Protecting Nonprofit Nonpartisanship
The Continuing Attacks on the Johnson Amendment
When all three branches of government are taking action simultaneously, it’s clear that an issue is on the front burner and demanding public attention and engagement. The issue is whether the 501(c)(3) community should be politicized by repealing or weakening the Johnson Amendment, the longstanding provision in federal law that protects charitable nonprofits, house of worship, and foundations from demands for political endorsements, contributions, and other partisan electioneering activities. The question whether to weaken or ignore the law by not enforcing it are pending in the following places:
- Executive Branch: In three recent speeches, Vice President Pence told audiences that the Administration would not enforce the Johnson Amendment and continues to push for its repeal. In something of a surprise, a large segment of those attending the Southern Baptist Convention objected to the Vice President’s speech because of its partisan nature and their desire to focus on their ministries rather than the Administration’s politics. The discord at the Convention led the organization’s newly elected president to acknowledge the “terribly mixed signal” of allowing the Vice President to use the stage to make “a hybrid campaign speech and sermon.”
- Legislative Branch: The House Appropriations Committee approved a spending bill for fiscal year 2019 that contains a controversial provision (at Section 112) that would effectively block the IRS from enforcing the Johnson Amendment when “churches” violate it in even the most egregious ways, such as diverting charitable assets to influence partisan political campaigns. That bill is expected to be combined with other spending legislation and debated on the House floor in July. Importantly, the Senate Appropriations Committee approved its version of the same spending bill, but did not include the anti-Johnson Amendment rider. Read the letter in opposition to Section 112 and go to the Take Action page to learn what you can do right now to protect nonprofit nonpartisanship.
- Judicial Branch: New York’s Attorney General filed a lawsuit in state court against the Trump Foundation, alleging violations of federal and state laws, including multiple violations of the Johnson Amendment. The Attorney General also sent Referral Letters to the IRS and FEC for possible federal action. In this Fact Sheet on the Johnson Amendment: Trump Foundation Litigation and Pending Legislation and related statement, the National Council of Nonprofits lays out the basics of the Johnson Amendment to clarify both the law and the issues, while steering clear of any partisan positioning regarding the case. Separately, on June 7, 2018, the U.S. Department of Justice announced a criminal plea agreement with a former nonprofit executive who, among other things, participated in causing a nonprofit “to misapply its funds for unlawful contributions to the campaigns of elected public officials and causing the charity to spend substantial amounts of funds on lobbying and political advocacy.”
Calls Grow for Treasury/IRS to Delay Implementation of New Taxes on Tax Exempt Organizations
Two new taxes on nonprofit operations and expenses are drawing the ire of nonprofit organizations from across all subsectors and throughout the country, as well as from their professional tax advisers. At issue are two provisions of the federal tax law enacted in December that went into effect on January 1, 2018. Section 512(a)(6) requires nonprofits with business income to pay the tax on each separate “trade or business” and prohibits the blending of profits and losses across lines of business. Section 512(a)(7) imposes a new, counter-intuitive income tax on expenses nonprofits incur for their employees’ transportation and parking. Both provisions are causing significant confusion for many nonprofits because their applicability is unclear without further guidance from the Department of Treasury and the IRS.
For months, nonprofit organizations have written to the government seeking clarification on the new provisions and asking for delay of tax liabilities that are already coming due. Last week, the National Council of Nonprofits sent a comprehensive set of comments to Treasury and the IRS summarizing issues, concerns, and questions raised by dozens of organizations. The Council of Nonprofits makes the case: “To avoid manifest injustice, taxpayer confusion, ineffective assistance of tax practitioners, and risky speculation and filings of potentially inaccurate and/or unnecessary forms by hundreds of thousands of nonprofits, Treasury and the IRS need to delay implementation of these provisions until at least one year after Final Rules have been promulgated.” The Tax Section of the American Bar Association also submitted extensive comments and called for delay and formal rulemaking.
Earlier this month, Representative Michael Conaway (R-TX) introduced H.R. 6039, a bill to repeal both UBIT provisions, retroactive to the beginning of the year. Also, news reports last week indicate that the IRS is conducting internal discussions on whether to postpone these two new UBIT provisions. While advocacy efforts may be paying off, the IRS needs to hear from more people about the adverse consequences of these new vague and ambiguous UBIT provisions. You can add your voice to the call for relief by going to the IRS public comment form and insisting that Treasury and the IRS delay implementing the two new UBIT subsections until one year after Final Rules are promulgated. (In the public comment form’s line for Form/Instruction/Publication Number, fill in "Form 990-T".)
