AO 2012-09: Partnership may establish conversion program to turn loyalty points into political contributions

A limited liability company may establish an online program in which participants in corporate-sponsored loyalty programs would convert loyalty “points” or rewards into monetary equivalents and contribute them to candidates, their authorized committees and other political committees.

Background

Points for Politics is a for-profit limited liability company that has chosen to be taxed as a partnership for Federal income tax purposes. It has created and wishes to implement a proprietary technology and business system that would enable individuals who participate in corporate-sponsored loyalty programs to convert rewards earned from their participation in the form of “points” into dollar equivalents. Individuals could then contribute these converted points to candidates, their authorized committees and other political committees. Points for Politics is not a loyalty program; its proposed program would only allow individuals to convert loyalty “points” into monetary equivalents to make contributions to political committees.

Points for Politics has patented a process, using an online web portal, that can convert customers’ points into political contributions to candidates and political committees. To convert loyalty points into political contributions, an individual would access the Points for Politics portal, either through the loyalty sponsor’s or the political committee’s website, and instruct the loyalty sponsor to redeem his or her loyalty points. The individual would identify the intended recipient of the contribution and the amount of the contribution. He or she would be prompted to confirm his or her eligibility to contribute, including attesting to his or her status as either a U.S. citizen or a permanent resident of the U.S., and that the points used to make the contribution are owned by the individual. The portal will then tell the individual how many loyalty points are required to make the desired contribution, based upon the loyalty sponsor’s conversion rate of points to dollars. Once the individual reaffirms the dollar amount, the portal redeems the points from the sponsor and converts the points into dollars. The loyalty sponsor will then transfer the funds to a Points for Politics segregated account reserved for political contributions. Within ten days, Points for Politics will transmit the funds, minus a ten percent processing fee, and records, including information on the contributor’s name, address, employer, occupation, the gross amount of the contribution and the fundraising cost reflected in the processing fee, to the political committee.

Analysis

Points for Politics asked the Commission to consider the permissibility of its proposed plan to convert corporate-sponsored loyalty rewards into monetary equivalents for contributions to candidates, their authorized committees and other political committees. The company also asked whether the implementation of the proposed program would constitute a contribution by Points for Politics to the recipient political committees. The Commission determined that Points for Politics may implement its program as described without making a contribution to any candidate, authorized committee or other political committee.

The Commission determined that the Points for Politics proposal is similar to the proposal offered in AO 2007-04 (Altatl), wherein Altatl Inc. provides contribution processing and transmittal services for committees. Points for Politics proposes to convert loyalty points to make contributions; the program itself will not generate or create a loyalty program or other affinity-type arrangement. Thus, Points for Politics will be acting in a similar capacity as Altatl, Inc. by offering contribution processing and transmittal services.

Points for Politics’ proposal could be seen as providing services both to contributors and to political committees under its analysis in previous advisory opinions. The Commission assumed for the purpose of analysis that the services are being provided to political committees and considered Points for Politics’ status as a commercial vendor. Although Points for Politics is a limited liability company that opts for tax treatment as a partnership, and thus is eligible to make contributions as a partnership, the services it provides as a commercial vendor do not constitute a contribution. 11 CFR 110.1(g)(2).

To determine Points for Politics status as a commercial vendor, the Commission reviewed the three commercial vendor criteria: first, the service rendered is in the ordinary course of business at the usual and normal charge; second, the vendor forwards contributions to candidates and political committees through segregated accounts; and third, the vendor employs adequate screening procedures to ensure that it is not forwarding illegal contributions. See, e.g., Advisory Opinion 2007-04 (Atlatl); 2004-19 (Dollar Vote).

Points for Politics satisfies all three criteria. First, Points for Politics charges a processing fee--ten percent--in the ordinary course of business that includes compensation for the cost of the technology and service that converts reward points into dollar equivalents. Further, Points for Politics represents that its fee is within the normal range of similar financial transactions that involve processing contributions to political committees. Second, Points for Politics places the funds that the loyalty sponsor transmits to it in a segregated account, separate from partnership funds, created for the purpose of holding contributions before transmittal to recipient committees. Third, Points for Politics represents that it will subject contributions to screening on its portal to ensure both that they are not excessive and that they are not from prohibited sources.

Thus, the Commission concluded that Points for Politics may implement its online web portal program to convert participants’ loyalty points into monetary equivalents to make contributions to candidates, their authorized committees and other political committees.             

Date issued: April 27, 2012; Length: 8 pages.

Resources:

• Advisory opinion 2012-09 [PDF; 5 pages]
• Commission discussion of AO 2012-10