[Federal Register Volume 70, Number 163 (Wednesday, August 24, 2005)]
[Proposed Rules]
[Pages 49508-49515]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-16785]


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 Proposed Rules
                                                 Federal Register
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 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
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  Federal Register / Vol. 70, No. 163 / Wednesday, August 24, 2005 / 
Proposed Rules  

[[Page 49508]]



FEDERAL ELECTION COMMISSION

11 CFR Part 100

[Notice 2005-20]


Electioneering Communications

AGENCY: Federal Election Commission.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Federal Election Commission is seeking comment on proposed 
changes to its rule defining ``electioneering communications'' under 
the Federal Election Campaign Act of 1971, as amended (``FECA''). The 
proposed changes would modify the definition of ``publicly 
distributed'' and the exemptions to the definition of ``electioneering 
communications'' consistent with the ruling of the U.S. District Court 
for the District of Columbia in Shays v. FEC, portions of which were 
affirmed by the U.S. Court of Appeals for the District of Columbia 
Circuit. With regard to possible exemptions, the Commission is 
considering a range of options, including: Retaining the section 
501(c)(3) organization exemption and the State candidate exemption; 
narrowing the section 501(c)(3) organization exemption; repealing the 
two current exemptions for section 501(c)(3) organizations and State 
candidates; and replacing all of the current exemptions with a broad 
new exemption covering all communications that do not promote, support, 
attack or oppose a Federal candidate. The Commission has made no final 
decision on the issues presented in this rulemaking. Further 
information is provided in the supplementary information that follows.

DATES: Comments must be received on or before September 30, 2005. The 
Commission will hold a hearing on the proposed rules on October 19 and, 
if necessary, October 20, 2005 at 9:30 a.m. Anyone wishing to testify 
at the hearing must file written comments by the due date and must 
include a request to testify in the written comments.

ADDRESSES: All comments must be in writing, must be addressed to Ms. 
Mai T. Dinh, Assistant General Counsel, and must be submitted in either 
email, facsimile, or paper form. Commenters are strongly encouraged to 
submit comments by email or facsimile to ensure timely receipt and 
consideration. Email comments must be sent to either [email protected] or 
submitted through the Federal eRegulations Portal at 
www.regulations.gov. If the email comments include an attachment, the 
attachment must be in the Adobe Acrobat (.pdf) or Microsoft Word (.doc) 
format. Faxed comments must be sent to (202) 219-3923, with paper copy 
follow-up. Paper comments and paper copy follow-up of faxed comments 
must be sent to the Federal Election Commission, 999 E Street, NW., 
Washington, DC 20463. All comments must include the full name and 
postal service address of the commenter or they will not be considered. 
The Commission will post comments on its website after the comment 
period ends. 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, Assistant General 
Counsel, Mr. J. Duane Pugh Jr., Senior Attorney, or Mr. Anthony T. 
Buckley, Attorney, 999 E Street, NW., Washington, DC 20463, (202) 694-
1650 or (800) 424-9530.

SUPPLEMENTARY INFORMATION: The Bipartisan Campaign Reform Act of 2002 
(``BCRA''), Pub. L. 107-155, 116 Stat. 81 (2002), amended the Federal 
Election Campaign Act of 1971, as amended, 2 U.S.C. 431 et seq. (the 
``Act''), by adding a new category of communications, ``electioneering 
communications,'' to those already regulated by the Act. See 2 U.S.C. 
434(f)(3). Generally speaking, electioneering communications are 
broadcast, cable or satellite communications that refer to a clearly 
identified candidate for Federal office, are publicly distributed 
within 60 days before a general election or 30 days before a primary 
election, and are targeted to the relevant electorate. See 2 U.S.C. 
434(f)(3)(A)(i); 11 CFR 100.29(a)(1) through (3). Electioneering 
communications carry certain reporting obligations and funding 
restrictions. See 2 U.S.C. 434(f)(1) and (2), and 441b(a) and (b)(2).
    BCRA exempts certain communications from the definition of 
``electioneering communication,'' 2 U.S.C. 434(f)(3)(B)(i) to (iii), 
and specifically authorizes the Commission to promulgate regulations 
exempting other communications as long as the exempted communications 
do not promote, support, attack or oppose (``PASO'') a candidate, 2 
U.S.C. 434(f)(3)(B)(iv), citing 2 U.S.C. 431(20)(A)(iii).
    On October 23, 2002, the Commission promulgated regulations to 
implement BCRA's electioneering communications provisions. Final Rules 
and Explanation and Justification for Regulations on Electioneering 
Communications, 67 FR 65190 (Oct. 23, 2002) (``EC E&J''). In Shays v. 
FEC, 337 F. Supp. 2d 28 (D.D.C. 2004), aff'd, No. 04-5352, 2005 WL 
1653053 (D.C. Cir. July 15, 2005) (``Shays''), the District Court held 
that one regulation limiting electioneering communications to 
communications publicly distributed for a fee failed review under 
Chevron, U.S.A., Inc. v. Natural Resources Defense Council, 467 U.S. 
837 (1984) (``Chevron''), and one regulation exempting section 
501(c)(3) organizations failed to satisfy the Administrative Procedure 
Act, 5 U.S.C. 706(2) (``APA''). Shays, 337 F. Supp. 2d at 124-29. The 
District Court remanded the case for further action consistent with its 
decision. The U.S. Court of Appeals for the District of Columbia 
Circuit affirmed the District Court, holding that the ``for a fee'' 
regulation failed Chevron review. Shays v. FEC, No. 04-5352, slip op. 
at 52-57, 2005 WL 1653053, at *28-31 (D.C. Cir. July 15, 2005). The 
Commission did not appeal the District Court's decision regarding an 
exemption from the ``electioneering communication'' definition for 
section 501(c)(3) organizations. The Commission is issuing this NPRM to 
comply with the District Court and Court of Appeals decisions with 
respect to both regulations.

