[Federal Register Volume 77, Number 240 (Thursday, December 13, 2012)]
[Proposed Rules]
[Pages 74121-74123]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-30029]
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Proposed Rules
Federal Register
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This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
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Federal Register / Vol. 77, No. 240 / Thursday, December 13, 2012 /
Proposed Rules
[[Page 74121]]
FEDERAL ELECTION COMMISSION
11 CFR Part 110
[Notice 2012-08]
Limited Liability Partnerships (LLPs)
AGENCY: Federal Election Commission.
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Commission is proposing new rules addressing the treatment
of limited liability partnerships (``LLPs'') for purposes of the
Federal Election Campaign Act (``FECA'' or the ``Act''). LLPs are
created under State law and share certain characteristics with both
partnerships and corporations. The Commission is considering treating
all LLPs that have opted for Federal corporate tax treatment pursuant
to the Internal Revenue Service's ``check the box'' provisions, as
corporations for purposes of the Act. The Commission has made no final
decision on the issues presented in this rulemaking. Further
information is provided in the supplementary information that follows.
DATES: Comments must be received on or before February 11, 2013.
ADDRESSES: All comments must be in writing. Comments may be submitted
electronically via the Commission's Web site at http://www.fec.gov/fosers/. Commenters are encouraged to submit comments electronically to
ensure timely receipt and consideration. Alternatively, comments may be
submitted in paper form. Paper comments must be sent to the Federal
Election Commission, Attn.: Robert M. Knop, Assistant General Counsel,
999 E Street NW., Washington, DC 20463. All comments must include the
full name and postal service address of the commenter, and of each
commenter if filed jointly, or they will not be considered. The
Commission will post comments on its Web site at the conclusion of the
comment period.
FOR FURTHER INFORMATION CONTACT: Mr. Robert M. Knop, Assistant General
Counsel, or Mr. Anthony T. Buckley, Attorney, 999 E Street NW.,
Washington, DC 20463, (202) 694-1650 or (800) 424-9530.
SUPPLEMENTARY INFORMATION: The Federal Election Campaign Act, as
amended, contains restrictions and prohibitions on contributions made
for the purpose of influencing Federal elections. Partnerships, like
individuals, may make contributions of up to $2,500 per candidate per
election to Federal office; $30,800 aggregate per calendar year to
national party committees; and $5,000 aggregate per calendar year to
other political committees.\1\
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\1\ Contributions to candidates' authorized committees and
national party committees are indexed for inflation. 2 U.S.C.
441a(c).
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2 U.S.C. 441a(a)(1)
The Act prohibits corporations from making contributions in
connection with a Federal election. 2 U.S.C. 441b(a). Instead,
corporations may use their general treasury monies to establish
separate segregated funds (``SSFs'') and solicit contributions from
their restricted classes to their SSFs.\2\ 2 U.S.C. 441b(b)(2)(C); 11
CFR 114.5(b), (g). The SSF may then make contributions subject to the
Act's contribution limitations, as well as expenditures. An SSF has the
same contribution limitations as individuals and partnerships, except
that an SSF that is a multicandidate political committee may make
contributions of up to $5,000 per candidate per election to Federal
office; $15,000 aggregate per calendar year to national party
committees; and $5,000 aggregate per calendar year to other political
committees.\3\
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\2\ A corporation's ``restricted class'' consists of the
corporation's executive and administrative personnel, its
stockholders and their families. 2 U.S.C. 441b(b)(4); 11 CFR
114.1(c) and 114.5(g).
\3\ These contribution amounts are not indexed for inflation.
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Partnerships are included in the Act's definition of ``person'' but
are not otherwise specifically addressed. The Commission's regulation
addressing partnerships is currently found at 11 CFR 110.1(e). This
regulation requires that partnership contributions be attributed to the
partnership and to each partner,\4\ either: (1) In direct proportion to
his or her share of the partnership profits; or (2) by agreement of the
partners, as long as only the profits of the partners to whom the
contribution is attributed are reduced and these partners' profits are
reduced (or losses increased) in proportion to the contribution
attributed to each of them. 11 CFR 110.1(e)(1), (2)(i)-(ii). Unlike
corporations, this regulation does not contemplate partnerships forming
SSFs.
