[Federal Register Volume 70, Number 50 (Wednesday, March 16, 2005)]
[Rules and Regulations]
[Pages 12787-12790]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-5159]



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  Federal Register / Vol. 70, No. 50 / Wednesday, March 16, 2005 / 
Rules and Regulations  

[[Page 12787]]



FEDERAL ELECTION COMMISSION

11 CFR Part 300

[Notice 2005-8]


Political Party Committees Donating Funds to Certain Tax-Exempt 
Organizations and Political Organizations

AGENCY: Federal Election Commission.

ACTION: Final rules and transmittal of regulations to Congress.

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

SUMMARY: The Federal Election Commission is revising its regulations 
governing donations made or directed by national, State, district, and 
local political party committees to certain tax-exempt organizations 
and political organizations. The final rules allow these political 
party committees to make or direct donations of Federal funds to 
certain 501(c) tax-exempt organizations and certain 527 political 
organizations. These revisions conform the Commission's rules to the 
decision of the U.S. Supreme Court in McConnell v. Federal Election 
Commission, which included a narrowing construction of section 101 of 
the Bipartisan Campaign Reform Act of 2002. Further information is 
provided in the supplementary information that follows.

DATES: Effective Date: The effective date for the revisions to 11 CFR 
300.11, 300.37, 300.50 and 300.51 is April 15, 2005.

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

SUPPLEMENTARY INFORMATION: Section 441i(d) of the Federal Election 
Campaign Act of 1971 (the ``Act''), 2 U.S.C. 431 et seq., prohibits 
national, State, district and local political party committees from 
soliciting any funds for, or making or directing donations to, two 
types of tax-exempt organizations (``tax-exempt organizations that 
actively participate in Federal elections''). These consist of (1) 
organizations described in 26 U.S.C. 501(c) that are exempt from tax 
under 26 U.S.C. 501(a) (or that have submitted an application for 
determination of tax exempt status under section 501(a)) and that make 
expenditures or disbursements in connection with an election for 
Federal office (including expenditures or disbursements for Federal 
election activity); and (2) political organizations described in 26 
U.S.C. 527 (other than a political committee, a State, district or 
local committee of a political party, or the authorized campaign 
committee of a candidate for State or local office). 2 U.S.C. 
441i(d)(1) and (2). This statutory provision was added to the Act by 
section 101 of the Bipartisan Campaign Reform Act of 2002 (``BCRA''), 
Public Law 107-155, 116 Stat. 81, 82-85 (2002).
    In 2002, the Commission promulgated rules at 11 CFR 300.11, 300.37, 
300.50, and 300.51 implementing 2 U.S.C. 441i(d). Explanation and 
Justification for Rules on Prohibited and Excessive Contributions: Non-
Federal Funds or Soft Money, 67 FR 49064, 49089-49091, and 49105-49106 
(July 29, 2002) (``Soft Money Final Rules''). Except for the title of 
each, the final rule at 11 CFR 300.11 is identical to the final rule at 
11 CFR 300.50, and the final rule at 11 CFR 300.37 is identical to the 
final rule at 11 CFR 300.51. Id. at 49106.
    Subsequently, in McConnell v. Federal Election Commission, 540 U.S. 
93, 174-178 (2003), the Supreme Court upheld 2 U.S.C. 441i(d)'s 
prohibitions on the solicitation of funds for tax-exempt organizations 
that actively participate in Federal elections. The Supreme Court also 
upheld restrictions on making and directing donations of non-Federal 
funds to such tax-exempt organizations. Here, the Supreme Court stated 
that, ``[a]bsent such a restriction, state and local party committees 
could accomplish directly what the antisolicitation restrictions 
prevent them from doing indirectly--namely, raising large sums of soft 
money to launder through tax-exempt organizations engaging in federal 
election activities.'' Id. at 178-179. However, the Supreme Court 
stated that section 441i(d) raises overbreadth concerns ``if read to 
restrict donations from a party's federal account--i.e., funds that 
have already been raised in compliance with FECA's source, amount and 
disclosure limitations.'' Id. at 179. The Court found ``no evidence 
that Congress was concerned about, much less that it intended to 
prohibit, donations of money already fully regulated by FECA'' and 
concluded that ``political parties remain free to make or direct 
donations of money to any tax-exempt organization that has otherwise 
been raised in compliance with FECA.'' Id. at 180-181.
    To conform its regulations to the Supreme Court's decision in 
McConnell, the Commission proposed modifying 11 CFR 300.11, 300.37, 
300.50 and 300.51 to provide that political party committees, while 
prohibited from soliciting funds for tax-exempt organizations that 
actively participate in Federal elections, are now free to make or 
direct donations of Federal funds to any tax-exempt organization.\1\ 
The Notice of Proposed Rulemaking (``NPRM'') containing this proposal 
was published in the Federal Register on December 9, 2004. 69 FR 71388 
(Dec. 9, 2004). The public comment period closed on January 10, 2005. 
The Commission received two written comments (both jointly submitted) 
in response to the NPRM.\2\ Both groups of commenters supported the 
proposed rules.
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    \1\ ``Federal funds'' are funds that comply with the 
limitations, prohibitions, and reporting requirements of the Act. 11 
CFR 300.2(g). ``Non-Federal funds'' are funds that are not subject 
to the limitations and prohibitions of the Act. 11 CFR 300.2(k).
    \2\ The comments are available at http://www.fec.gov/register.html under ``Political Party Committees Donating Funds to 
Certain Tax-Exempt Organizations and Political Organizations.''
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    These final rules are the same as the rules proposed in the NPRM, 
except that revised 11 CFR 300.37 and 300.51 explicitly encompass Levin 
funds, which are a type of non-Federal funds, and typographical errors 
in sections 300.37(b)(2) and 300.51(b)(2) are corrected.
    Under the Administrative Procedure Act, 5 U.S.C. 553(d), and the 
Congressional Review of Agency Rulemaking Act, 5 U.S.C. 801(a)(1), 
agencies must submit final rules to the Speaker of the House of 
Representatives and the President of the Senate and publish them in the 
Federal Register at least 30 calendar days before they take

