34(a) and (c) would retain by reference the
nonpartisan exception to the definition of "expenditure" in proposed
11 CFR 100.133. Similarly, proposed 11 CFR 100.34(b) would exclude
disbursements for voter identification when no effort has been or will
be made to determine or record the party or candidate preference of
individuals on the voter list from the definition of "partisan voter
drive" and therefore "expenditure." [See]{.underline} proposed
11 CFR 100.34(b) and 100.115.

The proposed rule at new 11 CFR 100.115 would also exclude Levin funds
from the definition of "expenditure." Levin funds are funds raised by
State, district, or local political party committees and party
organizations pursuant to 11 CFR 300.31 and disbursed by the same
committee or organization pursuant to 11 CFR 300.32. BCRA specifically
permits State, district, and local political party committees to raise
and spend Levin funds for an allocable portion of voter registration,
voter identification, and get-out-the-vote activities, rather than
requiring these committees to use entirely Federal funds for these
Federal election activities. 2 U.S.C. 441i(b)(2). This exception in BCRA
would be preserved for State, district, and local political party
committees and organizations by the exclusion of Levin funds from the
proposed rules.

State and local political party committees may also conduct voter drives
under the "coattails" exception to the definition of "expenditure."
2 U.S.C. 431(9)(B)(ix); 11 CFR 100.149. Under certain conditions, voter
registration and GOTV activities conducted by these party committees on
behalf of the Presidential nominees are not treated as expenditures. In
order to leave this exemption unaffected by the inclusion of the types 1
and 2 of Federal election activity in the definition of "expenditure,"
the proposed rules would also amend 11 CFR 100.149 to provide expressly
that the "coattails" exemption would apply notwithstanding proposed
11 CFR 100.115.

A proposal for the allocation of these expenditures is discussed below.
Proposed section 100.155 would state that any non-Federal funds
permissibly disbursed by a separate segregated fund or a nonconnected
committee for partisan voter drives pursuant to the allocation rule in
proposed 11 CFR 106.6 would not be "expenditures." Consequently, the
non-Federal funds would not count toward the \$1,000 of expenditures
required for political committee status under current 11 CFR 100.5(a)
(or proposed 11 CFR 100.5(a)(1)(i)). The Commission seeks comment on
whether this is an appropriate conclusion.

Additionally, the Commission seeks comment on the following questions.
Are proposed sections 100.34 and 100.115 sufficiently tailored to
reflect the application of Federal election activities to persons other
than political party committees and candidates? The proposed regulations
would treat many of the voter activities conducted by State and local
candidate committees on behalf of their own candidacies as
"expenditures." Is there any evidence that Congress intended for the
Commission to categorize such activities as "for the purpose of
influencing any election for Federal office?" Should the Commission give
any consideration in this context to the statutory exemptions from the
definition of Federal election activity set forth in 2 U.S.C.
431(20)(B)? Should the proposed rules include an exception for the
receipt of funds solicited by Federal candidates under
2 U.S.C. 441i(e)(4)(B)(ii), which under certain circumstances permits
Federal candidates to solicit funds from individuals of up to \$20,000
-- an amount that exceeds the contribution limit applicable to certain
political committees in 2 U.S.C. 441a? Or, should the exception in
2 U.S.C. 441i(e)(4)(B)(ii) be limited to entities that are not political
committees or that confine their voter registration, voter
identification, and get-out-the-vote activities to nonpartisan
activities? If the exception were confined to nonpartisan activities,
what evidence, if any, is there that Congress intended for the exception
in 2 U.S.C. 441i(e)(4)(B)(ii) to be interpreted in such a way?

The definition of "partisan voter drive" in proposed section 100.34
would not include some voter registration and get-out-the-vote
activities that would simultaneously fail to qualify for the exemption
of "nonpartisan voter registration and get-out-the-vote activities" in
section 100.133, in either its current form or as proposed to be
amended. For example, some voter registration activity could take place
more than 120 days before an election, which would mean that payments
for it would not be expenditures. [See]{.underline} proposed
11 CFR 100.34(a) (citing current 11 CFR 100.24(b)(1)) and 100.115. That
same activity could also fail to qualify as nonpartisan under proposed
11 CFR 100.133 if it is subject to any of that section's exclusions,
which include, for example, directing voter drives to supporters of a
political party. Any voter registration or get-out-the-vote activities
that fall in this "gap" would not be expenditures under proposed
section 100.115, even though they would not qualify as "nonpartisan"
under the exception in proposed section 100.133. This gap may be
appropriate in that it reflects that such activity cannot be considered
nonpartisan for purpose of the exemption, but it may not rise to the
level of an "expenditure" under proposed sections 100.34 and 100.115 for
the same reason that similar activity by a political party committee
would be excluded from the definition of "Federal election activity."
11 CFR 100.24(b)(1).

Alternatively, this gap could be eliminated by either adding an
additional exemption from the definition of "expenditure" in 11 CFR
part 100, subpart E, or dropping the time limitations of current
11 CFR 100.24(a)(1), (a)(3)(i), and (b)(1) from proposed section 100.34.
Under the latter approach, the time limitations in current section
100.24 would be maintained with respect to the political party
committees whose Federal election activities are subject to BCRA's time
limits. 2 U.S.C. 431(20)(A)(i). The Commission seeks comment on these
issues.

> [b. Proposed 11 CFR 100.116 \-- Certain public
> communications.]{.underline}

Alternative 1-B would also incorporate into the definition of
"expenditure" payments for public communications that refer to a
political party or a clearly identified Federal candidate and promote or
support, or attack or oppose any political party or any Federal
candidate. [See]{.underline} proposed 11 CFR 100.116. This proposed rule
is based on two types of Federal election activities: generic campaign
activities, which are public communications that promote or oppose a
political party, and public communications that promote, support,
attack, or oppose a clearly identified candidate. [See]{.underline}
2 U.S.C. 431(20)(A)(ii) and (iii); 11 CFR 100.24(a)(1); (b)(2)(ii);
(b)(3); 100.25; and 100.26. Proposed section 100.155 would state that
any non-Federal funds permissibly disbursed by a separate segregated
fund or a nonconnected committee for public communications pursuant to
the allocation rule in proposed 11 CFR 106.6 would not be
"expenditures." The Commission seeks comment on whether this is an
appropriate conclusion.

The Supreme Court found that public communications that promote,
support, attack or oppose a clearly identified Federal candidate "have a
dramatic effect on federal elections." [McConnell,]{.underline} 124
S.Ct. at 675. The Supreme Court also found that generic campaign
activity "confer\[s\] substantial benefits on federal candidates."
[Id.]{.underline} If the Commission were to apply the voter drive
activities of types 1 and 2 of Federal election activities outside of
the political party committee context, these concepts may require
modification to incorporate a partisan element. In contrast, generic
campaign activity and type 3 of Federal election activities, by
definition, include material that either promotes, supports, attacks or
opposes a clearly identified Federal candidate or promotes or opposes a
political party. This partisan content obviates the need to tailor these
concepts for application outside the political party and candidate
context.

Consistent with this approach, the Commission recently issued Advisory
Opinion 2003-37 in which it stated that "communications that promote,
support, attack or oppose a clearly identified Federal candidate have no
less a 'dramatic effect' on Federal elections when aired by other types
of political committees, rather than party committees or candidate
committees." AO 2003-37, at 3. In that advisory opinion, the Commission
concluded that public communications that promote, support, attack or
oppose a clearly identified Federal candidate when made by political
committees are expenditures. Proposed section 100.116 would incorporate
this conclusion in the Commission's regulations. It would also treat
public communications that promote or oppose political parties in a
similar fashion, and it would apply to communications made by all
persons, not just political committees. If new rules apply the "promote,
support, attack or oppose" standard to actors other than political party
committees and candidates, should a temporal element be included in any
such rule? Might an advertisement by a person other than a political
party committee or candidate be properly understood as, for example,
promoting a Federal candidate if publicly distributed close to an
election, but the same advertisement by the same person publicly
distributed far from an election might not promote the candidate? Should
any of FECA's temporal limitations, which are discussed in connection
with expenditures generally below, be adapted for this purpose?

Would the "promote, support, attack or oppose" standard be appropriate
for those 527 organizations (tax exempt "political organizations,"
discussed more [infra]{.underline}) that by their very nature have
influencing elections as a primary purpose? Would the "promote, support,
attack or oppose" standard be appropriate for all 527 organizations?
Should the Commission adopt a different standard for 501(c)
organizations (other tax exempt organizations, discussed more
[infra]{.underline}) that would require not only "promote, support,
attack or oppose" content, but also some basis for concluding the
message is to influence a Federal election? Such additional bases could
include: (1) reference to the clearly identified candidate [as a
candidate;]{.underline} (2) reference to the election or to the voting
process; (3) reference to the clearly identified candidate's opponent;
or (4) reference to the character or fitness for office of the clearly
identified candidate. Alternatively, should the Commission adopt the
"promote, support, attack or oppose" standard for 501(c) organizations,
but build in an exception for a message that is confined to expressly
advocating seeking action by the clearly identified candidate on an
upcoming legislative or executive decision without reference to any
candidacy, election, voting, opponent, character, or fitness for office?
In essence, the Commission seeks comment on whether it should define
what is an expenditure in a way that follows the functional distinctions
in the Internal Revenue Code and recognizes that some organizations
engage in "grassroots lobbying" campaigns primarily designed to affect
upcoming legislative or executive actions. If so, what regulatory
language would be appropriate?

In different contexts, FECA now provides at least three content
standards for communications -- express advocacy; promote, support,
attack or oppose; and reference to a clearly identified Federal
candidate. [See, e.g.,]{.underline} 2 U.S.C. 431(17)(A); (20)(A)(iii);
434(f)(3)(A)(i)(I) and 441d(a). What other content standards that are
not vague or overbroad, if any, should be included in the definition of
"expenditure?"

> [c. Electioneering communications.]{.underline}

Alternative 1-B does not include payments for electioneering
communications in the definition of "expenditures." Many electioneering
communications either already are included in the definition of
"expenditure" or would be included under the proposal. Under the current
rules, political committees must report communications that satisfy the
general definition of "electioneering communications" in
2 U.S.C. 434(f)(3)(A) as expenditures. 11 CFR 104.20(b). In addition, if
an electioneering communication promotes, supports, attacks, or opposes
a Federal candidate, it would also be a public communication that
promotes, supports, attacks, or opposes a Federal candidate, which would
make it an expenditure under proposed section 100.116. Consequently, the
only electioneering communications that would not be treated as
expenditures under Alternative 1-B would be those made by persons other
than political committees that do [not]{.underline} promote, support,
attack, or oppose a clearly identified Federal candidate. Should the
final rules include all electioneering communications in the definition
of "expenditure?"

> [d. Other potential approaches.]{.underline}

The Commission also seeks comments on other potential approaches to
amending the definition of "expenditure" in 11 CFR Part 100, Subpart D.
Should a payment's status as an "expenditure" depend on the identity of
the maker? For example, should payments for public communications that
promote, support, attack or oppose a Federal candidate be expenditures
only if made by a Federal political committee?

Are there other identifying characteristics that should be considered in
determining whether a payment is an expenditure? For example, should
payments by a tax-exempt, charitable organizations operating under
26 U.S.C. 501(c)(3) be exempt from the definition of "expenditure?" In
this regard, how should the Commission interpret the Internal Revenue
Service's Technical Advice Memorandum 89-36-002 (Sept. 8, 1989), which
permitted a 501(c)(3) organization to make advertisements that "support
or oppose a candidate in an election campaign," without losing its
501(c)(3) status for intervening in a political campaign?

Should the Commission consider an organization's status under section
501(c) or 527 of the Internal Revenue Code in determining whether a
payment is an expenditure? Should some activities be expenditures if
made by a section 527 organization, regardless of whether it is a
Federal political committee? Should the same rules or different rules
apply to organizations operating under section 501(c)(3), (4), or (6)?

Should the timing of a payment affect whether it is an "expenditure?"
FECA and BCRA provide several temporal limitations on various provisions
that recognize the significance of proximity to an election. FECA
provides that certain independent expenditures must be reported within
24 hours if made during the twenty days before an election.
2 U.S.C. 434(g)(1) (formerly 2 U.S.C. 434(c)(2)(C)). BCRA limits
electioneering communications to the thirty days before a primary
election and the sixty days before a general election.
2 U.S.C. 434(f)(3)(A)(i)(II). BCRA also includes voter registration
activity in Federal election activity only in the 120 days before a
regularly scheduled Federal election. 2 U.S.C. 431(20)(A)(i). Do any of
these time periods provide an appropriate temporal standard for any
expenditures?

Should the rules address expenditures that might be in connection with
more than one Federal election? The Commission recently concluded in an
advisory opinion that an advertisement that was coordinated by a
Congressional candidate with a presidential campaign committee could be
a contribution to the presidential campaign committee in connection with
the upcoming Presidential primary election in that State and an
expenditure of the Congressional candidate in connection with her
special election. AO 2004-1. Should this conclusion be incorporated into
regulations or should it be reconsidered?

The Commission also seeks comment on whether any aspect of Alternative
1-B should be revised in order to harmonize the definition of
"expenditure" in the Commission's regulations with the approach taken by
the IRS. Section 527(e)(2) of the Internal Revenue Code of 1986, as
amended, defines the term "exempt function" as "the function of
influencing or attempting to influence the selection, nomination,
election, or appointment of any individual to any Federal, State, or
local public office or office in a political organization, or the
election of Presidential or Vice Presidential electors, whether or not
such individual or electors are selected, nominated, elected, or
appointed." 26 U.S.C. 527(e)(2). IRS regulations implementing this
statutory definition provide that "the term 'exempt function' includes
all activities that are directly related to and support the process of
influencing or attempting to influence the selection, nomination,
election, or appointment of any individual to public office or office in
a political organization." 26 CFR 1.527-2(c)(1). IRS regulations also
specify that whether an expenditure is for an exempt function depends on
all the facts and circumstances. [Id.]{.underline}

A Revenue Ruling issued by the IRS on December 23, 2003, stated that
"\[w\]hen an advocacy communication explicitly advocates the election or
defeat of an individual to public office, the expenditure clearly is for
an exempt function under § 527(e)(2)." Rev. Rul. 04-6, at 4. The Revenue
Ruling also identified a non-exhaustive list of factors that "tend to
show" whether an advocacy communication on a public policy issue is for
an exempt function or not, in the absence of "explicit advocacy." The
six identified factors that tend to show a communication is for an
exempt function are: (a) The communication identifies a candidate for
public office; (b) The timing of the communication coincides with an
electoral campaign; (c) The communication targets voters in a particular
election; (d) The communication identifies that candidate's position on
the public policy issue that is the subject of the communication; (e)
The position of the candidate on the public policy issue has been raised
as distinguishing the candidate from others in the campaign, either in
the communication itself or in other public communications; and (f) The
communication is not part of an ongoing series of substantially similar
advocacy communications by the organization on the same issue. The five
factors that tend to show a communication is not for an exempt function
are: (a) The absence of one or more of the factors listed in (a) through
(f) above; (b) The communication identifies specific legislation, or a
specific event outside the control of the organization, that the
organization hopes to influence; (c) The timing of the communication
coincides with a specific event outside the control of the organization
that the organization hopes to influence; (d) The communication
identifies the candidate solely as a government official who is in a
position to act on the public policy issue in connection with the
specific event; and (e) The communication identifies the candidate
solely in the list of key or principal sponsors of the legislation that
is the subject of the communication.

