Federal Election Commission Main Page
May 26, 1989
CERTIFIED MAIL
RETURN RECEIPT REQUESTED
ADVISORY OPINION 1989-4
Vigo G. Nielsen, Jr.
Nielsen, Merksamer, Hodgson, Parrinello & Mueller
650 California Street, Suite 2650
San Francisco, California 94108
Dear Mr. Nielsen:
This responds to your letter dated March 31, 1989,
requesting an advisory opinion on behalf of Californians for
Pete Wilson concerning application of the Federal Election
Campaign Act of 1971, as amended, (the "Act" or "FECA") and
Commission regulations to the proposed sale of assets by Mr.
Wilson's Federal campaign committee to his California
gubernatorial campaign committee.
Californians for Pete Wilson ("Federal committee"), the
principal campaign committee of United States Senator Pete
Wilson in his 1988 reelection campaign, proposes to sell its
mailing lists, computer hardware, and used furniture to Mr.
Wilson's California campaign committee, Pete Wilson for
Governor, established to support his candidacy for the
governorship in 1990 ("State committee" or "gubernatorial
committee"). In a telephone conversation with the Office of
General Counsel, subsequent to your request, you indicated
that the Federal committee has recently received sufficient
contributions to retire its debt from the 1988 campaign, and
that contributions received by the Federal committee with
respect to a potential 1994 Senate candidacy by Mr. Wilson
will soon exceed the $5,000 threshold for qualification as a
"candidate" under the Act. 11 CFR 100.3. See also 11 CFR
101.1 and 102.1.
You propose to sell these assets of the Federal
committee to the State committee at the "usual and normal
charge," and indicate that "an independent evaluation would
be made to ascertain this value." Because California
election law permits the State committee to accept corporate
contributions that the Federal committee would be prohibited
from receiving under the FECA (see 2 U.S.C. §441b), you
suggest that the State committee could establish a separate
accounting mechanism to insure that no corporate funds are
used by the State committee for this
purchase. Further, you state that the Federal committee
would likely want to repurchase these assets from the State
committee, should Mr. Wilson's 1990 gubernatorial campaign be
unsuccessful.
You ask whether the Act and Commission regulations
permit the Federal committee to sell its mailing lists,
computer hardware, and used furniture to the State committee
at the "usual and normal charge" and to repurchase these
assets at a later date.
The Commission first notes that your request describes
the proposed transactions as "sales" and not as "transfers"
between the Federal and State committees. Under the criteria
in the Commission's regulations, Mr. Wilson's Federal
committee and his State committee are affiliated, and are
generally permitted unlimited transfers between them,
provided any funds transferred to the Federal committee are
permissible under the FECA. 11 CFR 100.5(g)(2) and 102.6(a).
See Advisory Opinions 1987-12, 1984-46, 1983-34 and 1982-52.
But see 11 CFR 110.8(d)(1) and (2), which may be applicable.
Under the Act and the Commission's regulations, therefore,
the Federal committee is not required to sell these assets in
order to provide them to the State committee.1/ Your request
raises the issue of whether the committees are precluded by
the FECA from treating the proposed transactions as bona fide
sales, or would be subject to particular limitations or
requirements in order to do so.
Generally, the Commission has viewed the selling or
commercial use of committee assets by a principal campaign
committee or other political committee to be fundraising for
political purposes, resulting in contributions subject to the
Act.2/ Advisory Opinions 1988-12 and 1986-14. Particularly,
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1/ Also, in prior advisory opinions, the Commission has
interpreted the Act and its regulations to permit a federal
political committee to donate excess campaign assets to a
state committee without charge, if otherwise lawful. See
Advisory Opinions 1986-5 and 1984-50 (interpreting 2 U.S.C.
§439a and 11 CFR 113.2(d)).
2/ The Act defines "contribution" to include any gift, loan,
advance, or deposit of money made by any person for the
purpose of influencing an election for Federal office. 2
U.S.C. §431(8)(A). The Commission's regulations provide that
a contribution will result when goods are provided to a
candidate or political commitee "... without charge or at a
charge which is less than the usual and normal charge for
such goods ..." 11 CFR 100.7(a)(1)(iii)(A). When a
political committee sells assets, a contribution can also
result if the purchase price exceeds the "usual and normal
charge" for such goods. Advisory Opinions 1986-14 and 1979-
24. The "'usual and normal charge' for goods means the price
of those goods in the market from which they ordinarily would
have been purchased." 11 CFR 100.7(a)(1) (iii)(B).
Commission has concluded that contributions would result when
committees have proposed to sell campaign fundraising items,
or unique political campaign materials without a genuinely
independent market value. See Advisory Opinions 1980-70,
1980-34, 1980-19 and 1979-76. Furthermore, the Commission
has considered the use of committee assets to generate income
through ongoing business or commercial ventures to be
fundraising. See Advisory Opinions 1988-12, 1983-2, 1981-7
and 1979-17.
