Form 323 - Kissing the SUFRN Good-bye?

FCC proposal would abandon “special use FRNs” in Ownership Reports, require social security number-based FRNs instead . . . for noncommercial licensees, too!

If you’ve got an “attributable interest” in a broadcast licensee, you might want to make sure that you’ve got your social security number (SSN) handy. The FCC is trying – again – to insist that all attributable interest holders provide SSN-based FCC registration numbers (FRNs) when the time comes to file biennial Ownership Reports on FCC Forms 323 (for commercial licensees) and 323-E (for noncommercial licensees). 

In a Sixth Further Notice of Proposed Rulemaking (6th FNPRM) the Commission has proposed deep-sixing the “special use FRN” (SUFRN, as in “SUFRN succotash”) alternative that has been available since the July, 2010 filing of the biennial Form 323. The Commission has also proposed expanding the SSN-based FRN requirement to Form 323-E for noncoms, which would meant that folks on the controlling boards of NCE stations would have to get SSN-based FRNs. And the Commission has also renewed a proposal first bandied about in the Fifth Further Notice of Proposed Rulemaking (5th FNPRM) back in 2009. (In the nearly four years since the 5th FNPRM, that proposal – which would expand the FRN reporting requirement even more – apparently never made it to the Federal Register . . . until now!)

So long, SUFRN?

The history of the FCC’s efforts to require the reporting of SSN-based FRNs by all attributable interest holders in commercial licensees makes for fascinating reading. Unfortunately, the summary of those efforts as set out in the 6th FNPRM is not entirely accurate; it misses a lot of important details concerning the provenance of SUFRNs, a device made available for those not interested in providing their SSNs to the FCC. If you need to brush up on things, let us refer you to our fine collection of posts on the topic. (Note: when you click on the link, the posts – about a couple dozen – will appear in reverse chronological order, so be sure to scroll down to the May, 2009 entries before you start reading.) For a quick synopsis, check out this post, and for a good chuckle, check out this one.

In a nutshell, back in 2009 the FCC tried to insist that all attributable interest holders in commercial broadcast licensees would have to provide SSN-based FRNs. The universe of “attributable interest holders” is vast; it includes all general and many limited partnership interests, all members of LLC licensees, holders of five percent or more of a corporate licensee’s stock, and all officers and directors of a licensee. But wait, there’s more. That universe also includes individuals and entities who hold indirect interests in broadcast licensees, i.e., through intermediate holding companies. (Possibly helpful illustration: if Corporation A happens to own a 20 percent ownership interest in a corporate licensee, then all of Corporation A’s officers, directors and 25 percent or greater shareholders would be deemed to hold attributable interests in the licensee.)

Prior to 2009, a licensee had generally been responsible for, at most, its own FRN. But with the revised Form 323 introduced in 2009, that changed dramatically. Suddenly – and we do mean suddenly, since the Commission sprang the revised form on the broadcast industry in mid-August, 2009, without having made it available for public review beforehand – commercial broadcasters would have to obtain and report SSN-based FRNs not only for the licensees themselves, but also for all their attributable interest-holders. That would impose a substantial burden on many, possibly most, licensees. It also gave rise to legitimate privacy concerns. In this day and age of identity theft, we are all taught not to hand out our SSNs unnecessarily.

Not surprisingly, considerable opposition to the mandatory reporting of SSN-based FRNs arose, despite the fact that the Commission seemed bent on minimizing the opportunity for any public comment. Faced with serious resistance, the Commission initially (in December, 2009) announced that SUFRNs could be used by licensees to report interest holders for whom the licensee could not obtain SSN-based FRNs as of the deadline for filing the Ownership Report. But the licensee would still be obligated to obtain and report SSN-based FRNs for all its attributable interest holders.

Fletcher Heald, joined by a number of state broadcast associations, took that requirement to court. The day our petition was filed, the FCC announced that it was postponing the then-imminent Ownership Report deadline indefinitely. Coincidence? You make the call.

