_ • i""f; • • n f\r\\l 

FEDERAL ELECTION COMMISSION 

WASHINGTON. D.C. 20463 22 AIDUI 

Apri l 22, 2011 

MEMORANDUM 

TO: The Commission 

THROUGH: D. Alec Palmer fO 

Acting Staff Director ^ 

SENSITIVE 

FROM: Compliance Office ./ 

Patricia Camiona ^Xr ^ 

Chief Compliance Officer 

Joseph F. Stoltz J^j?-^ 

Assistant Staff Dffector 

Audit Division 

Debbie Chaconaei^ 

Assistant Staff Director 

Reports Analysis Division 

Kendrick D. Smith 

Audit Manager Y I 

Audit Division ^ ' 

Martin L. Favin^JJIbfjQ-' 

Audit Manager 

Audit Division 

General Counsers Office \ 

Christopher Hughey P^^^^^ 

Acting General Counsel V 

e 

Lawrence L. Calvert, Jr. ^ 

Associate General Counsel 

General Law and Advice 

Lorenzo Holloway 

Assistant General Coimsel 

Public Finance and Audit Advice 

Albert R. Veldhuyzen ^ ^ 

Attomey Wtj/O^ ^ 

Delanie DeWitt Painter 

Attomey 

SUBJECT: Request for Commission Directive 69 Guidance involving the Democratic 

State Central Committee of California (LRA #819) 

L INTRODUCTION 

Pursuant to Commission Directive 69, the Office of Compliance ("OC") and the 

Office of General Counsel ("OGC") seek the Commission's guidance on an issue that 

originally arose in a query from the Reports Analysis Division conceming a committee 

that is now being audited, the Democratic State Centra] Committee of California 

("CALDEMS'*). The question is: when a state party committee transfers funds to local 

party committees for allocable activities - in this case, voter registration outside the 

"federal election activity" period - how should it make the transfer? Specifically, should 

it transfer one check containing federal and non-federal funds, following the procedures 
Memorandum to the Cominission 

Directive 69 Request 

Page 2 

for allocated payments in 11 C.F.R. § 106.7, or should it transfer separate checks drawn 

on the federal and non-federal accounts? Or is either method of payment acceptable? 

Before we address the details and specifics ofthe issue, we have set forth the procedural 

history and background facts that should assist the Commission in understanding why it 

is considering this issue and how it should resolve the issue. 

A. Procedural Background 

This issue was originally raised in an informal query from the Reports Analysis 

Division ("RAD"). OGC completed a legal response to the query. After OC reviewed 

OGC*s response, and considered additional information obtained firom audit fieldwork, 

OC and OGC concurred that one of the questions originally addressed by OGC should be 

submitted to the Commission for consideration under Directive 69.' 

The Commission, through Directive 69, encourages OGC and OC to bring to its 

attention matters involving "novel or unsettled questions of law, or questions prompted 

by developments in the law since the Commission last considered the same issue." 

Commission Directive 69, para. 3.d. (July 1,2010). OGC and OC believe that the issue 

presented below poses unsettled questions of law that should be brought to the 

Commission for its determination. 

B. Factual Background 

CALDEMS reports disbursements to registered local party committees and 

unregistered local party organizations for the purpose of voter registration, and it 

financed these payments using two mixtures of funds. The first consisted of a mixture of 

federal and non-federal funds, and the second was a mixture of federal and Levin Funds. 

The mixture of federal and non-federal funds was paid when payment was made outside 

the FEA period, and the mixture of federal and Levin funds was paid when payment was 

made inside the FEA period. Our request for Directive 69 Guidance only involves the 

first set of funds (mixture of federal and non-federal funds). 

RAD had previously advised committees providing allocable federal/non-federal 

funds to provide recipient committees with two separate checks. This advice was based 

' The other questions involved the legality of similar transfers of mixed federal and Levin funds to 

local party conunittees during the "federal election activity" period and whether CALDEMS was or was 

not affiliaied with certain local Democratic party conunittees in California. On the first issue, OGC 

advised RAD that while there was no prohibition on the state party committees' transferring a mix of 

federal and Levin funds, the local conmiittees were prohibited by 2 U.S.C. 441i(b)(2)(b)(iv)(I) from using 

funds transferred by a state party for either the federal or Levin shares of disbursements allocated between 

federal and Levin ftinds. On the affiliation issue, we advised that, particularly in light ofthe transfers of 

funds between CALDEMS and registered local party committees, it had not yet overcome the regulatory 

presumption that it was affiliated with those committees. 
Memorandum to the Conunission 

Directive 69 Request 

Page 3 

on a memorandum OGC prq)ared in 2000. .See Attachment. However, CALDEMS* 

practice has been to make allocated disbursements using one check of federal and nonfederal funds, reported on Schedule H4.^ CALDEMS discloses the purpose of these 

disbursements as payment for registering voters. 

