Federal Election Commission Main Page
FEDERAL ELECTION COMMISSION
Washington, DC 20463
December 21, 2006
CERTIFIED MAIL
RETURN RECEIPT REQUESTED
ADVISORY OPINION 2006-33
Jan Witold Baran, Esq.
Wiley Rein & Fielding LLP
1776 K Street, NW
Washington, DC 20006
Dear Mr. Baran:
We are responding to your advisory opinion request on
behalf of the National Association of Realtors ("NAR") and
its separate segregated fund ("SSF"), Realtors Political
Action Committee ("RPAC"), concerning the application of the
Federal Election Campaign Act of 1971, as amended (the
"Act"), and Commission regulations to NAR's proposed payment
of corporate treasury funds to its State affiliates to
encourage the State affiliates to increase their fundraising
for RPAC. The Commission concludes that NAR's proposed
payment of corporate treasury funds to its State affiliates
would be permissible under the Act and Commission
regulations.
Background
The facts presented in this advisory opinion are based
on your letter received on October 20, 2006.
NAR is an Illinois not-for-profit corporation exempt
from Federal income tax under section 501(c)(6) of the
Internal Revenue Code. NAR engages in a variety of
activities intended to improve business conditions in the
real estate industry, and to serve its members, as permitted
by section 501(c)(6). RPAC is the SSF of NAR and is
registered with the Commission as a multi-candidate
political committee.
In each State, there is a State association of Realtors
affiliated with NAR ("State Associations"). Approximately
1,500 local associations of Realtors are also affiliated
with NAR and with the State Associations. The Commission
has determined that NAR and its affiliates are a "federation
of trade associations" under 11 CFR 114.8(g). See Advisory
Opinion 1995-17 (National Association of Realtors).
Each State Association operates its own non-Federal
political action committee ("State PAC"). NAR, the State
Associations, and the local associations solicit voluntary
contributions from NAR members and their families to RPAC
and to the State PACs, with the State Associations and local
associations serving as collecting agents. A written
agreement (the "Agreement") between NAR and all but one of
the State Associations governs these solicitation
activities. With certain exceptions not relevant to this
request, the Agreement currently provides that a State PAC
retains 70% of the funds raised, and RPAC receives the
remaining 30%. Contributors are advised of how the funds
they give will be allocated between RPAC and the State PACs
at the time they are solicited for contributions and
donations. One State Association has not entered into a
written agreement with NAR. This State Association operates
an affiliated SSF, which makes discretionary transfers to
RPAC in amounts determined by that State Association.
NAR plans to encourage the State Associations to enter
into new agreements under which RPAC would receive more than
30% of the funds raised. Similarly, NAR will encourage the
State Association that is not a party to the Agreement to
increase the amount of funds that its SSF transfers to RPAC.
As an incentive for the State Associations to increase
the percentage of funds to be solicited for RPAC and for the
State Association that is not a party to the Agreement to
increase the amount of Federal funds that it transfers to
RPAC, NAR proposes to pay to the State Associations monies
from NAR corporate treasury funds.1 The State Associations
would be permitted to use these "incentive payments" for any
lawful purpose, including use in connection with State or
local elections or other related political activities as
permitted by State law. Individual contributors will not
receive, directly or indirectly, any portion of the
incentive payments from NAR, nor will they receive any other
benefit as a result of the incentive payments.
The amount NAR pays to a State Association would
approximately equal the amount of contributions provided to
RPAC in excess of the 30% currently provided. In the case
of the State Association that is not a party to the
Agreement, the amount of corporate treasury funds NAR would
pay would approximately equal the increase in the funds that
the State Association's SSF transfers to RPAC.
Individuals who make voluntary contributions to RPAC in
response to the joint solicitation efforts by NAR and its
State Associations would be advised at the time of the
solicitation of the new percentage of funds to be sent to
RPAC. You state that these solicitations will include all
legally required notices pursuant to 11 CFR 114.5(a).
Questions Presented
1. Would NAR's payment of corporate treasury funds to the
State Associations in amounts approximately equal to the
amount of increased contributions the State Associations
provide to RPAC be permissible as an "establishment,
administration, and solicitation cost" under 11 CFR
114.1(b)?
2. Would NAR's payment of corporate treasury funds to the
State Associations in exchange for an increase in the amount
of Federal funds the State Associations provide to RPAC be
subject to the one-third rule in 11 CFR 114.5(b)(2)?
Legal Analysis and Conclusions
Question 1: Would NAR's payment of corporate treasury funds
to the State Associations in amounts approximately equal to
the amount of increased contributions the State Associations
provide to RPAC be permissible as an "establishment,
administration, and solicitation cost" under 11 CFR
114.1(b)?
