[Federal Register Volume 66, Number 45 (Wednesday, March 7, 2001)]
[Proposed Rules]
[Pages 13681-13688]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-5473]


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FEDERAL ELECTION COMMISSION

11 CFR Part 100

[Notice 2001-3]


Definition of Political Committee

AGENCY: Federal Election Commission.

ACTION: Advance notice of proposed rulemaking.

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SUMMARY: The Federal Election Campaign Act, with certain exceptions,

[[Page 13682]]

defines ``political committee'' as any group of persons that receives 
more than $1,000 in contributions or makes more than $1,000 in 
expenditures during a calendar year. The Commission is seeking comments 
on whether to revise the definition of ``political committee'' 
contained in its regulations to include more explicit descriptions of 
activities that will result in those funds being considered 
contributions or expenditures. The Commission is also examining whether 
and how to incorporate the concept of ``major purpose'' into the 
definition of ``political committee.'' The Supreme Court has stated 
that the term ``political committee'' need only encompass organizations 
that are under the control of candidates or the major purpose of which 
is the nomination or election of a candidate. Please note that the 
Commission has not yet decided what, if any, revisions it will make to 
its rules in this area. Further information is provided in the 
supplementary information that follows.

DATES: Comments must be received on or before May 7, 2001. The 
Commission will determine at a later date whether to hold a public 
hearing on this Notice. If a hearing is held, its date and time will be 
published in the Federal Register.

ADDRESSES: All comments should be addressed to Rosemary C. Smith, 
Assistant General Counsel, and must be submitted in either written or 
electronic form. Written comments should be sent to the Federal 
Election Commission, 999 E Street, NW., Washington, DC 20463. Faxed 
comments should be sent to (202) 219-3923, with printed copy follow-up. 
Electronic mail comments should be sent to [email protected] 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.

FOR FURTHER INFORMATION CONTACT: Ms. Rosemary C. Smith, Assistant 
General Counsel, or Ms. Rita A. Reimer, Attorney, 999 E Street NW., 
Washington, DC 20463, (202) 694-1650 or (800) 424-9530.

SUPPLEMENTARY INFORMATION: The Federal Election Commission is 
publishing this Advance Notice of Proposed Rulemaking (``ANPRM'') 
seeking comments on whether to revise the Commission's rules at 11 CFR 
100.5 that define the term ``political committee.''
    Section 431(4) of the Federal Election Campaign Act, 2 U.S.C. 431 
et seq., (``FECA'' or ``the Act''), which contains the statutory 
definition of ``political committee,'' is divided into three parts. 
Paragraph (A) states that a political committee is ``any committee, 
club, association, or other group of persons which receives 
contributions aggregating in excess of $1,000 during a calendar year or 
which makes expenditures aggregating in excess of $1,000 during a 
calendar year.'' Paragraphs (B) and (C) state that separate segregated 
funds established under section 441b(b) of the FECA are political 
committees, and that local committees of a political party are also 
political committees for FECA purposes under certain circumstances. 
This statutory definition is incorporated into section 100.5 of the 
Commission's regulations.
    The Act defines ``contribution'' as ``any gift, subscription, loan, 
advance, or deposit of money or anything of value made by any person 
for the purpose of influencing any election for federal office.'' 2 
U.S.C. 431(8)(a)(i). An ``expenditure'' is defined as ``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.'' 2 U.S.C. 431(9)(a)(i).
    The Commission is seeking comment on the scope and meaning of the 
``major purpose'' test, which first appeared in the Supreme Court's 
discussion of the definition of ``political committee'' in Buckley v. 
Valeo, 424 U.S. 1 (1976) (``Buckley''). In Buckley, the Supreme Court 
noted that section 431(4)(A) as written could be construed to define 
``political committee'' solely in terms of the amount of annual 
contributions received and expenditures made, and thus ``could be 
interpreted to reach groups engaged purely in issue discussion.'' 424 
U.S. at 79. In dicta, the Court set forth criteria to prevent a 
potentially overbroad interpretation of ``political committee'': ``To 
fulfill the purpose of the Act [the term `political committee''] need 
only encompass organizations that are under the control of a candidate 
or the major purpose of which is the nomination or election of a 
candidate.'' Id.
    The Supreme Court returned to the Buckley Court's ``major purpose'' 
concept in FEC v. Massachusetts Citizens for Life, Inc., 479 U.S. 238 
(1986) (``MCFL''). In MCFL, the Court concluded, inter alia, that the 
prohibition on expenditures by corporations contained in another 
provision of the FECA, section 441b, had to be construed narrowly to 
avoid overbreadth problems and could not constitutionally be applied to 
independent expenditures made by incorporated issue advocacy 
organizations with certain essential features. Id. at 263-64. However, 
the MCFL Court also said that ``should [such an organization's] 
independent spending become so extensive that the organization's major 
purpose may be regarded as campaign activity, the corporation would be 
classified as a political committee.'' Id. at 262.
    While the Supreme Court has yet to revisit the ``major purpose'' 
test, there have been lower court decisions that have done so. These 
decisions will be addressed in the ``major purpose'' portion of this 
document. There may be further judicial developments in this area of 
the law during the course of this rulemaking. Any such developments 
will obviously have an impact on any regulations to be promulgated by 
the Commission. Ways in which a ``major purpose'' test could be 
incorporated into the regulations defining ``political committee'' are 
discussed infra in Part II.
    The Commission is also seeking comment on the extent to which the 
``express advocacy'' requirement for independent expenditures should be 
incorporated into the ``political committee'' definition. In limiting 
the reach of the FECA's corporate independent expenditure ban at 2 
U.S.C. 441b, the MCFL Court reiterated and expanded in application what 
it had held in Buckley, that the ``term `expenditure' encompassed `only 
funds used for communications that expressly advocate the election or 
defeat of a clearly identified candidate.' '' Id. at 248-49, quoting 
Buckley, 424 U.S. at 80. Ways in which the ``express advocacy'' 
requirement could be incorporated into the regulations defining 
``political committee'' are discussed infra in Part II.
    Becoming a political committee as defined in the FECA has 
recordkeeping and reporting consequences. Generally, groups that are 
not political committees, such as partnerships and other unincorporated 
associations, are treated as other persons under the Act, and are 
subject to minimal reporting obligations. See 2 U.S.C. 434(c), 11 CFR 
109.2. In contrast, political committees are subject to a more 
extensive set of recordkeeping and reporting requirements. See 2 U.S.C. 
432, 434 11 CFR parts 102, 104. In addition, political committees are 
subject to contribution limits and prohibitions. See 2 U.S.C. 441a(a), 
(f) and (h).

