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Visit The Nonprofit Blog again for major developments facing the nonprofit sector. In the meantime, if your organization needs any help in Washington, D.C., please contact us.

Happy New Year

Happy New Year from 501(c) STRATEGIES!

We’ll take a break from posting over the next few weeks. Please make sure to visit The Nonprofit Blog in January (or sign up for a free e-mail subscription) for the latest developments from Washington, D.C. affecting America's nonprofit sector.

Post-Election Conference Call

On December 6, 2006, Perry Wasserman, Managing Director of 501(c) STRATEGIES, will participate in a national conference call offering “A Post-Election Prognosis for the Nonprofit Sector.” The call will take place from 12:30 pm – 2:00 pm EST and is being hosted by Alliance for Justice. To RSVP, click here.

The New Congress and Nonprofits

What does the newly-elected Congress mean for the nonprofit sector? The Nonprofit Times and The Chronicle of Philanthropy each try to answer this important question. Check out the articles here and here.

Happy Thanksgiving!

Nonprofit Congress Set to Convene

Next week, on October 16th and 17th, over 500 nonprofit professionals are coming to D.C. for The Nonprofit Congress. Once here, participants will "affirm the shared values of nonprofits, determine the priorities of the nonprofit sector, and create an action plan for charitable nonprofits.” Also at the meeting, Mauricio Vivero, principal of 501(c) STRATEGIES, will present on “Targeting Your Advocacy: How (and Who) to Engage at the Local, State, and Federal Level.” If you are attending the Congress, make sure to drop by this session.

As part of the event, organizers are asking people to sign a Declaration for America’s Nonprofits. Please check it out.

House Clears Bill Mandating Disclosure of Federal Grants, President Bush Expected to Sign into Law

Last week, I reported the Senate approved S. 2590, much-hyped legislation requiring the federal government to make public via a searchable website information on all federal spending, including grants to nonprofits. Tonight, the House approved a modified version of the bill, punting it back to the Senate for consideration. Now, the Senate is expected to quickly approve the House-passed version and send it to President Bush, who will no doubt sign the bill into law.

The searchable website will be up and running by January 1, 2008, and will obviously shed a great deal of light on those nonprofits that receive federal funds. However, the legislation may also end up modifying reporting requirements for federal grantees (and subgrantees), so stay tuned if your organization receives any federal money.

CRS Issues Report on Charitable Provisions in Pension Bill

Yesterday, the Congressional Research Service (CRS), the public policy research arm of Congress, issued a report on Title XII of the Pension Protection Act of 2006 (Pub. Law 109-280). Title XII contains provisions affecting tax-exempt organizations. The CRS report is a brief (6 pages), well-written summary of all the relevant provisions, and it’s a good read for anyone interested in how the new law will affect their organization. For a copy of the CRS report, e-mail me.

New Legislation Would Create Tax-Free "Personal Philanthropy Accounts" to Spur Charitable Giving

Senators Johnny Isakson (Republican from Georgia) and Frank Lautenberg (Democrat from New Jersey) recently introduced legislation (S. 3881), which would create tax-free “personal philanthropy accounts” for giving to 501(c)(3) organizations. Under the legislation, individuals would be able to contribute up to $15,000 per year to these personal accounts through an automatic debit from their paycheck before their income tax is calculated and withheld (an “above-the-line deduction”). This would allow the contributions to accumulate and earn interest tax-free. The legislation would also allow employers to match their employees’ contributions.

S. 3881 is largely a place-holder, and we expect a revised version to be introduced next session in both the Senate and House. For a copy of the bill and other supporting documents, just email me.

Can't Get Enough of The Nonprofit Blog?

Do you love reading The Nonprofit Blog, but the idea of visiting our site daily is just too much to bear? If so, today is your lucky day...

We recently added a free e-mail subscription service to the blog. Just enter your e-mail address in the box to the right of this post, click "subscribe" and you will begin to receive a daily e-mail when we add new content. It's that simple. We also added a site feed for those who are technologically inclined.

Please e-mail me if you have any questions.

Senate Passes Bill Mandating Disclosure of All Federal Grants

Late last night, the Senate approved S. 2590, the Federal Funding Accountability and Transparency Act, which requires the Office of Management and Budget to make information on all federal grants publicly accessible through a searchable website. The House is likely to consider and approve legislation similar to S. 2590 next week.

