Chairman Hatch Continues Discussions on Corporate Integration
As our readers know, Senate Finance Committee Chairman, Orrin Hatch (R-UT) has been talking for some time about releasing a proposal for corporate integration tax reform.
Though the specifics of Hatch’s forthcoming plan remain in question—certain approaches to integration pose significant concern for the sector. The Council has prepared a top-line summary of some potential ramifications of corporate integration on philanthropy. We are working on a more detailed analysis, and will make that available on our website as soon as possible.
During the Senate Finance Committee hearing on Tuesday—Navigating Business Tax Reform—Chairman Hatch commented broadly on the corporate integration issue:
“Depending on its design, corporate integration could have the effect of reducing the effective corporate tax rate and help address some of the strong incentives we are seeing today for companies to relocate their headquarters outside of the United States.”
The Council is engaging directly with Chairman Hatch and his staff on this matter, and will continue to urge him to address the concerns of our sector in the development of his proposal.
Stay tuned—we will provide additional information in the coming weeks.
Ways and Means Committee Holds Markup
The House Ways and Means Committee held a ‘markup’ this week, during which they passed the Preventing IRS Abuse and Protecting Free Speech Act (H.R. 5053) out of Committee. The bill was introduced by Representative Peter Roskam (R-IL), and would:
- Prohibit the Secretary of Treasury from requiring 501(c) organizations to disclose any identifying information on their annual tax return.
In practice, this legislation would not allow the IRS to collect information about the identity of donors to tax-exempt organizations. The Committee vote for this bill fell along party lines and now moves to the House floor for consideration.
Also considered at the markup were the Recovering Missing Children Act (H.R. 3209) and the Stolen Identity Refund Fraud Prevention Act (H.R. 3832). You can watch the entire markup on the Ways and Means website.
Estate Tax Bill Introduced in the House
- Return the maximum estate tax rate to 45%, as it was in 2009; and
- Lower the threshold for exemption from the estate tax from the current $5.45 million to $3.5 million ($7 million, jointly).
The estate tax is often cited as an incentive for donors to leave bequests to charities in their will.
UPDATE: Chinese NGO Legislation Passed into Law
This Thursday, a slate of proposed Chinese regulations for domestic charities and foreign NGOs was passed into law and is set to take effect on January 1st, 2017.
The Council is working diligently with the International Center for Not-for-Profit Law (ICNL) to translate and analyze the law for its impacts on American philanthropy, and will make that available on our website in the coming days. We also invite you to join us for a conference call on May 10th at 3pm ET to hear from the experts—including Professor Mark Sidel of ICNL and Suzanne Siskel of the Asia Foundation—about how this law impacts your work.
If you'd like to learn more in the interim, the Council and ICNL discussed this matter when the law was first proposed last year. I would also refer you to Professor Sidel's post in Alliance Magazine, as well as coverage of the law from the New York Times and Wall Street Journal.
Stay tuned to the Council and ICNL as we continue to cover this developing story.
Council Submits Comments to FATF on Recommendation 8
This week, the Council submitted input on Recommendation 8 to the Financial Action Task Force (FATF). This policy sets out a broad framework for the regulation of the non-profit sector to prevent abuse by terrorists.
The Council continues to work closely with the FATF and our colleagues to ensure this framework does not unduly burden the non-profit sector, and we will continue to update you as new developments arise.
Council Analysis of New PRI Regulations is Now Available
Last week, we reported that the Department of Treasury and the IRS announced final regulations on permissible forms of program-related investments (PRIs). The Council has completed an analysis of these regulations, which is now available on our website.
Additionally, the Council and our partners at Mission Investors Exchange will be hosting a conference call to discuss the new regulations. This call, taking place on Thursday, May 5th at 3pm ET, will include insight from Treasury officials, as well as leading practitioners, into what motivated the new regulations and how they may affect your work. To register for this call, please visit our website.
If you are not available during the time of this call, be sure to register anyway to receive a recording of the call after the event. If you have comments or questions in advance, please send them to John Cochrane, Associate Director for Social Innovation (email@example.com).
Update on Donor Privacy Case in California
In May of 2015, the Ninth Circuit Court of Appeals upheld a California regulation that requires charities registered to solicit contributions in California to file an unredacted copy of the IRS Form 990 Schedule B—which lists donor names and identifying information—in the Center for Competitive Politics v. Harris case.
In November of last year, the Supreme Court of the United States (SCOTUS) denied the appeal to hear this case, which rendered the Ninth Circuit decision final.
In the latest development in the ongoing efforts by the State of California to obtain donor information through the Form 990, the United States District Court for the Central District of California granted a permanent injunction to prohibit California Attorney General Kamala Harris from demanding the Americans for Prosperity (AFP) Foundation's Schedule B form.
Expressing concerns that the California Attorney General’s Office has failed to maintain the confidentiality of Schedule B forms, Judge Manuel L. Real also said there was “ample evidence” that AFP employees, supporters and donors faced threats, harassment, intimidation and retaliation once their support for the organization is publicly known. Schedule B includes all names and addresses of individuals who have donated more than $5,000 to a charity during the tax year and is included when a nonprofit files its IRS Form 990. However, the IRS does not make Schedule B public.