[[Page 13683]]

I. Definitions of ``Political Committee,'' ``Contribution'' and 
``Expenditure''

    Paragraph (a) of section 100.5 follows the statutory definition of 
``political committee'' by providing that any committee, club, 
association, or other group of persons that receives contributions 
aggregating in excess of $1000 during a calendar year is a political 
committee, except as set out in 11 CFR 100.5(b), (c), and (d). 
Paragraph (b) indicates that any separate segregated fund established 
under 2 U.S.C. 441b(b)(2)(C) is a political committee without any 
dollar thresholds. Paragraph (c) indicates that local committees of a 
political party are themselves political committees if they exceed 
either of the $1,000 thresholds or if they engage in $5,000 in exempt 
activity during a calendar year. See 11 CFR 100.7(b)(9), (15), (17); 11 
CFR 100.8(b)(10), (16), (18). Paragraph (d) indicates that an 
individual's principal campaign committee or authorized committee 
becomes a political committee when that individual becomes a candidate 
under 11 CFR 100.3.
    Comments are sought on several proposed amendments to the 
definitions of ``contribution'' and ``expenditure'' that the Commission 
is considering incorporating into the definition of ``political 
committee'' at 11 CFR 100.5. One approach would be to establish more 
objective criteria, even bright line rules, for activities that fall 
within the regulatory definitions of ``contribution'' and 
``expenditure,'' respectively. Possible criteria are described below. 
This would alert organizations planning to spend more than the 
statutory thresholds on these activities that they will have to become, 
or establish, a political committee in compliance with the FECA. Please 
note that, if these objective criteria are included in the rules, money 
spent on these activities will count against the FECA's contribution 
limits and, if sufficient amounts are contributed or expended, they 
will also trigger the FECA's reporting requirements.

