A state, district or local party committee that has established a nonfederal account may allocate certain expenses between its federal and nonfederal accounts. An allocation formula determines the federal and nonfederal portions of an expense. The federal portion must be paid from funds subject to the limits and prohibitions of the Act. 106.7(b).

See “Committee Bank Accounts,” for further information on federal, nonfederal and Levin accounts. For information on allocation of expenses for federal election activity (FEA), see the following chapter.

The categories of expenses listed below are subject to allocation.

Administrative Expenses

Administrative expenses must be allocated, including rent, utilities and office supplies, except when such expenses are directly attributable to a clearly identified candidate. 106.7(c)(2). Note that salaries are not allocable administrative expenses.

Generic Voter Drive Expenses (“Voter Drive Activity”)

Unless they otherwise qualify as federal election activity, expenses for voter registration, voter identification, get-out-the-vote drives or any other activity that urges the general public to register or to vote or that supports a political party without promoting or opposing any federal or nonfederal candidate may be allocated between federal and nonfederal accounts. 106.7(c)(5).

Exempt Party Activity

State, district and local party committees may allocate from their federal and nonfederal accounts expenses for exempt party activities that are conducted in conjunction with nonfederal activity and are not federal election activity from their federal and nonfederal accounts. 106.7(c)(3).

Fundraising Expenses

When one program or event is held to collect 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 must allocate the direct costs of the activity, including planning, administrative and solicitation costs.

Such expenses may be allocated provided that none of the proceeds will ever be used on FEA. 106.7(c)(4).

Candidate Support Expenses

Expenses for activities that are conducted on behalf of (or in opposition to) specific federal and nonfederal candidates must be allocated. 106.1(a)(2).

The amount allocated to a federal candidate is considered:

• An in-kind contribution;

• A coordinated party expenditure;

• An independent expenditure; or

• A disbursement for an exempt party activity.

Fixed Percentage Ratio

Used For:

Administrative expenses, generic voter drives and exempt party activities.

Note: any of the above activities that qualify as federal election activity must be paid for under unique rules. See Chapter 14 for more information.

Calculation:

Under this allocation ratio, the minimum percentage of federal funds depends upon which federal offices appear on the ballot during the relevant election year:

·       If both a Presidential candidate and a Senate candidate appear on the ballot, then at least 36 percent of the expenses must be allocated to the federal account;

·       If a Presidential candidate, but not a Senate candidate, appears on the ballot, then at least 28 percent of the expenses must be allocated to the federal account;

·       If a Senate candidate, but not a Presidential candidate, appears on the ballot, then at least 21 percent of the expenses must be allocated to the federal account; and

·       If neither a Presidential candidate nor a Senate candidate appears on the ballot, then at least 15 percent of the expenses must be allocated to the federal account. 106.7(d)(2)-(3)

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 or nonfederal candidates.

Calculation:

Costs are allocated according to the ratio of federal funds received to total receipts for the program or event.

To determine the portion of the costs attributable as an in-kind contribution—or coordinated party expenditure, if applicable—on behalf of a particular federal candidate, divide the amount received for the federal candidate by total receipts for all candidates. 106.1(a)(1) and 106.7(d)(4).

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 intial 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.)

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. 106.7(d)(4)(ii).

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. 104.17(b)(1)(iii).

Time or Space Ratio

Used For:

Communications that relate to federal and nonfederal elections and/or that support federal and nonfederal candidates, including direct candidate support activities, and that do not otherwise qualify as FEA or exempt party activity.

Note: Many communications will be considered FEA or exempt party activity or both. In those cases, the committee may not use the time/space allocation ratio.

Calculation:        

Costs are allocated according to the ratio of space or time devoted to federal candidates compared with the total space or time devoted to all candidates, federal and nonfederal. In the case of a phone bank, the ratio is determined by the number of questions or statements devoted to federal candidates compared with the total number of questions or statements for all candidates (or elections). 106.1(a)(1).

To determine the portion of the costs attributable as an in-kind contribution, coordinated party expenditure or independent expenditure on behalf of (or in opposition to) a particular federal candidate, divide the space/time devoted to that candidate by the total space/time devoted to all candidates. 106.1(a)(1).

Unique Identifier:

Because the allocation ratios will vary with each candidate support activity, committees are required to assign a unique title or code to each activity and to use that identifier consistently when reporting the activity. 104.17(a)(1).

Payment from Federal or Allocation Account

A party committee must pay the entire amount of an allocable expense from the federal account; it may transfer funds from the nonfederal account to the federal account solely to cover the nonfederal share of each allocable expense. 106.7(f)(1).

Alternatively, 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. 106.7(f)(2).

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. 106.7(f)(2).

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. 106.7(d)(4)(ii).

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. 102.5(a)(1)(i).

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 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 Act. The federal transfer to the nonfederal account must be made within the 60-day time limit explained above.

Required Forms

• Schedule H1—Allocation Ratio for Administrative, Voter Drive Expenses, Exempt Activity Costs and Federal Election Activity

• Schedule H3—Transfers from Nonfederal Account

• Schedule H4—Payments for Allocable Expenses

Allocation Ratio (H1)

A state or local party committee uses Schedule H1 to state its fixed percentage allocation ratio at the beginning of each calendar year.

