A principal method corporations use to engage in campaign activity is the
political action committee ("PAC"). The corporation forms a PAC composed of
corporate officers, who are appointed to the PAC by the corporation's board of
directors. The PAC solicits contributions from employees, and decides which
candidates will receive contributions from the PAC.
Corporations that engage in campaign activity often form one PAC for federal
candidates, and a separate PAC for state candidates. Under regulations
promulgated by the Federal Election Commission ("FEC") pursuant to the Federal
Election Campaign Act of 1971, as amended ("FECA"), when a PAC's funds are kept
in one account that supports both federal and state candidates, all funds
received by that account are subject to FECA's contribution limits,
prohibitions, and solicitation restrictions.1 To
avoid federal rules that are often more restrictive than state rules,
corporations form two PACs with separate accounts. In addition, the requirement
of the New York Election Law that a PAC have an in-state depository often makes
it impractical for a corporation's federal PAC also to serve as its New York
A corporation can contribute up to $5,000 in a calendar year for all New York
candidates and committees, and an individual can contribute up to $150,000 in a
calendar year for New York candidates and
committees.2 There are no controlled group rules
requiring aggregation of corporate members of the same controlled group to be
treated as one corporation. Each corporation has its own $5,000 limit as long as
it uses its own funds to make contributions.3
In determining the amount of corporate contributions, the amounts the
corporation spends on the PAC's formation and administration, and the percentage
of officers' salaries allocable to PAC administration, are counted toward the
$5,000 annual limitation.4 This rule is the opposite
of the federal rule, which is that the corporation's payment of administrative
expenses is not a contribution.5 If a corporation
uses an outside accounting firm to prepare the IRS and New York filings, or
consults with outside counsel on how to handle a suspect contribution, the
professional fees can exceed $5,000. In this situation, the PAC would be
responsible from its funds for payment of the amount over $5,000.
Under FECA, and FEC regulations effective January 1, 2003, a PAC cannot
knowingly solicit or accept contributions from a foreign national in connection
with any federal, state, or local election.6 Under
the FEC regulations, a foreign national cannot direct, control, or participate
in the decision making process of any person, such as a corporation or PAC,
regarding such person's federal or nonfederal election-related
activities.7 A foreign national is defined as a
foreign principal under 22 U.S.C. §611(b), or an individual who is not a citizen
of the United States and who is not lawfully admitted for permanent
residence.8 Thus, foreign citizens who are present
in the United States on nonimmigrant visas, such as B-1 business visitors, H-1B
workers in specialty occupations, and L-1A executives or managers of
multinational corporations, cannot contribute to a PAC. Foreign citizens who are
lawfully admitted for permanent residence, otherwise known as green card
holders, can contribute. The permanent resident should be present in the United
States when he or she makes the contribution because under 22 U.S.C. §611(b)(2)
persons "outside the United States," unless they are United States citizens, are
A foreign national is also defined as "a partnership, association,
corporation, organization or other combination of persons organized under the
laws of or having its principal place of business in a foreign
country."9 Thus, a foreign corporation cannot form a
PAC.10 A United States subsidiary of a foreign
parent can form a PAC as long as the PAC does not solicit foreign nationals, and
no foreign national participates in the PAC's decision-making
process.11 The foreign parent cannot provide the
funds or reimburse the United States subsidiary for
contributions.12 Finally, a United States
incorporated trade association with foreign corporate members can form a
The IRS reporting and disclosure obligations for a New York PAC are found in
Sections 527, 6012, and 6033 of the Internal Revenue Code of 1986, as amended
(the "Code"). The IRS recently explained a state PAC's reporting and disclosure
obligations in Rev. Rul. 2003-49, 2003-20 I.R.B. 903. The Revenue Procedure
implements the Congressional amendments to Code Section 527 in Public Law
107-276, which was signed into law by President Bush on November2, 2002.
Within twenty-four hours after its formation, a state PAC must file IRS Form
8871, Political Organization Notice of Section 527 Status, electronically at the
Political Organization Filing Center at href="http://www.irs.gov/polorgs">www.irs.gov/polorgs.14
The filed Form 8871 is available for public inspection at the Political
Organization Disclosure Page at href="http://www.irs.gov/polorgs">www.irs.gov/polorgs.15
For Forms 8871 due on or after June 30, 2003, the IRS must post the filed Forms
8871 on its website within forty-eight hours of
In addition, the PAC must make its filed Form 8871 available for public
inspection during regular business hours at its principal office in the same
manner as Section 501(c)(3) organizations make their applications for
tax-exemption available for public inspection.17
An exemption from the Form 8871 filing obligation applies to any PAC that
reasonably anticipates that its annual gross receipts will always be less than
$25,000.18 A newly formed PAC does not have to file
Form 8871 if it reasonably anticipates that its annual gross receipts will be
less than $25,000 for its first six taxable years. Once the PAC has annual
receipts of $25,000 or more for any taxable year, it must file Form 8871 within
thirty days of receiving $25,000 in a single taxable
A PAC's status as a qualified state or local political organization is
important because it gives the PAC an exemption from filing IRS Form 8872,
Political Organization Report of Contributions and
Expenditures.20 A qualified state or local political
organization must satisfy the following requirements:
(a)the PAC limits its exempt function to the selection process relating
solely to any state or local public office, or office in a state or local
political organization. A corporation can satisfy this requirement by limiting
the PAC's purposes in the PAC's bylaws to this selection process, and should
avoid the catch-all purpose of "all lawful activities;"
(b)the PAC is required under state law to report to a state agency, and the
PAC does so, the information that otherwise would be required to be reported on
IRS Form 8872. The PAC will satisfy this requirement even if the state law does
not require reporting of the identical information required on Form 8872, as
long as at least the following two items are required to be reported under state
law, and the PAC reports these items. First, the name and address of every
person who contributes $500 or more in the aggregate to the PAC during the
calendar year, and the amount of each contribution. Second, the name and address
of every person to whom the PAC makes expenditures aggregating $800 or more
during the calendar year, and the amount of each expenditure. If state law
requires the reporting of additional information, the PAC must report the
additional information. Section 14-102 of the New York Election Law, which
requires detailed financial information, satisfies this requirement;
(c)the state agency makes the reports filed by the PAC publicly available.
