[Federal Register Volume 72, Number 25 (Wednesday, February 7, 2007)]
[Rules and Regulations]
[Pages 5595-5606]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-1936]


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FEDERAL ELECTION COMMISSION

11 CFR Part 100

[Notice 2007-3]


Political Committee Status

AGENCY: Federal Election Commission.

ACTION: Supplemental Explanation and Justification.

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SUMMARY: In November 2004, the Federal Election Commission (``FEC'') 
adopted new regulations codifying when an organization's solicitations 
generate ``contributions'' under the Federal Election Campaign Act 
(``FECA'' or ``the Act''), and consequently, require that organization, 
regardless of tax status, to register as a political committee with the 
FEC. Additionally, the Commission substantially revised its allocation 
regulations to require the costs of voter drives, certain campaign 
advertisements, and a political committee's general administrative 
costs be paid for in whole or in substantial part with funds subject to 
FECA's limits, prohibitions, and reporting requirements. Pursuant to 
Shays v. FEC, 424 F. Supp. 2d 100 (D.D.C. 2006) (``Shays II''), the 
Commission is publishing a supplemental Explanation and Justification 
to provide a more detailed explanation of (a) The basis for the 
measures it adopted and (b) the reasons it declined to revise the 
regulatory definition of ``political committee'' to single out 
organizations exempt from Federal taxation under section 527 of the 
Internal Revenue Code (``527 organizations'') for increased regulation. 
This document also discusses several recently resolved administrative 
matters that provide considerable guidance to all organizations 
regarding the receipt of contributions, making of expenditures, and 
political committee status.

EFFECTIVE DATE: February 7, 2007.

FOR FURTHER INFORMATION CONTACT: Mr. J. Duane Pugh Jr., Acting 
Assistant General Counsel, or Ms. Margaret G. Perl, Attorney, 999 E 
Street, NW.,

[[Page 5596]]

Washington, DC 20463, (202) 694-1650 or (800) 424-9530.

SUPPLEMENTARY INFORMATION:

Explanation and Justification

    On November 23, 2004, following an extensive rulemaking process, 
the Commission adopted new regulations to ensure that organizations 
that participate in Federal elections conduct their activities in 
compliance with Federal law. This rulemaking generated an extraordinary 
amount of public engagement on the issue of when organizations should 
have to register with and report their activities to the FEC. The 
Commission received and considered over 100,000 written comments, 
including comments from approximately 150 Members of Congress, many 
political party organizations, hundreds of non-profit organizations, as 
well as academics, trade associations, and labor organizations. 
Additionally, the Commission heard testimony from 31 witnesses during 
two days of public hearings on April 14 and 15, 2004.\1\
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    \1\ The comments and transcripts of the public hearing are 
available at http://www.fec.gov/law/RulemakingArchive.shmtl under 
``Political Committee Status (2004)''.
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    At the end of this process, the Commission amended its regulations 
in two significant ways. First, the Commission adopted a regulation 
codifying when an organization's solicitations generate 
``contributions'' under FECA, and consequently, may require an 
organization to register as a political committee with the FEC. Second, 
the Commission substantially revised its allocation regulations to 
require that voter drives and campaign ads that target Federal 
elections, as well as a substantial portion of a political committee's 
administrative costs, be paid for with funds subject to Federal limits, 
prohibitions, and reporting requirements. See Final Rules on Political 
Committee Status, Definition of Contribution, and Allocation for 
Separate Segregated Funds and Nonconnected Committees, 69 FR 68056, 
68056-63 (Nov. 23, 2004) (``2004 Final Rules''); see also 11 CFR 100.57 
and 106.6. The 2004 Final Rules also explained the Commission's 
decision not to re-define the terms ``political committee'' in 11 CFR 
100.5 and ``expenditure'' in 11 CFR 100.110 through 100.154, including 
the Commission's decision not to establish a separate political 
committee definition singling out 527 organizations.\2\ See 2004 Final 
Rules, 69 FR at 68063-65. The 2004 Final Rules took effect January 1, 
2005. Id. at 68056.
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    \2\ Under the Internal Revenue Code, a 527 organization is ``a 
party, committee, association, fund, or other organization (whether 
or not incorporated) organized and operated primarily for the 
purpose of directly or indirectly accepting contributions or making 
expenditures, or both, for an exempt function.'' 26 U.S.C. 
527(e)(1). The ``exempt function'' of 527 organizations is the 
``function of influencing or attempting to influence the selection, 
nomination, election, or appointment of any individual to any 
Federal, State, or local public office or office in a political 
organization,'' or the election or selection of presidential or vice 
presidential electors. 26 U.S.C. 527(e)(2). Virtually all political 
committees that register with the Commission under FECA are also tax 
exempt under section 527 of the Internal Revenue Code, including 
political party committees, authorized campaign committees of 
candidates, separate segregated funds, and nonconnected committees. 
See 11 CFR 1005.
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    In 2004, an action was brought before the U.S. District Court of 
the District of Columbia challenging the Commission's decision not to 
revise the regulatory definition of ``political committee.'' See Shays 
II, 424 F. Supp. 2d at 114-17.\3\ Plaintiffs sought a court order 
directing the Commission to promulgate a rule specifically addressing 
the political committee status of all 527 organizations. Id. at 116. 
The district court rejected the plaintiffs' request to order the 
Commission to commence a new rulemaking, concluding that nothing in 
FECA, Congress's most-recent amendments in the Bipartisan Campaign 
Reform Act of 2002 (``BCRA''),\4\ or the Supreme Court's decision in 
McConnell v. FEC, 540 U.S. 93 (2003), required the Commission to adopt 
such rules. Shays II, 424 F. Supp. 2d at 108. Case law, the Shays II 
court explained, demonstrates ``that a statutory mandate is a crucial 
component to a finding that an agency's reliance on adjudication [is] 
arbitrary and capricious.'' Id. at 114. The district court found, 
however, that the Commission ``failed to present a reasoned explanation 
for its decision'' not to regulate 527 organizations specifically by 
virtue of their status under the Internal Revenue Code, and remanded 
the case to the Commission ``to explain its decision or institute a new 
rulemaking.'' Id. at 116-17.
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    \3\ Documents related to this litigation are available at http://www.fec.gov/law/litigation_CAA_Alpha.shtml#shays_04.
    \4\ Pub. L. 107-155, 116 Stat. 81 (Mar. 7, 2002).
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    The Commission did not appeal the district court's ruling. Instead, 
the Commission is issuing this supplemental Explanation and 
Justification to explain its decision not to use tax law 
classifications as a substitute for making determinations of political 
committee status under FECA, as construed by the courts. By adopting a 
new regulation under which any organization may be required to register 
as a political committee and by tightening the rules governing how 
political committees fund activity for the purpose of influencing 
Federal elections, the Commission has acted to prevent circumvention 
not by just 527 organizations, but by groups of all kinds. As further 
explained, the Commission's decision not to single out 527 
organizations is entirely consistent with the statutory scheme, Supreme 
Court precedent, and Congressional action regarding 527 organizations. 
Political committee status, whether articulated in FECA, Supreme Court 
interpretations of FECA, or the Commission's regulations, must be 
applied and enforced by the Commission through a case-by-case analysis 
of a specific organization's conduct. Existing regulations, bolstered 
by the adoption of the 2004 Final Rules, leave the Commission with a 
very effective mechanism for addressing claims that organizations of 
any tax status should be registered as political committees under FECA. 
The Commission's recent enforcement experience confirms this 
conclusion.
    Parts A and D of this document explain the framework for 
establishing political committee status under FECA, as interpreted by 
the Supreme Court. Parts B and C explain why reliance on a group's tax 
exempt status under section 527 of the Internal Revenue Code cannot 
substitute for an analysis of the group's conduct. Part E discusses the 
new and amended rules the Commission adopted in 2004, which codified an 
additional trigger for political committee status and increased the 
Federal funding requirements to participate in certain election-related 
activities. Finally, Part F describes the significance of several 
recently resolved enforcement matters that illustrate the sufficiency 
of the legal basis for the Commission's political committee status 
determinations.

