Nonprofit Policy News | April 2009

April 30, 2009


SPOTLIGHT: President signs Edward M. Kennedy Serve America Act | Federal Legislative and Regulatory Developments | IRS UPDATES | Court Cases | Resources and Reports | State Policy Developments

SPOTLIGHT: President signs Edward M. Kennedy Serve America Act


On April 21, President Obama signed into law the Serve America Act (PL 11-013) (HR 1388). This legislation is a milestone for the national service movement and the largest expansion of civilian service since the Depression. It will dramatically expand national and community service programs and strengthen the infrastructure for volunteerism within the nonprofit community.
In his signing address, President Obama said:
"We need your service, right now, at this moment in history.  I’m not going to tell you what your role should be; that’s for you to discover.  But I’m asking you to stand up and play your part.  I’m asking you to help change history’s course.  Put your shoulder up against the wheel.  And if you do, I promise you – your life will be richer, our country will be stronger, and someday, years from now, you may remember it as the moment when your own story and the American story converged, when they came together, and we met the challenges of our new century."
You can watch the video of the signing address and read more on the White House website, and share your story of service there.

Alan Khazei, CEO and Founder of Be the Change Inc., the force behind ServiceNation, writes: The Act “contains the seeds for developing a new public philosophy for how we attack an array of persistent societal challenges, from the high school dropout crisis, to poverty and homelessness, to climate change.” To learn more read his full remarks; review the law’s key provisions; and look for our future Special Report on this landmark legislation by visiting our website or signing up for an RSS feed.

Thanks to bi-partisan leadership by Senators Baucus (MT-D) and Grassley (IA-R), the Senate added the Nonprofit Capacity Building Amendment to the Serve America Act by unanimous consent on the Senate floor. Under this landmark $50 million, 5 year federal matching grant program that the National Council of Nonprofits championed, nonprofit intermediaries that raise $200,000 in matching grant funds can apply for a federal matching grant to provide organizational development assistance to small and midsize nonprofits. Learn more about the Nonprofit Capacity Building Program.

Securing appropriations for the law’s authorized programs comes next. These will be part of the President’s budget overseen by the new White House Office of Social Innovation and Civic Enggement to which the Corporation for National and Community Service (Corporation) will report. The Corporation is the quasi-federal agency that will administer the Act's programs including the Nonprofit Capacity Building Program. The Administration recently announced it intends to nominate Maria Eitel, currently president of the Nike Foundation, to lead the Corporation. The White House Office will be led by Sonal Shah, formerly with Google.org's global development team.  Chronicle of Philanthropy, 4/22/09

Federal Legislative and Regulatory Developments

In this Section: Sense of the Senate Expressed on Charitable Deductions | Tax Certainty and Relief Act of 2009 (S 722) Introduced | McDermott Introduces Estate Tax Bill | With Budget Resolution, Congress Re-opens Debate on Estate Tax and Healthcare Reform Process | Senators Introduce Flat Rate Excise Tax for Private Foundations | Public Good IRA Rollover Act | Newspaper Revitalization Act Would Allow Newspapers To Operate As Nonprofits | Unfunded Federal Mandate on Residential Programs for Teens Passed in House | Census Bureau To Conduct Minority Outreach Program

Sense of the Senate Expressed on Charitable Deductions

During debate on the Serve America Act, the Senate included Senator Baucus' (MT-D) Sense of the Senate amendment expressing support for preserving the tax deductibility of charitable contributions and for “additional ways to encourage charitable giving.” The amendment passed while a broader version offered by Senator Thune (SD-R) was rejected that supported “full” income tax deduction and requested that charitable giving not be discouraged. Both statements reportedly were motivated by President Obama’s budget proposal that would limit the deductibility of charitable and other itemized tax deductions for higher-income taxpayers. Read Senator Baucus' Floor Statement.

Tax Certainty and Relief Act of 2009 (S 722) Introduced

Senator Baucus (MT-D), who chairs the Senate Finance Committee, along with co-sponsors Senators Rockefeller (WV-D) and Schumer (NY-D), introduced the Tax Certainty and Relief Act of 2009 (S 722). Elements of the proposal include:
‐ Permanent protection for more than 20 million Americans from the alternative minimum tax;
‐ A measure to make permanent the 10, 25, and 28 percent individual tax rates;
‐ Permanence of the income eligibility threshold for the child tax credit, recently set at
$3,000 by the American Reinvestment and Recovery Act of 2009, to give families up to
$1,000 for every child under age 17; and
- Permanence of the estate tax at levels already in effect this year.

