Wednesday, May 9, 2018
Yesterday I wrote about the discretion New Zealand gives to administrators to assess the benefit of policy views, and I mentioned that this is not usually the approach we follow in the United States. But this has not always been the case. Indeed, governments in the US have a long history of abusively denying incorporation or the right to solicit donations to unpopular causes. Perhaps the best known/most egregious example is the outlawing of the NAACP in southern states in the 1950s. But there are many examples, including several that attempted to exclude organizations advocating for the decriminalization of LGBT people such as a bill that outlawed gay rights organizations that passed the US House. [Note: this post quotes materials that are offensive.]
Friday, February 23, 2018
Ellen Aprill (Loyola-LA) previously pointed out that there is an apparent glitch in the newly enacted excise tax on compensation over $1 million dollars for tax-exempt organization employees, in that new section 4960 does not appear to apply to public universities even though the public and maybe Congress thought that it would. Now Bloomberg Law reports that a Joint Committee on Taxation official has stated that a correction is needed to make it clear that public universities are within the ambit of this excise tax. More specifically, she said that the provision "requires a statutory technical correction" to resolve this issue. Whether such a correction will be forthcoming, or indeed any corrections to the recent tax reform legislation, remains to be seen.
Wednesday, February 21, 2018
Last week the U.S. Court of Appeals for the Second Circuit issued an opinion rejecting federal constitutional and other challenges to New York regulations requiring "charitable organizations" to disclose the identities of their significant donors to the state's Attorney General by submitting copies of Schedule B from the annual information returns (Form 990) they file with the IRS. In Citizens United and Citizens United Foundation v. Schneiderman, the section 501(c)(3) Citizens United Foundation and the section 501(c)(4) Citizens United organizations challenged the regulations on First Amendment, Due Process, federal preemption, and state constitutional grounds.
With respect to the First Amendment challenge, the court rejected the organizations' arguments that the required disclosure would intimidate potential donors from contributing and operated as a presumptively unconstitutional prior constraint. Disagreeing with the organizations' argument that strict scrutiny applied, the court instead applied exacting scrutiny and concluded that the state's interests in preventing fraud and self-dealing in charities were sufficient to support the limited chilling effect of the required disclosure to the Attorney General, especially given that the disclosure did not go beyond that office. The court also found that regulations did not constitute the sort of prior restraint that is presumed to be unconstitutional.
With respect to the other claims, the court found that the Due Process claim was ripe for consideration (contrary to what the District Court had concluded), but rejected the claim on its merits. The court also rejected the federal preemption argument and the state constitutional claim that the Attorney General lacked the authority to include organizations classified as social welfare organizations under section 501(c)(4) of the Internal Revenue Code within the ambit of "charitable organizations" for purposes of the AG's authority under state law.
Presumably the organizations will seek certiorari, so the final chapter has yet to be written in this developing case.
Thursday, February 15, 2018
Section 41110 of the Bipartisan Budget Act of 2018 includes the so-called Newman’s Own provision – an amendment to Code Section 4943 (the private foundation excise tax on excess business holdings) that would allow a private foundation to own a significant stake in an operating business under certain circumstances. By all reports, the foundation that owns Newman’s Own is subject to Code Section 4943, and would need to liquidate its holdings in the company in short order without legislative changes to Code Section 4943.
As you may know, Code Section 4943 provides that a private foundation may not own an “excess” holding in a operating business. Very generally, the excess holding for an operating business in corporate form is equity having 20% of the corporation's voting power reduced by the voting power held by “disqualified persons” – typically, substantial contributors, foundation managers, and their family and related entities under Code Section 4946. If a foundation holds an excess business holding by gift or inheritance (e.g., Paul Newman dies and leaves all his stock to his foundation), the foundation has five years to dispose of the excess holding. If the foundation could demonstrate that it could not dispose of the holding despite its efforts during that five year period, the Service could grant a discretionary additional five years.