To what extent should Alternative 1-B be modified for harmony with the
IRS's approach?

> [3. 11 CFR Part 100, Subpart B \-- Definition of
> "contribution."]{.underline}

The Commission is also considering amending the definition of
"contribution" in 11 CFR part 100, subpart B to make changes that would
correspond to those proposed for the definition of "expenditure" in
Alternative 1-B. Additionally, the Commission is considering amending
its definition of "contribution" to include any funds that are received
in response to a communication containing express advocacy of a clearly
identified candidate.

> [a. Amendments corresponding to amendments to "expenditure"
> definition.]{.underline}

Current 11 CFR 102.5(b) imposes requirements on organizations that do
not qualify as "political committees" under current 11 CFR 100.5 and
that make contributions or expenditures. The organization must
demonstrate through a reasonable accounting method that, whenever it
makes expenditures, it has received sufficient funds subject to the
limitations and prohibitions of FECA to make the expenditures. Such
organizations must also keep records of receipts and disbursements and,
upon request, must make such records available to the Commission.
[See]{.underline} current 11 CFR 102.5(b)(1). Consequently, if the
definition of "expenditure" is amended in any way, then any entity
making such expenditures would be required to do so using only
contributions that comply with the amount limitations and source
prohibitions of FECA. If the Commission adopts the amended definition of
"expenditure," as proposed in Alternative 1-B, is an amendment to
Commission regulations needed to state that funds used for any
expenditures are contributions to that entity? Please note that proposed
rule text for this approach is not included below, but if the Commission
were to decide to adopt Alternative 1-B and this approach, then the text
in the final rules amending the definition of "contribution" would be
similar to the text in proposed sections 100.115 and 100.116 regarding
"expenditure." Should entities that are not political committees be
required to report their contributions received and expenditures made in
this context?

> [b. Proposed 11 CFR 100.57 \-- Funds solicited with express
> advocacy.]{.underline}

The Commission is considering whether solicitations containing express
advocacy of federal candidates establish that any funds received in
response are necessarily "for the purpose of influencing any election
for Federal office," so that they are contributions. Proposed section
100.57 would state that any funds provided in response to a solicitation
that contained express advocacy for or against a clearly identified
Federal candidate are contributions. If a solicitation states that the
solicitor intends to take actions to elect or defeat a particular
candidate, is it then logical to treat funds that are provided in
response as funds that are "for the purpose of influencing a Federal
election?" Should the standard be that the solicitation must not just
include express advocacy but state that the funds will be used for
express advocacy? Should funds raised by a State or local candidate for
his or her own candidacy be treated as contributions "for the purpose of
influencing a Federal election" if the State or local candidate's
solicitation includes express advocacy for or against a clearly
identified Federal candidate? Should proposed section 100.57 also
include solicitations that expressly advocate the election or defeat of
Federal candidates of a particular party without clearly identifying the
particular candidates? Should the new rule use a standard other than
express advocacy, such as a solicitation that promotes, supports,
attacks, or opposes a Federal candidate, or indicates that funds
received in response thereto will be used to promote, support, attack,
or oppose a clearly identified Federal candidate? Should the new rule
specify which contributions result from which solicitations? Should the
new rule incorporate the standards in current 11 CFR 102.5(a)(2)(i)
through (iii) to clarify further the types of funds received that must
be treated as contributions? A conforming amendment to current
11 CFR 102.5(a)(2)(ii) would be necessary if any rule based on proposed
section 100.57 is adopted.

> [4. Proposed 11 CFR 114.4 \-- Corporate and Labor Organization
> Communications.]{.underline}

Current 11 CFR 114.4(c)(2) and (d) permit corporations and labor
organizations to conduct voter registration and get-out-the-vote
activities beyond their restricted class provided that any communication
does not expressly advocate the election or defeat of any clearly
identified candidate(s) or candidates of a clearly identified political
party and subject to other restrictions. The Commission seeks comment on
proposed rules that would amend paragraphs (c)(2) and (d) and add new
paragraph (c)(3) to specify that such voter registration and
get-out-the-vote activities would be subject to the conditions set forth
in proposed 11 CFR 100.133, as discussed above. The purpose of such a
revision would be to ensure that corporations and labor organizations
would be subject to the same conditions as political committees, as well
as other conditions specific to corporations and labor organizations,
when spending non-Federal funds on these voter registration and
get-out-the-vote activities. The Commission seeks comment on whether the
same rules should apply not only to corporations and labor
organizations, but also to any person or entity who uses corporate or
labor organization general treasury funds for these purposes.

The Commission also seeks comment on whether current 11 CFR 100.133
should be amended to make clear that, when a corporation or labor
organization conducts voter registration or get-out-the-vote activities,
it would be subject to the requirements of 11 CFR 100.133 and 114.4(c)
and (d). Additionally, the Commission seeks comment on whether the
"express advocacy" standard set forth in 11 CFR 114.4(c)(2) and (d)(1)
should be changed to the "promote, support, attack or oppose" standard.
Would the latter standard be an appropriate standard for determining
whether a communication has the "purpose of influencing a Federal
election?" Would such an approach be consistent with [MCFL]{.underline}?

Corporations and labor organizations may also conduct certain voter
registration and GOTV activities aimed at their restricted classes.
11 CFR 114.3(c)(4). Because these activities are permitted by 11 CFR
part 114, they are exempt from the definition of "expenditure."
2 U.S.C. 431(9)(B)(v); 11 CFR 100.141. No changes to section 114.3(c)(4)
are proposed because the Commission intends to retain this exception to
the definition of "expenditure."

# III. MAJOR PURPOSE

### **A. Major Purpose Requirement**

The Commission seeks comment as to whether the existing definition of
"political committee" in 11 CFR 100.5(a) should be amended by
incorporating the major purpose requirement, and if so, how that should
be accomplished. Under the proposed section 100.5(a)(1), a committee,
club, association or group of persons that receives in excess of \$1,000
in total contributions or makes in excess of \$1,000 in total
expenditures would be a political committee only if "the nomination or
election of one or more Federal candidates is [a]{.underline} major
purpose" of the committee, club, association or group of persons
(emphasis added).

[1. Major Purpose or Primary Purpose?]{.underline}

The proposed rule would include the indefinite article "a" to modify
"major purpose," rather than the definite article "the." The consequence
would be that the major purpose element of the definition of "political
committee" may be satisfied if the nomination or election of a candidate
or candidates is one of two or more major purposes of an organization,
even if it is not its primary purpose. The Commission seeks comment
regarding whether, to satisfy the major purpose requirement, the
nomination or election of candidates must be the predominant purpose of
the organization, or whether the major purpose standard is satisfied
when the nomination or election of candidates is a major purpose of the
organization, even when the organization spends more funds for another
purpose.

In first articulating the major purpose requirement in
[Buckley]{.underline}*,* the Supreme Court determined that the
definition of political committee "need only encompass organizations
that are under the control of a candidate or [the major
purpose]{.underline} of which is the nomination or election of a
candidate." [Buckley]{.underline}, 424 U.S. at 79 (emphasis added).
Likewise, in

[MCFL]{.underline}, the Supreme Court observed that:

> should MCFL's independent spending become so extensive that [the
> organization's major purpose]{.underline} may be regarded as campaign
> activity, the corporation would be classified as a political
> committee. As such it would automatically be subject to the
> obligations and restrictions applicable to those groups whose [primary
> objective]{.underline} is to influence political campaigns.

[MCFL]{.underline}, 479 U.S. at 262 (emphasis added and citations
omitted). These passages indicate that the nomination or election of
candidates must be [the]{.underline} major purpose or, put another way,
the [primary objective]{.underline} of the organization. In light of the
Supreme Court's repeated use of the term "the major purpose," can the
Commission substitute the term "a major purpose," which appears to have
a different meaning?

Could the major purpose standard in [Buckley]{.underline} nevertheless
be interpreted to require that the nomination or election of candidates
be "a" major purpose of the organization, even when the organization has
other, perhaps more significant, purposes? The Commission notes that the
"major purpose" requirement appears only in judicial opinions not in any
statute, and that the Supreme Court has warned against "dissect\[ing\]
the sentences of the United States Reports as though they were the
United States Code." [St. Mary's Honor Ctr. v. Hicks]{.underline}, 509
U.S. 502, 515 (1993). In [Aka v. Washington Hosp. Ctr.]{.underline}, 156
F.3d 1284 (D.C. Cir. 1998), the Circuit Court explained that "the
\[Supreme\] Court's every word and sentence cannot be read in a vacuum;
its pronouncements must be read in light of the holding of the case and
to the degree possible, so as to be consistent with the Court's apparent
intentions." [Id.]{.underline} at 1291.

As explained above, in [Buckley]{.underline}, the Court imposed the
"major purpose" requirement because it was concerned that the statutory
definition of political committee "could be interpreted to reach groups
engaged purely in issue discussion." [Buckley]{.underline}, 424 U.S. at
79. Consequently, the "apparent intention" of the Court appears to have
been to limit the applicability of the definition of political committee
so that it would not cover organizations involved "purely in issue
discussion" but that nevertheless engage in some incidental activity
that might otherwise satisfy the Act's \$1,000 expenditure or
contribution political committee thresholds. Would it be consistent with
the Court's apparent intention for the Commission to amend its
definition of "political committee" to only require that the nomination
or election of candidates be a major purpose rather than the primary
purpose of the organization? It seems that an organization that has the
nomination or election of candidates as a major purpose is not "engaged
purely in issue discussion." Moreover, such a definition of political
committee appears unlikely to cover organizations that engage in some
incidental activity that causes them to exceed the \$1,000 expenditure
or contribution thresholds.

In [United States v. Harriss]{.underline}, 347 U.S. 612, 621-22 (1954),
the Supreme Court interpreted the meaning of the term "principal
purpose" in the Federal Regulation of Lobbying Act. That statute
provided that certain provisions applied only to those persons whose
"principal purpose" is to aid in the passage or defeat of legislation.
[Id.]{.underline} at 619. The Court refused to interpret the statute to
require that the influencing of legislation be the person's most
important -- or primary -- purpose. Instead, the Court concluded that
the phrase "principal purpose" was designed to exclude from the coverage
of the act those persons "having only an incidental purpose of
influencing legislation." [Id.]{.underline} at 622. According to the
Supreme Court:

> \[i\]f it were otherwise, \-- if an organization, for example, were
> exempted because lobbying was only one of its main activities -- the
> Act would in large measure be reduced to a mere exhortation against
> abuse of the legislative process. In construing the Act narrowly to
> avoid constitutional doubts, we must also avoid a construction that
> would seriously impair the effectiveness of the Act in coping with the
> problem it was designed to alleviate.

[Id]{.underline}. at 622-23.

The Court's ruling in [Harriss]{.underline} may be instructive because,
in that case, the Court was interpreting the meaning of the word
"principal," which, when used as an adjective, is defined as "most
important." [See]{.underline} Webster's II New Riverside Dictionary 556
(1^st^ ed. 1984). The term "major," on the other hand, is defined as
"greater in importance rank or stature" or "demanding great attention."
Webster's II New Riverside Dictionary 421 (1^st^ ed. 1984). Thus,
"major," unlike "principal," does not signify "most important" or
"primary" or "first in rank." Given that the Supreme Court has
interpreted the phrase "principal purpose" in a statute to include an
organization for which lobbying is merely "one of its main activities,"
would the Commission be justified in interpreting the phrase "major
purpose" in [Buckley]{.underline} to also mean "one of its main
activities?" Is it significant that the Court in [Buckley]{.underline}
chose to use the phrase "major purpose" instead of "primary purpose" or
"principal purpose?"

[2. Particular Federal Candidates]{.underline}

The proposed rule would require that the organization have as a major
purpose the nomination or election of candidates for Federal office, as
opposed to non-Federal office. The Commission seeks comment regarding
whether the proposed rule should be limited to the nomination or
election of Federal candidates or, instead, whether the nomination or
election of all candidates, including candidates for non-Federal office
will suffice. Likewise, the Commission asks whether the major purpose
requirement mandates that the organization be involved in the nomination
or election of one or more particular candidates or, instead, whether it
is sufficient for the organization to have a major purpose of nominating
or electing certain categories of candidates, such as Democrats or
Republicans, or women, or candidates who take a position on a particular
issue. In [FEC v. GOPAC, Inc.]{.underline}, 917 F. Supp. 851 (D.D.C.
1996), the District Court interpreted [Buckley]{.underline} and
[MCFL]{.underline} to require that the major purpose of the organization
be "the nomination or election of a [particular]{.underline} candidate
or candidates for [federal]{.underline} office." [GOPAC]{.underline},
917 F. Supp. at 859 (emphasis added). The Commission seeks comment as to
whether this is a proper reading of [Buckley]{.underline} and
[MCFL]{.underline}. Should the Commission issue regulations that
conflict with the GOPAC decision?

[3. Existing 11 CFR 100.5(b) through (e)]{.underline}

Please note that current 11 CFR 100.5(b) through (e), which identify
certain organizations that are considered to be political committees
(separate segregated funds, local party committees, principal campaign
committees, and multi-candidate committees), do not incorporate the
"major purpose" standard. This is because the Commission has determined
that these organizations, by their nature or by definition, have as
their major -- if not primary -- purpose, the nomination or election of
candidates.

For example, current 11 CFR 100.5(b) provides that a separate segregated
fund established under 2 U.S.C. 441b(b)(2)(C) is a political committee
because, pursuant to 2 U.S.C. 441b(b)(2)(C), a separate segregated fund
is "to be utilized for political purposes." 2 U.S.C. 441b(b)(2)(C).
Current 11 CFR 100.5(c) provides that, under certain circumstances, the
local committee of a political party is a political committee because,
like national parties, these organizations exist for the purpose of
nominating and electing candidates. [See]{.underline}
2 U.S.C. 431(4)(C). Moreover, such organizations are organized under
section 527 of the Internal Revenue Code, which requires that these
organizations be organized and operated primarily for the purpose of
influencing or attempting to influence the nomination, election or
appointment of individuals to public office. [See]{.underline} 26 U.S.C.
527(e); [see]{.underline} [also]{.underline} discussion of 527
organizations below. Current 11 CFR 100.5(d) and (e)(1) provide that an
individual's principal or authorized campaign committees are political
committees because these organizations are established for the purpose
of nominating or electing an individual to public office.
[See]{.underline} 2 U.S.C. 431(5) and (6). Moreover, such organizations
are "under the control of a candidate," and therefore are not subject to
the major purpose requirement. [See]{.underline} [Buckley]{.underline},
424 U.S. at 79. Finally, current 11 CFR 100.5(e)(3) provides that
multi-candidate committees are political committees because these
organizations make and receive contributions for Federal elections.
Consequently, these organizations satisfy the major purpose test.

The Commission proposes no changes to existing 11 CFR 100.5(b) through
(e). Nevertheless, the Commission seeks comments regarding whether any
amendments to these paragraphs are necessary.

