IRS Issues Guidance for Reclaiming Transportation UBIT Payments
In late December, Congress retroactively repealed the tax on nonprofit transportation benefits thanks to concerted advocacy efforts by thousands of nonprofits and bipartisan support for the work of charitable nonprofits, houses of worship, and foundations. Immediately upon repeal, nonprofits began asking whether and how they can recoup the taxes they paid on a law that no longer exists. As previously reported, House Ways and Means Committee Chair Neal (D-MA) and Oversight Subcommittee Chair Lewis (D-GA) sent a letter to the IRS Commissioner asking for an expedited process so nonprofits could quickly secure refunds. This past week, the IRS issued guidance designed to do just that: help nonprofits quickly get back the money they paid in 2018 and 2019 on the now-repealed tax on nonprofit transportation benefits. The guidance instructs nonprofits to file amended Form 990-Ts and write “Amended Return – Section 512(a)(7) Repeal” at the top so IRS officials will know what it is and what to do with it. Read the IRS guidance: How To Claim a Refund or Credit of Unrelated Business Income Tax (UBIT) or adjust Form 990-T for Qualified Transportation Fringe Amounts.
OMB Proposes Regs to Improve Uniform Guidance Indirect Cost Rules
The federal rules governing grants to nonprofits would be substantially improved under proposed revisions to the Uniform Guidance published last week by the U.S. Office of Management and Budget. Since 2014, various granting agencies have misinterpreted the OMB Uniform Guidance in ways that deny nonprofits their rights to be reimbursed for their costs. Most notably, the proposed revisions would clarify that all granting agencies paying nonprofits with federal funds – whether federal, state, or local governments, native tribes, or other nonprofits – must pay a nonprofit using the nonprofit's existing negotiated indirect cost rate. If the nonprofit does not have a negotiated rate, then the nonprofit controls the option either to negotiate its indirect cost rate or be paid a flat rate of 10 percent. This clarification of the rule would strengthen the guarantee that grantees receive reimbursement of indirect costs of at least 10 percent of their modified total direct costs (de minimis rate). In other changes, the proposed rules would provide greater flexibility under procurement standards, implement standard data elements across agencies and grants, promote the collection of data in machine-readable formats, and strengthen end-of-grant closeout procedures and enforcement. OMB is hosting a public “listening session" in Washington, DC on Tuesday, February 4. The public is invited to review the proposed regulations and submit comments by March 23, 2020. Read the National Council of Nonprofits' analysis of the proposed regulations.
- IRA Rollovers Unaffected by Recent Tax Changes: The spending and tax legislation approved by Congress in December included several changes to federal retirement law. One provision raises the age when individuals must start making minimum distributions from their individual retirement accounts (IRAs) from 70½ to 72 years of age. The tax law did not, however, alter the giving incentive known as the IRA charitable rollover. Individuals aged 70½ and older may still make tax-free distributions to nonprofits from their IRAs, even if they are not required to make distributions from their IRAs because they have not yet turned 72.
- Court Blocks Refugee Resettlement Order: A federal judge in Maryland granted a preliminary injunction against a presidential executive order that sought to give state and local officials authority to block the resettlement of refugees in their jurisdictions. In September, the President issued an executive order to “enhance” consultations between levels of government to allow state and local jurisdictions to have “greater involvement in the process of determining the placement or resettlement of refugees.” Three nonprofits challenged the policy as a violation of the Refugee Act that created the resettlement program in which nonprofits participate as service providers. The court's opinion stated that the executive order “appears to run counter to the Refugee Act’s stated purpose…. Lest there be any doubt, giving States and Local Governments the power to consent to the resettlement of refugees – which is to say veto power to determine whether refugees will be received in their midst – flies in the face of clear Congressional intent” (emphasis in original).