New Code Section 4943(g) would allow a private foundation to hold 100% of the voting stock of an operating business if it acquires those interests by gift, it receives the net operating income of from the business annually, and the business and the foundation are operated independently, as determined by certain board composition rules. Presumably, this would allow Paul Newman's foundation to continue to own Newman's Own and receive the proceeds from operation.
I am not going in to the details of the actual language of the statute (yet…) – there are some questionably drafted provisions (shocking…) that raise some issue I’m still thinking about. No worries, I’m here all week.
That being said, I am troubled by this provision as a general matter. First, the idea of changing statutes for specific taxpayers, no matter how well-intentioned and deserving (I love the salsa….), is always distasteful to me. Now, I’m not so naïve that I don't know that it happens all the time (I’m looking at you, motorsports facilities and the Orange Bowl and race horses…) but it doesn’t mean it’s good practice and one that should be lauded.
More to the substance, however, this new provision really flies in the face of the whole purpose of Code Section 4943. If you read the legislative history (which I have and have helpfully summarized for you here: (shameless plug): Better Late Than Never: Incorporating LLCs Into Section 4943)), you find that the original intent behind Code Section 4943 was not really about prohibiting self-dealing. After all, Code Section 4941 (the self-dealing prohibition) was passed at the same time. Code Section 4943 is about focus: is the foundation focusing on its charitable endeavors, or it is spending a more than insubstantial amount of its time running a business? It is, to some degree, understandable that the foundation would pay close attention to the primary source of its income. That being said, the source of the private foundation’s exemption is its charitable program, and if that program suffers in the shadows of operation of a substantial business subsidiary, what is the point of exemption? Do we still believe that the destination of income test is not a thing? In my mind, none of the requirements of new Code Section 4943(g) address this concern directly.
I suspect my discomfort will grow as my estate planner hat takes over, but in the meanwhile, pass the tortilla chips.
P.S. I know “It’s In There” was Prego – you try making a pithy headline involving tax and pasta sauce.
Tuesday, February 13, 2018
I’m scrolling through the Bipartisan Budget Act of 2018 (the “BBA”)(P.L. No. 15-123 signed on February 9, 2018 – enrolled bill from Thomas.gov here) in my leisure time. It appears that there are two provisions that directly impact exempt organizations, as follows:
- Section 41109 of the BBA clarifies the application of the investment income excise tax for private colleges and universities. As you may recall, Section 13701 of the legislation formerly known as the Tax Cuts and Jobs Act (TCJA) added new Section 4968, which imposes an excise tax on the investment income of certain private colleges and universities. This new excise tax only applies to private colleges and universities that have at least 500 students, more than 50% of which are located in the U.S. The BBA clarifies that this refers to “tuition paying” students only – but of course, it didn't actually give us a statutory definition of “tuition paying.” Full tuition? External scholarship? Internal scholarship? Tuition waiver? Work study? Have fun with the counting, university admin types.
- Section 41110 of the BBA contains the Newman’s Own provisions by adding Code Section 4943(g) (h/t to Evelyn Brody for the CT Mirror article). These provisions were originally in the TCJA but were struck by the Senate Parliamentarian for having insufficient budget impact. I will have more to say about Section 4943(g) in another post.
Unless I missed it (let me know if I did!), absent from the BBA are the following: (1) the Johnson Amendment provisions that were also struck from the TCJA by the Senate Parliamentarian, and (2) the technical fix to the exempt organization excess compensation excise tax found in new Code Section 4960 that would actually make it applicable public universities - as apparently was originally intended but, as discussed by Professor Ellen Aprill, there was a significant drafting fail. (I heard a rumor that someone from the IRS agreed at the ABA Tax meeting that the technical fix was, in fact, necessary - can anyone confirm?) If only there were a process by which Congress could talk to experts like Ellen before it finalized draft legislation…
Tuesday, January 2, 2018
James Fishman, Stephen Schwarz, and I have written supplemental update memos for our Nonprofit Organizations casebook reflecting the recently passed federal tax legislation. One update is for students and the other is for teachers. Foundation Press should make them available shortly, but for those of you who need them urgently please email any of us and we can send them directly to you.