Senator Baucus stated in his press release: “Today we’re offering a piece of certainty during an uncertain time for millions of hardworking, honest Americans. These measures are not excessive or outrageous, but timely and targeted, and will build on earlier efforts to stabilize the economy. By guaranteeing a little extra cash in the pocket of working moms and dads, and by making sure that the AMT and the estate tax can move with the economy, we avoid sweeping tax increases for millions of American families.”

On the estate tax piece, the bill would permanently keep the estate tax at 2009 levels (and do away with the 2010 repeal). Heirs could exempt $3.5-million from taxes ($7-million for couples), with amounts above that taxed at 45 percent. The exemption threshold would be adjusted for inflation in the future. Compare this to Representative McDermott’s bill discussed below.

McDermott Introduces Estate Tax Bill

Representative McDermott (WA-D) introduced a bill that would strengthen the estate tax beyond the current 2009 levels and beyond what President Obama or Senator Baucus (see above) have proposed. The Sensible Estate Tax Act of 2009 (HR 2023) would set the exemption level at $2 million for individuals and $4 million for couples, and also would base the tax rate on the value of the estate. For estates with taxable values of more than $2 million but less than $5 million, the tax rate would remain at the 2009 level of 45 percent. Estates with a taxable value of more than $5 million but less than $10 million would be taxed at 50 percent under the bill and estates valued at more than $10 million would be taxed at the 55 percent tax rate that was in place at the start of the decade. According to Joint Committee on Taxation (JCT) estimates, the proposal would cost $202 billion over 10 years, about 20 percent less than if 2009 levels of a $3.5 million exemption with a 45 percent rate were made permanent.

With Budget Resolution, Congress Re-opens Debate on Estate Tax and Healthcare Reform Process

The House and Senate passed their differing FY 2010 budget resolutions before the April recess and are now actively in conference to reconcile the two. While largely similar (House: $3.55 trillion; Senate: $3.53 trillion), the greatest differences lie in the following areas: a Senate provision that would reduce the estate tax below the President’s proposal; a House provision for use of the reconciliation process that might ultimately be used for healthcare legislation as it would prevent any filibuster of a health reform bill and allow a simple majority vote to pass; a House provision that would waive requirements for pay-as-you-go rules in both chambers for certain tax policies, including the estate tax; and differing levels of appropriations for specific areas. The President’s proposal to lower the tax deductions for charitable contributions, mortgage interest, and state and local taxes to help pay for health care reforms is not specifically mentioned in either budget resolution – but neither is it prohibited.  CQ Today Online News 4/2/09, 4/23.09

Senators Introduce Flat Rate Excise Tax for Private Foundations

Senators Schumer (NY-D), Levin (MI-D), and Stabenow (MI-D) introduced legislation (S 676) that would simplify the tax code for private foundations in order to increase charitable giving. The bill would remove the current two-tiered excise tax imposed on private foundations and replace it with one flat rate, which is to be set between 1 and 2 percent at a revenue-neutral level determined by the Joint Committee on Taxation. The Council on Michigan Foundations has estimated the revenue neutral rate would be 1.32 percent, according to a joint news release. “The need for charitable giving is greater than ever, and we should be encouraging foundations to increase giving,” said Schumer. The bill also drew Republican support from Senator Richard Burr (NC) and Senators Chamblis and Isakson of Georgia. Visit the Council on Foundations website to learn more.

Public Good IRA Rollover Act (S 864) Now in Play in the Senate

Senators Dorgan (ND-D) and Snowe (ME-R) introduced the companion bill to HR 1250 that extends and expands the availability of the IRA charitable giving incentive. It would extend the current IRA rollover permanently, remove the current dollar limit on donations per year, and expand the types of organizations that may receive rollovers.