Nonfederal Transfers (H3)

Each reporting period, the committee discloses transfers from the nonfederal account to the federal (or allocation) account to pay the allocated nonfederal portion of administrative, voter drive and exempt activity costs. As previously noted, transfers must be made within a 70-day window (no more than 10 days before or 60 days after an allocated payment is made).

The total amount of transfers itemized on Schedule H3 is entered on Line 18(a) of the Detailed Summary Page.

Payments (H4)

Each reporting period, the committee uses Schedule H4 to itemize all payments for administrative, voter drive and exempt activity costs, showing the allocated federal and nonfederal shares.

The federal and nonfederal payment totals that appear on Schedule H4 are entered on Lines 21a(i) and (ii) of the Form 3X Detailed Summary Page.

Phone banks

In some cases, phone banks have their own allocation rules. See here.

Example

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 $10,000 on “Memorial Day Gala.”

Required Forms

• 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, as shown in the illustration.

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” ($7,000). 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.)

Payments (H4)

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. 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.

This section discusses how to report direct candidate support which is an in-kind contribution. However, direct candidate support may instead be a coordinated party expenditure, independent expenditure or exempt party activity. Each type should be reported accordingly.

Example

The Freedom Party State Committee decides to sponsor a limited mailing urging support of two federal candidates (a U.S. House candidate and a U.S. Senate candidate) and three nonfederal candidates. The committee pays $1,000 to design and mail the 300 letters.

Note: Because the mailing is less than 500 letters in thirty days, it does not qualify as a public communication. Had the communication qualified as a mass mailing and supported a federal candidate, then it would have been considered FEA and its cost would be paid for entirely with federal funds.

Required Forms                 

• Schedule H2—Allocation Ratios

• Schedule H3—Transfers from Nonfederal Account

• Schedule H4—Payments for Allocable Expenses

• Schedule B for Line 23—Contributions to Federal Candidates

Allocation Ratio (H2)

The committee uses Schedule H2 to disclose the allocation ratio for “June Mailing” (the unique identifier). The federal allocation percentage is calculated using the time/space method (ratio of time/space devoted to federal candidates to total time/space devoted to all candidates). In this case, 40 percent of the total space is devoted to federal candidates, so the ratio is 40 percent federal and 60 percent nonfederal.

Nonfederal Transfer (H3)

The committee discloses the transfer from the nonfederal account to pay the allocated nonfederal portion of “June Mailing” costs. As previously noted, a transfer must be made no more than 10 days before or 60 days after payment is made.

The total amount of transfers itemized on Schedule H3 is entered on Line 18(a) of the Detailed Summary Page.

Payments (H4 and B)

The committee uses Schedule H4 to itemize the two payments for “June Mailing” Because the allocated federal shares result in contributions in-kind, they are itemized as memo entries with cross references to Schedule B for Line 23, where the in-kind contributions are itemized.

The Schedule B entries include the amounts allocable to each federal candidate, also based on the time/space method. In this case, the committee allocates 50 percent of the federal payment to each candidate.

Nonfederal payments disclosed on Schedule H4 are entered on Line 21a(ii) of the Form 3X Detailed Summary Page. The Schedule B total is entered on Line 23.

The sample forms in this section show:

• How to report a nonfederal transfer that covers nonfederal payments for several allocable activities; and

• How to report a payment to one vendor for several categories of expenses.

Schedule H3

The Schedule H3 here shows how to report transfers received from a nonfederal account to pay for different categories of allocable expenses.

The $15,000 transfer covers the following allocable expenses:

• A voter registration drive;

• A direct fundraising event (“Big Gala”); and

• An exempt party activity (“Johnson/Smith Posters”).

Schedule H4

The Schedule H4 here shows how to report a payment covering expenses for:

• The generic voter registration drive;

• The “Big Gala” fundraiser; and

• The “Johnson/Smith Posters” exempt party activity.

If a committee receives a refund or a rebate of an allocable expense, the refund or rebate must be deposited in the federal or allocation account. The refund or rebate must then be allocated between the federal and nonfederal accounts according to the same allocation ratio used to allocate the original disbursement. The federal account must transfer the nonfederal portion to the nonfederal account.

Example

A committee receives a $400 rebate on office equipment from the Acme Office Store. The original purchase was an administrative expense allocated according to the following ratio: 64 percent federal; 36 percent nonfederal.

Reporting Method 1 illustrates how this rebate would be reported according to the method approved in Advisory Opinion (AO) 1995-22. Reporting Method 2 shows how the rebate would be reported under an alternative method.

Reporting Method 1

Using the method of reporting described in AO 1995-22, the committee discloses the receipt of the rebate and the federal and nonfederal shares on Schedule H4. The amounts are negative entries subtracted from total shared federal and nonfederal disbursements for the reporting period (disclosed on Lines 21a(i) and (ii) of the Detailed Summary Page).

