Federal Election Commission Main Page
FEDERAL ELECTION COMMISSION
Washington, DC 20463
October 20, 2005
CERTIFIED MAIL
RETURN RECEIPT REQUESTED
ADVISORY OPINION 2005-15
Mr. Scott D. Reed
Treasurer
Republican State Executive Committee of West Virginia
P.O. Box 2711
Charleston, WV 25330
Dear Mr. Reed:
We are responding to your inquiry on behalf of the
Republican State Executive Committee of West Virginia ("the
WV Republican Party Committee") concerning the application
of the Federal Election Campaign Act of 1971, as amended
("the Act") to a proposed reorganization of its structure.
Under your proposal, the WV Republican Party Committee would
terminate after creating a new State party committee
incorporated as a non-profit corporation. You ask for
guidance regarding the permissibility of incorporating this
new committee, and the proper procedure for forming a new,
incorporated State party committee and terminating the WV
Republican Party Committee.
The Commission concludes that it would be permissible
for the WV Republican Party Committee to incorporate a new
State party committee for liability purposes only that would
not be subject to the Act and regulations regarding
corporate activity. However, it is not permissible
currently for the WV Republican Party Committee to terminate
due to its outstanding debt. Guidance on the proper
procedure for terminating the WV Republican Party Committee
is provided below.
Background
The facts of this request are presented in your letter
received on September 1, 2005, and by you in a phone
conversation on September 15, 2005, as well as in reports
the WV Republican Party Committee filed with the Commission.
The WV Republican Party Committee is a qualified State
committee of the Republican Party and files regular reports
with the Commission as such. The WV Republican Party
Committee is currently unincorporated and organized as a
State party executive committee under section 3-1-9 of the
West Virginia Code. The WV Republican Party Committee is
contemplating terminating and creating a new State party
committee that would be a non-profit corporation under West
Virginia law. This new State party committee, as yet
unnamed ("Party, Inc."), would be incorporated solely to
limit liability.
The WV Republican Party Committee proposes a 5-step
process by which it would terminate and create a new
committee under the name of Party, Inc.:
1. The WV Republican Party Committee would file Articles
of Incorporation with the West Virginia Secretary of State,
pursuant to applicable West Virginia Law, using a name to be
determined ("Party, Inc.").
2. Party, Inc. would then adopt new bylaws reflecting the
corporate form and create a new committee for FEC purposes
under the name Party, Inc. with a new FEC Identification
number.
3. Party, Inc. would file state business registration
forms, obtain a new Federal employer identification number,
and file the required Internal Revenue Service forms.
4. The WV Republican Party Committee would transfer all
funds remaining in its bank accounts to Party, Inc.
5. The WV Republican Party Committee would also transfer
title to its headquarters building, and other real and
personal property to Party, Inc., which would then assume
the WV Republican Party Committee's outstanding mortgage,
tax, insurance and maintenance payments. The WV Republican
Party Committee would thereafter terminate.
Questions Presented
1. May the WV Republican Party Committee create a new
incorporated State party committee that would not be subject
to the restrictions in 2 U.S.C. 441b or
11 CFR part 114 on corporations?
2. If the WV Republican Party Committee meets the
requirements for termination and chooses to terminate and
create a new State party committee, may it transfer the
funds in the WV Republican Party Committee's account to the
new State party committee?
3. What is the proper procedure for terminating the WV
Republican Party Committee?
Legal Analysis and Conclusions
1. May the WV Republican Party Committee create a new
incorporated State party committee that would not be subject
to the restrictions in 2 U.S.C. 441b or 11 CFR part 114 on
corporations?