A. FECA Provides a Specific, Conduct-Based Framework for Establishing 
Political Committee Status

    Since its enactment in 1971, FECA has placed strict limits and 
source prohibitions on the contributions received by organizations that 
are defined as political committees. Under the Act, an organization's 
conduct has always been the basis for determining whether it is 
required to register and abide by the Act's requirements as a political 
committee. Likewise, since its enactment in 1971, the determination of 
political committee status has taken place on a case-by-case basis. 
FECA defines a ``political committee'' as ``any committee, club, 
association, or other group of persons which receives

[[Page 5597]]

contributions aggregating in excess of $1,000 during a calendar year or 
which makes expenditures aggregating in excess of $1,000 during a 
calendar year.'' See 2 U.S.C. 431(4)(A). FECA further defines the terms 
``contribution'' and ``expenditure,'' limiting these terms to those 
receipts and disbursements made ``for the purpose of influencing any 
election for Federal office.'' 2 U.S.C. 431(8) and (9). Commission 
regulations first promulgated in 1975 essentially repeat FECA's 
definition of ``political committee.'' 11 CFR 100.5(a).\5\
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    \5\ See H.R. Doc. No. 97-293, at 7-8 and 29-30 (1975) addressing 
11 CFR 100.14 (1976), which was recodified as 11 CFR 100.5 in 1980. 
See 45 FR 15080 (Mar. 7, 1980).
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    Congress has not materially amended the definition of ``political 
committee'' since the enactment of section 431(4)(A) in 1971, nor has 
Congress at any time since required the Commission to adopt or amend 
its regulations in this area. Indeed, in 2002, when Congress made 
sweeping changes in campaign finance law pursuant to BCRA, it left the 
definition of ``political committee'' undisturbed and political 
committee status to be determined on a case-by-case basis.
    To address constitutional concerns raised when FECA was adopted, 
the Supreme Court added two additional requirements that affect the 
statutory definition of political committee. First, the Supreme Court 
held, when applied to communications made independently of a candidate 
or a candidate's committee, the term ``expenditure'' includes only 
``expenditures for communications that in express terms advocate the 
election or defeat of a clearly identified candidate for federal 
office.'' Buckley v. Valeo, 424 U.S. 1, 44, 80 (1976).\6\ Second, the 
Supreme Court mandated that an additional hurdle was necessary to avoid 
Constitutional vagueness concerns; only organizations whose ``major 
purpose'' is the nomination or election of a Federal candidate can be 
considered ``political committees'' under the Act. Id. at 79. The court 
deemed this necessary to avoid the regulation of activity 
``encompassing both issue discussion and advocacy of a political 
result.'' See, e.g., Buckley, 424 U.S. at 79; FEC v. Massachusetts 
Citizens for Life, Inc., 479 U.S. 238, 262 (1986) (``MCFL'').
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    \6\ The Supreme Court applies a different analysis to 
coordinated expenditures. See Buckley, 424 U.S. at 46-47 (``They 
argue that expenditures controlled by or coordinated with the 
candidate and his campaign might well have virtually the same value 
to the candidate as a contribution and would pose similar dangers of 
abuse. yet such controlled or coordinated expenditures are treated 
as contributions rather than expenditures under the Act.''). Cf. AO 
2006-20 Unity '08 (finding monies spent on ballot access through 
petition drives by an organization supporting only two candidates, 
both yet to be selected, one for the office of President of the 
United States and one for the office of Vice President, are 
expenditures).
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    Neither BCRA, McConnell, nor any other legislative, regulatory, or 
judicial action has eliminated (1) The Supreme Court's express advocacy 
requirement for expenditures on communications made independently of a 
candidate or (2) the Court's major purpose test. In its 2003 McConnell 
decision, the Supreme Court implicitly endorsed the major purpose 
framework to uphold BCRA's regulation of political party activity 
against vagueness concerns. See McConnell, 540 U.S. at 170 n.64 (``This 
is particularly the case here, since actions taken by political parties 
are presumed to be in connection with election campaigns. See Buckley, 
424 U.S. at 79, 96 S. Ct. 612 (noting that a general requirement that 
political committees disclose their expenditures raised no vagueness 
problems because the term `political committee' `need only encompass 
organizations that are under the control of a candidate or the major 
purpose of which is the nomination or election of a candidate * * 
*')'').
    McConnell also addressed the Buckley expenditure framework, 
finding, ``the express advocacy limitation, in both the expenditure and 
disclosure contexts, was the product of statutory interpretation rather 
than a constitutional command.'' McConnell, 540 U.S. at 191-92. 
However, the Court made it clear that FECA continued to contain the 
express advocacy limitation as to expenditures on communications made 
independently of a candidate, because Congress, in enacting BCRA, 
modified the limitation only insofar as it applied to ``electioneering 
communications.'' The Court found:

    Since our decision in Buckley, Congress' power to prohibit 
corporations and unions from using funds in their treasuries to 
finance advertisements expressly advocating the election or defeat 
of candidates has been firmly embedded in our law * * * Section 203 
of BCRA amends [2 U.S.C. 441b(b)(2)] to extend this rule, which 
previously applied only to express advocacy, to all `electioneering 
communications' covered by the definition of that term in [2 U.S.C. 
434(f)(3)].

McConnell, 540 U.S. at 203-04.
    Congress did not amend the definition of expenditure in BCRA, and 
in fact, specified that ``electioneering communications'' are not 
expenditures under the Act. 2 U.S.C. 434(f)(1) and (2) (treating 
electioneering communications as ``disbursements''). Accordingly, while 
BCRA, as interpreted by McConnell, did not extend Buckley's express 
advocacy limitation to the regulation of ``electioneering 
communications,'' it also did not alter that limitation as to 
expenditures on communications made independently of a candidate. 
Absent future Congressional action altering the definition of 
``expenditure,'' the Supreme Court's limitation of expenditures, on 
communications made independently of a candidate, to ``express 
advocacy'' continues to apply.
    Therefore, determining political committee status under FECA, as 
modified by the Supreme Court, requires an analysis of both an 
organization's specific conduct--whether it received $1,000 in 
contributions or made $1,000 in expenditures--as well as its overall 
conduct--whether its major purpose is Federal campaign activity (i.e., 
the nomination or election of a Federal candidate). Neither FECA, its 
subsequent amendments, nor any judicial decision interpreting either, 
has substituted tax status as an acceptable proxy for this conduct-
based determination.
    The Commission has promulgated regulations defining in detail what 
constitutes a ``contribution'' and an ``expenditure.'' See 11 CFR 
100.51 to 100.94 and 100.110 to 100.155. Many administrative actions, 
including the recently resolved actions against several 527 
organizations that are described in Part F below, include substantial 
investigations and case-by-case analyses and determinations of whether 
a group's fundraising generated ``contributions'' and whether payments 
for its communications made independently of a candidate constituted 
``expenditures,'' as alternative prerequisites to a determination that 
a group is a political committee, prior to any consideration of the 
group's major purpose. Additional regulations defining ``contribution'' 
and ``expenditure'' would not obviate the need for a case-by-case 
investigation and determination in a Commission enforcement proceeding. 
Neither would a regulation defining ``major purpose'' that singled out 
527 organizations, as the Shays II plaintiffs seek, obviate the need 
for case-by-case investigations and determinations in the Commission's 
enforcement process regarding the organization's major purpose.

B. Section 527 Tax Status Does Not Determine Whether an Organization Is 
a Political Committee Under FECA

    527 organizations are so named for section 527 of the Internal 
Revenue Code, a section that exempts certain activities from taxation. 
An organization's election of section 527

[[Page 5598]]

tax status is not sufficient evidence in itself that the organization 
satisfies FECA and the Supreme Court's contribution, expenditure, and 
major purpose requirements. As stated by a commenter, ``All that 527 
status means is that the organization is exempt from federal income tax 
to the extent it spends political income on political activities * * * 
All federal political committees registered with the FEC are 527 
organizations. So are the Republican National Committee and the 
Democratic National Committee. So are John Kerry for President, Inc. 
and Bush-Cheney '04, Inc. So is every candidate's campaign committee 
right down to school board and dogcatcher.'' Thus, virtually all 
political committees are 527 organizations. It does not necessarily 
follow that all 527 organizations are or should be registered as 
political committees.
    The IRS's requirements for an organization to be entitled to the 
tax exemption under section 527 are based on a different and broader 
set of criteria than the Commission's determination of political 
committee status. See note 2 above. Section 527 exempts political 
organizations from tax on ``exempt function'' income, where the 
Internal Revenue Code would impose tax on such activity when conducted 
by other non-profit organizations, such as groups organized under 
section 501(c)(4) (social welfare organizations), 501(c)(5) (labor 
organizations), and 501(c)(6) (business leagues). See 26 U.S.C. 
527(c)(1) and (f)(1). Accordingly, the definition of ``exempt 
function'' is central to the reach of section 527. ``Exempt function'' 
is defined as the ``function of influencing or attempting to influence 
the selection, nomination, election, or appointment of any individual 
to any Federal, State, or local public office or office in a political 
organization, or the election of Presidential or Vice-Presidential 
electors.'' 26 U.S.C. 527(e)(2).
    By definition, 527 organizations may engage in a host of State, 
local, and non-electoral activity well outside the Commission's 
jurisdiction. As noted by several commenters, the broad range of groups 
availing themselves of the 527 exemption include, but are not limited 
to the following: All Federal, State, and local candidate campaign 
committees and party entities; Federal, State, and local political 
action committees; caucuses and associations of State or local public 
officials; newsletter funds operated by Federal, State, and local 
public officials; funds set up to pay ordinary business expenses of a 
public officeholder; political party officer committees; and groups 
seeking to influence the appointment of judicial and executive branch 
officials. A forthcoming tax law article states:

    Once section 527 is placed in proper context, it becomes clear 
that the tax law is not a very good mechanism for differentiating 
between election-focused and ideological groups. Because of its 
unique policies and idiosyncrasies, the tax law has an exceptionally 
broad definition of ``political organization,'' one that has the 
potential to capture ideological as well as partisan organizations. 
Furthermore, section 527 should not be understood to convey any real 
tax benefits to organizations that self-identify. Accordingly, the 
reformers' mission to use section 527 as a campaign finance 
instrument is misguided.