A. 11 CFR 100.29(b)(3)(i)--Communications Publicly Distributed Without 
a Fee

    In 11 CFR 100.29(b)(3)(i), the Commission defined ``publicly 
distributed'' as ``aired, broadcast, cablecast or otherwise 
disseminated for a fee through the facilities of a television station, 
radio station, cable television system, or satellite system''

[[Page 49509]]

(emphasis added). The Commission included the requirement that the 
communication be publicly distributed for a fee, in part, because 
``[m]uch of the legislative history and virtually all of the studies 
cited in legislative history and presented to the Commission in the 
course of this rulemaking focused on paid advertisements in considering 
what should be included within electioneering communications.'' EC E&J 
at 65192 (citations to studies omitted). Both the District Court and 
the Court of Appeals in Shays determined that the ``for a fee'' 
language in the definition of ``publicly distributed'' operated much 
like an exemption to the definition of ``electioneering 
communication.'' Shays, 337 F. Supp. 2d at 128-29; No. 04-5352, slip 
op. at 55, 57, 2005 WL 1653053, at *30, 31. The District Court found 
that the exemption exceeded the Commission's statutory authority to 
create exemptions because it could potentially include communications 
that PASO a Federal candidate. Shays, 337 F. Supp. 2d at 128-29. Both 
the District Court and the Court of Appeals held that the ``for a fee'' 
provision is inconsistent with the plain text of BCRA and thus violated 
Chevron step one.\1\ Shays, 337 F. Supp. 2d at 129; No. 04-5352, slip 
op. at 54, 2005 WL 1653053, at *29.
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    \1\ The District Court described the first step of the Chevron 
analysis, which courts use to review an agency's regulations: ``a 
court first asks `whether Congress has directly spoken to the 
precise question at issue. If the intent of Congress is clear, that 
is the end of the matter; for the court, as well as the agency, must 
give effect to the unambiguously expressed intent of Congress.' '' 
See Shays, 337 F. Supp. 2d at 51 (quoting Chevron, 467 U.S. at 842-
43).
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    Additionally, the Court of Appeals observed that ``excluding 
federal candidates from broadcasts promoting blood drives and other 
worthy causes for 90 days out of every two years (30 days before the 
primary plus 60 days before the general election) would hardly seem 
unreasonable given that such broadcasts `could associate a Federal 
candidate with a public-spirited endeavor in an effort to promote or 
support a candidate'--a risk the FEC itself acknowledged in the very 
same rulemaking, in justifying its refusal to promulgate a general 
exemption for [public service announcements] (whether paid or 
unpaid).'' Shays, No. 04-5352, slip op. at 56, 2005 WL 1653053, at *30 
(citation omitted). Thus an exemption that is limited to non-PASO 
communications may, in practice, exempt comparatively few 
communications from the definition of ``electioneering 
communications.'' Additionally, many other types of communications that 
would be covered by an exemption for communications that are not 
publicly distributed for a fee are also already exempt under the 
statutory press exemption, which exempts ``a communication appearing in 
a news story, commentary, or editorial distributed through the 
facilities of any broadcasting station.'' 2 U.S.C. 434(f)(3)(B)(i).
    Consequently, the Commission proposes to eliminate the phrase ``for 
a fee'' from the definition of ``publicly distributed'' at 11 CFR 
100.29(b)(3)(i). The Commission seeks comment on whether this approach 
of removing ``for a fee'' from the ``electioneering communication'' 
definition without exempting such communications would require 
extensive monitoring of radio and television programming to ensure that 
it either fits the statutory press exemption or otherwise avoids the 
reach of the ``electioneering communication'' rules. Would the 
Commission have to distinguish ``commentary'' from free time donated to 
political committees or candidates, which was approved in Advisory 
Opinions (``AOs'') 1982-44 and 1998-17?
    The Commission is also considering another alternative that is not 
reflected in the proposed rules below. This alternative would include 
deleting ``for a fee'' from the definition of ``publicly distributed'' 
and would also include a new exemption for communications for which the 
broadcast, cable or satellite entity does not seek or obtain 
compensation for publicly distributing the communications, unless the 
communications promote, support, attack or oppose a Federal candidate. 
An important rationale that underlies this alternative proposal is that 
broadcasters donate airtime to organizations to broadcast 
communications in the public interest, such as public service 
announcements promoting a wide range of worthy endeavors. Subjecting 
these communications to the electioneering communication regulations 
may discourage broadcasters from performing an important public service 
in providing free airtime for these ads. An exemption that is limited 
to non-PASO communications may, in practice, exempt comparatively few 
communications from the definition of ``electioneering 
communications.'' Must the Commission provide some definition of PASO 
for the exemption to be meaningful and explicable to the regulated 
community or is the PASO standard self-executing and understandable 
without further definition by the Commission? The Commission seeks 
comment on whether this alternative proposal is preferable to the 
proposed rules that would delete ``for a fee'' from the definition of 
``publicly distributed'' without an exemption for unpaid advertisements 
that do not PASO Federal candidates.

B. 11 CFR 100.29(c)(6)--Exemption for Section 501(c)(3) Organizations

    In 2002, the Commission exempted from the ``electioneering 
communication'' definition any communication that is paid for by any 
organization operating under section 501(c)(3) of the Internal Revenue 
Code. See current 11 CFR 100.29(c)(6). The Commission explained that it 
``believes the purpose of BCRA is not served by discouraging such 
charitable organizations from participating in what the public 
considers highly desirable and beneficial activity, simply to foreclose 
a theoretical threat from organizations that has not been manifested, 
and which such organizations, by their very nature, do not do.'' EC E&J 
at 65200. Under the Internal Revenue Code, organizations described in 
section 501(c)(3) may 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.'' 
See 26 U.S.C. 501(c)(3).
    In considering a challenge to the exemption for section 501(c)(3) 
organizations, the Shays District Court examined whether the exemption 
complies with BCRA. The District Court found the record unclear as to 
whether the regulation's reliance on the Internal Revenue Code 
prohibitions would impermissibly exempt advertisements that PASO 
Federal candidates. On this basis, the District Court held that it 
could not determine whether or not the regulation fails Chevron 
review.\2\ See Shays, 337 F. Supp. 2d at 127.
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    \2\ The first step of the Chevron analysis is described in 
footnote 1 above. The second step of the Chevron analysis is whether 
the agency's resolution of an issue not addressed in the statute is 
based on a permissible construction of the statute. See Shays, 337 
F. Supp. 2d at 52 (citing Chevron).
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    The District Court held that the exemption for section 501(c)(3) 
organizations violated the APA because the Explanation and 
Justification for 11 CFR 100.29(c)(6) led the court to conclude that 
the Commission ``failed to conduct a reasoned analysis.'' See Shays, 
337 F. Supp. 2d at 127-28. Specifically, the District Court found the 
EC E&J deficient because it did not address the ``compatibility'' of 
the Internal Revenue Service's (``IRS's'') enforcement of the section 
501(c)(3)

