[Federal Register Volume 68, Number 171 (Thursday, September 4, 2003)]
[Proposed Rules]
[Pages 52531-52539]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-22530]


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FEDERAL ELECTION COMMISSION

11 CFR Parts 110, 113, 9004, and 9034

[Notice 2003-17]


Mailing Lists of Political Committees

AGENCY: Federal Election Commission.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Federal Election Commission requests comments on proposed 
additions to its rules covering the sale, rental, and exchange of 
political committee mailing lists. The proposed rules address when the 
proceeds of a political committee's rental or sale of its mailing list, 
or an exchange of its mailing list with another entity, would be 
considered a contribution to that committee subject to the limitations 
and prohibitions of the Federal Election Campaign Act of 1971. The 
proposed rules also address the personal use by a candidate of his or 
her authorized committee's mailing list. Finally, the proposed rules 
address the sale or rental of a mailing list by an authorized committee 
of a publicly funded presidential candidate. The Commission has not 
made any final decisions on any of the proposed revisions in this 
Notice. Further information is provided in the SUPPLEMENTARY 
INFORMATION that follows.

DATES: Comments must be received on or before September 25, 2003. If 
the Commission receives sufficient requests to testify, it will hold a 
hearing on these proposed rules on October 1, 2003, at 9:30 a.m. 
Commenters wishing to testify at the hearing must so indicate in their 
written or electronic comments.

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. 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. 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, NW., Washington, DC 20463. Commenters are strongly encouraged 
to submit comments electronically to ensure timely receipt and 
consideration. The Commission will make every effort to post public 
comments on its Web site within ten business days of the close of the 
comment period. The hearing will be held in the Commission's ninth 
floor meeting room, 999 E Street NW., Washington, DC.

FOR FURTHER INFORMATION CONTACT: Ms. Mai T. Dinh, Acting Assistant 
General Counsel, or Mr. Jonathan M. Levin, Senior Attorney, 999 E 
Street NW., Washington, DC 20463, (202) 694-1650 or (800) 424-9530.

SUPPLEMENTARY INFORMATION: One of the principal assets of many 
political committees is their mailing list. Political committees 
develop their mailing lists to ensure a high response rate from 
potential contributors. Several advisory

[[Page 52532]]

opinions, audits, and enforcement matters have presented a number of 
issues concerning the rental, sale, exchange, disposition, and 
ownership of political committees' mailing lists.\1\ Central to the 
analysis of these issues is whether the proceeds from these 
transactions are contributions to the political committees that are 
subject to the Federal Election Campaign Act of 1971, as amended 
(``FECA'' or ``the Act''), 2 U.S.C. 431, et seq. The Commission is 
beginning this rulemaking to adopt formally its historical approach to 
these issues, or to modify those approaches as appropriate, and to 
provide candidates and political committees with more comprehensive 
guidance on commercial transactions involving mailing lists.
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    \1\ See Advisory Opinions (``AO'') 2003-16, 2002-14, 1988-12, 
1982-41, 1981-53, and 1081-46; Matters Under Review (``MURs'') 4382 
and 4401 (Dole for President, Inc.), MUR 3371 (Americans United 
Committee), and MUR 1602 (Republican National Independent 
Expenditure Committee).
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I. Proposed Addition of 11 CFR 110.21 Committee Rental or Sale of 
Mailing Lists to Others

A. Background and Overview

    The Act defines the term ``contribution'' to include ``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) (emphasis added); see also 11 
CFR 100.52(a). The term ``anything of value'' is defined in the 
regulations as ``the provision of any goods or services without charge 
or at a charge that is less than the usual and normal charge for such 
goods or services.'' 11 CFR 100.52(d)(1). The ``usual and normal 
charge'' for goods is defined in 11 CFR 100.52(d)(2) as ``the price of 
those goods in the market from which they ordinarily would have been 
purchased at the time of the contribution.'' Under 11 CFR 100.52(d)(1), 
the provision of goods or services at less than the usual and normal 
charge is an in-kind contribution in the amount of the difference 
between the usual and normal charge and the amount charged the 
political committee. The regulations also provide, however, that the 
entire amount paid as the purchase price for a fundraising item sold by 
a political committee is a contribution. 11 CFR 100.53.
    Proposed 11 CFR 110.21 would state when certain transactions 
involving the sale or rental of a mailing list by a political committee 
are contributions to that committee and when they are not. Proposed 
paragraph (a) would list the conditions that would need to be satisfied 
for a mailing list rental payment to not be a contribution by the 
person leasing the mailing list. Proposed paragraph (b) would 
incorporate similar conditions for the sale of mailing lists. Proposed 
paragraph (c) would explain the ramifications of failing to comply with 
proposed paragraphs (a) or (b). Reporting would be addressed in 
proposed paragraph (d). Transactions between a candidate and his or her 
authorized committee would be covered in proposed paragraph (e).

