Federal Election Commission Main Page
FEDERAL ELECTION COMMISSION
Washington, DC 20463
November 4, 2005
CERTIFIED MAIL
RETURN RECEIPT REQUESTED
ADVISORY OPINION 2005-17
Jan Witold Baran, Esquire
Wiley, Rein & Fielding, LLP
1776 K Street, N.W.
Washington, D.C. 20006
Dear Mr. Baran:
We are responding to your advisory opinion request on behalf
of the American Crystal Sugar Company ("American Crystal") and
the Red River Valley Sugarbeet Growers Association, Inc. ("the
Association"), concerning the application of the Federal Election
Campaign Act of 1971, as amended (the "Act"), and Commission
regulations to (i) the Association's status as a trade
association, (ii) the affiliation of American Crystal and the
Association, and (iii) the ability of either the Association or
American Crystal to solicit the stockholders, executive and
administrative personnel, and the families thereof, of the
Association's incorporated members for contributions to American
Crystal's separate segregate fund, American Crystal Sugar Company
Political Action Committee ("American Crystal PAC").
The Commission concludes that (i) the Association qualifies
as a trade association under Commission regulations; (ii)
American Crystal and the Association are affiliated; and (iii)
both the Association and American Crystal may solicit
contributions to American Crystal PAC from the stockholders,
executive and administrative personnel, and the families thereof,
of those incorporated members of the Association that have
granted exclusive, separate and specific written approval to the
Association for such solicitations for the given calendar year.
Background
The facts presented in this opinion are based on your letter
and attachments received on September 12, 2005, and a phone
conversation that occurred on October 25, 2005.
1. The Association
The Association was founded in 1926 and, since then, has
represented the interests of sugarbeet growers in North Dakota
and Minnesota. According to the Association's Articles of
Incorporation, the Association's purposes include "advanc[ing]
the educational, civic and agricultural interests of sugarbeet
growers within the area of it members," addressing problems of
sugarbeet growing, assisting members in working with regulatory
agencies, promoting grower communication, promoting consumer and
public relations, and assisting in the development of public and
governmental policies with respect to sugarbeet production.
Association Articles of Incorporation, Article IV. To effectuate
these purposes the Association has worked with Congress on
sweetener legislation, including farm and trade bills, and has
worked with regulatory agencies and the Minnesota and North
Dakota State legislatures on matters affecting growers.
The Association is a North Dakota non-profit corporation
that is tax exempt as a "labor, agricultural, or horticultural
organization" under 26 U.S.C. 501(c)(5). No individual member,
officer, or employee may receive any pecuniary gain or profit
from the Association's operations (except reasonable compensation
for services rendered), nor may any assets, income, or profits
inure to the benefit of any member, director, or officer.
Articles of Incorporation, Article V. The Association consists
of 2,859 members, who pay dues on an annual basis, all of whom
grow sugarbeets in Minnesota and North Dakota. The members
include individuals, partnerships, corporations, limited
liability companies, estates, trusts, and other types of members.
The Association is governed by a board of directors elected by
the members. Bylaws, Articles III, IV, and V.
The Association does not have its own separate segregated
fund.
2. American Crystal
American Crystal is an agricultural cooperative incorporated
under Minnesota law. It purchases sugarbeets from its members
and processes them into sugar and sugar-related products. Its
membership is open to any person or entity that (i) is a
sugarbeet farm operator in the territory covered by the
cooperative; (ii) agrees to purchase securities of the
cooperative and abide by its rules; and (iii) is approved by
American Crystal's board of directors. American Crystal Bylaws,
Article I. Currently, American Crystal has 2,873 members, who
are also its only holders of common stock. The members (or
"common shareholders") include individuals, corporations, and
unincorporated entities. Each member owns one share of common
stock in American Crystal and is thereby entitled to cast one
vote with respect to the cooperative's affairs, including the
election of the board of directors. Articles of Incorporation,
Articles III and IV; Bylaws, Articles I-III.1 No other persons
have voting power in the cooperative. Articles of Incorporation,
Article III. Currently, American Crystal solicits contributions
to American Crystal PAC from its members that are individuals or
unincorporated entities.
