Happy holiday season! We even had a snow day here in D.C. this week that helped to boost our festive spirits.
Council President Responds to Critical New York Times Op-Ed
Ray Madoff’s New York Times op-ed characterizes the charitable deduction as “wasteful,” and brings up an idea—one that we’ve heard before—that some nonprofits are more “charitable” than others. Supporters of this concept would establish a hierarchy, or ranking of charitable causes or organizations, to determine which are “charitable” and deserving of tax benefits. Madoff also critiques donor advised funds (DAFs), saying that they “don’t do any charitable work themselves.”
In the Council’s letter to the New York Times editors responding to Madoff’s piece, President & CEO Vikki Spruill notes that Madoff’s academic perspective contrasts starkly with the experience of those on the front-line of the sector. “[F]or people in communities across the country who rely on nonprofit services everyday—the charitable deduction is a lifeline,” Spruill told the editors. She further emphasizes the value of DAFs as a giving tool: “DAFs enable donors to make sustained, strategic investments in their communities,” she emphasized.
Nonprofit Quarterly joined in critiquing Madoff’s pieces, calling her arguments “simultaneously compelling and confusing” because she wants to eliminate overall wasteful spending through the charitable deduction, yet she focuses on a small subset of nonprofits and philanthropic giving tools.
Senate Democrats host Council President for Conversation
This week, Council President & CEO Vikki Spruill was invited to engage with Senate Democrats in a conversation about how Congress can help philanthropy to thrive in the current economy and organizations can achieve their visions. Spruill was among a dozen leaders in philanthropy hosted by Senators Mark Begich (D-AK), Chairman of the Democratic Steering and Outreach Committee (DSOC) and Chris Coons (D-DE), Chairman of Business Outreach for the DSOC event.
During the meeting Spruill highlighted the Council’s Public-Philanthropic Partnership Initiative, which began back in 2009. This project brings together the federal government and philanthropy in new cross-sector partnerships to address the most chronic and serious issues facing our nation. Spruill was also tapped by the committee to work with Sonal Shah, former director of the Office of Social Innovation and Civic Participation and current senior fellow at Case Foundation, to assemble and provide an initial, topline assessment of the many ideas, suggestions and proposals presented by all of the meeting participants.
Thune-Wyden Letter on the Charitable Deduction
As we’ve reported, Senators John Thune (R-SD) and Ron Wyden (D-OR) are circulating a letter to Senators Max Baucus (D-MT) and Orrin Hatch (R-UT), the Chairman and Ranking Member of the Finance Committee, urging them to preserve the full value of the charitable deduction as they make decisions on tax reform. The letter is still circulating in the Senate for additional signatures, and we’re pleased to report that interest in the letter is gaining momentum every day.
As a constituent, your voice is especially powerful. Please contact your senators ASAP and urge them to join Senators Wyden and Thune in support of the charitable deduction by signing this letter!
We want to extend a sincere “thank you” to over 150 of our members and our colleagues at regional associations who have already contacted their Senators and asked them to sign on to the letter. We know your outreach makes a difference. We’ll continue to report on this letter, including the list of signatories when Senators Thune and Wyden make that information public.
Budget Agreement Reached
On Wednesday, Senate Budget Committee Chairman Patty Murphy (D-WA) and House Budget Committee Chairman Paul Ryan (R-WI-1) reached a budget agreement on government spending levels over the next two fiscal years. The agreement doesn’t touch any charitable giving incentives in the tax code or increase taxes, but some nonprofits are still worried about the impact of the federal spending cuts that the agreement leaves in place.
The substance of the agreement is fairly narrow; it sets out government spending levels for fiscal years 2014 and 2015, and replaces a portion of the across-the-board spending cuts known as “sequester” for both military and non-military spending. In order to partially pay for a higher federal budget, the agreement increases the “September 11” security fee that airline passengers pay when they purchase tickets, and requires civilian federal workers to contribute more towards their pensions.
