Federal Election Commission Main Page
FEDERAL ELECTION COMMISSION
Washington, DC 20463
December 16, 2004
CERTIFIED MAIL
RETURN RECEIPT REQUESTED
ADVISORY OPINION 2004-42
Robert K. Kelner, Esq.
Covington & Burling
1201 Pennsylvania Avenue, NW
Washington, DC 20004-2401
Dear Mr. Kelner:
We are responding to your inquiry regarding (1) whether
Pharmavite LLC ("Pharmavite"), a California limited
liability company, may pay the administrative and
solicitation costs of a separate segregated fund ("SSF"),
for which Pharmavite's sole member will be the connected
corporate organization, and (2) whether the SSF may be named
after Pharmavite under the Federal Election Campaign Act of
1971, as amended (the "Act"), and Commission regulations.
Although Pharmavite is treated as a partnership under
Commission regulations, because Pharmavite is per se
affiliated with its sole member, a corporation, Pharmavite
may pay the administrative and solicitation costs of its
sole member's SSF. Additionally, because Pharmavite is in
the position of the connected organization's subsidiary and
because naming the PAC after Pharmavite will give the public
a more accurate understanding of the PAC's funding and
purpose, the SSF may be named after Pharmavite instead of
its connected organization.
Background
The facts of this request are presented in your letter
dated October 22, 2004.
Pharmavite is a limited liability company ("LLC") with its
principal place of business in California. Under Internal
Revenue Service ("IRS") regulations, an LLC may choose for
tax purposes to be treated as either a corporation or a
partnership. 26 CFR 301.7701-3(a). However, because
Pharmavite's sole member, Otsuka America, Inc. ("OAI"), is a
corporation, Pharmavite is precluded from choosing to be
treated as a partnership under IRS regulations.1 26 CFR
301.7701-2(c)(1). Because Pharmavite has not affirmatively
elected treatment as a corporation for tax purposes,
Pharmavite is considered a "disregarded entity" by the IRS.
26 CFR 301.7701-3(b)(1) and 7701-2(c)(2). A disregarded
entity's activities are treated by the IRS in the same
manner as a branch or division of its owner. 26 CFR
301.7701-2(a).
Pharmavite wishes to pay the administrative and
solicitation costs for an SSF for which its sole member,
OAI, will be the connected organization.2 The SSF would be
named "Pharmavite LLC Political Action Committee," and the
name would be abbreviated as "Pharmavite PAC" (the "PAC")
for permissible purposes under the Act and Commission
regulations. Pharmavite's primary business is manufacturing
and selling dietary supplements, and the principal focus of
the PAC will be issues of interest to Pharmavite and its
employees.
Pharmavite will conduct the day-to-day operations of
the PAC through Pharmavite personnel. Any decisions
concerning the PAC, other than the decision to form the PAC,
will be made by a special committee consisting of the non-
foreign national board members of OAI and Pharmavite, each
of which has one U.S. citizen on its governing board. OPC
and any directors, officers, or employees of OPC, OAI, or
Pharmavite who are foreign nationals will be recused from
directly or indirectly participating in the decision-making
process of the SSF. Additionally, the PAC will not solicit
or accept contributions from OPC and OAI executive or
administrative personnel and stockholders, and their
families, or from any foreign national.3
Questions Presented
1. May an LLC that is a "disregarded entity" under IRS
regulations, and that is wholly owned by a single
incorporated member, pay the administrative and solicitation
costs of an SSF for which the corporate member will be the
connected organization?
2. May an SSF with a corporate connected organization be
named after the LLC that pays the SSF's administrative and
solicitation costs?
Legal Analysis and Conclusions
Question 1: May Pharmavite pay the PAC's administrative and
solicitation costs?
Under 2 U.S.C 441b(b)(2)(C), a corporation may use its
general treasury funds to pay for the costs of establishing,
administering, or soliciting contributions to its SSF,
without a resultant contribution or expenditure. See also 2
U.S.C. 431(8)(B)(vi) and (9)(B)(v). A corporation that
directly or indirectly establishes, administers, or
financially supports a political committee is the connected
organization of that committee. 2 U.S.C. 431(7) and 11 CFR
100.6(a). The Act does not extend to a partnership, or an
LLC that is treated as a partnership under Commission
regulations, the ability granted to a corporation to conduct
itself as a connected organization and avail itself of the
contribution and expenditure exemptions. See 11 CFR
100.6(a) (definition of "connected organization" does not
include partnerships or LLCs) and Advisory Opinions 2001-07
and 1992-17. Nevertheless, the Commission has interpreted
the Act and Commission regulations to permit a partnership,
or an LLC treated as a partnership under Commission
regulations, that is owned entirely by one or more
corporations and affiliated with at least one of those
corporations, to pay the administrative and solicitation
costs for the partnership's political action committee.4
See Advisory Opinions 2003-28, 2001-18, 2001-07, and 1997-
13.