[[Page 49510]]

prohibition on political activity and FECA's requirements. The District 
Court identified three specific omissions from the EC E&J: (1) It did 
not discuss whether or not public communications that PASO a Federal 
candidate would be viewed by the IRS as political activity in which 
section 501(c)(3) organizations may not engage; (2) it did not discuss 
the risk, if any, that limited lobbying activity permitted for section 
501(c)(3) organizations could give rise to advertisements that PASO a 
Federal candidate; and (3) it did not address the implications of 
allowing the IRS ``to take the lead in campaign finance law 
enforcement.'' \3\ See Shays, 337 F. Supp. 2d at 128. The District 
Court remanded this regulation to the Commission for further action 
consistent with its order. Id. at 130. Instead of appealing this aspect 
of the District Court decision, the Commission chose to initiate this 
rulemaking to address the three concerns expressed by the District 
Court. In addition to the District Court's concerns, a well-developed 
administrative record will inform the Commission's reconsideration of 
an exemption for section 501(c)(3) organizations.
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    \3\ Although the EC E&J states that the exemption for section 
501(c)(3) organizations does not amount to a delegation of the 
enforcement of the electioneering communication provisions to the 
IRS, it also noted: ``Should the Internal Revenue Service determine, 
under its own standards for enforcing the tax code, that an 
organization has acted outside its 501(c)(3) status, the 
organization would be open to complaints that it has violated or is 
violating Title II of BCRA.'' 67 FR at 65200. The Shays District 
Court compared these two statements from the EC E&J and found it 
``clear * * * that a prerequisite to the FEC enforcing its exemption 
is the completion of enforcement action by the IRS pursuant to `its 
own standards for enforcing the tax code.' '' Shays, 337 F. Supp. 2d 
at 127.
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1. PASO Communications as Political Activity

    The Shays District Court stated that ``the validity of the 
Commission's regulation depends on whether or not the tax laws and 
regulations, as well as their enforcement, effectively prevent Section 
501(c)(3) groups from issuing public communications that promote or 
oppose a candidate for federal office.'' Shays, 337 F. Supp. 2d at 127. 
The District Court also specified that the EC E&J failed to discuss 
``whether or not the IRS viewed as political activity `public 
communications' that support or oppose a candidate as those concepts 
are understood under this nation's campaign finance laws.'' Id. at 128. 
Thus the task before the Commission, if it decides to retain current 11 
CFR 100.29(c)(6), is to make a finding based on a well-developed record 
that section 501(c)(3) organizations cannot make PASO communications 
when acting lawfully within their tax-exempt status.
    In response to the 2002 NPRM concerning electioneering 
communications, Notice of Proposed Rulemaking on Electioneering 
Communications, 67 FR 51131 (Aug. 7, 2002), several section 501(c)(3) 
organizations submitted comments and addressed the issue of whether 
these organizations pay for PASO communications. One commenter asserted 
that section ``501(c)(3)[ ] [organizations] could never legally 
broadcast advertisements that contain even the slightest suggestion of 
support for or opposition to any candidates due to the substantial 
restrictions under federal law.'' \4\ The commenter said it knew of 
``no examples where 501(c)(3)s have broadcast the so-called ``sham 
issue ads'' that BCRA attempts to ban or regulate.'' In contrast, 
another commenter stated that it does engage in issue advocacy that 
includes broadcast advertisements that refer to candidates and 
officeholders, and implied that these advertisements may well PASO a 
candidate.\5\
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    \4\ See Comment submitted by Alliance for Justice and the Sierra 
Club Foundation (available at http://www.fec.gov/pdf/nprm/electioneering_comm/comments/alliance_for_justice.pdf); see also 
Comment submitted by Independent Sector (stating that federal tax 
law prohibits section 501(c)(3) organizations from engaging in 
activity that would support or oppose any candidate) (available at 
http://www.fec.gov/pdf/nprm/electioneering_comm/comments/independent_sector.pdf). The Alliance for Justice describes itself 
as ``a national association of environmental, civil rights, mental 
health, women's, children's, and consumer advocacy organizations.'' 
The Independent Sector, which describes itself as ``a coalition of 
corporate, foundation, and voluntary organization members which 
serves as a national forum to encourage giving, volunteering, and 
nonprofit initiatives,'' submitted its comments on behalf of its 
membership and on behalf of seven specifically identified members.
    \5\ See Comment submitted by Southeastern Legal Foundation, Inc. 
(``SLF'') (available at www.fec.gov/pdf/nprm/electioneering_comm/comments/se_legal_foundation.pdf).
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    In addition, the record in Shays v. FEC includes press reports 
describing a radio ad run by a section 501(c)(3) organization, the 
Federation for American Immigration Reform (``FAIR''), that appears to 
attack or oppose a Federal candidate. See Memorandum in Support of 
Plaintiffs' Motion for Summary Judgment at 78 n.138, Shays v. FEC, 337 
F. Supp. 2d 28 (D.D.C. 2004). The text of the ad reportedly included 
the following: ``This is an urgent message about our jobs. Senator 
Spence Abraham is again pushing a bill to import hundreds of thousands 
more foreign workers to take American jobs--our jobs. * * * Recently 
Abraham killed the requirement that employers hire Americans first. He 
clearly thinks it's OK to favor foreign workers. Why treat Americans so 
badly? Money. Abraham has raised big political money from huge 
corporations that want cheap, foreign labor. And his newest bill gives 
them everything they want. Is your job next? Let's try to convince 
Abraham not to sell our jobs. His bill could be voted on any day. So 
call now: 1-800-xxx-xxxx. That's 1-800-xxx-xxxx. Tell him you've had 
enough of his big foreign labor bills, like S. 2045. This message 
sponsored by the Federation for American Immigration Reform. Visit our 
website at fairUS.org.'' \6\
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    \6\ Based on the timing of the article, it appears that this 
advertisement was publicly distributed more than 30 days before the 
2000 primary election in Michigan. The Commission is unaware of 
whether the advertisement continued to run during the 30 days prior 
to the primary or the 60 days prior to the general election.
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    In a Technical Advice Memorandum the IRS ``reluctantly 
conclude[d]'' that television advertisements by a section 501(c)(3) 
organization that would be generally understood to ``support or oppose 
a candidate in an election campaign'' did not constitute intervention 
in a political campaign because the communication was core to the 
organization's mission. See Technical Advice Memorandum 89-36-002, 1989 
WL 596078 (Sept. 8, 1989).
    While these statements and examples are helpful to the Commission 
in understanding the interaction between tax law and campaign finance 
law as they pertain to communications by section 501(c)(3) 
organizations, they provide a limited record for the Commission to 
exempt all section 501(c)(3) organizations' communications. For 
example, how should the Commission interpret the Technical Advice 
Memorandum, which does not have precedential authority? To the extent 
that section 501(c)(3) organizations pay for advertisements similar to 
the one by FAIR described above, do the section 501(c)(3) organizations 
broadcast their advertisements during the 30- and 60-day electioneering 
communication windows? Is the FAIR advertisement typical of grass roots 
lobbying advertisements by section 501(c)(3) organizations or is it 
atypical?
    The Commission invites comments that would shed more light on these 
issues. Specifically, the Commission is seeking data as to whether 
section 501(c)(3) organizations have a history of airing ads close to 
elections, particularly those that satisfy the definition of 
``electioneering communication.'' The