Does your nonprofit receive federal money? Find out what this bill might mean for you.

Finance Committee to Hold Hearing on Nonprofit Hospitals

Next week, the Senate Finance Committee will hold a hearing on “Taking the Pulse of Charitable Care and Community Benefits at Nonprofit Hospitals.”

This hearing certainly comes as no surprise. Both the Senate and House tax-writing committees and the Internal Revenue Service (IRS) have expressed great concern over the operation of nonprofit health care facilities. For example, Senate Finance Committee Chairman Grassley sent letters in June to the IRS seeking “comment and in some cases stepped-up enforcement" in several tax-exempt areas. His number one concern: nonprofit hospitals. Also in June, the IRS sent “compliance check questionnaires” to more than 550 nonprofit hospitals to determine whether they are abusing their tax-exempt status. Reportedly, the IRS will soon decide whether standards for nonprofit hospitals should be changed or clarified.

Securities Industry Asks for Guidance on IRA Charitable Rollover

As our readers know, the IRA Charitable Rollover was signed into law on August 17, 2006 as part of a larger package of charitable reforms and giving incentives. So, the clock is now ticking on this incentive because it expires at the end of 2007. As a result, charities are beginning to ask questions about how to actually implement it.

Today, the Securities Industry Association (SIA) released an e-mail they sent to Treasury Department last week asking for guidance on several implementation issues. The e-mail includes questions like:

* Will qualified charitable distributions, need to be tracked under a separate reason code for 1099-R reporting?
* Will financial institution have an "obligation" to report to the charity any identifying information relating to who directed the gift?
* Does the provision apply to distributions from other types of IRAs?

Other national groups are also planning letters to Treasury. Look for more information on this in the coming weeks.

Budget Issues Pending in Congress Will Impact Work of Nonprofits

There are a handful of federal budget issues pending in Congress that will no doubt impact the nonprofit sector. And, we expect lawmakers could act on them before the year is up. Gary Bass, Executive Director of OMB Watch, discusses two of these issues — estate tax repeal and establishment of “sunset commissions” — in Philanthropy Journal.

The Countdown to Midterm Elections

With Labor Day now behind us, it’s all about the mid-term elections. And for nonprofits, there are two interesting developments to report....

The Federal Election Committee (FEC) last week considered an interim final rule that would have provided a much-needed exemption to the electioneering communication prohibition contained in the Bipartisan Campaign Reform Act (BCRA) for certain grassroots lobbying communications on issues of public policy. For background on this issue, see my earlier post.

Unfortunately, though, the FEC declined to take action on the exemption. In fact, Democrats on the Commission went so far as to block any action on the exemption for the foreseeable future. That is, not only did they vote against the actual interim rule, they also voted against two other motions that, if approved, would have allowed for a proposed rule to come back before the Commission in the coming months. Specifically, the Democrats: (1) blocked the initiation of any formal rulemaking procedure and then (2) refused to authorize FEC General Counsel to prepare draft rules for discussion. The irony is that the reason the Democratic Commissioners said they voted against the interim rule in the first place was because a formal rulemaking procedure hadn’t taken place. Yet, when a motion initiating such a rulemaking was before them, they voted against that as well.

Of course, election-related activity for nonprofits is not just governed by federal election law, and in recent months the Internal Revenue Service has stepped up enforcement of so-called "politically active" nonprofits. I’ve covered this topic extensively on the blog, so I encourage you to browse through the archives.

Now comes news the IRS has scheduled two “phone forums” to discuss “political intervention rules” for (c)(3)s. The sessions are scheduled for September 19 and 20, 2006 and are "designed for those with experience in exempt organizations law."

August Recess

Washington is pretty quiet right now, so we're taking a break for the last two weeks of recess. Please check back right after Labor Day for the latest information affecting the nonprofit sector.

"Death Tax" Bill Might Rise From the Dead

Reports this week are that Republican leaders in the Senate, mainly Majority Leader Bill Frist (Tennessee) and Finance Committee Chairman Chuck Grassley (Iowa), are planning to revive estate tax legislation before the mid-term elections in November. Perhaps they’re hoping third time’s the charm...