Gregg D. Polsky, A Tax Lawyer's Perspective on Section 527 
Organizations, 28 Cardozo L. Rev. (forthcoming Feb. 2007).
    The IRS has specifically determined that exempt function activity 
can include disbursements for Federal electoral activity that does not 
constitute express advocacy. IRS Revenue Ruling 2004-6 states (at 4): 
``[w]hen an advocacy communication explicitly advocates the election or 
defeat of an individual to public office, the expenditure clearly is 
for an exempt function under [section] 527(e)(2). However, when an 
advocacy communication relating to a public policy issue does not 
explicitly advocate the election or defeat of a candidate, all the 
facts and circumstances need to be considered to determine whether the 
expenditure is for an exempt function under [section] 527(e)(2).'' Rev. 
Rul. 04-6, 2004-1 C.B. 328. Accordingly, the IRS structure presumes 
section 527 organizations will engage in non-express advocacy 
activities. Indeed, organizations could easily qualify for 527 status 
without ever making expenditures for express advocacy. However, as 
discussed above, that activity is outside of the Commission's 
regulatory scope under Buckley's express advocacy limitation for 
expenditures on communications made independently of a candidate. See 
Buckley, 424 U.S. at 44; see also 2 U.S.C. 431(8) and (9) (defining 
contribution and expenditure as ``for the purpose of influencing any 
election for Federal office'').
    The IRS ``facts and circumstances'' test, if applied to FECA, 
clearly would violate the Supreme Court's Constitutional parameters, 
established in Buckley, and reiterated in MCFL and McConnell, that 
campaign finance rules must avoid vagueness. See Buckley, 424 U.S. at 
40-41; MCFL, 479 U.S. at 248-49; McConnell, 540 U.S. at 103. Because 
the tax code definitions arise in the context of a grant of exemption, 
which is viewed as a form of subsidy to the organization, a lower level 
of scrutiny is applied than when the government regulates or prohibits 
outright certain types of speech. See, e.g., Regan v. Taxation With 
Representation, 461 U.S. 540, 549-50 (1983) (upholding limitation on 
lobbying by 501(c)(3) organizations); Christian Echoes Nat'l Ministry, 
Inc. v. United States, 470 F.2d 849, 857 (10th Cir. 1972) (upholding 
501(c)(3) ban on campaign intervention). As one commenter noted:

    The Internal Revenue Code (IRC) and its accompanying regulations 
offer several different tests for what constitutes political 
activity for tax-exempt organizations (including 527 organizations), 
but all of these tests boil down to a vague ``facts and 
circumstances'' standard. While constitutionally adequate * * * for 
the enforcement of tax laws, the inherent uncertainty created by 
such a contextual, subjective standard renders it wholly inadequate 
to the task of providing a predictable standard for those required 
to comply with [F]ederal election law * * * FECA regulates core 
political speech and imposes criminal penalties for violations. 
Thus, FECA is especially intolerant of vague standards. As the court 
explained in Buckley: ``Due process requires that a criminal statute 
provide adequate notice to a person of ordinary intelligence that 
his contemplated conduct is illegal, for `no man shall be held 
criminally responsible for conduct which he could not reasonably 
understand to be proscribed.' When First Amendment rights are 
involved, an even `greater degree of specificity' is required.''

    As stated by a commenter, ``While IRC political organizations and 
FECA political committees seem to have some similarities, [section] 527 
`exempt function' activity is much broader than the activity that 
defines FECA political committees. Consequently, IRS regulations 
provide no guidance for FEC rulemaking.'' In fact, neither FECA, as 
amended, nor any judicial decision interpreting it, has substituted tax 
status for the conduct-based determination required for political 
committee status.
    As discussed further below in Part F, the Commission's enforcement 
experience illustrates the inadequacy of tax classification as a 
measure of political committee status. The Commission recently 
completed six matters, including five organizations that were alleged 
to have failed to register as political committees.\7\ The

[[Page 5599]]

Commission reached conciliation agreements with five of these 
organizations--four 527 organizations and one 501(c)(4) organization--
in which the organizations did not contest the Commission's 
determination that they had violated FECA by failing to register as 
political committees. See Matters Under Review (``MURs'') 5511 and 5525 
(Swiftboat Veterans and POWs for Truth (``Swiftboat Vets'')); 5753 
(League of Conservation Voters 527 and 527 II (``League of Conservation 
Voters'')); 5754 (MoveOn.org Voter Fund); 5492 (Freedom, Inc.). In the 
sixth matter, the Commission determined that a 527 organization was not 
a political committee under the statutory requirements, and dismissed 
the matter. See MUR 5751 (The Leadership Forum). The Commission has 
demonstrated through the finding of political committee status for a 
501(c)(4) organization and the dismissal of a complaint against a 527 
organization, that tax status did not establish whether an organization 
was required to register with the FEC. Rather, the Commission's 
findings were based on a detailed examination of each organization's 
contributions, expenditures, and major purpose, as required by FECA and 
the Supreme Court.
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    \7\ See Press Release, Federal Election Commission, FEC Collects 
$630,000 in Civil Penalties from Three 527 Organizations (Dec. 13, 
2006), available at http://www.fec.gov/press/press2006/20061213murs.html; Press Release, Federal Election Commission, 
Freedom Inc. Pays $45,000 Penalty for Failing to Register as 
Political Committee (Dec. 20, 2006), available at http://www.fec.gov/press/press2006/20061220mur.html; Press Release, Federal 
Election Commission, FEC Completes Action on Two Enforcement Cases 
(Dec. 22, 2006), available at http://www.fec.gov/press/press2006/20061222mur.html.
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    Courts have cautioned the Commission against assuming ``the 
compatibility of the IRS's enforcement * * * and FECA's requirements.'' 
See Shays v. FEC, 337 F. Supp. 2d 28, 128 (D.D.C. 2004) (``Shays I''). 
The Commission is instead obligated to perform a detailed review of 
differences in tax and campaign finance law provisions rather than 
adopting the former as a proxy for the latter. Id. The U.S. District 
Court recently reminded the Commission: ``It is the FEC, not the IRS, 
that is charged with enforcing FECA.'' Shays I, 337 F. Supp. 2d at 126. 
The detailed comparison of the Internal Revenue Code and FECA 
provisions required by Shays I demonstrates that the ``exempt 
function'' standard of section 527 is not co-extensive with the 
``expenditure'' and ``contribution'' definitions that trigger political 
committee status. Therefore, the use of the Internal Revenue Code 
classification to interpret and implement FECA is inappropriate.

C. Congress Has Consistently Affirmed the Existing Statutory Framework 
and Specifically Refused To Require All 527 Organizations To Register 
as Political Committees

    While Congress has repeatedly enacted legislation governing 527 
organizations, it has specifically rejected every effort, including 
those by some of the Shays II plaintiffs,\8\ to classify organizations 
as political committees based on section 527 status. In refusing to 
enact such legislation, Congress fully recognized that some 527 
organizations not registered with the Commission were, and would 
continue to be, involved with Federal elections. Nevertheless, in each 
instance in which Congress regulated 527 organizations, whether through 
amendments to the Internal Revenue Code or FECA, it (a) Chose not to 
address the political committee status of these organizations, (b) left 
the reporting obligations in the hands of the IRS, and (c) did not 
direct the Commission to adopt revised regulations.
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    \8\ In Shays II, the case filed by Representatives Shays and 
Meehan was consolidated with a similar case filed by Bush-Cheney '04 
challenging the Commission's 2004 rulemaking. See Shays II, 424 F. 
Supp. 2d at 104-05.
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1. Congress Amended the Internal Revenue Code To Create a Reporting 
Scheme for 527 Organizations That are Not Political Committees Under 
FECA
    In 2000, Congress passed a bill requiring section 527 organizations 
that are not required to register as political committees under FECA to 
register and report their financial activity with the IRS. See 26 
U.S.C. 527(i)(6), (j)(5)(A); Public Law 106-230 (2000). Congress 
ordered the IRS to disclose this information publicly on a searchable 
database within 48 hours of receipt, requirements matching the FEC's 
disclosure obligations. See 26 U.S.C. 527(k); 2 U.S.C. 434(a)(11)(B) 
and 438a.\9\ At the same time, Congress considered, but rejected, 
alternative bills that would have explicitly required the Commission to 
regulate all 527 organizations. See, e.g., H.R. 3688, 106th Cong. 
(2000); S. 2582, 106th Cong. (2000); see also H.R. Rep. No. 106-702 
(2000). The alternative House bill was co-sponsored by two of the Shays 
II plaintiffs. Additionally, Congress took no other action to otherwise 
alter the statutory framework for determining political committee 
status.
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    \9\ See IRS Political Organization Disclosure database, 
available at http://forms.irs.gov/politicalOrgsSearch/search/basicSearch.jsp.
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    In 2002, Congress modified the section 527 reporting requirements 
to exempt organizations that were exclusively involved in State and 
local elections from having to report with the IRS. See 26 U.S.C. 
527(i)(5)(C), (j)(5)(C); Income Tax Notification and Return 
Requirements--Political Committees Act, Public Law 107-276, 116 Stat. 
1929 (2002). Those 527 organizations that were involved in Federal 
elections, but that did not qualify as ``political committees'' under 
FECA, continued to have to report their activities to the IRS. See 
Public Law 107-276. This legislation was passed only a few months after 
BCRA, which, as discussed below, did not change the requirements for 
political committee status of 527 organizations. As stated by a 
commenter, ``Congress explicitly recognized the differences in intent 
and scope between the Internal Revenue Code and the Federal Election 
Campaign Act when it drafted two separate statutes to address the 
respective subjects; if Congress had intended the two bodies of law to 
be congruous, Congress would have passed congruous provisions at the 
outset.'' If, as some commenters suggested, all 527 organizations not 
exclusively involved in State and local elections are required by FECA 
to register as political committees, then the 2002 amendments to 26 
U.S.C. 527 would have meant that no 527 organizations would continue to 
report to the IRS. Such an interpretation of the two statutes would 
effectively nullify the statutory requirement to report to the IRS.
    These two provisions were passed, as noted by a commenter, 
``[a]gainst a widely publicized backdrop of news reports concerning 
non-federal [section] 527 groups,'' yet, ``Congress required these 
organizations * * * to register and report with the IRS * * * Congress 
was well aware that [section] 527 organizations that were not political 
committees could affect Federal as well as other elections.'' The 
legislative history of the 2000 amendment confirms the commenter's 
assessment:

    These enhanced disclosure and reporting rules are intended to 
make no changes to the present-law substantive rules regarding the 
extent to which tax-exempt organizations are permitted to engage in 
political activities. Thus, the Committee bill is not intended to 
alter the involvement of such organizations in the political 
process, but rather it is intended to shed sunlight on these 
activities so that the general public can be informed as to the 
types and extent of activities in which such organizations engage.