II. STATEMENT OF THE ISSUE: SHOULD EITHER THE ONE-CHECK 

OR TWO-CHECK METHOD BE THE STANDARD PRACTICE OR IS 

EITHER METHOD ACCEPTABLE 

The issue before the Commission is whether committees should use the twocheck method previously advocated by OGC, the one check method used by CALDEMS, 

or whether either method is acceptable to the Commission. The Commission's decision 

regarding this issue will not only affect CALDEMS, but also the local committees that 

received the funds and the future practice of other committees. 

Voter registration activities conducted by a state or local political party committee 

within a period starting 120 days before the date of a scheduled federal election and 

ending on the date of the election are considered so-called "Type I" federal election 

activity. See 2 U.S.C. § 431(20)(A)(i). Party committees may choose to pay for Type I 

FEA using either 100% federal funds, or a mixture of federal and Levin funds. 11 C.F.R. 

§ 300.32(b). Voter registration activities conducted by a state or local political party 

committee outside this period may be paid for with either 100% federal funds, or with a 

mixture of federal and non-federal fiinds. 11 C.F.R. § 106.7(c)(5). We are concemed 

with this latter category of payments. 

When paying commercial vendors for allocable expenses, committees normally 

choose one ofthe payment procedures described in detail at 11 C.F.R. § 106.7. 

Specifically, they pay the expense using a single check drawn on their federal account or 

a separate allocation account, and transfer the appropriate amount of non-federal funds to 

the account from which the disbursement is made within a time window that begins ten 

days before and ends sixty days after the disbursement to the vendor. See generally 

11 C.F.R.§ 106.7(f). 

In 2000, RAD asked OGC whether disbursements to local party organizations for 

voter registration similar to those at issue here could be allocated and paid using the 

^ We fuither understand that die recipients, where diey are registered committees, report receipt of 

these disbursements as transfers into the federal account on Line 12 (transfers from affiliated/other party 

committee). 
Memorandum to the Commission 

Directive 69 Request 

Page 4 

allocated payment procedures in the regulations. See Attachment. OGC concluded that 

separate payments were more appropriate than one-check allocable disbursements when 

one committee paid another for voter registration. OGC said then that '*we believe the 

language ofthe rules and the E&J lead to the conclusion that committees may only use 

the payment procedures in [then] section 106.5(g) when paying their own allocable 

expenses, i.e. to make payments directly to vendors in consideration for goods provided 

or services rendered in connection with allocable activity conducted by the payor 

committee." See Attachment at 4. Transfers to other party committees, OGC said, were 

generally not the committees' "own" allocable expenses in the sense that they were not 

payments to vendors or rendered in cormection with allocable activity conducted by the 

payor committee. ^ OGC reached this conclusion even while acknowledging that a state 

committee would be required to transfer the minimum federal share in situations where 

the state committee effectively controlled the recipient committees' allocable activity. 

See Attachment at n.2, citing Federal Election Commission v. California Democratic 

Party. 13 F.Supp.2d 1031(E.D. Cal 1998). In those situations, OGC advised, the 

committee should use two checks. 