As you’ll recall, in late July, the House approved legislation (H.R. 5970) that would have permanently reduced the estate tax. Specifically, H.R. 5970 would have increased the estate and gift tax exemption amount to $5 million per person and $10 million per couple, fully-phased by January 1, 2015, and lowered the rate of tax on estates up to $25 million to the capital gains tax rate (currently at 15 percent, set to increase to 20 percent in 2011 unless extended). Estates in excess of $25 million would have been subject to a phased-in reduced rate of tax of 30 percent, also fully-phased in by January 1, 2015.

When H.R. 5970 moved to the Senate earlier this month, though, it didn’t fare so well. The Senate failed to invoke cloture on the bill, so a vote on final passage could not take place. Two months earlier, on June 8th, the Senate failed to invoke cloture on another estate tax bill (H.R. 8).

Despite these two defeats, we’re now hearing that Sens. Frist, Grassley & Co. will try once again to permanently reduce the estate tax. They are using the August recess to regroup and craft a compromise proposal that can win the support of at least some Democratic Senators. Potential targets include Sens. Akaka (Hawaii), Baucus (Montana), Byrd (West Virginia), Cantwell (Washington), Inouye (Hawaii), Johnson (South Dakota), Murray (Washington), Pryor (Arkansas), Salazar (Colorado) and Stabenow (Michigan).

We’re not exactly sure yet what this compromise might look like, but details should emerge soon.

President Signs Charitable Package Into Law... As Council on Foundations Presses for Immediate Guidance from Treasury

Today, in a ceremony at the White House, President Bush signed into law legislation (H.R. 4) that includes a package of charitable incentives and reforms. So, the clock is now ticking on the incentives, which last only 17 months, and on the reforms, several of which take effect immediately or are retroactive.

Meanwhile, the Council on Foundations sent a letter to the Department of Treasury yesterday requesting immediate guidance on a number of provisions in the charitable package, including the ban on payments by supporting organizations to substantial contributors and persons related to them, the requirement of private foundations to exercise expenditure responsibility when making grants to Type III supporting organizations and the ban on reimbursing donors and advisors for expenses incurred for the benefit of their funds.

FEC to Consider Interim Rule Protecting Grassroots Lobbying

On August 29, 2006, the Federal Election Committee (FEC) will consider an interim final rule that would provide an exemption to the electioneering communication prohibition contained in the Bipartisan Campaign Reform Act (BCRA) for certain grassroots lobbying communications on issues of public policy. Earlier this year, over 200 nonprofit organizations urged the FEC to conduct a rulemaking on this very matter.

Under current law, broadcast advertisements that mention a federal candidate are prohibited within 30 days of a primary election or nominating convention or within 60 days of a general election. This prohibition includes some grassroots lobbying broadcast advertisements, even though these communications have nothing to do with influencing elections but rather influencing elected officials on legislative matters that happen to arise in an election year. According to the Alliance for Justice, “If the FEC accepts this proposed interim final rule on August 29, pure grassroots lobbying broadcast ads would be protected through the 2006 election cycle. The FEC would meanwhile consider additional public comments and promulgate a permanent final rule for future years.”

The interim final rule is being proposed by FEC Commissioner Hans A. von Spakovsky. In a statement Commissioner von Spakovsky said, “The right of citizens to ‘petition the Government’ is a fundamental First Amendment right explicitly recognized by the Founding Fathers. It is vital to our democratic process that we continue to protect that right through an exemption for grassroots lobbying on matters of public importance being considered by Congress and the President.”

According to Commissioner von Spakovsky, his proposed rule would permit organizations otherwise subject to the electioneering communication prohibitions to air a television or radio communication during the 30-day period before a Federal primary election and 60-day period before a Federal general election, so long as that communication:

* is directed to an incumbent officeholder in his capacity as an officeholder, and not in his capacity as a candidate;
* has as its subject matter a public policy issue under consideration by Congress or the Executive Branch;
* urges the incumbent officeholder to take a particular position or action with respect to the public policy, or urges the general public to contact the incumbent officeholder for the purpose of encouraging him to take a certain position or action;
* does not reference the individual’s character, qualifications, or fitness for office;
* does not reference any Federal election or a political party; and
* does not promote, support, attack, or oppose any candidate for Federal office.

More information on this once the FEC acts.