# B. Major Purpose Tests

The Commission seeks comment on proposed 11 CFR 100.5(a)(2)(i) through
(iv), which provides four tests for determining when an entity would
satisfy the major purpose requirement. Please note that the Commission
has not made any decisions on whether to adopt any of the proposals for
the major test(s). If the Commission were to decide to adopt one or more
of the proposed major purpose tests, an organization that meets any of
the major purpose tests would be considered to have as a major purpose
the nomination or election of Federal candidates. Consequently, if that
organization exceeds the \$1,000 contribution or expenditure threshold
in 11 CFR 100.5(a)(1)(i), it would be a political committee and would
have to comply with the registration, reporting and other requirements
for political committees. Are the criteria appropriate? Would other
criteria be more appropriate?

> [1. Proposed 11 CFR 100.5(a)(2)(i) -- Avowed Purpose and
> Spending]{.underline}

The first of the four proposed major purpose tests, which is set forth
in proposed section 100.5(a)(2)(i), would use the organization's public
pronouncements and spending to determine if its major purpose is to
nominate or elect candidates. An organization would satisfy the major
purpose element in proposed section 100.5(a)(2)(i) if: (1) its
organizational documents, solicitations, advertising, other similar
written materials, public pronouncements, or any other communications
demonstrate that its major purpose is to nominate, elect, defeat,
promote, attack, support, or oppose a clearly identified candidate or
candidates for Federal office or the Federal candidates of a clearly
identified political party; and (2) it disburses more than \$10,000 in
the current calendar year or any of the previous four calendar years on
the following: (1) expenditures (including independent expenditures);
(2) contributions; (3) payments for types 1 through 3 of Federal
election activity; and (4) payments for all or any part of an
electioneering communication, as defined in 11 CFR 100.29.

The first prong of the major purpose test in proposed section
100.5(a)(2)(i) would rely on an organization's written characterization
of its own activities. This would include the organization's
organizational documents, such as its charter, constitution, by-laws,
etc. The second prong would require that an organization's disbursements
in connection with a federal election exceed \$10,000. This two-pronged
approach would ensure that documents or communications that demonstrate
that an organization's avowed purpose is to nominate, elect, defeat,
promote, attack, support or oppose a candidate or candidates are
substantiated by its actual disbursements in connection with a Federal
election.

### a. Public Pronouncements

For an organization's public pronouncements and other communications to
demonstrate that the organization has a major purpose of nominating,
electing, promoting, attacking, supporting, or opposing clearly
identified Federal candidates or the Federal candidates of a clearly
identified political party, the written materials and other
communications must refer to Federal candidates of a clearly identified
political party or to a "clearly identified candidate," which is defined
in 11 CFR 100.17. Thus, under proposed paragraph (a)(2)(i), an
organization would not be considered to have the nomination or election
of candidates as a major purpose where the organization's public
communications merely indicate that its major purpose is to elect
candidates holding particular positions ([e.g.]{.underline},
pro-business candidates or pro-environmental candidates) without
specifying which candidates hold those positions. Such an organization,
however, could still be considered to have the nomination or election of
candidates as a major purpose under the other three major purpose tests
-- proposed paragraphs (a)(2)(ii) through (iv), which are discussed
below.

The Commission seeks comment regarding whether it is appropriate to base
its major purpose analysis on the written public statements, documents,
solicitations, and other communications by an organization. Are there
circumstances where an organization's written public statements,
documents, solicitations, and other communications would not be an
appropriate measure of its major purpose? Should the final rule take
into account the organization's oral, as well as written, communications
to determine if it satisfies the first prong of the major purpose test
in proposed section 100.5(a)(2)(i)?

The Commission also seeks comment regarding how this provision should
operate with respect to disavowed major purposes or apparently
contradictory statements of the organization's major purposes. For
example, what would be the outcome if the leader ([e.g.]{.underline},
president, chairperson, etc.) of the organization disavows the
organization's previously stated purpose? What if this disavowal is
attempted by someone other than the organization's leader? Should the
rules account for the possibility that an organization can disavow its
previous statements regarding its major purpose? Should there be a time
limit on the applicability of statements made in the organization's
communications? For example, should statements from five years ago be
given less weight than more current statements? Are these concerns
alleviated by the second prong of the major purpose test set forth in
proposed section 100.5(a)(2)(i), which would require that the
organization exceed \$10,000 in disbursements in connection with a
Federal election?

Similarly, what if some of the organization's communications indicate
that its major purpose is the nomination or election of candidates, but
other communications indicate that it has one or more other major
purposes? How should the major purpose of the organization be assessed
in these situations? Should some communications or types of
communications be afforded greater weight then others when assessing
major purpose under this proposed paragraph? For example, should the
Commission give greater weight to statements in the organization's
solicitations or in its governing documents than it gives to potentially
self-serving, ambiguous or contradictory statements by its leaders or
its members? Should the Commission consider only the statements it makes
in its solicitations or in its organizational documents and ignore
statements found elsewhere? Would these concerns be alleviated by the
second prong of the major purpose test set forth in proposed section
100.5(a)(2)(i), which would require that the organization exceed
\$10,000 in disbursements in connection with a Federal election?

### b. \$10,000 Disbursement Threshold

To satisfy the second prong of the major purpose test set forth in
proposed section 100.5(a)(2)(i), the organization's disbursements in
connection with any election for Federal office would have to exceed the
\$10,000 threshold in the current year or any of the previous four
calendar years. For example, to assess whether this threshold has been
met in 2004, the Commission would examine the organization's
disbursements in 2000, 2001, 2002, 2003 and 2004. If it exceeded the
\$10,000 threshold in any of those years, it would satisfy the \$10,000
disbursement requirement in proposed paragraph (a)(2)(i). Because this
threshold is an absolute dollar amount rather than a percentage of total
spending, the current year spending would be relevant to the analysis.
Consequently, this provision, unlike proposed paragraph (a)(2)(ii),
would apply to both existing and newly established organizations. The
Commission seeks comment regarding the use of this time period in
proposed paragraph (a)(2)(i). Should the threshold have to be met in all
four preceding years? If the Commission does adopt such a four-year
look-back provision, would it be fair to implement it prior to 2008?

The Commission also seeks comment regarding the proposed \$10,000
threshold. The Commission notes that Congress established a \$10,000
threshold to trigger the reporting requirements for electioneering
communications under 2 U.S.C. 434(f) and 48-hour reporting of
independent expenditures under 2 U.S.C. 434(g)(2). By establishing these
\$10,000 thresholds, Congress indicated that it believed \$10,000 in
activity to be significant enough to require reporting within 48 hours
of the activity. Is it appropriate for the Commission to adopt a similar
threshold to use in the major purpose test set forth in proposed
paragraph (a)(2)(i), or is a higher or lower threshold more appropriate
and why?

The Commission also seeks comment on the proposal to count the following
types of disbursements toward the \$10,000 threshold: (1) expenditures
(including independent expenditures); (2) contributions; (3) payments
for types 1 to 3 of Federal election activity; and (4) payments for all
or any part of an electioneering communication, as defined in 11 CFR
100.29. Payments for Federal election activity would be limited to only
the first three of the four types of Federal election activity described
in 11 CFR 100.24(b) because the fourth type of Federal election activity
-- services provided during any month by an employee of a state,
district, or local committee of a political party who spends more than
25 percent of that individual's compensated time during that month on
activities in connection with a Federal election -- applies only to
certain political party committees, which are presumed to satisfy the
major purpose requirement.

The Commission seeks comment regarding the types of disbursements that
would count toward the \$10,000 threshold. Is it appropriate to count
expenditures (including independent expenditures), contributions,
Federal election activity (types 1 through 3), and electioneering
communications toward the spending threshold? Are there other categories
or types of disbursements that should be included, such as
administrative costs, overhead, and costs associated with volunteer
activities? Should certain exceptions be included and, if so, how should
those exceptions be crafted? For example, since some Federal election
activity by non-party organizations might be truly non-partisan, should
the types of voter registration, voter identification, get-out-the-vote,
and generic campaign activity captured in the major purpose analysis be
confined to partisan activity? Since the major purpose test envisioned
in the proposed rules uses 'a major purpose to influence Federal
elections' test, should the four types of disbursements be subject to an
allocation regime similar to those in 11 CFR 106.1 and 106.6, where only
the allocable Federal portion would count toward the \$10,000 threshold?

As discussed above with regard to the proposed amendments to the
definition of "expenditure," certain Federal election activity
influences Federal elections. Does this justify counting the three types
of Federal election activity toward the \$10,000 disbursement threshold?
[McConnell]{.underline} concluded that "\[w\]hile the distinction
between 'issue' and express advocacy seemed neat in theory, the two
categories of advertisements proved functionally identical in important
respects." [McConnell]{.underline}, 124 S.Ct. at 650. The Supreme Court
went on to explain that both types of communications "were used to
advocate the election or defeat of clearly identified candidates, even
though the so-called issue ads eschewed the use of magic words."
[Id]{.underline}. Nonetheless, since some electioneering communications
(and even some 'promote, support, attack, or oppose' messages) by
certain non-party organizations, such as 501(c) organizations might, be
confined to advocating action regarding a particular legislative or
executive decision, is there a need to develop a more focused content
analysis for the major purpose test? [McConnell]{.underline} held that
it is permissible to treat an organization as a political committee even
when the organization makes only independent expenditures and does not
make any contributions to Federal candidates. [Id]{.underline}. at 665
n.48. Does this justify counting independent expenditures toward the
spending threshold?

> [2. Proposed 11 CFR 100.5(a)(2)(ii) -- Fifty Percent Disbursement
> Threshold]{.underline}

The second of the four proposed major purpose tests is set forth in
proposed paragraph (a)(2)(ii). This paragraph would consider an
organization to have a major purpose of nominating or electing
candidates if more than fifty percent of the organization's total annual
disbursements during any of the previous four calendar years was spent
on: (1) expenditures (including independent expenditures); (2)
contributions; (3) payments for types 1 through 3 of Federal election
activity; and (4) payments for all or any part of an electioneering
communication, as defined in 11 CFR 100.29.

The Commission notes that, unlike proposed paragraph (a)(2)(i), this
major purpose test does not consider the organization's public
pronouncements. An organization that exceeds the fifty percent threshold
would be considered to have the election or nomination of candidates as
a major purpose regardless of whether or not the organization's public
pronouncements or other communications indicate that it has such a major
purpose. The Commission seeks comments regarding whether this major
purpose test should also include consideration of the organization's
public pronouncements or other communications, as is the case in
proposed paragraph (a)(2)(i).

As set forth above, the relevant years for proposed paragraph (a)(2)(ii)
would be the previous four calendar years. For example, to apply
proposed paragraph (a)(2)(ii) for an organization during the year 2004,
the relevant years would be 2000, 2001, 2002, and 2003. If an
organization's election-related spending exceeded the fifty percent
threshold in any of these years, it would be considered to have the
nomination or election of candidates as a major purpose. Alternatively,
should the organization's election-related spending have to exceed the
fifty percent threshold in each of the preceding four years to trigger
political committee status? Because an organization's total annual
disbursements are typically unknown until the end of the year, the
current year spending would not be examined under this proposed major
purpose test. That is why, in the example given above, the
organization's spending during 2004 was not considered. For the same
reason, this proposed provision would be inapplicable to newly
established organizations that have no spending in any prior years.
However, newly established organizations would still be subject to the
other three proposed major purpose tests, including the \$50,000
disbursement threshold in proposed paragraph (a)(2)(iii).

The Commission also seeks comment on the proposal to consider the
organization's spending during the previous four calendar years, which
would cover groups that are active only during presidential election
years. Should the proposed rule look back more years or fewer years? If
so, how many calendar years would it be appropriate to examine? What
should be the effective date of a rule that looks back four years?

The types of spending that would be counted toward the fifty percent
threshold in the major purpose test set forth in proposed paragraph
(a)(2)(ii) would be the same as those that would be counted toward the
\$10,000 spending threshold in proposed paragraph (a)(2)(i). The
Commission seeks comment regarding counting these categories of
disbursements toward the fifty percent threshold. The Commission
specifically refers commenters to the questions and issues raised above
with respect to counting these categories of disbursements toward the
\$10,000 disbursement threshold in proposed paragraph (a)(2)(i).

The Commission also seeks comment on the use of the fifty percent
threshold. Is another percentage more appropriate to assess an
organization's major purpose? Should the Commission apply a 25 percent
threshold? Could a very large organization that spends less than fifty
percent of its funds on election-related disbursements nevertheless have
a profound effect on Federal elections? Does this justify the Commission
adopting a threshold lower than fifty percent or would this situation be
addressed by absolute dollar thresholds that would be used in proposed
paragraphs (a)(2)(i) and (a)(2)(iii).

Should the size of the percentage threshold depend upon the
determination of whether the nomination or election of candidates must
be [the]{.underline} major purpose of the organization, or must be only
[a]{.underline} major purpose of the organization? If the proper
interpretation of the major purpose requirement is that the nomination
or election of candidates must be the organization's primary purpose,
should this proposed fifty percent threshold be the only test for major
purpose adopted by the Commission in the final rules? In other words, if
the nomination or election of candidates must be the organization's most
important purpose, perhaps only those organizations that spend most
([i.e.]{.underline}, more than fifty percent) of their funds on the
nomination or election of candidates satisfy the major purpose
requirement.

On the other hand, how should the final rule address organizations that
spend a plurality, but not a majority, of their money on nomination and
election activities? For example, should an organization be considered
to satisfy the major purpose requirement if it spends only 30 percent of
its funds on election-related activities ([i.e]{.underline}., those
items that would count toward the proposed fifty percent threshold) but
does not spend more than 30 percent on any other activity? To apply such
a rule, would the Commission have to adopt categories of non-election
spending so that the seventy percent of funds that the organization
spent on non-election purposes would not be combined into a single
category of "non-election activities," thereby allowing the organization
to avoid political committee status? If such categories are required,
how should they be crafted?

> [3. Proposed 11 CFR 100.5(a)(2)(iii) -- \$50,000 Disbursement
> Threshold]{.underline}

The third of the four proposed major purpose tests, which is set forth
in proposed paragraph (a)(2)(iii), would consider an organization to
have the nomination or election of Federal candidates as a major purpose
if it spends more than \$50,000 in the current calendar year or any of
the previous four calendar years on the following: (1) expenditures
(including independent expenditures); (2) contributions; (3) payments
for types 1 through 3 of Federal election activity; and (4) payments for
all or any part of an electioneering communication, as defined in 11 CFR
100.29. When an organization exceeds the \$50,000 spending threshold, it
would satisfy the major purpose standard. For example, to conclude that
an organization has a major purpose of nominating and electing
candidates in 2004, under proposed paragraph (a)(2)(iii), the
organization would have to exceed the \$50,000 threshold in either 2000,
2001, 2002, 2003 or 2004. The relevant time period in proposed 11 CFR
100.5(a)(2)(iii) is the current calendar year or any of the four
previous calendar years. Because this threshold is an absolute dollar
amount instead of a percentage of total spending, the current year
spending would be relevant to the analysis. Consequently, this
provision, unlike proposed paragraph (a)(2)(ii) would apply to newly
established organizations. The Commission seeks comment regarding the
use of this time period in proposed paragraph (a)(2)(iii). Would it be
more appropriate to require that the threshold be met in each of the
four preceding calendar years?