[[Page 49511]]

Commission is not aware that any of the advertisements addressed in the 
legislative history of BCRA, including those analyzed in the Brennan 
Center for Justice's Buying Time: Television Advertising in the 2000 
Federal (or 1998 Congressional) Elections, or the record in McConnell 
v. FEC, 540 U.S. 93 (2003), were made by section 501(c)(3) 
organizations, and seeks comment on whether there are, in fact, 
communications from section 501(c)(3) organizations in this record. 
Additionally, since the Commission promulgated the current 11 CFR 
100.29(c)(6), to what extent have section 501(c)(3) organizations 
availed themselves of this exemption? If commenters are able to submit 
the texts of advertisements by section 501(c)(3) organizations that 
would meet the definition of ``electioneering communications,'' the 
Commission seeks comment on whether the advertisements would be 
consistent with the section 501(c)(3) organization's tax-exempt status.
    In addition to reconsidering the adequacy of an administrative 
record that could support current 11 CFR 100.29(c)(6), this NPRM also 
proposes an amendment to the current rule. Proposed section 
100.29(c)(6) would provide an exemption for communications by section 
501(c)(3) organizations subject to two limitations. First, the 
exemption would not apply to communications that PASO a Federal 
candidate. Second, the exemption would not apply to section 501(c)(3) 
organizations that are directly or indirectly established, financed, 
maintained or controlled by a Federal candidate or officeholder. Would 
limiting the exemption to non-PASO communications adequately address 
the District Court's concerns because the exemption no longer turns on 
the IRS's view on political activities? How common is it for Federal 
candidates to directly or indirectly establish, finance, maintain, or 
control a section 501(c)(3) organization? Is there a greater potential 
that section 501(c)(3) organizations that are established, financed, 
maintained, or controlled by Federal candidates would pay for 
communications that PASO Federal candidates?
    The Commission is not proposing to define ``PASO'' in this 
rulemaking. In rejecting a vagueness challenge to the PASO standard, 
the Supreme Court in McConnell held that PASO provisions, at least with 
respect to political parties, ``provide explicit standards for those 
who apply them and give the person of ordinary intelligence a 
reasonable opportunity to know what is prohibited.'' McConnell, 124 S. 
Ct. at 675 n. 64. In light of the Supreme Court's ruling in McConnell, 
is the PASO standard essentially self-executing and understandable 
without further definition by the Commission or, given that the 
proposed regulation would apply to entities beyond political parties, 
must the Commission provide some definition of PASO for the proposed 
regulation to be meaningful and explicable to broadcasters and the 
regulated community?
    The Commission has applied the PASO standard to an advertisement 
that was the subject of an advisory opinion, concluding that the 
advertisement did not PASO the Federal candidate who appeared in the 
advertisement. See AO 2003-25, at 3. That advertisement presented a 
Federal candidate's endorsement of a candidate for mayor, and the 
script read as follows:

    Hi. I'm Evan Bayh. Over the past few years, I've come to know 
Jonathan Weinzapfel very well. We've worked together, and I've seen 
first-hand how committed he is to making Evansville a better city. 
From working to cut taxes, to passing a law that protects our kids 
from drugs, Jonathan Weinzapfel knows how to get the job done. He's 
got a bipartisan, common-sense way of solving problems. He cares 
about what really matters to people. And he's exactly the kind of 
Mayor Evansville needs.

AO 2003-25, at 2-3. The advertisement ran outside the electioneering 
communication window, so it did not meet the definition of 
``electioneering communication.'' AO 2003-25, at 6. However, the 
Commission is seeking comment on whether the conclusion in AO 2003-25--
i.e. a Federal candidate's endorsement does not PASO that Federal 
candidate--was correct, and whether the conclusion can be applied in 
the context of communications by section 501(c)(3) organizations. For 
example, a section 501(c)(3) organization pays for a television 
advertisement that features a Federal candidate endorsing the section 
501(c)(3) organization and the advertisement satisfies the timing and 
targeting elements of the definition of ``electioneering 
communication.'' Would this advertisement be exempt from the definition 
of ``electioneering communication'' under proposed 11 CFR 100.29(c)(6), 
based on the premise that the Federal candidate's endorsement of the 
section 501(c)(3) organization does not PASO that Federal candidate? Or 
should the Commission conclude that the endorsement does PASO the 
Federal candidate and would not be exempt under proposed section 
100.29(c)(6)?
    Another example of a communication by a section 501(c)(3) 
organization that may illustrate the application of the PASO standard 
can be found in Advisory Opinion 2004-14. The script for one of the 
television advertisements read as follows:

    Hi, I'm Congressman Tom Davis. Did you know that the Washington, 
DC metropolitan area has the highest prevalence of kidney disease in 
the nation? Nearly five thousand area residents are on dialysis and 
more than 1,700 await a life-saving kidney transplant. But there's 
something you can do to help. Join me and WUSA9 sports anchor Frank 
Herzog for the Fourth Annual Cadillac Invitational Golf Classic, 
benefiting the National Kidney Foundation. The tournament will take 
place on Monday, April 26, at Lowes Island Club in Potomac Falls, 
Virginia. To find out more, call [omitted] or visit 
www.kidneywdc.org. Come out and support the National Kidney 
Foundation in its commitment to making lives better for Washington 
area kidney patients.

