AO 2009-02: Independent expenditures by single member LLC

The True Patriot Network, LLC (TPN), a single natural person member limited liability company (LLC), may make independent expenditures subject to the limitations and disclosure requirements that apply to individuals.

Background

TPN is a limited liability company organized under the laws of the State of Washington. Nicolas Hanauer is the sole member and manager of TPN. As TPN’s manager, he has the “sole and exclusive right” to manage TPN’s affairs.

TPN plans to expand its activities to include communications that influence federal elections. Such communications would endorse and urge support for specific federal candidates and officeholders who share TPN’s principles and ideals. In undertaking these activities, TPN states that it will not coordinate with federal candidates or party committees.

Analysis

TPN may make independent expenditures, subject to the limitations and disclosure requirements that apply to individuals. An LLC is treated as a person under the Federal Election Campaign Act (the Act). 2 U.S.C. §431(11). As such, LLCs are subject to the Act’s provisions regarding contributions and expenditures made by persons. 2 U.S.C. §§431(8) and (9).

Commission regulations address LLCs in the context of the Act’s contribution limitations and prohibitions. The Commission generally treats contributions by LLCs consistent with the tax treatment that the entities elect under the Internal Revenue Code. An LLC that is treated as a partnership under the Internal Revenue Code is subject to the contribution limits that apply to partnerships. Similarly, an LLC that elects to be treated as a corporation by the Internal Revenue Service (IRS) is subject to the Act’s rules on corporate activity. 11 CFR 110.1(g)(3).

For federal income tax purposes, a single member LLC cannot elect to be classified as a partnership. It may either choose to be treated as a corporation or to be disregarded as an entity separate from its owner. 26 CFR 301.7701-3(a). Commission regulations provide that contributions by an LLC with only a single natural person member that does not elect to be treated as a corporation for federal income tax purposes “shall be attributable only to that single member.” 11 CFR 110.1(g)(4).

Since TPN is a single natural person member LLC that has not elected corporate tax treatment, TPN is subject to the contribution limitations of Mr. Hanauer, its sole member. The Commission has not previously determined whether or not expenditures by a single member LLC, like contributions, are attributable solely to the LLC’s single member. Under the circumstances presented here, the Commission concludes that they are.

As a result of the unity between Mr. Hanauer and TPN, any independent expenditures made by TPN shall be treated as if they were made by Mr. Hanauer. However, if circumstances change such that TPN could be construed as a “group of persons,” TPN may need to consider whether it may also be a “political committee” under the Act and Commission regulations. 2 U.S.C. §431(4)(A) and 11 CFR 100.5(a).

AO 2009-02: Date issued: April 17, 2009; Length: 4 pages.