H.R. Rep. No. 106-702, at 14 (2000). Senator Lieberman, a principal 
author of the legislation, stated, ``nor does [the bill] force any 
group that does not currently have to comply with FECA or disclose 
information about itself to do

[[Page 5600]]

either of those things.'' See Statement of Sen. Lieberman, 146 Cong. 
Rec. S5996 (June 28, 2000). Representative Archer stated, ``[T]his bill 
does nothing but require disclosure. It does not change anything as to 
how much money can be given or how it can be used, any of those other 
substantive things in the law.'' See Statement of Rep. Archer, 146 
Cong. Rec. H5285 (June 27, 2000).
    A rule hinging on section 527 tax status could frustrate this 
separate reporting scheme created by Congress in the 2000 and 2002 
amendments to section 527. It could also have the effect of reducing 
disclosure. If a rule singled out 527 organizations, those entities 
could then either shift the same election-related conduct to a related 
section 501(c)(4) organization that shares common management, or 
perhaps even reorganize as a section 501(c)(4) organization in order to 
avoid a rule that singled out 527 organizations.\10\ Several commenters 
predicted that 527 organizations would do so. Because section 501(c)(4) 
of the Internal Revenue Code requires almost no disclosure of receipts 
and disbursements, migration of political conduct to section 501(c)(4) 
groups would reduce the amount of information disclosed to the 
public.\11\
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    \10\ As commenters noted, a 501(c)(4) organization may engage in 
the same political campaign activities as a 527 organization, as 
long as these activiteis do not constitute the 501(c)(4) 
organization's ``primary purpose'' as determined by the IRS.
    \11\ Only 501(c)(4) organizations with $25,000 or more in annual 
gross receipts must file annual tax returns with the IRS. See 26 
U.S.C. 6012(a)(6); Judith Kindell & John Francis Reilly, Election 
Year Issues: IRS Exempt Organizations Continuing Professional 
Education Text at 444, 470-71 (2002), available at http://www.irs.gov/charities/nonprofits/article/0,,id=155031,00.html (last 
visited Jan. 31, 2007). The required annual return (Form 990) 
includes a line for total amount of ``direct and indirect political 
expenditures'' without requiring any further breakdown of the 
expenditure amount. See IRS Form 990 Line 81a. Individual donors 
need not be disclosed by 501(c)(4) organizations.
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2. BCRA Amended FECA and Addressed Federal Activity of 527 
Organizations Without Requiring Political Committee Registration
    In BCRA, Congress directly addressed the Federal activity of 
unregistered 527 organizations, but again, declined to take any other 
action to regulate 527 organizations as political committees or 
otherwise alter the existing political committee framework. BCRA 
prohibits national, State and local political parties from soliciting 
for, or donating to ``an organization described in section 527 of [the 
Internal Revenue] Code (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).'' See 2 
U.S.C. 441i(d)(2) (emphasis added). This provision explicitly confirms 
Congress's intent to retain separate regimes for those 527 
organizations that must register with the Commission as political 
committees and those 527 organizations that are not required to 
register as political committees. Furthermore, if Congress had believed 
that all 527 organizations (other than those operating at the State 
level) were political committees, this BCRA prohibition would be 
superfluous.
    BCRA also included a limited exception from the prohibition on 
corporations making electioneering communications for 527 organizations 
(and 501(c)(4) organizations), as long as they were funded exclusively 
from individual contributions. See 2 U.S.C. 441b(c)(2). This exception 
was altered by the Wellstone amendment to BCRA, codified at 2 U.S.C. 
441b(c)(6), which strictly limited the scope of the exception. Although 
the exception was amended, this provision illustrates Congress's 
knowledge that 527 organizations were raising funds outside FECA's 
individual contribution limits and source prohibitions to produce 
communications that referenced Federal candidates. And BCRA makes two 
explicit determinations: electioneering communications are not 
themselves ``expenditures'' (even when conducted by 527 organizations) 
and such communications may not be paid for with corporate or labor 
union funds during specific pre-election periods. Had Congress 
determined that such communications constituted expenditures that 
required registration as a political committee, the reporting 
requirements and funding restrictions for the electioneering 
communications provisions would have been duplicative and meaningless. 
Yet, Congress chose to leave in place its decisions in 2000 and 2002 
that some 527 organizations should report their activities to the IRS, 
rather than register with the FEC.
    BCRA's legislative history further confirms Congress's recognition 
that 527 organizations (as well as 501(c)(4) organizations) could 
engage in some Federal campaign activity and yet not have to register 
as political committees. In defending BCRA's approach to 527 
organizations, Senator Snowe stated:

    [S]ome of our opponents have said that we are simply opening the 
floodgates in allowing soft money to now be channeled through these 
independent groups for electioneering purposes. To that, I would say 
that this bill would prohibit members from directing money to these 
groups to affect elections, so that would cut out an entire avenue 
of solicitation for funds, not to mention any real or perceived 
``quid pro quo.''

See Statement of Sen. Snowe, 148 Cong. Rec. S2136 (Mar. 20, 2002). 
Senator Wellstone noted that 527 and 501(c)(4) groups ``already play a 
major role in our elections'' and acknowledged that soft money would 
shift from political parties to these organizations. See Statement of 
Sen. Wellstone, 147 Cong. Rec. S2846-47 (Mar. 26, 2001). Senator Breaux 
stated that 501(c)(4) and 527 organizations would continue to be able 
to raise unrestricted money to be used in Federal elections. See 
Statement of Sen. Breaux, 147 Cong. Rec. S2885-86 (Mar. 26, 2001). 
Senator McConnell, who led the opposition to the passage of BCRA, was 
clear on this point as well: ``this bill will greatly weaken the 
parties and shift those resources to outside groups that will continue 
to engage in issue advocacy, as they have a constitutional right to do, 
with unlimited and undisclosed soft money.'' See Statement of Sen. 
McConnell, 148 Cong. Rec. S2160 (Mar. 20, 2002). As stated in a comment 
from a Governor who is also a former Member of Congress:

    That perceived evil, the direct personal involvement of 
[F]ederal and party officials in the raising of ``soft money'' 
funds, is not present with respect to donations made to non-profit 
organizations--whether organized under section 527 or under section 
501(c) of the Internal Revenue Code--acting independently from any 
[F]ederal officeholder, candidate or political party. Congress did 
not choose, in BCRA, to impose limits on those desiring to provide 
financial support to such non-profit organizations. Congress was 
well aware of the existence and activities of non-political 
committee 527 organizations and yet the BCRA did not elect to 
address such organizations other than to impose a prohibition on 
[F]ederal officeholders actively participating in the solicitation 
of funds for such groups.

    Based on this history of Congressional action regarding section 527 
and the enactment of BCRA, the Commission concludes that changing the 
regulatory definition of ``political committee'' to rely explicitly 
upon section 527 tax status would not be consistent with the 
Commission's statutory authority. The Commission reaches this 
conclusion regarding the scope of its regulatory authority because 
Congress previously considered and rejected bills that would have 
changed the political committee status of 527 organizations. See FDA v. 
Brown & Williamson Tobacco Corp., 529 U.S. 120, 143 (2000) (``[A] 
specific policy embodied in a later federal statute should control our 
construction of the [earlier] statute, even though it ha[s] not been 
expressly amended.''