AO 2004-14, at 2. In Advisory Opinion 2004-14, the Commission concluded 
that this advertisement was not an electioneering communication because 
it was not publicly distributed for a fee and it was not distributed 
within the electioneering communication windows. See AO 2004-14, at 4 
(citing 11 CFR 100.29(a)(2) and (b)(3)(i)). However, the Commission 
offers this advertisement to solicit comment on whether this 
communication would be exempt under proposed 11 CFR 100.29(c)(6) 
because it does not PASO Congressman Davis, if it otherwise met the 
definition of ``electioneering communication.''
    The policy rationale behind the proposed rules is that, to the 
extent possible, the Commission does not want to discourage section 
501(c)(3) organizations from performing a public service in pursuing 
their charitable endeavors. The Commission, however, is considering 
whether applying the PASO limitation would severely limit the benefit 
of such an exemption for section 501(c)(3) organizations. In Shays v. 
FEC, the Court of Appeals suggested that public service announcements 
(``PSAs'') that associate a Federal candidate with a public-spirited 
endeavor could promote or support that candidate. Shays v. FEC, No. 04-
5352, slip op. at 56, 2005 WL 1653053, at *30 (D.C. Cir. July 15, 
2005). Given that many broadcast advertisements by section 501(c)(3) 
organizations are PSAs that might be viewed as PASO communications, 
what utility does the proposed exemption have if the exemption does not 
include such PSAs? Additionally, many section 501(c)(3) organizations 
may lack familiarity with the nuances of campaign finance law. Would 
section 501(c)(3) organizations find the PASO standard confusing or

[[Page 49512]]

difficult to apply, making it less likely that they would avail 
themselves of the proposed exemption if the Commission were to adopt 
it? Finally, if a fuller record shows that section 501(c)(3) 
organizations make a significant number of PASO communications during 
the 30 and 60 day windows, or if the record fails to resolve the issue 
one way or another, is there a substantial policy rationale for having 
a section 501(c)(3) exemption?

2. Lobbying Activity That May Include PASO Communications

    The Shays District Court identified a second deficiency in the 
Commission's promulgation of the 501(c)(3) exemption: ``the FEC did not 
note that tax laws permit Section 501(c)(3) organizations to engage in 
limited lobbying activities, or discuss the risk, if any, that such 
activities could run afoul of 2 U.S.C. 434(f)(3)(B)(iv).'' Shays, 337 
F. Supp. 2d at 128 (citing 26 U.S.C. 501(c)(3), (h)). The District 
Court refers to the requirement in section 501(c)(3) of the Internal 
Revenue Code that ``no substantial part of the activities of [the 
organization] is carrying on propaganda, or otherwise attempting, to 
influence legislation.''\7\
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    \7\ Certain section 501(c)(3) organizations may choose not to 
lobby at all, may lobby under section 501(c)(3)'s ``substantial 
part'' test, or may lobby under a section 501(h) election. Section 
501(h) of the Internal Revenue Code provides that certain section 
501(c)(3) organizations may elect to have their lobbying activities 
governed by objective expenditure tests in lieu of being subject to 
the subjective ``substantial part'' test of section 501(c)(3) of the 
Internal Revenue Code. Section 501(h) of the Internal Revenue Code, 
which sets forth the objective test, establishes a sliding scale of 
permissible ``lobbying nontaxable amounts'' and ``grass roots 
nontaxable amounts.'' The grass roots nontaxable amount ranges from 
a low of 5% of an organization's exempt purpose expenditures (for 
organizations with up to $500,000 of exempt purpose expenditures) to 
a high of $250,000 (for organizations with exempt purpose 
expenditures in excess of $17,000,000). 26 U.S.C. 4911(c)(4). 
Expenditures for grass roots lobbying in excess of the nontaxable 
amount will be subject to a 25% tax. 26 U.S.C. 4911(a)(1). 
Additionally, if lobbying expenditures are ``normally'' in excess of 
150% of the nontaxable amounts for a four-year period, the 
organization may be subject to revocation of tax-exempt status. 26 
U.S.C. 501(h)(1)(B); 26 CFR 1.501(h)-3(b) and (c)(7). Please note 
that the section 501(c)(3) organization that received the IRS's 
Technical Advice Memorandum 89-36-002 (Sept. 8, 1989), which is 
discussed above, had elected to be subject to 26 U.S.C. 501(h).
---------------------------------------------------------------------------

    Under IRS regulations, the definition of ``grass roots lobbying 
communications'' as applied to section 501(c)(3) organizations is ``any 
attempt to influence any legislation through an attempt to affect the 
opinions of the general public or any segment thereof.'' 26 CFR 
56.4911-2(b)(2)(i). An element of that definition is ``encouraging 
recipients to take action'' which includes a communication that 
``states that the recipient should contact a legislator'' or that 
``specifically identifies one or more legislators who will vote on the 
legislation as: Opposing the communication's view with respect to the 
legislation; being undecided with respect to the legislation; being the 
recipient's representative in the legislature; or being a member of the 
legislative committee or subcommittee that will consider the 
legislation * * * [but] does not include naming the main sponsor(s) of 
the legislation for purposes of identifying the legislation.'' Id. at 
56.4911-2(b)(2)(iii)(B) and (D) (specifying other types of 
communications that are considered as ``encouraging recipients to take 
action,'' but that are not relevant to this issue). Given the IRS's 
definition of ``grass roots lobbying communications,'' to what extent, 
if any, may the permitted grass roots lobbying communications result in 
some section 501(c)(3) organizations making communications that PASO a 
Federal candidate?
    In order to consider the issues surrounding grass roots lobbying 
communications, the Commission seeks comment on how frequently section 
501(c)(3) organizations make grass roots lobbying communications. One 
research survey addressing this question entitled ``SNAP: Strengthening 
Nonprofit Advocacy Project'' was submitted to the Commission in the 
2002 rulemaking.\8\ This research project, conducted by Tufts 
University, OMB Watch and Charity Lobbying in the Public Interest, 
reports that it surveyed 2,735 randomly selected section 501(c)(3) 
organizations that file IRS Form 990, excluding hospitals, 
universities, religious organizations, and private foundations. Of the 
organizations surveyed, 63% responded. According to this report, 78% of 
the organizations that responded engage in grassroots lobbying. As to 
the frequency of their grassroots lobbying, 63% reported low (19%), 
very low (22%), or none (22%).
---------------------------------------------------------------------------