While there is a general sense of relief on Capitol Hill that some consensus has been reached and another government shutdown has likely been averted, lawmakers of both parties have also spoken out to oppose the agreement. Some Republican policymakers are concerned that it increases government spending for the next few years without taking steps to reform entitlement programs. On the other hand, some Democrats are upset that the agreement does not extend emergency unemployment compensation benefits, which expire on December 28th.
Despite some opposition on both sides, the House passed the agreement by an overwhelming 332 to 94 votes last night prior to departing for the holidays, and the Senate is expected to vote on it early next week.
Tax Policy Happenings
IRA charitable rollover and "tax extenders"
With the House already in recess and the Senate just a few days away from heading home for the holidays, it does not look like Congress will take up a bill to continue the “tax extenders” this year, despite strong congressional support for many of these provisions. This means that the IRA charitable rollover will expire on December 31st, at the end of the calendar and tax year. In years past, an extenders bill has often been passed the following calendar year and applied retroactively. But, this year leadership of the tax writing committees in both the House and Senate has expressed a preference for only taking up the extenders in the context of comprehensive tax reform.
That said, a stand-alone extender bill has been introduced. As we’ve reported, Senator Chuck Schumer (D-NY) has re-introduced the Public Good IRA Rollover Act (S.1772), which would expand the IRA charitable rollover and make it permanent law. The bill has been referred to the Senate Finance Committee, which will decide whether to take it up. The Council has actively supported extending and expanding the IRA charitable rollover since its inclusion in The Pension Protection Act of 2006 (PPA).
We know this provision is particularly important to our community foundation members, and we will continue to follow this legislation and engage in policy discussions about the charitable rollover on Capitol Hill.
Baucus discussion drafts and 990 e-filing
Senator Baucus is still gathering input on his tax reform discussion drafts through January, which cover international taxation, tax administration, and cost recovery and accounting. He is also expected to release three more drafts on energy, education, and pensions in the coming weeks.
We continue to monitor commentary on the tax administration draft, which proposes requiring all tax-exempt organizations to electronically file their Form 990s. The Aspen Institute’s report “Information for Impact, Liberating Nonprofit Sector Data” outlines the challenges of pulling together data about the nonprofit sector and the potential benefits of 990 e-filing. In a New York Times op-ed, Aspen’s Deputy Director for Philanthropy Programs, Cinthia Schuman Ottinger, explained why readily accessible public information about nonprofits would be better for the sector. “Fraudulent charities . . . undermine the great work that the vast majority of nonprofits do,” Schuman Ottinger said, “[t]hat’s why we need better tools, particularly better data, to enforce the law.”
We are still gathering input on what this 990 e-filing requirement would mean for Council members, and would value your opinion. Please contact our policy analyst Katherine LaBeau if you would like to weigh in.
IRS 501(c)(4) political activity regulations
Over the past few weeks, we’ve been covering the new Internal Revenue Service (IRS) proposed regulations on the political activity of 501(c)(4) organizations. The regulations create a more bright-line rule about what political activities do not qualify as promoting social welfare for 501(c)(4)s. Currently the IRS applies a “facts and circumstances” test to make this determination.
The IRS is soliciting public comments on the proposed guidance. Of particular interest to Council members, the IRS seeks comments on whether similar guidance should be developed to define political activities for other types of tax-exempt organizations. Comments are due by February 27, 2014, and may be submitted electronically via the Federal eRulemaking Portal.
As we noted last week, voices from within the nonprofit and philanthropic worlds are emerging to express their views on the regulations. This week, the Bright Lines Project (BLP), which seeks clarity from the IRS regarding the political activities of all nonprofit organizations, released its reaction. BLP applauds the IRS for taking a bright-line approach to defining political activity for 501(c)(4)s, but urges the IRS to rework the rules in order to “fairly distinguish between partisan and nonpartisan activities and provide the benefit of bright-line certainty, universally, to all varieties of tax-exempt organizations.”
We continue to scrutinize the proposed regulations closely, and will provide you with more information in the coming weeks on the potential implications for 501(c)(3) organizations and the issues on which the Council may comment.