White House Names New Director of Faith-Based Office

Earlier this month, President Bush officially named Jay Hein as Deputy Assistant to the President and Director of the Office of the Faith-Based and Community Initiatives. Mr. Hein was President of the Sagamore Institute for Policy Research, a national think tank he founded that specializes in community-based reforms. Mr. Hein also served as Executive Vice President and CEO of the Foundation for American Renewal, which provides financial grants and other support to community-based organizations and educates the general public on effective compassion practices.

For more information on this appointment, visit the updated website for the Office of Faith-Based and Community Initiatives.

Hein succeeds James Towey, who resigned from the Office in April to become the president of Saint Vincent College in Pennsylvania.

President to Sign Charitable Package Into Law

We've just learned that President Bush will sign the Pension Protection Act (H.R. 4) on Thursday, August 17th at a ceremony in D.C. H.R. 4 includes a package of charitable reforms and incentives.

Federal Lobby Disclosure Forms Due Today

Mid-year (January 1, 2006 - June 30, 2006) lobbying reports must be filed with the House and Senate by today. Visit the Office of the Clerk of the House website for more information.

Also, a few weeks ago, the Office of the Clerk issued a new guide to the Lobbying Disclosure Act. It is very helpful and worth reading.

Recess Time

Now that the Senate has officially joined the House in August recess, we're going to take a week off from posting. Please check back on August 14th, though, for all the latest information affecting the nonprofit sector. Thanks.

Senate Approves Charitable Package, Sends Bill to President

Last night, the Senate approved by a vote of 93-5 a package of charitable reforms and incentives as part of pension reform legislation (H.R. 4) that passed the House last week. The Senate did not amend H.R. 4, so the bill now moves to President Bush's desk where he's expected to quickly sign it into law.

For a very detailed analysis of the reforms and incentives included in the charitable package, see the latest Joint Committee on Taxation report, pages 263-351.

The charitable package is, in many respects, a watered-down version of provisions that were advanced by Senate Finance Committee chairman Chuck Grassley and the Panel on the Nonprofit Sector.

Senate Could Approve Charitable Package Today or Tomorrow

According to Republican leadership, the Senate is expected to consider H.R. 4, The Pension Protection Act of 2006, later today or early tomorrow and will likely clear the measure before leaving town on Friday for August recess. H.R. 4, which passed the House last week, includes a package of charitable reforms and incentives.

On Tuesday, Senate Majority Leader labeled H.R. 4 “must-pass” legislation, and said he’s hopeful the Senate will approve the measure without amending it, thereby avoiding a House-Senate conference committee.

More on this once the Senate acts.

Combined Federal Campaign Under Fire (Again)

The Washington Post reports today that six charities are suing the Office of Personnel Management (OPM), claiming they were unfairly dropped from the official eligibility list for the Combined Federal Campaign (CFC). The CFC, which is run by OPM, is a fund-raising drive conducted every fall that allows federal employees and military personnel to donate money directly to charities — 22,000 in 2005 – of their choice.

According to the article, "In rejecting the charities' applications, OPM said they did not meet a requirement that charities operate in 15 or more states or in another country over the previous three years." The article continues, "The way OPM goes about creating the annual [CFC eligibility] list has been a recent subject of criticism and legal wrangling. Last year, OPM dropped a long-standing requirement that charities spend no more than 25 percent of their revenue on salaries and other administrative expenses after the national chapter of the Make-A-Wish Foundation sued in federal court. The agency was forced to print additions to the brochure it had prepared for the campaign."

OPM also came under fire earlier this year when the Government Accountability Office (GAO) concluded that OPM did not independently verify with the Internal Revenue Service whether charities in the CFC were truly tax-exempt organizations. The House Ways & Means Committee requested that GAO look into this matter and held a hearing on GAO's findings in May. As a result of the increased attention from Capitol Hill , OPM recently issued a proposed rule, which would make significant changes to the “eligibility requirements and public accountability standards” for charities participating in the CFC. For more information on the proposed rule, see my post on it.

Majority Leader Frist: Senate “Unlikely” to Move GSE Legislation This Year

Senate Majority Leader Bill Frist said today it’s unlikely the Senate will take up legislation (S. 190), which would overhaul the oversight of Government-Sponsored Enterprises (GSE) such as Fannie Mae and Freddie Mac. Such legislation is relevant to the nonprofit sector because a companion bill (H.R. 1461) that passed the House in October contains very strong “anti-advocacy” provisions restricting the speech and lobbying rights of nonprofits receiving federal funds. Although S. 190 doesn’t contain such language, it’s possible the "anti-advocacy" provisions could be added to the bill on the Senate floor or, if not, simply survive conference when the Senate and House reconcile their bills.

