When one program or event is held for the purpose of collecting both federal funds (i.e., funds to be used in federal elections) and nonfederal funds (i.e., funds to be used in nonfederal elections), the sponsoring committee may allocate the direct costs of the activity, including planning, administrative and solicitation costs. The direct costs may be paid by a combination of federal and nonfederal funds.
Such expenses must be allocated pursuant to the “funds received” method. This method is described in detail.
Paying for allocable fundraising expenses
Funds received ratio – Fundraising expenses
Used for: The direct costs of each fundraising program or event in which the committee collects both federal and nonfederal funds. This method is also used to allocate the direct expenses of a fundraiser for multiple federal and nonfederal candidates.
Costs are allocated according to the ratio of federal funds received to total receipts for the program or event.
The allocation ratio is estimated before making payments for the program or event, based on a reasonable prediction of receipts. The committee has up to 60 days after the ending date of the program or event to:
- Adjust the ratio based on the actual funds received; and
- Transfer funds from the nonfederal account to the federal (or allocation) account based on the adjusted allocation percentage.
Should additional federal receipts come in after the 60-day period, further ratio adjustments and reimbursements from the federal account to the nonfederal account will be necessary. The committee must note the initial ratio and adjustments in its reports. (Federal law permits the federal account to pay more than its share of an allocable expense. However, overpayments by the nonfederal account are illegal. See “Transfers from federal account.”)
For purposes of the 60-day time period, the last day of an event is either the final day of a telemarketing campaign or the day on which final direct mail solicitations are mailed.
Assigning a unique identifier
Because the allocation ratios will vary with each fundraising activity, committees are required to assign a unique title or code to each program or event and to use that identifier consistently when reporting the activity.
Payment from federal or allocation account
There are two ways to make payments for allocated expenses:
- A party committee may pay the entire amount of the expense from the federal account. It may then transfer funds from the nonfederal account to the federal account solely to cover the nonfederal
share of each allocable expense; or
- A party committee may establish a separate federal account—called an allocation account—solely for the purpose of paying allocable expenses. The committee transfers funds from its federal and nonfederal accounts to the allocation account in amounts
equal to the federal and nonfederal shares of each allocable expense.
Transfers from nonfederal account
Transfers from the nonfederal account to pay the nonfederal portion of an allocable expense must be made within a 70-day window: no more than 10 days before or 60 days after the day the federal account (or allocation account) makes the payment. Transfers of nonfederal funds to the federal account must be reported on Schedule H3 of Form 3X.
Exception: If the nonfederal account transfers additional funds to the federal or allocation account due to an adjusted allocation ratio for a fundraising event, the transfer must be made within 60 days after the date of a fundraising program or event.
Note that transfers from a nonfederal account to pay its allocated share of expenses are an exception to the overall ban on nonfederal transfers to a federal or allocation account.
Transfers from federal account
If an adjusted ratio for a fundraising event results in an increased federal portion, the federal account must transfer to the nonfederal account, as necessary, the increased share of federal fundraising payments. This is required because a nonfederal overpayment of an allocated expense, if left uncorrected, is a violation of the Federal Election Campaign Act (the Act).
Reporting allocated committee fundraising expenses
The Freedom Party State Committee raises money for its federal and nonfederal accounts at a banquet called “Memorial Day Gala” (the unique identifier). People buying tickets must designate their checks as either federal contributions (subject to the limits and prohibitions of the Act) or nonfederal contributions (subject to applicable state law). People wishing to contribute to both accounts must write separate checks to each account. The Freedom Party State Committee spends $50,000 on “Memorial Day Gala.”
- Schedule H2—Allocation Ratios
- Schedule H3—Transfers from Nonfederal Account
- Schedule H4—Payments for Allocable Expenses
Estimated fundraising ratio (H2)
A committee raising money for both its federal and nonfederal accounts through the same fundraising activity allocates the costs directly associated with the program or event according to the “funds received” method (ratio of federal funds received to total funds received). In the first reporting period in which money is spent on “Memorial Day Gala,” the Freedom Party State Committee estimates the ratio on Schedule H2. The committee must continue to file Schedule H2 with each report disclosing a disbursement for “Memorial Day Gala.”
Nonfederal transfer (H3)
Using Schedule H3, the Freedom Party State Committee reports the transfer received from the nonfederal account to pay the nonfederal portion of “Memorial Day Gala” ($35,000). The unique identifier is again noted.
(The total amount of transfers itemized on Schedule H3 is entered on Line 18(a) of the Detailed Summary Page.)
The committee discloses the federal and nonfederal shares of “Memorial Day Gala” payments on Schedule H4, again using the unique identifier.
(The federal and nonfederal payments totals that appear on Schedule H4 are entered on Lines 21a(i) and (ii) of the Detailed Summary Page.)
Adjusted ratio (H2)
Within 60 days after the last day of the program or event, the committee needs to adjust the allocation ratio to reflect the actual ratio of federal receipts to total receipts. The committee reports the adjusted ratio on Schedule H2. Note that the committee must disclose the date of a fundraising program or event when reporting an adjustment to the ratio.
(Further ratio adjustments will be necessary if additional receipts come in.)
Federal transfer (H4)
If the adjusted ratio increases the federal portion, the federal (or allocation) account must make a transfer to the nonfederal account for the nonfederal overpayment. See “Transfers from federal account.” The date of the program or event must be noted when reporting a transfer based on an adjusted ratio.
Adjusted ratio (H2) nonfederal transfer (H3)
If the adjusted ratio increases the nonfederal portion, the nonfederal account may transfer the additional amount to the federal account if it does so within 60 days after the date of the event. Nonfederal transfers are itemized on Schedule H3. The date of the program or event must be noted when reporting a ratio adjustment or a corrective transfer.