IRS Nominee Promises to Investigate Nonprofit Fraud
Nonprofit Quarterly reports that in his confirmation hearing before the Senate Finance Committee, IRS Commissioner nominee John Koskinen told Committee Members that he would investigate the diversion of assets at nonprofit organizations. Citing the The Washington Post investigative report from October, which we’ve covered in-depth in past Snapshots, Koskinen told the Committee: “If confirmed, I will look into these issues.”
Koskinen’s nomination was approved by the Senate Finance Committee just this morning, and will now go to the floor of the Senate for a vote.
Trending Critique of Nonprofits and Philanthropy
In addition to the New York Times piece cited at the top of Snapshot, these other opinion pieces caught our attention this week:
Josh Freedman in Forbes
While Josh Freedman makes some intriguing points in his op-ed in Forbes about how we define the nonprofit sector, he, like Ray Madoff, focuses on activities that he personally does not think are “charitable,” and fails to acknowledge that most nonprofits are a lifeline for communities—providing critical services or resources that otherwise might not be offered.
Josh Freedman first takes on nonprofit universities, arguing that they do not fit within the notion of a “charity.” Freedman then proposes that policymakers get rid of the distinction between “for-profit” and “nonprofit,” which he sees as disingenuous, and eliminate the nonprofit sector altogether. “Let’s get rid of the nonprofit sector,” Freedman says, “recalibrating how we see corporations of all kinds in society and freeing up resources to have a more vibrant and robust civil society, not to mention public sector.”
Leon Neyfakh in The Boston Globe
We’ve been following the increased critical commentary of donor advised funds. Whether this scrutiny is cyclical – with the focus on “giving season” late in the year – or a more persistent trend, we’re tracking it closely. Last weekend, Leon Neyfakh’s piece in The Boston Globe chronicles the rapid growth of DAFs as a giving tool, with particular focus on DAFs at commercial funds. Neyfakh cites several problems with DAFs we hear often from opponents: lack of transparency, no mandatory payout requirement that critics say could result in money languishing in DAFs for years, and management by financial firms instead of community-based philanthropic organizations. He does not take a stance on how the issues he identifies should be resolved, but cites Professor Madoff’s campaign for more aggressive regulations for DAFs, along with other voices calling for a DAFs payout requirement.
Former Labor Secretary Rob Reich's blog
Just last night, Rob Reich, Professor of Public Policy at the University of California at Berkeley and former Labor Secretary in the Clinton administration, authored a blog post in his personal blog that echoes some of Ray Madoff and Josh Freedman’s concerns about how our tax laws define what is “charitable.” Reich also hints at the idea of a charitable hierarchy, suggesting that organizations that help the poor are more “charitable” than cultural institutions or universities, for example. His proposed solution is to limit the deduction to what he describes as “real charities.”
Urban Institute survey on government-nonprofit contracting
At an event we attended last week, the Urban Institute in partnership with the National Council of Nonprofits released its survey results from “Nonprofit-Government Contracts and Grants: Findings from the 2013 National Survey.” The survey is a repeat of one conducted in 2009, and it finds that many human services nonprofits still face significant delays in receiving payments and are still coping with other burdensome bureaucratic hurdles.
The average amount of time spent waiting for a government paycheck, along with the average amount owed by the government, decreased since 2009, but these problems persist. Other ongoing concerns experienced by nonprofits that contract with the government include the requirement in many contracts for nonprofits to match government dollars, a lack of funds available for administrative expenses, and the requirement that nonprofits front costs and then get reimbursed.
Rick Cohen’s coverage of the survey and its release event in Nonprofit Quarterly gives a comprehensive picture of the issues uncovered by the survey and its recommendations for addressing them.
Snapshot Holiday Schedule
The Council’s Public Policy and Legal Affairs team wishes you a warm and festive upcoming holiday season! We also want to let you know that Snapshot will not be published on December 27th and January 3rd in light of the Christmas and New Year holidays.
Keep in Touch!
Please feel free to reach out to any of us on the public policy team with any comments or concerns, or to share an issue, article, or op-ed you’d like to see covered in a future Washington Snapshot.