Johnson Amendment Update
Nonprofit Nonpartisanship Legislative Threat Averted, But Only Temporarily
The House recessed for the November elections before the House-Senate conference committee could resolve differences over the spending bill (H.R. 6147) that contains the anti-Johnson Amendment rider. That language would prevent the IRS from enforcing the longstanding Johnson Amendment against even the most egregious violations by houses of worship, including contributing church assets to political campaigns. The bill is now on hold until the post-election lame-duck session while the
Treasury Department, the IRS, and several other departments are funded temporarily through a “continuing resolution” that expires December 7. Nonprofits will face the same challenges to the language harmful to nonprofit nonpartisanship when Representatives and Senators return to negotiate the spending bill after the elections.
Although the legislative threat to the law that protects nonpartisanship is temporarily on hold, there remain significant and immediate challenges to this decades-old law. For several months, the Vice President in particular has been alerting those attending campaign-style rallies that the Administration will not enforce the Johnson Amendment against churches that violate the federal law. A prominent evangelical preacher went so far during a White House meeting as to encourage pastors to urge their parishioners to “vote red” in the upcoming elections. It is incumbent upon all who value the rule of law and the effectiveness and impact of the nonprofit community to obey the Johnson Amendment by refusing to endorse or
oppose candidates for public office and to speak out against those who would politicize the sector for their own financial and political gains.
Rules for Lawful Immigration Status in Flux
On Saturday, September 22, the Department of Homeland Security issued a proposed "public charge" regulation that would require immigration officials to give greater weight to applicants' medical history, income levels, and dependency on public assistance in determining whether to grant lawful immigration status. The proposed rule is different from a draft that was released in February that would have allowed DHS to reject immigrants' green cards if they used certain public benefits for which they were eligible. Many nonprofits remain concerned that such a policy would
discourage immigrants from using public services and cause disparate treatment of immigrant families who are at or near the federal poverty level. A letter signed by more than 1,100 organizations expressed strong opposition to the proposed “public charge” regulation on the grounds that it “puts money ahead of family, and threatens to worsen hunger, poverty, and unmet health and housing needs.” The letter also states, “The proposal would make — and has already made — immigrant families afraid to seek programs that support basic needs,” raising the concern that the federal
government is imposing unfunded mandates on charitable nonprofits and foundations to essentially subsidize federal responsibilities to fund and provide support for these residents in their communities. The proposed rule will be open for public comments for 60 days after it is published on the Federal Register.
- Questioning the Citizenship Question: A federal judge has ordered Commerce Secretary Ross to answer questions under oath about his intent and the origins of the decision to include a question on the 2020 Census asking whether respondents are U.S. citizens. His congressional testimony and emails made public recently are contradictory and suggest that Ross, and not the Justice Department, pushed for inclusion of the citizenship question, an addition that is opposed by career staff at the Census Bureau and hasn’t been used since 1950. The deposition of Ross was ordered in the case
brought by 17 states challenging the inclusion of the citizenship question on the census questionnaire.
- Nonprofits Ineligible for Paid Leave Credit: As part of the Tax Cuts and Jobs Act, Congress added a new tax credit for employers that offer certain types of paid family and medical leave. In guidance issued this week, the IRS explained that 501(c)(3) nonprofits are not eligible for this tax credit - even if they pay unrelated business income tax on which the credit might be applied - because the tax credit is based on Federal Unemployment Tax Act (FUTA) wages, and 501(c)(3) organizations are exempt from FUTA.
- Unforgiven: The U.S. Government Accountability Office (GAO) released a report finding that the vast majority of applicants for the Public Service Loan Forgiveness (PSLF) program have been denied. PSLF allows individuals working in government and nonprofit jobs for 120 months while paying off their student loans to have the remainder of their loans forgiven. According to the GAO report, only 55 of the more than 890,000 borrowers who have started the process of applying for PSLF have actually received loan forgiveness thus far. The report cites deficiencies in the guidance and instructions
from the U.S. Department of Education (DOE), and inadequate collaboration between DOE and the PSLF services as significant problems with the program.