- Public Comments for Citizenship Questionnaire: The U.S. Census Bureau is seeking comments on the citizenship question and the effects it may have on a fair, accurate, and complete count, as required by law. The National Council of Nonprofits opposes the inclusion of the citizenship question because of the likelihood that, among other things, it will suppress participation and lead to an unfair, inaccurate, and incomplete count. The public comment period closes August 7.
- GOP Budget Proposal: House Republicans released a budget proposal to balance the budget over the next nine years by making cuts to Medicare, Medicaid, Social Security, and education and training programs. Cost saving provisions would include adding work requirements to certain programs, consolidate student loan programs, and reduce Pell Grant awards. The proposal relies on high economic growth projections and requires large spending cuts for deficit reductions. House Republican leaders have given no indication whether the proposal will be brought to a vote, but no comparable budget resolution is expected in the Senate. As such, the release of the House budget draft is seen as a “statement” of priorities for use in the upcoming elections.
- Spending Cuts Bill Rejected: The Senate failed to pass a bill seeking to rescind, or claw back, $15 billion in spending that Congress had previously appropriated. Two Republicans voted against the rescission bill that had passed the House. Senator Burr (R-NC) cited concerns about $16 million in cuts targeting Land and Water Conservation Fund projects in explaining his no vote. He was joined by Senator Collins (R-ME), who objected to cuts in the Children’s Health Insurance Program. All Senate Democrats voted to defeat the measure.
Two States Vote to Block New Taxes on Tax Exempts
Shortly before a legislative deadline last week, the New York State Senate and Assembly approved a bill to decouple state law from the new federal tax on nonprofit and employee expenses for transportation benefits. The federal tax law enacted in December imposes federal unrelated business income tax (UBIT) on any amount a nonprofit employer has “paid or incurred” for qualified transportation benefits, such as mass-transit cards or employee parking (see above federal article). New York law imposes a state UBIT whenever federal law does so. As a result, New York would have automatically followed the new federal statute, imposing an additional nine-percent state tax effective January 1, 2018 on top of the 21 percent federal tax. The Nonprofit Coordinating Committee of New York, the New York Council of Nonprofits, and many other organizations advocated for the legislative fix. Advocacy efforts now turn to ensuring that Governor Cuomo signs the bill.
Earlier this month, the North Carolina Legislature enacted a budget and spending bill that decoupled state UBIT on nonprofit parking from the new federal tax law, among other things. The provision ensures that tax exempt organizations will not be taxed an additional three-percent state UBIT or file state tax forms for their employees’ parking expenses. The North Carolina Center for Nonprofits had asked state legislators to decouple the state tax code to avoid state income tax for expenses. The budget bill that contains the UBIT fix had been vetoed by the Governor for other reasons, but the Legislature easily overrode the veto and the UBIT provision becomes effective retroactively to the beginning of the year.
Clarifying Nonprofit Taxes in Kentucky
Questions and confusion have reigned for Kentucky nonprofits since the Legislature enacted numerous tax-law changes this spring. A comprehensive tax reform package, passed over the veto of the Governor, expands sales taxes to services and labor, and imposes a six-percent sales tax on admissions to events that may apply to charitable nonprofits. The Department of Revenue provided FAQs and confirmed that it will start collecting the new sales taxes beginning July 1. It has also been determined that nonprofit organizations will be required to collect sales taxes on fundraising special events, silent auction items, and some types of memberships (including, for example, recreational memberships). Several issues remain unresolved, such as whether camp registrations are taxable as recreational activities, or treated as child/day care, educational enrichment (i.e., STEM camp), faith formation, or rehabilitation. The Kentucky Nonprofit Network is hosting a webinar on June 28 to provide additional information about the tax-law changes and their impact on nonprofit missions.
Reprieve for Vermont Charitable Deduction
The Vermont House failed to override the Governor’s veto of the state budget and tax package that included a provision repealing the state’s charitable giving incentive and replacing it with a five-percent tax credit. The version sent to the Governor would have capped the tax credit at $20,000, meaning that regardless of donations in excess of that amount, charitable giving could only reduce state taxes by $1,000 per year. The Governor had proposed the change, the House added a $10,000 cap, and the Senate partially responded to nonprofit concerns by doubling the House cap. The Governor vetoed the bill over unrelated tax issues. The disputes must be resolved to avert a government shutdown at the end of the month.
Massachusetts Meets in the Middle on Ballot Measures
Last week the Massachusetts Legislature passed the “grand bargain” to address three ballot proposals regarding paid family leave, sales taxes, and minimum wage that likely would have drawn nonprofits into advocacy campaigns for and against the measures. The compromise provides for no reduction in the sales tax rate, the creation of a permanent two-day sales tax holiday, an increase in the minimum wage from $11 per hour to $15 per hour over five years (as opposed to four years), and creation of paid family leave for up to 12 weeks and paid medical leave for up to 20 weeks. The Massachusetts Nonprofit Network stated, “Overall, we are pleased with the legislative compromise reached,” adding, “the spirit of collaboration, on exhibit during these negotiations is at the core of our sector.” The measure awaits the Governor’s signature.
