In This Week's Edition of Snapshot…
- Budget Conversations Continue on Capitol Hill
- Council and ICNL Hold Congressional Briefing on FARA
- Council Submits Comments to Treasury/IRS on DAF Situations
- POTUS Nominates IRS Chief Counsel
- White House Chief Economic Advisor Resigns
- In the States: SALT Workarounds Draw Congressional Attention, Inconsistent Interpretations of Partisan Speech in Texas
Last month, Senate leadershipreached a two-year budget deal that would increase spending levels for both defense and domestic programs. The deal ended a short-lived shutdown of the federal government and pushed the deadline for the House and Senate Appropriations committees to negotiate an omnibus spending bill for the remainder of fiscal year (FY) 2018 until March 23.
With the March 23 deadline inching closer, discussions have begun about which “riders” (unrelated provisions which are meant to either make a bill more attractive to certain lawmakers in attempt to secure their vote, or to attach a controversial measure to a must-pass bill) may be raised in negotiations. The idea of weakening or repealing the Johnson Amendment has been raised in meetings as a potential rider and could appear in a bill proposed as early as March 14.
Treasury Secretary Steve Mnuchin continued his rounds on Capitol Hill this week, testifying in front of the House Appropriations Committee about the administration’s proposed FY 2019 budget.
Regarding how involved the Office of Management and Budget (OMB) will be in the process of developing guidance and rules to implement the new tax legislation, Sec. Mnuchin shared that “There’s no dispute [between Treasury and OMB]… We’re in conversations with them and working through various different things.”
On the other side of Capitol Hill, Senate Finance Committee Chairman Orrin Hatch (R-UT) has weighed-in on budget discussions, stating his support for increased funding for the IRS. According to The Hill, “Senate Finance Committee Chairman Orrin Hatch (R-Utah) said Thursday that's he's looking at getting the IRS more money to help implement the new tax law. ‘I want to help them down there,' Hatch said at an event at the American Enterprise Institute. 'I think they do a very, very good job, much better than people give them credit for.’”
On March 5, the Council, in partnership with the International Center for Not-for-Profit Law (ICNL), hosted a policy briefing for congressional staff in the House on a proposed expansion of the Foreign Agents Registration Act (FARA). FARA became law in 1938 to track foreign influence on U.S. policy and laws—particularly to combat Nazi propaganda in the lead up to World War II. It requires such individuals to register with DOJ and report all lobbying materials so that the U.S. government can remain aware of their efforts to influence public policy. Registered individuals are also required to report regularly to DOJ and clearly communicate to the public about working on behalf of a “foreign principal,” or otherwise be subject to criminal penalties for noncompliance.
Due to the indictments of former National Security Advisor Michael Flynn, and former Trump campaign officials Paul Manafort and Rick Gates, DOJ has increased its attention on American actors working on behalf of foreign governments. On October 31, 2017, the Disclosing Foreign Influence Act was introduced in the House, seeking to close exemptions within FARA and increase enforcement. Because the law is vague and has been largely dormant since its passage, the Council and ICNL are concerned that these changes could have the unintended consequences of punishing nonprofits working internationally, creating administrative and financial burdens, invasion of privacy, and the stigma of being officially labeled as “foreign agents.” Some organizations may cease engaging in charitable activities to avoid such hardships.
The briefing featured Nick Robinson, legal advisor for ICNL; Tom Susman, director of the governmental affairs office at the American Bar Association; and, Melissa Hooper, director of the Human Rights and Civil Society program for Human Rights First.
Additionally, the Council co-hosted a webinar yesterday with ICNL highlighting concerns for non-profits and foundations about FARA. The recording will be available online shortly.
The Council on Foundations wrote, on behalf of our members, to the U.S. Department of Treasury and Internal Revenue Service (IRS) in response to Notice 2017-73—which was released on Dec. 4, 2017, and requested comments on the application of penalties with respect to donor advised funds (DAFs) in three distinct situations where a Donor/Advisor:
- Recommends a distribution from his/her DAF to a grantee organization to support a charitable event or fundraiser, or membership fees, where the donor advisor receives more than an incidental benefit;
- Recommends a distribution from his/her DAF to satisfy a pledge that he/she made to a qualified charitable organization (donee); and,
- Uses a DAF as an intermediary to contribute money to a small charity to avoid “tipping” the public charity into private foundation status, which may occur in cases of large gifts from individuals.
The notice describes the current position and approaches the agencies are considering to address these situations, which they see as problematic.
The Council’s comments highlight our concerns about an overbroad approach where perfectly appropriate distributions from a DAF could be subject to penalty, and note our preference for a narrowly-tailored approach to target only the particular situations which Treasury and IRS find troubling (with specific recommendations for how to achieve that).