The Commission seeks comment regarding the proposed \$50,000 threshold.
The Commission notes that it uses a \$50,000 threshold to determine when
a political committee is subject to mandatory electronic filing of its
financial disclosure statements. [See]{.underline} 11 CFR 104.18(a). Is
this an appropriate dollar threshold for triggering major purpose under
this proposed test or is a higher or lower threshold more appropriate
and why? Is a higher or lower threshold more appropriate in certain
situations or with respect to particular types of organizations? Should
the proposed rule incorporate a sliding-scale dollar threshold that
would increase or decrease depending upon the size or type of
organization, or the type of activity in which the organization engages?
How might such a sliding scale specifically work? Is it preferable not
to have any major purpose criteria based upon a strict dollar amount
and, if so, how would the Commission assess the major purpose of a newly
established organization?

Like proposed paragraphs (a)(2)(i) and (a)(2)(ii), proposed paragraph
(a)(2)(iii) would count the following types of disbursements toward the
spending threshold: (1) expenditures (including independent
expenditures); (2) contributions; (3) payments for types 1 through 3 of
Federal election activity; and (4) payments for all or any part of an
electioneering communication, as defined in 11 CFR 100.29. The
Commission seeks comment regarding counting these categories of
disbursements toward the \$50,000 threshold. The Commission specifically
refers commenters to the questions and issues raised above with respect
to counting these categories of disbursements toward the \$10,000
spending threshold in proposed paragraph (a)(2)(i).

> [4. Proposed 11 CFR 100.5(a)(2)(iv) -- 527 Organizations]{.underline}

Proposed 11 CFR 100.5(a)(2)(iv) offers two alternatives for the fourth
of the four proposed major purpose tests. Both alternatives address "527
organizations," which are entities organized under Section 527 of the
Internal Revenue Code, 26 U.S.C. 527. A 527 organization is "a party,
committee, association, fund, or other organization (whether or not
incorporated) organized and operated primarily for the purpose of
directly or indirectly accepting contributions or making expenditures,
or both, for an exempt function." 26 U.S.C. 527(e)(1). An exempt
function is defined as "the function of influencing or attempting to
influence the selection, nomination, election, or appointment of any
individual to any Federal, State, or local public office or office in a
political organization, or the election of Presidential or Vice
Presidential electors." 26 U.S.C. 527(e)(2).

Alternative 2-A provides that all 527 organizations would be considered
to have the nomination or election of candidates as a major purpose, but
carves out five exceptions: (1) any 527 organization that is the
campaign organization of an individual seeking nomination, election,
appointment or selection to a non-Federal office; (2) any 527
organization that is organized solely for the purpose of promoting the
nomination or election of a particular individual to a non-Federal
office; (3) any 527 organization that engages in nomination and election
activities only with respect to elections in which there is no candidate
for Federal office on the ballot; (4) any 527 organization that operates
in only one state and which is required by the law of that state to file
financial disclosure reports with a state agency; and (5) any 527
organization that is organized solely for the purpose of influencing the
selection, appointment, or nomination of individuals to non-elective
office, or the election, selection, nomination or appointment of persons
to leadership positions within a political party.

The first proposed exception would recognize that the major purpose of a
campaign organization for an individual seeking non-Federal office is
the nomination or election of that individual to non-Federal office.
Consequently, such an organization is not likely to have as a major
purpose the nomination or election of candidates to Federal office. The
second proposed exception would address those organizations that are
organized solely to promote the nomination or election of individuals to
non-Federal offices, but do not fall within the first exception because
they are not under the control of that particular non-Federal candidate.

The third and fourth proposed exceptions pertain to state political
organizations. The exception in proposed section 100.5(a)(2)(iv)(C)
would address 527 organizations that operate only in connection with
non-federal elections and only in states, such as Virginia, that hold
non-Federal elections in years where there is no regularly scheduled
Federal election ([i.e]{.underline}., odd-numbered years). Such an
organization, which does not engage in activity in connection with any
election for Federal office, is not likely to have as a major purpose
the nomination or election of Federal candidates. The exception in
proposed section 100.5(a)(2)(iv)(D) would address organizations that
operate in only one state and, under state law, must disclose their
financial activity to a state agency. Such organizations, because they
operate in only one state, would not be deemed to have a major purpose
of nominating or electing Federal candidates solely because they are 527
organizations.

The fifth proposed exception would recognize that 527 organizations
established solely to influence the selection, appointment or nomination
of individuals to non-elective office ([e.g.]{.underline}, judicial
appointments), or the nomination or election of candidates for
leadership positions within a political party, should be exempt from
this proposed major purpose test because they appear unlikely to have a
major purpose of nominating or electing candidates to Federal office.

Organizations that do not satisfy any of the five exceptions and that
receive \$1,000 in contributions or make \$1,000 in expenditures would
be Federal political committees under proposed section 100.5(a) if they
are organized under section 527 of the Internal Revenue Code. Should the
Commission consider additional exceptions to proposed section
100.5(a)(2)(iv) to exclude more organizations, or should the Commission
conclude that other organizations should be treated as Federal political
committees if they satisfy the \$1,000 thresholds in proposed section
100.5(a)(1)?

The Commission notes that any 527 organization that falls within one or
more of the exceptions contained in Alternative 2-A could nevertheless
be considered to have a major purpose of nominating or electing Federal
candidates under one of the first three major purpose tests, such as by
exceeding the fifty percent threshold set forth in proposed paragraph
(a)(2)(ii) or the \$50,000 spending threshold set forth in proposed
paragraph (a)(2)(iii). The Commission seeks comment on whether the
exceptions contained in Alternative 2-A are appropriate and whether
Alternative 2-A should include additional exceptions. Alternative 2-B,
in contrast, would provide that all 527 organizations would be
considered to have the nomination or election of candidates as a major
purpose, and does not provide for any exceptions.

The Commission seeks comment regarding whether it is necessary and
appropriate to mention 527 organizations in the proposed rule, or
whether it would be better to eliminate the fourth major purpose test
and instead subject 527 organizations, like any other organization, to
analysis under the first three tests. To the extent that 527
organizations should be explicitly mentioned in the proposed rule, which
alternative is more appropriate, Alternative 2-A, Alternative 2-B, or
some other alternative?

> [5. Other Tax-Exempt Organizations]{.underline}

The proposed rule does not expressly mention other tax-exempt
organizations, such as those organized under section 501(c) of the
Internal Revenue Code, because, unlike 527 organizations, these
organizations could lose their tax-exempt status if their primary
purpose were to influence elections. Should the final rule state that
certain tax-exempt organizations, such as those organized under
501(c)(3) or (c)(4) of the Internal Revenue Code, will not meet any of
the major purpose tests because of the nature of their tax-exempt
status, and exempt them from the definition of political committee? Or
should the final rule not provide an exemption for 501(c) organizations,
recognizing that the various thresholds in the major purpose tests are
set high enough that certain 501(c) organizations may continue to
conduct incidental or low levels of election activities without
satisfying any of the major purpose tests and triggering political
committee status?[^7] Would it be more appropriate to discard
"[a]{.underline} major purpose" analysis and use instead
"[the]{.underline} major purpose" analysis for these types of
organizations? In this regard, should the Commission fashion a test
whereby it would recognize three broad categories of activity for 501(c)
organizations -- "election influencing activity," "legislative or
executive lobbying activity," and "educational, research, or other
activity." If the organization put more resources, either financially or
timewise, into "election influencing activity" than it put into either
of the other two activities, the major purpose test would be met.

##  C. Treatment of Contributions for the Major Purpose Requirement

Should the major purpose requirement apply when an organization's status
as a political committee is based upon its making in excess of \$1,000
in any contributions or expenditures, or only when its status as a
political committee is based solely upon its making of independent
expenditures in excess of \$1,000? In [Akins v. FEC]{.underline},
101 F.3d 731 (D.C. Cir. 1996), [vacated]{.underline}, 524 U.S. 11
(1998), one appeals court interpreted [Buckley]{.underline} and
[MCFL]{.underline} to require application of the major purpose test only
when political committee status is based upon the organization's
independent expenditures, not when it is based upon the organization's
other expenditures, including contributions to political committees.
[See]{.underline} [Akins]{.underline}*,* 101 F.3d at 742 ("the Court
clearly distinguished [independent expenditures]{.underline} and
[contributions]{.underline} as to their constitutional significance, and
its references to a 'major purpose' test seem to implicate only the
former"). Should the [Akins]{.underline} court's interpretation be
incorporated into the proposed rule, or should the major purpose
requirement apply to organizations that exceed \$1,000 in expenditures,
not just those that exceed \$1,000 in independent expenditures
exclusively?

##  D. Proper Application of the Major Purpose Requirement

The Commission seeks comment regarding whether the definition of
political committee in 11 CFR 100.5(a) should include a major purpose
test along the lines set forth above or whether it should instead
incorporate the major purpose requirement as an exception to the
definition of "political committee." For example, if the major purpose
requirement is incorporated into the definition of political committee
(as it is in the proposed rules), an organization, regardless of the
amount of its contributions and expenditures, will not be considered to
be a political committee unless it is shown to have a major purpose of
nominating or electing candidates. This is essentially how the proposed
rules described above would work. An alternative approach, which is not
reflected in the proposed rules, would be to use the major purpose
requirement as an exception to the definition of political committee.
Under this alternative approach, an organization would be considered to
be a political committee if its expenditures or contributions exceed the
\$1,000 threshold unless the organization has a major purpose other than
nominating or electing candidates. This alternative approach would, to a
certain extent, place the burden on the organization to show that it
does not have a major purpose of nominating or electing candidates.
Would this alternative approach reflect the correct reading of the major
purpose requirement as set forth in [Buckley]{.underline},
[MCFL]{.underline} and other cases?

Although not reflected in the proposed rules, the Commission seeks
comment on the proper application of the major purpose requirement to
complex organizations that include a political committee within the
organization. For instance, should the Commission impute major purpose
across such organizations? Thus, if an organization includes a political
committee, should all other committees or organizations within the
complex organization be deemed to satisfy the major purpose test? Or
should the Commission conclude that its current affiliation rules at 11
CFR 100.5(g) sufficiently address this issue and no amendments to the
regulations are necessary?

**IV. CONVERSION OF FEDERALLY PERMISSIBLE FUNDS TO FEDERAL FUNDS**

The Commission recognizes that there may be a need to provide guidance
to organizations that become political committees after operating for
some time as a non-political committee organization, especially
concerning two issues: (1) how the new political committee should
demonstrate that the contributions and expenditures that it made prior
to becoming a political organization were paid for with Federally
permissible funds and (2) how it should treat the funds it has
cash-on-hand on the day that it became a political committee.
Consequently, to address these issues, this NPRM includes proposed
subpart A -- Organizations that Become Political Committees, which would
set forth the requirements for existing organizations that become
political committees under 11 CFR 100.5(a). The proposed rules would not
apply to organizations that register with the Commission as a political
committee prior to making any contributions, expenditures, independent
expenditures or allocable expenditures. The proposed rules do not
replace any of the Commission's existing rules applicable to political
committees. All political committees, including the political committees
subject to these proposed rules, would remain subject to all of the
Commission's rules applicable to political committees.

One purpose of the proposed 11 CFR part 102, subpart A is to provide a
mechanism for organizations that become political committees to convert
into Federal funds some or all of the funds received prior to the time
that they became political committees. As explained below, a political
committee could convert these funds into Federal funds by contacting its
recent donor(s), making certain disclosures, and seeking the donor(s)'
consent to use the funds for the purpose of influencing Federal
elections.

Allowing new political committees to convert pre-existing funds into
Federal funds would achieve two goals. First, it would allow political
committees to account for contributions and expenditures made before
they became political committees that were required under the Act and
the Commission's regulations to be paid for with Federal funds
([i.e.]{.underline}, funds that comply with the source prohibitions,
amount limitations and other requirements of the Act). Non-political
committees are already required to "demonstrate through a reasonable
accounting method that, whenever such an organization makes a
contribution or expenditure, or payment, the organization has received
sufficient funds subject to the limitations and prohibitions of the Act
to make such contribution, expenditure, or payment." 11 CFR 102.5(b)(1).
The proposed rules would provide guidance on the initial reporting
requirements for non-political committees that subsequently become
political committees but would not impose any new requirements on those
groups that never become political committees. Second, the proposed
rules would, under certain circumstances, allow political committees to
transfer to their Federal account some of the funds in their possession
when they became political committees.

The Commission seeks comment regarding the need for a mechanism for
political committees to convert funds received prior to becoming a
political committee into Federal funds. The proposed rules, as mentioned
above, would apply only to those organizations that, prior to becoming a
political committee, made contributions or expenditures that were
required by the Act and the Commission's regulations to be paid for with
funds that are subject to the amount limitations and source prohibitions
of the Act. Should the Commission also provide a mechanism in the final
rules for political committees that, prior to becoming a political
committee, did not make any disbursements that were required to be paid
for with funds that are subject to the limitations and prohibitions of
the Act, to convert some or all of its funds received prior to becoming
a political committee into Federal funds and then transfer those
converted funds into its Federal account?

**A. Proposed 11 CFR 102.50**

Proposed 11 CFR 102.50 would set forth the definitions of four terms
used in proposed subpart A. "Allocable expenditures" would be defined as
expenditures that are allocable under 11 CFR 106.1 or 106.6. Given that
proposed 11 CFR 100.115 would make partisan voter registration, partisan
voter identification and partisan get-out-the-vote activities
"expenditures" and that some of these activities would be encompassed by
"generic voter drive" and subject to allocation in current section
106.6, should the final rules include these types of voter drive
activities as "allocable expenditures?"

"Covered period" would be defined as the period of time beginning on
January 1 of the calendar year immediately preceding the calendar year
in which the organization first satisfies the definition of "political
committee" in 11 CFR 100.5(a) and ending on the date that the
organization first satisfies the definition of "political committee" in
11 CFR 100.5(a). This covered period is similar to the period in 2
U.S.C. 434(f)(2)(E) for disclosing information pertaining to individuals
who donate \$1,000 or more to persons who make electioneering
communications. Should the Commission adopt a shorter or a longer
covered period in the final rule?

For example, if an organization first satisfies the definition of
political committee in 11 CFR 100.5(a) on March 15, 2004, the covered
period for that organization would be January 1, 2003 until March 15,
2004. For an organization that first became a political committee on
December 31, 2005 would have a covered period of January 1, 2004 until
December 31, 2005. Consequently, the covered period for any organization
would be at least one year, but would be no longer than two years.

"Federal funds" would have the same meaning as in 11 CFR 300.2(g). Thus,
it would mean funds that comply with the limitations, prohibitions and
reporting requirements of the Act.

"Federally permissible funds" would be defined as funds that comply with
the amount limitations and source prohibitions of the Act and were
received during the covered period by the organization becoming a
political committee. Federally permissible funds are different from
Federal funds because, although both comply with the source prohibitions
and amount limitations of the Act, Federally permissible funds do not
comply with the solicitation and reporting requirements of the Act.
Moreover, Federally permissible funds would be limited to those funds
received during the organization's covered period. Only a political
committee's Federally permissible funds would be able to be converted to
Federal funds under the proposed rules.

