This section explains the debt settlement process for those SSFs wishing to terminate but with outstanding debts. It also explains the rules for corporations acting as creditors or commercial vendors to any political committee, including federal campaigns, political party committees and political action committees.
Eligibility for debt settlement
Only a terminating committee may settle its debts for less than the full amount owed to the creditors. A “terminating committee” is one that does not intend to raise contributions or make expenditures—except for the purposes of paying winding-down administrative expenses (if any) and retiring debts. (An ongoing committee—i.e., a political committee that does not qualify as a terminating committee—is not eligible for debt settlement and must continuously report debts until they are extinguished.)
Debts subject to settlement
The types of debts that are subject to debt settlement requirements include:
- Amounts owed to commercial vendors (including corporations);
- Debts arising from advances by individuals (e.g., SSF staff using personal funds or credit to purchase goods and services on behalf of the committee);
- Salary owed to SSF employees (if the SSF uses its own funds to pay salaries); and
- Loans owed to political committees or individuals.
Debt settlement rules
A commercial vendor (incorporated or unincorporated) may forgive or settle debts owed by an SSF without making a contribution if:
- Credit was initially extended in the ordinary course of business and the terms of the credit were substantially similar to terms extended to nonpolitical debtors of similar risk and of similar size of obligation;
- The committee undertook all reasonable efforts to satisfy the outstanding debt, such as fundraising, reducing overhead costs and liquidating assets; and
- The vendor made the same efforts to collect the debt as those made to collect debts from a nonpolitical debtor in similar circumstances. Remedies might include, for example, late fee charges, referral to a debt collection agency or litigation.
If the committee or the creditor (including a corporation acting as a commercial vendor) fails to take the appropriate steps described in the second and third bullets, the difference between the amount owed and the amount actually paid may be considered a contribution subject to limitation and source prohibitions (prohibited contribution if the vendor is incorporated).
No commercial vendor (including a corporation) or other creditor is required to forgive or settle debts owed by an SSF.
Debt settlement plans
After a terminating committee has reached an agreement with a creditor, the treasurer must file a debt settlement plan on FEC Form 8. The treasurer may use a separate form for each debt or may combine several debt settlements in one plan. Once the plan has been submitted to the Commission for review, the committee must postpone payment on the debt until the Commission has completed the review. Payments to creditors must be disclosed in the committee’s termination report.
Completing Form 8
Form 8 and step-by-step instructions for completing Form 8 are available. The Commission recommends that the committee include as many debts as possible in the plan and submit a separate Part II (second page) for each creditor along with Part I (cover page). The treasurer must also submit Part III (third page) to indicate how the committee intends to address other debts not included in the submission. The treasurer must sign and date the first page of Form 8. The creditor (including a corporation acting as a creditor) must sign and date the second page of Form 8 to indicate its acceptance of the settlement. Alternatively, the committee may attach a signed statement from the creditor containing the same information.
The Commission reviews each debt settlement plan to ensure compliance with the rule. Once the plan has been approved, the Commission sends a written notification to the committee. The committee must postpone payment to the creditor until the Commission has completed its review of that plan.
Reporting debts undergoing settlement
Debts undergoing settlement must be continuously reported until the Commission has completed its review of the committee’s debt settlement plan. The committee may file a termination report once all debts have been paid, settled, forgiven or otherwise extinguished. Payments to creditors must be disclosed on this report. The committee must include a statement as to the circumstances and conditions under which the debt or obligation was extinguished and the amount paid.
When filing a debt settlement plan, a terminating committee must describe any disputed debts and the committee’s efforts to resolve them on Part III of Form 8.
Forgiveness of debts owed by ongoing committees
A creditor, including a corporation, may forgive a debt owed by an ongoing committee if the creditor and the ongoing committee have satisfied the requirements of 11 CFR116.3 (extensions of credit by commercial vendors) or of 11 CFR 116.5 (advances by committee staff), whichever is appropriate; the debt has been outstanding at least 24 months; and:
- The creditor is unable, after reasonable diligence, to locate the ongoing committee; or
- The ongoing committee (1) has insufficient cash on hand to pay the debt; (2) has had receipts of less than $1,000 and disbursements of less than $1,000 during the previous 24 months; and (3) owes debts to other creditors of such magnitude that the creditor could reasonably conclude that the ongoing committee will not pay its particular debt.
Notification to Commission
A creditor, including a corporation, who intends to forgive a debt owed by an ongoing committee, must notify the Commission of its intent in writing. The letter must provide the following information:
- An explanation of how the committee has satisfied the forgiveness requirements;
- The terms of the initial extension of credit and a description of the terms under which the creditor has extended credit to similar nonpolitical debtors;
- A description of the candidate’s or the committee’s efforts to satisfy the debt;
- A description of the steps taken by the creditor to obtain payment, along with a comparison of those remedies with others pursued by the creditor under similar circumstances involving nonpolitical debtors; and
- An indication that the creditor has forgiven other debts involving nonpolitical debtors in similar circumstances, if any.
The Commission will review each proposal to forgive a debt to ensure that the creditor, the ongoing committee has complied with the requirements for debt forgiveness, as well as with the Federal Election Campaign Act’s contribution limits and prohibitions.