A. Contribution Definition

    The Commission seeks comments on revising paragraph 100.5(a) by 
adding six new descriptions to the definition of ``contribution.'' 
These new descriptions may include:
    (1) Money, services or any other thing of value received as the 
result of a solicitation, the express purpose of which was to raise 
money to influence federal elections. This provision would codify 
Commission precedents. Under this provision, a solicitation that in 
express terms states that money given as a result of the solicitation 
will be used to support or defeat one or more candidates for federal 
office would make moneys received as a result ``contributions.'' 
Political committee status would follow regardless of how the money 
received was ultimately spent if total contributions or expenditures 
exceed $1,000.
    (2) Money, services or anything of value received from a political 
committee organized pursuant to 11 CFR 100.5(b), (c), or (d), except 
money, services or anything of value received by an organization 
qualifying for tax exempt status pursuant to 26 U.S.C. 501(c)(3).\1\ 
This new provision would, for example, prevent national party 
committees from funneling money into groups that may not report their 
disbursements and receipts. Again, an examination of how the money was 
ultimately spent would be unnecessary to determine political committee 
status.
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    \1\ 26 U.S.C. 501(c)(3) provides federal tax exemption to a 
charitable organization, so long as it ``does not participate in, or 
intervene in (including the publishing or distributing of 
statements), any political campaign on behalf of (or in opposition 
to) any candidate for public office.''
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    (3) Money, services or anything of value received by an 
organization that is expressly authorized by its charter, constitution, 
bylaws, articles of incorporation or other organizational document(s) 
to engage in activities for the purpose of influencing federal 
elections. This paragraph would allow for an objective inquiry into the 
purposes of an organization. Under this element, if an organization 
wanted to influence federal elections, it would have to register as a 
separate political committee to do so.
    This paragraph would be limited to groups that specifically state 
in their organizational documents that they may influence federal 
elections. Thus, groups whose enabling documents authorize them to 
engage in ``any lawful purpose'' or similarly broad language would not 
become political committees solely on the basis of this provision in 
the absence of a specific election-influencing proviso.
    (4) Money, services or anything of value received by an 
organization that is controlled by a federal candidate, his or her 
principal campaign committee, or any other committee authorized by a 
federal candidate pursuant to 11 CFR 100.5(f)(1),\2\ other than as an 
organization qualifying for tax exempt status pursuant to 26 U.S.C. 
501(c)(3) or (c)(4) \3\ or an organization whose exclusive purpose is 
the election or nomination of that candidate for state or local office. 
This provision would remove the guise of independence from groups set 
up by candidates, or by their campaign staff or their agents, to assist 
the candidates' aims, and would focus the Commission's inquiry into the 
issue of ``control'' by the candidate.
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    \2\ Paragraph 100.5(f)(1) defines ``authorized committee'' as 
the principal campaign committee or any other political committee 
authorized by a candidate to receive contributions or make 
expenditures on behalf of such candidate, which has not been 
disavowed under 11 CFR 100.3(a)(3).
    \3\ Social welfare organizations registered with the IRS under 
26 U.S.C. 501(c)(4) may work in political candidate elections, but 
only as long as that activity remains secondary to their primary, 
non-political work. They may also establish separate segregated 
funds (``SSF'') that engage in political activity; and qualify as 
political committees for FECA purposes under 2 U.S.C. 441b(b)(2)(C) 
and 11 CFR 100.5(b).
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    This proposal is intended to clarify when the relationship between 
a candidate or candidate's committee and another organization becomes 
so close that funds given to the organization become ``for the purpose 
of influencing'' an election. However, it would exclude organizations 
that have a merely incidental relationship to a candidate, e.g., that 
share a common vendor or a staffer, and organizations that are bona 
fide charities or social welfare groups. For purposes of this 
paragraph, ``controlled'' would mean substantial participation in the 
organization's decision-making regarding the organization's activities 
or disbursements.
    (5) Money, services, or anything of value received by an 
organization that claims tax exempt status pursuant to 26 U.S.C. 527 
and does not restrict its activities to influencing or attempting to 
influence elections to state or local public office or office in a 
political organization. If an organization claims 527 status and does 
not confine its activities to state, local or intra-party elections, it 