B. 11 CFR 110.21(a)--Rental of Mailing List

    Proposed 11 CFR 110.21(a) would affirmatively allow political 
committees to rent their mailing lists to other persons, including 
other political committees. Further, it states that the rental payments 
would not be treated as contributions if certain conditions pertaining 
to the rental charge and use of the mailing list are met. These 
conditions are explained in detail below.
1. Usual and Normal Charge
    One of the key factors used by the Commission in determining 
whether a sale or rental of a mailing list results in a contribution is 
whether the amount paid is the usual and normal charge for the mailing 
list. See AO 2002-14. The usual and normal charge for a mailing list 
allows the Commission to determine whether the sale or rental of a 
political committee's mailing list is a transaction for equal value.
    A mailing list that is frequently rented on the open market is 
likely to be listed and described in a catalogue such as the SRDS 
Direct Marketing List Source. For each of thousands of lists, the 
catalogue states the number of names on the list, the price per 
thousand names, the minimum number of names that must be ordered, fees 
for addressing services, the amount of the commission, and credit 
policies. If a political committee does not routinely rent out its 
mailing list, it might not be listed in such a catalogue. However, even 
if a mailing list does not appear in a catalogue, a reasonable rental 
price might be ascertainable so long as the valuator is aware of the 
significance of various factors in the market (e.g., he or she knows 
how lists with comparable characteristics are valued, as well as the 
pricing ranges for comparable lists). The price may depend upon such 
factors as how recently the names were updated for accurate addresses, 
how responsive the individuals on the mailing list have been to other 
similar solicitations (particularly recent solicitations), the income 
level of the individuals, and the classification according to list 
industry sector or other subject matter. The Commission seeks comments 
on the ways in which mailing list rentals by political committees are 
similar and/or different from mailing list rentals by non-political 
entities.
    Proposed 11 CFR 110.21(a)(1) would make ascertaining the usual and 
normal charge of a mailing list in advance one of the conditions that 
must be satisfied for the rental proceeds not to be contributions. This 
proposed regulation would not, however, define the factors that a 
committee should use to determine the usual and normal charge. Without 
any further specificity, the definition of ``usual and normal charge'' 
at 11 CFR 100.52(d)(2) and 100.111(e)(2) would apply. The Commission 
seeks comment on whether the rule in new 11 CFR 110.21 should specify 
the appropriate means for determining the usual and normal charge of a 
mailing list, and if so, whether this should be done by adding 
additional factors or in some other fashion. If the SRDS Direct 
Marketing List Source is not dispositive on the fair market value of a 
mailing list, are there other appropriate methodologies that can be 
used to determine the fair market value of a political committee's list 
that takes into account the unique nature of political mailing lists?
    The Commission also seeks comment on whether the political 
committee that wishes to rent its mailing list should have the burden 
of establishing what the usual and normal rental charge is and, if so, 
whether it should be required to do so prior to renting the list. In 
the alternative, the Commission seeks comment on a proposed rule that 
would not specify who has the burden of establishing what the usual and 
normal charge is or when that charge must be established, but that 
would still require political committees to rent their mailing lists at 
the usual and normal charge in order to avoid receiving contributions 
from the lessees.
    Proposed paragraph (a)(1) would also address the other services 
(e.g., labels) provided with the mailing list in the ordinary course of 
business because other services appear to be priced separately. The 
Commission seeks comment on whether it is necessary to enumerate such 
services in paragraph (a)(1), or whether to assume that the usual and 
normal rental charge includes such services. Comment is also sought on 
whether services other than labels should be specifically mentioned in 
considering the usual and normal charge.

[[Page 52533]]

2. Rental at the Usual and Normal Charge With Commercially Reasonable 
Contractual Terms
    Proposed paragraph (a)(2) of 11 CFR 110.21 would require that the 
mailing list (or list portion) be rented at the usual and normal charge 
for the contracted use of the list in a bona fide arm's length 
transaction with commercially reasonable contractual terms. Proposed 
paragraph (a)(2) would also indicate that if there is not a bona fide 
arm's length transaction, a rebuttable presumption would be raised that 
the exchange is not of equal value.
    The Commission has relied on several signposts for ensuring that an 
arrangement between a political committee and another person 
constitutes a bona fide transaction, rather than serving as a vehicle 
for making a contribution to the committee. One of the most important 
of these signposts is whether the transaction represented a bargained-
for exchange negotiated at arm's length. For example, the list rentals 
at issue in AO 2002-14 were approved on the condition that the lists be 
``leased at the usual and normal charge in a bona fide, arm's length 
transaction.'' The very concept of ``fair market value,'' which is 
virtually identical to the concept of ``usual and normal charge'' as 
defined in the Commission's regulations, is defined by Black's Law 
Dictionary as ``[t]he price that a seller is willing to accept and a 
buyer is willing to pay on the open market and in an arm's length 
transaction.'' Black's Law Dictionary 1549 (7th ed. 1999). The 
Commission seeks comment on whether a lack of arm's length bargaining 
should result in a rebuttable presumption that the exchange is not for 
fair market value. Cf. Rybak v. Commissioner, 91 T.C. 524, 536-37 (U.S. 
Tax Court 1988) (in tax law, where transactions are frequently examined 
for whether they should be disregarded for lack of economic substance, 
``[t]he absence of arm's length negotiations is a key indicator that a 
transaction lacks economic substance.'')
    To provide guidance on what constitutes commercially reasonable 
terms, proposed paragraph (a)(2) of new 11 CFR 110.21 would list three 
factors, although other factors could be considered as well. These 
factors are intended to ensure that the rental agreement provides that 
the lessee uses the mailing list in a manner comparable to the use in 
normal commercial transactions, thereby preventing transactions where 
the lessee attempts to make a contribution in the guise of a rental 
payment.
    Two factors, in proposed paragraphs (a)(2)(i) and (ii), would 
examine whether the rental agreement permits use within a specified 
time only and, if so, whether this specified time is a reasonable 
period of time. The inclusion of factors in proposed paragraphs 
(a)(2)(i), (ii) and (iv) is intended to ensure that actual use would 
occur and that delayed use would be based on reasonable business 
considerations, such as to avoid competing with a political committee 
solicitation to the same group of persons. The Commission seeks comment 
on whether it should define what is a ``reasonable'' period of time 
and, if so, how it should do so.
    The other factor, at proposed paragraph (a)(2)(iii), would focus on 
the number and types of uses by the person leasing the mailing list to 
ensure that the rental agreement represents a bona fide commercial 
transaction consistent with industry norms and not a transaction used 
to provide something of value to the political committee. The use of 
the phrases ``usual and normal practice of the [list] industry'' and 
``established procedures and past practice'' are consistent with the 
Commission's regulations on extensions of credit in the ordinary course 
of business. See 11 CFR 116.3(c). As to the number of uses under 
proposed paragraph (a)(2)(iii), the Commission seeks comments as to 
whether providing for more than one-time use would be commercially 
reasonable under industry practice. Should the rules establish a 
rebuttable presumption that multiple uses are not commercially 
reasonable?
    The Commission seeks comment on the appropriateness of these 
factors and what other factors, if any, should be included. The 
Commission also seeks comment on whether the presence of a ``bona fide 
arm's length transaction'' should be required under the proposed rule, 
particularly if mailing lists are rented out at the usual and normal 
charge pursuant to commercially reasonable terms. If the Commission 
does require the presence of a ``bona fide arm's length transaction,'' 
should the Commission conclude that this requirement cannot be 
satisfied if committees of the same candidate, or party committees of 
the same political party, rent mailing lists from each other, or if a 
candidate's authorized committee rents a mailing list from an 
unauthorized committee such as that candidate's leadership PAC?
    In addition, should proposed 11 CFR 110.21(a)(2) include a factor 
that considers whether a mailing list is developed over time by the 
political committee primarily for the political committee's own use? 
Conversely, should the proposed rules state that revenue generated from 
a mailing list that is owned by the political committee, but not 
developed over time by it for its own use, is not a form of 
fundraising, and therefore not a contribution? In AO 1991-34, the 
Commission stated that generally the use of a political committee's 
asset to generate income through ongoing business or commercial 
ventures is fundraising in another form. Consequently the proceeds from 
such ventures would be contributions. However, this advisory opinion 
also reiterated the Commission's statement in AO 1988-12 that if an 
asset such as a mailing list was developed by the political committee 
primarily for its own use and not as a fundraising activity, then 
income generated from that asset would not be contributions.
    Lastly, while proposed paragraph (a)(4) would focus on the rental 
agreement, the proposed rule does not include provisions that would 
examine the conduct of the person leasing the mailing list once the 
rental has occurred, to verify that the person leasing the mailing list 
in fact uses the mailing list in accordance with the agreement. The 
Commission seeks comment on whether the proposed rules should include 
such a provision.