Saturday, December 30, 2017
The end of 2017 brought significant new tax legislation. Although the Johnson Amendment remained intact, the increase in the standard deduction means that fewer people will itemize deductions, which, in turn, effectively eliminates the value of the charitable deduction for many US taxpayers. The Washington Post article "Charities fear tax bill could turn philanthropy into a pursuit only for the rich" catalogs worries by major nonprofits' leaders that donations will drop and the shift will be towards wealthier donors. On his blog, Alan Cantor warns that "An earthquake just hit the nation," and the tax changes will reduce the funds to the sector and increase the power of the wealthiest at the very time when nonprofits will face greater demands. The Wall Street Journal editorial board, however, was unimpressed, publishing a sharp critique entitled "Uncharitable Charities:"
These nonprofits want to keep millions of Americans filing more complicated tax forms and paying higher tax rates. They also sell Americans short by assuming that most donate mainly because of the tax break, rather than because they believe in a cause or want to share their blessings with others. How little they respect their donors.
How will the nonprofit sector fare in 2018?
Thursday, November 16, 2017
The Tax Reform Moving Target: The Shrinking Charitable Contribution Deduction (+ Slamming Rich (Private) Universities)
Given the uncertainty regarding whether Congress will enact tax reform, much less what will be in it, trying to analyze how it could affect charities and other tax-exempt nonprofits is probably a lost cause. But there are at least two aspects of the current proposals that are worth consideration, if only because they likely will resurface even if Congress does not enact them this time around.
Overall Changes Will Shrink the Charitable Contribution Deduction: Despite all the uncertainty, certain overall changes have remained constant: sharply increasing the standard deduction, lowering tax rates for at least some taxpayers, and reducing or repealing the estate tax. All of these changes will reduce or eliminate the importance of the charitable contribution deduction for many taxpayers and so reduce the incentives for charitable giving. How much? No one knows for sure, although the Indiana University Lilly Family School of Philanthropy made some estimates last May and the Tax Policy Center of the Urban Institute and Brookings Institution has made a more recent reduced giving estimate of between $12 billion and $20 billion in 2018 giving based on the House bill).
Today's Bad Guys: Rich (Private) Universities: Several provisions that provide modest revenues are targeted at wealthy colleges and universities, including a small investment income tax on large (relative to student population) endowments. In addition, several more general provisions would hit colleges and universities particularly hard, including the elimination of tax-exempt bonds as a source of financing for tax-exempt charities, an excise tax on compensation over $1 million paid by tax-exempt entities, and the repeal of many education-related tax benefits. It appears, however, that some of these provisions do not reach public colleges and universities, specifically the endowment investment income tax and the tax-exempt bond financing provisions. If not rectified, these differences would give public colleges and universities an advantage over their private counterparts, although how significant and advantage is unclear. For more, see the National Association of College and University Business Officers (NACUBO)'s website summarizing and raising concerns about these and other education-related tax reform provisions.
Thursday, November 2, 2017
House Republicans' Tax Bill Preserves Charitable Contribution Deduction, But Will It Be Less Utilized?
According to The New York Times (here and here), Republicans in the House of Representatives release proposed legislation today that would institute some significant changes to the Internal Revenue Code. Although the tax bill preserves the charitable contribution deduction, significant changes to the standard deduction may result in even less taxpayers itemizing their deductions. The proposed tax bill nearly doubles the amount of the standard deduction and eliminates the personal exemption. Presently, approximately 30% of filing taxpayers elect to itemize their deductions. According to the Tax Policy Center, 84% of taxpayers who currently elect to itemize would take the standard deduction as proposed under this bill.