Although Pharmavite is treated as a disregarded entity
by the IRS because it has not elected treatment as a
corporation and is not eligible under IRS regulations to
elect treatment as a partnership, Commission regulations
provide that a non-publicly traded LLC that does not
affirmatively elect treatment for tax purposes as a
corporation is treated by the Commission as a partnership.
Accordingly, Pharmavite is treated as a partnership under
Commission regulations. 11 CFR 110.1(g)(2) and (3).
Under Commission affiliation regulations, Pharmavite is
per se affiliated with OAI because OAI is Pharmavite's sole
member. 11 CFR 100.5(g)(3)(i) and 110.3(a)(2)(i); see also
Advisory Opinion 1990-10. Additionally, the Commission has
long held that affiliates may include entities other than
corporations, such as partnerships and LLCs. See Advisory
Opinions 2004-32, 2001-18, and 1992-17.
Although Pharmavite is treated as a partnership for the
purposes of the Act and Commission regulations, because it
is owned entirely by, and affiliated with, OAI, a
corporation, Pharmavite may perform the functions of a
connected organization for the PAC, including paying
administrative and solicitation costs. See Advisory
Opinions 1997-13 and 1994-11. Such support provided by
Pharmavite is deemed to be from OAI and the PAC must list
OAI as its connected organization on its statement of
organization, as it already plans to do. 2 U.S.C. 433(b)(2)
and 11 CFR 102.2(a)(1)(ii); see Advisory Opinions 1997-13
and 1996-49.
Question 2: May the PAC be named after Pharmavite?
Although the PAC must list OAI as its connected
organization, it need not include OAI's name in the PAC's
name. While the name of an SSF generally must include the
full name of its connected organization, 2 U.S.C. 432(e)(5)
and 11 CFR 102.14(c), the Commission has permitted an SSF's
name to include only the name of a joint venture LLC that
was treated as a partnership under Commission regulations,
where the LLC was performing the functions of the SSF's
connected organization. See Advisory Opinions 2003-28 and
1997-13; see also Advisory Opinion 2001-18. Under such
circumstances, the Commission has allowed the SSF to omit
the corporate names of the LLC's affiliated corporate owners
from its name because the LLC was in virtually the same
position as a corporate subsidiary of the owner corporation.
11 CFR 102.14(c) (A subsidiary need not include its
corporate parent's or other subsidiaries' names in the name
of its PAC); see Advisory Opinions 2003-28 and 1997-13.
Like the joint venture LLCs, Pharmavite is a wholly
corporate-owned LLC treated as a partnership under
Commission regulations that is in the position of a
subsidiary. Although Pharmavite cannot serve as the PAC's
connected organization, it may perform the functions of a
connected organization because it is in the same position of
a subsidiary of OAI. Therefore, the PAC's name may include
Pharmavite's name alone. See, e.g., Advisory Opinions 2003-
28, 2001-18, and 1997-13. Further, because OAI must be
listed in the PAC's statement of organization as the PAC's
connected organization, OAI's relationship to the PAC will
be disclosed to the public. See generally Advisory Opinion
1997-13. Additionally, because the PAC's primary focus will
be issues of interest to Pharmavite and its employees, and
Pharmavite will use its personnel to conduct the day-to-day
operations of the PAC, the use of Pharmavite's name in the
PAC's name will provide the public with a more accurate
understanding of the PAC's funding and purpose.5
The Commission expresses no opinion regarding any tax
ramifications of the proposed activities because those
issues are not within its jurisdiction.
This response constitutes an advisory opinion
concerning the application of the Act and Commission
regulations to the specific transaction or activity set
forth in your request. See 2 U.S.C. 437f. We emphasize
that if there is a change in any of the facts or assumptions
presented, and such facts or assumptions are material to a
conclusion presented in this advisory opinion, then the
requestor may not rely on that conclusion as support for its
proposed activity.
