Through a Statement of Reasons analysis recently released in connection with the closure of long-running enforcement action, the Federal Election Commission (FEC) announced its intention to offer some regulatory certainty on a previously unsettled disclosure question impacting independent expenditure-only committees (commonly referred to as Super PACs) – whether such PACs have a duty to verify whether a contribution from an LLC is attributable to individuals associated with the entity. The guidance, which was announced following a 4-2 vote by the commissioners in Matter Under Review (MUR) 7454, effectively requires Super PACs to comply with the LLC attribution reporting requirements by which other federally-registered political committees, including campaign committees and separate segregated funds, must abide. Before the determination reached in this enforcement decision, the FEC had previously deadlocked on the issue in other matters under review. The decision portends an uptick in scrutiny of LLC donation transparency in the Super PAC space.
The LLC attribution regulation at issue generally requires political committees receiving political donations to report the proper attribution of contributions from LLCs up the chain to the owners or members of the LLC. A contribution from an LLC that has a single natural-person member and is not taxed as a corporation must be attributed only to the natural-person member. A contribution by an LLC that is disregarded for tax purposes and does not have a single natural-person member is treated as a partnership contribution. A partnership contribution must be attributed to both the partnership and each partner, either in proportion to his or her share of the partnership profits or by agreement among the partners. LLCs that make political contributions to federal committees are required to provide attribution details to recipient committees.
Given the increased number of LLCs contributing to federal Super PACs in recent years, this decision should have far-reaching effects for both donors and recipients moving forward. LLCs will need to navigate a new regime where the required attribution of contributions will impact their ability to maintain member anonymity and affirmatively require them to report attribution percentages to recipient Super PACs. Super PACs will want to be sure that they are accurately reporting the attribution of LLC contributions, which will help to ensure that they are not receiving an unlawful contribution in the name of another (a “straw donor” contribution) or a contribution from an otherwise prohibited source. The breadth of impact for this recent FEC analysis is yet to be seen, but it is clear that affected entities and individuals can no longer rely on FEC indecision as a basis for ignoring the LLC attribution requirements.
