House Ignores Clean Senate CR, Passes Measure with Wall Funding, Disaster Assistance
Responding to demands by conservative members and a threat of a presidential veto, House Republican leaders refused to bring up for a vote a Senate-passed continuing resolution (CR) that would avert a partial government shutdown set to occur after December 21. Instead, the House debated and approved a hastily revised version of the CR that adds $5.7 billion the President has demanded to build a wall on the southern border. The new money for the wall was couched during the debate as necessary to enhance border security. House Democrats rejected this argument, calling the House CR a strong-arm tactic and a waste of money. The measure also includes $7.8 billion in disaster relief aid. The continuing resolution passed by a vote of 217 to 185, with eight Republicans joining all Democrats in opposition.
The House-passed stopgap measure is not expected to pass the Senate, making a partial government shutdown increasingly likely. Senators returned to Washington for votes on Friday, and negotiations between the House, Senate, and White House are ongoing. If no funding is approved by midnight December 21, the following federal departments will be forced to close, except for essential personnel: Agriculture, Commerce, Homeland Security, Housing and Urban Development, Interior, Justice, State, Transportation, and Treasury.
Both the House and Senate versions of the temporary spending bill also have several add-ons, including temporary authorization through Feb. 8 for the Violence Against Women Act, the National Flood Insurance Program, Temporary Assistance for Needy Families, and the E-Verify program.
In the event of a partial federal government shutdown, we ask readers to share how their organizations and the people served would be affected. Please let us know.
This update posted at 3:30 pm Eastern. Further developments are expected later on December 21.
Year-End Tax Bill Passes House, Going Nowhere
The House passed a year-end tax bill on Thursday that, among many other things, would essentially repeal the Johnson Amendment and repeal the tax on nonprofit transportation benefits. The vote was 220 to 183, with three Republicans joining all Democratic Representatives in opposition to the bill. The Senate is not expected to take action on the bill, which is projected to increase the federal deficit by $100 billion over ten years.
- Anti-Johnson Amendment Provision (Section 507): The bill would permanently remove longstanding protections from charitable, religious, and philanthropic nonprofits that prevent political candidates, donors, and others from demanding partisan endorsements or diverting charitable assets to fund political campaigns. The nonpartisan Joint Committee on Taxation determined the provision would cost taxpayers an estimated $7.7 billion in lost revenue over ten years because individuals would divert partisan contributions away from transparent political committees to newly politicized “charitable” organizations that could generate generous tax deductions for the donors.
To ensure that Members of Congress understood that the nonprofit and foundation communities stood firmly in their united view that nonprofit nonpartisanship is not negotiable, several national organizations delivered a letter expressing vehement opposition to the anti-Johnson Amendment language in the House tax bill.
- Tax on Nonprofit Transportation Benefits (Section 505): The legislation would repeal a provision in the 2017 Tax Cuts and Jobs Act (new Section 512(a)(7) of the tax code) that imposes a 21-percent unrelated business income tax on nonprofits for their expenses providing transportation benefits to their employees, such as transit passes and parking. Initially defending the tax as a matter of parity between for-profit and nonprofit employers, House Ways and Means Committee Chairman Kevin Brady (R-TX) eventually reversed himself and called for its repeal after the loud outcry from charitable nonprofits, religious organizations, and many other tax-exempt employers adversely affected by the tax. For more information, see the National Council of Nonprofit webpage and the December 17 Letter to Congressional Leadership Urging Repeal of Nonprofit Transportation Benefits.
- Other Provisions: The legislation also includes sections that would provide tax relief to victims of recent hurricanes and wildfires, create new retirement savings options, delay three Obamacare taxes, reform IRS administration, extend two expired tax breaks for businesses, and correct two drafting errors in the 2017 tax law that are costing businesses billions in unintended taxes. Some of these provisions have broad bipartisan support and may be included in tax legislation early in 2019.
IRS Issues Partial Guidance on Transportation UBIT
On December 10, the IRS issued guidance for calculating parking expenses for unrelated business taxable income purposes and provided penalty relief to nonprofits. IRS Notice 2018-99 (called “Interim Guidance”) instructs how to calculate which parking expenses are taxable. The Notice applies only to parking and provides no clarity or relief for transit benefits, such as subway cards or bus passes. It makes clear that reserved employee parking spaces are automatically taxed under the law, but gives employers a grace period – until March 31, 2019 – to remove “reserved for” signs and avoid the automatic application of the tax, retroactive to January 1, 2018. General parking spaces used by both the public and employees (without reserved spaces) require a four-step calculation to determine whether taxes are owed. If the public typically uses more than 50% of the parking spaces, then the expenses for the whole lot are exempt. The statute exempts UBIT of less than $1,000. The Notice makes clear that nonprofits with less than $1,000 in liability do not need to file a Form 990-T. See the IRS News Release.
A separate IRS Notice 2018-100 provides for waiver of tax penalties for nonprofits that failed to submit quarterly estimated tax payments for the new tax on transportation benefits. Generally, this means that if a nonprofit normally doesn’t submit quarterly payments, then it is off the hook for this year, but the taxes will still be due when filing annual returns. The notices are scheduled for publication in the Federal Register on December 24.