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\4\ No portion of such contribution may be made from the profits
of a corporation that is a partner or from any other person who is
otherwise prohibited from making Federal Contributions. See 11 CFR
110.1(e).
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The Act and Commission regulations do not distinguish between types
of partnerships. Under the IRS ``check the box'' rules, the IRS
provides equal treatment for limited liability companies (``LLCs'') and
LLPs. See 26 CFR 301.7701-3(c)(1)(i). An LLP is a form of general
partnership that provides partners \5\ with protection against personal
liability for certain partnership obligations, just as shareholders of
a corporation may generally be protected against personal liability for
corporate obligations. Both forms of business entity may opt for
treatment as an association, and consequently for corporate tax
treatment, without regard to State law status. Id. A partnership that
opts for treatment as an association ``contributes all of its assets
and liabilities to the association in exchange for stock in the
association, and immediately thereafter, the partnership liquidates by
distributing the stock of the association to its partners.'' 26 CFR
301.7701-3(g)(1)(i).
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\5\ Such partners could include individuals, as well as limited
partners, general partners, LLPs, LLCs or corporations.
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The Commission proposes to revise its rules on partnerships so that
LLPs opting for association treatment (``Corporate LLPs'') would be
treated as corporations in 11 CFR part 114. Corporate LLPs would no
longer themselves be able to make contributions or to attribute them to
their partners. Instead, Corporate LLPs could establish SSFs that could
solicit contributions from their restricted classes, and would be able
to use those funds to make contributions to candidates and political
committees. In contrast, LLPs that do not ``check the box'' pursuant to
the Internal Revenue Service's provisions would be able to make
contributions and those contributions would continue to be attributed
to the partnership and its partners.\6\
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\6\ These partners must be permissible sources under the Act.
See note 4, above.
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[[Page 74122]]
On July 28, 2008, the Commission considered an advisory opinion
request from Holland & Knight LLP (``Holland & Knight'') asking whether
it should be treated as a corporation with the ability to establish an
SSF. See Advisory Opinion 2008-05 (Holland & Knight). Holland & Knight
was an LLP organized under Florida State law that elected to classify
itself as an association taxable as a corporation for Federal tax
purposes pursuant to 26 CFR 301.7701-3. The Commission concluded that
in the absence of Commission regulations otherwise governing the
treatment of LLPs, the requestor was a partnership for the purposes of
the Act, because the requestor was organized and operated as an LLP,
and not as a corporation, under State law. See Advisory Opinion 2008-05
(Holland & Knight) at 3.
I. Proposed 11 CFR 110.21 Partnerships
The Commission proposes to move its current partnership provision
from current 11 CFR 110.1(e) to new 11 CFR 110.21. This new section
would combine the Commission's current partnership rule with a rule
addressing the treatment of Corporate LLPs. Accordingly, paragraph (e)
of section 110.1 would be removed and reserved.
Proposed section 110.21 would be similar in significant respects to
current 11 CFR 110.1(e). Paragraph (a) of proposed 11 CFR 110.21 would
provide that all partnerships except Corporate LLPs shall attribute a
contribution by the partnership to both the partnership and each
individual partner. Paragraph (b) of proposed 11 CFR 110.21 would
contain the requirement in current 110.1(e) that the amount limitations
apply to partnership contributions, except for Corporate LLPs.
Proposed paragraph (c) would set forth rules addressing Corporate
LLPs. Paragraph (c)(1) would define ``limited liability partnership,''
as ``a business entity that is recognized as a limited liability
partnership under the laws of the State in which it is established.''
Paragraph (c)(2) would state that an LLP that elects to be treated as a
corporation by the Internal Revenue Service shall be considered a
corporation for purposes of 11 CFR Parts 100, 113, 114, 115 116 and
9034,\7\ except that its restricted class shall consist solely of those
persons who receive stock in the association, as well as their
families.