Yes, the WV Republican Party Committee may create a new
incorporated State party committee, Party, Inc., that would
not be subject to the provisions of 2 U.S.C. 441b or 11 CFR
part 114 as they pertain to corporations.1
Under 11 CFR 114.12(a), an organization may incorporate
and not be subject to the provisions of 11 CFR part 114
provided that the organization is incorporating for
liability purposes only and is a political committee as
defined in 11 CFR 100.5. As stated above, Party, Inc. would
be incorporated for liability purposes only, thereby
satisfying the first requirement of 11 CFR 114.12(a). With
respect to the second requirement, Party, Inc. would be a
State committee of a political party.2 As such, it would be
a political committee under 2 U.S.C. 431(4)(C) and 11 CFR
100.5(c), assuming the contribution or expenditure
thresholds of section 431(4)(C) have also been met. Because
both requirements of 11 CFR 114.12(a) would be met, the WV
Republican Party Committee may create a new incorporated
State party committee, Party, Inc., that would not be
subject to 11 CFR part 114. Neither the Act nor Commission
regulations specify a particular procedure that political
committees must follow when incorporating for liability
purposes.
2. If the WV Republican Party Committee meets the
requirements for termination and chooses to terminate and
create a new State party committee, may it transfer the
funds in the WV Republican Party Committee's account to the
new State party committee?
Yes, if the WV Republican Party Committee meets the
requirements for termination, as set forth below, and
chooses to terminate and create a new State party committee,
it may transfer any remaining funds from the existing
committee to the new committee before it terminates.
The Commission's regulation at 11 CFR 110.3(c)(1)
permits transfers of funds outside the contribution limits
of 2 U.S.C. 441a between party committees of the same
political party. In this case, such a transfer would be
permitted between the WV Republican Party Committee and
Party, Inc. Because the two party committees would be
established, financed, maintained and controlled by the West
Virginia Republican State Executive Committee, they would be
affiliated committees under 11 CFR 100.5(g)(2). As a
result, 2 U.S.C. 441a(a)(5) requires that all contributions
made or received by these State party committees must be
aggregated for the purposes of section 441a. See Advisory
Opinion 1993-8, note 1.
3. What is the proper procedure for terminating the WV
Republican Party Committee?
If the WV Republican Party Committee wishes to
terminate, it must file a termination report on FEC Form 3X
with the Commission. Termination of the WV Republican Party
Commission is effective upon the Commission's approval of
the termination. The WV Republican Party Committee would
then no longer be permitted to receive contributions or make
expenditures. In addition, a committee may terminate only
if it has no outstanding debts or obligations. 2 U.S.C.
433(d)(1) and 11 CFR 102.3(a)(1).
A review of the WV Republican Party Committee's
September monthly report indicates that it currently has
$15,474.25 cash on hand and outstanding debts of
$157,090.58. Because termination is only permissible under
2 U.S.C. 433(d)(1) and
11 CFR 102.3 if the political committee has no outstanding
debts and obligations, the WV Republican Party Committee may
not terminate as long as this debt remains outstanding. See
also Advisory Opinion 1994-35.
A possible option for the WV Republican Party Committee
would be for Party, Inc. to assume all debts of the WV
Republican Party Committee.3 The assumption of the debts in
their entirety by Party Inc., would constitute a
simultaneous discharge of the debts by the WV Republican
Party Committee, thereby allowing it to terminate under
11 CFR 102.3. Party Inc. would then be required to report
the debts on Schedule D. See 11 CFR 104.11.
However, the WV Republican Party Committee is not
required to terminate in order to incorporate for liability
purposes only. The WV Republican Party Committee has the
option of simply incorporating without forming a new State
party committee. See Advisory Opinion 1993-8, note 1.
The Commission expresses no opinion regarding the
application of the Internal Revenue Code or West Virginia
law to your proposed activities as these topics are not
within the Commission's 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. The Commission
emphasizes 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)
Scott E. Thomas
Chairman
Enclosures (AOs 1994-35 and 1993-8)
_______________________________
1 11 CFR part 114 implements the corporate contribution and
expenditure prohibitions contained in
2 U.S.C. 441b.
2 The Commission assumes that Party, Inc., like the
Committee, would qualify as a State party committee under 2
U.S.C. 431(15) and 11 CFR 100.14.
3 The Commission expresses no opinion on the legality of, or
procedures for, this assumption of debt under West Virginia
law.