According to The Washington Post, the National Council of Nonprofits warned that charitable deductions will decrease under this legislation as many middle- and upper-middle-class taxpayers would likely not elect to itemize, thus losing any tax benefit of making charitable contributions. Republicans counter that assertion by concluding that such taxpayers should give more to charities due to decreased tax bills. Stay tuned for more response from the charitable sector as well as calculated effect of the proposed change on the charitable contribution deduction.
Monday, October 9, 2017
The Johnson Amendment--which prohibits 501c3 exempt organizations from engaging in partisan political activity--is under repeated attack this year. In mid-September, the U.S. House of Representatives approved an appropriations bill with a rider that prohibits the IRS from enforcing the Johnson Amendment against any "church" unless "the Commissioner of Internal Revenue consents to such determination" and the IRS provides notice to Congress. Two other bills would weaken the Johnson Amendment by allowing 501c3 nonprofits to engage in an insubstantial amount of politicking (similar to lobbying rules). An earlier Executive Order on the subject turned out to be legally meaningless.
Thousands of nonprofits joined the National Council of Nonprofits to call for keeping the Johnson Amendment as a needed tool to preserve the sector's nonpartisanship. Many faith groups have also opposed changes that might lead to politicizing houses of worship. Recently, National Association of State Charities Officials (NASCO) penned a letter, unsurprisingly favoring more regulation over less, and thus opposing any relaxation in federal tax law.
It's surprisingly difficult to find dispassionate, non-hyperbolic views about the Johnson Amendment and the consequences of its reform-- particularly more modest amendments such as the proposal to allow incidental political activity. I take a closer look at some of the arguments below the fold:
Friday, September 15, 2017
As the use of donor advised funds grows, so does the legal attention to donor advised funds. All of this attention started in (what seems like forever ago…) 2006, with the passage of the Pension Protection Act. Since that time, we have seen the PPA-mandated Treasury study released in 2011, as well as a Congressional Research Service study on DAFs in 2012. In addition, the National Philanthropic Trust releases an annual DAF report, the 2016 version of which can be found here. Information and opinions abound, and yet, we still wait patiently for regulations under the donor advised fund excise taxes passed in 2006. I’m quite certain those regulations will be arriving Soon.™
In the latest installment in the DAF oversight drama, Congress may now be considering mandatory payouts from DAFs as part of a larger tax reform effort. Earlier this summer, Professors Ray Madoff of Boston College and Roger Colinvaux of Catholic University wrote to the Senate Finance committee to suggest a number of DAF reforms, including a mandatory payout proposal for DAFS (the Madoff/Colinvaux letter can be found here).
This week, the DAFs responded. In their own letter to Senate Finance, a number of DAF sponsors set out the arguments in opposition to a mandatory DAF payout. WealthMangement.com has a good summary of the DAF executive letter here, although I admit I can’t yet find a copy of the letter itself (if anyone has it ... please share if you can!)
Personally, I think that the term “DAF” covers such a wide variety of accounts that a mandatory proposal might be harmful for some and yet not enough regulation for others. But that’s another blog post, or maybe an article ….
Thursday, June 22, 2017
No one knows what is going to happen with tax reform, which means now is the perfect time to speculate wildly about how Congress may help or hurt tax-exempt nonprofits if and when it actually does something.
Tax Simplification: If Congress follows the President's lead and simplifies in part by sharply increasing the standard deduction, it will make the charitable contribution deduction irrelevant to an even greater proportion of U.S. households as the number of itemizers shrinks significantly. According to an Indiana University Lilly Family School of Philanthropy report, this change alone could reduce charitable giving by an estimated $11 million annually, and if combined with a lower top tax rate of 35% they could together reduce charitable giving by $13.1 billion. To put these figures in perspective, the most recent Giving USA report reported $282 billion in donations from individuals for 2016.
Non-Itemizer Deduction: One proposal to counter this effect is a charitable contribution deduction for non-itemizers, as long advocated for by Independent Sector among others. The Lilly Family School of Philanthropy report estimates that allowing non-itemizers to deduct their charitable contributions would more than offset the negative effect on contributions from the standard deduction increase and rate reduction proposals. That said, it is hard to see how this proposal could have much chance of success given both its revenue cost and the administrative and enforcement complexity it introduces, particularly in an era of reduced IRS examinations. For an analysis of some of these issues, see this October 2016 Urban Institute report.
