Action Expected on Expired Giving Incentives, Tax Extenders
The Senate is expected to vote in the coming weeks to restore and extend through 2015 a package of 50-plus expired tax provisions, including three charitable giving incentives: the food donation tax deduction, the enhanced deduction for conservation easement donations, and the IRA charitable rollover. The bill does not include offsetting revenue raisers to pay for the estimated $85 billion cost. The House Ways and Means Committee is taking longer to evaluate and decide whether to extend each of the expired tax provisions, known as “extenders,” before drafting a bill. The Committee held a hearing earlier this month on a series of expired business tax breaks that Chairman Dave Camp (R-MI) included in his tax reform discussion draft. More hearings are expected later in the year.
IRS Likely to Pull, Revise Social Welfare Politicking Rules
The Internal Revenue Service likely will withdraw controversial draft regulations aimed at 501(c)(4) social welfare nonprofit organizations and propose news ones, according to IRS Commissioner John Koskinen. The IRS proposed regulations in November seeking to define the types of political activities that 501(c)(4) social welfare organizations can engage in without running the risk of losing their tax-exempt status. The IRS received a record number of public comments; more than 150,000 submissions provided mostly negative comments from across the political spectrum, as well as from 501(c)(3) charitable nonprofits concerned about the breadth and adverse impact on nonpartisan voter education activities. The IRS Commissioner stated “It’s going to take us a while to sort through all those comments, hold a public hearing, possibly repropose a draft regulation and get more public comments.” He observed, “This means that it is unlikely we will be able to complete this process before the end of the year.”
Government-Nonprofit Contracting Update
Is it a Grant or a Contract?
As a recent court case proves, it is sometimes hard for even government officials to tell whether the written agreement between the government and a nonprofit is a contract or a grant. This distinction matters to nonprofits because whether their work is performed pursuant to a “contract” or a “grant” determines a number of things, including what accounting rules to follow and whether the project is subject to the federal government’s single audit requirements. The new Uniform Guidance from the Office of Management and Budget – despite other improvements for nonprofits – could confuse the contract-or-grant question even further because it changes the definition of “vendor” to “contractor” and presumes, incorrectly, that states and local governments use the same definitions of grants and contracts as the federal government does. Opportunities still exist to warn OMB about the importance of consistent language; readers are asked to share their views on whether the new definition of “contractor” (section 200.330) could create problems for nonprofits.
Nonprofits Object to Combined Federal Campaign Revisions
Changes to the annual federal workplace giving campaign may make it more difficult for federal workers to donate to local charitable organizations of their choice, according to many nonprofit representatives. The new regulations for the Combined Federal Campaign will limit program administration to a few central federal agencies, rather than numerous campaign administrators. Nonprofits leaders have spoken out in opposition, predicting that this centralized process will likely exclude a variety of previously eligible local charities across the country from federal employee donations. “With the centralization, with the lack of authority from the local employee committee, you lose that,” said Steve Taylor, senior vice president of United Way Worldwide, referencing previous regulations in which the campaign was run by local outreach coordinators across over 100 financial centers. Expressing concern “about how the rules are going to reduce giving through the CFC,” Taylor pointed out that “charities like United Way are the experts on charitable giving, and the federal Office of Personnel Management is not.”
Arbitrary Caps on Salary, Administrative Cost Reimbursement Struck Down
Ruling that the New York Governor does not have the power to limit how much the state will reimburse contractors for the salaries of their employees, a judge has struck down regulations implementing Executive Order 38. In January 2012 Governor Andrew Cuomo issued EO 38 to restrict state reimbursement of salaries in excess of $199,000 and limit the amount of administrative (indirect) costs of nonprofit and for-profit contractors to 15 percent effective in 2015. A spokesperson for the New York Attorney General’s Office said the State intends to appeal.
The court decision, if upheld, will remove a potential conflict between New York and federal contracting and grantmaking policies. New Uniform Guidance from the White House Office of Management and Budget will require states to pay nonprofits their negotiated rates for indirect costs when using federal funds. The federal government has recognized that the limitation on reimbursing nonprofits for their indirect costs decreases the nonprofit’s ability to operate efficiently and effectively.
Kansas For-Profit Competition for Tax Exemptions
The Kansas Legislature voted to resolve a long-standing complaint by a for-profit health club operator by making his operations exempt from property taxes starting next year. The owner of the for-profit Wichita-based Genesis Health Clubs, has argued for years that the property tax exemption of YMCAs and YWCAs gave them an unfair advantage over his business. In recent years, he or his company reportedly contributed to the political campaigns of 22 of the 40 State Senators. Earlier this month, 19 of those 22 beneficiaries voted in favor of an amendment to pending legislation granting Steven’s for-profit business the same exemption from property taxes. The protestations of this for-profit business person notwithstanding, people familiar with the YMCA (For Youth Development, For Healthy Living, For Social Responsibility) and the YWCA (Eliminating Racism, Empowering Women) are aware that every day their community benefits exceed any tax exemption they receive.