According to Congress Daily PM, “Majority Leader Frist said... ‘Unless it comes up by unanimous consent, which we don't have yet, it is unlikely we'll be able to address it in the four weeks’ that the Senate is in session in September." The articles goes on to explain, "Congressional leaders intend to be in session only the four weeks in September before adjourning for the elections, although a lame-duck session is expected beginning in November. The Senate Banking Committee approved its GSE bill more than a year ago, but it has been stalled on the calendar. The GSE bill would likely reduce Fannie and Freddie's holdings of mortgages and mortgage-backed securities, which represent a major source of their profits. Democrats oppose the measure, contending that it could disrupt the mortgage market and spark volatility through the housing sector."

Despite Majority Leader Frist’s comments today, a handful of leading Republican Senators are still pushing hard for Senate approval of S. 190 this year, citing recent accounting scandals at Fannie and Freddie as one reason why the legislation is so urgently needed. If these Senators are able to reach a compromise with Dthe emocrats, it's possible S. 190 could move in September or in a lame-duck session.

For more information on the House-passed “anti-advocacy” provisions contained in H.R. 1461, visit the GSE Resource Center.

Senator Frist Calls Pension Reform Legislation “Must-Pass”

Today on the Senate floor, in somewhat of an about-face, Senate Majority Leader Bill Frist called the House-passed pension reform bill (H.R. 4) “must-pass” legislation, claiming the Senate will clear the bill by the end of this week. As we’ve previously indicated, H.R. 4 includes a scaled-back package of charitable reforms and incentives, which the nonprofit sector has been watching for many months.

Senator Frist said, “It's just this simple: The pensions bill is must-pass. Must-pass!” He added, “The Senate must clear the pensions bill, clean, so the President can sign it this month. We will act, and pensions will get done, without amendment.”

As late as yesterday, Senator Frist was still indicating that he would allow a vote on H.R. 4 only after the Senate approves another bill (H.R. 5970), which contains billions of dollars of tax "extenders," minimum wage provisions and a permanent reduction in the estate tax. Now that Senator Frist has "separated" H.R. 4 from such contentious issues as minimum wage and the estate tax, it’s all the more likely the charitable package will reach the President’s desk.

A few procedural notes to keep in mind, though. Because H.R. 4 is not a conference report it's subject to amendments, and if the Senate alters H.R. 4 in any way it will have to return to the House. So, we can expect one of three things to happen. The Senate could vote to: (1) pass H.R. 4 exactly as presented by the House; (2) amend the bill with significant changes that would require H.R. 4 to go back to the House; or (3) pass the bill with minor “technical corrections,” which could either be sent to the House or simply to staff to make the technical corrections. Senator Frist is hoping for the first option.

It's also possible that if the Senate does not approve H.R. 5970, Senators try to pick-off the tax "extenders" and attach them to H.R. 4. This would obviously slow the progress of H.R. 4.

House Approves Charitable Reforms and Giving Incentives... And a Reduction in the Estate Tax

Late on Friday night, the House approved a scaled-back package of charitable reforms and incentives as part of pension reform legislation (H.R. 4). A summary of the package is available here.

H.R. 4 now heads to the Senate for consideration where passage is far from certain. Because the bill is not a conference report, it is subject to amendment and potentially unlimited debate (i.e., “normal order” in the Senate). In addition, Majority Leader Frist has indicated he will allow a vote on H.R. 4 only AFTER the Senate approves another bill (H.R. 5970), which contains billions of dollars of tax “extenders,” minimum wage provisions and a permanent reduction in the estate tax.

It's that pesky reduction in the estate tax, of course, which threatens to derail progress of both H.R. 4 and H.R. 5970. Specifically, the legislation approved by the House and now headed to the Senate would increase the estate and gift tax exemption amount to $5 million per person, fully-phased by January 1, 2015. The legislation would also lower the rate of tax on estates up to $25 million to the capital gains tax rate (currently at 15 percent, set to increase to 20 percent in 2011 unless extended). Estates in excess of $25 million will be subject to a phased-in reduced rate of tax of 30 percent, also fully-phased in by January 1, 2015. A summary of the estate tax provisions approved by the House is available here.