Consequently, not all of the organizations pre-existing funds would be
subject to conversion to Federal funds under the proposed rules. Only
those pre-existing funds that comply with the amount limitations and
source prohibitions of the Act ([i.e.]{.underline}, Federally
permissible funds) would be subject to conversion to Federal funds.
Consequently, funds donated to the organization by a corporation, a
labor organization or foreign national could not be converted to Federal
funds because these are prohibited sources under the Act.
[See]{.underline} 2 U.S.C. 441b and 441e. Likewise, a political
committee would not be able to convert to Federal funds an entire
\$20,000 donation to the organization from an individual because this
amount would exceed the \$5,000 limit for individual contributions to
non-connected political committees. [See]{.underline} 2 U.S.C.
441a(a)(1)(C). Only the first \$5,000 of such a donation would be able
to be converted to Federal funds under the proposed rule. The remaining
\$15,000 would have to be treated as non-Federal funds.

**B. Proposed 11 CFR 102.51**

Proposed 11 CFR 102.51 provides that subpart A would apply to a
committee, club, association, or other group of persons that satisfies
the definition of "political committee" under 11 CFR 100.5(a) and that
made contributions, expenditures, independent expenditures or allocable
expenditures during the covered period. Consequently, the proposed rules
would apply to any organization that meets the following two criteria:
(1) it satisfies the Commission's definition of "political committee";
and (2) it has made expenditures, allocable expenditures or allocable
disbursements during the covered period.

**C. Proposed 11 CFR 102.52**

Proposed 11 CFR 102.52 would set forth the requirements for political
committees that would be subject to proposed subpart A. Proposed
paragraphs (a) and (b) would remind these political committees that they
are required to register with the Commission and to establish a campaign
depository. These requirements already exist under 11 CFR 102.1(d) and
103.2 and would not be altered under the proposed rules.

Proposed paragraph (c) would require each political committee that would
be subject to proposed subpart A to determine the amount of expenditures
and allocable expenditures and disbursements it made during its covered
period. Thus, under this provision, political committees would be
required to determine how much of its spending in the period of time
immediately before it became a political committee was required to have
been paid for with Federal funds. For example, if a disbursement was an
"expenditure" under the Act or the Commission's regulations, it would
count toward this amount. Likewise, if a disbursement was an allocable
expenditure, it would also go toward this amount.

Proposed paragraph (d) would require political committees subject to
proposed subpart A to determine the amount of Federally permissible
funds that the political committee received during its covered period.
Thus, only donations of \$5,000 or less from persons other than
corporations, labor organizations, foreign nationals and other
prohibited sources would be counted toward this amount, provided that
these donations were received by the organization during its covered
period.

Proposed paragraph (e) would require the political committees that would
be subject to proposed subpart A to file financial disclosure reports
with the Commission in accordance with part 104 of the Commission's
regulations and proposed 11 CFR 102.56. Part 104 of the Commission's
regulations are the general reporting requirements applicable to all
political committees, including those that also would be subject to
proposed subpart A. Proposed 11 CFR 102.56 are reporting requirements
that the Commission proposes to adopt as part of these proposed rules.
These additional reporting requirements are discussed in detail below.

**D. Proposed 11 CFR 102.53**

Proposed 11 CFR 102.53(a) would require a political committee subject to
proposed subpart A to treat the amount of expenditures and allocable
expenditures and disbursements made during its covered period as debt
owed by its Federal account to its non-Federal account. For example, if,
under proposed section 102.52(c), a political committee determined that,
during its covered period, it made \$100,000 in expenditures and
allocable expenditures and disbursements, its Federal account would owe
\$100,000 to its non-Federal account. Consequently, virtually every
political committee that would be subject to proposed subpart A would,
at the time it becomes a political committee, have debt owed by its
Federal account to its non-Federal account.

Under proposed paragraph (b), a political committee would not be
permitted to make any contributions, expenditures, independent
expenditures or allocable expenditures until the debt owed by the
Federal account to the non-Federal account is satisfied. Thus, a
political committee would be unable to make any disbursements that must
be paid for with Federal funds until the debt is satisfied pursuant to
proposed section 102.53(c).

Proposed paragraph (c) would provide two methods for a political
committee subject to proposed subpart A to satisfy the debt owed by its
Federal account to its non-Federal account. The first method would be
for the political committee to raise Federal funds and transfer those
funds to its non-Federal account. The other method would be for the
political committee to convert some or all of its Federally permissible
funds to Federal funds. The proposed rule would allow the political
committee to satisfy the debt owed by its Federal account by using
either method or both methods in combination.

As set forth above, the Commission is seeking comment regarding whether
political committees should be permitted to maintain non-Federal
accounts. How would the conversion to Federal funds operate if the
Commission were to adopt a final rule prohibiting Federal political
committees from maintaining non-Federal accounts?

**E. Proposed 11 CFR 102.54**

Proposed section 102.54 would set forth the procedure through which a
political committee that is subject to proposed subpart A may convert
some or all of its Federally permissible funds to Federal funds. The
proposed rule would provide a two-step process for a political committee
to convert its Federally permissible funds into Federal funds. First,
the political committee would be required to send written notification
to the donor(s) of any Federally permissible funds to be converted into
Federal funds. The written notification would need to:

> \(1\) inform the donor(s) that the political committee has registered
> as a Federal political committee;
>
> \(2\) make all disclaimers required by 11 CFR 110.11;
>
> \(3\) inform the donor(s) of the amount of the Federally permissible
> funds donated by the donor(s) that the political committee seeks to
> convert to Federal funds and request that the donor(s) grant written
> consent for the political committee to use that amount of Federally
> permissible funds for the purpose of influencing Federal elections;
>
> \(4\) advise the donor(s) that they may grant written consent for an
> amount of Federally permissible funds lower than the amount requested,
> and that they may refuse to grant consent entirely; and
>
> \(5\) inform the donor(s) that, by granting consent, the donor(s) will
> be deemed to have made a contribution to a Federal political
> committee, that the contribution is subject to the amount limitations
> and source prohibitions of the Act, and that the contribution will be
> deemed to have been made on the date that the written consent is
> signed by the donor(s).

Second, the political committee would be required to receive the written
consent from the donor(s) within 60 days after the political committee
first satisfies the definition of "political committee" in 11 CFR 100.5.

If the political committee satisfies the requirements of proposed 11 CFR
102.54, the funds for which it receives written consent pursuant to
proposed paragraph (b) would be considered to be converted to Federal
funds and may be used to satisfy the debt owed by the Federal account.
The Commission notes that, under the proposed rules, the political
committee would need to receive the written consent from the donor(s)
within sixty days after the political committee becomes a political
committee under 11 CFR 100.5. The funds for which the political
committee receives written consent from the donor(s) after that date
would not be able to be converted to Federal funds and used to satisfy
the debt owed by the Federal account.

The Commission seeks comment generally regarding the proposed procedure
for converting Federally permissible funds into Federal funds. The
written notice requirements under proposed section 102.54(a) are
designed to serve at least two purposes. First, they would ensure that
the donor(s) are fully informed that their donations will be or have
been used by the political committee for the purpose of influencing
Federal elections and that the donor(s) are given a reasonable
opportunity to object to such use. Second, the disclosures would ensure
that the donor(s) have adequate information to comply with the
contributions limitations of the Act. Are any of the requirements for
the written notice under proposed paragraph 102.54(a) unnecessary?
Should any other requirements be added? Is it appropriate to require
that the donor(s) grant their consent to the conversion of their donated
funds in writing? Should oral consent, perhaps subject to a requirement
that the oral consent be memorialized in writing, be sufficient?

Should the Commission adopt the sixty-day time limit in proposed
paragraph 102.54(b)? The sixty-day time limit is designed to ensure that
any conversion of Federally permissible funds to Federal funds occurs
shortly after the political committee achieves political committee
status under 11 CFR 100.5(a). Limiting the time period for conversion
also will allow for the Commission and the public to more easily assess
a political committee's compliance with these proposed rules. Is a time
limit necessary? Would a time period other than sixty days be
preferable? If so, how long should the conversion period last?

Would it be preferable to adopt an implied consent procedure, whereby
the political committee would send a written notification to the
donor(s), but would not have to wait for the donor(s) to affirmatively
consent to the conversion. Instead, the political committee may consider
the donor(s) to have consented to the transfer unless and until it
receives an affirmative objection to the conversion from the donor(s).
Such a procedure would be similar to the procedures the Commission
adopted for redesignation and reattribution of certain apparently
excessive contributions to authorized candidate committees under 11 CFR
110.1(k)(3)(ii)(B) and 11 CFR 110.1(b)(5)(ii)(B). Are there reasons that
the Commission should or should not adopt a similar regime to govern
conversion of Federally permissible funds to Federal funds in proposed
subpart A?

**F. Proposed 11 CFR 102.55**

Proposed 11 CFR 102.55 would provide a mechanism for political
committees to convert an amount of Federally permissible funds to
Federal funds that is greater than the amount of debt owed by its
Federal account. A political committee that successfully converts an
amount of Federally permissible funds to Federal funds that is greater
than the amount of debt owed by its Federal account would be required to
first use the converted funds to satisfy the debt owed by its Federal
account. The surplus converted Federal funds ([i.e.]{.underline}, the
amount of converted Federally permissible funds exceeding the amount of
debt owed by the political committee's Federal account) may then be
transferred to the political committee's Federal account. The amount of
converted Federal funds transferred to the Federal account under this
proposed section, however, may be no greater than the amount of
cash-on-hand that the political committee had in its possession at the
time it first became a political committee under 11 CFR 100.5(a).

For example, if a political committee has \$50,000 in debt owed by its
Federal account and is able to convert \$75,000 of its Federally
permissible funds into Federal funds pursuant to proposed section
102.54, it would be able to transfer the surplus \$25,000 to its Federal
account if it had at least \$25,000 cash-on-hand in its possession at
the time it became a political committee. If the political committee,
however, had only \$10,000 of cash-on-hand in its possession when it
became a political committee, it would be able to transfer only \$10,000
from its non-Federal account to its Federal account. If the political
committee had zero cash-on-hand in its possession when it became a
political committee, it would not be permitted to transfer any funds to
its Federal account.

The Commission seeks comment regarding whether it is appropriate for the
proposed rules to allow this surplus amount to be transferred to a
political committee's Federal account. Would it be preferable to limit
the conversion procedures only to the amount needed by the political
committee to satisfy the debt owed by its Federal account? If it is
advisable for the Commission to allow political committees to convert as
much of their Federally permissible funds into Federal funds as
possible, and to transfer any surplus to their Federal account, should
the rule limit the amount transferred to the amount of cash-on-hand in
the possession of the political committee when it became a political
committee?

**G. Proposed 11 CFR 102.56**

Proposed section 102.56 would set forth the initial reporting
requirements for political committees that would be subject to proposed
subpart A. Under proposed section 102.56, political committees that
would be subject to proposed subpart A would be required to report
certain information along with other required information in the
political committee's first report due under 11 CFR 104.5. Thus,
political committees that are subject to proposed subpart A are also
subject to the reporting requirements of 11 CFR part 104, which apply to
all political committees. Proposed section 102.56 would merely require a
political committee that would be subject to proposed subpart A to
report certain additional information related to its compliance with
proposed subpart A. The additional subpart A information would be due
whenever the political committee's first financial disclosure report is
due under 11 CFR part 104.

Under proposed paragraph (a) a political committee that would be subject
to proposed subpart A would be required to report the amount of
expenditures and allocable expenditures and disbursements made by the
political committee during its covered period. This figure would reflect
the amount of debt the political committee's Federal account owes to its
non-Federal account pursuant to proposed section 102.53(a).

Under proposed paragraph (b), a political committee that would be
subject to subpart A would be required to report the amount of any
Federally permissible funds converted to Federal funds under proposed 11
CFR 102.54. This figure would reflect the amount of converted Federal
funds that are available for the political committee to satisfy the debt
owed by its Federal account and, possibly, the amount of surplus
converted Federal funds that the political committee may transfer to its
Federal account pursuant to proposed 11 CFR 102.55(b).

Proposed paragraph (c) would require a political committee that is
subject to proposed subpart A to report the identifying information
required under 11 CFR 104.3(a)(4)(i). This is the contributor
information that all political committees must report to the Commission
when they receive contributions. This proposed provision is designed to
require political committees that would be subject to subpart A to
report this information for any donation of Federally permissible funds
that is converted to Federal funds.

Proposed paragraph (d) would require a political committee to report the
difference between the amount reported under proposed paragraph (a),
which is the amount of debt owed by the political committee's Federal
account under proposed 11 CFR 102.53(a), and the amount reported under
proposed paragraph (b), which is the amount of Federally permissible
funds converted to Federal funds under proposed 11 CFR 102.54.
Consequently, the amount reported pursuant to proposed paragraph (d)
would reflect whether the political committee has converted a sufficient
amount of Federally permissible funds to Federal funds to allow it to
satisfy the debt owed by its Federal account. If not, the deficiency
would be required to be reported as a debt owed by the Federal account.
It would also reflect whether the political committee has converted an
amount of Federally permissible funds to Federal funds in excess of the
amount of debt owed by the Federal account, thereby possibly permitting
the political committee to transfer some or all of the surplus funds to
its Federal account pursuant to proposed 11 CFR 102.55(b).

Proposed paragraph (e) would require a political committee that would be
subject to proposed subpart A to report the amount and date of any
transfers to its Federal account made pursuant to proposed 11 CFR
102.55(b). This would permit the Commission to assess whether the
political committee complied with the transfer requirements under
proposed paragraph 102.55(b).

The Commission seeks comment regarding these additional reporting
requirements that would apply to political committees that would be
subject to proposed subpart A. Are any of these reporting requirements
unnecessary or unduly burdensome? Are there additional reporting
requirements that the Commission should include in the proposed rules?

**V. PROPOSED 11 CFR 106.6 \-- ALLOCATION**

Alternative 1-B includes proposed changes to the allocation rules to
reflect other changes proposed in Alternative 1-B and for other
purposes. The Commission has not determined that any changes to its
allocation rules are appropriate, and is thus seeking comment to
determine what, if any, changes are advisable. Although BCRA invalidated
the Commission's allocation regime for national party committees and
substituted a different allocation regime for other political party
committees, it did not address the Commission's allocation regulations
for separate segregated funds and nonconnected committees. Although
[McConnell]{.underline} criticized aspects of the Commission's
allocation regulations regarding political party committees, allocation
by nonconnected committees and separate segregated funds was not before
the Supreme Court. [McConnell,]{.underline} 124 S.Ct. at 660 and 661.
Accordingly, the Commission seeks comments on whether either BCRA or
[McConnell]{.underline} requires, permits, or prohibits changes to the
allocation regulations for separate segregated funds and nonconnected
committees. Does either provide any guidance as to how the Commission
should exercise any discretion it may have in this regard? Given
[McConnell's]{.underline} criticism of the Commission's prior allocation
rules for political parties, is it appropriate for the regulations to
allow political committees to have non-Federal accounts and to allocate
their disbursements between their Federal and non-Federal accounts? If
an organization's major purpose is to influence Federal elections,
should the organization be required to pay for all of its disbursements
out of Federal funds and therefore be prohibited from allocating any of
its disbursements? Should any changes to the allocation regulations be
effective immediately, or should their effective date be January 1,
2005, which is the first day of the year following the completion of the
current election cycle? Does the Commission have a legal basis for
delaying the effective date of any final rules it adopts?