is acknowledging that it is an organization that is ``influencing or 
attempting to influence the selection * * * of any individual to any 
Federal * * * office.'' 26 U.S.C. 527(e)(2). This proposal would 
complement Public Law (``P.L.'') 106-230 and would subject 527 
organizations that influence federal elections to FECA's reporting 
requirements for political committees, rather than the reporting 
requirements of Public Law 106-230. See 26 U.S.C. 527(a)(i)(6), and 
discussion of 527 organizations, infra.
    (6) Payments or costs deemed to be in-kind contributions for 
general public political communications, pursuant to 11 CFR 100.23. 
This provision would incorporate the Commission's recently-promulgated 
coordination rules. 65 FR 76138 (Dec. 6, 2000).

[[Page 13684]]

B. Expenditure Definition

    The Commission also seeks comments on revising paragraph (a) of 
section 100.5 by adding five new elements to the definition of 
``expenditure.'' These new elements would include:
    (1) Payments or costs associated with the organization's 
solicitation of money or any other thing of value, where the 
solicitation appeals to donors by stating that donations will be used 
to influence a federal election. This proposal would follow the first 
additional element of the revised definition of ``contribution,'' 
supra.
    (2) Payments or costs deemed to be coordinated expenditures for 
general public political communications, pursuant to 11 CFR 100.23. 
This provision would incorporate the Commission's recently-promulgated 
coordination rules. 65 FR 76138 (Dec. 6, 2000).
    (3) Payments or costs associated with any general public political 
communication that refers to a candidate for federal office and has 
been tested to determine its probable impact on the candidate 
preference of voters. This proposal would provide an objective basis 
for determining if an otherwise independent ``issue ad'' was in reality 
undertaken for the purpose of influencing voters' preferences with 
respect to one or more federal candidates. The term ``general public 
political communication'' would have the same meaning as in 11 CFR 
100.23: it will include communication ``made through a broadcasting 
station (including a cable television operator), newspaper, magazine, 
outdoor advertising facility, mailing or any electronic medium, 
including the Internet or on a web site, with an intended audience of 
over one hundred people.'' 11 CFR 100.23(e)(1).
    (4) Payments or costs associated with any general public political 
communication that refers to a candidate for federal office, where the 
intended audience has been selected based on its voting behavior. Like 
the previous element, this would provide an objective basis for 
determining that a communication to a targeted group of people, such as 
those residing in a specific area, had the purpose of influencing 
voters' preferences with respect to a particular candidate. Under this 
scenario, a link would have been established between the communication 
and the selection of the intended audience.
    (5) Payments made to a commercial vendor for a service or product 
with the express understanding that the service or product be designed 
to influence one or more federal elections. This provision would rely 
on an organization's objective representations of purpose in the 
acquisition of goods or services to establish political committee 
status.
    The Commission also seeks comments on adding new paragraph (a)(3) 
to section 100.5. This paragraph would provide that, notwithstanding 
any other provision of 11 CFR 100.5, a business organized for profit 
that provides goods or services to others at their usual and normal 
charge would not be considered a political committee. This savings 
clause would prevent political consultants and commercial vendors 
operating at the direction of their clients from becoming political 
committees if, for example, a vendor or consultant provides money up 
front to another vendor as an agent of a political committee with the 
express instruction that the service provided be for the purpose of 
influencing a federal election. Also, since vendors receive money from 
political committees organized under 11 CFR 100.5(b), (c), and (d) and 
are for-profit organizations, without this exemption they would be 
considered political committees under proposed paragraph 
100.5(a)(1)(ii).
    If these new descriptions of ``contribution'' and ``expenditure'' 
are adopted, the Commission could add cross references in 11 CFR 100.7 
and 100.8 to the new language in 11 CFR 100.5(a), to alert readers that 
they need to also consult section 100.5. Alternatively, the Commission 
could limit the impact of the proposed amendments to 11 CFR 100.5 to 
political committees, thus leaving the current definitions of 
``contribution'' and ``expenditure'' in 11 CFR 100.7 and 100.8 
unchanged.
    An alternative approach would be to locate the proposed new 
objective criteria in the generally applicable definitions of 
``contribution'' and ``expenditure'' found at 11 CFR 100.7 and 100.8, 
respectively. The Commission invites comments on which of these 
approaches is appropriate, as well as whether they comport with 
constitutional safeguards and the Commission's statutory authority. No 
decision on whether to proceed further will be made until after the 
comment period has concluded.