We assume that CALDEMS' payments at issue here were for allocable expenses 

and that CALDEMS was required to transfer the minimum federal share of these 

allocable voter registration expenses to the recipient committees because it effectively 

controlled the recipient committees' allocable voter registration activity.^ Ifa state 

oommittee in this situation, like CALDEMS, follows the allocated payment procedures of 

11 C.F.R. § 106.7(f), it sends one check, representing a mixture of federal and nonfederal funds, to the recipient local party organization. OGC advised RAD last year that 

"We now come to the same conclusion that one allocable disbursement check made to 

another committee for voter registration services remains inappropriate. However, we 

base our conclusion on slightly different grounds than the 2000 Memo, which focused on 

' However, the OGC opinion also left open the possibility of a different inteipretation: 

The operative language in section 106.S(g)(l), which reads 'shall pay the expenses of joint 

federal and non-federal activities,' is not explicitly limited to direct payments to vendors, 

and could be interpreted broadly enough to include payments made to other committees and 

organizations to finance activities conducted by those entities. Under this interpretation, the 

payments described in your memorandum could be viiewed as payments of allocable 

expenses, even though they were made to other committees radier than directly to vendors. 

Attachment at 4. 

* For payments that are ordinary transfers, for which no minimum federal share is required, there is 

nothing to allocate: committees should transfer federal funds in a check from their federal account and 

non-federal funds in a check from their non-federal account. 
Memorandum to the Commission 

Directive 69 Request 

PageS 

whether the disbursements were the state committee's 'own.'" Ordinarily, one would 

think that a committee making a disbursement that requires a minimum federal share is 

making an allocable disbursement, and that it oould take advantage ofthe procedures in 

the regulations for the making of allocable payments. 

A potential problem would arise, however, if a recipient registered committee 

deposits the one check into its federal account because "[o]nly funds subject to the 

prohibitions and limitations of the Act shall be deposited" in a separate federal account. 

11 CF.R. § I02.5(a)(l)(i). This occurred with at least some ofthe CALDEMS recipient 

committees. 

The funds obtained by the CALDEMS recipient committees are composed of 

contributions from individual donors. Commission regulations are clear that only 

contributions designated fbr the federal account, those that result firom a solicitation 

informing the contributor that the funds will be used in connection with a federal 

election, or fiom contributors who have been informed that their contributions are subject 

to the prohibitions and limitations of the Act, may be deposited into a federal account. 11 

C.F.R. § 102.5(a)(2). Furthermore, transfers to a federal account may only be from fimds 

permissible under the Act. 11 C.F.R. § ]02.6(a)(l)(iv). Consequently, funds that do not 

meet the above criteria do not belong in federal accounts. 

We recognize, however, that there are situations where non-federal funds are 

temporarily placed in federal accounts and then subsequently removed fix>m the federal 

accounts. See e.g. 11 C.F.R. § 103.3(b). For example, in an analogous situation in preBCRA MUR 4961, the DNC deposited at least 10 checks fbr amounts greater than the 

$20,000 annual limit into the "DNC Federal Account." The excessive portions were 

transferred out within 60 days but the DNC did not report the full initial receipt or the 

subsequent transfer on its federal reports. See MUR 4961, Conciliation Agreement, at 5-

6. The DNC paid a civil penalty and subsequently requested an Advisory Opinion. In 

that opinion, the Commission advised as follows: 

Commission regulations do not specifically address the reporting of the 

receipt of contribution checks where the proceeds are intended to be split 

between Federal and non-Federal accounts.^ Because the DNC will 

initially receive a check in excess of the § 441 a(a)(]) limit, it is essential 

that the contribution and the division of the funds be disclosed in a manner 

that is clear on the public record. This need for clarity is amplified by the 

^ We acknowledge that AO 2001-17 involves contributions that are deposited into a federal account 

while this case involves transfers, via a check, into a federal account. The concept, however, is the same: 

only pennissible funds may be placed into a federal account. 11 C.F.R. § 102.S(a)(2). 
Memorandum to the Commission 

Directive 69 Request 

Page 6 

fact that national party committees file voluminous reports for all their 

activities, and the DNC mig|ht accept numerous contributions that are split 

between Federal and non-Federal accounts. Thus, the splitting of funds 

that are placed in separate accounts requires the use of memo entries with 

explicit cross-references between the disclosures for the Federal and nonFederal accounts. AO 2001-17, at 4. 

Another situation where the regulations temporarily permit the deposit of mixed 

federal/non-federal fimds into federal accounts and require detailed reporting involves 

refimds and rebates. See 11 C.F.R. § 104.3(a)(2)(vii). The 2009 Political Party 

Campaign Guide states. 

If a committee receives a refund or a rebate of an allocable expense, the 

refund or rebate must be deposited in the federal or allocation account. 