The Commission has specifically permitted isolated sales
of political committee assets without inherent contribution
consequences, however, when the assets had been purchased or
developed for the committee's own particular use, rather than
for sale in a campaign fundraising activity, and such assets
had ascertainable market value. Advisory Opinions 1986-14
(campaign van), 1985-1 (computer), 1981-53 (mailing list),
1979-24 (yard sign material and office equipment) and 1979-18
(contributor list).3/ In each instance, the Commission has
emphasized that contributions would result if the price paid
to the political committee for the assets exceeded the "usual
and normal charge" for such assets in the market where
ordinarily sold. Id.
Accordingly, the Commission concludes that the proposed
sale by the Federal committee of its mailing lists, computer
hardware, and used furniture to the State committee at the
usual and normal charge will not result in a contribution to
the Federal committee, nor will the transaction constitute a
transfer of funds between affiliated committees.4/ The
Commission further
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3/ Although Advisory Opinion 1979-24 has been interpreted to
view such sales as avoiding contribution consequences only
when committees seek to liquidate assets for debt retirement
purposes and terminate their operations, and Advisory Opinion
1985-1 left open the question of the effect upon such
transactions of a committee's failure to terminate, the
Commission now concludes that the legal character of such
isolated sales of assets by political committees is not
contingent upon committees pursuing debt retirement or
termination. Compare Advisory Opinion 1986-14.
4/ Regardless of your assertion that only "clean funds" would
be used for the purchase of the assets by the State
committee, however, the circumstances of a bona fide sale,
rather than a transfer, would permit the State committee to
use any of its funds as payment to the Federal committee,
including those monies raised outside the limits and
prohibitions of the Act and not otherwise permitted to be
transferred to the affiliated Federal committee. A
prohibited contribution would result from the sale if the
payment price exceeds the "usual and normal charge" for such
items and the State committee has received funds from sources
not permitted under the FECA. 2 U.S.C. §441b. See Advisory
Opinion 1979-24. Furthermore, the State committee should not
solicit funds for use in the purchase in a manner suggesting
that its receipts will be "contributions" to the Federal
committee, or that its payment will be an "expenditure," "for
the purpose of influencing any election for Federal office."
See 2 U.S.C. §431(8) and (9).
observes that the purchase price at a "usual and normal
charge" for such goods in the marketplace must be reasonably
capable of objective verification. See Advisory Opinions
1986-14 and 1985-1. Your plan to engage an "independent
evaluation" to determine the fair market value of these
assets would satisfy this requirement.
Your request also asks whether the Federal committee may
repurchase these same assets from the State committee after
1990, should the gubernatorial campaign be unsuccessful. In
the context of a sale of an asset by a political committee,
the Commission has generally not favored "lease-back"
situations, in which the committee sells the equity in the
asset but retains possession and pays rent for its use, or
"repurchase" situations, in which a committee may receive the
equity value of an asset long enough to use the funds for
other purposes but retains the right to buy back the asset at
any time. See Advisory Opinion 1986-14. Both situations
raise problems of fundraising through what are effectively
"loans" to a political committee, in which the committee
receives money for the value of the asset but does not
relinquish, or relinquishes only briefly, the possession and
use of the asset. Based upon the facts presented in your
request, however, and assuming that the Federal committee
fully divests itself of the ownership and use of the assets
to be sold, retains no legal right to repurchase and would
not attempt to repurchase the items until the conclusion of
the 1990 gubernatorial campaign, the Commission views the two
proposed transactions as sufficiently separated in time and
independent in purpose so as not to implicate the
Commission's usual concerns. Under these circumstances,
therefore, the Commission concludes that the Federal
committee would not be precluded from later repurchasing the
assets from the State committee. Any such repurchase would
also be subject to the "usual and normal charge" requirement,
as indicated in your request.
The sale proceeds should be reported by the Federal
committee as "other receipts," including itemized information
that identifies the purchaser and amount and date of receipt.
2 U.S.C. §434(b)(3)(G), 11 CFR 104.3(a)(4)(vi). The Federal
committee may wish to add a brief explanation to its report
that the receipt represents the purchase price paid for these
assets.
The Commission expresses no opinion about the legal
consequences of the proposed transactions or activity under
California law, or under Federal or state tax laws.
This response constitutes an advisory opinion concerning
application of the Act, or regulations prescribed by the
Commission, to the specific transactions or activity set
forth in your request. See 2 U.S.C. §437f.
Yours truly,
(signed)
Lee Ann Elliott
Vice Chairman for the
Federal Election Commission
Enclosures (AO's 1988-12, 1987-12, 1986-14, 1986-5, 1985-1,
1984-50, 1984-46, 1983-34, 1983-2, 1982-52,
1981-53, 1981-7, 1980-70, 1980-34, 1980-19,
1979-76, 1979-24, 1979-18 and 1979-17)