As a reminder to our readers, Washington Snapshot will be taking a break next week.
Join the Council on Foundations, nonprofit media organizations, foundations, journalists, academics, and other stakeholders for a conversation on Wednesday, September 9th about the role of nonprofit media in fostering a vibrant civil society in local communities.
Speakers will include:
- Peter Bale, CEO, Center for Public Integrity
- Clark Bell, Program Director, Journalism Program, McCormick Foundation
- Tom Glaisyer, Program Director, Informed Participation Program, Democracy Fund
- Kimberly Eney, Associate, Morgan, Lewis & Bockius LLP
- Rita Henley Jensen, President & CEO, Founder, Women’s eNews
- Kevin Murphy, President & CEO, Berks County Community Foundation
- Marie Nelson, Vice President for News and Public Affairs, PBS
- Celia Roady, Partner, Morgan, Lewis & Bockius LLP
- Sue Santa, Senior Vice President, Public Policy and Legal Affairs, Council on Foundations
To learn more and to register, click here!
We are now past the mid-point of the August recess. If you haven’t already, we strongly encourage our readers to connect with your lawmakers while they are still in their districts for the August recess!
There are many ways to engage with your Members of Congress before they return to Washington in September. You can schedule a meeting with them in their district office, write an op-ed for your local paper, tweet at them, or invite them to attend a community event you are involved in. Now is the time to convey to them the value of philanthropy in their hometowns and urge them to support policy that strengthens its impact.
However you decide to engage, ask your policymakers to support legislation that includes the provisions from the America Gives More Act, including: making permanent the IRA charitable rollover, simplifying the private foundation excise tax, and providing enhanced deductions for contributions of food inventory and land conservation easements. Also make sure to ask them to come to personally see the great work you’re supporting in their communities.
The Council’s refreshed edition of our August Advocacy Toolkit is a valuable resource to you in this process. As always, the Council’s Public Policy Team is here to help. Please do not hesitate to reach out to our Policy and Legislative Associate, Serena Jezior, with questions or for additional resources.
IRS Faces Further Potential Budget Cuts
The IRS has faced much scrutiny in recent months—from continued criticism regarding the targeting controversy, to the breach in taxpayer data security earlier this summer. Now, as budget negotiations loom on the horizon for Congress, the IRS faces significant proposed cuts to its budget.
Already struggling with a $1.2 billion cut to its budget for this current fiscal year, the agency may face even further cuts in this upcoming round of budget negotiations. The House Appropriations Committee passed a measure that would cut the IRS budget by an additional $838 million, while the Senate would seek only $470 million in cuts.
The IRS is an important player in exempt organization oversight, and additional cuts could further reduce its ability to process applications for tax-exempt status, issue letter rulings, implement regulations, and many other activities. A report issued last December by the Government Accountability Office (GAO) found that the IRS already lacked sufficient resources to provide adequate oversight for exempt organizations.
Recent Bill Would Eliminate Pease Limitation for Charitable Deduction
Late in July, Representative F. James Sensenbrenner, Jr. (R-WI-5) introduced a bill that would eliminate the limit on itemized tax deductions that may be claimed for charitable contributions.
Currently, the Pease limitation creates a cap for the total amount individuals may deduct using the itemized deduction method—which includes the charitable deduction. Under this bill, the Pease limitation would remain intact for other itemized deductions, but the charitable deduction would be exempt from the limits it creates.
If enacted, the removal of the Pease limitation for the charitable deduction would allow taxpayers who itemize their deductions to deduct more of their charitable donations. This could ultimately encourage taxpayers to make more contributions to charity.
Seeking your Input on New MRI Guidance
Earlier this month, we reported that the IRS Priority Guidance Plan for 2015-16 will include further direction on mission-related investments (MRIs) for foundations—specifically, whether they may apply the program-related investment test to determine permissibility of mission-related investments.
This issue has long been a priority for the Council, and was included in the comments we submitted back in May. Recent communication with senior officials provided us with insight into the nature of these possible regulations, and we are encouraged that there will be a favorable outcome in the coming months.
But, we need your help! The Council intends to reiterate its position in support of this action in a new letter to the Department of Treasury. To include in this letter, we are seeking specific examples of MRIs in environmental and energy programs for which the IRS has already issued guidance—such as a favorable private letter ruling.
If you know of an example that fits this description, or you are interested in staying informed about our work with Treasury on the MRI guidance, please contact our Policy Director and Counsel, Katherine LaBeau.
Corporate-Sponsored Employee Hardship Funds: An Act of Self Dealing
A corporate foundation, interested in establishing an emergency assistance fund for the corporation’s employees, recently contacted Legal Affairs asking whether this fund would be legally permissible.
As is the case with all private foundations, acts of self-dealing are prohibited for corporate foundations and may result in the imposition of a penalty tax. There are very limited situations in which a corporate foundation may make direct grants to employees of the linked corporation without violating the self-dealing rules. Making grants to employees for emergency hardships is not one of these permitted instances.
The IRS reasons that emergency hardship grants for employees would serve the private interests of the employer rather than the charitable needs of the community. The grants would help employers recruit and retain workers—providing the company with a competitive advantage. Additionally, the grants would help employers maintain a stable workforce by enabling employees to return to the job more quickly after emergency strikes. The IRS has determined that these benefits to the company are “real and substantial.” As a result, making employee emergency hardship grants would be an act of self-dealing.
The Legal Affairs team advised the foundation that as a permissible alternative, the corporate foundation could contribute to an emergency relief fund at a public charity from which corporate employees might benefit, or assist employee groups wishing to establish relief funds for fellow employees.
