Washington Snapshot - October 2, 2015

Congress IconBreaking News: Secretary Duncan to Step Down

Just today, U.S. Department of Education Secretary Arne Duncan announced that he will be stepping down in December from the position, which he has held since the beginning of the Obama Administration in 2009.

It is expected that President Obama will nominate the Senior Advisor Delegated Duties of Deputy Secretary of Education, John B. King, to replace Secretary Duncan.

Congress IconNews from the Hill

Congress Avoids Federal Government Shutdown

Late Wednesday, both chambers of Congress passed a spending bill that will fund the Federal government through December 11th. President Obama signed the bill, enacting it into law, just hours before funding was set to expire.

Given the budget woes that are playing out in many states, and the financial struggles that many nonprofit organizations are facing as a result, this news comes as a relief to the sector.

House to Hold Hearing on Rising Costs of Higher Education & Tax Policy

As our readers will recall, there has been a great deal of scrutiny and commentary in recent weeks on university endowments. This scrutiny is not isolated—it is part of a broader trend of skepticism for endowed philanthropy.

As further evidence that such skepticism is gaining traction among policymakers, Chairman of the House Ways and Means Oversight Subcommittee, Peter Roskam (R-IL-6), announced that his committee will hold a hearing next week to examine the tax-exempt status of colleges and universities in attempt to determine if that has any connection to rising costs of tuition.

The hearing will be held next Wednesday, October 7th at 10:00am ET. For more information, and to check for a livestream of the hearing, you can check the Ways and Means website.

House Gears up to Select New Speaker

Last week we reported on the resignation of current Speaker of the House. John Boehner (R-OH-8) wii retire from his position in Congress at the end of October. Since his abrupt announcement, several individuals have thrown their hats in the ring to become Boehner’s successor: including current Majority Leader Kevin McCarthy (R-CA-23), Florida Republican Daniel Webster (R-FL-10), and former Democratic Speaker Nancy Pelosi (D-CA-12).

Whoever is selected to succeed Speaker Boehner will play an important role in setting the legislative agenda and priorities in the House through the end of this year and leading up to the 2016 election.

Executive & Regulatory News IconExecutive & Regulatory News

Tax Exempt & Government Entities Division Releases 2016 Priorities

Yesterday, the Tax Exempt & Government Entities Division of the IRS released its statement of priorities for fiscal year 2016. Within the Exempt Organizations (EO) Division, there will be 5 strategic issue areas of focus:

  • Exemption: Issues include non-exempt purpose activity and private inurement, enforced primarily through field examination;
  • Protection of Assets: Issues include self-dealing, excess benefit transactions, and loans to disqualified persons, enforced primarily through correspondence audits and field examination;
  • Tax Gap: Issues include employment tax and Unrelated Business Income Tax liability, enforced through compliance checks, correspondence audits, and field examination;
  • International: Issues include oversight on funds spent outside the U.S., including funds spent on potential terrorist activities, exempt organizations operating as foreign conduits, and Report of Foreign Bank and Financial Accounts (FBAR) requirements, enforced through compliance reviews, compliance checks, correspondence audits, and field examination; and
  • Emerging Issues: Issues include non-exempt charitable trusts and IRC 501(r), enforced through compliance reviews, correspondence audits, and field examination.

Additionally, the EO Division will undertake several long-term projects in the upcoming fiscal year, including: evaluating the Form 1023-EZ process to determine potential improvements to the application and review process, and developing a program to make Forms 990 available in modernized e-File format.

Legal IconTrending in Legal Affairs

The Legal Affairs team recently received a question from a community foundation about whether it could accept a grant from one of its donor advised funds. The donor adviser of the fund wished to support an effort by the community foundation to restore a warehouse that it owned and transform it into a center to support local nonprofits.

When a donor advised fund is established with a community foundation, variance power takes effect—meaning, control of the donated assets is legally transferred from the donor to the community foundation. With this in mind, the foundation was uncertain whether it was a permissible recipient of a grant from a donor advised fund over which it had legal control.

Under the Pension Protection Act of 2006—which was the first piece of legislation to legally define and provide guidance on donor advised funds—it is explicitly stated that a distribution from a donor advised fund will not face tax penalties if it is made to “the sponsoring organization of such donor advised fund.”

Therefore, the Legal team advised that this would be an acceptable charitable transaction.

For more information on this or any other tricky legal matters, please contact the Council’s Legal Affairs team at legal@cof.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.

State Policy IconHappening in the States

Exclusive from our colleagues at the National Council of Nonprofits.

National Council of Nonprofits logo

Different Approaches to Promote Human Services Funding

While it is not news that states have repeatedly cut funding for human service programs performed on behalf of governments by nonprofits, the ways different nonprofit communities and the people they serve are responding to the challenges are noteworthy.

Last month, Connecticut Governor Malloy ordered $103 million in emergency cuts to health and human services and other spending due to lower-than-expected income tax receipts. These cuts represent the fifth time in four years that the Governor has rescinded spending authorized by the Legislature, and follows seven years of flat funding for health and human services largely provided by nonprofits on behalf of the state.

Nonprofits in the state are taking to direct advocacy action to reverse the cuts. Patrick J. Johnson of Connecticut Nonprofits wrote, “The cuts ordered last week are the most draconian and will have a brutal impact on the lives of the most vulnerable people in our state.” His thoughts were echoed this week at a news conference by a leading state representative who called for a special session of the legislature to redirect the cuts. She stressed, "We can't balance the budget on people that are less fortunate than us.''

Massachusetts has experienced severe budget challenges in recent years and nonprofits there have developed a unique approach to demonstrating the need for adequate funding for human services. Three years ago, Providers’ Council created the Caring Force—a coalition of nonprofits, their employees, and the people they serve—to change attitudes of policymakers and the public about the work and impact of nonprofit human service providers.

The coalition’s mission is to “advance an agenda that creates an environment in Massachusetts that protects our most vulnerable neighbors and creates a stronger economy with the pay, recognition, and respect our workers deserve.” Attitudes have certainly changed as the Caring Force regularly brings thousands of supporters to the State House for rallies, and has generated strong support in the news media and mobilized communities through social media. Most recently, the Caring Force launched a contest where individuals can "Broadcast Your Love of Human Services" highlighting work in providing essential supports for one-in-ten Massachusetts residents.

News IconPhilanthropy News and Op-Eds

Nonprofit and Philanthropic Leaders Respond to Trump Tax Plan

Today, the Charitable Giving Coalition issued a press release acknowledging Donald Trump’s recognition of the value of the charitable deduction as an important mechanism for supporting communities, while also expressing concern for the potential impact of his proposal for the Pease limitation. As our readers will recall, the Council is a long-time, leading member of the Coalition—a diverse group of nonprofit organizations dedicated to preserving the full value of the charitable deduction.

The Republican presidential candidate released his proposed tax plan, under which he offers several changes to the tax code, including a steeper curve for the Pease limitation on itemized deductions (including charitable giving), but preservation of the full value of the charitable deduction.

In June, the Council joined onto a Coalition letter to all officially declared presidential candidates urging them to support the preservation of the full scope and value of the charitable deduction as they consider tax policy throughout the course of their campaigns. The Coalition is monitoring proposals issued by individual candidates for provisions that could impact the charitable tax deduction, and has since issued statements in response to proposals from Democratic candidate Hillary Clinton, and Republican candidate Jeb Bush.