Section 14-108.4 of the Election Law, which provides that each statement filed
with the New York State Board of Elections shall constitute part of the Board's
public record and shall be open to public inspection, satisfies this
(d)the PAC makes the reports filed with the state agency publicly available;
(e)no federal candidate or officeholder controls or participates in the
direction of the PAC, solicits contributions, or directs
A New York PAC has two other IRS filing obligations. First, if the PAC has
more than $100 in political organization taxable income, which is generally the
investment earnings on its accounts and excludes exempt function income of
contributions and fundraising receipts, it must file an annual income tax return
on IRS Form 1120-POL.22 Effective retroactively for
taxable years beginning after June 30, 2000, Form 1120-POL is not available for
public inspection at the IRS or the PAC.23
Second, a qualified state or local political organization must file an annual
information return on IRS Form 990 if it has annual gross receipts of $100,000
or more.24 Tax-exempt organizations with gross
receipts of less than $100,000 and assets of less than $250,000 file IRS Form
990-EZ. Tax-exempt organizations with gross receipts of less than $25,000 do not
file Form 990 or Form 990-EZ.25
Form 990 or Form 990-EZ is available for public inspection beginning on
July1, 2003 at the Political Organization Disclosure Page at href="http://www.irs.gov/polorgs">www.irs.gov/polorgs. In addition, the PAC
must make the filed forms available for public inspection at its principal place
of business during regular business hours.
1 11 C.F.R. §102.5(a)(1)(ii) and (2); Rev. Rul.
2003-49, Q&A-7, 2003-20 I.R.B. 903-04.
Election Law §§14-114.8 (individuals) and 116.2 (corporations).
3 N.Y. State Board of Elections 1977 Opinion No.
4 N.Y. Elec. Law §14-100.9 (definition of
contribution); N.Y. State Board of Elections Reg. §6200.6 (definition of
contribution other than money); N.Y. State Board of Elections 1978 Opinion No. 1
(PAC was composed of senior and middle management officers of bank;
participation in PAC was a function of officer position; bank must allocate the
percentage of officers' salaries attributable to PAC administration as a
corporate contribution to the PAC); N.Y. State Board of Elections 1975 Opinion
No. 11; N.Y. State Board of Elections 1975 Opinion No. 5.
2 U.S.C. §441b(b)(2)(C); 11 C.F.R. §§114.1(a)(2)(iii) and (b) and
114.5(b); FEC Advisory Opinion 1991-35 (corporation's indemnification is an
administrative expense not subject to contribution prohibition); FEC Advisory
Opinion 1980-135 (same); FEC Advisory Opinion 1979-42 (corporation's payment of
insurance premiums for PAC's officers is an administrative expense not subject
to contribution prohibition).
6 2 U.S.C.
§441e(a); 11 C.F.R. §110.20(g).
7 11 C.F.R.
8 2 U.S.C. §441e(b)(1)-(2); 11
9 22 U.S.C. §611(b)(2).
10 FEC Advisory Opinion 1977-53.
11 FEC Advisory Opinion 2000-17; FEC Advisory
Opinion 1999-28; FEC Advisory Opinion 1995-15; FEC Advisory Opinion 1990-8; FEC
Advisory Opinion 1989-29; FEC Advisory Opinion 1985-3.
FEC Advisory Opinion 1989-20.
FEC Advisory Opinion 1980-111.
15 I.R.C. §6104(a).
16 I.R.C. §527(k)(1).
17 I.R.C. §§527(k)(1) and 6104(d)(7); Treas.
19 Rev. Rul. 2003-49, Q&A-5,
2003-20 I.R.B. 903, 906.
20 I.R.C. §527(e)(5)
and (j)(5)(C); Rev. Rul. 2003-49, Q&A-29(b), 2003-20 I.R.B. 903, 906.
21 I.R.C. §527(e)(5); Rev. Rul. 2003-49,
Q&A-16, 2003-20 I.R.B. 903, 904-05.
I.R.C. §6012(a)(6); Rev. Rul. 2003-49, Q&A-46, 2003-20 I.R.B.
23 I.R.C. §6104(b) and (d)(1)(A).
24 I.R.C. §6033(g)(1).
Rev. Rul. 2003-49, Q&A-50, 2003-20 I.R.B. 903, 908.
Steven H. Sholk is Counsel to Gibbons, Del Deo, Dolan,
Griffinger & Vecchione, P.C., with offices in New York City, Newark, and
Trenton. This article is an abridged version of the article that appeared in the
October 2003 issue of The Exempt Organization Tax Review. The complete version
is available at the www.votelaw.com