Newspaper Revitalization Act Would Allow Newspapers To Operate As Nonprofits

Senator Cardin (MD-D) introduced a bill that would allow newspapers to operate as nonprofit organizations for educational purposes under section 501(c)(3) of the Internal Revenue Code. The Act  (S 673) would make tax-exempt all advertising and subscription revenue, while making contributions tax deductible for qualified newspaper corporations. Nonprofit newspapers would not be permitted to make political endorsements, although they would be allowed to report on all political issues.  CQ Today Print Edition 3/24/09; Senator Cardin press release.

Unfunded Federal Mandate on Residential Programs for Teens Passed in House

The Stop Child Abuse in Residential Programs for Teens Act of 2009 (HR 911) passed the House and moved to the Senate, where the Health, Education, Labor and Pensions Committee has jurisdiction. This bill would require the Children and Families Administration of the Department of Health and Human Services to require each location of a covered program to meet specified minimum standards. Covered programs will include nonprofits that provide residential programs such as wilderness or outdoor experiences, expeditions or interventions; boot camp experiences; therapeutic boarding schools; or behavioral modification programs if they focus on serving children with emotional, behavioral or mental health problems or disorders; or problems with alcohol or substance abuse.

Census Bureau To Conduct Minority Outreach Program

The House Subcommittee on Information Policy, Census and National Archives held a hearing in March on “Census 2010: Assessing the Bureau’s Strategy for Reducing the Undercount of Hard-to-Count Populations." The Census Bureau plans a new minority outreach effort to help target historically hard-to-reach communities for the 2010 census. The General Accounting Office (GAO) has reviewed their plans, noting that the Bureau has thus far secured partnership agreements with more than 10,000 organizations for 2010 and additional funding for staff made available from the recently enacted economic recovery legislation. You can read the full GAO report.


IRS Bars Sharing of Webspace Between Charities and 501(c)(4) Political Groups

The IRS ruled that a local chapter of a national charity violated the prohibition against politicking by including the political-campaign materials of an affiliated 501(c)(4) political advocacy group on its website, even though the materials appeared on discrete pages and the political advocacy group paid all associated costs. (Technical Advice Memorandum 200908050) At issue in the ruling was whether the organization improperly participated in a political campaign because its banner, logo, and other indications of ownership appeared on web pages that included the political advocacy group's endorsements of candidates for political office. The IRS determined that the web pages of the two groups were "virtually indistinguishable" from one another, and thus the local organization was itself considered to have distributed the political materials contained on the other group's pages.

Other IRS News

• Comments on the Redesigned Form 990. Now that filing season is underway, and as part of an on-going effort to obtain information from the tax-exempt sector, the IRS is accepting comments on the redesigned 2008 Form 990, Return of Organization Exempt From Income Tax.  Email your comments to Form990Revision@IRS.gov . They will review these comments for future revisions to the Form 990, schedules and instructions and to identify areas where they might provide additional assistance through other communications.  The National Council had requested this openness for continued feedback as part of its comments during the 990 revision process.
• Maintaining Public Trust in Charities during the Economic Downturn. In an address this month, IRS Exempt Organizations Director Lois G. Lerner noted the “very difficult time” nonprofits are facing and that the IRS is sensitive to conditions, and “anxious not to worsen them.” “We want to be helpful, and will be, but there is another consideration to keep in mind as we go forward. Experience has shown us that in times of economic peril, we must be watchful. During hard times, there is often a rise in questionable or fraudulent activity, in overly aggressive or inappropriate fundraising, and in tax avoidance accommodation schemes of less than sterling character.” Read her full remarks.

Court Cases

Suits Filed Against IRS over Electioneering Rules

The James Madison Center filed two federal lawsuits in April challenging the IRS definition of "political intervention." In Catholic Answers and Karl Keating v. USA, the Center is assisting a 501(c)(3) organization that is challenging a fine imposed by the IRS after the agency determined two "e-letters" posted in 2004 were "political expenditures" that might have influenced the presidential election. In Christian Coalition of Florida v. USA, the Center charges that the Christian Coalition of Florida (CC-FL) was denied 501(c)(4) status by the IRS because the agency claimed CC-FL engaged in activities that constitute political intervention.

Resources and Reports

•  Read Rick Cohen’s article: “The Worst Thing We Can Do for the Obama Administration: Be Quiet” .

• Read our Special Report on the April 14 White House Briefing for Nonprofits on the stimulus funds provided by the American Recovery and Reinvestment Act of 2009.

