House Tax Committee Approves Charitable Giving Provisions
The House Ways and Means Committee approved five bills of interest to the nonprofit and foundation communities on May 29. Each of the bills received bi-partisan support in the debate, but all were approved by party-line votes due to a dispute over whether to pay for the tax provisions. Republicans voted yes to permanently extend the measures but without providing for offsetting revenue raisers to pay for the changes; Democrats voiced support for the policies but voted no on the bills because they did not include “pay fors.” The bills are listed below:
- Make permanent the enhanced deduction for property donated for conservation easements (HR 2807).
- Permanently extend the IRA charitable rollover (HR 4619).
- Make permanent the enhanced charitable deductions for food inventory (HR 4719).
- Allow individuals to claim a charitable deduction for contributions made up to the date their income tax return is due (usually April 15) (HR 3134).
- Eliminate the upper tier excise tax and reduce the excise tax on investment income of private foundations from two to one percent (HR 4691).
IRS to Rewrite Proposed Regulations on 501(c)(4) Election-Related Political Activities
The Internal Revenue Service announced that it is postponing a public hearing on controversial draft regulations defining political activities of 501(c)(4) social welfare organizations. The IRS is not scrapping the first draft, as reported by some organizations and news outlets, but is instead revising the proposal to reflect concerns expressed in more than 150,000 comments submitted to the agency. The IRS plans to publish a revised draft regulation before rescheduling a public hearing. Commentators predict that the revised draft will not be released until after the November elections.
IRS Proposed New Form 1023-EZ Still Pending
In March 2014, the IRS submitted a proposed Form 1023-EZ to the Office of Management and Budget (OMB) for approval under the Paperwork Reduction Act. The proposed form offers an alternative to the normal Form 1023 for those claiming to be a small group (no more than $200,000 in annual gross receipts and no more than $500,000 in total assets, with some exceptions) to use to become recognized as a charitable nonprofit: just a two-page quick checklist. The radical change could lead to chaos for any nonprofits engaged in fundraising as well as for foundations "if the field is suddenly flooded with hundreds of thousands, if not millions, of newly minted c3’s.” The National Council of Nonprofits filed formal Comments opposing the proposed form, noting that "we support efficiency and reducing burdens to applicants, but not at the expense of accountability." The National Association of State Charity Officials (NASCO) also filed official Comments in opposition, noting that its members “uniformly oppose" the proposed Form 1023-EZ because it “will increase opportunity for fraud and heighten the burden on state regulators.” The IRS recently told NASCO that, notwithstanding the serious widespread concerns, it intends to deploy the new form this summer. To date, however, OMB has not approved the proposed form. For nonprofits, donors, and foundations wanting to know more, read this op-ed by Tim Delaney, President & CEO of the National Council of Nonprofits, published today in The Hill: "An Express Lane to More Trouble for the IRS?"
States Enact Significant Registration, Voting Reforms
Several state legislatures have taken action this year to ease the voting process by, among other ways, implementing online voter registration and allowing same-day registration. More than half the states, home to over 100 million voters, will have some form of online registration by the end of the summer, reports the National Conference of State Legislatures. Other reforms enacted this year include easing absentee voting (Maryland), relaxing voter ID requirements (Oklahoma), lengthening the early voting period (Florida), authorizing automatic registration systems (Colorado, West Virginia), and removing waiting periods for nonviolent felons to regain their voting rights (Delaware). The reforms are in part a reaction to the restrictive measures many states put in place following the 2010 elections, as well as a favorable response to a bipartisan presidential elections commission report put out in January of this year. In addition to online registration and multiple opportunities for voting, that Commission called for the use of state-of-the-art techniques to assure efficient management of polling places and use of improved voting technology. Nonprofits serve a vital role in many communities by promoting democracy and civic engagement through voter registration, voting, and providing nonprofit voter information. Go to Nonprofit VOTE to learn more.