The refund or rebate must then be allocated between the federal and nonfederal accounts according to the same allocation ratio used to allocate the 

original disbursement. The federal account must transfer the non-federal 

portion to the non-federal account. Federal Election Commission 

Campaign Guide. Political Party Committees, at 103 (Aug. 2009). See 

fl/jo. AO 1995-22. 

These recognized exceptions to the rule prohibiting the deposit of non-federal 

funds into a federal account could apply to recipient committees that received the 

CALDEMS allocable checks. Their deposit of mixed federal/non-federal funds into their 

federal accounts would need to be cured by transfers out and proper reporting. Based on 

discussions with RAD, it does not appear that the registered recipient committees in this 

case properly reported and subsequently transferred-out the non-federal portion, from 

their federal accounts, of checks received from CALDEMS. 

This problem may be avoided if CALDEMS would follow the two-check 

procedure endorsed in our 2000 memorandum or if it would give specific instructions to 

recipient committees on how to deposit checks that include non-federal and federal funds. 

Nevertheless, the two-check procedure poses a problem of its own. Under that 

procedure, the state committee would transfer the federal share to the local recipient out 

of its federal account and report that transfer on Schedule B, and would transfer the nonfederal share to the local recipient out of its non-federal account and not report that 

transfer to the Commission at all. If the state committee exerts sufficient control over the 

voter registration activity that it is obliged to transfer a minimum federal share, a twocheck procedure would result in a lack of reporting of the non-federal part ofthe transfer, 
Memorandum to the Commission 

Directive 69 Request 

Page? 

and thus would inhibit the Commission's initial ability to ensure that the minimum 

federal share was in fact transferred. Indeed, the Commission's Explanation and 

Justification for its initial allocation rules, published in 1990, noted that the use of two 

checks (one fiom the federal account and one fiom the non-federal account) was not 

appropriate, "as that procedure does not provide sufficient disclosure of how funds 

allocated for shared federal and non-federal activity are actually spent." See Explanation 

and Justification for former U C.F.R. § 106.5(g), 55 Fed. Reg. 26058,26066 (June 26, 

1990). 

Thus, the question posed here presents something of a dilemma: Should 

committees in this situation disburse one check to local party recipients, resulting in 

complete disclosure of an allocated disbursement, but also potentially in the deposit of 

non-federal funds in the local recipients' federal accounts? To be clear, the problem in 

that scenario is not merely a technical violation of 11 C.F.R. § 102.5; rather, it is that if 

the recipients know no better, they may never properiy report the transfer in, and they 

may never properly transfer out to their non-federal account (if they have one) the nonfederal share. Or, in the alternative, should committees disburse two checks, which may 

in some circumstances result in less disclosure than normal of a disbursement for which 

the federal and non-federal shares would otherwise be reported to the Commission ~ and 

may, indeed, violate 11 C.F.R. § 106.7? 

HI. RECOMMENDATION: OGC AND OC RECOMMEND THAT THE BEST 

PRACTICE WOULD BE EITHER THE TWO-CHECK METHOD OR 

ONE ALLOCABLE CHECK WITH SPECIFIC INSTRUCTIONS TO 

RECIPIENTS 

In our view the greater problem seems to be the risk ofthe deposit of non-federal 

fimds in recipient committee federal accounts which are then not subsequently properly 

reported and taken out of the federal accounts. Consequently, it seems that the best 

practice for state committees making payments for allocable voter registration outside the 

FEA period is to either follow the two check procedure or use one allocable check but 

provide specific deposit instructions to the recipient committees. This would provide 

notice to the recipient committees that allocable payments received firom state party 

committees must be properly reported and segregated. 

This, however, is a best practice, not a legal requirement. There seems to be no 

basis to include an audit finding that CALDEMS violated the regulations relating to 

procedures for payment of allocable expenses, because they appear in fact to have been 

trying to comply with those regulations. And the problem with the use ofthe one-check 
Memorandum to the Coinmission 

Directive 69 Request 

Pages 

procedure is precisely that it could result not in violations of law by the transferor 

committees, but by the recipient committees. 

