At a public hearing tomorrow, the Federal Election Commission (FEC) will discuss a proposed rulemaking that would allow certain Limited Liability Partnerships (LLPs) to establish separate segregated funds (SSFs), commonly known as PACs. If the proposed rule were ultimately to be adopted, it would create rules for LLPs that are similar to the existing rules for Limited Liability Companies (LLC).
Under existing law, a partnership may make contributions directly to a candidate’s campaign committee, so long as it is able to attribute that contribution to individual partners who are eligible to make contributions. Corporations and labor unions are prohibited from giving directly to candidates but are allowed to establish connected PACs and pay for the PAC’s administrative and solicitation costs.
At the time the law was enacted, LLCs and LLPs did not exist. In the mid- to late-1990s, the FEC took the view in a series of advisory opinions—and eventually codified into the regulations—that LLCs that elected to be treated as corporations for tax purposes under IRS regulations could establish connected PACs.
LLPs continue to be treated as partnerships, regardless of how they elected to be taxed, and consequently cannot have SSFs. As recently as 2008, the FEC, by a vote of 5-1, noted that the exception for LLCs was “narrow” and rejected a request by a large law firm to be treated as a corporation and allowed to form a connected PAC. See A.O. 2008-05 (Holland & Knight LLP).
Broadly speaking, the proposed rulemaking suggests putting LLPs on the same footing as LLCs. LLPs that elect to be taxed as corporations would be allowed to establish connected PACs and pay for their administrative and solicitation costs. The Notice of Proposed Rulemaking asks for comments on two distinct issues. First, “[w]ould it be appropriate for a Corporate LLP to pay” for the administrative and solicitation costs of connected PAC? Second, if the rule is changed, what should the scope of an LLP’s restricted class be, i.e., who should the PAC be allowed to solicit and who should be allowed to contribute?
Commissioner Steven Walther, the sole dissenting vote in the 2008 Holland & Knight advisory opinion, put the current proposal forward. Tomorrow, the FEC will only decide whether to put the proposed new rule out for notice and comment.
It is unclear how many LLPs currently elect to be taxed as corporations, although the Holland & Knight advisory opinion indicates that at least one large law firm would be in a position to take advantage of such a rule change.