The Ghost of Rep. Camp: While Dave Camp is not dead he is no longer in Congress, which you would think would limit his influence over current tax legislation. But he did something brilliant when he was driving the tax reform bus as Chair of the House Ways & Means Committee several year ago: he went through the laborious process of actually drafting legislative language and having the result analyzed and scored by the Joint Committee on Taxation. This means that both the specific language and revenue effects of each provision of the Tax Reform Act of 2014 is available to be pulled off the shelf and deployed immediately as part of any current tax reform legislation. As detailed on pages 535-598 of the JCT report, this includes numerous provisions relating to tax-exempt organizations, including a number of limitations on the existing charitable contribution deduction. Especially if some revenue raisers are needed to pay for other aspects of tax reform, I expect to see some of Rep. Camp's proposals reappear in current legislation.
The Charities Helping Americans Regularly Throughout the Year Act of 2017: Given the uncertainty about the content, timing, and even liklihood of major tax reform legislation, it is a good idea to have a backup plan. The CHARITY Act (I do not know where they got the "I" from) is a modest, bipartisan attempt to tweak the existing tax laws for tax-exempt charities. Its provisions include simplifying the private foundation investment tax under section 4940, making donor advised funds eligible for IRA rollover contributions, increasing the mileage rate applicable to personal vehicle use for volunteer charitable activities, creating an exception to the private foundation excess business holdings rules under section 4943 (can you say Newman's Own Foundation?), and an electronic return filing requirement for all tax-exempt nonprofits.
I look forward to months if not years of further crystal ball gazing on these topics.
Journalists have a constant interest in charity private benefit stories, particularly ones with a political angle. And unfortunately they seem to be able to find them. Recent reports raising questions about plain vanilla (non-political) private benefit have focused on a variety of donors and charities, including New England Patriots' quarterback Tom Brady, the James G. Martin Memorial Trust in New Hampshire, and billionaire Patrick Soon-Shiong. But not surprisingly reporters have paid even greater attention to situations relating to politics and politicians, including ones involving the Eric Trump Foundation, Boston mayoral hopeful Tito Jackson, President Trump's chief strategist Stephen Bannon, and the Daily Caller News Foundation. These stories are distinct from ones relating to the use (and possible misuse) of charities for political purposes more generally, such as the recent article regarding the David Horwitz Freedom Center.
I should emphasize that none of these situations have resulted so far in any apparent civil or criminal penalties, and in some instances the facts described may not cross any legal lines. Indeed, the only one of these situations that appears to have drawn government scrutiny so far is the one involving the Eric Trump Foundation, which New York Attorney General Eric Schneiderman has said his office is looking into.
The same cannot be said of three other situations that involve the possible misuse of charitable assets. One, relatively minor situation relates to the admitted access of the Missouri Governor's political campaign to a charity's donor list without apparently the charity's knowledge or permission. Two other situations are more serious in that they each involve hundreds of thousands of dollars. In March, a federal grand jury indicted former U.S. Representative Stephen Stockman and an aide on charges relating to the alleged theft of hundreds of thousands of dollars from conservative foundations to fund campaigns and pay for personal expenses. (More coverage: DOJ Press Release.) And last month a federal jury convicted former U.S. Representative Corrine Brown of raising hundreds of thousands of dollars for a scholarship charity, funds that she then used for her own personal and professional purposes. (More coverage: N.Y. Times.)