Under the proposed rules in Alternative 1-B, separate segregated funds
and nonconnected committees would be permitted to allocate expenses for
partisan voter drives and for communications that promote or oppose a
political party between Federal and non-Federal accounts according to
the "funds expended" method, which is consistent with the requirements
of current section 106.6(c) for administrative expenses and generic
voter drives. The proposal would add a minimum Federal percentage to the
"funds expended" method, and would also clarify the ratio in the "funds
expended" method by further describing the Federal component of that
ratio. Finally, the proposal would specify an allocation method for
communications that promote both candidates and political parties.

**A. Partisan voter drives**

The proposal would replace the references to "generic voter drives" in
current 11 CFR 106.6(b)(1)(iii) and (2)(iii) with references to
"partisan voter drives" as defined in proposed 11 CFR 100.34. Political
committees are currently required to allocate the costs for "generic
voter drives," which include voter drives that urge the general public
to support candidates of a particular party or associated with a
particular issue, without mentioning a specific candidate. Under
Alternative 1-B, most "generic voter drives" would be considered an
allocable expenditure as a "partisan voter drive" under proposed
11 CFR 100.34 and 106.6(b)(1)(iii), (2)(iii), and (c). Voter drives that
urge the general public to register, vote or support candidates
associated with a particular issue would continue to be allocable under
proposed 11 CFR 106.6(b)(1)(iii), (b)(2)(iii), and (c).

Partisan voter drives that include any communication that promotes,
supports, attacks, opposes, or expressly advocates a clearly identified
Federal candidate are expenditures subject to allocation under current
11 CFR 106.1, or, if the communication also promotes or opposes a
political party, the partisan voter drive would be allocated under
proposed 11 CFR 106.6(f), which is described below. In all other
instances, expenditures for partisan voter drives would be allocable
under the "funds expended" method of proposed 11 CFR 106.6(c). Because
"partisan voter drives" would be defined as "expenditures" under
proposed 11 CFR 100.34 and 100.115, the communications involved would
not be limited to those that meet the definition of "public
communication" in current 11 CFR 100.26 through 100.28.

Current 11 CFR 106.1(a)(1) provides that the allocation methods in that
section shall be used to allocate payments involving both expenditures
on behalf of one or more clearly identified Federal candidates and
disbursements on behalf of one or more clearly identified non-Federal
candidates. Proposed section 106.6(f), which is described below, would
provide an allocation method similar in some respects to the "expected
benefit" method under current section 106.1. Proposed section 106.6(g)
would specify that public communications that promote, support, attack
or oppose a clearly identified Federal candidate, without also promoting
or opposing a political party, would be allocable under section 106.1 as
expenditures or disbursements on behalf of the clearly identified
Federal or non-Federal candidates. Under this approach, the Commission
is not proposing any changes to 11 CFR 106.1(a)(1) and instead would
rely on the limitations in proposed section 106.6(b), (c), (f) and (g)
to ensure that all partisan voter drives except those that promote,
support, attack, oppose, or expressly advocate a clearly identified
Federal candidate would be subject to allocation under section 106.6(c).
Comments are sought on this approach.

**B. Public communications that promote or support a political party**

The proposal would also require nonconnected committees and separate
segregated funds to allocate costs of public communications that promote
or oppose a political party, which would be expenditures under proposed
11 CFR 100.116(b), under the "funds expended" method in proposed
11 CFR 106.6(c). If such a communication also promotes, supports,
attacks, or opposes a clearly identified Federal candidate, it would be
allocable under proposed 11 CFR 106.6(f), described below. Nonpartisan
voter drives that include a public communication would be subject to the
same allocation regime. A public communication that promotes or opposes
a political party, but that does not also promote, support, attack or
oppose a clearly identified Federal candidate, would be allocable under
proposed 11 CFR 106.6(c), without regard to references to Federal
candidates or even express advocacy of candidates for State office.
Thus, a communication that, for example, promotes the Republican Party
and the Governor of New York's reelection would be allocable under
proposed 11 CFR 106.6(c).

The charts below illustrate the allocation methods that would be
required under Alternative 1-B.

ALLOCATION FOR NONCONNECTED COMMITTEES AND SEPARATE SEGREGATED FUNDS OF
PARTISAN VOTER DRIVES THAT INCLUDE A COMMUNICATION

In the communication,

  ---------------- ---------------- ------------- -------------------------
  How is the       Does it promote  Does it       ALLOCATION: citation and
  Federal          or oppose a      clearly       method
  Candidate        political party? identify a    
  Depicted?                         Non-Federal   
                                    Candidate?    

  ---------------- ---------------- ------------- -------------------------

  ---------------- ---------------- ------------ -------------------------
  None             NO               NO           106.6(c) fund expended

                                    YES          106.6(c) fund expended

                   YES              NO           106.6(c) fund expended

                                    YES          106.6(c) fund expended
  ---------------- ---------------- ------------ -------------------------

  ---------------- ---------------- ------------ -------------------------
  Clearly ID'd     NO               NO           106.6(c) fund expended

  Candidate                         YES          106.6(c) fund expended

                   YES              NO           106.6(c) fund expended

                                    YES          106.6(c) fund expended
  ---------------- ---------------- ------------ -------------------------

  ---------------- ---------------- ------------ -------------------------
  PASO'd or        NO               NO           106.1 = time/space (100%
                                                 Fed)

  Express Advocacy                  YES          106.1 = time/space

                   YES              NO           106.6(f) time/space &
                                                 fund exp

                                    YES          106.6(f) time/space &
                                                 fund exp
  ---------------- ---------------- ------------ -------------------------

ALLOCATION FOR NONCONNECTED COMMITTEES AND SEPARATE SEGREGATED FUNDS OF
PUBLIC COMMUNICATIONS AND NON-PARTISAN VOTER DRIVES THAT INCLUDE A
PUBLIC COMMUNICATION

In the communication,

  ---------------- ---------------- ------------- -------------------------
  How is the       Does it promote  Does it       ALLOCATION: citation and
  Federal          or oppose a      clearly       method
  Candidate        political party? identify a    
  Depicted?                         Non-Federal   
                                    Candidate?    

  ---------------- ---------------- ------------- -------------------------

  ---------------- ---------------- ------------- -------------------------
  None             NO               NO            N/A

                                    YES           106.1 = time/space (100%
                                                  NF)

                   YES---See                      
                   partisan voter                 
                   drive allocation               
                   chart.                         

                                                  
  ---------------- ---------------- ------------- -------------------------

  ---------------- ---------------- ------------- -------------------------
  Clearly ID'd     NO               NO            N/A

  candidate                         YES           106.1 = time/space

                   YES---See                      
                   partisan voter                 
                   drive allocation               
                   chart.                         

                                                  
  ---------------- ---------------- ------------- -------------------------

  ---------------- ------------------------------------------------------
  PASO'd or        See partisan voter drive allocation chart.

  Express Advocacy 
  ---------------- ------------------------------------------------------

**C. Minimum Federal percentage**

The proposal would add a minimum Federal percentage to the "funds
expended" allocation method. This minimum would be the same percentage
that is applicable to State, district, and local political party
committees' allocation of voter drives under current 11 CFR 106.7(d)(3).
It varies with the Federal offices that appear on a particular State's
ballot, ranging from 15%, in election years in which a State votes for
candidates for the United States House of Representatives only, to 36%,
in election years in which a State votes for president and a senator as
well. [See]{.underline} current 11 CFR 106.7(d)(3)(i) through (iv).
Related changes to reporting requirements are also proposed for
11 CFR 104.10.

For nonconnected committees and separate segregated funds that conduct
partisan voter drives, or engage in other activities subject to the
"funds expended" allocation method, in more than one State, two
alternative proposed rules are presented. Alternative 3-A would require
such committees to use the greatest percentage applicable to any of the
States in which the committee conducted such activities for all its
disbursements allocable under proposed 11 CFR 106.6(c). Alternative 3-B
would permit such committees to allocate such costs on a State-by-State
basis according to the percentage applicable in each State. Under
Alternative 3-B, a committee could choose to simplify its allocation by
using the highest applicable percentage to avoid the complications of a
State-by-State allocation.

The Commission is considering other minimum Federal percentages as
alternatives to those presented in the proposed rules. Should the rules
in 11 CFR 106.6 apply different minimum Federal percentages than those
for State, district and local political party committees? Should the
Commission adopt a fixed minimum Federal percentage? Should it select a
higher minimum for committees that conduct activities in several states?
For example, the allocation rule could specify that nonconnected
committees and separate segregated funds that conduct activities in
fewer than ten States must use a minimum Federal percentage of 25%,
while those that do so in ten or more States would face a minimum
Federal percentage of 50%. The 25% figure was chosen as the average of
the four percentages in current 11 CFR 106.7(d)(3), and the 50% figure
was chosen to reflect the broader scope of activities and as a slight
reduction to the 60% or 65% applicable to national party committees
under previous 11 CFR 106.5(b)(2), prior to its sunset on December 31,
2002. [See]{.underline} 11 CFR 106.5(h)(2003). If the final rule should
take such an approach, what should the minimum Federal percentages be?

**D. Clarifying the ratio in the "funds expended" method**

The "funds expended" allocation method provides that expenses are
allocated between the Federal and non-Federal accounts of a nonconnected
committee or a separate segregated fund based on the ratio of Federal
expenditures to total Federal and non-Federal disbursements made by the
committee during the two-year Federal election cycle. Current section
106.6(c)(1) specifies that: "In calculating its federal expenditures,
the committee shall include only amounts contributed to or otherwise
spent on behalf of specific federal candidates." The proposal would
clarify that "amounts . . . spent on behalf of specific Federal
candidates" includes independent expenditures and amounts spent on
public communications that promote, support, attack, support, or oppose
a clearly identified Federal candidate. [See]{.underline} proposed
11 CFR 106.6(c)(1)(i). This proposal reflects the Commission's
application of current regulations in a recent Advisory Opinion.
[See]{.underline} AO 2003-37, at 4 n.5. The Commission seeks comment on
whether the conclusion in this Advisory Opinion should be expressly
stated in proposed 11 CFR 106.6(c)(1)(i).

> **E. Public communications that promote a political party and a
> Federal candidate**

Proposed section 106.6(f) would specify an allocation method for public
communications that promote or oppose a political party and promote,
support, attack or oppose a clearly identified Federal candidate. This
method would apply to this communication whether or not the
communications also clearly identify a non-Federal candidate.

Proposed section 106.6(f) would provide an allocation method that
combines the "time and space" method and the "funds expended" method for
communications that support Federal candidates and a political party.
The communication would first be subject to a "time and space" analysis
to split the communication among the candidates and the political party.
The portions attributed to candidates would be allocated to either the
Federal or non-Federal accounts based on the candidates' status. The
portion attributed to the political party would allocated under the
"funds expended" method in proposed 11 CFR 106.6(c).

This approach would be consistent with the Commission's analysis and
conclusions based on the application of current regulations in a recent
Advisory Opinion. [See]{.underline} AO 2003-37, at 12. Should the
Commission expressly incorporate this result in its allocation
regulations?

> **F. Public communications that promote a Federal candidate, without
> promoting or opposing a political party**

Proposed section 106.6(g) would specify that public communications that
promote, support, attack or oppose a clearly identified Federal
candidate without promoting or opposing a political party by a
nonconnected committee or separate segregated fund would be allocable
under current section 106.1. Nonpartisan voter drives that include a
public communication with similar content would be subject to the same
allocation requirements. The only other expenditures or disbursements by
a nonconnected committee or separate segregated fund for a public
communication or voter drive that would be allocable under current
section 106.1 would involve communications that clearly identify
non-Federal candidates, but do not promote, support, attack, oppose, or
expressly advocate a Federal candidate.

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

**\[Regulatory Flexibility Act\]**

When an agency issues certain rulemaking proposals, the Regulatory
Flexibility Act ("RFA") requires the agency to "prepare and make
available for public comment an initial regulatory flexibility analysis"
which will describe the impact of the proposed rule on small entities. 5
U.S.C. 603(a). Section 605 of the RFA allows an agency to certify a
rule, in lieu of preparing an initial regulatory flexibility analysis,
if the proposed rulemaking is not expected to have a significant
economic impact on a substantial number of small entities.

[Political Committees]{.underline}

One part of the proposed rule would amend the Commission's definition of
"political committee." Under the Federal Election Campaign Act of 1971,
as amended, and the Commission's regulations, political committees have
certain reporting obligations that do not apply to non-political
committees. Moreover, there are restrictions and limitations on the
receipt of funds by political committees that do not apply to
non-political committees. This part of the proposed rule would directly
affect only those organizations that are not currently political
committees, but would fall within the amended definition of "political
committee" in the proposed rule, if the Commission decides to amend the
definition.

It is difficult for the Commission to estimate the number of
organizations that may be affected by the proposed change in the
definition of political committee. The Commission believes, however,
that most of the organizations that would be affected by the proposed
rule are "political organizations" organized under section 527 of the
Internal Revenue Code. Under the North American Industry Classification
System ("NAICS"), political organizations are considered to be "small
entities" if they have less than \$6 million in average annual receipts.
The Commission estimates that all but a few of the 527 organizations
that may be affected by the proposed rules, if adopted, have less than
\$6 million in average annual receipts and, therefore, qualify as small
entities under the NAICS.

The Commission notes that a number of these political organizations are
already registered with the Commission as political committees and
therefore, would not be affected by the proposed change to the
definition of political committee. The proposed rule also includes
various exceptions. For example, the proposed rule would only affect
those political organizations that: (1) meet the "major purpose" test
set forth in proposed section 100.5(a)(2) of the proposed rule; and (2)
exceed the \$1,000 expenditure and disbursement thresholds set forth in
proposed section 100.5(a)(1) of the proposed rule. Moreover, the
proposed rule would exempt from political committee status those
political organizations that are involved primarily in state, as opposed
to Federal, political activity. Consequently, while it is difficult for
the Commission to estimate precisely the number of organizations that
would be affected by the proposed rule, the Commission believes that, as
a result of the exceptions described above, the proposed rule would not
have an economic effect on a substantial number of the small entities.

Furthermore, the Commission does not believe that the proposed rule, if
adopted, will have a significant economic impact on those small entities
that would be affected. As stated above, the effect of the proposed rule
would be to impose certain reporting requirements and restrictions on
funding certain activities upon those political organizations that would
become political committees under the amended definition of "political
committee."

The reporting requirements, however, are not complicated and would not
be costly to complete. For the most part, the reports would be filed
electronically, using free software provided by the Commission. The
Commission also provides free technical support and free access to the
Commission's Information Specialists to assist political committees in
submitting the reports. It is highly unlikely that a political committee
would need to hire additional staff or retain professional services to
comply with the reporting requirements.

The Commission also notes that the Act and the Commission's regulations
do not place any limit on the amount of funds that a political committee
would be permitted to spend. The proposed rule would merely limit the
types of funds that may be used to pay for certain activities, which are
essentially those activities that fall within the definition of
"expenditure." Political committees are, and will remain, free to spend
unlimited funds on those activities that do not fall within the
definition of expenditure. Moreover, the Commission is considering
alternatives that would have even less of an impact than those described
above, including the possibility of not making any changes to the
definition of "political committee."