[[Page 12788]]

effect. The final rules that follow were transmitted to Congress on 
March 10, 2005.

Explanation and Justification

11 CFR 300.11--Prohibitions on Fundraising for and Donating to Certain 
Tax-Exempt Organizations

    Section 300.11 implements 2 U.S.C. 441i(d) by prohibiting national 
committees of a political party from soliciting any funds for, or 
making or directing any donations to, tax-exempt organizations that 
actively participate in Federal elections. To implement the Supreme 
Court's decision in McConnell, the Commission is amending paragraph (a) 
of 11 CFR 300.11 to allow national party committees to make or direct 
donations of Federal funds to tax-exempt organizations that actively 
participate in Federal elections. Under the revised rule, national 
party committees must not make or direct donations of non-Federal funds 
to such tax-exempt organizations. This statutory and regulatory 
prohibition is consistent with 2 U.S.C. 441i(a) and 11 CFR 300.10(a), 
which more generally prohibit national party committees from spending 
funds or directing to another person donations of funds not subject to 
the limitations, prohibitions and reporting requirements of the Act. 
The prohibition on the solicitation of funds by national party 
committees for tax-exempt organizations that actively participate in 
Federal elections remains unchanged in section 300.11(a). The 
Commission is also making a technical amendment to section 300.11(b)(3) 
by removing the reference to a State, district, or local party 
committee, because only national party committees are the subject of 
section 300.11. Both groups of commenters agreed with the Commission's 
proposed modifications to section 300.11. The final rules for section 
300.11 are identical to the proposed rules.

