In This Week's Edition of Snapshot…
- Johnson Amendment Attack Reiterated by Sen. Lankford
- Bills to Repeal UBIT Changes Introduced in Senate
- Bill to Reinstate Schedule B Requirements for All Nonprofits Introduced in Senate
- Senate Finance Votes to Advance Treasury/IRS Nominations
- Appropriations Continue Moving Swiftly, Although Roadblock Looms in the Distance
- IRS Releases Final Regulations on Charitable Contribution Substantiation
- In the States: Boston Continues Targeting Nonprofit Property Tax Exemption
On Monday, Sen. Jim Lankford (R-OK) reiterated his opposition to the “Johnson Amendment” at a Department of Justice event on religious liberty (Sen. Lankford’s comments on the subject begin at 3:36:49). The Johnson Amendment prohibits charitable 501(c)(3) organizations from participating in, or intervening in (including the publishing and distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office.
Sen. Lankford stated, "We still need, quite frankly, to be able to work on something so simple as something called the Johnson Amendment. The Johnson Amendment is such an interesting thing. It puts in our law the ability for the government to reach in and add additional tax to a non-profit entity if they dare to speak out against a government official. Where else in our law do we have that? The ability to say, ‘You’re a non-profit, and you can only stay a non-profit if you don’t speak out against a particular government official.’ In our nation, we have freedom of speech, and we have the right for individuals to be able to live their faith. And if a time, a non-profit group has an issue with an elected official they should be able to speak out against that. They can speak out about issues, just not about people. At some point that needs to be fixed. We have issues that still need to be resolved."
However, the Council—and more than 5,800 organizations across the country—disagree with the premise that the Johnson Amendment is a religious freedom issue. It is in place to keep the nonprofit sector nonpartisan, and a repeal of the amendment would have far-reaching, and potentially devastating effects, on charities, foundations, and nonprofits by allowing unlimited and tax-deductible money to flow through them and into the political process.
Yesterday, Sen. Ted Cruz (R-TX) introduced the Protect Charities and Houses of Worship Act (S. 3317) to repeal the two major unrelated business income tax (UBIT) changes made under the 2017 tax code overhaul: 1) the requirement that tax-exempt organizations compute unrelated business income separately for each trade or business activity, and 2) the application of UBIT on the exempt organization’s fringe benefits provided to their employees, such as transportation benefits and access to on-premises gyms.
Sen. Cruz’s bill is an identical companion bill to the Nonprofits Support Act (H.R. 6037)—which was introduced in the House by Rep. Mike Conaway (R-TX) on June 7, 2018.
Yesterday also saw the introduction of the Senate version of the Lessen Impediments from Taxes (LIFT) for Charities Act (S. 3332) by Sen. Jim Lankford (R-OK). This legislation would only eliminate the UBIT owed on employee fringe benefits. Last week, Rep. Mark Walker (R-NC) introduced the House version of this bill (H.R. 6460).
Last Thursday, Sen. Jon Tester (D-MT) introduced the Spotlight Act (S. 3284) to reverse a recent action by the Department of Treasury eliminating a longstanding policy requiring that most nonprofits file the IRS Form 990 Schedule B—which requires the disclosure of names and addresses of donors who contribute $5,000 or more in the filing year.
Prior to this action, all tax-exempt organizations described under 501(c) were required to file this information in accordance with IRS regulations, although only 501(c)(3)s were subject to these requirements by law. Under the new Treasury policy, only 501(c)(3) charities are required to file this information. The result is that many nonprofits that engage in political activity, such as 501(c)(4)s, will not have to share information with Treasury or the IRS about who is funding their electoral and campaign efforts.
“Montanans are sick and tired of out-of-state dark money trying to buy our elections. The Spotlight Act will shed more light on the anonymous ads that flood our mailboxes and airwaves,” Sen. Tester stated in a press release. The bill currently has 26 cosponsors—all of whom are Democrats.
Yesterday, the Senate Finance Committee held a hearing to vote on the nomination of Justin Muzinich for deputy Treasury secretary and Michael Desmond for IRS chief counsel and assistant general counsel at Treasury.
During the hearing, Ranking Member Ron Wyden (D-OR) put a hold on Mr. Muzinich’s nomination. Sen. Wyden’s actions come after several requests to the Treasury department for oversight information received no answer. Despite Sen. Wyden’s procedural maneuver, Mr. Muzinich’s nomination moved out of Committee on a party line vote.