Sincerely,
(signed)
Bradley A. Smith
Chairman
Enclosures (AOs 2004-32, 2003-28, 2001-18, 2001-07, 1997-13,
1996-49, 1994-11, 1992-17, and 1990-10)
CONCURRING OPINION
OF
COMMISSIONER SCOTT E. THOMAS
ADVISORY OPINION 2004-42
In considering Advisory Opinion 2004-42, I continue to
believe that under 2 U.S.C. 441e, a wholly owned
subsidiary and its foreign national parent corporation
should be treated as one entity. See, e.g., Dissents in
Advisory Opinions 1989-29, 1992-16, 1999-28 and 2000-17
at Fed. Elec. Camp. Fin. Guide (CCH) 5976, 6059, 6305 and
6334 respectively; and Statement for the Record in Advisory
Opinion Request 1996-6, Fed. Elec. Camp. Fin Guide (CCH)
6994. Section 441e broadly prohibits a foreign national
(which includes a foreign corporation) from making a
political contribution "directly or indirectly" 2 U.S.C.
441e (emphasis added). Just as a domestic corporation and
its subsidiaries are seen as one entity in order to prevent
a parent corporation from making excessive contributions
through its subsidiaries' political committees (see, e.g., 2
U.S.C. 441a(a)(5); 2 U.S.C. 441b(b)(4)(A)(i); 11 C.F.R.
114.5(g)(1)), so too a foreign national parent corporation
and its subsidiaries should be seen as one entity to prevent
the foreign national corporation from making prohibited
contributions indirectly through its subsidiaries.
Pharmavite is a limited liability company whose sole
member is Otsuka America, Inc. ("OAI"). OAI is a wholly-
owned corporate subsidiary of a Japanese corporation, Otsuka
Pharmaceutical Company, Ltd. See Advisory Opinion 2004-42
at 2, n.2. Because Pharmavite is, in effect, a wholly-owned
subsidiary of a foreign national corporation, I believe
Pharmavite should not be allowed to make contributions
through a political action committee to candidates for
offices in the United States.
I cast a courtesy vote in favor of this Advisory
Opinion, however, in order to complete Commission action on
this matter before the end of the year. Commissioner Toner
(who was unavoidably absent) would have voted in favor of
the Opinion, and thus it made little sense to hold up this
matter unnecessarily over the holiday break.
__12/17/04________
_signed_____________________________
Date Scott E. Thomas
Commissioner
_______________________________
1 An entity can only be classified as a partnership if it is
not a corporation and has at least two members.
26 CFR 301.7701-2(c)(1).
2 OAI is a wholly-owned subsidiary of a Japanese
corporation, Otsuka Pharmaceutical Company, Ltd. ("OPC").
3 The Commission notes that Commission regulations prohibit
a foreign national from directing, dictating, controlling,
or directly or indirectly participating in the decision-
making process of a corporation or political committee with
regard to Federal or non-Federal election-related actives,
such as the making of contributions. 11 CFR 110.20(i).
Additionally, the Act and Commission regulations prohibit
any "person," the definition of which includes corporations
and SSFs, from soliciting, accepting or receiving a
contribution or donation from a foreign national. 2 U.S.C.
441e(a)(2) and 110.20(g). The Act and Commission
regulations also prohibit a foreign national from making a
contribution, directly or through any other person, or an
expenditure in connection with a Federal, State, or local
election. 2 U.S.C. 441e(a)(1) and 11 CFR 110.20(b). You
indicate that that Pharmavite, a California LLC, conducts
its business and generates revenues in the United States,
and that OAI is a domestic holding company for Pharmavite
and for a range of other businesses operating in the United
States. Therefore, these companies are bona fide operating
domestic entities and the Commission assumes, based on your
representations, that the control, operations, and
activities of the PAC will be in compliance with 2 U.S.C.
441e and 11 CFR 110.20. See Advisory Opinion 2000-17.
4 The Commission generally permits a corporation's
affiliates to pay the administrative and solicitation costs
of the corporation's SSF. See, e.g., Advisory Opinion 1997-
13.
5 You also ask whether Pharmavite LLC PAC may use the name
"Pharmavite PAC" as an abbreviation. Commission regulations
allow the use of "a clearly recognized abbreviation or
acronym by which the connected organization is commonly
known" provided that the SSF uses both the abbreviation (or
acronym) and the full name on the SSF's Statement of
Organization, on all reports filed with the Commission, and
on all disclaimer notices required by 11 CFR 109.11 and
110.11. The SSF may make contributions using the
abbreviation or acronym. 11 CFR 102.14(c). The Commission
has interpreted this regulation to allow the use of the
abbreviation on such common uses as PAC checks and
letterhead. See Advisory Opinions 2002-04 and 2000-34. The
Commission concludes that the use of the name Pharmavite
PAC, which nearly replicates the LLC's complete name and
gives a clear indication as to the company supporting the
PAC, is permissible for such purposes.