C. 11 CFR 110.21(b)--Committee Sale of the Mailing List

    Proposed 11 CFR 110.21(b) would set forth the conditions under 
which the proceeds from the sale of a political committee's mailing 
list would not be a contribution by the purchaser to the political 
committee. Like proposed paragraph (a)(1), proposed paragraph (b)(1) 
would require that the political committee ascertain in advance the 
usual and normal charge for the sale of the mailing list. The political 
committee would also be required to sell the mailing list at that price 
under proposed paragraph (b). As in the case of charges for a list 
rental, the Commission seeks comment on whether the political committee 
that wishes to sell its mailing list should have the burden of 
establishing what the sale price is and, if so, whether it should be 
required to do so prior to selling the list. In the alternative, the 
Commission seeks comment on a proposed rule that would not specify who 
has the burden of establishing what the usual and normal charge is or 
when that sales price must be established, but that would still require 
political committees to sell their mailing lists at the usual and 
normal charge in order to avoid receiving contributions from the 
purchasers.

[[Page 52534]]

    Proposed paragraph (b) would also include the condition contained 
in proposed paragraph (a)(2) that the sale agreement be a bona fide 
arm's length transaction on commercially reasonable terms, including 
terms that address the use of the list by the purchaser. The Commission 
again seeks comment on whether the presence of a ``bona fide arm's 
length transaction'' should be a separate requirement under the rule. 
Comment is also sought as to what factors are appropriate for 
determining the commercial reasonability of the sale of a mailing list. 
For the reasons discussed above, there would also be a rebuttable 
presumption that the exchange is not of equal value if the parties do 
not engage in a bona fide arm's length transaction.
    The Commission also seeks comment on whether it is usual and 
customary in the commercial list marketplace for one entity to provide 
raw list data to another entity that updates and enhances the data and 
where both entities consequently have access to the list. If so, 
comment is sought as to whether such a transaction is a commercially 
reasonable exchange of equal value that would not be an in-kind 
contribution.
    The Commission understands that outright sales of lists are not 
common and that the sale price of a usable list would be substantially 
greater than a rental price. This is particularly true for political 
committees because they depend upon their mailing lists for the 
solicitation of funds. In advisory opinions approving the sale (as 
opposed to rental) of mailing lists, the Commission considered one 
situation involving a terminating committee, and another situation 
involving a committee of a Federal officeholder that was selling assets 
to his gubernatorial campaign committee. AOs 1989-4 and 1981-53. In 
contrast to a terminating committee, an ongoing political committee's 
sale of a valuable list in an arm's length transaction, for which it 
would normally be paid a price much greater than the rental price, 
would be unusual. The Commission seeks comment on whether its 
understandings as to the frequency of sales and the differences between 
sales prices and rental charges are correct. More specifically, the 
Commission also seeks comment as to the likelihood of, and the 
circumstances surrounding, an ongoing political committee selling its 
mailing list (as opposed to updating its current lists).
    Related to comments on actual ongoing practices with respect to 
mailing lists, the Commission seeks comment on whether proposed 11 CFR 
110.21(b) should contain a condition that the political committee must 
be preparing to terminate because the sale of a mailing list by an 
ongoing political committee is so unusual that it would be per se 
commercially unreasonable. Should the Commission prohibit the sale of 
mailing lists other than in certain limited circumstances on the basis 
that there is no readily ascertainable market value for such lists? If 
not, what sources should the Commission look to in order to determine 
an objective value for the sale of mailing lists? Furthermore, if the 
Commission decides to adopt a rule that would limit the sale of a 
political committee's mailing list to a specified period before it 
files a termination report, should the Commission adopt exceptions to 
this special rule? For example, does a purchaser of a political 
committee's mailing list make a contribution to that committee if the 
list has not been updated recently and is of substantially depreciated 
value?

