Lame-Duck Session Prospects
At first blush, the results of the election suggested that Congress would get serious about quickly passing a COVID relief bill. Senate Majority Leader McConnell said on the day after the election, “Hopefully the partisan passions that prevented us from doing another rescue package will subside with the election and I think we need to do it and I think we need to do it before the end of the year.” That optimism faded, however, when McConnell and Democratic leaders publicly disagreed over the size of a relief package, the same amounts and objections heard before the election. The parties are far apart. House Speaker Pelosi has pressed for a package costing more than $2 trillion while McConnell has said that much spending is not needed, instead proposing packages of about $500 billion. Hope of a bill that addresses the concerns of individuals, businesses, nonprofits, and communities remains. Last week several national nonprofits sent a Letter to Biden-Harris Transition asking for support in bringing the parties together, while sharing an updated version of the Nonprofit Community Letter that lays out key nonprofit policy priorities. Similarly, the U.S. Chamber issued a statement in support of passing a $1.5 trillion stimulus package.
Perhaps more pressing due to a government funding deadline of December 11, Congress must get serious in the coming weeks about appropriating funds to keep the federal government operating or suffer another government shutdown. The House has already passed ten of its 12 appropriations bills. Last week, Senate Republicans on the Appropriations Committee released their 12 draft spending bills. House and Senate appropriators reportedly are working this week to identify where they agree, and which issues must be hammered out in negotiations that will likely take place over the Thanksgiving holiday. Reaching agreement should be
relatively straightforward because the previously agreed to fiscal 2021 budget caps don’t allow for huge increases in spending. Defense funding this fiscal year is capped at $740.5 billion, while overall funding for non-defense programs is capped at $634.5 billion. Ultimately, Congress could pass an omnibus bill that covers all spending for the fiscal year that runs through September 30 or approve a smaller bill and postpone some issues until next year by passing a continuing resolution. The option remains that Congress could attach several components of a COVID relief bill onto the spending bill.
Nonprofit Policy Priorities in a COVID Relief Bill
The broad nonprofit community continues to advocate for four core policy priorities that, combined, support the work of most charitable organizations. As outlined in the updated Nonprofit Community Letter, signed by more than 4,000 organizations from
all 50 states, nonprofits call for solutions that provide relief for self-insured (or reimbursing) nonprofit employers from crippling unemployment costs, expansion of the Paycheck Protection Program, support for midsize organizations, and increases in the amount and duration of the above-the-line charitable deduction in the CARES Act. It has also become clear in recent weeks that Congress must extend the December 30 deadline for state and local governments to spend Coronavirus Relief Fund (CRF) moneys. Some states have used CRF resources to fund small business and nonprofit grant programs and to cover some of the unemployment costs of self-funded and contributing employers.
Many other states, however, have experienced delays in getting the money out the door and run the risk of having to pay it back to the federal government unless an extension is granted, something that is included in both Senate and House-passed bills.
Tell Congress to Enact COVID Relief with Nonprofit Priorities
Every Senator and Representative needs to push for a COVID relief package that provides urgently needed relief for their constituents, helps charitable nonprofits, governments, and other employers survive the pandemic, and puts in place supports that will accelerate the economic recovery from the national crisis. Nearly one million nonprofit jobs have already been lost to the recession. More job losses are on the way as the funds from PPP loans run out, unemployment bills come due, emergency federal funding streams have not been replenished, and charitable giving continues to decline. Reach out now – not tomorrow – and tell your federal elected officials to act now:
Future of Implicit Bias Training EO In Doubt
President Donald Trump’s recent executive order (EO) limiting workplace trainings on racial and gender equity is scheduled to take effect on November 21, but court challenges and the change in administrations make the EO’s fate unclear. The EO seeks to limit the ability of federal contractors and grantees to use workplace trainings that include topics like race equity, gender equity, implicit bias, or systemic racism. Specifically, the EO requires federal agencies starting on November 21 to add language to contracts prohibiting contractors from offering these types of workplace trainings. It also
allows federal agencies to prohibit grantees from using federal funds on these types of workplace trainings.
While the EO is clearly troubling for organizations with federal grants and contracts, nonprofits have two reasons for optimism that the EO’s impact will only be temporary. First, at least two lawsuits have been filed challenging the EO’s constitutionality and asking federal courts to block implementation before it goes into effect on November 21. Also, there is a good chance that the Biden administration will rescind
the EO, perhaps as soon as January 20, 2021.