II. The ``Major Purpose'' Test

A. Case Law

    As explained above, the Buckley Court stated that the overbreadth 
of the general definition of ``political committee'' at 2 U.S.C. 
431(4)(A) could be avoided if the definition were limited to ``those 
organizations that are under the control of a candidate or the major 
purpose of which is the nomination or election of a candidate.'' 424 
U.S. at 79. Similarly, in MCFL, the Supreme Court noted that an 
organization that would otherwise be exempt from FECA's requirements 
would be classified as a political committee if its ``independent 
spending becomes so extensive that the organization's major purpose may 
be regarded as campaign activity.'' 479 U.S. at 262. Several lower 
court decisions have also addressed the ``major purpose'' test.
    In FEC v. GOPAC, 917 F.Supp. 851, 859, 862 (D.D.C. 1996), a federal 
district court interpreted the FECA to reach only groups that 
``received and/or expended $1,000 or more and had as their major 
purpose the election of a particular candidate or candidates for 
federal office.'' The court held that an ``organization's purpose may 
be evidenced by its public statements of its purpose or by other means, 
such as its expenditures in cash or in kind to or for the benefit of a 
particular candidate or candidates.'' The Commission did not appeal the 
district court's opinion. Other courts have endorsed a different 
approach.
    In Akins v. FEC, 101 F.3d 731 (D.C. Cir. 1997) (en banc) 
(``Akins''), a group of former ambassadors, congressmen, and government 
officials argued that the American Israel Public Affairs Committee 
(``AIPAC''), an organization they considered to be a political 
committee, had failed to register with the Commission or file campaign 
disclosure reports. In 1989, the year in which the challenged activity 
took place, AIPAC had a budget of about $10 million. The Commission 
determined that AIPAC likely had made campaign contributions exceeding 
the $1,000 FECA threshold, but concluded that there was not probable 
cause to believe AIPAC was a political committee because its campaign-
related activities were only a small portion of its overall activities 
and, therefore, not its major purpose.
    The Court of Appeals for the District of Columbia Circuit concluded 
that an organization should be considered a political committee once it 
exceeds the $1,000 contribution level, even though its major purpose is 
not campaign-related activity. Id. at 741-42. The court reasoned that 
the major purpose test becomes relevant only where independent 
expenditures are involved.
    While the Supreme Court granted certiorari in the Akins case, it 
avoided ruling on this issue. Finding that ``a considered determination 
of the scope of the statutory exemption that Congress enacted to 
address membership