Last week, President Donald Trump nominated Michael Desmond to be the chief counsel for the IRS. According to POLITICO’s Morning Tax, “IRS chief counsel isn’t an easy job under normal circumstances, but the agency is under even more pressure these days because of its role in helping to implement the new tax law. But a couple of tax practitioners told Morning Tax that Desmond’s experience—both in private practice, most recently in Santa Barbara, Calif., and at both the Justice and Treasury departments—would help him navigate implementation problems and other tax administration challenges.”
The White House noted in its March 2nd press release, “For the past six years, Mr. Desmond has run his own law firm, representing businesses and individuals before the Internal Revenue Service, state tax authorities, and in court proceedings. Mr. Desmond was previously a partner in a global law firm. Mr. Desmond clerked for Judge Ronald S.W. Lew of the United States District Court for the Central District of California.”
Earlier this week, former Goldman Sachs executive Gary Cohn announced his resignation as White House economic advisor. His announcement came shortly after President Trump announced stiff tariffs on imported steel and aluminum, a move Cohn was against.
According to NPR, “Cohn, a registered Democrat, had no political experience when he took the job as director of Trump's National Economic Council, but he was no stranger to rough-and-tumble debate, having started his professional career in the commodity pits of the New York Mercantile Exchange [NYMEX]. ‘I think he's gone from the trenches to the trenches,’ said Richie Schaefer, a friend of Cohn's and former NYMEX chairman. Schaefer praised Cohn's ability to navigate smoothly among competing factions. ‘The old NYMEX was a contact sport,’ he said. ‘You might have someone who is an ex-policeman and then you might have someone who went to MIT or Harvard. And they're all trading on the same floor. Gary was very helpful in that.’ But Cohn appears to have lost an internal struggle over steel and aluminum tariffs to the administration's protectionist wing, led by Commerce Secretary Wilbur Ross and trade adviser Peter Navarro.”
Cohn’s resignation comes at a time when there has been a historic amount of turnover in the White house, with 43 percent of top-level staffers having departed. NPR notes, “‘After two full years, President Obama was at 24 percent and President Bush was at 33 percent,’ said Kathryn Dunn Tenpas of the Brookings Institution and the White House Transition Project, whose research specialty includes staff turnover. ‘So, [Trump] already passed them with his first-year turnover. It continues to surge.’”
Exclusive from our colleagues at the National Council of Nonprofits.
Members of Congress are requesting answers about state efforts to help taxpayers overcome the $10,000 cap on state and local tax (SALT) deductions under the new federal tax law. State lawmakers in at least eight states (Connecticut, California, Illinois, Nebraska, New Jersey, New York, Virginia, and Washington State) are considering, or have considered, legislation to allow taxpayers to make charitable donations to government “charities” and treat the payments as charitable deductions under the new federal tax law. Referencing various SALT workaround state bills, Illinois Democratic Senators and Representatives in Congress wrote the Republican Governor asking how he plans “to protect Illinois residents who will now be double taxed on state and local taxes over $10,000.” They point out that 1.9 Illinois households (31 percent) claimed the SALT deduction in 2015 and averaged $12,523 in deductions and cite SALT workaround legislation in other states as they pledge to work with Governor Rauner “to mitigate the negative impacts” of the federal tax law.
At this stage, no one knows whether the Internal Revenue Service will recognize the SALT workaround payments as charitable, and thus deductible. To resolve this question, New York U.S. Representative John Faso is asking the U.S. Treasury Department’s Office of Tax Policy to determine whether state workarounds of the federal cap on SALT deductions, if passed and implemented, would be legal. Faso, who voted against the Tax Cuts and Jobs Act reportedly because of the SALT issue, is asking for an opinion letter on whether “such payments or contributions meet the test for a charitable deduction” and whether the “IRS has begun evaluating the validity of these and similar proposals.”
Inconsistent Interpretations of Partisan Speech in Texas
The Office of the Texas Attorney General is requesting that local school districts stop engaging in partisan electioneering and supporting political candidates for office. In letters sent last month, the Attorney General’s office alleges that the Brazosport, Holliday, and Lewisville districts are violating state law by using taxpayer money to distribute messages advocating for specific candidates and policies to their staffs. Citing various communications in which paid staff of the school districts appear to endorse candidates for public office, the letters warn, “Like all state authorities, school districts ‘may not use state or local funds or other resources to electioneer for or against any candidate, measure, or political party.’”
The targeting on partisan speech is noteworthy because the Texas state law is remarkably similar to the language in federal tax law, known as the Johnson Amendment, that also prohibits endorsements of and opposition to candidates for public office by charitable nonprofits. Both the Texas statute and the Johnson Amendment prevent certain organizations from engaging in partisan politicking for or against candidates. Yet, last year, the Texas Attorney General joined with the state’s Governor in sending a letter to Republican congressional leaders expressing strong support for legislation that would significantly weaken the Johnson Amendment.