Votes on H.R. 4 and H.R. 5970 are expected in the Senate later this week.

The Run-up to Recess, Part 2

In reference to yesterday's post, we have recently learned the House will vote on pension reform legislation (now called H.R. 4) tonight or early tomorrow morning, which will include the scaled-back charitable package. (For a list of what's in the package, e-mail me.)

The House will also vote on separate legislation (the so-called "trifecta" bill), which includes tax “extenders,” minimum wage provisions and a permanent reduction in the estate tax.

The fate of these two bills in the Senate is largely unknown. Majority Leader Frist said he will allow a vote on H.R. 4 only AFTER the "trifecta" bill is approved, and it's still unlikely that legislation containing an estate tax reduction can garner the requisite 60 votes in the Senate. More on this soon.

Also, it looks like "sunset commission" legislation will be tabled until September. Very good news there.

The Run-up to Recess

Saturday will mark the beginning of a six-week recess for the House of Representatives. Before lawmakers leave town, however, stay tuned to C-SPAN as we expect a flurry of votes on bills that could greatly impact the nonprofit sector.

We have just learned that negotiators of pension reform legislation will meet this evening to decide - once and for all, we hope - on whether to include the tax cut "extenders" package in their conference report. The "extenders" package, Congressional staff tell us, should also include a scaled-back version of Senate Finance Committee Chairman Grassley's package of charitable reforms and giving incentives. If negotiators do decide to include the tax cut "extenders" package in pension reform, look for quick action in both the House and Senate.

On the other hand, if negotiators decide to drop the "extenders" package from pension reform, it's quite possible Republican leadership will try to move separate legislation, which combines the "extenders" package with a permanent reduction in the estate tax. (Recent action in the House Rules Committee makes this strategy quite clear.)

Nonprofits should also keep close watch on legislation establishing "sunset commissions." Congressional staff indicate we could also see a vote on this issue before lawmakers depart for recess.

Vote on “527 Reform” Could Spark Progress on Lobby Reform Bill

Reports today are that Senate Majority Leader Bill First may bring up a vote on the issue of “527 reform” in September to force Senate Democrats to go on the record against such changes to campaign finance law right before the fall election. Such a move would also pave the way toward a final vote on lobby reform legislation, which has been lingering in “pre-conference” negotiations for months.

House-passed lobby reform legislation (H.R. 4975) would apply Federal Election Campaign Act (FECA) restrictions to 527 organizations so that they can no longer raise unlimited amounts of money. However, the companion bill in the Senate (S. 2349) does not include any 527 language. A conference on these two bills is pending, and negotiators are said to have reconciled most of the differences between H.R. 4975 and S. 2349 except for that of 527 reform.

According to this morning’s Congress Daily, “House GOP leaders have urged their Senate counterparts to take up the lobbying reform conference report with the 527 language... to force Democrats to vote against the campaign finance changes and publicly prove the Senate does not have the necessary 60 votes to overcome Democratic opposition. The leaders would then send the bill back to conference to strip the 527 provision.”

One remaining question, though, is whether the votes are there in the House to approve a conference report without 527 language because it is one of the few provisions in the bill that has broad support among rank-and-file Republicans. Given this fact, it is likely Frist will defer to House leadership on how to proceed.

For more information on how lobby reform legislation might impact the advocacy work of your organization, please contact me.

Charitable Package Dropped Again... At Least For Now...

At this hour, negotiations continue on the pension reform conference, but we are hearing that Republican leadership has decided to pull the tax "extenders" package (including Chairman Grassley's package of charitable reforms AND incentives) from the bill in order to pair it with estate tax reduction legislation later this year, most likely in September.

The good news is that it seems - for the time being - charitable giving incentives are firmly part of the tax "extenders" package. The bad news, though, is that leadership intends to revisit the issue of estate tax reduction before the election.

Grassley Seeks President's Support on Charitable Reform... As Administration Official’s Foundation Under Scrutiny

On Friday, Senate Finance Committee Chairman Chuck Grassley and Ranking Member Max Baucus sent a letter to President Bush asking him to “publicly express strong support to include in the pension bill our reforms for charities, especially supporting organizations.” The letter was sent to the White House the same day an A01 Washington Post story described how Mike Leavitt, U.S. Health and Human Services secretary, and his relatives were able to claim several millions of dollars in tax write-offs through a charitable foundation created in 2000.

