Happening This Week
House Committee to Consider Politicizing Nonprofits
Buried in a House appropriations bill for next fiscal year is an extraneous provision (rider) that would enable politicians, their operatives, and donors to pressure hundreds of thousands of nonprofits into endorsing and diverting charitable assets to candidates for public office.
Section 112 of the Financial Services and General Government (FSGG) spending bill for the fiscal year beginning on October 1 seeks to make it virtually impossible for the Internal Revenue Service to enforce the law against certain nonprofits for even the most egregious violations of the 1954 law known as the Johnson Amendment that requires nonprofits to be nonpartisan. The proposed change would effectively give “churches” and their auxiliaries a free pass to ignore the longstanding law that prevents them, as well
as charitable nonprofits and foundations, from endorsing or opposing candidates for public office or diverting nonprofit assets to fund political campaigns. The rider offers no reductions or lessening of the restrictions on enforcement against secular organizations and leaders, thus creating a framework that explicitly encourages discriminatory enforcement of the law.
If It Just Gives Churches a Free Pass to Violate the Law, Why Should I Care?
All 501(c)(3) orgs should recognize that weakening the protections of the Johnson Amendment for any of us weakens it for all of us.
- Last year, the House Ways & Means Committee initially considered language that exempted only “churches” and their auxiliaries, but later expanded it to cover ALL 501(c)(3) organizations, so it is unsafe to sit on the policy sidelines assuming that your organization may be safe.
-Last year, the Joint Committee on Taxation determined that a similar attempt to weaken the Johnson Amendment for “churches” would have cost taxpayers $2.1 billion over several years. The reason? The nonpartisan “scorekeeper” of Congress recognized that donors would shift billions of dollars in partisan donations away from candidates and PACs and instead to newly politicized houses of worship (think “pop-up churches”) through which the donors could receive charitable tax deductions for the first time.
This change to the Johnson Amendment would be contrary to the views of the vast majority of organizations that benefit from keeping divisive partisanship away from their operations, as reflected in the Faith Voices letter signed by more than 4,400 faith leaders, the separate letter signed by more than 100 denominations and major religious organizations, the Community Letter in Support of Nonpartisanship
signed by more than 5,800 organizations in all 50 states, and a letter from the law enforcement community warning against changing proven law, as well as polls showing that 72 percent of the public support keeping the Johnson Amendment in place and 89 percent of evangelical pastors who say it is wrong for preachers to endorse candidates from the pulpit.
TAKE ACTION: On Wednesday, June 13, the House Appropriations Committee will take up the bill with the harmful anti-Johnson Amendment rider. Nonprofits of all types – not just houses of worship – need to express to Committee members (highlighted in yellow) your strong opposition to politicizing our sector. All
nonprofits in states with Committee members – not just houses of worship – are encouraged to email, write, and tweet your Representatives and deliver this simple message:
“Partisanship has NO place in charitable organizations – whether houses of worship, charitable nonprofits, or private foundations. Vote to remove Section 112 from the FSGG bill.”
Find your Representatives on the House Appropriations Committee. Visit www.GiveVoice.org for more information and additional resources.
- Rescinding Spending: The House last week narrowly passed a bill to cancel $15 billion in previously appropriated funds, including more than $7 billion in unspent funds from the Children’s Health Insurance Program (CHIP). The nonpartisan Congressional Budget Office reported that the bill would not cause any child to lose health insurance and would not limit current spending. Federal lawmakers regularly rescind unspent funds, but typically do so as “pay fors” to cancel out spending increases on
other matters. The fate of the rescission bill in the Senate is uncertain.
- Scrubbing Donor Disclosures: The Internal Revenue Service should stop requiring that 501(c)(4) social welfare organizations submit their donor lists to it, Senator Ron Johnson wrote in a letter to the IRS and the Treasury Department. While acknowledging that federal tax law mandates that charitable 501(c)(3) nonprofits disclose donors (using Form 990 Schedule B), he asserts that the disclosure form is not required by law for other types of nonprofit organizations. Senator Johnson, writing in his capacity as Chair of the Senate Homeland Security and Government Affairs Committee, is calling on government
officials to address his concerns in a meeting this week.
