April 22, 2022

Federal Election Commission Warns of Increased Scrutiny for LLC Contributions

Holland & Knight Eyes on Washington Blog
Samuel Brown
U.S. Capitol Building

The Federal Election Commission (FEC) last week sent an important signal that it will require full disclosure of contributions from limited liability companies (LLCs). With the rise of independent expenditure-only political committees (often referred to as "Super PACs"), LLCs have emerged as an important source of high-dollar contributions. Often, these contributions are attributed on campaign finance reports only to the LLC and not the LLC's ultimate owners or members.

Contributions from LLCs have historically been derided by campaign finance reform groups as "dark money." According to these reformers, LLCs have often functioned as shell companies, allowing wealthy donors to mask the true source of large contributions to Super PACs.

In a joint statement on April 15, 2022, four of the FEC's six commissioners announced that the Commission will enforce regulations requiring that certain LLC contributions be attributed up the chain to the LLC's owners or members. This is significant because a block of four Commissioners is sufficient to overcome the FEC's recent partisan divides and assess civil penalties or otherwise seek to enforce the law against both LLCs and the political committees that receive LLC contributions.

Notably, this development potentially affects a broad range of LLC contributions, not just those that are intended to obscure the true source of a contribution. FEC regulations address a number of scenarios in which an LLC contribution must be attributed to other parties, which turn on such issues as how the LLC elects to be treated for tax purposes and whether the LLC has a single natural-person member. In particular, LLCs that have a single natural-person member, and that have not elected to be treated as a corporation for tax purposes, will need to attribute any contributions to that member. LLCs that elect to be treated as a partnership for tax purposes, or that do not elect treatment as either a partnership or a corporation, will need to consider whether and to what extent contributions should be attributed up the chain of ownership and control.

Moreover, in light of the attention that is currently being paid to this issue, it is anticipated that campaign finance reform groups will continue to monitor FEC reports for LLC contributions and file complaints in cases where a contribution is attributed solely to an LLC. To mitigate these risks, political committees that receive LLC contributions should consider asking for additional information from the contributors so that the political committees can independently confirm how each contribution should be reported.

Related Insights