- Disclosing Donors to “Political” Nonprofits: The U.S. Supreme Court refused to issue an emergency order blocking a federal court’s order invalidating a Federal Election Commission (FEC) regulation relating to donor disclosure. A federal district judge found that Congress had passed a statute requiring disclosure of donors seeking to influence elections. The judge struck down the FEC regulation because it “blatantly undercuts the congressional goal of fully disclosing the sources of money flowing into federal political campaigns, and thereby suppresses the benefits intended to accrue from disclosure.” Although the 501(c)(4) entity involved in the case, Crossroads GPS,
failed to secure emergency relief from the requirement to disclose, it continues to appeal the decision through normal channels. Until then, the net effect is that non-charitable nonprofits – such as 501(c)(4) social welfare organizations engaged in partisan politicking – must disclose to the FEC and the public their donors’ names and amounts given for partisan election-related activities.
- States Accessing Donor Information: A California requirement that charitable nonprofits disclose the names of large donors to the state Attorney General (but not the public) does not place a significant burden on the nonprofits’ First Amendment right to free speech, according to a federal circuit court ruling.
Potential Impact of Proposed Federal Rules on State Tax Credit Programs
In late August, the Treasury Department and IRS published proposed regulations designed to change how the federal government will treat donations to charitable organizations that generate state or local tax credits. Although developed in response to state legislation passed in Connecticut, New Jersey, and New York earlier this year as a reaction to the new federal tax law that imposes a new $10,000 cap on the amount individual federal taxpayers can deduct for state and local taxes (SALT) paid, the draft regulations sweep in much more.
Proposed Federal Regulations on State Tax Credit Programs
Reminder #1: The proposed rules only matter to people who itemize their deductions. Standard deduction takers are not affected.
Reminder #2: The proposed rules are just that: proposed, as in draft or suggested. The proposed rules could change after the public comment period expires on OCTOBER 11, 2018.
The proposal, if ultimately adopted after a 45-day public comment period and regulatory review process, would require taxpayers to subtract the value or cost of any state tax credits they claimed from the charitable deduction claimed on their federal tax returns. The proposed rules do not make a distinction between government-run nonprofits and public charities; donations to either that generate tax credits would have to be reduced by the value of the credit. This would be a change from prior federal tax law that permitted full deduction of charitable donations that also allowed taxpayers to apply a tax credit based on that donation to reduce state taxes. The draft rules exempt as “de minimis” state tax
credits valued at 15 percent of contributions or less, and expressly do not apply to dollar-for-dollar state tax deductions, as opposed to credits.
As written, the draft regulations appear to apply to more than 100 programs in the 33 states and the District of Columbia that provide a state or local tax credit when a taxpayer makes a donation to certain nonprofits. These state tax credit programs include school choice scholarship funds, land conservation, and giving to in-state endowments, to name a few. There are at least ten different types of state tax credit programs: Affordable Housing (2 states); Charitable Organizations (13 states); Conservation/Preservation (14 states); Economic Development (7 states); Education/Scholarships (18
states); Endowments (5 states); Food Banks (7 states); Historic Preservation (3 states); SALT Workaround (3 states); and Schools (8 states). The value of the existing credits ranges from a low of 10 percent (which is under the de minimis cap) to 100 percent.
Filing Public Comments: Before the regulations are adopted as final rules, Treasury and the IRS will give consideration to public comments submitted by October 11, 2018. A public hearing has been scheduled for November 5. Written comments should be submitted electronically, via the Federal eRulemaking Portal. See tips for submitting public comments.
States Acting Quickly in Aftermath of Hurricane Florence
The storm waters of Hurricane Florence have yet to recede, and states are already taking steps to assist individuals, businesses, and charitable organizations affected by the major disruption in lives and services. The South Carolina Department of Employment and Workforce announced that some individuals out of work because of the storm and flooding are eligible for disaster relief payments. Those who could receive up to $326 per week include people who couldn’t get to their jobs because of flooding, self-employed individuals, small business owners who lost money because of the
disaster, and those injured in the storm. The state government in North Carolina is providing flexibility in Medicaid and Food and Nutrition Services to provide access to health care and hot meals for individuals and families affected by the storm. The North Carolina General Assembly is scheduled to meet in special session on October 2 to consider disaster relief policies. The North Carolina Center for Nonprofits and others are promoting adoption of a temporary state tax credit to facilitate contributions to charitable nonprofits and houses of worship providing hurricane relief. The state
association of nonprofits has also posted an extensive list of state-specific hurricane-related resources, ranging from the NC 2-1-1 call line run by United Way to links to multiple community foundations, faith-based organizations, and government services.