[[Page 5601]]

(quoting United States v. Estate of Romani, 523 U.S. 517, 530-31 
(1998))).
    Furthermore, when Congress revises a statute, its decision to leave 
certain sections unamended constitutes at least acceptance, if not 
explicit endorsement, of the preexisting construction and application 
of the unamended terms. See Cook County, Illinois v. United States ex 
rel. Chandler, 538 U.S. 119, 132 (2003); Cottage Sav. Ass'n v. Comm'r, 
499 U.S. 554, 561-62 (1991); Asarco Inc. v. Kadish, 490 U.S. 605, 632 
(1989).
    During the 2004 rulemaking, the Commission received a comment 
signed by 138 Members of the House of Representatives, and a similar 
comment signed by 19 Senators. Both comments stated, ``the proposed 
rules before the Commission would expand the reach of BCRA's 
limitations to independent organizations in a manner wholly unsupported 
by BCRA or the record of our deliberations on the new law.'' The 
comment submitted by the House Members further stated:

    More generally, the rulemaking is concerned with new 
restrictions on ``527'' organizations, primarily through the 
adoption of new definitions of an ``expenditure.'' Congress, of 
course, did not amend in BCRA the definition of ``expenditure'' or, 
for that matter, the definition of ``political committee.'' 
Moreover, while BCRA reflects Congress' full awareness of the nature 
and activities of ``527s,'' it did not consider comprehensive 
restrictions on these organizations like those in the proposed 
rules. There has been absolutely no case made to Congress, or record 
established by the Commission, to support any notion that tax-exempt 
organizations and other independent groups threaten the legitimacy 
of our government when criticizing its policies. We believe instead 
that more, not less, political activity by ordinary citizens and the 
associations they form is needed in our country.\12\
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    \12\ The Commission also received a comment signed by 14 members 
of the Congressional Hispanic Caucus who opposed the proposed 
changes to the regulations based on possible adverse effects on 
grassroots voter mobilization efforts. This comment is available at 
http://www.fec.gov/pdf/nprm/political_comm_status/mailed/57.pdf.

    In upholding BCRA, the Supreme Court was also well aware that 
BCRA's new provisions would not reach all interest group Federal 
political activity. The McConnell Court observed that, unlike political 
parties, ``[i]nterest groups, however, remain free to raise soft money 
to fund voter registration, [get-out-the-vote] activities, mailings, 
and broadcast advertising (other than electioneering communications).'' 
McConnell, 540 U.S. at 187-88.
    Finally, at least two new bills requiring 527 organizations to 
register as political committees were recently considered in Congress. 
See, e.g., H.R. 513, 109th Cong. (2006); S. 2828, 108th Cong. (2004). 
The introduction and consideration of these bills, including one 
supported by two of the Shays II plaintiffs, demonstrates Congress's 
and these plaintiffs' recognition that Congress has not acted in this 
area. As with all past Congressional attempts to regulate all 527s as 
political committees, Congress did not adopt these bills, or any other 
bills altering the political committee framework. While the Commission 
is authorized to regulate in order to give substance to otherwise 
ambiguous provisions, ``[a] regulation, however, may not serve to amend 
a statute, or to add to the statue something which is not there.'' See 
Iglesias v. United States, 848 F.2d 362, 366 (2d Cir. 1988) (citations 
omitted).
    Thus, Congressional action regarding 527 organizations provides no 
basis for the Commission to revise FECA and the Supreme Court's 
requirements for political committee status by creating a separate 
political committee definition singling out 527 organizations. Rather, 
the Commission's decision to reject proposed rules based on section 527 
tax status is consistent with all past Congressional action addressing 
527 organizations.

D. Applying the Major Purpose Doctrine, a Judicial Construct 
Established Thirty Years Ago, Requires a Case-by-Case Analysis of an 
Organization's Conduct

    The Shays II court expressed concern that, in the absence of a 
regulation regarding the major purpose doctrine, the Commission was not 
providing clear guidance to groups as to when they must register as a 
political committee. See Shays II, 424 F. Supp. 2d at 115. Applying the 
major purpose doctrine, however, requires the flexibility of a case-by-
case analysis of an organization's conduct that is incompatible with a 
one-size-fits-all rule.
    The Supreme Court has held that, to avoid the regulation of 
activity ``encompassing both issue discussion and advocacy of a 
political result'' only organizations whose major purpose is Federal 
campaign activity can be considered political committees under the Act. 
See, e.g., Buckley, 424 U.S. at 79; MCFL, 479 U.S. at 262. Thus, the 
major purpose test serves as an additional hurdle to establishing 
political committee status. Not only must the organization have raised 
or spent $1,000 in contributions or expenditures, but it must 
additionally have the major purpose of engaging in Federal campaign 
activity.
    The Supreme Court has made it clear that an organization can 
satisfy the major purpose doctrine through sufficiently extensive 
spending on Federal campaign activity. See MCFL, 479 U.S. at 262 
(explaining that a section 501(c)(4) organization could become a 
political committee required to register with the Commission if its 
``independent spending become[s] so extensive that the organization's 
major purpose may be regarded as campaign activity'').
    An analysis of public statements can also be instructive in 
determining an organization's purpose. See, e.g., FEC v. Malenick, 310 
F. Supp. 2d 230, 234-36 (D.D.C. 2004) (court found organization 
evidenced its major purpose through its own materials which stated the 
organization's main goal of supporting the election of the Republican 
Party candidates for Federal office and through efforts to get 
prospective donors to consider supporting Federal candidates); FEC v. 
GOPAC, Inc., 917 F. Supp. 851, 859 (D.D.C. 1996) (``organization's 
[major] purpose may be evidenced by its public statements of its 
purpose or by other means''); Advisory Opinion 2006-20 (Unity 08) 
(organization evidenced its major purpose through organizational 
statements of purpose on Web site). Because such statements may not be 
inherently conclusive, the Commission must evaluate the statements of 
the organization in a fact-intensive inquiry giving due weight to the 
form and nature of the statements, as well as the speaker's position 
within the organization.
    The Federal courts' interpretation of the constitutionally mandated 
major purpose doctrine requires the Commission to conduct 
investigations into the conduct of specific organizations that may 
reach well beyond publicly available advertisements. See, e.g., 
Malenick, 310 F. Supp. 2d at 234-36 (examining organizations' materials 
distributed to prospective donors). The Commission may need to examine 
statements by the organization that characterize its activities and 
purposes. The Commission may also need to evaluate the organization's 
spending on Federal campaign activity, as well as any other spending by 
the organization. In addition, the Commission may need to examine the 
organization's fundraising appeals.
    Because Buckley and MCFL make clear that the major purpose doctrine 
requires a fact-intensive analysis of a group's campaign activities 
compared to its activities unrelated to campaigns, any rule must permit 
the Commission

[[Page 5602]]

the flexibility to apply the doctrine to a particular organization's 
conduct. After considering these precedents and the rulemaking record, 
the Commission concluded that none of the competing proposed rules 
would have accorded the Commission the flexibility needed to apply the 
major purpose doctrine appropriately. Therefore, the Commission decided 
not to adopt any of the proposed amendments to section 100.5.\13\
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    \13\ Many prominent 527 organizations in 2004 were registered 
political committees with Federal and non-Federal accounts. A new 
rule addressing major purpose would not have required these 
organizations to change their structures. The more relevant 
questions for these organizations was whether particular expenses 
could lawfully be paid with non-Federal funds from a non-Federal 
account, which was sometimes a connected 527 organization not 
registered with the Commission, and whether non-Federal funds could 
be raised through solicitations that referred to clearly identified 
Federal candidates. New section 100.57 and revised section 106.6, as 
discussed below in Part E, address these questions.
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    However, even if the Commission were to adopt a regulation 
encapsulating the judicially created major purpose doctrine, that 
regulation could only serve to limit, rather than to define or expand, 
the number or type of organizations regarded as political committees. 
The major purpose doctrine did not supplant the statutory 
``contribution'' and ``expenditure'' triggers for political committee 
status, rather it operates to limit the reach of the statute in certain 
circumstances.
    Moreover, any perceived shortcomings with the enforcement process 
identified by the Shays II court would not be remedied by a change in 
the regulatory definition of ``political committee.'' \14\ Any revised 
rule adopted by the Commission would still have to be interpreted and 
applied through the very same statutory enforcement procedures as 
currently exist. In fact, all of the rules proposed in 2004 would have 
required that factual determinations be made through the enforcement 
process. See, e.g., proposed 11 CFR 100.5(a)(2)(iv), Notice of Proposed 
Rulemaking on Political Committee Status, 69 FR 11736, 11748, 11757 
(Mar. 11, 2004) (exemptions limited to 527 organizations that are 
formed ``solely for the purpose of'' supporting a non-Federal candidate 
or influencing selection of individuals to non-elective office). Even 
if the Commission had simply adopted a rule in 2004 that listed the 
factors considered in determining an organization's major purpose, the 
rule would still have had to be enforced through investigations of the 
specific statements, solicitations, and other conduct by particular 
organizations. Furthermore, any list of factors developed by the 
Commission would not likely be exhaustive in any event, as evidenced by 
the multitude of fact patterns at issue in the Commission's enforcement 
matters considering the political committee status of various entities 
(``Political Committee Status Matters''). See, e.g., MURs 5511 and 5525 
(Swiftboat Vets); 5753 (League of Conservation Voters); 5754 
(MoveOn.org Voter Fund); 5492 (Freedom, Inc.); 5751 (Leadership Forum).
---------------------------------------------------------------------------

    \14\ As described in Part F, below, the Commission has resolved 
several enforcement matters that involve 527 organizations alleged 
to have unlawfully failed to register as political committees. The 
Commission further notes that it has concluded action on the vast 
majority of the 2004-cycle cases on its docket and posted record 
enforcement figures in 2006. See Press Release, Federal Election 
Commission, FEC Posts Record Year, Collecting $6.2 Million in Civil 
Penalties, available at http://www.fec.gov/press/press2006/20061228summary.htmlprocess.
---------------------------------------------------------------------------