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communication would helpfully inform our consideration of the `major 
purpose' test,'' the Court declined to rule on the test's scope or 
meaning. 524 U.S. 1, 29 (1998). The Court suggested that a broader 
interpretation of the ``membership exception'' could affect its 
evaluation of whether Buckley's narrowing interpretation of what 
constitutes a political committee is necessary in all contexts. Id. at 
28. In light of the Commission adopting membership communication 
regulations that substantially expanded the number of organizations 
that could take advantage of the membership exception without 
triggering political committee status, see 11 CFR 100.8(b)(4)(iv), 
114.1(e), the Commission seeks comments on whether a less restrictive 
reading of Buckley is appropriate and necessary to promote fuller 
disclosure of campaign activity.
    In declaring North Carolina's ``political committee'' definition 
unconstitutional, the Fourth Circuit in North Carolina Right to Life, 
Inc. v. Bartlett, 168 F.3d 705, 712 (4th Cir. 1999) read Buckley to 
limit narrowly the FECA's definition of ``political committee'' to 
``includ[e] only those entities that have as a major purpose engaging 
in express advocacy in support of a candidate * * * by using words such 
as `vote for,' `elect,' `support,' `vote against,' `defeat,' or 
`reject.' '' Consequently, North Carolina's definition of ``political 
committee,'' \4\ which, like the FECA definition, included 
organizations that ``influence or attempt to influence the result of an 
election'' (a ``classic form of issue advocacy''), was 
``unconstitutionally vague and overbroad.'' Id. at 713.
    In North Carolina Right to Life, Inc. v. Leake, 108 F.Supp.2d 498 
(E.D. N.C. 2000) (``NCRL''), a federal district court upheld a North 
Carolina statute revised in light of Bartlett that, in contrast to the 
FECA, defines ``political committee'' as, inter alia, a group that has 
``a major purpose to support or oppose the nomination or election of 
one or more candidates.'' N.C.G.S. Sec. 163-278.6(14)(d). The state law 
further provides that a group is presumed to have a ``major purpose'' 
of supporting or opposing one or more candidates if its contributions 
and expenditures total over $3,000 during an election cycle. However, 
the state statute further provides that the presumption can be rebutted 
``by showing that the contributions and expenditures giving rise to the 
presumption were not a major part of activities of the organization 
during the election cycle.'' Id.\5\ The Commission is seeking comments 
on whether a similar approach should be employed at the federal level. 
Should the Commission amend the definition of ``political committee'' 
at 11 CFR 100.5 to contain a rebuttable presumption that groups that 
have a major purpose of supporting or opposing one or more federal 
candidates are presumed to be political committees for purposes of 
these rules?
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    \4\ Prior to Bartlett, North Carolina defined ``political 
committee'' as ``a combination of two or more individuals, or any 
person, committee, association, or organization, the primary purpose 
of which is to support or oppose any candidate or political party or 
to influence or to attempt to influence the result of an election.''
    \5\ It should be noted that the court also held that an 
``express advocacy'' component was not constitutionally required of 
North Carolina's ``political committee'' definition.
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    In Florida Right to Life, Inc. v. Mortham, No. 98-770-CIV-ORL-19A, 
1999 WL 33204523, at *4, 5 (M.D. Fla., Dec. 15, 1999), a federal 
district court declared Florida's ``political committee'' definition 
\6\ ``unconstitutionally overbroad'' because its reach was not limited 
to ``organizations whose major purpose is engaging in `express 
advocacy,' as that term is defined in Buckley v. Valeo, 424 U.S. 1, 42-
44 (1976).'' The Eleventh Circuit affirmed the district court, holding 
the definition to be ``unconstitutionally overbroad under the First 
Amendment,'' in Florida Right to Life, Inc. v. Lamar, 238 F.3d 1288 
(11th Cir. 2001).
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    \6\ Florida Stat. section 106.11(1) defined ``political 
committee'' as a ``combination of two or more individual, or a 
person other than an individual, the primary or incidental purpose 
of which is to support or oppose any candidate, issue or political 
party, which accepts contributions or makes expenditures during a 
calendar year in an aggregate amount in excess of $500.''
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    In South Carolina Citizens for Life, Inc. v. Davis, C.A. No. 3:00-
124-19 (D. S.C. Sept. 11, 2000), the federal district court in South 
Carolina declared (without analysis) South Carolina's ``political 
committee'' definition (i.e., group of persons that spends more than 
$500 to ``influence the outcome of an elective office'') 
unconstitutional as applied to the plaintiff and permanently enjoined 
the defendants from enforcing it against the plaintiff's ``issue and 
express advocacy activities.'' The court's order preliminarily 
enjoining the statute at issue did so because of its application to 
issue advocacy and because of the seriousness of the plaintiff's claim 
that its proposed express advocacy was so insignificant (less than 20 
percent of its disbursements) that the ``major purpose'' test would 
exempt it from the requirements of the statute.

B. Alternatives That Would Incorporate ``Major Purpose'' Into the Text 
of the Rules

    Comments are sought as to several ways, which are described below, 
the major purpose test for political committee status could be applied 
to these entities. Please note that specific regulatory language that 
could be used to implement the various alternatives is not attached.
Alternative 1: Percentage of Disbursements
    One way to define ``major purpose'' would consider an organization 
to be a political committee if at least 50% of that organization's 
disbursements are made for the purpose of influencing federal and non-
federal elections. Comments are sought on whether a higher or lower 
percentage might be more appropriate in particular circumstances. For 
example, an organization may spend 30% or 40% of its total 
disbursements on election-related activity, while its other 
disbursements are used for a wide range of purposes. Under these 
circumstances, election-related activity could still be considered that 
organization's major purpose, even though most of its spending went for 
other purposes. This could also be true if, for example, an 
organization made 30% of its disbursements for electoral activity, and 
no more than 25% for any other purpose.
Alternative 2: Percentage of Time and Disbursements
    Another approach would evaluate not only an organization's receipts 
and disbursements, but also the amount of time spent by its paid and 
unpaid staff. Both time and money would be divided among certain broad 
groupings, such as electoral, lobbying and educational activity. The 
organization's possible status as a political committee could be 
determined in several different ways. For example, a determination 
could be made as to whether the group devoted over 50% of either its 
time or its monetary resources to electoral activity and thus became a 
political committee. Alternatively, once these ratios are determined, 
if the combined share of time and money spent on elections is larger 
than that for either lobbying or education, the organization's major 
purpose could be considered to influence elections. The Commission 
seeks comments on these alternatives, as well.
    1. Volunteer Activity. Under Alternative 2, the Commission also 
seeks comments on how, if at all,