Reporting Method 2

Under the alternative method, the committee reports the receipt of the $400 rebate under the category “Offsets to Operating Expenditures” on Line 15 of the Form 3X Detailed Summary Page. The committee uses Schedule H4 to disclose the federal account’s $256 transfer to the nonfederal account for the nonfederal share.

While contributions from corporations, labor organizations and federal government contractors are prohibited under federal law, they are permissible under some state laws. If that is the case, such donations may be accepted by a nonfederal account for strictly nonfederal activity. However, the situation is more complicated when donations of goods or services from such sources are made in connection with allocable activity, such as a fundraiser at which both federal and nonfederal funds are collected.

In AO 1992-33, the Commission explained how a committee can legally accept an in-kind donation from a prohibited source in connection with an allocable administrative or fundraising activity. Note that the Commission has not addressed the receipt of in-kind donations from prohibited sources for the other types of allocable expenses (i.e., generic voter drives and candidate support activity).

Advance Payment of Federal Share

To avoid the receipt of a prohibited contribution by the federal account, that account must pay the nonfederal account for the federal share of the in-kind donation. This payment—a transfer to the nonfederal account—must be made in advance or on the date the goods or services are received.

Per-Transaction Transfers

The federal transfer may be made on a per-transaction basis—that is, shortly before or on the same day the in-kind donation is received.

Escrow Transfers

Alternatively, the federal account may make bulk transfers to cover the federal share of anticipated in-kind donations. Under this “escrow” arrangement, a committee makes a good faith estimate of the amount of in-kind donations that it expects to receive and transfers sufficient funds from the federal account to cover the federal share.

Adjustments

Should the federal account pay more than its share of an in-kind donation, adjustment transfers from the nonfederal account are permissible.

Basic Reporting of In-Kind Donations: Example

On October 1, a state party committee receives a $5,000 in-kind donation of flowers from a corporation for a federal/nonfederal fundraiser (“Chairman’s Gala”). The estimated allocation ratio for the fundraiser is 50 percent federal and 50 percent nonfederal. That same day, the federal account transfers its share of the in-kind donation ($2,500) to the nonfederal account.

Required Forms

• Schedule H2—Allocation Ratios

• Schedule H3—Transfers from Nonfederal Account

• Schedule H4—Payments for Allocable Expenses

Schedule H3—Receipt of In-Kind Donation

The committee reports the receipt of the in-kind donation as a transfer from the nonfederal account for the “Chairman’s Gala” fundraiser. The date used here is the date the committee received the flowers.

“Disbursement” of In-Kind Donation (H4)

Like in-kind contributions, in-kind donations must be reported as both receipts and disbursements so as not to inflate the cash-on-hand balance. (The disbursement side reflects the use or “expenditure” of the resources.) Schedule H4 is used for the disbursement entry, which shows the $5,000 in-kind donation as a 100 percent nonfederal disbursement. The donor’s name and address is disclosed in the box generally used for payees.

Transfer from Federal Account (H4)

The second entry on Schedule H4 shows the contemporaneous transfer of $2,500 (the federal share of the donation) from the federal account to the nonfederal account. The explanation of the transfer is described in the “Purpose” box, with a reference to the previous entry.

Alternative Reporting Method

To minimize entries and avoid duplication, a committee may use alternative methods to report transactions relating to in-kind donations.

The committee may use one entry on Schedule H3 to show the receipt of all in-kind donations made within the same reporting period for a particular fundraising program or event (or administrative activity).

The committee may also use one entry on Schedule H4 to show total federal payments (transfers) made on the same day for the federal share of in-kind donations.

Example

A committee receives two in-kind donations from prohibited sources for a mixed federal/nonfederal fundraising event, “July Fundraiser”:

• Invitations donated by XYZ Printing (value: $3,000) received on July 1; and

• Balloons donated by Balloons!, Inc. (value: $1,000) received on July 15.

The fundraising ratio for “July Fundraiser” is 50 percent federal, 50 percent nonfederal. The federal account transfers its $2,000 share of the two donations on July 1.

Schedule H3—Receipt of In-Kind Donations

The committee uses one entry on Schedule H3 to show the total in-kind donations for “July Fundraiser” received during the reporting period. The “date of receipt” shows the period during which the committee received the contributions. The “July Fundraiser” entry cross references the Schedule H4 entries showing the “disbursement” of the donations and the identity of the contributors.

Schedule H4—“Disbursement” of Donations; Federal Transfer

Schedule H4 shows the “disbursement” of the two in-kind donations by the nonfederal account, each entry identifying the donor and the dates the donations were received.

The third entry shows the federal account’s payment for its 50 percent share of the two donations and the date of the transfer to the nonfederal account. The entry refers to the previous two entries to show the transfer relates to those transactions.

“Escrow” Transfer

Advance transfers from the federal account to the nonfederal account to pay the federal share of anticipated in-kind donations for allocable activities are reported on Schedule H4 as federal share payments. If known, the particular activity (fundraising program/event or administrative) to which the transfer applies should be noted. Any adjustment payments made from the nonfederal account to the federal account would appear on Schedule H3, noting the previous H4 entries to which they relate.