- Disclosure of Smaller PPP Loans Ordered: A federal judge has ordered the Small Business Administration to release detailed information about nonprofits and small businesses that received Paycheck Protection Program loans. SBA must release the names of borrowers, their addresses, and the amount of money the SBA loaned to them, among other information. Most of the data affected by the court order relate to loans of $150,000 or less; SBA released the information for loans over $150,000 in the summer. The ruling came in a lawsuit filed by the Washington Post and Center for Public Integrity in June. The actual disclosure date is in question; the judge first set the date at November 19, but the Small Business Administration is seeking a delay until December 7.
- Blocking Public Charge Rules: The Trump administration's public charge rule, which makes it harder for immigrants to achieve legal status, has been blocked by a federal judge on the grounds that it failed to satisfy the Administrative Procedures Act and violates the Equal Protection Clause of the U.S. Constitution. The Public Charge rule, adopted in August 2019, seeks to expand the definition of who constitutes a “public charge,” i.e., someone who is “more likely than not
to use” public benefits and become a burden on the nation. The new rule added several programs to the list of public benefits that could disqualify individuals from legal immigration, including the Temporary Assistance for Needy Families, Supplemental Security Income, Supplemental Nutrition Assistance Program, Section 8 Housing, and non-emergency Medicaid. The decision came in the case of Cook County, IL, v. Wolf.
- Promoting Insurance Protections: A Subcommittee of the House Financial Services Committee will hold a hearing this week on the Pandemic Risk Insurance Act (PRIA) (R. 7011), introduced by Rep. Carolyn Maloney (D-NY). The bill would create a system of shared public and private compensation for business interruption losses resulting from future pandemics or public health emergencies. Nonprofit New York
published a legislative memo in support, which states, “Unlike for-profit entities, most nonprofits are not well-versed in insurance coverage negotiations and do not have weighty insurance brokers advocating for our interests.” The memo points out that “without a specific legislative intervention like PRIA, nonprofits are unlikely to obtain any business interruption coverage for COVID-19 related losses.”
- Reporting Workplace COVID Cases: The Occupational Safety and Health Administration recently revised its COVID-19 Frequently Asked Questions materials to clarify reporting obligations of employers for work-related hospitalizations or fatalities due to COVID-19. In relevant part, the FAQ sets forth instructions on how to report certain work-related cases to OSHA, and the timing of such reports. In general, the OSHA materials address 47 questions in 16 categories ranging from cleaning and disinfection to liability waivers, testing, and training.
- Reviewing Nonprofit Tax Forms: The Internal Revenue Service is seeking comments from the public on potential revisions to nearly six dozen IRS forms, including the Form 1023 and Form 1023-EZ applications for tax-exempt status and the Form 990 informational tax return and various schedules. In particular, the IRS is seeking input on, among other things, whether the collection of information is necessary and has practical utility; ways to enhance the quality, utility, and clarity of the information to be collected; and ways to minimize the burden of the collection of information on respondents, including
through the use of automated collection techniques or other forms of information technology. Public comments are due January 11, 2021.
Tax Ballot Measure Results Leading to Budget Adjustments
Voters decided more than 120 statewide ballot measures this year, many designed to raise revenues to fill budget gaps. State and local revenues are projected to decline in the coming year, but the failure to pass some of the revenue measures will cause addition financial strain and force deeper budget cuts. In Illinois, voters rejected a proposed constitutional amendment to allow for a graduated income tax compared to the current flat tax. The Governor, who campaigned for the ballot question, is now predicting dire budget cuts
as a result of the vote. Among measures that did pass, voters in Arizona approved an additional 3.5 percent income tax on high income earners to raise revenues for teachers and education. Colorado voters voted to decrease the state income tax rate from 4.63 percent to 4.55 percent for individuals. At the local level, San Francisco voters approved a proposition to require executives that earn more than 100 times the median pay level for
the company to pay a new tax surcharge, raising between $60 million to $140 million in additional city revenues.
Charitable Giving Incentives on State Legislative Agendas
State lawmakers are considering expanding charitable giving incentives in their states to spur donations to nonprofits as they continue serving their communities through the pandemic. In Michigan, nonprofits are eager to restore two sets of charitable giving tax credits that the state eliminated nine years ago to make way for business tax cuts. One bill would create a 50 percent tax credit of up to $100 for singles and $200 for couples for charitable contributions to homeless shelters, food kitchens, food
banks, and other entities with similar primary purposes. The other would provide tax credits for donations to community foundations. “We know charitable tax incentives work — when they’re gone they do diminish giving,” said Kyle Caldwell, president and CEO of the Council of Michigan Foundations. Both bills have passed the House and are pending in the Senate.