3. Relationship Between the Association and American Crystal
The Association was formed by sugarbeet growers in the Red
River Valley when the American Beet Sugar Company, "the precursor
of American Crystal," constructed its first sugar refinery in the
Valley. In 1973, under the leadership of the Association, the
members of the Association founded a cooperative that then
purchased and merged with the pre-existing American Crystal Sugar
Company. Currently, all of the Association's members are common
shareholders of American Crystal and 99.5 percent of American
Crystal's shareholders are members of the Association. All of
the Association's directors are common shareholders of American
Crystal and 14 of American Crystal's 15 directors are members of
the Association. American Crystal plays a "critical role" in
the funding of the Association because American Crystal withholds
Association dues payments from the sugarbeet payments American
Crystal makes to 99.5 percent of its shareholders (for the
sugarbeets grown by the shareholders for the cooperative), and
transmits those funds directly to the Association. These dues
payments constitute almost all of the Association's revenues.
Questions Presented
1. Does the Association qualify as a trade association under
Commission regulations?
2. Are American Crystal and the Association affiliated with
each other?
3. May American Crystal and the Association solicit
contributions to American Crystal
PAC from the stockholders, executive and administrative
personnel, and the families
thereof, of those incorporated members of the Association
that have granted exclusive,
separate and specific written approval to the Association
for such solicitation for the
given calendar year?
Legal Analysis and Conclusions
1. Does the Association qualify as a trade association under
Commission regulations?
Yes, the Association qualifies as a trade association under
Commission regulations.
Commission regulations define a trade association as:
generally a membership organization of persons engaging in a
similar or related
line of commerce, organized to promote and improve business
conditions in that
line of commerce and not to engage in a regular business of
a kind ordinarily
carried on for profit, and no part of the net earnings of
which inures to the benefit
of any member.
11 CFR 114.8(a).2
As stated above, the Association is tax exempt under 26
U.S.C. 501(c)(5). You note that the Explanation and
Justification for 11 CFR 114.8(a) specifically refers to section
501(c)(6). It states: "The general definition of a trade
association is based on the treatment in the tax code of business
associations. See Regulation Section 501(c)(6) of the Internal
Revenue Code of 1954." Federal Election Commission Regulations,
Explanation and Justification, House Document No. 95-44, 95th
Cong., 1st Sess. at 112 (1977). Section 501(c)(6) provides tax
exemption for "[b]usiness leagues, chambers of commerce [and
other organizations] . . . not organized for profit and no part
of the net earnings of which inures to the benefit of any private
shareholder or individual." Treasury regulations at 26 CFR
1.501(c)(6)-1 define "business league" as "an association of
persons having some common business interest, the purpose of
which is to promote such common interest and not to engage in a
regular business of a kind ordinarily carried on for profit."
You ask the Commission to conclude that, although the Association
is tax exempt under section 501(c)(5), instead of section
501(c)(6), it still qualifies as a trade association under 11 CFR
114.8(a).
Nothing in either section 114.8(a) or its Explanation and
Justification requires that a trade association be tax exempt
under 26 U.S.C. 501(c)(6). Instead, the rule simply describes
the type of organization that qualifies as a trade association.
Using the description in 11 CFR 114.8, the Commission finds that
the Association is a membership organization (see footnote 2)
made up of persons engaging in a similar line of commerce, the
raising of sugarbeets, and it is organized to promote and improve
business conditions in that line of commerce. In line with its
501(c)(5) status and also consistent with 501(c)(6) status, the
Association does not engage in a regular business of a kind
ordinarily carried on for profit and no part of its net earnings
inures to the benefit of any member. See Articles of
Incorporation, Articles IV and V. The Commission thus concludes
that the Association qualifies as a trade association under 11
CFR 114.8(a).
2. Are American Crystal and the Association affiliated with
each other?
Yes, American Crystal and the Association are affiliated
with each other.
Under the Act and Commission regulations, committees,
including separate segregated funds ("SSFs"), that are
established, financed, maintained or controlled by the same
corporation, person, or group of persons, including any parent,
subsidiary, branch, division, department, or local unit thereof,
are affiliated. 2 U.S.C. 441a(a)(5); 11 CFR 100.5(g)(2) and
110.3(a)(1)(ii). Committees' sponsoring organizations are also
considered to be affiliated with each other when such
organizations are established, financed, maintained or controlled
by the same corporation, person, or group of persons. See 11 CFR
100.5(g)(4) and 110.3(a)(3).
In the absence of per se affiliation as set out at 11 CFR
100.5(g)(3), the factors set forth at 11 CFR 100.5(g)(4) are used
to determine affiliation between political committees or between
their sponsoring organizations. See also 11 CFR 110.3(a)(3).