The various lawsuits that grew out of the IRS exemption application controversy continue their slow grind with discovery ordered in the Linchpins of Liberty and True the Vote cases (which are before the same judge in the U.S. District Court for the District of Columbia), a protective order keeping the depositions of Lois Lerner and Holly Paz confidential in the class action NorCal Tea Party Patriots case in the U.S. District Court for the Southern District of Ohio, a court-ordered July 24th mediation conference in the same case, and an April 21st hearing on the motion for partial judgment pending in the Freedom Path case in the U.S. District Court for the Northern District of Texas, at which apparently nothing exciting happened as I could not find any media coverage of the hearing. In fact, as far as I can tell no one is paying any attention to these cases at this point except for the parties, their lawyers, a few minor conservative news outlets, and the Bloomberg BNA Daily Tax Report (the last two links are to stories by them (subscription required), and even they ignored the April 21st hearing).
In related news, the Federal Election Commission's inspector general's office recently concluded that FEC employees did not violate any rules when they communicated with the IRS about politically active groups. (More coverage: Bloomberg BNA (subscription required)). And Congress extended the various budget-related provisions it created in the wake of the controversy, including the prohibition on using any funds to issue guidance under section 501(c)(4) for the rest of the current fiscal year (so through September 30, 2017). Finally, the American Center for Law and Justice (which is representing the plaintiffs if some of the above lawsuits) announced that the Tri-Cities Tea Party received a favorable determination letter from the IRS under section 501(c)(4) seven years after filing its application.
Wednesday, March 15, 2017
In case we needed any reminders that litigation takes a long time, the past several months have seen a few minor developments in the litigation that grew out of the section 501(c)(4) application controversy that exploded in May 2013 (!). In no particular order:
- The Supreme Court denied certiorari in True the Vote, Inc. v. Lois Lerner, et al., No. 16-613, and a related case, rejecting the plaintiffs' attempt to get the Bivens claims against Ms. Lerner and other IRS officials reinstated. The underlying case of True the Vote, Inc. v. IRS, et al. continues in the U.S. District Court for the District of Columbia as Civil Action No. 13-734, without the Bivens claims and so limited to injunctive and declaratory relief, along with the related case of Linchpins of Liberty v. United States, et al., Civil Action No. 13-777, in the same court. UPDATE: I should have noted in my original post that a case raising similar claims is also proceeding in the U.S. District Court for the Northern District of Texas (Freedom Path, Inc. v. Lerner, Civil Action No. 3:14-CV-1537-D), although there have been no major developments in that case since a decision last May on the government's motion to dismiss.
- A class action lawsuit continues in the U.S. District Court for the Southern District of Ohio, NorCal Tea Party Patriots, et al. v. IRS, et al., Civil Action No. 13-341, after the judge in the case ruled late last year that the IRS had to continue processing the application of one of the class members (the Texas Patriots Tea Party).
- Judicial Watch announced the IRS has discovered an additional 6,924 responsive documents relating to Judicial Watch's pending FOIA lawsuit against the IRS (U.S. District Court for the District of Columbia, Civil Action No. 15-220); it is not clear if these documents contain any new information, and the timetable for public disclosure of the documents is uncertain.
At the same time, Republican leaders in Congress have shown no appetite for pursuing impeachment of current IRS Commissioner John Koskinen even as conservative members argue for it and the Trump administration has quietly avoided demanding Koskinen's resignation even in the face of calls to fire him. For recent coverage, see The Hill and the Washington Post. It is hard not to imagine that the Commissioner is silently counting the days until his term ends in November, however. It will also be interesting to see who will be willing to replace him in the current political environment.
Monday, March 13, 2017
Last year Congress began hammering away again at the topic of university and college endowments, sending letters to 56 private universities with endowments exceeding $1 billion about how they use that money (see, for example, this Washington Post story). Yet in in its current session the topic appears to have fallen off at the least the public legislative agenda. While this is likely in part because of the many other controversial items on that agenda, part of the explanation may also lie with the recent struggles universities and colleges have faced relating to their endowments. The most recent survey of endowment returns and spending showed both a negative return on average for the endowments at 805 institutions and increased spending for the year ended June 30, 2016, according to a Bloomberg story (see also this Washington Post story). These disappointing results in the face of increasing financial demands have led to the major restructuring of at least one endowment fund office, with Harvard University laying off half of its investment group's employees according to a Boston Globe report.