State Charity Officials Weigh In on .org Registry Proposed Sale
The National Association of State Charity Officials (NASCO) sent a letter expressing significant concerns about the proposed sale of the nonprofit Public Interest Registry to a private equity firm that would have “an obligation … to maximize profits for its” investors. Many nonprofits are concerned about steep price increases on their website addresses, censorship of their communications, and loss of reliable service because of: (1) last year’s decision by the Internet Corporation for Assigned Names and Numbers (ICANN) – the governing body overseeing internet domain registries – to remove price caps on .org domain names, and (2) the subsequent sale of the .org domain to a for-profit private equity firm. NASCO’S letter lays out several problems with the sale of the .org registry, including the loss of transparency and public accountability. The letter itself does not halt the proposed sale, but it does show that state charity regulators have serious concerns about this transaction. The state charity officials join the growing list of reasonable outsiders who have looked at and expressed objections to the proposed conversion of this nonprofit to a for-profit entity, including the United Nations Human Rights Council and members of Congress. Learn more about what a sale of the .org registry means to nonprofits.
2020 Census Begins in Alaska
The 2020 Census is officially underway, with the completion of the first census questionnaire by a village elder in Toksook Bay, Alaska, on January 21. Afterwards, community leaders, nonprofit organizations, and government officials attended a celebration at a local school to encourage all residents to get counted. The Alaska Census Working Group, a coalition formed by The Foraker Group, the state association of nonprofits, helped spread the word of the beginning of the decennial census across the Last Frontier. “There is no person, there is no organization that is untouched by the census,” said Gabe Layman, Chair of the working group. “And we’re not talking about impacts that last for a year or two years. The impacts are felt for a decade,” indicating the importance for nonprofits to get involved in their communities to get people counted and spread the message through the right messenger, like a community elder or leader. Census Day is officially April 1, and the rest of the country will begin receiving postcards in the mail to ask people to fill out the census online beginning in mid-March.
Upcoming Training Events
- Jan. 28, Preparing for the 2020 Census, Massachusetts Nonprofit Network
- Jan. 29, Census 2020 Workshop (Hartford), CT Community Nonprofit Alliance
- Jan. 30, We Count!, Nonprofit VOTE webinar
- Jan. 30, Nonprofits Count! Census 2020 (St. Paul), Minnesota Council of Nonprofits
- Feb. 3, Census 2020 (Bismarck), North Dakota Association of Nonprofit Organizations
- Feb. 4, It's Time to Count! Statewide Convening (Research Triangle Park), NC Counts Coalition
State of the State Addresses – A Recap
Governors across the country are laying out their priorities for the year in their annual State of the State addresses. Governors in Arizona, Idaho, and Wisconsin recently highlighted funding and improving education as top priorities. The high cost of living in Hawai`i remains the focus for Governor Ige, who announced plans to support increasing the minimum wage and expanding access to affordable childcare and housing. In his State of the Commonwealth speech, Massachusetts Governor Baker praised the legislature for leading on health care policy, as well as taking on climate change and better infrastructure. Governor Scott in Vermont is prioritizing clean energy, criminal justice reform, and a universal afterschool network. Rhode Island Governor Raimondo announced an executive order committing the state to be the first completely powered by renewable energy – by 2030.
Property tax relief and funding for flood relief were the primary issues for Nebraska Governor Ricketts. Governors in Florida and South Dakota stated their commitment to low taxes and fiscal responsibility with goals of cutting or not raising taxes in their states. Iowa Governor Reynolds wants to cut property and individual income tax rates to offset a 1-cent sales tax increase. South Carolina Governor McMaster, saying the state has the highest personal income tax rate in the nation, is asking the legislature to cut the tax rate and provide taxpayers with a rebate check from a $250 million surplus. Delaware Governor Carney touted his state’s economy and support of for-profit businesses. Kansas Governor Kelly plans to expand Medicaid and stabilize the state economy after the previous Governor’s failed tax experiments. New Mexico Governor Grisham highlighted education and the economy with an emphasis on a budget to build capacity in state agencies to deliver services, while also increasing the state’s Rainy Day Fund.
Tax Reform Gone Awry: The Utah Experience
By the end of this week, Utah’s tax code may look like it did just six weeks ago, but only after dramatic policy actions. Between those times, the Legislature passed significant tax reforms, more than 150,000 Utahans signed a ballot petition to repeal the reforms, and the Legislature – at the urging of the Governor, Senate President, and House Speaker – is now set to retroactively repeal the December reforms. Soon to be an historical footnote, the law cut overall taxes by roughly $160 million through a combination of reduced income taxes and increased sales taxes – including controversial sales tax hikes on groceries and fuel, and expansion of the sales tax to cover more services.