North Carolina Modifies Sales Taxes Rules for Nonprofits
North Carolina Governor McCrory signed legislation to revise the 2013 tax reform package that replaced the 3% gross receipts tax on entertainment with a sales tax, and eliminated exemptions for arts nonprofits. The new 2014 law clarifies that the tax on “live entertainment events” will not apply to the greatest number of nonprofit activities: educational events, recreational sports, and fundraising events. In exchange, the newly enacted statute repeals three rarely-used nonprofit sales tax exemptions and adds a narrow exemption for events sponsored by volunteer-only nonprofits and an exemption for any tax-deductible contributions. The measure also exempts nonprofits from local privilege taxes.
Government-Nonprofit Contracting Reform Update
Federal Non-Health Related Grants to States Decline
While overall federal grantmaking to the states were above pre-recession levels for federal fiscal year 2014, funding for non-health related grants has declined by five percent, according to an analysis of trends by the Pew Charitable Trusts. “Trends in Federal Grants Vary Between Health and Non-Health Programs” found that, adjusted for inflation, grants increased by one percent for income security support while grants declined nine percent for transportation, dropped 10 percent for education, and fell 13 percent for everything else outside of Medicaid and other health grants.
Reconsidering Charitable Checkoffs on California Tax Forms
The California Senate unanimously approved a bill to establish a system and standards for determining which charitable nonprofits may be designated for tax checkoffs on the California income tax form. California Volunteers, the state office that manages programs and initiatives aimed at increasing the number of Californians engaged in service and volunteering, would be tasked with working out the details by 2017, with the goal of making the system fairer and allowing more charities access to the check-off system. The latest version added a "Charitable Giving Fund," which would allow taxpayers who don't want to pick and choose among the organizations listed on the tax form to turn over their designated dollars to California Volunteers to distribute "according to the regulation established for distribution." Reforming tax-form giving appears to be an emerging trend in legislatures; we’d like to know what readers think works and doesn’t work in their states.
Massachusetts AG Supports Nonprofit Buyback Program
Federal policy that prevents qualified nonprofits from purchasing homes from lending banks at market value and then financing the resale to former homeowners conflicts with Massachusetts law, the commonwealth’s Attorney General asserted in a letter to the director of the Federal Housing Finance Agency. Attorney General Coakley urged the agency, which oversees Fannie Mae and Freddie Mac, to change its policy against such buybacks that she believes run counter to Massachusetts’s successful Act to Prevent Unnecessary and Unreasonable Foreclosures. That Act prohibits creditors that sell a property to a 501(c)(3) charitable nonprofit from conditioning that sale on an agreement that the property will not be resold or rented to the former homeowner.
Michigan Nonprofits Return Economic Benefits
Nonprofits in Michigan were integral in stabilizing the state’s economy during the 2008 economic downturn, according to a new report commissioned by the Michigan Nonprofit Association and the Council of Michigan Foundations. The report, “Economic Benefits of Michigan’s Nonprofit Sector,” found that, since 2006, the nonprofit community has added 12,000 jobs. During this same time period, other industries in the state purged 200,000 jobs. Nonprofits in Michigan employ more than 10 percent of the state's workforce, pay about $5 billion every three months in wages to their employees, and serve as anchor institutions in communities large and small, the analysis reports. Significantly, Michigan charities spent $44 billion dollars in advancing their charitable missions in 2011 alone. Nonprofits in the state provide a “sense of stability that the community can rely upon,” said Donna Murray-Brown, President and CEO of the Michigan Nonprofit Association. She also observed that the new study “helps us inform policymakers and citizens on the great work nonprofits are doing – and can do – for the people of this state.”