D. 11 CFR 110.21(c)--Rental or Sale Proceeds

    Under proposed 11 CFR 110.21(c)(1), a transaction that does not 
comply with the conditions set forth in proposed paragraphs (a) or (b) 
would be fundraising, and thus would be treated as an in-kind 
contribution to the political committee, subject to the applicable 
limits and source prohibitions of the Act. The contribution amount 
would be the entirety of the rental or sales proceeds (not just the 
difference between the usual and normal charge and an amount paid that 
exceeds that charge). Treatment of the entire payment for a mailing 
list as a contribution would be consistent with 11 CFR 100.53, which 
states that ``the entire amount paid as the purchase price for a 
fundraising item sold by a political committee is a contribution.'' 
Nevertheless, the Commission seeks comment on including in proposed 
paragraph (c)(1) the opposite approach of setting the amount of the 
contribution as the amount paid that exceeds the usual and normal 
charge for the sale of the mailing list.
    While proposed 11 CFR 110.21(c)(1) would address sale or rental of 
mailing lists at an amount that exceeds the usual and normal charge, 
proposed paragraph (c)(2) would retain the current rule at 11 CFR 
100.52 for situations where a political committee donates or transfers 
its mailing list or rents or sells its mailing list at less than the 
usual or normal charge.

E. 11 CFR 110.21(d)--Rental or Sale to the Candidate

    Proposed 11 CFR 110.21(d) would address situations where an 
authorized committee sells or rents its mailing list to the candidate 
who formed the authorized committee. The proposed rule would treat the 
amount paid by the candidate for the mailing list as a contribution 
from the candidate to the authorized committee in that amount. This 
provision would recognize that a transaction between these two parties 
is not at arm's length.

F. 11 CFR 110.21(e)--Reporting of Proceeds

    Proposed 11 CFR 110.21(e) would require that proceeds from the 
rental or sale of a mailing list that complies with the provisions of 
proposed section 110.21 be reported as ``other receipts.''

G. 11 CFR 110.21(f)--Recordkeeping

    Proposed 11 CFR 110.21(f) would set forth the recordkeeping 
requirements associated with the sale or rental of a political 
committee's mailing list. Proposed paragraph (f)(1) would require that 
political committees maintain and make available the sales or rental 
agreements. These agreements must be signed and dated. Proposed 
paragraph (f)(2) would require documentation of the usual and normal 
charge for a political committee's mailing list. For a mailing list 
that is listed in the SRDS Direct Marketing List Source, the political 
committee would need to retain a copy of the price list for its mailing 
list in the SRDS Direct Marketing List Source under propose paragraph 
(f)(2)(A). For a mailing list that is not listed in the SRDS Direct 
Marketing List Source, the political committee would need to obtain a 
written appraisal from an independent entity. The Commission seeks 
comment on whether a written appraisal from an independent entity is 
the appropriate documentation of the usual and normal charge when a 
mailing list is not in the SRDS Direct Marketing List Source. Are there 
other ways to document the usual and normal charge? Should the rules 
include more specific requirements regarding the independent entities, 
such as that they are in the business of appraising the fair market 
value of mailing lists? Do such entities exist?

H. Other Issues

1. Allocation of Rental Proceeds
    The Commission notes that in some cases a political committee's 
mailing list may be developed with non-Federal, as well as Federal 
funds, and that, under the proposed rule, the entire amount received 
from the rental or sale of the list may be deposited in the Federal 
account without being subject to the amount limitations and source

[[Page 52535]]

prohibitions of the Act. The Commission seeks comment on whether 
proposed 11 CFR 110.21 should specify that only some allocable portion 
of the rental proceeds, rather than all of the rental proceeds, may be 
deposited and retained in the committee's Federal account, and that the 
remainder should be deposited in the non-Federal account, provided that 
the political committee is permitted to have a non-Federal account 
under 11 CFR 106.6, 106.7 or part 300.
    One possible allocation rule is that the Federal account may only 
accept and use the portion of the proceeds that reflects the Federal 
portion of the committee's cost in developing the list. Another 
possibility is that the Federal account may only accept and use the 
amounts corresponding to the Federal share of administrative expenses 
applicable to the political committee under 11 CFR 106.6(c) or 
106.7(d)(2). This approach recognizes that the list's development may 
have been paid for as allocable administrative expenses. If such 
splitting of the deposit of the rent proceeds is required, comment is 
also sought on whether national party committees would be allowed to 
retain the entire amount of proceeds from the rental of lists developed 
with mixed funds prior to the effective date of the Bipartisan Campaign 
Reform Act of 2002 (``BCRA''), Pub. L. 107-155 (Mar. 27, 2002), in view 
of the fact that under BCRA they only have accounts with Federal funds.
2. Scope of Proposed Mailing List Rules
    The proposed new rules in 11 CFR 110.21 would apply in the same 
manner to both authorized and unauthorized committees, i.e., party 
committees, multicandidate committees, and other kinds of political 
committees. Nevertheless, the Commission seeks comments as to whether 
there are material distinctions between different types of political 
committees that should be reflected in the new mailing list provisions.

II. Proposed 11 CFR 110.22 Committee Exchange of Mailing Lists

A. Background

    The Commission has, in its advisory opinions, addressed list 
exchanges by political committees with other organizations and has 
concluded that where the exchange is for equal value, a contribution is 
not made to the political committee. AOs 1982-41 and 1981-46; see also 
AOs 2003-16 and 2002-14. Such exchanges allow each organization or 
political committee to seek new potential donors, and often allow each 
organization to add the names of individuals from the other mailing 
list to its own list where those individuals responded to that 
organization's solicitation. AO 1981-46 noted variations of equal 
exchange that went beyond ``a direct exchange of the same number of 
names.'' In some cases, one organization may use fewer names more 
times, or the exchange may involve different numbers of names where the 
names on one mailing list may have a different market value than the 
names on the other list, or other variations dependent upon the 
frequency of use or the value of the names.