The Commission concludes that NAR's payment of
corporate treasury funds to the State Associations in
amounts approximately equal to the amount of increased
contributions the State Associations provide to RPAC would
be permissible under the Act and Commission regulations.
Question 2: Would NAR's payment of corporate treasury funds
to the State Associations in exchange for an increase in the
amount of Federal funds the State Associations provide to
RPAC be subject to the one-third rule in 11 CFR 114.5(b)(2)?
No, NAR's proposed incentive payments to the State
Associations would not be covered by the one-third rule,
because they would not be for "a raffle or other fundraising
device which involves a prize," or for entertainment used as
a fundraising device.
A corporation's use of corporate treasury funds to pay
for "a raffle or other fundraising device which involves a
prize" and for "dances, parties, and other types of
entertainment" to raise funds for the corporation's SSF is
not a prohibited trade of corporate treasury funds for
voluntary contributions to the SSF, if the payments by the
corporation do not exceed one third of the money contributed
to the SSF. 11 CFR 114.5(b)(2). This so-called "one-third
rule" does not appear in any other part of the Commission
regulations. Nor has the Commission ever applied the rule
outside of the context of a raffle or other fundraising
device which involves a prize and dances, parties, and other
types of entertainment that are used as fundraising devices.
Accordingly, because NAR does not propose to spend its
corporate treasury funds on a raffle or other fundraising
device which involves a prize or on dances, parties, and
other types of entertainment, its incentive payments to the
State Associations would not be covered by the one-third
rule.
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. Individual Commissioners
have explained their reasons for voting to approve this
opinion in separate concurring statements that accompany
this opinion or that will be sent under separate cover.
Sincerely,
(signed)_________
Robert D. Lenhard
Vice-Chairman
Enclosures (Advisory Opinions 1999-31 and 1995-17)
CONCURRING OPINION IN ADVISORY OPINION 2006-33
OF
CHAIRMAN MICHAEL E. TONER AND
VICE CHAIRMAN ROBERT D. LENHARD
We voted for Advisory Opinion 2006-33 because the
payments proposed by the National Association of Realtors
("NAR") are permissible under 2 U.S.C. 441b(b)(2)(C) as
"establishment, administration, and solicitation" costs.
The Act prohibits corporations from making
contributions or expenditures in connection with a Federal
election. 2 U.S.C. 441b. The Act states, however, that
the term "contribution or expenditure" does not include "the
establishment, administration, and solicitation of
contributions to a separate segregated fund to be utilized
for political purposes by a corporation, labor organization,
membership organization, cooperative, or corporation without
capital stock." 2 U.S.C. 441b(b)(2)(C). Our regulations
define "establishment, administration, and solicitation
costs" to include, inter alia, fundraising expenses. 11 CFR
114.1(b).
Here, the proposed payments are for the purpose of
encouraging NAR's affiliates to solicit contributions to
NAR's separate segregated fund, RPAC. The payments are for
the purpose of raising funds, and are similar to the
commission that a committee might pay in return for the
services of a commercial fundraiser. The payments are
certainly "incurred in the pursuit of voluntary
contributions, the maintenance of those contributions, or
the utilization of those contributions for `political
purposes.'" See AO 1977-19 (concluding that taxes levied on
interest earned by a separate segregated fund (SSF) do not
qualify as "administration" expenses because the expense was
not "incurred in the pursuit of voluntary contributions, the
maintenance of those contributions, or the utilization of
those contributions for `political purposes'"). Thus the
proposed payments qualify as fundraising expenses and are
excluded from contribution treatment under 2 U.S.C.
441b(b)(2)(C) and 11 CFR 114.1(b). NAR may therefore make
the proposed payments to its affiliates, and RPAC may
receive the attendant fundraising benefits, without a
prohibited in-kind contribution from NAR to RPAC resulting.
The proposed payments do not run afoul of our
prohibition on use of "the establishment, administration,
and solicitation process as a means of exchanging treasury
monies for voluntary contributions." 11 CFR 114.5(b).
This restriction is inapplicable here because the "exchange"
proposed is not of treasury money for voluntary
contributions, but of treasury money for fundraising
services. The individuals who ultimately make voluntary
contributions to RPAC will receive nothing from NAR, either
directly or indirectly, and hence are not party to this
exchange. This treatment is consistent with Advisory
Opinion 2003-4, in which we concluded that a corporation's
plan to "match" contributions to its SSF with corporate
contributions to a charity of the donor's choosing did not
constitute an impermissible exchange of treasury money for
voluntary contributions because "no individual contributor
to the SSF would receive a financial, tax, or other tangible
benefit from either the corporation or the recipient
charities." See also AOs 2003-33, 1990-6, 1989-9, 1986-44.
For all of these reasons, we have concluded that the
Act does not prohibit NAR from making the proposed
fundraising payments.