New Jersey Mandatory Online Registration
After years of attempted implementation, the New Jersey Division of Consumer Affairs announced that effective May 1, all annual charities registration renewals and extension requests must be filed through a state-run online portal. Most charitable organizations that solicit funds in the state are required to register and file annual financial reports, but the new rules exempt some religious and education organizations, as well as small organizations that raise less than $10,000 annually and do not use a professional fundraiser. The Center for Non-Profits, the state association of nonprofits in New Jersey, is asking the Division to revert to accepting paper filings due to many concerns about the online portal, including that it fails to meet the statutory requirement to incorporate Form 990 information by reference, as well as vague instructions, lack of available context-sensitive assistance, difficulty in locating and uploading information, and an unresolved backlog.
Corporate Tax Abatements and Cost to Nonprofits
Nonprofits draw the short end of the stick from corporate tax abatements according to statistics provided under a new accounting standard. Governmental Accounting Standards Board Statement No. 77 requires state and local governments to disclose revenue losses from economic development tax breaks those governments issue. The numbers provided show cities lose hundreds of millions in tax abatements, with New York City taking the lead at $3 billion in lost tax revenues annually. Local nonprofits, libraries, and school districts can be adversely affected by these losses when policymakers cut spending due to lost revenues because those same policymakers expect nonprofits to fill the growing gaps in services to the public. Add these financial woes to the fact that cities and localities often turn to nonprofit property taxation as a way to make up for lost revenues. Thus, nonprofits can be hit twice when corporate tax abatements, sometimes called “corporate welfare," fail to generate promised economic activities.
Save the Date: September 25 – National Voter Registration Day
Did you know there is already a countdown to National Voter Registration Day (NVRD) on September 25th? While September may seem far away, our partners at Nonprofit VOTE are encouraging nonprofits to join this national day of action celebrating our democracy.
The National Council of Nonprofits, an official partner of NVRD, along with many state associations of nonprofits, encourage you to join us by 1) signing up as an official partner and 2) planning a voter registration drive on September 25th. NVRD partners receive free field organizing toolkits, promotion materials, an exclusive training by Nonprofit VOTE, and access to an online store to purchase additional promotional swag.
Help us register everyone who is eligible to vote! Watch an NVRD webinar on YouTube.
When Policymakers “Get It”
What would it take to get every local policymaker in America to be willing to make the following statement?
“Human services contractors are absolutely essential to providing critical services to our City’s most vulnerable populations. They are the ones on the ground and they need to be paid fairly and on time.”
The question may be rhetorical, but the statement isn’t. It was made during an oversight hearing on a Model Budget for Human Services Contractors held by the New York City Council Committees on Contracting and General Welfare. The chairs of these two committees genuinely understand the importance of nonprofits and are working to ensure service providers are paid for the actual cost of providing services on a timely basis. Together, they are overseeing the implementation of model contracting as a method to update reimbursement rates for nonprofit service providers.
The purpose of the four-hour hearing held June 21 was explained by one of the committee chairs in a tweet inviting the public to participate: “Join me and the Contracts Chair as we explore the budgeting and funding of our front-line service providers. Our community-based partners deserve the adequate resources to maintain the social safety net supporting everyone in need.”
Proving that the chair’s enthusiasm was real, he later tweeted: “Our community partners are there for New Yorkers in need every single day — let's make sure we're there for our partners. We need to candidly identify barriers to timely payments and adequate funding. Let's work together to streamline, innovate, and move ahead.”
A new report from the City Comptroller finds the government-nonprofit contracting system to be in “dire need of reform.” Last week, a spokesperson for the Comptroller explained: “One of the city government's most important jobs is delivering services to New Yorkers in need– that’s why fixing the city procurement process is urgent and essential. Providing services to our most vulnerable residents depends on our ability to execute social service contracts expediently.”
As for the rhetorical question at the beginning – what’s it going to take to get others to express and act on similar support for the work of community-based nonprofit organizations, the answer is ongoing nonprofit advocacy, of course. In New York, groups like the New York Council of Nonprofits, the Nonprofit Coordinating Committee of New York, and the Human Services Council have been educating city and state officials about the challenges of government contracting rules and training nonprofits on how to make their case before policymakers. And grantmakers, through Philanthropy New York, have joined in the call for reform.
The hearing held on June 21 shows that engagement in advocacy is a long-term commitment. And one that pays off.
Read more examples of Advocacy in Action,
a regular feature of Nonprofit Advocacy Matters.