• OMB Watch is helping to hold the new administration accountable. Check out their two new projects. Bailout Watch is a partnership with six other organizations that is researching, investigating, and analyzing the federal government's financial bailout activities. The Coalition for an Accountable Recovery is comprised of more than 30 organizations to promote transparency and accountability policies and practices for national and state government agencies and contractors that benefit from recovery spending.

• Sign up for the Nonprofits Count! 2010 newsletter at www.nonprofitscount.org to keep up with the latest news and resources for nonprofits on Census 2010. Download these presentations by visiting the Nonprofit Voter Engagement Network website.


State Policy Developments

Special Congratulations to the Michigan Nonprofit Association!

The Michigan Nonprofit Caucus is now active in the state legislature thanks to the collaborative efforts between our state association member MNA, the Council of Michigan Foundations and Michigan Association of United Ways. This is the second state caucus in our network following the pioneer work of the Pennsylvania Association of Nonprofit Organizations last year to help create the Pennsylvania Legislature’s Charitable Nonprofit Caucus.  See our June 2008 Policy News.

In this section: Special State Focus: Audit Thresholds | New Bills Introduced

Special State Focus: Audit Thresholds

Ensuring accountability and transparency in nonprofits has been an important goal for both nonprofits and government regulators over the years. To this end, federal and state governments have instituted certain financial accounting requirements for nonprofits that help ensure that funds are used responsibly. In many cases, these requirements only apply to nonprofits that meet certain income thresholds. While many nonprofits support efforts to ensure accountability and transparency, financial audits can cause a significant financial burden, particularly for small and midsize nonprofits. By some estimates, an audit for an organization with revenue under $600,000 could range anywhere from $12,000-$20,000!

To help address this issue, Maryland Governor Martin O'Malley has signed HB452/SB806, raising the audit threshold for registering Maryland charities from $200,000 to $500,000, and raising the financial review threshold to $200,000 from $100,000. Similar bills are being considered in Connecticut (HB 6951) and Minnesota (HF 993). Additionally, the National Council has been working with the Combined Federal Campaign (CFC), the federal annual workplace giving program, to increase the audit threshold for participation in the CFS's campaign. Currently, local nonprofits with annual revenues of $100,000 or more must submit an audit to participate in CFC program. The CFC is currently reviewing proposed changes related to its audit threshold requirements.

New Bills Introduced

In this section: Tax Credits and Exemptions | Institutional Structure and Management | Fundraising and Solicitations | Miscellaneous

State legislators regularly introduce dozens of bills that impact all nonprofits in their respective states. Below is a recent sampling of such bills, listed first by category, then alphabetically by state. Note that the National Council does not do comprehensive tracking of state legislative or regulatory changes. For more detailed information on public policy issues at the state level you can find your State Association's policy section here. Unless otherwise noted, the bills below have not become law.

Tax Credits and Exemptions

CT | Assessment of Fees Against Tax-Exempt Properties

HB 6558 would allow municipalities to assess service fees against tax-exempt properties, including properties owned by charitable nonprofit organizations, for police and fire protection and trash removal. For more information, visit the Connecticut Association of Nonprofit's Advocacy Page.

IA | Tax Exemption for Nonprofit Performing Arts Centers

SSB 1084 would make nonprofit performing arts centers eligible to apply for a refund of sales and use taxes collected on the sale of goods, wares, or merchandise in furtherance of the nonprofit's charitable purpose.

IL | Tax Exemption Requirements for Nonprofit Hospitals

HB 826 would extend a property tax exemption to nonprofit hospitals as long as they are "actually and exclusively used for charitable purposes," defined by a list of requirements regarding services and assistance given to indigent patients, among other factors.

ME | Service Charges for Exempt Organizations

LD 1290 would narrow the types of municipal services for which tax-exempt property owners may be charged to include only fire protection, police protection and road-related services. The bill would also expand the list of nonprofit institutions that may be charged for these services to include nonprofits with property valued at one million dollars or more and institutions whose gross annual revenues is greater than one million dollars.

NY | Certain Nonprofits May Lose Exemption from Sales and Use Tax

AB 7417 would remove the exemption from sales and use tax for nonprofit or charitable organizations engaged in the retail sale of tangible personal property.