B. 11 CFR 110.22(a)--Exchanges of Equal Value

    Proposed 11 CFR 110.22 would describe the conditions under which a 
political committee may exchange its mailing list with another 
organization without receiving a contribution, donation, or other 
reportable receipt. Proposed paragraph (a) would follow, in some 
respects, the proposed rules on mailing list rental and sale regarding 
the period of time and number of uses of the mailing list. It would 
treat the exchange as neither a contribution nor a reportable receipt 
if: (1) The usual and normal charge for the mailing list and the 
services ordinarily provided in the list exchange is ascertained in 
advance; (2) the mailing lists involved in the exchange are of equal 
value, as discussed below; and (3) the actual exchange is a bona fide 
arm's length transaction with commercially reasonable terms. For the 
reasons discussed above, there would also be a rebuttable presumption 
that the exchange is not of equal value if the parties do not engage in 
a bona fide arm's length transaction. ``Equal value'' would be defined 
in proposed paragraph (a)(3)(i) in terms of the usual and normal rental 
value of each organization's or political committee's mailing list, or 
list portion being exchanged, as well as the agreed upon use by the 
organization, and the services provided. Proposed paragraph (a)(3)(ii) 
would also address the timing of the use of the exchanged lists, 
including delayed use if provided for in the agreement.
    The Commission seeks comment on whether, and under what 
circumstances, multiple uses of a mailing list would be commercially 
reasonable; when delayed use would be reasonable; and whether the rule 
should address delayed use. Comment is also sought on how to determine 
the usual and normal charge, and whether the proposed rule should 
affirmatively mandate that the mailing lists be used in a manner 
consistent with the list exchange agreement. The Commission also seeks 
comment on whether the proposed rule should require that each party to 
the exchange establish the fair market value of its own list in advance 
in order to avoid treating the transaction as entailing an in-kind 
contribution. The Commission also seeks comment on whether the presence 
of a ``bona fide arm's length transaction'' should be required, 
particularly if it has been otherwise established that the exchange of 
the mailing lists is an exchange of equal value. Moreover, can the 
requirement of a ``bona fide arm's length transaction'' be satisfied 
even if campaign committees of the same candidate, or party committees 
of the same political party, rent mailing lists from each other or if a 
candidate's authorized committee rents a mailing list from an 
unauthorized committee such as a leadership PAC?
    The Commission also seeks comment on whether the political 
committee's ability to use the names on the other organization's 
mailing list to solicit contributions to the Federal account is 
affected by whether funds from the committee's non-Federal account were 
used to develop the committee list. (See the discussion above on 
allocation in proposed 11 CFR 110.21.)
    Another issue raised previously with respect to the sale of mailing 
lists may more appropriately relate to the exchange of lists. 
Specifically, the Commission seeks comment on whether it is usual and 
customary in the commercial list marketplace for one entity to provide 
raw list data to another entity that updates and enhances the data and 
where both entities consequently have access to the list. If so, 
comment is sought as to whether such a transaction is a commercially 
reasonable exchange of equal value that would not be treated as an in-
kind contribution.

C. 11 CFR 110.22(b)--Exchanges of Unequal Value

    Proposed 11 CFR 110.22(b) would address an exchange of mailing 
lists that does not comply with proposed paragraph (a). Where the value 
of the mailing list provided by the other person exceeds the value of 
the political committee's mailing list, only the excess amount is a 
contribution. This is in contrast to proposed 11 CFR 110.21(c), where 
the entire amount is a contribution. Also, while proposed 11 CFR 110.21 
would treat a sale or rental of a mailing list at a charge that is 
greater than the usual or normal charge as a fundraising activity that 
is subject

[[Page 52536]]

to 11 CFR 100.53, proposed section 110.22(b) would treat the exchange 
of mailing lists of unequal value as a good or service that is provided 
at less than the usual and normal charge under 11 CFR 100.52(d)(1). 
Consequently, the difference in value between the two mailing lists 
exchanged would be an in-kind contribution. 11 CFR 100.52(d)(1). The 
Commission seeks comment on whether this characterization of the 
exchange of mailing lists of unequal value as an in-kind contribution 
is appropriate.

III. Proposed 11 CFR 113.2(d) Conversion of Committee's Mailing List to 
Personal Use

    Both 2 U.S.C. 439a, and the Commission's regulations at 11 CFR part 
113, bar candidates and other persons from converting to personal use 
any contributions or donations. This ban is not limited to monetary 
contributions. Consequently, the Commission has interpreted the 
personal use ban to apply to assets of the principal or authorized 
campaign committee, as well as the actual funds in the committee 
accounts. See AOs 1994-20, 1990-11, 1984-50, and 1981-11; see also 11 
CFR 102.3(a)(2) and 113.2(e)(1)(ii). These assets may have been 
purchased through the use of funds from contributions or may have been 
donated to the authorized committee during the campaign. One of the 
principal assets of a political committee is its mailing list because 
it is vital to the committee's ability to solicit funds.
    On some occasions, particularly after the end of his or her 
campaign, a candidate may wish to market the mailing list for the 
rental of names to other organizations and may wish to receive rental 
proceeds personally. These situations may raise questions as to whether 
the candidate has a personal ownership interest in the list. The 
candidate's receipt of proceeds from the rental or sale of the mailing 
list squarely presents the issue of whether the restrictions of 2 
U.S.C. 439a apply. Proposed 11 CFR 113.2(d) would address this issue by 
explicitly banning the conversion to personal use of the mailing list 
itself, such as by barring a candidate from retaining the proceeds of a 
mailing list rental or sale.
    In the alternative, the Commission seeks comment on whether a 
candidate's receipt of proceeds from the rental or sale of a mailing 
list, or portions thereof, could be permissible under 2 U.S.C. 439a. If 
permissibility were based on a candidate's ownership of a list or a 
share of the mailing list, how would the candidate obtain such 
ownership interest? Could a candidate acquire personal ownership, 
through purchase or other consideration, of a mailing list developed by 
his or her principal campaign committee? Is the candidate's signature 
adequate consideration for candidate ownership of the resulting mailing 
list? Is such ownership interest assumed on some other basis? The 
Commission seeks comment on whether the determination of ownership of 
the mailing list should be premised on who or what entity (i.e., the 
candidate as opposed to the committee) incurred the costs for the 
development or purchase of the list or the portion of the list being 
rented or sold. The Commission also seeks comment on whether a 
candidate may acquire personal ownership of a list in other ways. For 
example, a candidate may sign a fundraising appeal for an organization 
other than his or her principal campaign committee and receive the use 
of responsive names, in compliance with Commission regulations. Should 
the use of the list be viewed as a property interest of the candidate's 
principal campaign committee, the candidate personally, or both? How 
significant to that determination are the terms of an agreement 
purporting to confer a property interest on the principal campaign 
committee, the candidate personally, or both?
    The Commission also seeks comment on situations where the candidate 
owns a mailing list. If the authorized committee uses the mailing list, 
has it accepted a contribution from the candidate? How should the use 
be valued? Should the valuation be based on the sale or rental price 
for the mailing list? Additionally, how should this transaction be 
reported?