    \8\ A copy of this report is available at http://www.ombwatch.org/npadv/Final%20SNAP%20Overview.ppt (last viewed on August 2, 
2005).
---------------------------------------------------------------------------

    An analysis of data from the National Center for Charitable 
Statistics, which was drawn from reports filed with the IRS, found that 
1.5% of section 501(c)(3) organizations (or 3,515 organizations) 
reported lobbying expenditures in 1998, and these organizations 
reported devoting only 1.2% of their total expenses to lobbying that 
year. Only 702 organizations reported grass roots lobbying 
expenditures, although only organizations making the section 501(h) 
election are required to report that information disaggregated from 
total lobbying expenditures. In 1998, 43% of the section 501(c)(3) 
organizations that reported lobbying expenditures (or approximately 
1,500 organizations) made the section 501(h) election. The median total 
lobbying expenditures was $8,000, and the median total grassroots 
lobbying expenditures was $4,246. See Jeff Krehely, Assessing the 
Current Data on 501(c)(3) Advocacy: What IRS Form 990 Can Tell Us, in 
Exploring Organizations and Advocacy: Strategies and Finances 37-50 
(Elizabeth J. Reid and Maria D. Montilla eds., 2001).\9\
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    \9\ This document is available at http://www.urban.org/Uploadedpdf/org_advocacy.pdf (last viewed on August 3, 2005).
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    How should the Commission interpret these findings? Are there any 
other reports, studies, or evidence regarding lobbying by 501(c)(3) 
organizations that the Commission should consider?

3. Reliance on IRS Enforcement

    The District Court in Shays held that the effect of the current 
exemption in 11 CFR 100.29(c)(6), as explained in the EC E&J, is that 
``the FEC would do nothing until the IRS investigated and decided 
whether or not the organization violated the tax laws.'' Shays, 337 F. 
Supp. 2d at 128. The District Court concluded that the Commission 
failed to consider the effectiveness of, and the problems presented by, 
adopting an enforcement policy that relies on the IRS's enforcement of 
the tax code. Id.
    In addressing the extent to which the Commission could or should 
rely on IRS enforcement of the tax code as a safeguard for ensuring 
that section 501(c)(3) organizations do not make communications that 
would support or oppose a Federal candidate, the Commission is 
considering statements and testimony from several sources, including 
section 501(c)(3) organizations and the Government Accountability 
Office (``GAO''). Several section 501(c)(3) organizations, commenting 
on the 2002 NPRM, stated that the possibility of an IRS revocation of 
their 501(c)(3) status because of their political activities was a 
strong deterrent to their engaging in activity that may be viewed as 
supporting or opposing candidates.\10\ See EC E&J at 65199. One 
commenter stated that IRS's enforcement is vigorous and noted that

[[Page 49513]]

the ``IRS has repeatedly stated and successfully argued in court that 
this prohibition [on participation or intervention in political 
campaigns] is a ``zero tolerance'' rule.'' Comment of Independent 
Sector.
---------------------------------------------------------------------------

    \10\ See e.g., Comments submitted by Independent Sector and 
Alliance for Justice (available at http://www.fec.gov/pdf/nprm/electioneering_comm/comments/independent_sector.pdf and http://www.fec.gov/pdf/nprm/electioneering_comm/comments/alliance_for_justice.pdf, respectively), and hearing testimony of Mr. Tim 
Mooney of Alliance for Justice (available at http://www.fec.gov/pdf/nprm/electioneering_comm/20020828trans.pdf).
---------------------------------------------------------------------------

    A report by the GAO provides a different perspective, suggesting 
that the IRS lacks the resources for adequate oversight and 
enforcement. In 2002, the GAO issued a report noting that the IRS had 
little data on the compliance of section 501(c)(3) organizations, and 
recognizing the need for improved monitoring of compliance and for 
``better understanding of the type and extent of compliance problems in 
the charitable community.'' U.S. Gen. Accounting Office, Tax Exempt 
Organization: Improvements Possible in Public, IRS, and State Oversight 
of Charities, GAO 02-526 (Apr. 2002).\11\
---------------------------------------------------------------------------

    \11\ Although this report addressed section 501(c)(3) 
organizations' compliance with the tax code in general and not their 
political activities specifically, the GAO's statements and 
conclusions about the IRS's enforcement capabilities are useful to 
the discussion of the IRS's enforcement of the prohibition on 
section 501(c)(3) organizations' activities that are considered 
participating or intervening in a political campaign.
---------------------------------------------------------------------------

    The Commission seeks comments and other reports, documents or 
evidence that would shed light on the appropriateness of the current 
rule's deference to IRS determinations and actions in this area and 
that would assist the Commission in deciding whether to retain the 
current rule.
    This mix of views regarding IRS enforcement, along with the 
questions raised above concerning the interaction between PASO 
communications and lobbying, leave the Commission without a clear 
record at this time regarding whether or not section 501(c)(3) 
organizations make PASO communications. Consequently, under proposed 11 
CFR 100.29(c)(6), the Commission would make its own judgment as to 
whether a communication PASOs a candidate, without regard for how the 
IRS may view the same communication, and without waiting for the IRS to 
consider enforcement action. Thus, the proposed rule would not delegate 
``the first response to potential violations to the IRS.'' See Shays, 
337 F. Supp. 2d at 128.
    The Commission seeks comment on whether the proposed rule 
adequately addresses the deficiencies identified by the District Court 
in Shays in relying on the IRS's enforcement of the tax code applicable 
to section 501(c)(3) organizations.