[[Page 13686]]

organizations should value volunteer activity in making this 
calculation. Volunteer activity may become significant in situations 
where, for example, an organization spends only a small amount of money 
on election-related activity, but uses the money to recruit and train 
groups of volunteers to canvass neighborhoods, run phone banks, or 
sponsor other volunteer activity that has a substantial impact on the 
campaign. On the other hand, volunteer activity is exempt from the 
FECA's definition of ``contribution.'' 2 U.S.C. 431(8)(B)(i), 11 CFR 
100.7(b)(3); but see 11 CFR 100.7(a) for qualifications and exceptions. 
Thus, it can be argued that the value of such activity should not be 
included in any ``major purpose'' computation.
    2. Time for the Computation. A related issue is, what period of 
time should be used in assessing major purpose? Should it be an 
election cycle, a calendar year, a calendar quarter, or some other 
period?
    Using a quarterly basis would cover those situations where an 
organization engaged in substantial lobbying and educational efforts 
and only nominal campaign activity during the first three quarters of 
an election year, but put massive resources into a campaign during the 
last quarter in which the election was held. However, the statutory 
framework of the Act is such that it may be necessary to use a calendar 
year in computing this activity. Please note that once an organization 
qualifies as a political committee, it retains that status until it 
terminates. See 11 CFR 102.3 (termination of registration) and 11 CFR 
102.4 (administrative termination).
Alternative 3: Percentage of Disbursements Spent on Communications 
Containing Express Advocacy
    In contrast to Alternatives 1 and 2, the Commission is considering 
a substantially narrower approach to determining an organization's 
major purpose. Under Alternative 3, the organization would compare its 
total disbursements to only the amount it spends on general public 
political communications that expressly advocate the election or defeat 
of clearly identified candidates (i.e., ``independent expenditures,'' 2 
USC 431(17)) and any contributions, 2 USC 431(8). This approach is 
consistent with MCFL, which reiterated and expanded the scope of the 
express advocacy requirement to section 441b of the Act: ``[In 
Buckley], the Court held that the term `expenditure' encompassed `only 
funds used for communications that expressly advocate the election or 
defeat of a clearly identified candidate.' * * * We therefore hold that 
an expenditure must constitute `express advocacy' in order to be 
subject to the prohibition of Sec. 441b.'' 479 U.S. at 248-49, quoting 
Buckley, 424 U.S. at 80.
    This approach also follows Fourth Circuit's reading of Buckley in 
Bartlett, Mortham and Davis, supra, and other cases.
    In Colorado Right to Life, Inc. v. Davidson, No. 99-1414, 2000 WL 
1902427, at *14 (10th Cir., Dec. 26, 2000), the Tenth Circuit declared 
a state statute defining ``political committee'' unconstitutional as 
applied to plaintiffs. The definition encompassed groups that 
``associated themselves for the purpose of making independent 
expenditures,'' i.e., on communications unambiguously referring to 
candidates. The court read Buckley and its progeny for the rule that 
``communications that do not contain express words advocating the 
election or defeat of a particular candidate are deemed issue advocacy, 
which the First Amendment shields from regulation.'' Id. at *7.
    In Iowa Right to Life Committee, Inc. v . Williams, No. 4-98-CV-
10399, slip op. at 17 (S.D. Iowa, Oct. 23, 1998), a federal district 
court preliminarily enjoined Iowa's definition of ``political 
committee,'' which encompassed committees that spend in excess of $500 
for the ``purpose of supporting or opposing a candidate for public 
office,'' because the ``plain meaning of the phrase can be interpreted 
to include issue advocacy.'' The court had read Buckley as holding that 
the ``government may not regulate funds spent to publish communications 
that contain what is generally referred to as `issue advocacy.' '' Id. 
at 8 n.3.
    In Virginia Soc'y for Human Life, Inc. v. Caldwell, 152 F.3d 268 
(4th Cir. 1998), the Fourth Circuit held that a constitutionally narrow 
construction of Virginia's ``political committee'' definition was not 
readily apparent because the statutory language encompassed groups that 
spend money ``for the purpose of influencing the outcome of any 
election'' and thus necessarily applied to ``materials which simply 
describe a candidate's voting record in the hopes of influencing 
people's votes, that is, issue discussion.'' \7\
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    \7\ Numerous other courts, while not addressing the 
constitutionality of ``poltical committee'' definitions, have 
addressed the application of the express advocacy requirement. See 
Perry v. Bartlett, 231 F.3d 155, 160 (4th Cir. 2000); Vermont Right 
to Life, Inc. v. Sorrell, 221 F.3d 376, 386 (2nd Cir. 2000); Iowa 
Right to Life Comm., Inc. v. Williams, 187 F.3d 963, 968-70 (8th 
Cir. 1999); FEC v. Christian Action Network, Inc., 110 F.3d 1049, 
1051 (4th Cir. 1997); Maine Right To Life Comm., Inc. v. FEC, 98 
F.3d 1 (1st Cir. 1996); Faucher v. FEC, 928 F.2d 468, 472 (1st Cir. 
1991); FEC v. Central Long Island Tax Reform Immediately Comm., 616 
F.2d 45, 53 (2d Cir. 1980) (en banc); Kansans for Life, Inc. v. 
Gaede, 38 F. Supp.2d 928 (D. Kan. 1999); Right to Life of Mich., 
Inc. v. Miller, 23 F. Supp.2d 766 (W.D. Mich. 1998); Planned 
Parenthood Affiliates of Mich., Inc. v. Miller, 21 F. Supp.2d 740 
(E.D. Mich. 1998); Right To Life of Dutchess County, Inc. v. FEC, 6 
F. Supp.2d 248 (S.D. N.Y. 1998); Clifton v. FEC, 927 F. Supp. 493, 
496 (D. Me. 1996), aff'd on other grounds, 114 F.3d 1309 (1st Cir. 
1997); FEC v. Survival Educ. Fund, Inc., 1994 WL 9658, at *3 (S.D. 
N.Y. Jan. 12, 1994), aff'd in part and rev'd in part on other 
grounds, 65 F.3d 285 (2d Cir. 1995); FEC v. Colorado Republican Fed. 
Campaign Comm., 839 F.Supp. 1448, 1456 (D. Colo. 1993), rev'd on 
other grounds, 59 F.3d 1015 (10th Cir. 1995), vacated on other 
grounds, 519 U.S. 604 (1996); West Virginians For Life, Inc. v. 
Smith, 919 F.Supp. 954, 959 (S.D. W.Va. 1996); FEC v. NOW, 713 
F.Supp. 428 (1989); FEC v. AFSCME, 471 F. Supp. 315, 317 (D. D.C. 
1969); Washington State Republican Party v. State Public Disclosure 
Comm'n, 141 Wash.2d 245, 4 P.3d 888 (2000); Elections Bd. Of 
Wisconsin v. Wisconsin Mfrs. & Commerce, 227 Wis.2d 650, 597 N.W.3d 
721 (1999); Osterberg v. Peca, 12 S.W.3d 31, 50-52 (Tex. 2000); 
Brownsburg Area Patrons Affecting Change v. Baldwin, 714 N.E.2d 135 
(Ind. 1999); State v. Proto, 526 A.2d 1297, 1310-11 (Conn. 1987); 
Richey v. Tyson, 120 F.Supp.2d 1298, 1310-12 (S.D. Ala. 2000); 
Chamber of Commerce of the United States v. Moore, No. 00-228ws 
(S.D. Miss. Nov. 2, 2000).
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    The Commission invites comment on other possible content standards 
that could be used for communications.
Alternative 4: Dollar Amount of Campaign Activity
    As discussed above, the Akins case illustrated that it is possible 
for a group to spend millions of dollars in direct candidate support 
that nevertheless represents only a small percentage of its overall 
financial activity. Thus, under any of the alternatives set out above, 
its ``major purpose'' might not be the election of candidates and it 
would therefore not be a political committee. Consequently, the 
Commission seeks comments on establishing a $50,000 threshold for 
political committee status. If an organization exceeds this amount in 
election activity, or alternatively in express advocacy communications, 
it will automatically be deemed to have a major purpose of influencing 
federal elections. Thus, it will be a political committee, even if 
$50,000 represents a small percentage of its total disbursements for 
all activities. Comments are also sought on a higher or lower threshold 
amount than $50,000.