IV. Proposed 11 CFR 9004.9(d)(2)(i) and 9034.5(c)(2)(i)--Rental, Sale, 
and Valuation of Mailing Lists by Publicly Financed Campaigns

    The proposed rules at 11 CFR 9004.9(d)(2)(i) and 9034.5(c)(2)(i) 
would include the mailing lists of an authorized committee of publicly 
financed presidential candidates as assets on the candidates' 
statements of net outstanding campaign obligations (``NOCO'') for the 
primaries and on the candidates' statements of net outstanding 
qualified campaign expenses (``NOQCE'') for the general election, under 
certain circumstances. Thus, the proposed rules would recognize a 
presidential campaign committee's use of its mailing list as an income 
producing asset and would provide that a committee may only rent or 
sell the mailing list if the list is included as an asset in the NOCO 
or NOQCE statements. However, the proposed rules at 11 CFR 
9004.9(d)(2)(i) and 9034.5(c)(2)(i) would not require the publicly 
funded committee to include the list as an asset on the NOCO or NOQCE 
statements if it does not rent or sell the list.
    Since 1976, the Commission has not required as a per se matter, the 
inclusion of a mailing list as an asset in NOCO and NOQCE statements, 
even though a political committee's mailing list is almost invariably 
one of the most important assets of a political committee. Some 
presidential campaign committees have indeed rented their lists, or 
portions thereof, to other political committees or organizations and 
therefore have received proceeds, which may show up on a NOCO or NOQCE 
statement as cash.
    The current rules list ``capital assets'' and ``other assets'' as 
types of assets listed on the NOCO and NOQCE statements. Unlike ``other 
assets,'' capital assets have special valuation rules accounting for 
depreciation. A mailing list developed by a political committee is 
usually a unique asset developed for the special needs of the 
committee, and the proposed rules would add mailing lists as a special 
category of assets. The proposed rules would not subject mailing lists 
to the depreciation rules for ``capital assets.'' The proposed rules at 
11 CFR 9004.9(d)(3)(i) and 9034.5(c)(3)(i) explain that the list would 
be considered an ``other asset;'' therefore, it would be valued at 
``fair market value'' without depreciation factored in. The proposed 
rules would give specific guidance as to the fair market value of a 
mailing list (discussed below).
    As indicated above, the proposed rules in 11 CFR 9004.9(d)(3)(ii) 
and 9034.5(c)(3)(ii) would specify that the mailing list may be rented 
or sold only if its fair market value is listed on the NOCO and NOQCE 
statements. These proposed rules also would require that any such 
rental or sale be in compliance with the conditions of the proposed 
rule at 11 CFR 110.21, which describes when a committee may rent or 
sell a mailing list to others without the proceeds becoming 
contributions. Transfer of a mailing list from a candidate's primary 
committee to his or her general election committee would not require 
the principal campaign committee to include a value for its mailing 
list on its NOCO statement. However, the donation or transfer of the 
mailing list to another entity (including the candidate's general 
election committee, the candidate's general election legal and 
accounting compliance fund (GELAC) or a leadership PAC) would be

[[Page 52537]]

subject to proposed 11 CFR 110.21(c)(2), which would apply 11 CFR 
100.52 to such transaction. The Commission also seeks comment on 
whether donations or transfers that are not sales or rentals should 
trigger the requirement to include a value for a mailing list on the 
NOCO or NOQCE statements even if the donation or transfer is to the 
presidential candidate's GELAC or other authorized committees.
    Finally, the proposed rules at 11 CFR 9004.9(d)(3)(iii) and 11 CFR 
9034.5(c)(3)(iii) would explain how fair market value would be 
determined for purposes of the NOCO and NOQCE statements. The proposed 
rule would allow the presidential campaign committee renting or selling 
its list to have two choices. For primary candidates, the list would be 
valued at either: (1) the usual and normal rental revenue that the 
committee would receive if it rented the list to others over an 18 
month period beginning on the date of ineligibility (``DOI''); or (2) 
the usual and normal sale price at DOI. For general election 
candidates, the list would be valued at either: (1) the usual and 
normal rental revenue over the 12-month period beginning on the date of 
the general election; or (2) the usual and normal sale price as of the 
date of the election.
    Under these proposed rules, Presidential campaign committees would 
need to estimate the usual and normal rental revenue. This in turn 
would involve estimates as to how often the committee will rent out the 
mailing list over the applicable period, as well as the rental value of 
the list (e.g., $X per 1,000 names). The value may depend upon the 
rental price of comparable mailing lists and, if comparability is not 
easily ascertainable, such factors as how recently the names were 
updated for accurate addresses, how responsive the individuals on the 
list have been to other similar solicitations (particularly recent 
solicitations), the income level of the individuals on the list, and 
the classification according to the list industry or other subject 
matter. (See the discussion above of proposed 11 CFR 110.21(a)(1).) 
Estimates of the sale price would be based on similar information. The 
Commission seeks comment on whether the presidential campaign committee 
should have the burden of establishing the usual and normal rental 
value and, if so, whether it must establish this value before the 
mailing list is rented. See the request for comments with respect to 
proposed 11 CFR 110.21.
    The proposed rules would provide for a limited time period for the 
measurement of the rental revenue, i.e., the 18-month and 12-month 
periods. This recognizes that these campaign committees are in the 
process of winding down their activities. The 18-month and 12-month 
periods generally fall within the winding down periods and may very 
well expire before the end of such periods. Please note that continued 
or frequent renting out of the mailing list to raise funds beyond what 
is necessary to pay off debts would be inconsistent with the winding 
down of campaign activities. The Commission seeks comment on whether 
mailing list rentals or sales by presidential campaigns should be 
limited by the amount necessary to pay off the authorized committee's 
debts.
    In the case of either rental or sale, the NOCO and the NOQCE 
statement would be adjusted subsequently by the actual rental or sale 
price for the mailing list, similar to the practice of revising those 
statements to replace estimated winding down costs with actual cost 
figures. In the case of list rental, the final NOCO or NOQCE statement 
(which will most likely be filed after the expiration of the 18-month 
or one year period) would not reflect the anticipated rental figure. 
Instead, the actual rental proceeds would replace the estimated figure 
of the value of the mailing list. In the case of a sale, the estimated 
list sale amount would be replaced with the actual sale proceeds.
    The Commission seeks comment on whether the value of mailing lists 
should be accounted for on the NOCO or NOQCE statements regardless of 
any subsequent use by the authorized committee. In the alternative, 
should they not be recognized on NOCO and NOQCE statements under any 
circumstances? The Commission also seeks comments on the 
appropriateness of the methods proposed for determining fair market 
value. Are the proposed 12-month and 18-month time periods for 
measuring rental value too long? Would they encourage activity by 
presidential campaign committees that is not consistent with winding 
down activities? In the alternative, should the time periods be 
different for some other reason? Should presidential campaigns be 
permitted to rent or sell their mailing lists regardless of whether 
such activity is related to winding down the campaign?
    The Commission also seeks comment on whether the use of the sale 
price as of DOI is inappropriate if a list is not updated and is sold 
many months after DOI. Comment is also sought on what other valuation 
method should be applied to mailing lists for purposes of the NOCO and 
NOQCE statements.