December 19, 2006
___________/s/________________
Michael E. Toner, Chairman
_____________/s/______________
Robert D. Lenhard, Vice Chairman
FEDERAL ELECTION COMMISSION
Washington, DC 20463
CONCURRING OPINION OF
COMMISSIONER DAVID M. MASON AND COMMISSIONER HANS A. von SPAKOVSKY
IN ADVISORY OPINION 2006-33
On December 14, 2006, the Commission voted 4-2 to approve the
Advisory Opinion Request of the National Association of
Realtors, and its separate segregated fund, Realtors Political
Action Committee. Commissioners differed with respect to the
legal analysis supporting the response to Question 1. We
write separately to provide our analysis of that issue.
Question 1: Would NAR's payment of corporate treasury funds to
the State Associations in amounts approximately equal to the
amount of increased contributions the State Associations
provide to RPAC be permissible as an "establishment,
administration, and solicitation cost" under 11 CFR 114.1(b)?
The payment by NAR of corporate treasury funds to the State
Associations would be permissible under the Act. The
"establishment, administration, and solicitation cost"
exemption set forth at 11 CFR 114.1(b), however, is
inapplicable to the facts described.
The Act prohibits corporations from making any contribution
or expenditure in connection with a Federal election. See 2
U.S.C. 441b. The Act states, however, that the term
"contribution or expenditure" does not include "the
establishment, administration, and solicitation of
contributions to a separate segregated fund to be utilized for
political purposes by a corporation, labor organization,
membership organization, cooperative, or corporation without
capital stock." 2 U.S.C. 441b(b)(2)(C); see also 11 CFR
114.1(a)(2)(iii) and 114.5(b). Commission regulations define
the phrase "establishment, administration and solicitation
costs" to include "the cost of office space, phones, salaries,
utilities, supplies, legal and accounting fees, fund-raising
and other expenses incurred in setting up and running a
separate segregated fund established by a corporation." 11
CFR 114.1(b). Both the regulation at 11 CFR 114(b) and the
Act at 2 U.S.C. 441b(b)(2)(C) refer to these "establishment,
administration, and solicitation" funds as costs incurred in
setting up and running "a separate segregated fund"
established by a "corporation, labor organization, membership
organization, cooperative, or corporation without capital
stock."
Transaction A
In this case, no transfer of funds is proposed from any of
the aforementioned entities to a separate segregated fund
("SSF"). Rather, NAR will transfer funds from its corporate
treasury to its affiliated State Associations - no corporate
treasury funds will be transferred to RPAC or any state-
sponsored federal political committee, or any SSF. In and of
itself, this transfer of funds does not even implicate the
federal campaign finance laws and is beyond the jurisdiction
of the Commission.
Transaction B
As described, NAR intends to increase the percentage of
funds received by RPAC through its joint fundraising efforts
with the various State Associations. With respect to any
funds received by RPAC pursuant to joint fundraising
agreements entered into between NAR and the State
Associations, the formula for dividing contributions may
provide for any division of contributions that a federation of
trade associations and its member associations desire. See
generally 11 CFR 102.17. No provision of the Act or
Commission regulations prevents the aforementioned parties
from negotiating a modified percentage division in their joint
fundraising agreements.
Transaction A + B
The proposed transactions, taken together, also do not
violate the Act or Commission regulations. Specifically, the
combination of these two proposed transactions does not
trigger the restrictions set forth at 11 CFR 114.5(b), which
prohibits the use of the "establishment, administration, and
solicitation process" as a means of exchanging treasury monies
for voluntary contributions. First, NAR's proposed transfer
of funds to the State Associations is not the payment of money
for the "establishment, administration and solicitation costs"
of an SSF, meaning the "establishment, administration, and
solicitation process" is not at issue, and thus 11 CFR
114.5(b) is inapplicable on its face. Second, the proposal
does not involve the exchange of treasury monies for
"voluntary contributions." NAR does not propose to provide
treasury funds to any individual donor in exchange for a
voluntary contribution. Rather, the proposed exchange of
funds involves NAR's treasury funds and funds raised by RPAC
and the State PACs. The transfer of a larger percentage of
federal funds to RPAC per a joint fundraising agreement in no
way implicates any "voluntary contributions," meaning the
restriction of 11 CFR 114.5(b) is not violated.
Under these facts, the proposed transfers of funds would not
violate the Act or Commission regulations. The State
Associations will be entirely free to use funds received from
NAR for any lawful purpose, including use in connection with a
State or local election or other related political activities,
as permitted by the relevant State law.
December 19, 2006
_______________s/__________________
________________s/_________________
David M. Mason, Commissioner Hans. A. von Spakovsky,
Commissioner
_______________________________
1 Alternatively, where desired by a State Association and
permitted by State law, NAR may pay the corporate treasury
funds to the State Association's State PAC.