Affordable Care Act Repeal (and Replace?)
The effort to repeal (and replace?) the Affordable Care Act would almost certainly have major effects on nonprofit health care providers, particularly hospitals, as well as likely every nonprofit that provides health insurance or health care to its employees or beneficiaries. The Nonprofit Quarterly provides a good summary of the current version of the repeal and replace legislation, including its likely effect on nonprofits. The full text of the current bill is available here.
"Johnson Amendment" Repeal or Modification
OpEds and lobbying letters continue to proliferate even as it is unclear when legislation removing or modifying the political campaign intervention prohibition for charities will advance. Pending bills include:
- The Free Speech Fairness Act (H.R. 781 and S. 264), which would modify the prohibition so as not to apply to "any statement which (A) is made in the ordinary course of the organization's regular and customary activities in carrying out its exempt purpose, and (B) results in the organization incurring not more than de minimis incremental expenses."
- H.R. 172, which would remove the prohibition entirely but, in an apparent oversight, only from Internal Revenue Code section 501(c)(3) and so not from section 170(c)(2) and other sections relating to charitable contribution deductions.
The two House bills have been referred to the House Ways and Means Committee, while the Senate bill has been referred to the Senate Finance Committee.
Recently expressed views on the legislation including statements from Douglas Laycock (UVA), Edward Zelinsky (Cardozo), the Council on Foundations, a community letter campaign launched by the National Council of Nonprofits and others, a letter from 86, mostly progressive groups (including the National Council of Churches), and a published debate in U.S. News & World Report featuring Doug Bandow (Cato Institute), Alan Brownstein (U.C. Davis), Roger Colinvaux (Catholic University), Barry Lynn (Americans United for Separation of Church and State), and Matthew Schmalz (College of Holy Cross).
The year began with fears that tax reform could sharply limit the availability of the charitable contribution deduction through such measures as limits on itemized deductions and estate tax repeal (see, for example, this Forbes piece). There are, however some recent indications that Congress is moving away from measures that would limit the deduction for at least income tax purposes, and even considering expanding the income tax deduction in several ways (see, for example, this report from the Council on Foundations on recent comments by members of Congress). The Trump administration has yet to release its tax reform proposals, however, and tax reform generally is a moving target as this story from The Hill underlines.
Friday, February 3, 2017
...but gaining a tax deduction!
At the recent National Prayer Breakfast, President Trump stated:
It was the great Thomas Jefferson** who said, the God who gave us life, gave us liberty. Jefferson asked, can the liberties of a nation be secure when we have removed a conviction that these liberties are the gift of God. Among those freedoms is the right to worship according to our own beliefs. That is why I will get rid of and totally destroy the Johnson Amendment and allow our representatives of faith to speak freely and without fear of retribution. I will do that, remember.
Some may not know the term “the Johnson Amendment,” but I am guessing that most of the readers of this blog would be familiar with Code Section 501(c)(3)’s prohibition on election intervention (“and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office.”) Famously, Lyndon Johnson was somewhat irritated by negative comments made by a tax-exempt organization (note: not a church… ) during his campaign for re-election to the Senate; thus the Johnson Amendment adding the prohibition on electioneering was born in 1954
Of course, “totally destroying” statutory provisions is traditionally the prerogative of Congress, so it remains to be seen whether this change will come to pass. A bill repealing the Johnson Amendment is introduced regularly each legislative session and rarely makes any progress; query if the current political climate would give it more traction. One wonders if the change takes the form of a repeal of the Section 501(c)(3) language (which would open electioneering to all c3s) or a special exception just for churches or religious organizations. Finally, would such repeal include rules that mirror the income tax provisions that disallow deductions for membership dues allocable to lobbying? If not, I suspect that a large number of political donors of all stripes will suddenly find religion right quick.