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

[Regulatory Flexibility Act]

    The attached proposed rules, if promulgated, would not have a 
significant economic impact on a substantial number of small entities. 
The basis for this certification is that few, if any, small entities 
would be affected by these proposals, which apply only to Federal 
candidates, their campaign committees, party committees, and other 
political committees. Federal candidates, their committees, and party 
committees are not small entities under 5 U.S.C. 601 because they are 
not small businesses, small organizations, or small governmental 
jurisdictions. These rules are largely intended to adopt past 
Commission practice by clarifying the application of various provisions 
of the Act and presidential public financing statutes to mailing list 
transactions involving political committees and Federal candidates. 
Because the proposed rules would not significantly change current 
practice, those few proposals that might increase the cost of 
compliance by small entities would not do so in such an amount as to 
cause a significant economic impact.

List of Subjects

11 CFR Part 110

    Campaign funds, Political committees and parties.

11 CFR Part 113

    Campaign funds.

11 CFR Part 9004

    Campaign funds.

11 CFR Part 9034

    Campaign funds, Reporting and recordkeeping requirements.
    For the reasons set out in the preamble, the Federal Election 
Commission proposes to amend subchapters A, E, and F of chapter 1 of 
title 11 of the Code of Federal Regulations as follows:

PART 110--CONTRIBUTION AND EXPENDITURE LIMITATIONS AND PROHIBITIONS

    1. The authority citation for part 110 would continue to read as 
follows:

    Authority: 2 U.S.C. 431(8), 431(9), 432(c)(2), 437d, 438(a)(8), 
441a, 441b, 441d, 441e, 441f, 441g, 441h and 441k.

    2. Sections 110.21 and 110.22 would be added to read as follows:

[[Page 52538]]

Sec.  110.21  Committee rental or sale of mailing lists to others.

    (a) Rental of mailing list. A political committee may rent a 
mailing list, or portions of such list, that it owns to any other 
person. Rental payments are not contributions if:
    (1) Prior to the rental, the political committee ascertains the 
usual and normal rental charge for the mailing list (or the portion of 
the mailing list) rented, and other services provided in the ordinary 
course of business of the rental of such mailing lists (e.g., labels); 
and
    (2) The mailing list or the portion of the list (along with the 
services provided in the ordinary course of business) is rented at the 
usual and normal charge, as defined in 11 CFR 100.52(d)(2), for the 
agreed upon use of the mailing list, including the frequency and 
duration of the use, in a bona fide arm's length transaction with 
commercially reasonable terms. If the political committee and the 
person renting the list do not engage in a bona fide arm's length 
transaction, there is a rebuttable presumption that the exchange is not 
of equal value. To determine whether the terms of the rental agreement 
are commercially reasonable, the Commission will consider factors that 
include, but are not limited to:
    (i) Whether the person leasing the mailing list is permitted to use 
the list within a reasonable period of time only;
    (ii) Whether any delayed use by the person leasing the mailing 
list, provided for in the agreement, is based on reasonable business 
considerations;
    (iii) Whether the agreed upon use by the person leasing the mailing 
list, including the duration of the rental or number of uses, comports 
with the usual and normal practice of the list industry and the 
lessee's established procedures and past practice; and
    (iv) Whether the person leasing the mailing list actually uses the 
list.
    (b) Sale of mailing list. A political committee may sell a mailing 
list, or portions of a mailing list, that it owns to any other person. 
Proceeds from the sale are not contributions if prior to the sale, the 
political committee ascertains the usual and normal charge for the sale 
of the mailing list, and sells the mailing list at the usual and normal 
charge, as defined in 11 CFR 100.52(d)(2), in a bona fide arm's length 
transaction with commercially reasonable terms. If the political 
committee and the person buying the list do not engage in a bona fide 
arm's length transaction, there is a rebuttable presumption that the 
exchange is not of equal value.
    (c) Rental or sale proceeds as contributions. (1) Except as 
provided in paragraph (c)(2) of this section, a sale or rental of a 
mailing list that does not comply with the conditions set forth in 
paragraphs (a) or (b) of this section is a fundraising item under 11 
CFR 100.53 and all proceeds from such sale or rental are contributions 
from the person buying or renting the mailing list to the political 
committee in their full amount.
    (2) For the donation or transfer of mailing lists or the sale or 
rental of mailing lists at less than the usual and normal charge, see 
11 CFR 100.52.
    (d) Rental or sale to the candidate. If a candidate rents or buys a 
mailing list from his or her authorized committee, the amount paid by 
the candidate is a contribution to the authorized committee.
    (e) Reporting of proceeds. The proceeds from the rental or sale of 
a mailing list that complies with the conditions set forth in 
paragraphs (a) or (b) of this section must be reported as ``other 
receipts.''
    (f) Recordkeeping. A political committee shall maintain and make 
available upon request the documentation described in paragraph (f)(1) 
and (2) of this section.
    (1) All sales and rental agreements or contracts of its mailing 
list(s). The agreements must be signed and dated.
    (2) Documentation of the usual or normal charge for its mailing 
lists in the following manner:
    (i) If its mailing list is included in the SRDS Direct Marketing 
List Source, a copy of the price list in the SRDS Direct Marketing List 
Source; or
    (ii) If its mailing list is not included in the SRDS Direct 
Marketing List Source, a written appraisal of the mailing list from an 
independent entity that is not directly or indirectly associated with 
the political committee (including subcontractors of such entities).