For more information on this or any other tricky legal matters, please contact the Council’s Legal Affairs team at firstname.lastname@example.org.
Access to the Council’s legal team is a valuable member benefit. Council attorneys are available to discuss your legal questions and to provide legal information by telephone, email and through our various publications and newsletters. This information is intended for educational purposes and does not create an attorney-client relationship. The information is not a substitute for expert legal, tax or other professional advice tailored to your specific circumstances, and may not be relied upon for the purposes of avoiding any penalties that may be imposed under the Internal Revenue Code.
Exclusive from our colleagues at the National Council of Nonprofits.
States Revisit Nonprofit Sales Tax Exemptions
This month, Alabama joins a string of states willing to reconsider nonprofit exemptions from sales taxes – whether for the better or, in Alabama’s case, perhaps setting the stage for imposing more costs on the work of nonprofits. During a special session, the Legislature passed a bill requiring nonprofits that are exempt from Alabama sales taxes to obtain an annual certificate of exemption and file annual information reports with the state Department of Revenue, which is given power to set up a new regulatory scheme. The Governor signed the legislation on Wednesday, and at the same time created a Tax Exemption Advisory Council of nonprofit representatives to help make sure that the new burdens of the law are imposed “in the least intrusive and least burdensome manner.”
Action in other states this year has been mixed. Oklahoma expanded its sales tax exemption to apply to tickets to fundraising events and sales of auction items. Minnesota came close to extending the exemption beyond a few charities and the advocacy efforts will begin anew early in 2016. Maine’s Governor vetoed a bill to exempt nonprofit libraries from sales taxes and in North Carolina lawmakers continue to consider a measure that would cap the value of the exemption for larger nonprofits.
Requiring nonprofits to charge sales taxes has also been on the agenda in some states this year. Nevada created a new sales tax on admissions to major live entertainment events, and included those held by nonprofit organizations, such as the Burning Man festival. The budget proposed by Pennsylvania’s Governor calls for a similar tax on tickets to nonprofit museums, cultural centers, historical sites, zoos, and other educational institutions.
Fifteen states, including Alabama, only extend the sales tax exemption to select nonprofits. More than half the states that levy taxes on sales exempt the purchases by most charitable nonprofits from paying the taxes.
New Report: FATF Impact on NGOs
A new report by Statewatch and the Human Security Collective looks at how restrictive laws inspired by the intergovernmental Financial Action Task Force (FATF) can inhibit the growth or formation of nonprofit organizations (NPOs) in the countries that implement these laws. FATF recommendations and best practice guidelines influence how countries around the globe choose to regulate nonprofits to prevent the diversion of charitable assets to terrorist organizations.
The report looks at the impact of FATF on the counterterrorism laws of 17 countries in Europe and Asia. The report describes how each of these countries made changes to how they regulate NPOs either in response to a non-compliant FATF mutual evaluation, or in anticipation of an upcoming evaluation. It concluded that FATF “is an important vehicle for the imposition of NPO regulations worldwide” and its recommendations can even “override parliamentary scrutiny of draft legislation that has a critical impact on freedom of association and expression,” which is highly problematic in countries where these freedoms are already being compromised.
The report also found that many countries had imposed new restrictive laws without conducting a risk assessment to determine which nonprofits are vulnerable to terrorist infiltration, and to what extent. Finally, the report found that many countries in the study used FATF to justify implementing laws that would curb legitimate activities of nonprofits based purely on political grounds. Check out the full report for interesting and alarming findings from individual countries.
The Council, along with partners like the International Center for Not-for-Profit Law (ICNL) and the Charity & Security Network, has successfully advocated for FATF to engage more formally with the global NPO sector and ensure that FATF guidelines do not result in overly-restrictive regulations that are not proportionate to actual risk posed by NPOs.
Stay tuned for upcoming conference calls and webinars on counterterrorism laws in specific countries that impact your global grantmaking!
Last Week Tonight: Featuring Televangelists and the IRS
This past Sunday, the HBO show Last Week Tonight with John Oliver featured a segment critiquing a group of televangelists who preach the “prosperity gospel”—a belief that “wealth is a sign of God’s favor, and [that] donations will result in wealth coming back to you…the notion that donations are seeds that you will one day get to harvest.”
Comedian John Oliver uses satire to bring up an idea that we’ve heard before: that some tax-exempt organizations 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.
In the segment, Oliver points out the ease with which some allegedly deceptive preachers are able to earn tax-exempt status as a religious organization or church, and questions whether they should be considered tax-exempt. He also points out a lack of scrutiny for these types of organizations, indicating that the IRS does not often audit religious organizations. While the Council has long opposed the concept that some tax-exempt organizations are less charitable than others, Oliver’s perspective is certainly entertaining.
Opinion: Nonprofit Funding and Community Foundations
President and CEO of the Berks County Community Foundation, Kevin Murphy, authored a recent post on the Council’s RE: Philanthropy Blog on the topic of declining state funding for nonprofits in Pennsylvania and the role of community foundations in helping to address this issue.
Murphy explains Berks County Community Foundation’s approach to help with this funding crisis—which involves partnering with a community bank to take out a low interest line of credit, which the Foundation will, in turn, lend to local nonprofits at the same rate.
Further, Murphy notes the significance of this initiative in the community, as it demonstrated the Community Foundation’s unique position and connections in the community to secure this funding that may end up serving as a lifeline for local nonprofits that provide critical community services.