- IRS Donor Disclosure: Pursuant to the Congressional Review Act, the Senate narrowly approved a resolution in disapproval that seeks to overturn an Internal Revenue Service rule (Revenue Procedure 2018-38) revoking donor disclosure requirements for certain nonprofit organizations. The IRS rule, issued in July, removes the requirement that noncharitable tax-exempt organizations must file the Form 990 Schedule B, which nonprofits file to identify donors who contribute more than $5,000. The Internal Revenue Code mandates that public charities and private foundations must disclose their donors, and the IRS, through regulations adopted long ago, extended the requirement to social welfare nonprofits, unions, and chambers of commerce. Charitable nonprofits are concerned that this rule change will lead to an increase in the use of 501(c)(4) organizations as a means of funneling secret money into partisan politics, potentially hurting the public’s trust in all nonprofits. To revoke the rule, the House of Representatives would need to approve the resolution and President Trump must not veto it.
- Public Charge Proposed Rule: More than 216,000 individuals and organizations submitted comments to the U.S. Department of Homeland Security on proposed regulations to change the “public charge” rule. The proposal 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 National Council of Nonprofits submitted comments opposing the proposal “because the rule would violate core American principles, operate as an unfunded mandate by imposing billions of dollars of costs onto charitable nonprofits, and negatively affect the operations of charitable nonprofits.” The National Human Services Assembly and Washington Nonprofits also submitted comments in opposition to the proposed rule.
- IRS Standard Business Mileage Rate: The IRS has announced that the standard business mileage rate will increase to 58 cents per mile in 2019 (up from 54.5 cents per mile in 2018). Many nonprofits use this rate when reimbursing their employees for work-related driving. The volunteer mileage rate – the amount that is tax-deductible by volunteers when they drive on behalf of nonprofits – remains set in statute at 14 cents per mile and can only be changed by Congress.
Nonprofit Integrity, Law Enforcement Protections at Risk in Michigan
Michigan is on the verge of becoming the darkest “dark money” state in the union as outgoing Governor Rick Snyder considers whether to sign a bill on his desk passed during the legislature’s lame-duck session. Legislation that has passed the state Senate and House (SB 1176) would prohibit the Attorney General's Office and other public agencies from requesting or requiring tax-exempt organizations to disclose any “personal information,” which is defined as “data of any kind that directly or indirectly identifies a person as a member, supporter, or volunteer of, or donor of financial or nonfinancial support.” The measure applies to charitable nonprofits and foundations, as well as social welfare nonprofits that have increasingly utilized undisclosed donations (“dark money”) to run partisan issue ads that attack candidates for public office during campaigns.
The Detroit Free Press reports that the bill is motivated by a concern by conservatives that the incoming Governor and Attorney General, both Democrats, would require disclosures of the names of donors to their offices. The leading paper in the state explains, however, “One reason the secrecy is a concern is that political officeholders including Snyder and state lawmakers in many cases set up nonprofit groups and the public has no way of knowing who might be influencing the decisions of such officials through their donations.” Other opponents are concerned that preventing law enforcement from seeing such information would effectively obstruct efforts to identify bad actors and prevent them from abusing legitimate charitable organizations. The Free Press reports that the Governor has not said whether he will sign the bill.
Washington State Overtime Rulemaking Continues
As a precursor to the expected actions coming this spring by the U.S. Department of Labor to alter the overtime rules for most employers, including nonprofits and foundations, Washington State regulators are considering raising the threshold for determining who is and is not a salaried employee. The Washington State Department of Labor and Industries is seeking public comments on updating the state’s overtime pay exemption threshold. The draft rule calls for treating all workers as hourly employees entitled to overtime pay if they earn less than between two and two-and-a-half times the state minimum wage for a 40-hour week, setting the threshold at between $960 and $1,200 per week, or $49,920 and $62,400 per year.
Washington Nonprofits recently conducted a survey to assess the impact of the proposed rules on nonprofits and their employees. Based on the responses of more than 400 organizations, the report of the state association of nonprofits identifies four points that must be considered as final rules are promulgated, and that apply as well to nonprofits across the nation as overtime regulations are revised:
- Nonprofits are people-driven organizations. Typically staffing is the largest expense in nonprofit budgets. Therefore, increases in labor costs hit nonprofits particularly hard.
- Nonprofits have been doing more with less for many years. Most nonprofits have worked hard to fundraise to maintain services as costs increase and many revenue sources are flat.
- We can’t expect private philanthropy to fill the gap. Charitable giving, particularly to human services organizations, may decline as a result of the 2017 federal tax reform. In addition, public sources generally refuse to fully fund administrative costs.
- Most nonprofits operate on a thin margin and have very little financial reserves. “Our nonprofits have been under-resourced-starved for many years. An economic recession or other environmental factors could be devastating for our sector. In order to ensure that nonprofits can continue to serve our communities, we need to improve their financial stability.”
For more information, see full report summary and the Washington Nonprofits Position Paper. Comments are due December 31, 2018.
Taxes, Fees, PILOTs
Nonprofits Under Attack in Boston
A group in Boston calling itself the PILOT Action Group staged a demonstration outside the Mayor’s office this week demanding that the City do more to collect payments in lieu of taxes (PILOTs) that the group claims are owed and past due. Beginning in 2011, Boston has been sending mock tax bills to certain nonprofit educational, medical, and cultural institutions demanding they make “voluntary” payments based on an arbitrary formula. The City publishes an annual report to publicly shame each organization listed and thus exert pressure for payment. Contrary to the claims by the advocacy group and the demands by the government, the City has zero legal authority to collect the payments because the Massachusetts Constitution exempts property owned and operated by charitable organizations.
New Next Year
Beginning with the first regular edition of Nonprofit Advocacy Matters in 2019, the National Council of Nonprofits will be posting the AdMat Minute, a brief podcast summarizing the headlines and need-to-know items in each edition of this bi-weekly newsletter. Listen to the initial AdMat Minute and subscribe below to hear each new episode.