By May, 2010, the requirement was still with us, and the new filing deadline was fast approaching. Back to court we went. This time the court ordered the Commission to respond to our petition. Two days after that order came down, the FCC revised Form 323. Coincidence? You make the call. In so doing, the Commission didn’t bother to tell anybody other than the Office of Management and Budget, which rubber-stamped the change.  

The Commission then paraded into court, pointing to its revised form without mentioning to the court that the ink was still wet on the revised version. The court eventually denied our petition, but only based on the revised version of the form, which the court interpreted to say that no individual attributable interest holder would be required to submit an SSN-based FRN if he/she preferred not to. So even though our petition was technically “denied”, we had largely achieved the result we wanted.

The biennial Form 323 filings went in in 2010 and 2011 (yes, it really was “biennial”, since the 2010 report related back to 2009) without apparent problems. But now, with the 6th FNPRM, the Commission is proposing to eliminate the SUFRN option.

Why? It’s not entirely clear. The Commission speaks generally about the need to “facilitate long-term comparative studies” of broadcast “ownership”. It sees SSN-based FRNs as “essential to providing the kind of searchable and manipulable database needed to support accurate and reliable studies of ownership trends.” And now we learn that, apparently, the “fundamental objective” of the biennial Ownership Report is to “track trends in media ownership”.

As far as we know, the FCC’s interest in studying “ownership trends” is of extremely recent vintage, as is the notion that that activity is the “fundamental objective” of Ownership Reports. But even if we indulge the Commission on this point for the moment, serious questions remain about the proposal to toss the SUFRN option.

For example, the Commission seems to think that reliance on an SSN-based system will assure greater accuracy than any alternative. But that assumes that everyone obtaining an SSN-based FRN provides accurate input. That’s not necessarily a given: the potential for inadvertent slip-ups always exists, as does the possibility that folks who prefer not to provide their SSN might intentionally mis-enter it in the CORES system. How can the FCC police against that? Also, if you’re familiar with CORES, you know that it’s possible to get an FRN without entering an SSN at all. For example, you can simply indicate that you have applied for an SSN (the assumption being that you haven’t yet received it), and bingo, you can get yourself an official FRN without an underlying SSN. (In a footnote to the 6th FNPRM, the FCC itself acknowledges that the CORES FRN system can be circumvented and requires accurate input from users.)

So the FCC’s insistence on the virtues of an SSN-based approach to FRNs seems a bit over-stated.

So, too, does the Commission’s insistence on getting data from all attributable interest-holders. While rounding up that universe of respondents will for sure provide an incredibly comprehensive snapshot of essentially all participants in the broadcast industry, is that really necessary? What difference does it make if Joe and Loretta Six-Pack happen to own a five percent, or even ten percent, interest in their brother-in-law’s station down the block? Who cares if, strictly for purposes of convenience (e.g., for signing the occasional corporate document for regulatory purposes), a broadcast president/CEO has appointed one of her office staff to serve as “Assistant Secretary” of the licensee corporation? If the FCC’s goal is to chart and monitor the major veins and arteries of the broadcast industry, why bother scanning down to the capillary level, especially when that imposes a substantial burden on the scannees?

And let’s not forget the legitimate privacy concerns of everyone who would have to get an SSN-based FRN. One’s SSN is normally viewed as among the crown jewels of one’s array of personal identifying information. We are frequently encouraged not to provide our SSN unnecessarily.

The FCC initially began collecting SSNs only from those who “do business with” the Commission, as a mechanism to facilitate debt collection. While that might be a valid basis for SSN collection, does it have anything at all to do with Joe and Loretta Six-Pack or the Assistant Secretary who happens to hold a corporate officership simply for convenience purposes? The Commission can’t claim with a straight face that it might try to go after such bit players for regulatory obligations incurred by the licensee.