Consequently, if the Commission agrees with this approach or if the Office of 

Compliance proceeds within 60 days pursuant to Directive 69, the Audit Division will not 

base any finding on CALDEMS' one-check method of payment for allocable voter 

registration expenses to recipient committees in the CALDEMS audit, and would not 

pursue this issue in future audits. In addition, RAD will develop an advisory letter to 

send to transferring committees when they see this pattem of activity. The letter would 

advise the transferring committees that the best practice is to provide specific deposit 

instructions to recipient committees with any one- check payments for allocable 

activities. 

Attachment 

Memorandum fix)m N. Bradley Litchfield to John D. Gibson, Subject: Request for 

Guidance Regarding Permissibility of Allocated Payments Between Registered 

Committees (Dec. 13,2000) 
FEOERAL ELECTION COMMISSION 

Washington, DC 20463 

Deoenber 13, 2000 

MEMORANDUM 

TO: 

THROUGH: 

FROM: 

John D. Gibson 

Assistant StafiTDirector 

Reports Analysis Division 

James A. Pehrkon 

StafTDirector 

Lawrence M. Noble X 

General Counsel ' ^' 

N.Bradley Litchfield 

Associate General Coi 

SUBJECT: 

Introduction 

Rosemary C. Smith 

Assistant General Cour^i 

Paul SanfOKl^^'tT' 

Staff Aiioraey^Co 

Request Por Guidance Regarding Permissibility of Allocated Payments 

Between Registered Committees 

This responds to your memorandum of April 14^ 2000 requesting guidance on the 

application ofthe Act and regulations to political committee payments of federal and nonfederal fijnds to other registered committees and unregistered organizations. 

Your memorandum indicates tbat the Reporis Analysis Division has observed that 

registered political committees are making disbunscments consisting of a mixture of federal 

and non-fixieral fUnds to other committees and other unregistered organizations. You explain 

that these disbursements are ostensibly payments fbr activity that is allocable under the 

Commission's allocation regulations. You also state tiiat in some instances, the recipient 

committees are depositing and retaining the entire amount of these payments in their federal 

12<V«2W>9:40AM 
accounts. You state your opinion that these payments do not meet the definition of shared 

activity in the allocation regulations, and are more appropriately treated as transfers or 

contributions. 

Your memorandum describes ^>ur spedfic factual circumstances in which this 

activity has oecurred. The first circumstance involves payments fiom a state party committee 

to several recipients that appear to be county-level party organizations. The second 

circumstance involves payments fiom one national party committee to another national party 

committee, and to a joint fundraising committee fonned by the two committees. Your third 

example relates to payments firom a joint^ fimdraising committee to a national party 

eommittee. Finally, you describe a situatkm that involves payments fix>m a state party 

committee to a national party committee. 

You seek the adviee of this office on whether payments between these entities 

consisting of a mixture of federal and nonfederal fimds are pemiissible under the allocation 

rules in 11 CFR 106.5 and 106.6, and whether the receipt of these payments by the federal 

account of a registered committee violates 2 U.S.C. §§ 441a or 441b of the Federal Election 

Campaign Act, 2 U.S.C. § 431 etseq. ["FECA" or "the Act"], or 11 CFR 102.5 ofthe 

regulations. With regard to unregistered recipients of these payments, you ask about the 

dollar level al which such an entity would be required to register and report as a political 

committee, and what portion of a payment consisting of a mixture of federal and nonfederal 

funds would count toward tbat dollar threshold. 

Our responses to these questions are set out below. 

Favor Committee Compliance with 11 CFR 106.5 

Your memorandum asks whether disbursements eonsisting of a mixture of federal and 

non-federal funds to registered committees and other unregistered organizations comply with 

section 106.5 ofthe regulations.^ You bdieve these payments do not meet the definition of 

shared activity, Le., that they should not be treated as payments for allocable activity under 

section 106.5. Instead, you believe they are more appropriately treated as contributions or 

transfers to the reeipient entities. 

It should be acknowledged at the outset that if these disbursements are an effort by the 

payor coinmittees to provide the recipient committees with a combination of federal and 

nonfederal fimds that may be used to pay for allocable activity, there are ways under the Act 

and regulations for the committees to permissibly achieve this result. The payor committee 

could provide a combination of funds by writing separate checks against its fbderal and 

nonfederal accounts, and submittbg these two checks to tbe reeipient committee. Hus 

' As indicated above, your memorandum SIBO seeks advice on (be penniuibniiy of these payments under secdon 

106.6. Since none of the sitoaUons described ia your monorandum involve committees to ^eh section 106.6 

applies, our response will focus on section 106.S However, wc note that the two sections were promulgated 

togeAer, and are substantially sinular (br the purposes of your inqniiy. Thus, the application of section 106.6 

would most likely be the same. 