11 CFR 300.37--Prohibitions on Fundraising for and Donating to Certain 
Tax-Exempt Organizations

    Section 300.37 implements 2 U.S.C. 441i(d) by prohibiting State, 
district and local committees of a political party from soliciting any 
funds for, or making or directing any donations to, tax-exempt 
organizations that actively participate in Federal elections, similar 
to the restrictions placed on national committees of a political party 
in 11 CFR 300.11. As discussed above, restrictions on making or 
directing donations of Federal funds by these party committees are 
unconstitutional under McConnell. Consequently, the Commission is 
revising paragraph (a) of 11 CFR 300.37 to permit the use of Federal 
funds in this manner. Thus, revised section 300.37(a) limits the 
prohibition on making or directing donations to donations of non-
Federal funds. The prohibition on soliciting funds for tax-exempt 
organizations that actively participate in Federal elections remains in 
revised section 300.37(a).
    Additionally, the NPRM sought comment on whether State, district 
and local party committees should be allowed to make or direct 
donations of Levin funds to tax-exempt organizations that actively 
participate in Federal elections if permitted by State law. State, 
district and local party committees may use an allocable mix of Federal 
funds and Levin funds to pay for certain types of Federal election 
activity, including voter registration activity during the 120 days 
preceding a regularly scheduled Federal election, and voter 
identification, get-out-the-vote, and generic campaign activity that is 
conducted in connection with an election in which a candidate for 
Federal office appears on the ballot. 2 U.S.C. 431(20), 441i(b)(1) and 
(2); 11 CFR 100.24; see also 300.32 and 300.33. State, district and 
local party committees may not use Levin funds, or other non-Federal 
funds, for any public communication that promotes or supports or 
attacks or opposes a clearly identified candidate for Federal office. 2 
U.S.C. 441i(b)(1); 11 CFR 300.32(c).
    In the Soft Money Final Rules, the Commission concluded that Levin 
funds are a ``new type of non-Federal funds.'' 67 FR at 49065. The 
Commission found that Levin funds are ``unlike Federal funds, which are 
fully subject to the Act's requirements, and unlike ordinary non-
Federal funds, because they are subject to certain additional 
requirements under BCRA.'' Id. at 49085. Levin funds are generally 
described as non-Federal funds; e.g., when presenting the Levin 
amendment to Congress, the sponsor of the Levin amendment stated ``this 
amendment will allow the use of some non-Federal dollars by State 
parties for voter registration and get out the vote * * *'' 147 Cong. 
Rec. S3124 (daily ed. Mar. 29, 2001) (Statement of Sen. Levin) 
[emphasis added].\3\ Consequently, State, district and local party 
committees may deposit Levin funds in their non-Federal account if they 
do not maintain a separate Levin account. 11 CFR 300.30(c)(3). Thus, 
Schedules H5 and H6 to FEC Form 3X and the related instructions treat 
Levin funds as one type of non-Federal funds.
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    \3\ Similarly, in the Explanation and Justification for the 
regulations implementing the Levin Amendment, the Commission noted 
that ``BCRA's Levin Amendment provides that State, district, and 
local political party committees may spend certain non-Federal funds 
for Federal election activities if those funds comply with certain 
requirements. 2 U.S.C. 441i(b)(2)(A)(ii). Thus, these funds are 
unlike Federal funds, which are fully subject to the Act's 
requirements * * *'' 67 FR at 49085.
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    Both groups of commenters agreed with the Commission's proposed 
modifications to section 300.37. One group of commenters supported the 
restriction on the donation of Levin funds for several reasons. These 
commenters observed that the Supreme Court's statements about BCRA 
provide ``no basis to think that the [Supreme] Court was including 
Levin funds in its reference to funds from a `party's federal account.' 
'' Second, the commenters relied on the legislative history of section 
441i(b)(2), which allows State parties to use only limited amounts of 
non-Federal funds for voter registration and get-out-the-vote 
activities. Third, the commenters noted the Commission's prior 
interpretation of section 441i(b)(2) in the Soft Money Final Rules, 
where the Commission explicitly treated Levin funds as a new type of 
non-Federal funds. Lastly, the commenters pointed to the danger that 
BCRA's Levin fund spending restrictions could easily be circumvented if 
State, district and local party committees are allowed to make or 
direct donations of Levin funds to tax-exempt organizations that 
actively participate in Federal elections because such organizations 
are not subject to section 441i(b)'s spending restrictions. Thus, these 
commenters find that ``[t]he statutory language and legislative history 
of the Levin amendment establish that Levin funds are most accurately 
characterized as non-Federal funds.'' These commenters conclude that 
``Levin funds are not the kind of funds that the [Supreme] Court [in 
McConnell] intended to permit state parties to donate or direct to tax 
exempt groups.''
    The Commission concludes that, consistent with its previous 
treatment of Levin funds as non-Federal funds, Levin funds may not be 
donated or directed to tax-exempt organizations that actively 
participate in Federal elections. Levin funds are funds donated to 
State, district or local party committees, in accordance with State 
law, from corporations, labor organizations, or other ``persons'' in 
amounts up to $10,000 per calendar year.\4\ 2 U.S.C. 441i(b)(2); 11 CFR 
300.2(i). There would be a danger of circumvention of BCRA's soft money 
restrictions if State, district and local party committees could

