AO 2005-15: Termination and reorganization of state party committee

The Republican State Executive Committee of West Virginia may terminate and create a new state party committee incorporated as a non-profit corporation solely to limit liability. The Committee may terminate only after it has settled its outstanding debt or assigned its debt to the new incorporated state party committee.

Background

The Republican State Executive Committee of West Virginia (“the Committee”) is a state party committee registered with the Federal Election Commission. The Committee plans to terminate and re-establish itself as a non-profit corporation that would not be subject to the prohibition on contributions and expenditures in connection with federal elections. 2 U.S.C. §441b and 11 CFR §114. In connection with the plan, the Committee asked the Commission whether it may:

• Create a new state party committee incorporated for liability purposes (the “incorporated committee”); and
• Terminate as a committee and transfer funds in its account to the new incorporated state party committee.

Incorporating for liability

Federal law and regulations allow a political committee to incorporate for liability purposes only without being subject to the prohibition on corporate contributions and expenditures. 11 CFR 100.5 and 114.12(a). Accordingly, the Commission determined that the Committee may create a new state party committee incorporated for liability purposes only without being subject to the corporate prohibition.

Transfer of funds and termination

Federal law and regulations permit unlimited transfers of funds between party committees of the same political party. 11 CFR 110.3(c)(1). Because the Committee and the newly established incorporated committee would be considered to be affiliated party committees, the Committee may transfer any remaining funds to the new incorporated committee before terminating.

Prior to making such a transfer, the Committee must satisfy the requirements for termination. The Committee must file a termination report on FEC Form 3X. In accordance with FEC regulations, a committee may not terminate if it has outstanding debts or obligations. Because the Committee currently has outstanding debts, it cannot terminate at this time. AO 1994-35. Instead, the Committee may assign all of its debts to the new incorporated committee, then terminate. In this case, the new incorporated committee would report the transferred debts on Schedule D of its next FEC report. The Commission noted that the Committee is not required to terminate in order to incorporate for liability purposes.

The Commission expressed no opinion regarding the application of the Internal Revenue Code or West Virginia law to the Committee’s proposal, as those topics are not within the Commission’s jurisdiction.

Date Issued: October 20, 2005; Length: 5 pages