[Expenditures and Allocation]{.underline}

The proposed rule would also amend the Commission's definition of
"expenditure" to include payments for activities that are not expressly
included in the Commission's existing definition of expenditure. Whether
a disbursement qualifies as an "expenditure" determines whether the
disbursement must be paid for with Federal funds or may be paid for with
non-Federal funds. It also impacts whether an organization satisfies the
\$1,000 expenditure threshold for political committee status. The
proposed rule would also revise the Commission's rules regarding the
allocation of certain disbursements between a political committee's
Federal account and non-Federal account. Consequently, these parts of
the proposed rule could impact any organization or individual that
engages in activities in connection with a Federal election.

As explained above with respect to the proposed amendment of the
definition of "political committee," the proposed changes are unlikely
to have a significant economic impact on small entities. Neither the
proposed change in the definition of 'expenditure" nor the proposed
change in the allocation rules would limit the amount of money that may
be raised or spent on electoral activity. The proposed rules would
merely require that only funds raised in accordance with the Act may be
spent in connection with Federal elections. Moreover, the Commission is
considering alternatives that would have even less of an impact than
those described above, including the possibility of not making any
changes to the definition of "expenditure" and the allocation rules.

[Certification]{.underline}

For the foregoing reasons, the Commission hereby certifies that this
proposed rule would not have a significant economic impact on a
substantial number of small entities. The Commission invites comment
from members of the public who believe that the proposed rule will have
a significant economic impact on a substantial number of small entities.

**List of Subjects**

[11 CFR Part 100]{.underline}

Elections.

[11 CFR Part 102]{.underline}

Political committees and parties, Reporting and recordkeeping
requirements.

[11 CFR Part 104]{.underline}

Campaign funds, Political committees and parties, Reporting and
recordkeeping requirements.

[11 CFR Part 106]{.underline}

Campaign funds, Reporting and recordkeeping requirements.

[11 CFR Part 114]{.underline}

Business and industry, Elections, Labor.

For the reasons set out in the preamble, it is proposed to amend
Subchapter A of Chapter I of Title 11 of the [Code of Federal
Regulations]{.underline} as follows:

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

1\. The authority citation for part 100 would continue to read as
follows:

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

2\. Section 100.5 would be amended by revising the introductory
paragraph and paragraph (a) to read as follows:

**§ 100.5 Political committee (2 U.S.C. 431 (4), (5), (6)).**

[Political Committee]{.underline} means any group meeting the conditions
set forth in paragraph (a), (b), (c), (d) or (e) of this section.

\(a\) (1) Except as provided in paragraphs (b), (c), (d), (e)(1), and
(e)(3) of this section, [political committee]{.underline} means any
committee, club, association, or other group of persons:

> \(i\) That receives contributions aggregating in excess of \$1,000 or
> that makes expenditures aggregating in excess of \$1,000 during a
> calendar year; and
>
> \(ii\) For which the nomination or election of one or more Federal
> candidates is a major purpose.

[ALTERNATIVE 1-A:]{.underline}

> \(iii\) For purposes of paragraph (a)(1)(i) of this section only, the
> term [expenditure]{.underline} shall include payments for Federal
> election activities described in 11 CFR 100.24(b)(1) through (b)(3)
> and payments for all or any part of an electioneering communication as
> defined in 11 CFR 100.29.

End of Alternative 1-A. For Alternative 1-B, see 11 CFR 100.34 to 114.4.

> \(2\) For purposes of paragraph (a)(1) of this section, a committee,
> club, association or group of persons has the nomination or election
> of a candidate or candidates as a major purpose if it satisfies the
> conditions set forth in paragraph (a)(2)(i), (a)(2)(ii), (a)(2)(iii),
> or (a)(2)(iv) of this section.

i.  The organizational documents, solicitations, advertising, other
    similar written materials, public pronouncements, or any other
    communication of the committee, club, association or group of
    persons demonstrate that its major purpose is to nominate, elect,
    defeat, promote, support, attack or oppose a clearly identified
    candidate or candidates for Federal office or the Federal candidates
    of a clearly identified political party; and during the current
    calendar year or during any of the previous four calendar years, the
    committee, club, association or group of persons makes more than
    \$10,000 total disbursements composed of any combination of the
    following:

> \(A\) Contributions;
>
> \(B\) Expenditures (including independent expenditures);
>
> \(C\) Payments for Federal election activities described in
> 11 CFR 100.24(b)(1) through (b)(3); and
>
> \(D\) Payments for all or any part of an electioneering communication
> as defined in 11 CFR 100.29.

ii. More than 50 percent of the committee's, club's association's or
    group's total annual disbursements during any of the previous four
    calendar years are composed of any combination of the following:

    A.  Contributions;

    B.  Expenditures (including independent expenditures);

    C.  Payments for Federal election activities described in
        11 CFR 100.24(b)(1) through (b)(3); and

    D.  Payments for all or any part of an electioneering communication
        as defined in 11 CFR 100.29.

> \(iii\) During the current calendar year or during any of the previous
> four calendar years, the committee, club, association or group of
> persons makes more than \$50,000 in total disbursements composed of
> any combination of the following:

(A) Contributions;

(B) Expenditures (including independent expenditures);

(C) Payments for Federal election activities described in
    11 CFR 100.24(b)(1) through (b)(3); and

(D) Payments for all or any part of an electioneering communication as
    defined in 11 CFR 100.29.

[ALTERNATIVE 2-A:]{.underline}

\(iv\) The committee, club, association or group of persons is organized
under Section 527 of the Internal Revenue Code, 26 U.S.C. 527, except
that this paragraph (a)(2)(iv) shall not apply to:

(A) The campaign organization of an individual seeking nomination,
    election, appointment or selection to a non-Federal office;

(B) A committee, club, association or group of persons that is organized
    solely for the purpose of promoting the nomination or election of a
    candidate or candidates to a non-Federal office;

(C) A committee, club, association or group of persons whose election or
    nomination activities relate solely to elections where no candidate
    for Federal office appears on the ballot;

(D) A committee, club, association, or group of persons that operates
    solely within one State and, pursuant to State law, must file
    financial disclosure reports with one or more branches, departments
    or agencies of that State's government, showing all its activities
    in that State; or

(E) A committee, club, association, or group of persons that is
    organized solely for the purpose of influencing the nomination or
    appointment of individuals to a non-elected office, or the
    nomination, election, or selection of individuals to leadership
    positions within a political party.

[ALTERNATIVE 2-B:]{.underline}

\(iv\) The committee, club, association or group of persons is organized
under Section 527 of the Internal Revenue Code, 26 U.S.C. 527.

\* \* \* \* \*

[ALTERNATIVE 1-B:]{.underline}

3\. Section 100.34 would be added to read as follows:

**§ 100.34 Partisan voter drives.**

[Partisan voter drive]{.underline} means any or all of the following:

\(a\) Voter registration activity as described in 11 CFR 100.24(a)(2)
and (b)(1), except for voter registration activity described in
11 CFR 100.133;

\(b\) Voter identification as described in 11 CFR 100.24(a)(1), (a)(4),
and (b)(2)(i), except for voter identification when no effort has been
or will be made to determine or record the party or candidate preference
of individuals on the voter list; and

\(c\) Get-out-the-vote activity as described in 11 CFR 100.24(a)(1),
(a)(3), and (b)(2)(iii), except for get-out-the-vote activity described
in 11 CFR 100.133.

4\. Section 100.57 would be added to subpart B to read as follows:

**§ 100.57 Solicitations with express advocacy.**

A gift, subscription, loan, advance, or deposit of money or anything of
value made by any person in response to any communication that includes
material expressly advocating, as defined in 11 CFR 100.22, a clearly
identified Federal candidate is a contribution to the person making the
communication.

5\. Section 100.115 would be added to subpart D to read as follows:

**§ 100.115 Partisan voter drives.**

A payment, distribution, loan, advance, or deposit of money or anything
of value made by, or on behalf of any person for partisan voter drives,
as described in 11 CFR 100.34, is an expenditure, except Levin funds, as
defined in 11 CFR 300.2(i), that are disbursed for partisan voter drives
are not expenditures.

6\. Section 100.116 would be added to subpart D to read as follows:

**§ 100.116 Certain public communications.**

A payment, distribution, loan, advance, or deposit of money or anything
of value made by, or on behalf of any person for a public communication,
as defined in 11 CFR 100.26, is an expenditure if the public
communication:

\(a\) Refers to a clearly identified candidate for Federal office, and
promotes or supports, or attacks or opposes any candidate for Federal
office; or

\(b\) Promotes or opposes any political party.

7\. Section 100.133 would be revised to read as follows:

**§ 100.133 Nonpartisan voter registration and get-out-the-vote
activities.**

Any cost incurred for activity designed to encourage individuals to
register to vote or to vote is not an expenditure if:

\(a\) It does not include a communication that promotes, supports,
attacks, or opposes a Federal or non-Federal candidate or that promotes
or opposes a political party;

\(b\) No effort is or has been made to determine the party or candidate
preference of individuals before encouraging them to register to vote or
to vote; and

\(c\) Information concerning likely party or candidate preference has
not been used to determine which individuals to encourage to register to
vote or to vote.

\(d\) Corporations and labor organizations that engage in such activity
shall comply with the additional requirements set forth in
11 CFR 114.4(c) and (d). [See also]{.underline} 11 CFR 114.3(c)(4).

8\. Section 100.149 would be amended by revising the introductory
paragraph to read as follows:

**§ 100.149 Voter registration and get-out-the-vote activities for
Presidential candidates ("coattails" exception).**

Notwithstanding 11 CFR 100.115, the payment by a State or local
committee of a political party of the costs of voter registration and
get-out-the-vote activities conducted by such committee on behalf of the
Presidential and Vice Presidential nominee(s) of that party is not an
expenditure for the purpose of influencing the election of such
candidate(s) provided that the following conditions are met:

\* \* \* \* \*

9\. Section 100.155 would be added to read as follows:

**§ 100.155 Allocated amounts.**

Notwithstanding 11 CFR 100.115 or 100.116, any non-Federal funds
disbursed by a separate segregated fund pursuant to
11 CFR 106.6(b)(1)(iii) through (vi) or by a nonconnected committee
pursuant to 11 CFR 106.6(b)(2)(iii) through (vi) are not expenditures.

**PART 102 -- REGISTRATION, ORGANIZATION, AND RECORDKEEPING BY POLITICAL
COMMITTEES (2 U.S.C. 433)**

10\. The authority citation for part 102 would continue to read as
follows:

**Authority:** 2 U.S.C. 432, 433, 434(a)(11), 438(a)(8), 441d.

11\. Sections 102.18 through 102.49 would be added and reserved.

12\. Subpart A would be added to read as follows:

**Subpart A -- Conversion Rules**

Sec.

102.50 What are the definitions for this subpart A?

51. To which organizations does this subpart A apply?

52. What must a committee, club, association, or other group of persons
    do upon becoming a political committee under 11 CFR 100.5(a)?

53. How must a new political committee treat the amount of
    contributions, expenditures, independent expenditures and allocable
    expenditures that it made during the covered period (before it
    became a political committee)?

54. How can a political committee convert its Federally permissible
    funds to Federal funds?

55. What if the political committee is able to convert an amount of
    Federally permissible funds to Federal funds that is greater than
    the amount of contributions, expenditures, independent expenditures
    and allocable expenditures that it made during the covered period?

56. What are the initial reporting requirements?

**Subpart A -- Conversion Rules**

**§ 102.50 What are the definitions for this subpart A?**

For purposes of this subpart A, the following terms are defined as
follows:

[Allocable expenditures]{.underline} mean expenditures that are
allocable under 11 CFR 106.1 or 106.6.

[Covered period]{.underline} means the period of time beginning on
January 1 of the calendar year immediately preceding the calendar year
in which a committee, club, association, or other group of persons first
satisfies the definition of "political committee" in 11 CFR 100.5(a) and
ending on the date that the committee, club, association, or other group
of persons first satisfies the definition of "political committee" in 11
CFR 100.5(a).

[Federal funds]{.underline} has the same meaning as in 11 CFR 300.2(g).

[Federally permissible funds]{.underline} mean funds that comply with
the amount limitations and source prohibitions of the Act and were
received during the covered period by the committee, club, association,
or other group of persons that becomes a political committee.

**§ 102.51 To which organizations does this subpart A apply?**

This subpart A applies to a committee, club, association, or other group
of persons that satisfies the definition of "political committee" under
11 CFR 100.5(a) and that made contributions, expenditures, independent
expenditures, or allocable expenditures during the covered period.

**§ 102.52 What must a committee, club, association, or other group of
persons do upon becoming a political committee under 11 CFR 100.5?**

The committee, club, association, or other group of persons, upon
becoming a political committee shall:

\(a\) File a Statement of Organization pursuant to 11 CFR 102.1(d);

\(b\) Establish a campaign depository pursuant to 11 CFR 103.2;

\(c\) Determine the amount of contributions, expenditures, independent
expenditures and allocable expenditures that it made during the covered
period;

\(d\) Determine the amount of Federally permissible funds that it
received; and

\(e\) File financial disclosure reports with the Commission in
accordance with 11 CFR part 104 and 11 CFR 102.56.

**§ 102.53 How must a new political committee treat the amount of
contributions, expenditures, independent expenditures and allocable
expenditures that it made during the covered period (before it became a
political committee)?**

\(a\) A political committee must treat the amount of contributions,
expenditures, independent expenditures, and allocable expenditures that
it made during the covered period as a debt owed by its Federal account
to its non-Federal account.

\(b\) The political committee may not make any additional contributions,
expenditures, independent expenditures or allocable expenditures until
this debt is satisfied.

\(c\) The political committee may satisfy this debt by:

> \(1\) Converting some or all of its Federally permissible funds to
> Federal funds pursuant to this subpart A;
>
> \(2\) Raising new Federal funds and transferring the Federal funds to
> the non Federal account; or
>
> \(3\) A combination of paragraphs (c)(1) and (c)(2) of this section.

**§ 102.54 How can a political committee convert its Federally
permissible funds to Federal funds?**

A political committee may convert its Federally permissible funds to
Federal funds only in accordance with this section. To convert Federally
permissible funds to Federal funds, the political committee shall:

\(a\) Send a written notification to the donor(s) of the Federally
permissible funds that the political committee seeks to convert to
Federal funds. The written notification must:

> \(1\) Inform the donor(s) that the political committee has registered
> with the Commission as a Federal political committee;
>
> \(2\) Make all disclaimers required by 11 CFR 110.11;
>
> \(3\) Inform the donor(s) of the amount of their donation that the
> political committee seeks to convert to Federal funds and request that
> the donor(s) grant written consent for the political committee to use
> that amount of their donation for the purpose of influencing Federal
> elections;
>
> \(4\) Advise the donor(s) that they may grant written consent for an
> amount less than the amount the political committee seeks to convert
> to Federal funds and that they may refuse to grant consent to convert
> any of the funds; and
>
> \(5\) Advise the donor(s) that, by granting written consent, the
> donor(s) will be considered to have made a contribution to the
> political committee, that the contribution will be subject to the
> amount limitations in 2 U.S.C. 441a(a), and that the contribution will
> be considered made on the date that the written consent is signed by
> the donor(s); and

\(b\) Receive the written consent described in paragraph (a) of this
section within 60 days after first satisfying the definition of
"political committee" in 11 CFR 100.5(a).