- Restructuring Education Giving: A long-awaited, but still surprising bill from Representative Tom Reed (R-NY) would limit the deductibility of charitable donations to colleges and universities for purposes other than providing scholarships to students from low-income families. Under the bill, H.R. 5916, only donations restricted to scholarships for targeted students would be eligible for a 100 percent deduction on federal tax returns. Taxpayers restricting their donations to anything other than these
scholarships could deduct only $5,000 of the total and receive only a 25 percent deduction for unrestricted donations. Among other provisions, the legislation would impose an excise tax on the investment returns of endowments of certain colleges and universities that don’t spend what the bill sponsor considers enough to reduce the cost of education for lower-income families.
- Undoing the Tax Act: A spate of bills recently introduced in the House demonstrate a desire to undo some or all of the new tax law enacted at the end of 2017. A measure introduced by Rep. Dana Rohrabacher (R-CA), H.R. 5872, would double the state and local tax deduction limitation from $10,000 to $20,000. Representative Jared Polis (D-CO) has introduced a bill, the Students Over Special Interests Act (H.R.
5928), that seeks both to repeal the Tax Cuts and Jobs Act and forgive all outstanding federal student loans. Neither bill is expected to see action this year.
- Promoting E-Filing: In 2018 Report of Recommendations, the IRS Advisory Committee on Tax Exempt and Government Entities (ACT) reiterated its call for requiring that all nonprofits electronically file their Form 990 informational tax returns. According to the ACT, “Universal e-filing will save costs, result in more accurate returns, and improve the availability, reliability and transparency of EO data.” The House passed a bill in April to require e-filing.
Blue State Tax Avoidance
Are taxpayers in blue (more liberal, Democratic-leaning) states better off after the federal tax law than before? That’s the question in “Blue states find ways to undercut GOP tax law.” The answer in the Politico analysis is a clear “yes,” assuming the states enact certain tax avoidance schemes and assuming further that the IRS doesn’t shut down the approaches. To date, three states – Connecticut, New Jersey, and New York – have established “SALT workarounds,” i.e., laws that allow state taxpayers to pay their state and/or local taxes (SALT) through contributions to government-run charities. The workarounds allow taxpayers to avoid the new $10,000 cap on federal deductions for SALT by instead claiming deductions for uncapped charitable donations. Politico observes that the state workarounds also enable their taxpayers to combine several types of taxes – income, sales, property – between which taxpayers previously were
required to choose. As a result, taxpayers in those states may now be able to deduct more on their federal taxes than before the federal tax law was enacted, and states could reap increased revenues as taxpayers overpay state obligations, via charitable contributions, in order to maximize federal tax breaks.
Many nonprofits have expressed reservations about the SALT workarounds because of concern that the laws could reduce giving to true charitable organizations, anxiety about public and donor confusion, and questions about governance and transparency. Those may become moot when the IRS and Treasury issue proposed regulations that address the legality of the SALT workaround laws. Last month, the IRS announced it will be writing regulations on SALT workaround efforts, warning taxpayers that “federal law controls the proper characterization of payments for federal income purposes.” Scholars have noted, however, that states have been providing tax credits in exchange for charitable donations for many years, including other types of workaround schemes in more than half the states. Even if the IRS and Treasury were to issue proposed regulations, it could take years to resolve as litigation is certain.
North Carolina Removing a New Tax on Tax Exempts
North Carolina is on the verge of blocking automatic taxation of tax-exempt organizations under state law as a result of the federal tax law that levies unrelated business income taxes (UBIT) on nonprofits that pay for their employees’ parking and transit expenses. A provision in the state budget would ensure that nonprofits will not be required to pay a three-percent state UBIT on the amounts they pay for their employees' parking and transit expenses. Because many nonprofits expressed concerns about this new tax, the North Carolina Center for Nonprofits asked state legislators to "decouple" the state tax code from this new federal tax so nonprofits don't have to pay state income tax (or file state tax forms) for these expenses. The Governor vetoed the budget legislation, but the state Senate overrode the veto last week. The House is expected to do so as well in the coming days. A similar bill to decouple the new tax from state law is pending in New York.
Non-Itemizer Charitable Deduction Proposed in New Jersey
Lawmakers in New Jersey, which does not currently provide a charitable tax deduction under state law, are considering bipartisan legislation to allow all taxpayers to deduct charitable contributions from their state income taxes, regardless of whether they itemize on their tax forms. New legislation (S-2179/A-307) would permit a taxpayer to deduct from New Jersey income taxes the amount of charitable contributions made to a “qualified New Jersey-based charitable
organization” equal to the amount that is allowable as a charitable deduction under federal income taxes. Taxpayers need not itemize on their federal returns in order to claim the state deduction. The Center for Non-Profits in New Jersey strongly supports this legislation. Currently, taxpayers in Colorado and Minnesota have the benefit of making charitable deductions on their state taxes even when they take the federal standard deduction.