III. Section 527 Organizations and Recent Statutory Changes

    Section 527 of the Internal Revenue Code (``I.R.C.'') grants 
beneficial tax treatment to political organizations, commonly called 
``527 organizations,'' that meet the qualifications set forth

[[Page 13687]]

below. Organizations that qualify as FECA political committees qualify 
as 527 organizations, and thus are able to take advantage of this 
beneficial tax treatment.\8\ Other 527 organizations, however, are 
alleged to have engaged in substantial political activity that fails to 
trigger the FECA registration and reporting requirements, and 
contribution restrictions.
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    \8\ Section 527 organizations are taxed only on their investment 
income. 26 U.S.C. 527(f).
---------------------------------------------------------------------------

    The I.R.C. at section 527(e)(1) defines ``political organization'' 
as ``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.'' ``Exempt function'' is 
defined at I.R.C. section 527(e)(2) to include ``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.''
    This definition is on its face substantially broader than the FECA 
definition of ``political committee.'' Moreover, beginning in 1996, the 
Internal Revenue Service (``IRS'') has issued a series of private 
revenue rulings holding that activities such as circulating voting 
records, voter guides, and ``issue advocacy'' communications--those 
that do not expressly advocate the election or defeat of a clearly 
identified candidate--fall within the ``exempt function'' category 
under I.R.C. section 527(e)(2). Private Rulings 9652026 (Oct. 1, 1996), 
9808037 (Nov. 21, 1997), and 199925051 (March 29, 1999). As knowledge 
of these rulings became more widespread, the number of 527 
organizations is thought to have increased substantially, with a 
concomitant increase in their spending on federal elections. See Hill, 
``Probing the Limits of Section 527 to Design a New Campaign Finance 
Vehicle,'' Tax Notes, Jan. 17, 2000, at 387-88.
    Until recently, section 527 organizations that did not qualify as 
political committees under the FECA filed no registration statements or 
informational material with the Commission or the IRS. Moreover, since 
section 527 taxes only investment income earned by these organizations, 
see 26 U.S.C. 527(f), and many earn no such income, they are not 
required to file tax returns with the IRS. Thus, unless they qualified 
as FECA committees, or voluntarily disclosed this information, little 
was known about their funding or activities.
    When the Commission first considered the possibility of a 
rulemaking in this area, it anticipated that one of the issues such a 
rulemaking might address would be treatment of section 527 
organizations. Since that time, however, P.L. 106-230, 114 Stat. 477, 
was signed into law on July 1, 2000. That law requires 527 
organizations to notify the Secretary of the Treasury of their status 
and provide certain identifying information within 24 hours of the date 
on which the organization is established, 26 U.S.C. 527(a)(i)(1), or 30 
days after the date of enactment of the law, for those organizations in 
existence on July 1, 2000. 26 U.S.C. 527(d)(2). They must also disclose 
information on expenditures that aggregate over $500 in a calendar year 
to a single person, and contributions from persons that aggregate $200 
or more during a calendar year. For additional information on this new 
law, see Revenue Ruling 2000-49 (Oct. 30, 2000). Please note that these 
statutory requirements do not apply to organizations that qualify as 
political committees under the FECA. 26 U.S.C. 527(a)(6), 527(j)(5)(A).
    Despite enactment of Public Law 106-230, concern remains that 
Commission action is needed to clarify when an organization becomes a 
political committee under the FECA. While many 527 organizations are 
complying with the new tax law and IRS requirements, others may have 
changed their tax status in order to avoid having to do so. The 
Commission is seeking comment as to how this rulemaking should address 
527 organizations and organizations that are not organized under 26 
U.S.C. 527.
    The Commission also welcomes comments on any other aspect of the 
issues addressed in this Notice.

List of Subjects in 11 CFR Part 100

    Elections.

    For the reasons set out in the preamble, it is proposed to amend 
Subchapter A, Chapter I of title 11 of the Code of Federal Regulations 
to read 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(a)(11), and 438(a)(8).

    2. Paragraph (a) of section 100.5 would be revised to read as 
follows:


11 CFR 100.5  Political committee (2 U.S.C. 431(4), (5), (6)).

* * * * *
    (a) Except as provided in paragraphs (b), (c) and (d) of this 
section, any committee, club, association, or other group of persons 
that receives contributions aggregating in excess of $1,000, or that 
makes expenditures aggregating in excess of $1,000 during a calendar 
year is a political committee.
    (1) The following are examples of ``contributions'' within the 
meaning of 11 CFR 100.7(a):
    (i) Money, services or any other thing of value received as the 
result of a solicitation, the express purpose of which was to raise 
money to influence federal elections;
    (ii) Money, services or anything of value received from a political 
committee organized pursuant to paragraphs (b), (c), or (d) of this 
section, except money, services or anything of value received by an 
organization qualifying for tax exempt status pursuant to 26 U.S.C. 
501(c)(3);
    (iii) Money, services or anything of value received by an 
organization that is expressly authorized by its charter, constitution, 
bylaws, articles of incorporation or other organizational document to 
engage in activities for the purpose of influencing federal elections;
    (iv) Money, services or anything of value received by an 
organization that is controlled by a federal candidate, his or her 
principal campaign committee, or any other committee authorized by a 
federal candidate pursuant to paragraph (f)(1) of this section. This 
provision shall not encompass an organization qualifying for tax exempt 
status pursuant to 26 U.S.C. 501(c)(3) or (c)(4) or an organization 
whose exclusive purpose is the election or nomination of that candidate 
for state or local office;
    (v) Money, services, or anything of value received by an 
organization that claims tax exempt status pursuant to 26 U.S.C. 527 
and does not restrict its activities to influencing or attempting to 
influence elections to state or local public office or office in a 
political organization; or
    (vi) Payments or costs deemed to be in-kind contributions for 
general public political communications, pursuant to 11 CFR 100.23.
    (2) The following are examples of ``expenditures'' within the 
meaning of 11 CFR 100.8:
    (i) Payments or costs associated with the organization's 
solicitation of money or any other thing of value, where the 
solicitation appeals to donors by stating that donations will be used 
to influence a federal election;

[[Page 13688]]

    (ii) Payments or costs deemed to be coordinated expenditures for 
general public political communications, pursuant to 11 CFR 100.23;
    (iii) Payments or costs associated with any general public 
political communication that refers to a candidate for federal office 
and has been tested to determine its probable impact on the candidate 
preference of voters;
    (iv) Payments or costs associated with any general public political 
communication that refers to a candidate for federal office, where the 
intended audience has been selected based on its voting behavior; or
    (v) Payments made to a commercial vendor for a service or product, 
with the express understanding that the service or product be designed 
to influence one or more federal elections.
    (3) Notwithstanding any other provision of this section, a business 
entity organized for profit that provides goods or services to others 
at the usual and normal charge for such goods or services shall not be 
considered a political committee. Discounts may be provided as set 
forth in 11 CFR 9008.9(a).
* * * * *

    Dated: March 1, 2001.
Danny L. McDonald,
Chairman, Federal Election Commission.
[FR Doc. 01-5473 Filed 3-6-01; 8:45 am]
BILLING CODE 6715-01-P