The Federal Election Commission (“FEC”) recently issued guidance clarifying the Commission’s approach for enforcement matters involving reporting LLC contributions. All federal candidates and political committees should familiarize themselves with the Commission’s new guidance, including its newly approved sample donor LLC letter.
Background - Attributing LLC Contributions
The Federal Election Campaign Act (“FECA”) and its regulations require political committees to accurately attribute contributions they receive. However, properly attributing a contribution from a limited liability company (an “LLC”) has long added complexity for a committee’s reporting.
Federal campaign finance law categorizes LLCs based on the LLC’s tax treatment. When an LLC that elects to be treated as a corporation makes a contribution to a political committee, that contribution will be treated like a contribution from a corporation. Candidate committees and “hard money” PACs cannot accept contributions from “corporate” LLCs.
Alternatively, LLCs that elect to be treated as partnerships for tax purposes must generally attribute their contributions to the “partnership” and to each partner in direct proportion to the partner’s share of the “partnership” profits. Finally, contributions from single-member LLCs that do not elect to be treated as a corporation by the IRS, known as “disregarded entities,” must be attributed to the single member.
The onus to properly report contributions falls on the recipient of the contribution, the committee and its treasurer. FECA and its regulations require that a committee exercises its “best efforts” to obtain and report accurate attribution information from a contributor.
The FEC’s Recent Guidance
The FEC recently considered several cases involving the attribution of LLC donors, including MUR 7981 (The Freedom Forward Fund) and MUR 8019 (Wyoming Values). The complaints in these matters observed that certain LLC contributions had not been attributed to individuals and alleged that the LLCs were “straw donors,” who were intending to obscure the true source of the contributed funds. The complaints claimed that the contributions were illegally made “in the name of another” rather than disclosing the donor’s true identity.
In addressing the complaints, the four current FEC Commissioners issued two statements of reasons. The Commissioners explained that these LLC contributions and reports failed to correctly attribute contributions, but the Commissioners did not agree that these issues amounted to “straw donor” donations or contributions “in the name of another.”
The Commissioners laid out the following guidelines for future enforcements regarding LLC contributions from single-member LLCs and partnership LLCs:
- If an LLC fails to provide correct attribution information to a committee, and the recipient committee reports the incorrect information, the Commission generally will pursue the LLC for a FECA violation.
- If the LLC nevertheless provides attribution information within 30 days, whether in response to a request by the recipient committee or otherwise, the Commission will generally exercise its prosecutorial discretion and excuse the contributor from a violation.
- Where a recipient committee engages in “best efforts” and receives either incorrect attribution information or no attribution information from the LLC, the Commission will dismiss a complaint concerning that committee’s reporting of the contribution.
- Where a recipient committee fails to exercise best efforts and inaccurately reports an LLC contribution, the Commission will ordinarily pursue a violation against the committee.
The Commission approved a Sample Donor Response Form for Contribution by LLCs. Committees can send this letter to an LLC upon receiving a contribution from that LLC to satisfy the committee’s “best efforts” requirements for properly attributing the contribution.
Notably, the Commission takes the position that, now that it has issued this guidance, political committees and the general public have received sufficient notice and must comply with LLC attribution requirements. In short, failing to attribute contributions made by LLC donors may lead to enforcement actions by the FEC.
This new FEC guidance applies only to single-member LLCs and LLCs that are taxed as partnerships. The guidance notes that “corporate” LLCs are not subject to individual attribution, but can still be found to be straw donors if they contribute in the name of another. We encourage conferring with counsel regarding contributions from corporate LLCs to permissible recipients—such as Super PACs or non-contribution accounts of hybrid PACs
Lessons for Committees
The upshot from the FEC’s statements is that committees must affirmatively request attribution information from LLC donors. Specifically, committees should adapt and use the Commission’s “Sample Donor Response Form.” Committees should preserve records demonstrating the committee reached out to the donor using the response form and all responses received for a period of three years.
Now that the FEC has unanimously stated its position that the public is on notice about LLC contribution attribution and its plans to enforce these laws, committees should take particular care to make sure they and their compliance vendors are using best efforts to secure attribution information for each LLC contribution they received.
If you have any questions about how the FEC’s recent guidance on LLC contributions applies to your committee, do not hesitate to reach out to your counsel at Elias Law Group.