C. Eliminating All Regulatory Exemptions From the Electioneering 
Communications Restrictions

    As an alternative to the proposed modifications to the current 
section 501(c)(3) exemption, the Commission also seeks comment on 
whether it should repeal both of the regulatory exemptions from the 
electioneering communications rules, 11 CFR 100.29(c)(5) and (6), and 
instead rely solely on the exemptions that Congress established in 
BCRA. These regulatory exemptions include not only the section 
501(c)(3) exemption in current 11 CFR 100.29(c)(6), but also an 
exemption for communications paid for by candidates for State or local 
office in connection with an election to State or local office that do 
not PASO any Federal candidates in current 11 CFR 100.29(c)(5). The 
Commission is also considering the proposed revisions to the State 
candidate exemption in the proposed rules that follow. The proposed 
revisions seek to clarify the exemption and harmonize its structure 
with proposed 11 CFR 100.29(c)(6).
    BCRA establishes several exemptions from the electioneering 
communications provisions. Certain communications appearing in a news 
story, commentary, or editorial are exempt under 2 U.S.C. 
434(f)(3)(B)(i) and current 11 CFR 100.29(c)(2). Communications that 
constitute a reportable expenditure or independent expenditure are 
exempt under 2 U.S.C. 434(f)(3)(B)(ii) and current 11 CFR 100.29(c)(3). 
Finally, candidate debates are exempt under 2 U.S.C. 434(f)(3)(B)(iii) 
and current 11 CFR 100.29(c)(4). Under this proposal, these statutory 
exemptions would remain in the regulations, while current 11 CFR 
100.29(c)(5) and (c)(6) would be repealed.

D. Exempting All Communications That Do Not PASO a Federal Candidate

    The Commission is also considering exempting from the 
``electioneering communication'' definition all communications that do 
not PASO a Federal candidate. This proposal, which is not reflected in 
the proposed rules that follow, would employ the exemption authority 
provided to the Commission by Congress in 2 U.S.C. 434(f)(3)(B)(iv) to 
its full extent. The Commission seeks comments on whether this 
proposal's broad view of the Commission exemption authority is 
consistent with Congressional intent. Such an exemption would focus on 
the content of the communication and treat all communicators equally, 
in contrast to current 11 CFR 100.29(c)(5) and (c)(6), which are 
limited to particular speakers. Does this equality of treatment help 
justify the exemption? What form would the administrative record need 
to take to support such an exemption? Would such an exemption be 
consistent with the standard in 2 U.S.C. 434(f)(3)(A)(i)(I) that 
requires only a reference to a clearly identified candidate for Federal 
office? Would it effectively elevate the PASO standard as the primary 
determinant for electioneering communications? Must the Commission 
provide some definition of PASO for the exemption to be meaningful and 
explicable to the regulated community or is the PASO standard self-
executing and understandable without further definition by the 
Commission?

E. Petition for Rulemaking To Exempt Advertisements Promoting Films, 
Books and Plays

    On August 26, 2004, the Commission published a Notice of 
Availability seeking public comment on a Petition for Rulemaking 
(``Petition'') received by the Commission. The Petition requested the 
Commission revise its electioneering communications regulation by 
exempting the promotion and advertising of political documentary films, 
books, plays and similar means of expression that may otherwise meet 
the definition of an electioneering communication under 11 CFR 100.29. 
See Notice of Availability of Rulemaking Petition: Exception for the 
Promotion of Political Documentary Films from ``Electioneering 
Communications,'' 69 FR 52461 (Aug. 26, 2004) (``Notice of 
Availability''). The documentary films, books and plays at issue in the 
Petition are not themselves subject to the electioneering communication 
rules because these items are not broadcast or disseminated through a 
cable or satellite system, but appear in movie theaters or other non-
broadcast environments.\12\ The premise for the Petition is that 
advertisements for such films, books, and plays would not be covered by 
the statutory exemption for communications ``appearing in a news story, 
commentary, or editorial distributed through the facilities of any 
broadcast station.'' 2 U.S.C. 434(f)(3)(B); see also 11 CFR 
100.29(c)(2).
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    \12\ The Commission has concluded that documentaries and 
educational programming that are aired, broadcast, or otherwise 
disseminated through radio, television, cable or satellite are 
covered by the exemption in section 100.29(c)(2) for a ``news story, 
commentary, or editorial.'' EC E&J at 65197.
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    The comment period ended September 27, 2004. The Commission 
received seven comments, including a letter from the Internal Revenue 
Service

[[Page 49514]]