Taxes, Fees, PILOTs
- Taxes: Last week the Georgia Governor signed a measure that, among other things, temporarily exempts from sales and use taxes purchases by qualified food banks. Governor Deal had vetoed a similar exemption last year.
- PILOTs: Connecticut’s Governor and House Speaker, both Democrats, don’t agree on whether some nonprofits should start paying property taxes. The Speaker is pushing a bill to require nonprofit hospitals and colleges/universities to start paying taxes and receive partial reimbursement from the state (known as a reverse payment in lieu of taxes or “reverse PILOT”). The Governor is opposed to this approach and is predicting that the Speaker’s bill won’t pass anytime soon. "We need to have an honest discussion (about tax reform)," the Governor told the newspaper in the Capitol, but stressed, "It's just not going to take place this year."
Maine Acts to Partially Restore Giving Incentive
Legislation approved last week by the Maine House and Senate will partially alleviate the disincentive to charitable giving created in 2013 when the Legislature enacted a $27,500 cap on all itemized deductions, including the charitable deduction. A compromise bill keeps charitable giving under the cap through tax year 2015, allows taxpayers to deduct an additional $18,000 in charitable donations for tax year 2016, and removes the cap on charitable giving entirely thereafter. The latest report is that the Governor will sign the bill. Visit the dedicated webpage of the Maine Association of Nonprofits for more information.
California Tax Check-off Program Reconsidered
A bill in the California Senate would establish a new system and standards for determining which charitable nonprofits may be designated for tax check-offs on the state income tax form. The legislation reportedly is intended to provide fairer access to the check-off giving program. California Volunteers, a state agency, would administer the new system. Currently there are three separate bills authorizing the addition of specified nonprofits to the list of organizations eligible to receive tax check-off donations.
Birth of a Nonprofit Advocacy Community
Every person at every charitable nonprofit can advance its mission through advocacy every day. But that doesn’t mean we need to be sector of lone wolves acting by ourselves or free agents wandering off in different directions.
Quite the contrary was brought home to nonprofits in Memphis, Tennessee, recently when the Alliance for Nonprofit Excellence hosted a session on public policy challenges and everyday advocacy. The audience contained an eclectic mix of charitable nonprofits, including those working in the areas of the arts, river conservation, criminal justice, early childhood education, and veterans rehabilitation. The presenter from Washington, DC, spoke of legislation, told stories of nonprofit actions, and answered questions about what the news of the day means to the individual organizations represented in the room.
But the attendees weren’t converted from inward-looking nonprofits to community problem solvers until one of their own stood up and changed their perspective. A gentleman from an area legal aid society got their attention by stating, “Eighty percent of the challenges we all face are the same.” He said each of the organizations represented has to deal with funding problems, with policymakers who don’t understand how the nonprofits operate and what impact they are having, and with the public. His words were received with momentary contemplation and then enthusiastic applause in relief and recognition that each was a part of the larger whole and that others can and will offer help to advance the missions of all.
Supporting and Engaging in Networks: Partnering for Greater Impact, by Exponent Philanthropy and Grantmakers for Effective Organizations, April 2014, identifying four key components of the network mindset for effective collaborations between nonprofits and funders: 1) mission, not organization, 2) trust, not control, 3) humility, not brand, 4) node, not hub.
“I think comparing private health clubs to either the YM or YWCA, quite frankly, is offensive. The Y’s do so much more for the community than do private health clubs.”
- Kansas Senate Minority Leader Anthony Hensley, criticizing an amendment to extend property tax exemption to for-profit health clubs, reported in Nonprofit Quarterly, April 11, 2014.
Tax Trends in States, Stateline, April 10, 2014, a featured collection of Stateline stories that help explain recent tax developments in the states, from tax cuts to new rules for independent tax preparers.
The Top 5 (Okay, 6) State Tax Charts, compiled by the Center for Budget and Policy Priorities, April 14, 2014, providing the progressive think tank’s visual representations of state revenue, spending priorities, and data on earned income tax credits.
Annual State-Local Tax Burden Ranking FY 2011, Tax Foundation, April 2, 2013, providing the conservative think tank’s annual analysis of state tax burdens, ranking New York as having the highest and Wyoming the lowest.