I2AW2000WOAM 0 PaifSf, 
approach would generally be permissible under the Act and regulations, subject to certam 

conditions.^ 

In asking whether committees may allocate payments to other committees, your 

memorandum appears to be asking whetfaer committees may use the procedures for payment 

of allocable expenses in section 106.5(g) to provide funds to other committees. The payor 

committees in tbe situations described in your memorandum appear to be using these 

procedures to provide funds to the redpient entities. 

Section 106.S(g) allows committees to select one of two procedures fbr paying iheir 

allocable expenses. Committees may either (i) pay the cndre amount ofthe expense fiom a 

federal account and transfer fimds from a non-fbderal account to tbe federal account to cover 

the non-federal share ofthe allocable expense; or (ii) establish a separate allocation account, 

deposit funds firom federal and non-federal accounts into the allocation account, and disburse 

funds fixim the allocation account to pay the allocable expense. 11 CFR t06.5(g)(l). 

The rules state that committees are to use these procedures to "pay the expenses of 

joint federal and non-federal activities," and that nonfederal fimds may be transferred to a 

federal account or allocation account "solely" for the purpose of paying the nonfederal share 

of an allocable expense. 11 CFR 106.5(g)(1). The Explanation and Justification ("E & J") 

for section 106.5 explains that, when these payment procedures were implemented, they were 

a significant change in Comnussion policy, and that the Commission made this change for a 

limited purpose. "It should be noted that this is the first time that the Commission has 

allowed non-federal funds to be transferred to a committee's federal account, and thai it does 

so now only for the limited purpose of paying allocable expenses." Methods of Allocation 

Between Federal and Non-Federal Accounts: Pavments: l^enoiting. 55 FR 26058,26066 

(June 26,1990). 

In most instances, payments fbr allocable expenses take the form of disbutsements 

fiom political committees to commercial vendors in consideration for goods provided or 

services rendered in relation to an allocable activity. In contrast, the situations described in 

your memorandum involve payments made to other committees to finance allocable activities 

conducted by those committees. In these situations, the recipient committees would actually 

make the dii^ursements to vendors for the costs of the allocable activities being conducted. 

' The limitBdoiis on diis '^panllel" payment approach would be as fallows: (1) The payment fiom tbe federal 

account would genenlly be subjeet lo tbe contribuKon limio, iltboogh payments between and among (he entities 

refen«d to m your memoTandum (committees of tbe same political party, uul joint fundraising committees 

formed by committees of the same political party) are exeinpt from the contribution limits. 2 U.S.C. 

S 441a(aX4), 11 CFR 102.17(bX3Xiii) and (c)(7Kii); (2) No pari of Ibe nonfedeial payment could be deposited 

in the ledpienc committee's fedeni account; and (3) If the payor oommitlee ia effecdvely ceaoolUng ibc 

recipient committee's allocable aedvily, the payor committee may be reqnited to provide enough federal fiinds 

to cover what would have been tfae federal portion of tbe allocable expense, had the payor committee coodoeted 

tfae activity directly. §&£ Federal Eleedtm CnmniiMion v. Califomia Democratic Partv. No. S-97-0891, (E.O. 

Cat. October 13,1999) (concluding tbat a party committee thai is exetcisang effective control over an allocable 

aedvity osieosibly being conducied by a sq»iate, unregistBred oxganizadon cannut defray the costs of die 

activity by transfenlitg 100% nodkdeni fhndi ID tfae aniegisiered oiganization). 

12/04/2000 9:40 AM 3 
We believe the language ofthe rules and the E & J lead to die conclusion that 

committees may only use the payment procedures in section 106.5(g) when paying their own 

allocable expenses^ ISs, to make payments directly to vendors in consideration for goods 

provided or sendees rendered In connection with allocable activity conducted by the payor 

committee. In our opinion, committees may not use these procedures to provide a mixture of 

federal and nonfederal funds to other committees or unregistered organizations, even if tbe 

fimds are to be used by the recipient entity to finance allocable activities. Thus, we agree 

with your assertion that the payments described in your memorandum are more appropriatdy 

treated as contributions or transfers to the recipient entities. 