Collaborating to Understand Poverty in New York City
What public programs are currently in place in New York City to help people living in poverty and to work towards real and better solutions to the problems these government programs may be trying, but failing, to address? Those are the questions three umbrella groups are asking and studying in a unique collaboration of faith-based organizations. The organizations, the Federation of Protestant Welfare Agencies, Catholic Charities of the Archdiocese of New York, and the United Jewish Appeal–Federation of New York, have tapped the Urban Institute to research various government anti-poverty programs to learn more about what is effective in stamping out poverty. They hope that the results from the study will shed light on the problem of poverty in New York City and that the solutions they decide on will be heard by City Hall.
Detroit Art, Pension Deal Advances
The Michigan legislature overwhelmingly approved $195 million in state aid for bankrupt Detroit, a condition of the so-called “Grand Bargain” made with foundations to preserve intact the art collection of the Detroit Institute of Arts and to help pay the City’s pension obligations to retired public employees. Last year, several private foundations, including the Charles Stewart Mott Foundation, Kresge Foundation, and the Ford Foundation, pledged $370 million to assist the city emerge from bankruptcy. Finding a way for Detroit to “come out of this bankruptcy and to reestablish itself as one of the greatest cities in the world … [is] very important,” said Bill White, President of the Charles Stewart Mott Foundation.
Changing the Culture on Costs, One Community at a Time
Most nonprofits know the problems caused when governments, funders, and the public incorrectly assume that only program costs are well spent and that overhead costs are undesirable. Some nonprofit leaders in Napa Valley, California are doing something about those attitudes, and providing inspiration for the rest of the nonprofit community.
The Napa Valley Coalition of Nonprofit Agencies recently created an Advocacy Education Committee that is dedicated to two primary goals. First, the committee seeks to promote the sustainability and growth of the nonprofit sector by providing its membership with tools and education to effectively advocate for their mission and clients. Second, the group is educating the community at large about the value of nonprofits. Core to both goals is helping people understand what overhead is and why it is so important for maintaining a vital and effective nonprofit sector.
Sara Cakebread, Co-Chair of the Committee, put it succinctly: “What we’re trying to do is to create a whole program that educates the public: What is overhead, why it is important and why we need to support our nonprofits, if we want them to thrive.” Toward this end, Committee member Becky Peterson reframes how nonprofits should be viewed, “[They] do good work in our community, often filling the gap that government or the private sector doesn’t fill… we need to think about nonprofits as service providers, not as charities.”
This subtle, but important shift supports the growing understanding that to be effective and efficient nonprofits must invest in their infrastructures and a solid base from which to operate.
Cakebread said it well when she observed:
“Donors say we want our money to go to programs, we don’t want to spend anything on overhead. As a donor you can’t do that — you can’t give somebody a lot of money and tell them they can’t pay for somebody to administer it. Or deposit the check. Or pay for an office or pay for utilities. All of those things people don’t think about.”
Jan Masaoka, CEO of CalNonprofits, calls The Napa Valley Coalition of Nonprofit Agencies “a great example of local nonprofits working together to get more funding to the communities they serve and represent, as well as working with county officials to streamline government processes."
For more information on the changing attitudes on overhead costs (also known as administrative or indirect costs), see two reports from the National Council of Nonprofits, Toward Common Sense Contracting; What Taxpayers Deserve (2014) and Investing for Impact: Indirect Costs are Essential for Success (2013).
This week’s best state in America? Utah, for its generosity, Reid Wilson, The Washington Post, May 23, 2014, providing a chart identifying the most (Utah, Mississippi) and least (New Hampshire, Maine) generous states as measured by charitable giving as a percentage of median discretionary income.
The number of museums in the United States, up from 17,500 in 1990s, according to the Institute of Museum and Library Services. Source: Nonprofit Quarterly, May 21, 2014.
The number of laws Minnesota repealed as part of Governor Mark Dayton's "unsession" initiative to erase obsolete laws. Source: Governing, May 29, 2014
The national average of state park costs covered from state general revenues in fiscal 2012, down from 59 percent in fiscal 1990. Source: Stateline, May 23, 2014.