**§ 102.55 What if the political committee is able to convert an amount
of Federally permissible funds to Federal funds that is greater than the
amount of contributions, expenditures, independent expenditures and
allocable expenditures that it made during the covered period?**

If the political committee is able to convert an amount of Federally
permissible funds to Federal funds that is greater than the amount of
contributions, expenditures, independent expenditures, and allocable
expenditures that it made during the covered period, the political
committee:

\(a\) Must use the converted Federal funds to satisfy the debt described
in 11 CFR 102.53; and

\(b\) May, but is not required to, transfer to its Federal account the
remaining converted Federal funds. The amount of converted Federal funds
transferred to the political committee's Federal account under this
section, however, may not exceed the total amount of funds the political
committee had cash-on-hand on the date that it first satisfied the
definition of political committee under 11 CFR 100.5(a).

**§ 102.56 What are the initial reporting requirements?**

In addition to filing its Statement of Organization under 11 CFR 102.2,
the political committee shall include the following information along
with other required information in the first report due under 11 CFR
104.5:

\(a\) All contributions, expenditures, independent expenditures and
allocable expenditures it made during the covered period;

\(b\) The amount of any Federally permissible funds that have been
converted to Federal funds pursuant to 11 CFR 102.54;

\(c\) The information required in 11 CFR 104.3(a)(4)(i) for each donor
who provided written consent under 11 CFR 102.54;

\(d\) The amount described in paragraph (a) of this section minus the
amount described in paragraph (b) of this section as a debt owed by the
Federal account to the non-Federal account; and

\(e\) The amount and date of any transfers made under 11 CFR 102.55.

**PART 104 -- REPORTS BY POLITICAL COMMITTEES (2 U.S.C. 434)**

13\. The authority citation for part 104 would continue to read as
follows:

**Authority:** 2 U.S.C. 431(1), 431(8), 431(9), 432(i), 434, 438(a)(8)
and (b), 439a, and 441a.

14\. Section 104.10 would be amended by revising the introductory text
in paragraph (b), the heading in (b)(1), and paragraph (b)(1)(i) and the
introductory text in paragraph (b)(1)(ii) to read as follows:

**§ 104.10 Reporting by separate segregated funds and nonconnected
committees of expenses allocated among candidates and activities.**

\* \* \* \* \*

\(b\) [Expenses allocated among activities.]{.underline} A political
committee that is a separate segregated fund or a nonconnected committee
and that has established separate Federal and non-Federal accounts under
11 CFR 102.5(a)(1)(i) shall allocate between those accounts its
administrative expenses and its costs for fundraising and partisan voter
drives according to 11 CFR 106.6, and shall report those allocations
according to paragraphs (b)(1) through (5) of this section, as follows:

> \(1\) [Reporting of allocation of administrative expenses and costs of
> partisan voter drives.]{.underline}
>
> \(i\) In the first report in a calendar year disclosing a disbursement
> for administrative expenses or partisan voter drives, as described in
> 11 CFR 106.6(b), the committee shall state the allocation ratio to be
> applied to these categories of activity according to 11 CFR 106.6(c),
> (f), or (g), as applicable, and the manner in which it was derived.
> The committee shall also state whether the calculated ratio or the
> minimum Federal percentage required by 11 CFR 106.6(c)(1)(ii) will be
> used.
>
> \(ii\) In each subsequent report in the calendar year itemizing an
> allocated disbursement for administrative expenses or partisan voter
> drives:

\* \* \* \* \*

**PART 106 -- ALLOCATIONS OF CANDIDATE AND COMMITTEE ACTIVITIES**

15\. The authority citation for part 106 would continue to read as
follows:

**Authority:** 2 U.S.C. 438(a)(8), 441a(b), 441a(g).

16\. Section 106.6 would be amended by:

> a\. Removing the words "(c) and (d)" from paragraph (a) and adding in
> their place the words "(c), (d), (f) and (g)"; and
>
> b\. Revising the introductory text in paragraph (c) and paragraphs
> (b)(1)(iii), (b)(2)(iii), (c)(1), and (e)(2)(ii)(B) and adding
> paragraphs (b)(1)(iv), (b)(1)(v), (b)(1)(vi), (b)(2)(iv), (b)(2)(v),
> (b)(2)(vi), (f) and (g) to read as follows:

**§ 106.6 Allocation of expenses between federal and non-federal
activities by separate segregated funds and nonconnected committees.**

\* \* \* \* \*

\(b\) \* \* \*

> \(1\) \* \* \*
>
> \(iii\) Partisan voter drives as described in 11 CFR 100.34 or any
> other activities that urge the general public to register, vote or
> support candidates of a particular party or associated with a
> particular issue, without including a public communication that is
> described in paragraph (b)(1)(iv), (v), or (vi) of this section;
>
> \(iv\) Public communications that promote or oppose a political party,
> as described in 11 CFR 100.116(b), but do not promote, support,
> attack, or oppose a clearly identified Federal candidate, as described
> in 11 CFR 100.116(a);
>
> \(v\) Public communications that promote, support, attack, or oppose a
> clearly identified Federal candidate, as described in
> 11 CFR 100.116(a), and that promote or oppose a political party, as
> described in 11 CFR 100.116(b); and
>
> \(vi\) Public communications that promote, support, attack, or oppose
> a clearly identified Federal candidate, as described in
> 11 CFR 100.116(a), but that do not promote or oppose a political
> party, as described in 11 CFR 100.116(b).
>
> \(2\) \* \* \*
>
> \(iii\) Partisan voter drives as described in 11 CFR 100.34 or any
> other activities that urge the general public to register, vote or
> support candidates of a particular party or associated with a
> particular issue, without including a public communication that is
> described in paragraph (b)(2)(iv), (v), or (vi) of this section;
>
> \(iv\) Public communications that promote or oppose a political party,
> as described in 11 CFR 100.116(b), but do not promote, support,
> attack, or oppose a clearly identified Federal candidate, as described
> in 11 CFR 100.116(a);
>
> \(v\) Public communications that promote, support, attack, or oppose a
> clearly identified Federal candidate, as described in
> 11 CFR 100.116(a), and that promote or oppose a political party, as
> described in 11 CFR 100.116(b); and
>
> \(vi\) Public communications that promote, support, attack, or oppose
> a clearly identified Federal candidate, as described in
> 11 CFR 100.116(a), but that do not promote or oppose a political
> party, as described in 11 CFR 100.116(b).

\(c\) [Method for allocating administrative expenses, costs of partisan
voter drives, and certain public communications.]{.underline}
Nonconnected committees and separate segregated funds shall allocate
their administrative expenses, costs of partisan voter drives, and costs
of public communications that promote or support any political party as
described in paragraph (b)(1)(i) through (iv) or (b)(2)(i) through (iv)
of this section, according to the funds expended method, described in
paragraphs (c)(1) and (2) as follows:

> \(1\) (i) Under this method, expenses shall be allocated based on the
> ratio of Federal expenditures to total Federal and non-Federal
> disbursements made by the committee during the two-year Federal
> election cycle, subject to the minimum Federal percentage described in
> paragraph (c)(1)(ii) of this section. This ratio shall be estimated
> and reported at the beginning of each Federal election cycle, based
> upon the committee's Federal and non-Federal disbursements in a prior
> comparable Federal election cycle or upon the committee's reasonable
> prediction of its disbursements for the coming two years. In
> calculating its Federal expenditures, the committee shall include only
> amounts contributed to or otherwise spent on behalf of specific
> Federal candidates, including independent expenditures and amounts
> spent on public communications that promote, attack, support, or
> oppose clearly identified Federal candidates. Calculation of total
> Federal and non-Federal disbursements shall also be limited to
> disbursements for specific candidates, and shall not include overhead
> or other generic costs.
>
> \(ii\) [Minimum Federal percentage for administrative
> expenses,]{.underline} partisan voter drives, and certain public
> communications. The minimum Federal percentage for any costs allocable
> under paragraph (c) of this section is as follows:
>
> \(A\) For a nonconnected committee or a separate segregated fund that
> conducts partisan voter drives in or distributes public communications
> subject to allocation under paragraph (c) of this section to only one
> State, the minimum Federal percentage shall be the percentage in
> 11 CFR 106.7(d)(3)(i), (ii), (iii), or (iv) that is applicable to the
> Federal elections in that State.

[ALTERNATIVE 3-A]{.underline}

> \(B\) For a nonconnected committee or a separate segregated fund that
> conducts partisan voter drives in or distributes public communications
> subject to allocation under paragraph (c) of this section to more than
> one State, the minimum Federal percentage shall be the greatest
> percentage in 11 CFR 106.7(d)(3)(i), (ii), (iii), or (iv) that is
> applicable to any of the Federal elections in any of the States in
> which the nonconnected committee or separate segregated fund conducts
> activities allocable under paragraph (c) of this section.

[ALTERNATIVE 3-B]{.underline}

> \(B\) For a nonconnected committee or a separate segregated fund that
> conducts partisan voter drives in or distributes public communications
> subject to allocation under paragraph (c) of this section to more than
> one State, the minimum Federal percentage for each State in which the
> nonconnected committee or separate segregated fund conducts activities
> allocable under paragraph (c) of this section shall be the percentage
> in 11 CFR 106.7(d)(3)(i), (ii), (iii), or (iv) that is applicable to
> the Federal elections in that State.

\* \* \* \* \*

\(e\) \* \* \*

> \(2\) \* \* \*
>
> \(ii\) \* \* \*
>
> \(B\) Except as provided in paragraph (d)(2) of this section or in
> 11 CFR part 102, subpart A, such funds may not be transferred more
> than 10 days before or more than 60 days after the payments for which
> they are designated are made.

\* \* \* \* \*

\(f\) [Method for allocating public communications that promote,
support, attack or oppose a clearly identified Federal candidate, and
promote or oppose a political party.]{.underline} Nonconnected
committees and separate segregated funds shall allocate public
communications described in paragraphs (b)(1)(v) or (b)(2)(v) of this
section as follows:

> \(1\) The public communication shall be attributed according to the
> proportion of space and time devoted to each candidate and political
> party as compared to the total space and time devoted to all
> candidates and political party;
>
> \(2\) The portion of the public communication that is attributed to
> the Federal candidate(s) shall be allocated to the nonconnected
> committee's or separate segregated fund's Federal account;
>
> \(3\) The portion of the public communication that is attributed to
> the political party shall be allocated in accordance with paragraph
> (c) of this section; and
>
> \(4\) The portion of the public communication that is attributed to
> clearly identified non-Federal candidate(s), if any, may be allocated
> to either the Federal or non-Federal account.

\(g\) [Method for allocating public communications that promote,
support, attack or oppose a clearly identified Federal candidate,
without promoting or opposing a political party.]{.underline}
Nonconnected committees and separate segregated funds shall allocate
public communications described in paragraphs (b)(1)(vi) and (b)(2)(vi)
of this section under 11 CFR 106.1 as expenditures or disbursements on
behalf of the clearly identified candidates.

**PART 114 -- CORPORATE AND LABOR ORGANIZATION ACTIVITY**

17\. The authority citation for part 114 would continue to read as
follows:

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

18\. Section 114.4 would be amended by revising paragraphs (c)(2),
(c)(3), and the introductory text of paragraph (d) to read as follows:

**§ 114.4 Disbursements for communications beyond the restricted class
in connection with a Federal election.**

\* \* \* \* \*

\(c\) \* \* \*

> \(2\) [Registration and voting communications.]{.underline} A
> corporation or labor organization may make registration and
> get-out-the-vote communications to the general public, only to the
> extent permitted by 11 CFR 100.133, and provided that the
> communications do not expressly advocate the election or defeat of any
> clearly identified candidate(s) or candidates of a clearly identified
> political party. The preparation and distribution of registration and
> get-out-the-vote communications shall not be coordinated with any
> candidate(s) or political party. A corporation or labor organization
> may make communications permitted under this section through posters,
> billboards, broadcasting media, newspapers, newsletter, brochures, or
> similar means of communication with the general public.
>
> \(3\) [Official registration and voting information.]{.underline} A
> corporation or labor organization may engage in the activities
> described in paragraphs (c)(3)(i) through (iii) of this section only
> to the extent permitted by 11 CFR 100.133.

\* \* \* \* \*

\(d\) [Registration and get-out-the-vote drives.]{.underline} A
corporation or labor organization may support or conduct voter
registration and get-out-the-vote drives that are aimed at employees
outside its restricted class and the general public in accordance with
the conditions set forth in paragraphs (d)(1) through (d)(6) of this
section and only to the extent permitted by 11 CFR 100.133. Registration
and get-out-the-vote drives include providing transportation to the
polls or to the place of registration.

\* \* \* \* \*

> \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
>
> Bradley A. Smith
>
> Chairman
>
> Federal Election Commission

DATED \_\_\_\_\_\_\_\_\_\_\_\_\_

BILLING CODE: 6715-01-U

[^1]: This threshold, however, does not apply to separate segregated
    funds and state or local party committees. [See]{.underline} 2
    U.S.C. 431(4)(B) and (C) and 11 CFR 100.5(b) and (c).

[^2]: The Commission is not proposing to change the definition of
    "political committee" applicable to party committees, Federal
    candidates' authorized committees or separate segregated funds.

[^3]: By way of historical background, on March 7, 2001, the Commission
    published an Advance Notice of Proposed Rulemaking ("ANPR") seeking
    comment on the definitions of "political committee," "contribution"
    and "expenditure." [See]{.underline} "Definition of Political
    Committee; Advance Notice of Proposed Rulemaking," 66 FR 13681 (Mar.
    7, 2001). After receiving comments on the ANPR, the Commission voted
    on September 27, 2001 to hold that rulemaking in abeyance pending
    changes in legislation, future judicial decisions, or other action.
    The ANPR and related comments are available on the FEC's website at:
    <http://www.fec.gov/register.htm> under "Definition of Political
    Committee." This NPRM is a separate proceeding.

[^4]: A communication refers to a clearly identified candidate if it
    includes "the candidate's name, nickname, photograph, or drawing" or
    if "the identity of the candidate is otherwise apparent through
    unambiguous reference \[or\] through unambiguous reference to his or
    her status a candidate." 11 CFR 100.17.

[^5]: The Supreme Court acknowledged that the Levin Amendment "carves
    out an exception to this general rule." [McConnell,]{.underline} 124
    S.Ct. at 671.

[^6]: State and local candidate committees are subject to limitations
    with respect to their type 3 Federal election activities.
    2 U.S.C. 441i(f).

[^7]: This is especially true for 501(c)(3) organizations because their
    communications are exempt from the definition of "electioneering
    communications." [See]{.underline} 11 CFR 100.29(c)(6). Thus, any
    disbursements for such communications would not count toward a
    501(c)(3)'s major purpose as electioneering communications.
    Furthermore, the Supreme Court recognized that the Massachusetts
    Citizens for Life, Inc., a nonprofit corporation, could become a
    political committee if its independent expenditures become "so
    extensive" that it satisfies the major purpose requirement.
    [MCFL,]{.underline} 479 U.S. at 262.