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\7\ Through these references, a Corporate LLP would be treated
consistently as a corporation with respect to all its activities
that are subject to the Act and Commission regulations.
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The Commission seeks comment on whether it is appropriate to
promulgate these rules governing Corporate LLPs, which are modeled
after the Commission's LLC rules at 11 CFR 110.1(g). Paragraph 110.1(g)
treats any business entity that is recognized as an LLC under the laws
of the State in which it was established and that elects to be treated
as a corporation for IRS purposes, as a corporation for purposes of the
contribution prohibitions of the Act. The Commission issued that rule
after receiving several advisory opinion requests over a relatively
short period of time on the status of LLCs. See Advisory Opinions 1995-
11 (Hawthorn) (Commission concluded that a Virginia LLC was neither a
corporation nor a partnership under the Act and Commission regulations
and that LLC could make contributions), 1996-13 (Townhouse Associate)
(same for a DC LLC), 1997-04 (Eckert Seamans Cherin & Mellott, LLC)
(same for a Pennsylvania LLC), 1997-17 (Nixon) (Commission concluded
that Federal candidate principal campaign committee was generally not
prohibited from accepting contributions from Missouri LLCs), 1998-11
(Patriot Holdings) (Commission concluded that California LLC with
Federal contactor subsidiaries could generally still make contributions
with LLC funds), and 1998-15 (Fitzgerald for Senate) (Commission
concluded that Federal candidate principal campaign committee was
generally not prohibited from accepting contributions from Illinois
LLCs).\8\
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\8\ These advisory opinions were explicitly superseded by the
Commission in 1999 when it promulgated the LLC rules at 11 CFR
110.1(g). See Explanation and Justification, Treatment of Limited
Liability Companies Under the Federal Election Campaign Act, 64 FR
37397, 98 (Jul. 12, 1999), available at www.fec.gov/law/cfr/ej_compilation/1999/1999-10_LLCs.pdf. Advisory opinions are available
on the Commission's Web site at www.fec.gov/searchao.
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II. Payment of LLP SSF Expenses; Soliciting Contributions From the
Restricted Class
The Commission seeks comment on two issues presented by the
proposed rules. First, the Act permits corporations to pay the
administrative, establishment, and solicitation costs of their SSFs
without those payments being considered contributions by the
corporations to the SSFs. 2 U.S.C. 441b(b)(2)(C). Would it be
appropriate for a Corporate LLP to pay these costs? If so, the
Commission anticipates that these payments would come from earned
assets contributed by the partnership to the newly created association,
as described above. Should these payments in turn be attributed among
the individual partners, either by explicit agreement or in proportion
to their partnership share? Does FECA permit partners to pay more than
$5,000 per year, which is the limit on contributions by individuals to
SSFs?
The second issue concerns the solicitation of contributions and,
specifically, what constitutes a Corporate LLP's restricted class.
Solicitations for contributions to a corporation's SSF may be made at
any time only to the corporation's restricted class. The restricted
class of a corporation consists of its executive and administrative
personnel and their families; and the corporation's stockholders and
their families. 2 U.S.C. 441b(b)(4)(A)(i); 11 CFR 114.5(g)(1).
``Executive or administrative personnel'' includes ``individuals
employed by a corporation or labor organization who are paid on a
salary, rather than hourly, basis and who have policymaking,
managerial, professional, or supervisory responsibilities.'' 2 U.S.C.
441b(b)(7); 11 CFR 114.1(c).
If Corporate LLPs are treated as corporations, and a Corporate LLP
formed an SSF, then it follows that the SSF would be allowed to make
solicitations at any time for contributions only to the Corporate LLP's
restricted class. The Commission's proposed rule defines a Corporate
LLP's restricted class solely as those persons who receive stock in the
association, as described above, as well as members of their
families.\9\ Should the Commission expand the pool of persons who would
be within a Corporate LLP's restricted class to include certain persons
who fit within the Act's definition of ``executive and administrative
personnel?'' Using a law firm as an example, there may be managing
partners, senior partners and junior partners, associates, contract
attorneys, and attorneys ``of counsel,'' all having at least
``professional responsibilities.'' Should they all be included within
the restricted class? What administrative personnel, if any, should be
included? Again, using a law firm as an example, there may be office
managers, administrative managers of practice groups, legal
secretaries, paralegals, paralegal managers, human resources managers,
recruiters, and other professionals.