These factors - which pertain to the relationship between
sponsoring organizations as to governance; common officers,
employees, or members indicating a formal or ongoing
relationship; financing; and the formation of the organizations -
are to be examined in the context of the overall relationship
between sponsoring organizations. See 11 CFR 100.5(g)(4)(i) and
(ii)(A)-(J); see also 110.3(a)(3)(i) and (ii)(A)-(J).
As indicated above, the Association played a significant
role in the founding of what is now American Crystal in the early
1970s. 11 CFR 100.5(g)(4)(ii)(I). The continuing close
relationship of the two organizations has resulted in, and is
evidenced by, the 99.5 percent overlap between the membership of
the two organizations. 11 CFR 100.5(g)(4)(ii)(D). The ability
of each organization to exert some control over the governance of
the other and, indirectly, over the hiring or removal of the
other organization's key personnel results from this nearly
complete overlap of members who can vote for the boards of
directors of the organizations, and from the fact that all of
Association's directors are American Crystal shareholders and
nearly all of American Crystal's directors are Association
members. 11 CFR 100.5(g)(4)(ii)(B) and (C). Finally, American
Crystal collects and transmits to the Association almost all of
the revenues of the Association. 11 CFR 100.5(g)(4)(ii)(H). The
Commission thus concludes that, under the Act and Commission
regulations, American Crystal and the Association are affiliated.
3. May American Crystal and the Association solicit
contributions to American Crystal
PAC from the stockholders, executive and administrative
personnel, and the families
thereof, of those incorporated members of the Association
that have granted exclusive,
separate and specific written approval to the Association
for such solicitation for the
given calendar year?
Yes. Because American Crystal and the Association are
affiliated, the Commission concludes that either American Crystal
or the Association, or both corporations, may solicit
contributions to American Crystal PAC from the stockholders and
executive and administrative personnel, and the families thereof,
of the incorporated members of the Association that have granted
exclusive, separate and specific written approval to the
Association for the calendar year.
As an exception to the prohibition on corporate
contributions, the Act and Commission regulations permit a
corporation or its SSF to solicit the corporation's solicitable
class for contributions to the SSF. 2 U.S.C. 441b(b)(4); see
also 11 CFR 114.1(j). An incorporated trade association, such as
the Association, may solicit its executive and administrative
personnel and the families of such personnel. It may also
solicit its members who are individuals (and their families) and
members that are unincorporated entities. 2 U.S.C. 441b(b)(4)(A)
and (C); 11 CFR 114.7(a) and (c) and 114.8(i)(2). An
incorporated trade association may not solicit contributions from
its incorporated members, but may solicit the stockholders and
executive and administrative personnel, and the families of such
stockholders and personnel, of the incorporated members that
provide separate and specific approval to the trade association
for the making of such solicitations during a calendar year and
that have not approved a solicitation by any other trade
association for the same calendar year. 2 U.S.C. 441b(b)(4)(D);
11 CFR 114.8(c) and (d).
American Crystal, as a cooperative, qualifies as a
membership organization under the Act and Commission regulations.3
Like trade associations, a membership organization may solicit
its own executive and administrative personnel and the families
of such personnel, and it may solicit its members who are
individuals (and their families) and members that are
unincorporated entities. The membership organization, however,
may not solicit contributions from its incorporated members'
stockholders and executive and administrative personnel, and the
families of such individuals. See 2 U.S.C. 441b(b)(4)(C); 11 CFR
114.7(a).
Generally, a corporation may solicit contributions to its
SSF from the solicitable class of its subsidiaries or other
affiliates. See 11 CFR 114.5(g)(1). With respect to membership
organizations, this principle extends beyond the executive and
administrative personnel to the membership of an affiliated
organization. See Advisory Opinions 2005-03, 1999-16, and 1981-
55; see also Advisory Opinion 2002-15. In addition, a
corporation that is affiliated with the connected organization of
an SSF may perform the same functions for the SSF as the
connected organization, i.e., pay administration and solicitation
costs, or perform actual solicitation or collection functions
itself. See 11 CFR 114.5(g)(1); Advisory Opinions 2000-15, 1997-
13, 1996-26, and 1983-19; see also Advisory Opinions 2002-15,
1996-38, and 1988-14.