Mr. Desmond’s nomination cleared the Committee by a larger margin, with 25 senators in favor and only two—Bob Menendez (D-NJ) and Sheldon Whitehouse (D-RI)—against it.
Sen. Wyden expressed discontent with Treasury’s consideration of adjusting taxes on capital gains for inflation, as well as the Department’s recent decision to end its longstanding policy of donor disclosure requirements for most nonprofits (Schedule B)—which includes a wide variety of political groups.
Congress continues to move swiftly on the appropriations bills, which is surprising given the struggles they have had in recent years to pass spending bills before the beginning of the government’s fiscal year (Oct. 1). According to the Wall Street Journal, “The Senate is expected to pass this week a package of four spending bills with bipartisan support, on top of a trio passed in late June [they passed the package yesterday afternoon]. The House, meanwhile, has been passing more partisan spending bills at its own brisk clip. While lawmakers will have to hash out their differences, they still are far closer to funding most of the government for the next fiscal year than they typically are at this point—two full months before current funding expires at 12:01 a.m. on Oct. 1.”
However, President Donald Trump is threatening to derail the legislative branch’s progress towards funding the government in order to secure funding for a border wall. The Journal goes on to note, “On Tuesday, Mr. Trump tweeted, ‘A Government Shutdown is a very small price to pay for a safe and Prosperous America,’ reiterating his warnings from Sunday and Monday. ‘I don’t care what the political ramifications are, our immigration laws and border security have been a complete and total disaster for decades, and there is no way that the Democrats will allow it to be fixed without a Government Shutdown,’ Mr. Trump tweeted Tuesday.”
It will be interesting to see if Congress heeds any of President Trump’s warnings or if he will back down from his shutdown threats, given that Republicans already face a tough challenge in retaining the majority in the House in the upcoming midterm elections. A government shutdown a month before the elections will likely not reflect well on Republicans as they control both chambers of Congress and the presidency.
On Monday, the Internal Revenue Service (IRS) issued final regulations providing guidance on charitable contribution substantiation and reporting requirements. These regulations are the final version of proposed regulations from 2008 and reflect changes made under the American Jobs Creation Act of 2004 and the Pension Protection Act of 2006.
Specifically, these regulations address:
- The substantiation requirements for contributions of more than $500 under section 170(f)(11)(B) through (D)
- The new definitions of qualified appraisal and qualified appraiser applicable to non-cash contributions under section 170(f)(11)(E)
- The substantiation requirements for contributions of clothing and household items under section 170(f)(16)
- The record-keeping requirements for all cash contributions under section 170(f)(17)
The Council is still reviewing these regulations and will provide a more in-depth analysis in a future edition of Snapshot.
Exclusive from our colleagues at the National Council of Nonprofits.
The Mayor of Boston has released Boston’s annual report on how willingly nonprofit property owners comply with the City’s demand for “voluntary” payments in lieu of taxes (PILOTs), and he remains dissatisfied. Since the previous mayoral administration, Boston has been sending mock tax bills to tax-exempt owners of property valued at more than $15 million based on an arbitrary formula of what the City claims is the nonprofits’ share of public services. Through its annual public report of contributions, the City discloses the amount paid by nonprofits into the treasury, and in that way seeks to publicly showcase or shame each educational, medical, and cultural institution listed. This year’s report found the targeted organizations paid $33.6 million in cash contributions ($1.2 million more than last year) and $43.5 million in community benefits credits, totaling 74 percent of the requested amount by the City. Among those, cultural organizations were the least likely to make the voluntary payments demanded by the City (contributing about 50 percent), while educational institutions paid about 60 percent, and hospitals came closest to satisfying public demands by contributing 94 percent of the $44.5 million requested.
The Boston PILOT scheme has been justified in the past on the grounds that half of the property in the City is exempt from taxation, but only six percent of tax-exempt property is actually owned and used by charitable nonprofits. "Nonprofits in Boston are key partners in improving communities, helping to drive Boston’s economy, and making the City a cultural destination,” said Jim Klocke, CEO of the Massachusetts Nonprofit Network. “The current PILOT program generates millions in voluntary cash payments and millions more in community benefits, including programs and services that are flexible and tailored to particular needs throughout the City of Boston. PILOT conversations should include the pressures that nonprofits are feeling from rising demands for their services and the new costs of the new federal tax bill."