Department of Labor Publishes New Rule on Overtime Regulations
On Wednesday, President Obama and Secretary Perez announced the publication of the Department of Labor’s final rule updating the overtime regulations. The Council has been closely tracking this issue since last summer to best understand how this rule could impact you and your organization.
In a release about the rule, President of the Ford Foundation, Darren Walker, said, “Across the political spectrum, it's now acknowledged that expanding economic opportunity is a critical part of reversing the tide of extreme inequality.”
For a full analysis, including implementation options, of the final rule check out our website.
We also strongly encourage Council members who have questions about how this rule might affect them to reach out to our Legal Affairs Department at firstname.lastname@example.org.
Stay tuned for upcoming information and opportunities to learn more in the coming days and weeks.
Council Submitted Comments on IRS Priority Guidance 2016-2017, Supporting Organizations
The Council on Foundations submitted comments to the Department of Treasury and the Internal Revenue Service (IRS) to give input on the 2016-2017 Priority Guidance Plan and the proposed regulations for supporting organizations.
Each year, the Treasury and the IRS issue their Priority Guidance Plan to identify and prioritize which tax issues the agencies should address through regulations, revenue rulings, procedures, notices, or guidance throughout the upcoming year. Our comments are separated into domestic regulatory priorities and international grantmaking priorities. This year, the Council urged the IRS to take action on the following issues that impact our sector:
- Definition of funds that include advisory privilege, but fall outside of the definition of donor advised funds (DAFs);
- Guidance on foundation-sponsored student loan forgiveness programs;
- Clarification of economic development as a charitable activity;
- Guidance on political activity for 501(c)(3) organizations;
- Update for the revenue procedure that governs equivalency determinations for overseas charities;
- Guidance on U.S. grantmaking with regard to the classification of Mexican charities under the U.S.-Mexico Income Tax Convention; and
- Modification of the definition for “withholdable payment” under the Foreign Account Tax Compliance Act (FATCA).
Additionally, the Council submitted comments on a handful of proposed regulations for Type I and Type III supporting organizations that were introduced earlier this year in February. Of these proposed regulations, we identified two that are relevant for our sector:
- The notification requirement for Type III supporting organization relationship test; and
- The annual distribution requirements for Type III non-functionally integrated supporting organizations.
Senate Finance Committee Holds Hearing on Corporate Integration
This past Tuesday, Council Policy staff attended the first of two hearings on corporate tax integration held by Chairman Orrin Hatch (R-UT) of the Senate Finance Committee. Specifically, this hearing focused on the dividends paid deduction—which is explained here, along with its potential implications for philanthropy.
“I want to acknowledge that some groups—including tax-exempt entities and retirement plans—may have some concerns with a dividends paid deduction. However, at the end of the day, I believe we can craft a system where these parties will be treated in a manner that is comparable to current law… [and] in many cases will likely be better off” noted Chairman Hatch in his opening remarks.
The second hearing on corporate tax integration is scheduled for Tuesday, May 24th at 10:00am ET, and will take a closer look at debt-financed investments versus equity-financed investments, and the considerations associated with each as it relates to corporate integration.
Ways and Means to Hold Another Tax Reform Hearing
In the spirit of keeping the momentum for tax reform alive and well, the Chamber across the Capitol lawn will also hold an upcoming hearing on tax reform.
Ways and Means Tax Policy Subcommittee Chairman, Charles Boustany (R-LA), announced the fourth in a series of hearings to discuss different approaches to comprehensive tax reform. Specifically, this hearing—Perspectives on the Need for Tax Reform—will focus on considerations that drive the need for tax reform, including: economic growth, business expansion and job creation, simplicity and burden reduction, and other motivators.
This hearing will take place next Wednesday, May 25th at 2:00pm ET.
How to Properly Disclose IRS Form 990 to the Public
The Form 990 is an annual reporting document that all charitable organizations must file with the Internal Revenue Service (IRS). The information required for disclosure by the 990 includes policies and procedures, and details about the charity’s governing board and management policies, and information about grantmaking activities and practices. In essence, the 990 is designed to encourage transparency and accountability.
The Legal Affairs team recently received a question about whether a charitable organization must be able to physically produce a copy of its 990 upon request from a member of the public, or whether its availability online (i.e. Guidestar) is sufficient for meeting the requirements of the law.
Under section 6104(d) of the Internal Revenue Code (IRC), an exempt organization is required to disclose to the public both its IRS Exemption Status Application Form (Forms 1023 or 1024), and its annual reporting form (Form 990) for the previous three years. The Legal team advised that, to err on the side of caution under a strict interpretation of the statute, an organization should make the required documents available for inspection at its place of business during normal business hours (with special rules if the organization does not have a physical address).
The Legal team added that posting the required disclosures online (via Guidestar, or the organization’s own website—which is a requirement under National Standards) only relieves its obligation of making copies, but does not relieve the organization of its obligation to make the return available for inspection on premises.
For more information on this or any other tricky legal matters, please contact the Council’s Legal Affairs team at email@example.com.
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.
State Laws, Grants Impacted by Federal Overtime Changes
The changes to federal overtime rules announced by the U.S. Department of Labor this week will play out differently for foundations and nonprofits depending on where they operate and how their work is funded.
In most states, organizations will need to determine whether their revenues derived from “commercial activities” trigger coverage of the enterprise under the federal Fair Labor Standards Act (FLSA). If not, some employees may be individually covered by the federal law if they are engaged in interstate commerce, including such activities as processing online donations. The Labor Department published guidance to help nonprofits and foundations better understand the coverage questions.
But in at least 10 states and the District of Columbia, the changes to the federal rules will automatically apply to virtually all employees and employers. The reason is that these states expressly incorporate, by reference, the FLSA regulations into state law by way of statute, regulation, or administrative ruling. These states are Alaska, District of Columbia, Illinois, Maine, Maryland, Massachusetts, Missouri, New Jersey, New York, North Carolina, and Ohio. Legislators in one or more of these states reportedly are considering legislation to decouple the state and federal rules, as was done by regulatory action in Montana in 2010.
Nonprofits with government grants and contracts at any level of government (local, state, tribal, or federal) will now be put in the position of having to comply with new federal requirements that impose new costs not known when those grants and contracts were signed. Unlike businesses that can raise prices, or governments that can raise taxes or curtail public services, nonprofits with government grants and contracts may find themselves contractually bound to maintain services at increased costs that may not be expressly covered by existing written agreements.
The Labor Department acknowledged as much when releasing the Overtime Final Rule by recognizing unique challenges to “nonprofit organizations for which some or a significant amount of funding comes from government or private grants of set amounts.” Foundations should be aware that the DOL announced that it “is working to inform government and private funders of the Overtime Final Rule to encourage consideration of the changes affected by the rule and potential impact on non-profit grantees.”
The overtime changes are reminiscent of minimum wage hikes at the state level where costs go up and nonprofits operating under fixed grants and contracts must seek other funding sources to cover unanticipated costs. Last year, CalNonprofits encouraged foundations to consider issuing transition grants “to give grantees more time to scale up fundraising activities and make other changes to enable them to afford their increased staffing budgets.”