AO 2011-10: Partnerships may deduct PAC contributions from sales contracts

A family of partnerships may make preauthorized deductions from amounts due on sales contracts for contributions to a nonconnected committee.

Background

POET, LLC is a single-member, limited liability company that has elected not to be treated as a corporation for income tax purposes. POET PAC is registered with the Commission as a nonconnected, multicandidate committee. The POET family of companies includes 27 POET plants that produce and refine ethanol. To produce ethanol, the POET plants purchase corn from corn farmers, the vast majority of whom are individuals, partnerships or limited liability companies electing partnership treatment for tax purposes. The sales are conducted pursuant to sales contracts between the corn farmers and the POET plants.

POET, LLC, POET PAC and Sioux River Ethanol, LLC d/b/a POET Biorefining-Hudson want to establish the POET PAC Cultivator Club (the “program”) to make it easier for corn farmers to contribute to POET PAC. [FN1] Under the program, the participating POET plants would solicit contributions to POET PAC from the corn farmers with whom they do business. The corn farmers may opt to have the participating POET plants deduct a portion of the money owed to them for their corn, and the participating POET plants would transfer the deducted amounts to POET PAC each week. A corn farmer wishing to participate in the program would check a box on the farmer’s corn sales contract, thereby authorizing the participating POET plant to make deductions for contribution purposes. A farmer could modify or revoke the authorization at any time by notifying the participating POET plant in writing and via the POET companies’ website. The authorization would not carry over from contract to contract, but a farmer wishing to continue to participate in the program after his or her contract expires would have to affirmatively elect to do so on the new sales contract.

Under the proposal, the POET PAC solicitation and check-off box would be pre-printed on each corn sales contract, while the necessary disclaimers, statement of political purpose and best efforts statement would appear with the Terms and Conditions. The Terms and Conditions would also state that contributions from foreign nationals, federal government contractors and corporations are prohibited. POET, LLC, POET PAC and Sioux River Ethanol, LLC would implement compliance safeguards to ensure that POET PAC does not accept any excessive contributions or contributions from prohibited sources, and POET PAC would retain all necessary records and would report all contributions received on its reports filed with the Commission. All required disclaimers and “best efforts” information would be placed on a single double-sided document that includes the contract on one side and the Terms and Conditions on the other side. Finally, POET PAC proposes to compensate the participating POET plants for the services that they provide in soliciting, deducting and transmitting contributions by paying the usual and normal charge for these services to the participating POET plants in advance every month. The payments would be based on estimates of staff compensation and the time involved in administering the fundraising program.

Analysis

The Commission determined that the planned Cultivator Club program is permissible and similar to other programs previously approved by the Commission. See AOs 1982-63 and 2005-20. In this case, the solicitation, deduction and transmittal of contributions to POET PAC would constitute the provision of services and could be considered in-kind contributions by the participating POET plants to POET PAC. 2 U.S.C. §  431(8)(A)(i) and 11 CFR 100.52(a) and (d)(1) and (2). However, the participating POET plants are all either partnerships or LLCs that have elected treatment as partnerships for tax purposes and are, thus, treated as partnerships under the Act and Commission regulations as well. See 11 CFR 110.1(g)(2). As such, they may make contributions of up to $5,000 per calendar year to nonconnected multicandidate political committees. 2 U.S.C. §441a(a)(1)(C); 11 CFR 110.1(d). In this case, however, POET PAC indicates it will pay in advance for the services furnished by the participating POET plants. Thus, the Commission concluded that no contribution would result if POET PAC pays in advance the usual and normal charge for the participating POET plants’ services in soliciting and processing contributions made by corn farmers. See AO 2005-20. 

The Commission also determined that POET PAC may include required disclaimers on a separate Terms and Conditions page rather than on the page with the actual check-off box for the POET PAC Cultivator Club. See 2 U.S.C. § 441d(a); 11 CFR 110.11(a)(3); 11 CFR 100.26; 11 CFR 100.27. Under Commission regulations, every disclaimer “must be presented in a clear and conspicuous manner.” 11 CFR 110.11(c)(1). Disclaimers on printed communications must be of sufficient type size to be clearly readable, must have a reasonable degree of color contrast between text and background and must be contained in a box set apart from the rest of the communication. 2 U.S.C. § 441d(c); 11 CFR 110.11(c)(2)(i)-(iii). A communication that would require a disclaimer if distributed separately must contain the required disclaimers if it is included in a package. 11 CFR 110.11(c)(2)(v). However, a disclaimer need not appear on the front cover of a communication with multiple pages. 11 CFR 110.11(c)(2)(iv). Political committees are also required to make their “best efforts” to gather information about contributors and to include in solicitations “a clear request” for the required identifying information from the contributor. 11 CFR 104.7(b)(1)(i).

Here, POET PAC proposes to place all required disclaimers and "best efforts” information on a single double-sided document that includes the contract on one side and the Terms and Conditions on the other side. The disclaimer would be set apart in a box and it would be printed in the same font size as other material on the rest of the page. The Commission concluded that this proposal would satisfy the disclaimer requirement because the disclaimers and the solicitation and check-off will be distributed as a single document.

Finally, the Commission allowed POET PAC to perform a quarterly reconciliation of the actual staff time spent administering the POET PAC Cultivator Club by participating POET plants and POET, LLC employees to the amounts paid in advance by POET PAC. POET PAC plans to provide advance payment to the participating POET plants based on an initial estimate of plant employee time to be spent soliciting and processing contributions in connection with the POET PAC Cultivator Club. It would then adjust these payments each calendar quarter to reflect the actual time spent. If POET PAC’s initial advance payment to the participating POET plant underestimates the amount due to the participating POET plant for the staff time actually expended, the resulting difference would be considered an advance or an extension of credit by the participating POET plant to POET PAC, and therefore a contribution, until it is repaid. 2 U.S.C. §431(8)(A)(i), 11 CFR 100.52(a). As such, it would be subject to contribution limits. See 11 CFR 110.1(e). The Commission instructed POET PAC to report each advance payment to a participating POET plant on Schedule B, Line 21(b), as an operating expense, with a memo text explaining that the expense is an advance payment for solicitation and contribution processing services to be provided by the participating POET plant. If POET PAC later determines that its advance payment to a participating POET plant was less than the amount actually due for services rendered, then POET PAC must report the difference between the two amounts as a debt owed to the participating POET plant on Schedule D until the difference is paid in full. See 11 CFR 104.11. When POET PAC pays the amount owed to a participating POET plant for services rendered, it must report the payment on Schedule B, Line 21(b), as an operating expense, with a memo text explaining that the amount is an additional payment for services rendered and the date(s) that the services were rendered, and identifying the report in which the advance payment was reported.

AO 2011-10: Date: June 16, 2011; Length: 9 pages.

FOOTNOTES

1 Under the program, only corn farmers that are individuals, partnerships, or limited liability companies electing to be treated as partnerships for tax purposes could make contributions to POET PAC. Only the 24 POET plants that are limited liability companies treated as partnerships and the single POET plant that is a limited liability partnership will participate in the Cultivator Club. The remaining two POET plants, one of which is a corporation and the other of which is treated as such for tax purposes, will not participate.