E. The 2004 Final Rules Clarify and Strengthen the Political Committee 
Determination Consistent With the FECA and Supreme Court Framework

    To best ensure that organizations that participate in Federal 
elections use funds compliant with the Act's restrictions, the 
Commission decided in the 2004 rulemaking to adopt two broad anti-
circumvention measures. The first expands the regulatory definition of 
``contribution'' to capture funds solicited for the specific purpose of 
supporting or opposing the election of a Federal candidate. See 11 CFR 
100.57. An organization that receives more than $1,000 of such funds is 
required to register as a political committee. The second rule places 
limits on the non-Federal funds a registered political committee may 
use to engage in certain activity, such as voter drives and campaign 
advertisements, which has a clear Federal component. See 11 CFR 106.6. 
The combined effect of these two rules significantly curbs the raising 
and spending of non-Federal funds in connection with Federal elections, 
in a manner wholly consistent with the existing political committee 
framework. The effect of these changes on 527 organizations has already 
been remarked. See Paul Kane, ``Liberal 527s Find Shortfall,'' Roll 
Call (Sept. 25, 2006) (``a change in FEC regulations curtailed a huge 
chunk of 527 money because, after the 2004 elections, the commission 
issued a ruling that said all get-out-the-vote efforts in Congressional 
races had to be financed with at least 50 percent federal donations, 
those contributions that are limited to $5000 per year to political 
action committees'').
1. The Commission Adopted a New Regulation That Requires Organizations 
To Register as Political Committees Based on Their Solicitations
    While Supreme Court precedent places strict parameters on the 
breadth of the definition of expenditure, Supreme Court precedent 
provides greater deference to contribution restrictions. See FEC v. 
Beaumont, 539 U.S. 146, 161 (U.S. 2003) (upholding the 
constitutionality of FECA's corporate contribution prohibition as 
applied to a non-profit advocacy corporation and noting: ``Going back 
to Buckley, restrictions on political contributions have been treated 
as merely `marginal' speech restrictions subject to relatively 
complaisant review under the First Amendment, because contributions lie 
closer to the edges than to the core of political expression.'') 
(citations omitted). Other judicial precedent specifically permits a 
broader interpretation of when an organization has solicited 
contributions. In FEC v. Survival Educ. Fund, Inc., 65 F.3d 285 (2d 
Cir. 1995) (``SEF''), the appellate court held that a mailer solicited 
``contributions'' under FECA when it left `` no doubt that the funds 
contributed would be used to advocate President Reagan's defeat at the 
polls, not simply to criticize his policies during the election year.'' 
Id. at 295. The Commission's new rule at 11 CFR 100.57 codifies the SEF 
analysis. Section 100.57(a) states that if a solicitation ``indicates 
that any portion of the funds received will be used to support or 
oppose the election of a clearly identified Federal candidate,'' then 
all money received in response to that solicitation must be treated as 
a ``contribution'' under FECA. See 2004 Final Rules, 69 FR at 68057-58.
    When an organization receives $1,000 or more in contributions, 
including those that are defined under new section 100.57(a), the 
organization will meet the statutory definition of a ``political 
committee.'' An organization that triggers political committee status 
through the receipt of such contributions is required to register the 
committee with the Commission, report all receipts and disbursements, 
and abide by the contribution limitations and source prohibitions.
    Thus, section 100.57 codifies a clear, practical, and effective 
means of determining whether an entity, regardless of tax status, is 
participating in activity designed to influence Federal elections, and, 
therefore, may be required to register as a political committee.

[[Page 5603]]

    In addition, the new regulation contains a prophylactic measure at 
section 100.57(b) to prevent circumvention of the solicitation rule by 
registered political committees operating both Federal and non-Federal 
accounts under the Commission's allocation rules. Section 100.57(b) 
requires that at least 50%, and as much as 100%, of the funds received 
in response to a solicitation satisfying the requirements of section 
100.57(a) be treated as FECA contributions, regardless of references to 
other intended uses for the funds received. See 11 CFR 100.57(b)(1) and 
(2); 2004 Final Rules, 69 FR at 68058-59. Therefore, section 100.57(b) 
prevents a political committee from adding references to non-Federal 
candidates or political parties to its solicitation materials in order 
to claim that most or all of the funds received are for non-Federal 
purposes, and therefore, not ``contributions'' under FECA. The 
regulation has the additional advantage of prohibiting registered 
political committees from raising donations not subject to the 
limitations from individual contributors or from prohibited sources 
using solicitation materials that focus on influencing the election of 
Federal candidates.
    Moreover, the costs of these solicitations must be paid for with a 
corresponding proportion of Federal funds. For example, if 100% of the 
funds received from a solicitation would be treated as contributions 
under section 100.57(b)(1), then 100% of the costs of that solicitation 
must be paid with Federal funds. See 11 CFR 100.57(b); 11 CFR 
106.1(a)(1); 11 CFR 106.6(d)(1); 11 CFR 106.7(d)(4).
    In sum, section 100.57 codifies a broad method of establishing 
political committee status with strong anti-circumvention protections, 
providing clear guidance to the regulated community that any 
organization, regardless of tax status, may be required to register as 
a political committee based on its solicitations.
2. The Commission Adopted Anti-Circumvention Measures Requiring That 
Campaign Ads and Voter Turn Out Efforts be Paid for With at Least 50% 
Federal Funds and as Much as 100% Federal Funds
    The 2004 Final Rules also include a comprehensive overhaul of the 
Commission's allocation regulations, which govern how corporate and 
labor organization PACs and nonconnected committees split the costs of 
Federal and non-Federal activities such as campaign ads and voter 
turnout efforts. See 11 CFR 106.6. Under Commission regulations, a 
registered political committee that participates in both Federal and 
non-Federal elections is permitted to maintain both Federal and non-
Federal accounts, containing funds that comply, respectively, with 
Federal and State restrictions. See 11 CFR 102.5(a).
    Because many activities that an organization may undertake will 
have both a Federal and non-Federal component (such as a voter drive 
where both the Federal candidate and the non-Federal candidate are 
appearing on the ballot), previous Commission regulations had permitted 
the committee to develop an allocation percentage based on a ratio of 
Federal expenditure to Federal and non-Federal disbursements. This 
allocation percentage would govern how payments for all activity of the 
organization would be split between the two accounts.
    Several commenters claimed that some registered political 
committees were relying on these former allocation rules to pay for 
Federal campaign ads and voter turnout efforts that could influence the 
2004 Federal elections almost entirely with non-Federal funds. BCRA's 
Congressional sponsors, including two of the Shays II plaintiffs, 
argued that the previous allocation requirements ``allow[ed] for absurd 
results'' and that ``[t]he Commission must revise its allocation rules 
to require a significant minimum hard money share for spending on voter 
mobilization in a federal election year.''
    Several campaign finance reform groups, including counsel to two of 
the Shays II amici, urged the Commission to curb these perceived 
abuses. At the time, they stated it was ``essential for the Commission 
to take this action as part of the [2004] rulemaking process.''
    The 2004 Final Rules directly resolve these concerns by 
establishing strict new Federal funding requirements for registered 
political committees, as well as for entities that conduct activity 
through both registered Federal accounts and unregistered non-Federal 
accounts. The new rules require these groups to: (a) Use a minimum of 
50% Federal funds to pay for get-out-the-vote drives that do not 
mention a specific candidate, as well as public communications that 
refer to a political party without referring to any specific 
candidates, and administrative costs; (b) use 100% Federal funds to pay 
for public communications or voter drives that refer to one or more 
Federal candidates, but no non-Federal candidates; and (c) for public 
communications or voter drives that refer to both Federal and non-
Federal candidates, use a ratio of Federal and non-Federal funds based 
on the time and space devoted to each Federal candidate as compared to 
the total space devoted to all candidates. See 11 CFR 106.6(c); 2004 
Final Rules, 69 FR at 68061-63; 11 CFR 106.6(f). Notably, the 
Commission's new allocation and contribution regulations are the 
subject of pending litigation, where the Commission is charged not with 
being too lenient, but being too restrictive. See EMILY's List v. FEC 
(Civil No. 05-0049 (CKK)) (D.D.C. summary judgment briefing completed 
July 18, 2005).\15\
---------------------------------------------------------------------------

    \15\ Material related to this litigation can be found at http://www.fec.gov/law/litigation_related.shtml#emilyslist_dc.
---------------------------------------------------------------------------

    An additional change to the regulation will also significantly 
shift political committees towards a greater use of Federal funds. The 
new regulations require an organization to pay at least 50% of its 
administrative costs with funds from the Federal account. This 
regulatory adjustment will curtail longstanding complaints that the 
Commission's allocation regulations have permitted non-Federal funds to 
substantially subsidize the overhead and day-to-day operations of the 
organization's Federal activity.
    The revisions to section 106.6 prevent registered political 
committees from fully funding campaign advertisements and voter drives 
primarily designed to benefit Federal candidates with non-Federal funds 
simply by making a passing reference to a non-Federal candidate.