indicating that it had ``no comments.'' These comments are available at 
http://www.fec.gov/law/law_rulemakings.shtml under ``Electioneering 
Communications Exception for Promotion of Political Documentaries.''
    The Petition and some commenters argued that political documentary 
films and books might often refer to clearly identified candidates for 
Federal office, and that applying the electioneering communication 
rules to the broadcast, cable or satellite TV and radio advertisement 
of such items could stifle free speech. The Petition suggested that the 
Commission should create a specific exemption in 11 CFR 100.29(c) for 
all advertisements and promotion of political documentary films, books, 
plays and ``other forms of political expression that may involve 
references to Federal candidates.'' See Notice of Availability at 
52461. One commenter suggested a narrower exemption for advertising of 
such political documentaries except for the four weeks preceding an 
election, but would require disclosure of funding of all political 
documentaries. Another commenter noted that the Petition only sought an 
exemption for works deemed ``political,'' and argued that a broader 
exemption for the promotion of documentary films, books and plays, 
regardless of whether the works are ``political'' was appropriate.
    Two commenters also raised questions as to whether these 
documentaries are already covered by the current press exemption in 11 
CFR 100.29(c)(2), and whether advertisements promoting them would also 
be covered by the press exemption. One of these commenters asserted 
that an additional rulemaking is unnecessary because the Commission has 
already stated that the press exemption in section 100.29(c)(2) applies 
to a documentary, and the commenter believes that by extension, the 
press exemption applies to the promotion of that documentary. See 
Reader's Digest Ass'n v. FEC, 509 F. Supp. 1210, 1215 (S.D.N.Y. 1981). 
The other commenter suggested a rulemaking was appropriate to revise 
section 100.29(c)(2) to specify that advertising for such documentary 
films falls within the scope of this press exemption. In contrast, 
other commenters were opposed to any specific exemption for advertising 
of documentary films as inconsistent with existing campaign finance 
law.
    After considering the Petition and the comments received, the 
Commission has decided to open a rulemaking on this issue, as part of 
its revision of the electioneering communication rules in response of 
the Shays court opinions. Proposed 11 CFR 100.29(c)(7) would exempt 
communications promoting movies, books or plays, as long as the 
communications are run within the ordinary course of business of the 
persons that pay for such communications, and the communications do not 
PASO a Federal candidate. As urged by one of the commenters, the 
proposed rules would expand the exemption beyond ``political'' works to 
include advertising for any movie, book or play.
    While the proposed rule applies to ``movies'' generally, the 
Commission seeks comment as to whether this reference should be 
understood to mean only movies appearing in theatres, or whether it 
should also apply to movies available for rental on DVD or video, or 
available on pay-per-view. Likewise, should the exemption apply only to 
printed books or should it also apply to books that are made available 
in audio and on-line formats? Furthermore, should the exemption be 
based on the actual or projected release date of the movie or book? For 
example, should the exemption only apply to movies that are shown 
during, or are being released within six months of, the electioneering 
communication window and to books that are in print during, or within 
six months of, the electioneering communications window? This sort of 
temporal limitation would be intended to prevent circumvention of the 
electioneering communication provisions by advertising a movie that 
either does not exist or is not intended for public distribution. Are 
any of these limitations necessary? Would they be sufficient to prevent 
circumvention?
    The proposed rule would limit the exemption to persons who promote 
movies, books or plays ``within the[ir] ordinary course of business.'' 
Should the Commission limit this exemption so that it applies only to 
persons who are the publisher of a book or the producer, distributor or 
promoter of a movie or play? Would this limitation unfairly exclude 
first-time distributors? Should the Commission extend the exemption to 
any person who promotes movies, books or plays without regard to 
whether such advertisements are in the ordinary course of business? 
Should the Commission limit the exemption to entities not directly or 
indirectly established, financed, maintained, or controlled by any 
Federal candidate, individual holding Federal office, or any political 
committee, including political party committees? Does the Commission 
have the statutory authority to promulgate the exemption without it 
being conditioned on the promotional communications not PASOing a 
Federal candidate? The Commission seeks comment on whether such 
communications in the past have in fact PASOed a Federal candidate.
    The Commission also seeks information as to whether any persons 
refrained from advertising movies, books or plays on television or 
radio during the 2003-2004 election cycle because of concerns that 
advertisements would violate electioneering communications rules. How 
significant a burden would it be for advertisements that run during the 
30/60-day window to avoid clearly identifying a candidate? See MUR 
5467, In the Matter of Michael Moore, et al. (where, in response to 
allegations that the Respondents intended to run advertisements 
promoting a film during the electioneering communications period that 
would contain references to clearly identified Federal candidates, the 
Respondents stated that the distributors of the film had decided prior 
to the filing of the complaint not to broadcast advertisements for the 
film during the electioneering communications period that would contain 
a reference to any clearly identified Federal candidate).

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

    The Commission certifies that the attached proposed rule, if 
promulgated, would not have a significant economic impact on a 
substantial number of small entities. The basis for this certification 
is that the changes proposed in the electioneering communications 
regulation would only affect individuals and a small number of non-
profit organizations. First, the proposed changes to the definition of 
``publicly distributed'' would only affect the small number of 
advertisements that are run on broadcast, cable or satellite TV or 
radio where the airtime is donated without charge. To the extent this 
proposed rule affects media organizations donating the time or running 
their own programming, they do not fall within the definition of 
``small business.'' There are very few small businesses or 
organizations that receive donated time for advertising and might be 
affected by the proposed rule. Second, the proposed changes to the 
exemption for communications paid for by section 501(c)(3) non-profit 
organizations would not affect a substantial number of small 
organizations because these organizations may not be able to afford 
expensive radio and television advertising and, to the extent they can, 
they are already limited in what

[[Page 49515]]

campaign activity they may engage in under the Internal Revenue Code. 
The changes in this proposed rule affect only communications made by 
these organizations that promote, support, attack or oppose a Federal 
candidate within a limited window of time before a Federal election. 
There are not a substantial number of small organizations that make 
such communications. Therefore, the proposed rule will not affect a 
substantial number of small organizations.

List of Subjects in 11 CFR Part 100

    Elections.

    For reasons set out in the preamble, Subchapter A of Chapter 1 of 
title 11 of the Code of Federal Regulations would be amended as 
follows:

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

    1. The authority citation for 11 CFR part 100 would continue to 
read as follows:

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

    2. Section 100.29 would be amended by revising paragraph (b)(3)(i), 
the introductory text of paragraph (c), and paragraphs (c)(5) and 
(c)(6), and by adding new paragraph (c)(7), to read as follows:


Sec.  100.29  Electioneering communication (2 U.S.C. 434(f)(3)).

* * * * *
    (b) * * *
    (3)(i) Publicly distributed means aired, broadcast, cablecast or 
otherwise disseminated through the facilities of a television station, 
radio station, cable television system, or satellite system.
* * * * *
    (c) The following communications are exempt from the definition of 
electioneering communication. Any communication that:
* * * * *
    (5) Is paid for by a candidate for State or local office in 
connection with an election to State or local office, provided that the 
communication does not promote, support, attack or oppose any Federal 
candidate;
    (6) Is paid for by any organization operating under section 
501(c)(3) of the Internal Revenue Code of 1986, provided that:
    (i) The communication does not promote, support, attack or oppose 
any Federal candidate; and
    (ii) The organization is not directly or indirectly established, 
financed, maintained, or controlled by one or more Federal candidates, 
or individuals holding Federal office. Nothing in this section shall be 
deemed to supersede the requirements of the Internal Revenue Code for 
securing or maintaining 501(c)(3) status; or
    (7) Promotes a movie, book, or play, provided that the 
communication is within the ordinary course of business of the person 
that pays for such communication, and such communication does not 
promote, support, attack or oppose any Federal candidate.

    Dated: August 18, 2005.
Scott E. Thomas,
Chairman, Federal Election Commission.
[FR Doc. 05-16785 Filed 8-23-05; 8:45 am]
BILLING CODE 6715-01-P