New Jersey Advances SALT Workaround Guidance
New Jersey adopted regulations to implement the state’s SALT workaround law that authorizes localities to establish charitable funds for specific public purposes. The regulations implement the law that permits anyone to donate to the government-run charitable funds (either by or on behalf of a local property owner) and receive a 90 percent tax credit (or whatever lower percentage the local government determines) to be applied against the property tax bill of the parcel(s) indicated. See the NJ Center for Non-Profits’ excellent Analysis and Committee Statement. The state proceeded with the regulations despite proposed regulations from Treasury and the IRS that would take away the tax advantages of this and other state tax credit programs. Elsewhere, the move to work around the federal cap on state and local taxes (SALT) ultimately stalled. Although
California was the first state out of the gate to consider legislation to sidestep the new federal SALT cap, the Governor vetoed one measure that reached his desk, saying that it “started as a bold idea, but because of adverse changes in the federal tax law, it now confuses an already complicated scheme and would invite intervention by the Internal Revenue Service.” The provision that would have provided a state tax credit when taxpayers pay into the College Access Tax
Credit Fund had served as a model for other states. A separate bill that did not get a final vote would have provided an 85 percent state tax credit for donations to the government-run California Excellence Fund.
Taxes, Fees, PILOTs
- Property Taxes: The Illinois Legislature has the authority to clarify and narrow the property tax emption of nonprofit hospitals in the state, the Illinois Supreme Court ruled in a highly anticipated case. In response to an earlier ruling that put hospital tax exemption in question, the Legislature worked with nonprofits and local governments to develop a regime for determining whether individual hospitals provide sufficient community benefits to justify the property tax exemption. The recent decision upheld the legislative fix as valid under the state constitution. Nearly
three-quarters of the state’s 200 hospitals are nonprofits, according to the Chicago Tribune.
- Property Taxes: A New Hampshire religious organization’s youth summer camp, which offers religious, educational, and recreational services and benefits to the general public, is entitled to be exempt from property taxes, the state Supreme Court ruled. The court overturned a trial court ruling denying the Catholic organization’s exemption.
- Sales Taxes: The Arkansas Department of Finance and Administration recently confirmed that nonprofits conducting auctions do not need to charge sales taxes when all proceeds benefit the charitable organization. In a separate case, however, the department found that an organization must collect sales tax on event tickets sold through a third-party website on the grounds that the charity does not retain the processing fee for purchasing the tickets.
- Taxes: One of the candidates for governor in Massachusetts pledged to pay for some of his spending promises by imposing a billion-dollar tax on investment returns of certain colleges and universities in the Commonwealth. The Massachusetts Nonprofit Network immediately issued a news release expressing strong opposition to the policy proposal.
The Value of Showing Up and Being Heard
This powerful story of nonprofit advocacy in action comes from our colleagues at Washington Nonprofits who highlight a local advocacy campaign that is in progress. As background, we share that the City of Vancouver, Washington is considering a proposal
to restructure its existing business license fee, and, as a revenue-raising exercise, impose the fee on charitable nonprofits for the first time. Specifically, the “revenue replacement plan,” as originally proposed, would repeal the existing exemption for charitable nonprofits except for houses of worship and organizations with fewer than 20 employees.
We’ll leave the action part of the story to David Streeter, Director of Public Policy and Advocacy for Washington Nonprofits:
"Our September Advocacy Success Story highlights the important local advocacy work currently being led by the Nonprofit Network of Southwest Washington. Jeanne Kojis, who leads the Nonprofit Network and serves on our Public Policy Committee, successfully rallied nonprofits from the city of Vancouver to advocate in-person and through other means against a proposed expansion of Vancouver’s business license fee.
"Several nonprofits delivered powerful testimony during the city council hearing on the proposed expansion, while others wrote letters and leveraged their existing relationships with council members to share their views. In addition, an unprecedented number of nonprofit organizations responded to the city’s online survey regarding the license fee.
"The debate over the licensing fee is still ongoing, but the scope of the proposed policy has changed thanks to Jeanne’s efforts and the nonprofits that weighed in in-person, online, and through other means. You can read more about this unfolding advocacy campaign in The Columbian’s story, and watch a recording of the City Council proceedings, which features great testimony from local nonprofits. We will continue to provide updates as this
David Streeter’s takeaway from this campaign is straightforward and on point: “[L]ocal advocacy matters just as much as federal and state advocacy. Make sure that your nonprofit is building relationships with local officials, so that when situations like this arise, you have a direct route for weighing in.”
Read more examples of Advocacy in Action,
a regular feature of Nonprofit Advocacy Matters.