F. Since the 2004 Rulemaking, the Commission's Enforcement Actions 
Demonstrate the Application and Sufficiency of the FECA Political 
Committee Framework, and Provide Considerable Guidance Addressing When 
Groups Must Register as Political Committees

    The Commission has applied FECA's definition of ``political 
committee,'' together with the major purpose doctrine, in the recent 
resolution of a number of administrative enforcement Matters involving 
527 organizations and other groups. See MURs 5511 and 5525 (Swiftboat 
Vets); 5753 (League of Conservation Voters); 5754 (MoveOn.org Voter 
Fund); 5751 (The Leadership Forum); 5492 (Freedom, Inc.).\16\ In each 
of these Political Committee Status Matters, the Commission conducted a 
thorough investigation of all aspects of the organization's statements 
and activities to determine first if the organization exceeded the 
$1,000

[[Page 5604]]

statutory and regulatory threshold for expenditures or contributions in 
2 U.S.C. 431(4)(A) and 11 CFR 100.5(a), and then whether the 
organization's major purpose was Federal campaign activity. The 
settlements in the Political Committee Status Matters are significant 
because they are the first major cases after the Supreme Court's 
decision in McConnell to consider the reach of the definition of 
``express advocacy'' when evaluating an organization's disbursements 
for communications made independently of a candidate to determine if 
the expenditure threshold has been met. They are also significant 
because they demonstrate that an organization may satisfy the political 
committee status threshold based on how the organization raises funds, 
and that the Commission examines fundraising appeals based on the plain 
meaning of the solicitation, not the presence or absence of specific 
words or phrases. Finally, the Political Committee Status Matters 
illustrate well the Commission's application of the major purpose 
doctrine to the conduct of particular organizations.
---------------------------------------------------------------------------

    \16\ Documents related to these and other Commission MURs cited 
in this Explanation and Justification are available at http://eqs.nictusa.com/eqs/searcheqs.
---------------------------------------------------------------------------

    As discussed in detail below, in these and other matters, the 
Commission provides guidance to organizations about both the 
expenditure and the contribution paths to political committee status 
under FECA, as well as the major purpose doctrine. Any organization can 
look to the public files for the Political Committee Status Matters and 
other closed enforcement matters, as well as advisory opinions and 
filings in civil enforcement cases, for guidance as to how the 
Commission has applied the statutory definition of ``political 
committee'' together with the major purpose doctrine. The public 
documents available regarding the 527 settlements in particular provide 
more than mere clarification of legal principle; they provide numerous 
examples of actual fundraising solicitations, advertisements, and other 
communications that will trigger political committee status. These 
documents should guide organizations in the future as they formulate 
plans and evaluate their own conduct so they may determine whether they 
must register and report with the Commission as political committees. 
To the extent uncertainty existed, these 527 settlements reduce any 
claim of uncertainty because concrete factual examples of the 
Commission's political committee status analysis are now part of the 
public record.
1. The Expenditure Path to Political Committee Status
    In the Swiftboat Vets and League of Conservation Voters Matters, 
the Commission analyzed whether the organizations' advertising, voter 
drives and other communications ``expressly advocated'' the election or 
defeat of a clearly identified Federal candidate under the two 
definitions of that term in 11 CFR 100.22.\17\ The Commission applied a 
test for express advocacy that is not only limited to the so-called 
``magic words'' such as ``vote for'' or ``vote against,''\18\ but also 
includes communications containing an ``electoral portion'' that is 
``unmistakable, unambiguous, and suggestive of only one meaning'' and 
about which ``reasonable minds could not differ as to whether it 
encourages actions to elect or defeat'' a candidate when taken as a 
whole and with limited reference to external events, such as the 
proximity to the election.\19\ The Commission was able to apply the 
alternative test set forth in 11 CFR 100.22(b) free of constitutional 
doubt based on McConnell's statement that a ``magic words'' test was 
not constitutionally required, as certain Federal courts had previously 
held. Express advocacy also includes exhortations ``to campaign for, or 
contribute to, a clearly identified candidate.'' FEC v. Christian 
Coalition, 52 F. Supp. 2d 45, 62 (D.D.C. 1999) (explaining why Buckley, 
424 U.S. at 44 n.52, included the word ``support,'' in addition to 
``vote for'' or ``elect,'' in its list of examples of express advocacy 
communication). Thus, if the organization spent more than $1,000 on a 
communication meeting either test for express advocacy, then the 
statutory threshold of expenditures was met.
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    \17\ In these Matters, the Commission used its enforcement 
process to develop the factual record of what advertisements the 
organizations ran, when and where they ran, and how much they cost, 
and to reach the legal conclusions of whether the regulatory 
standards were satisfied. Thus, even when the Commission codifies a 
legal standard in its regulations, the enforcement process is the 
vehicle for determining how that legal standard should be applied in 
a particular case.
    \18\ Under 11 CFR 100.22(a), a communication contains express 
advocacy when it uses phrases such as ``vote for the President,'' 
``re-elect your Congressman,'' or ``Smith for Congress,'' or uses 
campaign slogans or words that in context have no other reasonable 
meaning than to urge the election or defeat of one or more clearly 
identified candidates, such as posters, bumper stickers, or 
advertisements that say, ``Nixon's the One,'' ``Carter '76,'' 
``Reagan/Bush,'' or ``Mondale!''.
    \19\ 11 CFR 100.22(b). The Commission also recently resolved 
another administrative action based on a determination that a 
501(c)(4) organization's communications satisfied the ``express 
advocacy'' definition in section 100.22(b). See MUR 5634 (Sierra 
Club, Inc.).
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    The Commission determined that Swiftboat Vets met the threshold for 
``expenditures'' because it spent over $1,000 for fundraising 
communications that ``expressly advocated'' the election or defeat of a 
clearly identified Federal candidate under 11 CFR 100.22(a). In 
addition, Swiftboat Vets spent over $1,000 for television 
advertisements, direct mailings and a newspaper advertisement that 
contained express advocacy under 11 CFR 100.22(b).\20\
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    \20\ See MUR 5511 Conciliation Agreement, at paragraphs 23-28.
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    The Commission also determined that two League of Conservation 
Voter 527 organizations met the expenditure threshold because they 
spent more than $1,000 on door-to-door canvassing and telephone banks 
where the scripts and talking points for canvassers and callers 
expressly advocated the defeat of a Federal candidate under 11 CFR 
100.22(a). In addition, the League of Conservation Voters 527s spent 
more than $1,000 for a mailer expressly advocating a Federal 
candidate's election under both definitions in 11 CFR 100.22(a) and 
(b).\21\
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    \21\ See MUR 5753 Conciliation Agreement, at 8-9.
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2. The Contribution Path to Political Committee Status
    With regard to the $1,000 threshold for ``contributions,'' the 
Commission examined fundraising appeals from each organization in the 
Swiftboat Vets, League of Conservation Voters and MoveOn.org Voter Fund 
matters and determined that if any of the solicitations clearly 
indicated that the funds received would be used to support or defeat a 
Federal candidate, then the funds received were given ``for the purpose 
of influencing'' a Federal election and therefore constituted 
``contributions'' under FECA. See SEF. The Commission examined the 
entirety of the solicitations and did not limit its analysis to the 
presence or absence of any particular words or phrases. If any 
solicitations meeting the test set forth in SEF resulted in more than 
$1,000 received by the organization, then the statutory threshold for 
contributions was met.
    Swiftboat Vets received more than $1,000 in response to several e-
mail and Internet fundraising appeals and a direct mail solicitation 
clearly indicating that the funds received would be used to the defeat 
of a Federal candidate, which meant these funds were ``contributions'' 
under FECA.\22\ Similarly, the League of

[[Page 5605]]