OR | Property Tax Exemption for Animal Welfare Organizations

HB 2496 would extend the property tax exemption provided to nonprofit charitable organizations to real and personal property in retail stores when the inventory is distributed without cost as part of an animal welfare program, and when the proceeds of sales support an animal welfare program.

WA | Tax Exemption for Certain Nonprofit Legal Service Providers

HB 1579 would create a business and occupation tax exemption for nonprofit organizations that provide legal services to low-income individuals.

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Institutional Structure and Management


HB 811 would enact the Uniform Prudent Management of Institutional Funds Act (UPMIFA) and provide revised guidance and rules for investment and spending of nonprofit funds. For more information on UPMIFA, see our February 2009 Policy News.

ME | Economic Research Organizations Required to File Reports

LD 328 would require nonpartisan, independent, not-for-profit organizations formed to conduct research and analysis on economic issues to file financial reports with the Commission on Governmental Ethics and Election Practices. Such reports would include itemized expenditures and identification of contributions.

ME | Low-Profit Limited Liability Companies
LD 1265 would authorize the creation of Low-Profit Limited Liability Companies (L3Cs) in Maine. For more information on L3Cs, see our February 2009 Policy News.

MT | Low-Profit Limited Liability Companies

HB 235 would authorize the creation of Low-Profit Limited Liability companies (L3Cs) in Montana. For more information on L3Cs, see our February 2009 Policy News.

Fundraising and Solicitations

AL | Affordable Housing Fund

HB 397 would create the Alabama Affordable Housing Trust Fund for the purpose of increasing home ownership and rental opportunities to low and moderate income families and individuals. Certain nonprofit organizations would be eligible to apply for funding from the Trust in order to address the state's housing crisis.

CT | Community Provider Rescue Fund To Support Community Providers

HB 6609 would create a Community Provider Rescue Fund to provide grants to community providers of health and human services for such purposes as addressing budget shortfalls and providing a stable source of funding. The bill would also establish a Commission on Community-Based Services to make recommendations on budget and policy issues. The executive director of the Connecticut Association of Nonprofits would appoint two members to the Commission.

GA | Paid Solicitors Required to Make Certain Reports

HB 863 would require paid solicitors to report to both the hiring charitable organization and to the Secretary of State the names and addresses of any persons to whom any household items solicited were delivered. The new rules would also apply to collection bin solicitations, and would require the bins to be labeled with specific information.

SC | Certain Nonprofits May Hold Raffles and Other Charity Fundraising Events

S 628 would amend existing gaming law to allow charitable and nonprofit organizations to conduct raffles and certain other charity fundraising events, provided that at least ninety percent of the proceeds are used for the organizations charitable purposes. For more information, visit the South Carolina Association of Nonprofit Organization's Public Policy Update's Page.

SC | Charitable Organizations Required to Retain Fundraising Counsel

S 652 would require certain charitable organizations to retain professional fundraising counsel, to maintain lists of donors and solicitations conducted by the organization, and would prohibit the sale, transfer, or distribution of the lists to other charitable organizations or sponsors. For more information, visit the South Carolina Association of Nonprofit Organization's Public Policy Update's Page.


MT | Legislative Finance Committee to Monitor Stimulus Funds

HB 627 would give the Montana Legislative Finance Committee oversight authority over the use of funds from American Recovery and Reinvestment Act of 2009 (ARRA). The Committee's activities would include determining if the criteria developed for setting priorities are being followed, reviewing the adequacy of public notice and opportunity for comment, and making recommendations to the executive branch agencies concerning the use of ARRA funds. For more information on ARRA, read our Special Reports on the economic stimulus package.

MT | Legislative Finance Committee to Monitor Stimulus Funds

SB 460 would create a 13 member Economic Stimulus Program Oversight Commission composed of members of the House of Representatives, members of the Senate, legislative delegates, and citizens. The Commission's activities would include determining if the criteria developed for setting priorities are being followed, reviewing the adequacy of public notice and opportunity for comment and, and submitting a report on the Commission's findings and conclusions to the Legislative Finance Committee.

HI | ARRA Appropriations

HB 1364 would make appropriations of American Recovery and Reinvestment Act of 2009 funds for FY 2008-2009, and would require the Governor or the Director of Finance to report any restrictions on appropriations to the legislature. The bill has been recommended for immediate passage by the Governor.