In Utah, nonprofits are asking legislators to consider an above-the-line charitable tax deduction to allow state taxpayers who claim a standard deduction to deduct a certain percentage or dollar amount from their taxable income from qualifying charitable contributions. “The drop in charitable giving – caused by job losses and economic uncertainty – comes just as demand for help is skyrocketing,” writes Kate Rubalcava, CEO of the Utah Nonprofits Association. “Sadly,” she continues, “this will undoubtedly result in more nonprofits closing their doors and many more left
unable to meet the rising demand for their services.” The state association of nonprofits is circulating a sign-on letter explaining that an above-the-line, or universal, charitable deduction would be a “way to mitigate the pandemic’s economic toll on nonprofits.”
Employers, Individuals Alerted to Unemployment Fraud
Nonprofits take notice: Investigators and law enforcement departments have seen an increase in fraudulent activities regarding unemployment insurance claims. Criminals reportedly are using personal information such as social security numbers stolen by data breaches, fake email scams, and other illegal activities to file
fraudulent unemployment claims. When that happens, states are sending invoices to employers, including nonprofits, to cover those costs. Reimbursing nonprofits and other employers should be particularly wary. They should carefully review the detailed bills from their state workforce agency each pay period. The U.S. Labor Department’s Office of Inspector General urges employers and individuals to immediately notify authorities if they become aware of any of these activities. The U.S. Department of Labor released a letter (UIPL 16-20,
Change 2) on monitoring for suspicious activities.
What’s a nonprofit to do when the government takes adverse actions against it that just seem wrong? Advocate on behalf of its mission, of course. And in this case, the nonprofits were right, the IRS wrong, and justice prevailed. This story of the middle part of the connection between recognition of the problem and the solution is advocacy in action.
In September, a Minnesota nonprofit received a notice from the IRS announcing it had revoked the organization’s 501(c)(3) tax-exempt status for failing to file a Form 990 informational tax return for three consecutive years. The nonprofit knew that it had indeed filed its Form 990 and that the revocation was a bureaucratic mistake – one that could prove costly to the nonprofit through lost donations and trust. But what to do about it?
The nonprofit’s first, and wise, instinct was to reach out to the Minnesota Council of Nonprofits for guidance. The state association of nonprofits surveyed some of its members as well as asked colleagues at other state associations of nonprofits in the National Council of Nonprofits’ network to determine whether this was an isolated case or a nationwide problem. State association colleagues tapped into their networks and discovered numerous anecdotes.
- One member of the Delaware Alliance of Nonprofit Advancement reported, “Yes, I am working with IRS (on hold for 3 hours total last week) and finally got a young lady who is expediting all of the backup documentation that I sent 4 weeks ago.”
- The Center for Non-Profits in New Jersey ascertained that hundreds of nonprofits in their state had been auto-revoked in early summer, many of which had recorded tax filings from 2017 or 2018, indicating they had properly filed and should not have received the auto-revocation.
- According to research by the Colorado Nonprofit Association, about 60 nonprofits in Colorado were on the auto-revocation list, yet most were formed in the past three years, too soon to have been tripped up by the failure-to-file rule.
These stories led to deeper analyses of IRS data and the pattern emerged. A 20 percent jump in revocations this year resulted because the IRS issued notices of revocation after the usual filing deadline of May 15 but before the coronavirus extended deadline for filing returns this year – July 15. Nonprofits were revoked before their filings with the IRS were even due!
But how could nonprofits get the IRS to admit and remedy the problem as quickly as possible? This is when it’s good to know who on Capitol Hill has the expertise to cut through the bureaucracy and make things happen. The Minnesota Council of Nonprofits and National Council of Nonprofits reached out to Senator Tina Smith (D-MN) and House contacts to share their findings. Within just a few days, Members of the Ways and Means Subcommittee on Oversight sent a letter to Treasury Secretary Mnuchin explaining the problem and demanding swift action. The media (see Forbes, Nonprofit Quarterly) also picked up the story.
Less than a week later, the IRS acknowledged its mistake, which happened when the filing deadline for Form 990 was extended from May to July, but the software did not keep pace to also adjust the auto-revocation system. The IRS assured the lawmakers it was working to fix the glitch. It claimed it has notified nonprofits that had filed their Form 990s electronically that the revocation notices were in error, but nonprofits that had filed paper returns via mail will have to wait as the IRS continues to process its mail backlog. The IRS acknowledgement included a fax number for affected nonprofits to use and stated that it is
“reviewing the cases and corresponding with the organizations that received the premature notice.” The IRS website has a list of organizations on the auto-revocation list and urges nonprofits on the list to seek reinstatement by contacting the Exempt Organizations Account Unit.
Here, one nonprofit saw something that didn’t seem right and said something. It helped that the nonprofit was a member of a state association of nonprofits, which in turned had an engaged network of colleagues throughout the country willing to work together for a solution. It may take a village to raise a child, but nonprofits need an engaged network to provide voice and support.
Read more examples of Advocacy in Action,
a regular feature of Nonprofit Advocacy Matters.