For further discussion of these issues, please see this piece by the most awesome Ellen Aprill in the Washington Post, who has probably forgotten more about the political and lobbying rules for nonprofits than I ever hope to know.
*With apologies to R.E.M.
**cough** This is me not commenting on the fact that Trump is quoting Thomas Jefferson, author of the First Amendment. Of course, all political commentary (or non-commentary, as the case may be) is my own individually and should not be attributed to anyone else. EWW
Wednesday, November 16, 2016
Given the uncertainty regarding the plans of both President-elect Trump and the Republican-controlled Congress, I feel a bit like a sportswriter trying to rank college football teams before the season begins when I try to predict what the results of the 2016 election will be for the federal tax laws governing tax-exempt nonprofit organizations. With that caveat, here are my initial thoughts.
With respect to guidance from Treasury and the IRS, most of what appears in the most recent update of the 2016-2017 Priority Guidance Plan that is relevant to tax-exempt organizations (see especially pages 9-10 and, for section 170 guidance, page 14) appears non-controversial and so likely to eventually see the light of day. The one major exception is proposed regulations under section 501(c) relating to political campaign intervention, which project the Republican-controlled Congress has repeatedly suspended and likely will continue to block until the new administration gets around to killing it altogether. Another possible exception are the final regulations under section 7611 relating to church tax inquiries and examinations, although my guess is that Congress will instead simply focus on modifying or repealing the section 501(c)(3) prohibition on political campaign intervention, consistent with the campaign promises by then candidate Trump.
Speaking of Congress, university endowments likely will see continued congressional scrutiny especially in light of President-elect Trump's mentions of the issue during his campaign. Whether such scrutiny results in actual legislation remains to be seen, however. What should perhaps be of greater concern to all charitable nonprofit organizations is the possibility that the detailed tax reform plan developed by now-retired Ways and Means Committee Chairman Dave Camp may be looked to for inspiration, especially when seeking revenue-generating provisions that could help offset tax cuts elsewhere. For a detailed overview of the many proposed changes relevant to tax-exempt organizations, see the Joint Committee on Taxation Technical Explanation of those provisions. Also relevant of course are proposed changes to the charitable contribution deduction, which are concentrated in section 1403 of the draft legislation. And of course there will also likely be effects on charitable giving from any general reduction of marginal tax rates or other broad changes, such as modification or repeal of the estate & gift tax.
For consideration of likely ramifications of the election results for nonprofits beyond just changes to federal tax law provisions, here are some early predictions from others: Devin Thorpe, Forbes Contributor (collecting thoughts from various nonprofit leaders); National Council of Nonprofits; Mark Hrywna at The NonProfit Times.
Tuesday, October 11, 2016
A recent article by Martin Levine highlights the struggle to define the line between providing education about issues and lobbying for specific legislative outcomes. The center of the controversy revolves around a complaint filed in 2012, when the Center for Media and Democracy and the Common Cause complained to the IRS that the American Legislative Exchange Council (ALEC) was incorrectly classified as a 501(c)(3) organization.
The ALEC characterizes itself as an organization “dedicated to advancing and promoting the Jeffersonian principles of limited government, free markets and federalism at the state level. ALEC accomplishes this mission by educating elected officials on making sound policy and providing them with a platform for collaboration with other elected officials and business leaders.”
The ALEC’s opponents, however, paint a different picture of the organization, claiming “the primary purpose of the organization is to provide a conduit for its corporate members and sponsors to lobby state legislators.”
As evidence of this lobbying, opponents of the ALEC point to a string of tax deductible donations from EXXON to the ALEC totaling over $1.7 million. The ALEC’s official position on climate change only leads to increased suspicions. According to the ALEC, there is no threat to the public from climate change or increased greenhouse gasses. In fact, the ALEC has stated that global warming is beneficial, claiming that “during the warming of the past 100 years global GDP has increased 18-fold, average life span has doubled, and per capita food supplies increased.”
While this information is certainly not determinative of foul play, it does provoke one to question the line between information providing and lobbying.