[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
________________________________________________________________________

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