How to Create and Run a PAC in Compliance with Federal Laws
Organizing and creating a PAC can be an intimidating task especially when considering the main objectives of raising funds to support a cause, deciding who should be the beneficiary of the contributions received, and then determining how to account for all the committee’s activities. Such activities also include maintaining accurate and periodic recordkeeping of receipts and disbursements as well as complying with the Federal Election Committee’s (“FEC”) reporting requirements. It is even more daunting when considering the myriad of federal and state campaign finance laws that regulate PACs.
Companies and other entities that are active in the political realm and that establish some form of PAC need to be vigilant of all the laws and regulations that impose stringent compliance, reporting, and recordkeeping obligations. A wise precautionary measure that most individuals, groups, and companies undertake is to hire a law firm that is experienced in navigating clients through this complex process.
What Is A PAC?
A political action committee (“PAC”) refers to a political committee that is organized for the purpose of raising money and spending money to elect certain candidates or defeat candidates. A PAC is generally formed to represented business, labor, or ideological interests. They are preferred by certain individuals and entities because it gives them the ability to raise funds privately and then donate the contributions to a political campaign.
For instance, corporations cannot directly donate contributions to a political campaign. However, the Supreme Court’s decision in 2010—Citizens United v. Federal Election Committee—held that it is legal for corporations and unions to support a PAC and donate money to political campaigns.
Creating A PAC
Generally, under federal law, a PAC must register with the FEC within 10 days of either raising or spending more than $1,000 in contributions or expenditures during any calendar year for the purpose of influencing a federal election. The PAC officially registers by filing a Statement of Organization with the FEC. This Statement contains vital information about the PAC including its name and address, the name of its appointed treasurer, and any connected organizations.
Responsibilities of the PAC Treasurer
Every PAC must designate a treasurer prior to making expenditures or accepting contributions. The responsibilities of the treasurer are paramount for the successful operation of the PAC. The treasurer must ensure that all committee reports are complete and accurate as well as filed in a timely manner.
The treasurer must also tackle various additional tasks such as the following: (1) sign all committee reports and statements; (2) deposit all receipts in the designated bank within 10 days; (3) authorize expenditures that the committee makes (or appoint someone else to do so); (4) monitor all accepted contributions for compliance with federal law; and (5) maintain records of the committee’s receipts and disbursements. This is a very important position within the PAC, as the treasurer is often named in any enforcement action taken against the PAC.
Types of PACs
There are generally two main types of PACs that can be established—a separate segregated fund (SSF) and a nonconnected committee. SSFs are geared towards corporations and labor unions, while nonconnected committees can be created by other individuals or groups.
SSFs—For Corporations and Labor Organizations
As mentioned, although the Federal Election Campaign Act (“FECA”) prohibits corporations and unions from using their treasury funds to make contributions to candidates for federal election, these corporations and unions may set up an SSF to accomplish the same purpose. An SSF is a special type of political committee that allows corporations and labor unions to make contributions to candidates for federal office as well as make expenditures. The corporation or union that sponsors the SSF is called the connected organization.
Nonconnected Committees—For Other Individuals and Groups
Individuals and groups can set up a nonconnected committee when its purpose is to establish a PAC and the PAC is not considered (1) a political party committee, (2) the authorized committee of the candidate, or (3) an SSF established by a corporation or labor organization.
Types of nonconnected committees include Traditional PACs, Leadership PACs, Partnership PACs, Super PACs, and Hybrid PACs. As an example, Leadership PACs are commonly established by members of Congress or other political leaders because these PACs allow the organizers to support certain candidates for both federal and non-federal office. As another example, Super PACs are unique in that they operate as independent expenditure-only political committees. This means that the Super PAC may accept unlimited contributions from individuals, corporations, and labor unions for the purpose of financing independent expenditures—not for making contributions.
A nonconnected committee has several notable differences compared to an SSF—even though both are considered PACs. For instance, there is no connected organization associated with nonconnected committees as there is with an SSF. Also, the contributions solicited from nonconnected committees are unrestricted.
Contribution Limits for PACs
PACs can donate up to $5,000 to a candidate committee per election. This means that the PAC can donate up to $5,000 each for a primary election, a general election, and a special election. PACs can also donate up to $15,000 per year to a national party committee as well as up to $5,000 per year to another PAC. In addition, a PAC can receive up to $5,000 per year from an individual donor, a candidate committee, or another PAC.
PAC Compliance with Fundraising Requirements
The corporation or union sponsoring the SSF is allowed to use its treasury funds to pay for the costs of soliciting contributions. Fundraising costs can be paid directly by the sponsoring corporation or union or the corporation or union can establish a separate account that is earmarked only for the SSF’s fundraising expenses. Regarding SSF solicitations, all contributions to the SSF must be voluntary and must include special notices. Only a limited class of individuals may be solicited. Therefore, solicitation of the general public is strictly prohibited. The SSF’s disbursements for fundraising activities are reported as operating expenditures.
Nonconnected Committee Fundraising
Fundraising for PACs that are classified as nonconnected committees is slightly different than SSF fundraising. For instance, a nonconnected committee may solicit contributions from the entire general public; there are no restrictions on the class of individuals that may be solicited. Therefore, anyone who can lawfully make a contribution to a federal election can be solicited by the nonconnected committee. The most common forms of solicitation for nonconnected committees include oral solicitations, political advertising to the general public, internet advertising, mail, and fundraising events.
PAC Compliance with Recordkeeping Requirements
The PAC and their treasurers are required to make “best efforts” to maintain records and report the required information to the FEC such as receipts and disbursements. The treasurer has the responsibility of making sure that all the required records of the PAC’s activities and reports are kept for three years after the report or required statement is filed. If reporting is found to be incomplete, the PAC and the treasurer can still be considered to be in compliance with the law if they can demonstrate that they used “best efforts” to gather, maintain, and then report the required information. The criteria for whether this standard has been satisfied differs depending on whether the transaction involves the recording of receipts, disbursements, or debts and loans.
PAC Compliance with Filing Requirements
After a PAC—including both nonconnected PACs and SFFs—completes its registration, it must file regular reports with the FEC. These reports are made publicly available on the campaign finance data section of the FEC’s website. There are some committees that are required to file electronically, while other committees can choose to file their reports electronically or by paper. The filing requirements differ depending on whether it is an election year or a non-election year. In election years, a PAC can choose whether to file quarterly or monthly. If the PAC files reports quarterly in an election year, it will automatically switch to semi-annual reporting in non-election years. If the PAC files monthly reports with the FEC in election years, it will also have to file monthly reports in non-election years.
PAC creation, recordkeeping, reporting, and overall compliance is a complicated matter. PACs are regulated by numerous federal legislations and regulations. Its successful administration demands the services of dedicated individuals who are trained to manage all the responsibilities of the PAC’s activities. If you are seeking to establish a PAC for a federal election or to otherwise influence an election, you need sound the direction and leadership of a law firm specialized in handling election matters — especially the creation of a PAC and monitoring for continual compliance with federal law. Contact the experienced attorneys of Oberheiden P.C. today.
Dr. Nick Oberheiden, founder of Oberheiden P.C., focuses his litigation practice on white-collar criminal defense, government investigations, SEC & FCPA enforcement, and commercial litigation.