The Citizens United Foundation has filed a similar suit against the New York Attorney General’s office.
Corporate Foundations, Annual Distributions, and Self-Dealing
The Council recently received an inquiry from a corporate foundation about whether it would be permissible to make a grant to a retiring director of the corporation’s private family foundation in honor of his many years of employment with the company.
The question was twofold. First, whether a corporate foundation could legally make a grant to another private foundation—and if not—whether a grant could be made to the director’s foundation through the corporate giving program instead.
Corporate foundations, like private foundations, are required to distribute 5% of their assets for charitable purposes every year and are prohibited from engaging in “self-dealing” activities.
The Legal team advised that a grant from the company’s corporate foundation to the director’s family foundation would not count toward the corporate foundation’s 5% annual distribution minimum (under section 4942 of the Internal Revenue Code).
Additionally, the Legal team advised that the company director is a “disqualified person,” and that a grant to his family foundation would likely be a “self-dealing” transaction.
The Legal team therefore recommended that it would be a safer bet to make a contribution to the director’s foundation directly from the corporation, rather than from the corporate foundation.
For more information on these 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.
Nonprofits Coalesce Behind Solutions to Student Loan Debt Crisis
At more than $1 Trillion, the debt carried by students in the United States is raising the concerns of the Federal Reserve, policymakers across the states, and employers. Several organizations in the states are taking action to generate greater awareness and relief.
Nonprofit human service providers in Massachusetts are rallying in support of a proposed state budget amendment for FY 2017 that would create a fund to help low-paid employees in the human services sector pay back their student loans. Providers’ Council is promoting the legislation both as needed relief for frontline workers and because creation of the fund would assist nonprofit employers “recruit and retain a stronger, more qualified workforce.”
This week, Maryland gave legislative approval of a plan by Montgomery County to create student debt refinance program. The Legislature authorized the County to use tax-free bonds to provide a system of financial assistance, consisting of affordable grants, loans, and other aids to enable County residents, graduates of the county public school system, individuals employed by the county government or public school system, and other individuals to attend secondary education. The program reportedly is modeled on the Minnesota SELF Refi Program, which offers interest rates as low as 3 percent for refinancing student loans of Minnesota residents.
The Nonprofit Student Loan Project of CalNonprofits seeks to raise awareness about the rights under an existing federal loan relief program and to ensure that its purpose—promoting employment in the social sector—is realized. Enacted by Congress in 2007, the Public Service Loan Forgiveness Program forgives the remaining balance on certain direct federal loans for individuals who work for at least ten years for federal, state, or local governments or for 501(c)(3) organizations, i.e., foundations and charities. In addition to alerting employers and employees about the benefits of the federal program, CalNonprofits is also asking all nonprofit employees with student debt, along with nonprofit CEOs and HR managers, to complete its survey on the impact of student debt on nonprofits. The survey and outreach efforts are part of a broader program to educate and mobilize the nonprofit community to tackle this issue.
Finally, legislation pending in Minnesota aims to promote awareness of the federal loan forgiveness program by requiring the State government to prepare and send out informational materials including a one-page letter, fact sheet, and answers to frequently asked questions. The bill would also require public service employers, i.e., foundations, charitable nonprofits, and governments, to notify employees annually of potential eligibility in the program and make an employment certification form available. The legislation has the support of the Minnesota Council of Nonprofits, teachers unions, and others.
Foundation Leaders Continue to Speak on the Value of Perpetuity
Our readers will recall from several weeks ago a piece in the Chronicle of Philanthropy, penned by Council Board Chair Sherry Magill, sharing her concerns with an op-ed that speculated about the effectiveness of perpetuity in philanthropic giving. She wrote, “… [the] fundamental question—should charitable dollars 'be deployed more quickly'—cannot be divorced from its companion: 'What might the consequences be for the nonprofit and for citizens around the world if more foundations decided to spend their assets over a set period?'" Other foundation leaders are also speaking out.
This week, President and CEO of the Silicon Valley Foundation, Emmett Carson, wrote an opinion piece refuting the proposal by Ray Madoff and Rob Reich that foundations need to consider spending down their assets to address today’s problems.
With regard to the spend down of foundation resources, Madoff and Reich posit that “faster giving in the near term might actually succeed in warding off… existential threats.” Carson, however, argues that a critical flaw in Madoff and Reich’s logic is that the spend down of foundation assets can “rival the power and influence of the federal government.”
The Council has for a long time refuted the misperception that foundations can replace diminishing public dollars. Carson echoes this, noting that, by amount alone, “foundation funding is not a substitute for government funding” and “[they] do not have the necessary capital [sic] to replace shortfalls in government funding.” Notably, Carson points out that the solution offered by Madoff and Reich would—at best—create a short term influx of financial resources to charities, but would fall short in sustaining the work of those charities over time and would end up jeopardizing their very existence.