Conservation Voters 527s each received more than $1,000 in response to 
mailed solicitations, telephone calls, and personal meetings with 
contributors where the organizations clearly indicated that the funds 
received would be used to defeat a Federal candidate, which also meant 
these funds were ``contributions'' under FECA.\23\ Finally, MoveOn.org 
Voter Fund received more than $1,000 in response to specific 
fundraising e-mail messages that clearly indicated the funds received 
would be used to defeat a Presidential candidate, which constituted 
``contributions'' under FECA.\24\
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    \22\ See MUR 5511 Conciliation Agreement, at paragraphs 18-21.
    \23\ See MUR 5753 Conciliation Agreement, at 5-7.
    \24\ See MUR 5754 Conciliation Agreement, at 5-8.
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3. Application of the Major Purpose Doctrine
    After determining that each organization in the Swiftboat Vets, 
League of Conservation Voters, and MoveOn.org Voter Fund matters had 
met the threshold for contributions or expenditures in FECA and 
Commission regulations, the Commission then investigated whether each 
organization's major purpose was Federal campaign activity. The 
Commission examined each organization's fundraising solicitations, the 
sources of its contributions, and the amounts received. The Commission 
considered public statements as well as internal documents about an 
organization's mission. Each organization's full range of campaign 
activities was evaluated, including whether the organization engaged in 
any activities that were not campaign related.
    Recently resolved matters reflect the comprehensive analysis 
required to determine an organization's major purpose. Swiftboat Vets' 
major purpose was campaign activity, as evidenced by: (1) Statements 
made to prospective donors detailing the organization's goals; (2) 
public statements on the organization's Web site; (3) statements in a 
letter from the organization's Chairman thanking a large contributor; 
(4) statements by a member of the organization's Steering Committee on 
a news program; and (5) statements in various fundraising 
solicitations. The organization's activities also evidenced its major 
purpose as over 91% of its reported disbursements were spent on 
advertisements directed to Presidential battleground States and direct 
mail attacking or expressly advocating the defeat of a Presidential 
candidate, and the organization has effectively ceased active 
operations after the November 2004 election.\25\
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    \25\ See MUR 5511 Conciliation Agreement, at paragraphs 31-36.
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    The League of Conservation Voters 527s' major purpose was campaign 
activity as demonstrated through: (1) Statements made in the 
organizations' solicitations; (2) statements in organizational planning 
documents, such as a ``National Electoral Strategic Plan 2004''; (3) 
public statements endorsing Federal candidates; and (4) statements in 
letters from the organizations' President describing the organizations' 
activities. The organizations' budget also evidenced its major purpose 
of campaign activity because 50-75% of the political budget for the 
organizations was intended for the Presidential election.\26\
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    \26\ See MUR 5753 Conciliation Agreement, at 9-10.
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    MoveOn.org Voter Fund's major purpose was campaign activity as 
evidenced by statements regarding its objectives in e-mail 
solicitations. MoveOn.org Voter Fund's activities also demonstrated its 
major purpose of campaign activity. MoveOn.org Voter Fund spent over 
68% of its total 2004 disbursements on television advertising opposing 
a Federal candidate in Presidential battleground states; the only other 
disbursements from MoveOn.org Voter Fund in 2004 were for fundraising, 
administrative expenses, and grants to other political organizations. 
MoveOn.org Voter Fund spent nothing on State or local elections. 
Lastly, MoveOn.org Voter Fund has effectively ceased active operations 
after the November 2004 election.\27\
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    \27\ See MUR 5754 Conciliation Agreement, at 8, and Factual & 
Legal Analysis, at 11-13 (Aug. 9, 2006).
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    527 organizations are not the only groups whose major purpose is 
Federal campaign activity. The Commission recently conciliated a MUR 
with a 501(c)(4) organization, Freedom Inc., which had failed to 
register and report as a political committee despite conducting Federal 
campaign activity during the 2004 election cycle. See MUR 5492. Freedom 
Inc. made more than $1,000 in expenditures for communications that 
expressly advocated a Federal candidate's election under section 
100.22(a), and it conceded that its major purpose was campaign 
activity.
4. Other FEC Actions
    In addition to the Political Committee Status Matters discussed 
above, the Commission filed suit against another 527 organization, the 
Club for Growth, Inc. (``CFG''), for failing to register and report as 
a political committee in violation of FECA. See FEC v. Club for Growth, 
Inc., Civ. No. 05-1851 (RMU) (D.D.C. Compl. pending).\28\ The 
Commission's complaint against CFG provides further guidance to 
organizations regarding the prerequisites of political committee 
status.
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    \28\ Complaint available at http://www.fec.gov/law/litigation/club_for_growth_complaint.pdf.
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    The complaint shows that CFG made expenditures for candidate 
research, polling, and advertising, including advertising that 
expressly advocates the election or defeat of clearly identified 
candidates. (Compl. at 10-11). Additionally, CFG made solicitations 
indicating that funds provided would be used to support or oppose 
specific candidates, which means the funds received were contributions 
under FECA. (Id., at 8-9). Finally, the complaint reflects an extensive 
examination of the organization, resulting in a determination that the 
major purpose of the organization was to influence Federal elections 
(id., at 12), including evidence such as: CFG's statement of purpose in 
the registration statement submitted to the Internal Revenue Service 
(id., at 6); other public statements indicating CFG'S purpose is 
influencing Federal elections (id., at 6-7); CFG's use of solicitations 
that make clear that contributions will be used to support or oppose 
the election of specific Federal candidates (id., at 8-9); other 
spending by CFG for public communications mentioning Federal candidates 
(id., at 10-11); and the absence of any spending by CFG on State or 
local races (id., at 10).
    Just as findings of violations inform organizations as to what 
kinds of activities will compel registration as a Federal political 
committee, a Commission finding that there has been no violation 
clarifies those activities that will not. For example, in MUR 5751 (the 
Leadership Forum), the Commission made a threshold finding that there 
was a basis for investigating (i.e., the Commission found ``Reason to 
Believe'') whether the Leadership Forum had failed to register as a 
political committee based on its 2004 election activity. The subsequent 
investigation revealed that the Leadership Forum's only public 
communications reprinted governmental voter information, without any 
mention of Federal or non-Federal candidates or political parties. 
Following the investigation, the Commission closed the matter because 
it found no evidence that the Leadership

[[Page 5606]]

Forum had crossed the $1,000 threshold through expenditures or 
contributions. Consequently, the Commission did not undertake a major 
purpose analysis for the Leadership Forum.
    All of these cases taken together illustrate (1) The Commission's 
commitment to enforcing FECA's requirements for political committee 
status as well as (2) the need for an examination of an organization's 
activities under the major purpose doctrine, regardless of a particular 
organization's tax status.
5. The Advisory Opinion Process
    Any entity that remains unclear about the application of FECA to 
its prospective activities may request an advisory opinion from the 
Commission. See 2 U.S.C. 437f; 11 CFR part 112. Through advisory 
opinions, the Commission can further explain the application of the law 
and provide guidance to an organization about how the Commission would 
apply the major purpose doctrine to its proposed activities, and 
whether the organization must register as a political committee.\29\
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    \29\ See McConnell, 540 U.S. at 170 n.64 (holding portions of 
BCRA were not unconstitutionally vague, in part because ``should 
plaintiffs feel that they need further guidance, they are able to 
seek advisory opinions for clarification * * * and thereby `remove 
any doubt there may be as to the meaning of the law''' (internal 
citation omitted)).
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    Under FECA, the Commission is required to provide an advisory 
opinion within 60 days of receiving a complete written request and, in 
some instances, within 20 days. See 2 U.S.C. 437f(a); 11 CFR 112.4(a) 
and (b). Moreover, the Commission's legal analysis and conclusions in 
an advisory opinion may be relied upon not only by the requestor, but 
also by any person whose activity ``is indistinguishable in all its 
material aspects'' from the activity in the advisory opinion. See 2 
U.S.C. 437f(c); 11 CFR 112.5(a)(2). The Commission has considered the 
major purpose doctrine in prior advisory opinions when assessing 
whether an organization is a political committee.\30\
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    \30\ See Advisory Opinions 2006-20 (Unity 08); 2005-16 (Fired 
Up); 1996-13 (Townhouse Associates); 1996-3 (Breeden-Schmidt 
Foundation); 1995-11 (Hawthorn Group); 1994-25 (Libertarian National 
Committee) and 1988-22 (San Joaquin Valley Republican Associates).
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    The advisory opinion process is an effective means by which the 
Commission clarifies the law because it allows an entity to ask the 
Commission for specific advice about the factual situation with which 
the entity is concerned, often in advance of the entity engaging in the 
contemplated activities.

Conclusion

    By adopting a new regulation by which an organization may be 
required to register as a political committee based on its 
solicitations, and by tightening the rules governing how registered 
political committees fund solicitations, voter drives and campaign 
advertisements, the 2004 Final Rules bolstered FECA against 
circumvention not just by one kind of organization, but by groups of 
all kinds. As discussed above, the Commission's decision not to 
establish a political committee definition singling out 527 
organizations is informed by the statutory scheme, Supreme Court 
precedent, and Congressional action regarding 527 organizations. 
Accordingly, the Commission will continue to utilize the political 
committee framework provided by Congress in FECA, as modified by the 
Supreme Court.
    Pursuant to FECA and Supreme Court precedent, the Commission will 
continue to determine political committee status based on whether an 
organization (1) Received contributions or made expenditures in excess 
of $1,000 during a calendar year, and (2) whether that organization's 
major purpose was campaign activity. See 2 U.S.C. 431(4)(A); Buckley, 
424 U.S. at 79; MCFL, 479 U.S. at 262. When analyzing a group's 
contributions, the Commission will consider whether any of an 
organization's solicitations generated contributions because the 
solicitations indicated that any portion of the funds received would be 
used to support or oppose the election of a clearly identified Federal 
candidate. See 11 CFR 100.57. Additionally, the Commission will analyze 
whether expenditures for any of an organization's communications made 
independently of a candidate constituted express advocacy either under 
11 CFR 100.22(a), or the broader definition at 11 CFR 100.22(b).
    As evidenced by the Commission's recent enforcement actions, 
together with guidance provided through publicly available advisory 
opinions and filings in civil enforcement cases, this framework 
provides the Commission with a very effective mechanism for regulating 
organizations that should be registered as political committees under 
FECA, regardless of that organization's tax status. The Commission's 
new and amended rules, together with this Supplemental Explanation and 
Justification, as well as the Commission's recent enforcement actions, 
places the regulated community on notice of the state of the law 
regarding expenditures, the major purpose doctrine, and solicitations 
resulting in contributions. In addition, any group unclear about the 
application of FECA to its prospective activities may request an 
advisory opinion from the Commission. See 2 U.S.C. 437f; 11 CFR part 
112.

    Dated: February 1, 2007.
Robert D. Lenhard,
Chairman, Federal Election Commission.
 [FR Doc. E7-1936 Filed 2-6-07; 8:45 am]
BILLING CODE 6715-01-P