Sec.  110.22  Committee exchange of mailing lists.

    (a) Exchange of equal value. A political committee may exchange the 
use of a mailing list or portions of a mailing list with another person 
for a specific period of time or a specific number of uses. The 
exchange is not a contribution, donation, or other reportable receipt 
to the political committee if:
    (1) The political committee ascertains in advance the usual and 
normal charge for the mailing lists, or the portions of the mailing 
lists, being exchanged and other services provided in the ordinary 
course of business for the exchange of the mailing lists (e.g., 
labels); and
    (2) The exchange of the mailing lists is a bona fide arm's length 
transaction with commercially reasonable terms that results in an 
exchange of equal value between the political committee and the other 
person. If the political committee and the other person in the exchange 
do not engage in a bona fide arm's length transaction, there is a 
rebuttable presumption that the exchange is not of equal value.
    (3) An exchange of equal value takes place when:
    (i) The usual and normal rental value for each mailing list, or 
portion of the mailing list being exchanged, and the agreed upon use 
for each mailing list, and the services provided in the ordinary course 
of business are of equal value; and
    (ii) The agreement between the political committee and the other 
person provides that they each use the mailing list they receive within 
a commercially reasonable period of time. If the agreement provides for 
a future use by the political committee or the other person, the delay 
in the use of the mailing list must be based upon reasonable business 
considerations.
    (b) Exchange of unequal value. An exchange of mailing lists that 
does not comply with the conditions set forth in paragraph (a) of this 
section is a contribution to the extent that the value provided by the 
other person exceeds the value provided by the political committee.

PART 113--USE OF CAMPAIGN ACCOUNTS FOR NON-CAMPAIGN PURPOSES (2 
U.S.C. 439a)

    3. The authority citation for part 113 would continue to read as 
follows:

    Authority: 2 U.S.C. 432(h), 438(a)(8), 439a, and 441a.

    4. In Sec.  113.2, paragraph (d) would be added to read as follows:


Sec.  113.2  Permissible non-campaign uses of funds (2 U.S.C. 439a).

* * * * *
    (d) Conversion of committee's mailing list to personal use. The 
mailing list of a principal campaign committee or authorized committee 
of a candidate, or any proceeds from the rental or sale of any names on 
the mailing list, may not be converted to the personal use of the 
candidate or any other person.
* * * * *

PART 9004--ENTITLEMENT OF ELIGIBLE CANDIDATES TO PAYMENTS; USE OF 
PAYMENTS

    5. The authority citation for part 9004 would continue to read as 
follows:


[[Page 52539]]


    Authority: 26 U.S.C. 9004 and 9009(b).

    6. In Sec.  9004.9, new paragraph (d)(3) would be added to read as 
follows:


Sec.  9004.9  Net outstanding qualified campaign expenses

* * * * *
    (d) * * *
    (3) Mailing lists. (i) The term other asset, as defined in 
paragraph (d)(2) of this section, includes an authorized committee's 
mailing list if the mailing list is sold or rented under paragraph 
(d)(3)(ii) of this section.
    (ii) An authorized committee may sell or rent its mailing list only 
if--
    (A) The fair market value of the mailing list is included on the 
candidate's statement of net outstanding qualified campaign expenses; 
and
    (B) The sale or rental of the mailing list complies with 11 CFR 
110.21.
    (iii) The fair market value of an authorized committee's mailing 
list is either:
    (A) The usual and normal rental revenue that the authorized 
committee would receive if it rented the list to others over the 12-
month period beginning on the date of the general election; or
    (B) The usual and normal sale price for the list as of the date of 
the general election.
* * * * *

PART 9034--ENTITLEMENTS

    7. The authority citation for part 9034 would continue to read as 
follows:

    Authority: 26 U.S.C. 9034 and 9039(b).

    8. In section 9034.5, new paragraph (c)(3) would be added to read 
as follows:


Sec.  9034.5  Net outstanding campaign obligations.

* * * * *
    (c) * * *
    (3) Mailing lists. (i) The term other asset, as defined in 
paragraph (c)(2) of this section, includes an authorized committee's 
mailing list if the mailing list is sold or rented under paragraph 
(c)(3)(ii) of this section.
    (ii) An authorized committee may sell or rent its mailing list only 
if--
    (A) The fair market value of the mailing list is included on the 
candidate's statement of net outstanding campaign obligations; and
    (B) The sale or rental of the mailing list complies with 11 CFR 
110.21.
    (iii) The fair market value of an authorized committee's mailing 
list is either:
    (A) The usual and normal rental revenue that the authorized 
committee would receive if it rented the list to others over the 18-
month period beginning on the date of ineligibility; or
    (B) The usual and normal sale price for the list as of the date of 
ineligibility.
* * * * *

    Dated: August 29, 2003.
Ellen L. Weintraub,
Chair, Federal Election Commission.
[FR Doc. 03-22530 Filed 9-3-03; 8:45 am]
BILLING CODE 6715-01-P