However, we must acknowledge that the regulations are open to different 

interpretations. The operative language in section 106.5(g)(1), which reads "shall pay the 

expenses of joint federal and non-federal activities," is not explicitly limited to direct 

payments to vendors, and could be interpreted broadly enough to include payments made to 

other committees and organizations to finance activities conducted by those entities. Under 

this interpretation, tiie payments described in your memorandum cot^d be viewed as 

payments of allocable expenses, even though tiiey were made to other committees rather than 

directly to vendors. 

Therefore, if you require a defmitive resolution of your first question, we recommend 

thai you refer this question to die Commission for its consideration. 

Redolent Committee Compliance with 2 U.S,C. 68 441a, 441b. or 11 CFR 102.S 

You explain that, in some instances, the committees that recdved the payments 

described in your memorandum deposited and retained the entire amount ofthe payment in 

tiidr foderal accounts. You believe these payments consisted of a mixture of federal and nonfederal fimds, and ask whether the receipt and dq)08it of these payments in a federal aceount 

violates 2 U.S.C. §§ 441a, 44lb, or 11 CFR 102.5. 

Section 441 a(f) states that "[n]o candidate or poUtical committee shall knowingly 

accept any contribution ... in violation ofthe provisions of dus section." Section 441a(a) 

prohibits political commillees, including multicandidate political comnuttees, ftom making 

contributions to "any other poiitical committee in any calendar year which, in the aggregate, 

exceed S5,000." Paragraphs <a)(l)(C) and (a)(2)(C). However, transfers of fimds between 

national, State, district, or local committees of the same political party are exempt fiom the 

S5000 limit. Section 441a(a)(4). Thus, party committees may transfer unlimited amounts 

between themselves, altfaou^ section 102.6(a)(1)(iv) states that tiiese transfers "shall be 

made only from funds which are permissible under the Act." 

Section 441b prohibits "any corporation whatever, or any labor organization, [from 

making] a contribution or expenditure in connection with" any federal election. 2 U.S.C. 

§ 44lb(a). This section also states that is unlawfiil for "any candidate, political committee, or 

other person knowingly to accept or recdve any contribution prohibited by tiiis section." IL 

.:7i'.4t'>::^?ii: L 

12/04/20009:40AM A x* a ... » 
Section 102.5(aXl) of the Commission's regulations requires politieal eommiitecs, 

including party committees, that finance politieal activity in connection witii both federal and 

non-federal elections lo dther (i) establidi a separate federal account in a depositoty in 

accordance with 11 CFR part 103, or (ii) establish a political eommittee which shall recdve 

only contributions subject to tbe prohil»tions and limitations oftiie Act, regardless of whether 

such contributions are for use in connection witii federal or non-federal elections. 

Committees tiiat choose to establish a separate federal account under paragraph (a)(l)(i) are 

required to treat that accouni as a separate federal politieal committee sulgect to registration 

and reporting requirements of 11 CFR part 102 and 104. Only fimds subject to fhe 

prohibitions and limitations of tiie Act may be deposited in die separate federal account. No 

transfers may be made to the federal account fioom any nonfederal account, except as 

provided in tiie allocation rules in 11 CFR 106.5(g) and 106.6(e). Section 102.5(a)(l)(i). 

The impact of these provisions is as follows: 

(1) A registered political committee that knowingly accepts a contribution 

firom anotiier political committee in excess of S5000 violates section 

441a, unless die contribution is a transfer from an affiliated committee or 

another committee ofthe same party. IVansfcrs fiom tiiese entities are 

exempt fiom the S5000 limit so Jong as Ihcy contain only funds that are 

pennissible under the Aet. 

(2) A registered political committee tiiat knowingly accepts a donation fiom 

a corporation or labor organization violates section 441b. 

(3) A registered political committee violates section 102.5(a) by depositing 

fimds Iransfbred bom or contributed by anotiier politind committee into 

its federal account, if the amount recdved includes fonds that do not 

comply with the prohibitions and limitations oftiie Aet. Thus, the 

Conimission will trace the source of the fiinds contributed by anotiier 

committee in order to determine whetiier impemiissible funds are bdng 

infused into the federal election process. Advisory Opinion 1988-33. 