[[Page 12789]]

donate corporate and labor union funds of up to $10,000 per donor to 
tax-exempt organizations that may use these funds for voter 
identification, voter registration, get-out-the-vote and other 
activities, and for communications that promote, support, attack or 
oppose Federal candidates, because State, district and local party 
committees may not use Levin funds for Federal election activity that 
refers to a clearly identified Federal candidate, and may not use Levin 
funds, or other non-Federal funds, for public communications that 
promote or support or attack or oppose a clearly identified Federal 
candidate. 2 U.S.C. 441i(b)(1) and (b)(2)(B)(i); 11 CFR 300.32(c).
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    \4\ Foreign nationals may not donate Levin funds. 2 U.S.C. 441e; 
11 CFR 300.31(c).
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    For these reasons, the final rules for section 300.37(a) are 
identical to the proposed rules, except that the final rules explicitly 
include Levin funds as a type of non-Federal funds subject to section 
441i(d). The Commission is also correcting a typographical error in 
section 300.37(b)(2). The phrase ``State, district or local committee 
or a political party'' [emphasis added] is revised to read ``State, 
district or local committee of a political party'' [emphasis added].

11 CFR 300.50--Prohibited Fundraising by National Party Committees

    For the reason discussed above regarding the revision to section 
300.11, the Commission is revising paragraph (a) of 11 CFR 300.50 to 
specify that a national committee of a political party may not make or 
direct donations of non-Federal funds to tax-exempt organizations that 
actively participate in Federal elections. The prohibition on 
soliciting funds for these groups remains in revised section 300.50(a). 
Similarly, the Commission is revising section 300.50(b)(3) by removing 
the reference to a State, district, or local party committee, because 
only national party committees are the subject of section 300.50. Both 
groups of commenters agreed with the Commission's proposed 
modifications to section 300.50. The final rules for section 300.50 are 
identical to the proposed rules.

11 CFR 300.51--Prohibited Fundraising by State, District, or Local 
Party Committees

    For the reasons discussed above regarding the revision to section 
300.37, the Commission is revising paragraph (a) of 11 CFR 300.51 to 
specify that a State, district or local committee of a political party 
may not make or direct donations of non-Federal funds, including Levin 
funds, to tax-exempt organizations that actively participate in Federal 
elections. The prohibition on soliciting funds for these groups remains 
in revised section 300.51(a).
    Both groups of commenters agreed with the Commission's proposed 
modifications to section 300.51. The final rules for section 300.51(a) 
are identical to the proposed rules, except that the final rules state 
explicitly that Levin funds are non-Federal funds. The Commission is 
also amending section 300.51(b)(2) to correct a typographical error. 
The phrase ``State, district or local committee or a political party'' 
[emphasis added] is revised to read ``State, district or local 
committee of a political party'' [emphasis added].