Although the Commission has concluded that different types
of corporations may be affiliated, the Commission has not
previously addressed the ability of a non-trade association
membership organization to solicit contributions to its SSF from
the owners and executive and administrative personnel of an
affiliated trade association's incorporated members. See
Advisory Opinions 1996-26, 1994-19, and 1978-39. Under the
affiliation provisions of the Act and
regulations, contributions made to or by affiliated SSFs are
considered to have been made to or by a single committee, and
thus such committees share contribution limits. 2 U.S.C.
441a(a)(5); 11 CFR 100.5(g)(2), and 110.3(a)(1). Commission
regulations thus permit such affiliated SSFs to make unlimited
transfers of Federally permissible funds to each other. 11 CFR
102.6(a)(1) and 110.3(c)(1). Therefore, if the Association were
to establish its own SSF receiving Federally permissible
contributions from persons solicitable under the rules at 11 CFR
114.8, that SSF could transfer such funds in an unlimited amount
to American Crystal PAC. This transfer could be made even if
such funds were derived from contributions by persons that could
not be solicited for contributions to American Crystal PAC under
the solicitation restrictions for SSFs of non-trade association
membership organizations. See 11 CFR 114.7.
The Commission concludes that, in view of these provisions
of the Act and regulations, the Association need not take the
extra step of establishing its own SSF. After an incorporated
member of the Association has granted separate and specific
written approval to the Association under 11 CFR 114.8(c) and
(d), either American Crystal or the Association, or both, may
solicit contributions to American Crystal PAC from that member's
stockholders and executive and administrative personnel, and
their families. Either of the two corporations may pay for and
perform that connected organization function for American Crystal
PAC.
The Commission expresses no opinion regarding the
application of the Internal Revenue Code to the proposed
activities because those questions 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 2005-03, 2002-15, 2000-15, 1999-16, 1997-13, 1996-
38, 1996-26, 1994-19,
1988-14, 1983-19, 1981-55, and 1978-39)
_______________________________
1 Each common shareholder is also obligated to purchase non-
voting, preferred stock in the cooperative in an amount
proportionate to the acreage of sugarbeets that the common
shareholder places under contract to American Crystal. Bylaws,
Article I.
2 In order to qualify as a trade association, an association
must first qualify as a membership organization under Commission
regulations. The Commission concludes that the Association
qualifies as a "membership organization" and is composed of
persons who are "members." Specifically, the bylaws of the
Association indicate that it is composed of persons that are
"members" as defined by the regulations, in that the persons must
satisfy specific membership requirements, persons affirmatively
accept the organization's invitation to become a member, and
members pay annual dues of a pre-determined amount. Bylaws,
Articles I and VIII. 11 CFR 100.134(f) and 114.1(e)(2). With
respect to the definition of "membership organization," at least
some of the members, as board members or officers, have the
authority to operate the Association, pursuant to the
Association's bylaws. The Association sets out the membership
requirements in its bylaws and expressly solicits persons to
become members. The Association makes its formal organizational
documents available to its members upon request. It expressly
acknowledges the acceptance of membership through the notice of
membership meetings. Finally, it is not organized primarily for
the purpose of influencing an election of any individual to
Federal office. Articles of Incorporation, Article IV; Bylaws,
Articles I, IV-VI. 11 CFR 100.134(e) and 114.1(e)(1).
3 The Commission concludes that, under Commission regulations,
American Crystal qualifies as a "membership organization" and is
composed of persons who are "members." Specifically, its
governing documents indicate that it is composed of persons that
are "members," in that the persons must satisfy specific
membership requirements, persons wishing to join have to agree to
purchase shares so persons affirmatively accept the
organization's invitation to become a member, and members have
significant organizational attachments. Articles of
Incorporation, Articles I and III; Bylaws, Article I-III, and V.
11 CFR 100.134(f) and 114.1(e)(2). With respect to the
definition of "membership organization," at least some of
American Crystal's members, as Board members or officers, have
the authority to operate the cooperative, pursuant to governing
documents. American Crystal sets out the membership requirements
in its bylaws and expressly solicits persons to become members.
It makes its formal organizational documents available to its
members upon request. It expressly acknowledges acceptance of
membership through the notice of shareholder meetings. Finally,
it is not organized primarily for the purpose of influencing an
election of any individual to Federal office. Articles of
Incorporation, Articles I, III, and IV; Bylaws, Article I-IV. 11
CFR 100.134(e) and 114.1(e)(1).