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\9\ Any contribution to the SSF could only come from permissible
sources under the Act. See note 4, above.
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Does the structure of a Corporate LLP lend itself to determining
``executive and administrative personnel?'' If it does not, is it
appropriate to treat Corporate LLPs as corporations? Assuming the
Commission can identify general characteristics of positions
[[Page 74123]]
within a Corporate LLP that would qualify as part of the ``executive
and administrative personnel,'' should the Commission issue general
rules stating that persons holding positions with certain
characteristics are part of the Corporate LLP's restricted class?
The Commission seeks comment on these and other possible approaches
to address, if at all, the treatment of Corporate LLPs for purposes of
the Act, as well as any other aspect of this rulemaking.
Certification of No Effect Pursuant to 5 U.S.C. 605(b) (Regulatory
Flexibility Act)
The Commission certifies that the attached proposed rules, if
adopted, would not have a significant economic impact on a substantial
number of small entities. The basis for this certification is that the
proposed rules modify how limited liability partnerships may operate
pursuant to Federal campaign finance laws. The only economic impact
attributable to these proposed rules would be the costs incurred by
limited liability partnerships that wish to establish and administer
separate segregated funds. This activity is entirely voluntary and any
costs associated with it would fall only on entities choosing to
establish and administer a separate segregated fund. Therefore, the
attached proposed rule would not have a significant impact on a
substantial number of small entities.
List of Subjects in 11 CFR Part 110
Campaign funds, Political candidates, Political committees and
parties.
For the reasons set out in the preamble, Subchapter A, Chapter 1 of
Title 11 of the Code of Federal Regulations is proposed to be amended
as follows:
PART 110--CONTRIBUTION AND EXPENDITURE LIMITATIONS AND PROHIBITIONS
1. The authority citation for part 110 would continue to read as
follows:
Authority: 2 U.S.C. 431(8), 431(9), 432(c)(2), 437d, 438(a)(8),
441a, 441b, 441d, 441e, 441f, 441g, 441h and 36 U.S.C. 510.
Sec. 110.1 [Amended]
2. In Sec. 110.1, paragraph (e) is removed and reserved.
3. Add Sec. 110.21 to read as follows:
Sec. 110.21 Partnerships.
(a) All partnerships, except LLPs governed by paragraph (c) of this
section, shall attribute a contribution by the partnership to both the
partnership and each individual partner--
(1) In direct proportion to his or her share of the partnership
profits, according to instructions that the partnership shall provide
to the political committee or candidate; or
(2) By agreement of the partners, as long as--
(i) Only the profits of the partners to whom the contribution is
attributed are reduced (or losses increased), and
(ii) These partners' profits are reduced (or losses increased) in
proportion to the contribution attributed to each of them.
(b) A contribution by a partnership made in accordance with
paragraph (a) of this section shall not exceed the limitations on
contributions in 11 CFR 110.1(b), (c), and (d). No portion of any such
contribution may be made from the profits of a corporation that is a
partner.
(c) Contributions by limited liability partnerships (``LLP'')--
(1) A limited liability partnership is a business entity that is
recognized as a limited liability partnership under the laws of the
State in which it is established.
(2) An LLP that elects to be treated as a corporation by the
Internal Revenue Service shall be considered a corporation for purposes
of 11 CFR parts 100, 113, 114 115, 116, and 9034, except that its
restricted class shall consist solely of those persons who receive
stock in the association pursuant to Internal Revenue Service rules, as
well as their families.
On behalf of the Commission.
Caroline C. Hunter,
Chair, Federal Election Commission.
[FR Doc. 2012-30029 Filed 12-12-12; 8:45 am]
BILLING CODE 6715-01-P