Massachusetts State Charitable Tax Deduction Triggered
On January 1, the state income tax in Massachusetts decreased to 5 percent, 20 years after voters approved a ballot measure mandating the reduction. The rate was to decrease in 2003, but the Legislature voted to gradually lower the rate and insert triggers based on the state of the economy. The reduction this year also signals the return of the state charitable deduction for the 2021 tax year. Taxpayers in the state currently can only claim a federal deduction, but the state deduction will now apply to all taxpayers, regardless of whether or not they itemize deductions on their returns. Jim Klocke, CEO of the Massachusetts Nonprofit Network, emphasized the importance of this valuable incentive for charitable contributions, stating: “Individual contributions are the lifeblood of the nonprofit sector. Individual contributions to nonprofits are three times as great as the funds given by foundations and corporations combined.”
Trend Spotting: Employment Policies
New Jersey Mandates Severance for Mass Layoffs
With the signature of Governor Murphy last week, New Jersey became the first state in the country to require larger employers, including nonprofits, to pay severance to laid-off workers in certain circumstances. The new law, which takes effect immediately, requires employers with at least 100 employees in the state to provide 90-days notice before a layoff putting at least 50 people out of work. It mandates that affected workers be paid one week’s severance for every year of service, with an additional four-week penalty if the employer does not provide the requisite advance notice. The law reportedly was motivated by the concerns for 2,000 people who lost their jobs when Toys “R” Us suddenly closed its doors.
While this is the first workplace law of the year, a recent trend suggests that employment legislation will likely be a hot topic in 2020. Multiple states considered paid leave bills in 2019. Maine enacted a law requiring employers, including nonprofits, with 11 or more employees to provide paid leave up to 40 hours per year for employees. Colorado set up a study of a paid family and medical leave program, and numerous other states, including some in more conservative parts of the country, are expected to reconsider bills that didn’t quite make it through the legislative process last year. Tennessee, for example, continues to consider a mass-layoff bill that’s not as extensive as the New Jersey law. Legislation in New York would place restrictions on employer access to social media and other personal account information. In short, the states are not waiting for Congress to set workplace standards.
The Virtuous Advocacy Cycle: Promote, Enact, Implement
Colorado Nonprofit Association identified a problem in the state: taxpayers couldn’t easily donate tax refunds to the charitable nonprofits of their choice, unless they opted for a small collection of organizations the state listed on the tax forms. The story of how the state association of nonprofits got from seeing the problem to truly solving it is effective advocacy in action.
In 1977, Colorado became the first state to allow taxpayers to donate to charitable organizations through the state tax return. In recent years, this meant Colorado taxpayers could choose between roughly 20 charitable nonprofits to donate all or a portion of their state income tax refund. But what of the thousands of other worthy nonprofits that didn’t make onto the tax form? The solution was legislation to expand voluntary giving opportunities. Through the leadership of the Colorado Nonprofit Association, the Legislature approved a bill in 2018 to allow taxpayers to choose any charitable nonprofit that signed up to participate in the refund program.
Passage of the law was a victory, to be sure, but not the end of the advocacy effort. There was still the hard work of working with the public and state government to figure out the details for implementation. The state association held focus groups around Colorado to learn what donors actually wanted. People indicated a desire to be able to donate directly to organizations within their local communities so they could see the difference being made through nonprofits in their backyards. Colorado Nonprofit Association also worked closely with the state Department of Revenue as the options for making donations expanded from about 20 nonprofits to several thousand.
This month all of that advocacy and planning starts paying off with the launch of the ReFUND CO campaign. Through it, taxpayers can select from more than 7,750 charitable organizations to donate directly on their income tax filings. On the tax form, taxpayers can find the official name and registration number of their desired organization via the ReFUND CO campaign. The “refunder” simply writes in the nonprofit’s name, charitable registration number, and the amount of the donation, which can be any amount up to the full income tax refund. Eligible nonprofits can be found on the ReFUND CO website and range from the arts to zoos and every mission in between.
Closeup of Colorado 2019 Form DR 0104CH - 2019 Voluntary Contributions Schedule
Read more examples of Advocacy in Action,
a regular feature of Nonprofit Advocacy Matters.