As a tiireshold matter, we note that the actual composition of a payment made from 

one committee to anotiier would depend on the composition of the cash on hand in die payor 

comnoittee's federal account at die time tiie committee makes die payment. If tiic cash on 

hand consists of enough federal fimds, L£„ fimds received as direet, permissible 

contributions, rather than as transfers fiom its nonfederal account, to cover the foil amount of 

the payment, dien the payment would not contain any nonfederal fonds.' Consequentiy, the 

recipient committee would not violate 2 U.S.C. § 441b or 11 CFR 102.5 by recdving tiie 

payment and depositing it in its federal account. 

'Ss£s.g„ ] 1 CFRI04.12.110.3(cX4)and(S). 

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.. ...... i 
However, if tiie cash on hand in the payor oommittee*s federal account does not 

contain enough federal fonds to cover the foil amount of the payment, then the payment 

would contain a mixture of foderal and nonfederal ftmds. Jn this situation, the redpient 

committee would likdy violate section 102.5(a) for depositing impermissible fimds into a 

federat account.^ If die recipient commitlee was aware tiiat the payment included fonds fiom 

coiporations or labor organizations, tbe recipient committee would also violate section 441b 

for knowmgly depositing fonds fiom a prohibited source into a federal aceount 

As expJuned above, political committees are generally prohibited from accq}ting 

contributions fiom other political committees in excess of S5000 per calendar year. 

However, since die situations described in your memorandum all involved either committees 

or organizations of die same political party or joint fundraising committees formed by 

committees ofthe same political party, this contribution limit would not apply. Sss 2 U.S.C. 

§ 441a(aX4), 11 CFR 102.17(b)(3Xiii) (cX^XiO- Thus, the recipient committees did not 

violate section 441a. 

Political Comnritfee Thresholds for Unrepistered Committees 

You indicate tiiat some of die payments referred to in your memorandum were made 

to entities tiiat are nol currentiy registered as political committees under tfae Act. You inquire 

about the dollar level at which diese unregistered orgdnizations would be required to register 

and report as a political committee. You also ask what portion of a payment eonsisting of a 

mixture of federal and nonfederal ilmds would count toward diat dollar threshokl. 

The situations described in your memorandum do raise questions regarding die 

registration and reporting status of unregistered organizations that recdve payments fsora 

registered commfttees. (jenerally, under the terms of die Act, unregistered organizations 

become political committees when they receive payments made for the puipose of 

influencing a federal election that aggiegate in excess of a SIOOO during a calendar year. 

2 U.S.C. § 431(4)(A). Similarly, unregistered local committees of a political party become 

political committees under die Act when tiiey receive payments for the puipose of influendng 

a fedeni dection tiiat aggregate in excess of S5000 during a calendar year. 2 U.S.C. 

§ 43I(4XC). The foil amount of any payment made for die purpose of influencing a federaJ 

election counts towards the threshold for political committee status in section 431(4). 

Unfortunately, several court decisions have created uncertainty as to die appb'cation of 

tiie political committee tiuresholds in section 431(4). Sgs Buckley v. Valeo. 424 U.S. 1 

(1976), FECv.MCFL. 479 U.S. 239,262 (1986), Akinsv.FEC. 101 F.3d 731,742 (D.C. 

Cir. 1996) vacated OQ od|S pounds. 524 U.S. 11 (1998). In addition, on May 25,2000, die 

Commission directed the Offlce of General Counsel to draft a rulemaking document seeking 

comments on whether the Commission should expand die definition of "political committee" 

found at 11 CFR 100.5 to cover additional entities. 

* We assume for die puiposes of this discussion diat the noofederal funds inehided in die innsfer were origioBlly 

irom prohibited sources or in excess of die eooiribudon limits, and dius could not faave been deposited diiecdy 

into die payor commitlee's federal account. However, diis is not always die ease. 

I 
Under these circumstances, we are unable to provide more specific guidance on the 

situations in which the unregistered organizations referred to in your memorandum would be 

required to register and report as poUtical coinmittees. 

Condasioa 

The Office of General Counsd hopes thai die foregomg discussion is adequately 

responsive to the questions ndsed in your April 14,2000 memorandum. Fed fiee to contact 

us if you have additional questions. 

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