BTW, if you’re not sure how serious the FCC is about enforcing an SSN-based FRN requirement, check this out. According to the 6th FNPRM, if an attributable interest holder is unwilling to provide an SSN-based FRN for inclusion in an Ownership Report, the Commission will apparently expect the licensee to “report the recalcitrant attributable interest holder” so that the FCC can “use its enforcement authority to impose a forfeiture against such individuals”.   Translation (cue sinister music, lower lights menacingly): “We have our ways to get the information we want. Bwahahahaha.” Exactly how such individual forfeitures could be justified is unclear, since (as the FCC admits), its rules don’t currently require attributable interest holders to have FRNs at all. We’re guessing that that wouldn’t stand in the FCC’s way, though, at least until the matter got to court.

In summary, the FCC appears still to be wedded to the SSN-based FRN reporting requirement that it attempted to foist on the broadcast industry in 2009. That initial attempt was foiled, thanks primarily to the fact that the Commission ignored a number of obvious procedural niceties in its headlong rush to impose the requirement. But now, more than three years later, the Commission is taking a more deliberative approach presumably designed to avoid the problems it ran into the last time around. 

While we may all agree that the Commission’s proposal is flawed in a lot of ways, we must face the fact that, unless somebody comes up with an acceptable alternative, the FCC seems bound and determined to toss out the SUFRN option and to insist on SSN-based FRNs from all attributable interest-holders of each licensee. So now’s the time to put your thinking caps on. It’s hard to imagine that a suitable alternative can’t be devised, even if the FCC seems resistant to that notion. Here’s hoping that comments in response to the 6th FNPRM will provide such alternatives.

Non-coms in the FRN cross-hairs?

Also out for comment in the 6th FNPRM is a proposal that the SSN-based FRN reporting requirement be extended to attributable interest holders in noncommercial licensees. The NCE universe dodged this particular bullet back in 2009, although the issue was then teed up in a Fourth Further Notice of Proposed Rulemaking (4th FNPRM). The Commission is now soliciting more comments on it – even though, in response to the 4th FNPRM members of the public broadcasting community severely criticized it. 

Other proposals

Additionally, in the 6th FNPRM the Commission suggests that the biennial ownership reporting requirement be expanded to include entities and individuals whose interests are not otherwise attributable. If their non-attributability arises from either (a) the single majority shareholder exemption or (b) the exemption for interests held in “eligible entities” subject to a higher EDP threshold, then that non-attributabiltiy would go away under the FCC’s proposal.  (This proposal first saw the light of day back in 2009, but has not been actively pursued, until now.)

The Commission is also suggesting that the filing date for biennial Ownership Reports should be shifted back a month, to December 1 (although the “as of” date would remain October 1). The Commission probably thinks that giving broadcasters an extra 30 days to prepare their reports is doing them a favor, but hold on there. December 1 arrives immediately after the Thanksgiving holiday, and coincides with multiple other filing deadlines. Why not pick a date – July 1, for instance – that would not be similarly encumbered. Further, it’s not uncommon for broadcast transactions to be timed to close as of the December 31 of any given year. That being the case, ownership data accurate as of October 1 would often be inaccurate a mere 90 days later. For that reason a mid-year reporting deadline (again, July 1 springs to mind) might be preferable all around.

In any event, the 6th FNPRM has been published in the Federal Register, as a result of which the deadlines for comments have been established. Comments on the various proposals are due to be filed by February 14, 2013 (Happy Valentine’s Day!), and reply comments are due by March 1.

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Comments (1) Read through and enter the discussion with the form at the end
Tom Taggart - January 18, 2013 7:30 PM

Typical power mad bureaucrats who demand compliance without any consideration of what the information is to be used for, or whether the information gathered will ever serve any useful purpose.

Commercial stations: How low a interest would need to be reported? 5%? 1%? Rapidly becomes ridiculous...Congress recently passed a law allowing S corporations to have as many as 100 members to encourage business investment..kind works at cross purposes to then have to harvest 100 SSN's.

Foreigners can hold a small interest in broadcast stations--under 20% as I recall. How are they going to supply an SS number (although I suppose there is a way to get a TIN for an individual).

Non-Coms: I did an LPFM app for a small college with 23 trustees..if the Commission's intention is to destroy college broadcasting this would seem an effective tool.

Same problem here with foreigners on such boards--another college with an LPFM (religious based school) had two Canadians on its 15 member board.

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