Other Issues

    One group of commenters urged the Commission to amend 11 CFR 
102.17, 300.31(e) and 300.31(f) regarding the use of jointly raised or 
transferred Federal funds for Federal election activity by State, 
district and local party committees. These changes are beyond the scope 
of this rulemaking.

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

    The Commission certifies that the attached rules do not have a 
significant economic impact on a substantial number of small entities 
for two reasons. First, the national, State, district and local party 
committees of the two major political parties are not small entities 
under 5 U.S.C. 601 because they are not small businesses, small 
organizations or small governmental jurisdictions. To the extent that 
other national, State, district and local party committees may fall 
within the definition of ``small entities,'' their numbers are not 
substantial. Second, the final rules narrow the scope of restrictions 
applicable to national, State, district and local political party 
committees, and thus do not have a significant economic impact on the 
affected entities.

List of Subjects in 11 CFR Part 300

    Campaign funds, Nonprofit organizations, Political committees and 
parties.


0
For the reasons set out in the preamble, the Federal Election 
Commission amends subchapter C of chapter 1 of title 11 of the Code of 
Federal Regulations as follows:

PART 300--NON-FEDERAL FUNDS

0
1. The authority citation for Part 300 continues to read as follows:

    Authority: 2 U.S.C. 434(e), 438(a)(8), 441a(a), 441i, 453.

0
2. In Sec.  300.11, the introductory text of paragraph (a) and 
paragraph (b)(3) are revised to read as follows:


Sec.  300.11  Prohibitions on fundraising for and donating to certain 
tax-exempt organizations (2 U.S.C. 441i(d)).

    (a) Prohibitions. A national committee of a political party, 
including a national congressional campaign committee, must not solicit 
any funds for, or make or direct any donations of non-Federal funds to, 
the following organizations:
* * * * *
    (b) * * *
    (3) An entity that is directly or indirectly established, financed, 
maintained or controlled by an agent of a national committee of a 
political party, including a national congressional campaign committee.
* * * * *

0
3. In Sec.  300.37, the introductory text of paragraph (a) and 
paragraph (b)(2) are revised to read as follows:


Sec.  300.37  Prohibitions on fundraising for and donating to certain 
tax-exempt organizations (2 U.S.C. 441i(d)).

    (a) Prohibitions. A State, district or local committee of a 
political party must not solicit any funds for, or make or direct any 
donations of non-Federal funds, including Levin funds, to:
* * * * *
    (b) * * *
    (2) An entity that is directly or indirectly established, financed, 
maintained or controlled by a State, district or local committee of a 
political party or an officer or agent acting on behalf of such an 
entity; or
* * * * *

0
4. In Sec.  300.50, the introductory text of paragraph (a) and 
paragraph (b)(3) are revised to read as follows:


Sec.  300.50  Prohibited fundraising by national party committees (2 
U.S.C. 441i(d)).

    (a) Prohibitions on fundraising and donations. A national committee 
of a political party, including a national congressional campaign 
committee, must not solicit any funds for, or make or direct any 
donations of non-Federal funds to the following organizations:
* * * * *
    (b) * * *
    (3) An entity that is directly or indirectly established, financed, 
maintained or controlled by an agent of a national committee of a 
political party, including a national congressional campaign committee.
* * * * *

0
5. In Sec.  300.51, the introductory text of paragraph (a) and 
paragraph (b)(2) are revised to read as follows:

[[Page 12790]]

Sec.  300.51  Prohibited fundraising by State, district, or local party 
committees (2 U.S.C. 441i(d)).

    (a) Prohibitions. A State, district or local committee of a 
political party must not solicit any funds for, or make or direct any 
donations of non-Federal funds, including Levin funds, to:
* * * * *
    (b) * * *
    (2) An entity that is directly or indirectly established, financed, 
maintained or controlled by a State, district or local committee of a 
political party or an officer or agent acting on behalf of such an 
entity; or
* * * * *

    Dated: March 11, 2005.
Scott E. Thomas,
Chairman, Federal Election Commission.
[FR Doc. 05-5159 Filed 3-15-05; 8:45 am]
BILLING CODE 6715-01-P