Government-Nonprofit Contracting Reform
Nonprofits Suffer Late Payments in New York City
Despite boasting some of the best payment protection laws for nonprofits, New York City continues to be chronically late paying nonprofits for services provided to residents, according to an analysis of 59,000 New York City contracts by the New York Post and a recent report from the City Comptroller. Late payments occur for many reasons, including no reason at all. In many instances, the City pays late because it had delayed executing contracts with nonprofit providers. This creates a significant problem,
because nonprofits may continue to provide services without final agreements, but under City law cannot be paid for services performed without a signed contract. While all City agencies have been late on some occasions, the Department of Homeless Services has been the most egregious, paying nonprofits late nearly 80 percent of the time since at least 2013. In releasing his report, New York City Comptroller Stringer explained the importance and impact of the findings: “Behind every human services contract are people who need support from our City – food to eat, a roof to sleep under, or someone to care for them. But our slow
contracting system is hurting the very organizations that the City’s most vulnerable communities depend on each day. With nonprofits already under pressure from Washington, here in New York City the bureaucratic process only makes their jobs harder."
Kicking Off Election Season – And Staying Nonpartisan
“It’s Officially Election Season and Nonprofits Should Prepare,” proclaims Marnie Taylor, President and CEO of the Oklahoma Center for Nonprofits in a recent article. Likewise, the Wyoming Nonprofit Network has sent its members "An Important Reminder for Campaign Season." And the CT Community Nonprofit Alliance is declaring. “The stakes are high for community nonprofits this election season.” These, and other, state associations of nonprofits are sounding the alarm and equipping nonprofits with the tools they need to promote democracy
and engage their fellow nonprofits and voters in nonpartisan ways.
The advice from Oklahoma is timely because primaries will be held later this month (June 26). Taylor starts by reminding nonprofits, “we encourage you to tell your folks to vote, but don’t tell them who to vote for. This is part of the IRS prohibition on interfering with elections called the Johnson Amendment.” She goes on, “However,
nonprofits can and should educate the public about the issues closest to them.” Taylor provides several pieces of advice, including politely declining requests from candidates and donors for partisan endorsements (based on established law) and reminding staff (paid and volunteer) not to use organizational resources or worktime to engage in “electioneering” activities.
In Wyoming, some questions regarding candidate engagement triggered a reminder to nonprofits from the state association that “it is important for nonprofits not to engage directly or coordinate efforts with the campaign in any way, to avoid the perception that the nonprofit is supporting the candidate and violating the Johnson Amendment, which prohibits nonprofits from supporting
candidates for public office.” Reminding nonprofit readers of the benefits and restrictions of nonpartisanship under the Johnson Amendment, the alert explains: “By standing above the political fray, organizations can work with elected officials of all parties at the local, state, and federal levels to address community needs.”
The CT Community Nonprofit Alliance reminds charitable nonprofits that as a result of the upcoming 2018 general elections, in 2019 the state will have a new Governor, other statewide constitutional officers, and legislators, and that all but one seat of Connecticut's Congressional Delegation is up for re-election.
The state association provides a clear call to action: “Before new candidates are sworn into office and others are re-elected, it is imperative that nonprofits engage with candidates to highlight the important work that you do and the issues that impact you and the individuals you serve. As long as you remain nonpartisan, you may and should do this work.”
In particular, the Alliance urges all community nonprofits to host one or more of the following events, and provides vetted resources from Nonprofit VOTE to guide nonprofits every step of the way:
- Site visits/facility tours with candidates
- Voter registration drives
- Candidate forums
But wait, there’s more! The Alliance is hosting seven regional “Vote or Lose” forums across the state in June and July to discuss what is at stake for nonprofits this election, as well as teach the skills necessary for effectively engaging legislative candidates in strictly nonpartisan ways.
To summarize, the upcoming elections will impact the work of nonprofits, and as long as nonprofits remain nonpartisan, they can influence the outcomes for the advancement of their missions and communities. Much more on this topic is available at CalNonprofits’ Vote with Your Mission initiative and Nonprofit VOTE.