The letter states, “We are writing to you about ensuring that when individuals take a big charitable tax deduction, the money actually goes to benefit charities. We applaud you for your efforts to encourage charitable giving, but as we read in papers continuously across the country with headlines such as ‘HHS Secretary's Fund Gave Little to Charity,’ it is not enough to encourage charitable giving. We have to make certain that the money given actually goes to help the community and those in need.”

President Bush has been supportive of charitable giving incentives in the past, but the Administration has not really participated in the debate over Chairman Grassley’s package of reforms. However, Senate and House negotiators have recently turned their attention to tax “extenders” (e.g., research and development credit, state and local sales tax deductions) and the charitable package is once again in play. As such, Chairman Grassley needs the President’s help to rally support among fellow Republicans. House Ways & Means Chairman Bill Thomas has not yet signed-off on the charitable package and many conservatives in the House oppose it outright.

IRS Likely to Get More Money for "Enforcement"

Yesterday, the Senate Appropriations Committee approved a FY07 Treasury Appropriations bill that exceeds President Bush's request for both overall Internal Revenue Service funding and for enforcement activties.

The bill, approved by a vote of 28-0, would allocate approximately $10.7 billion to the IRS in FY07, $82.3 million above the FY06 level and $64.1 million above the President's FY07 request. Like its House counterpart, the Senate bill would restructure the IRS by dividing it into three accounts - enforcement, taxpayer services and operations support - and would permit the agency to transfer some funds between the accounts. Specifically, the Senate bill would allocate $4.79 billion to "enforcement" whereas the House bill, approved last month, would allocate $4.75 billion.

New Report Criticizes Role of 501(c) Organizations in Public Policy Process

The Campaign Finance Institute (CFI) released a working paper yesterday on "the major role played by 501(c)(4) social welfare, (c)(5) labor union and (c)(6) trade association organizations in elections, and the different ways in which they and related 527 organizations are used by Republican and Democratic-oriented groups" to influence federal elections and public policy. The report highlights what it calls “major weaknesses in the IRS’s public disclosure system for 501(c) groups’ ‘political expenditures,’ including inadequate guidance and monitoring of reports.”

Alliance for Justice President Nan Aron responded to the report, saying “Not only is it strategic for nonprofits to use a multi-faceted approach in influencing public policy, it is also legal for them to do so.” She added, “The fact is, tax law requires separate and multiple entities in order to provide charitable services, educate the public about a cause, motivate Americans to participate in government decision-making, support candidates that champion certain issues, and then lobby for laws that benefit the public interest.”

The CFI paper comes as lawmakers are poised to revisit the issue of 527 reform. Specifically, House-passed legislation (H.R. 4975) would apply Federal Election Campaign Act (FECA) restrictions to 527 organizations so that they can no longer raise unlimited amounts of money. However, the companion bill in the Senate does not include any similar language. A conference on these two bills is pending.

Senate Finance Committee Chairman Chuck Grassley has also expressed concern on "politically active" 501(c) organizations. He recently sent letters to IRS officials seeking “comment and in some cases stepped-up enforcement" in several tax-exempt areas. One of Chairman Grassley's main concerns: "nonprofits that may be used for political purposes.”

Grassley Still Hoping for Charitable Package as Part of Pension Reform

As pension reform conferees begin to close in on an agreement, Senate Finance Committee Chairman Grassley is still very much pushing to get the tax extenders package (e.g., research and development credit, state and local sales tax deductions) INCLUDING the charitable package into pension reform legislation.

According to BNA, Grassley said yesterday the overall cost of pension legislation is being hammered out in conference and will influence the size of the tax extenders package to be tucked into it. Specifically he said conferees need to get the pension bill completed and scored, in light of sensitivity about the combined cost of the pension bill and tax package. He also said, "We are working on the tax bill and maybe, in substance, it is agreed to," though the size is not going to be determined until conferees get done with the pension bill.

IRS Response to "Politically Active" Nonprofits Under Fire

An article in today’s Los Angeles Times provides a good summary of the IRS’ Political Activity Compliance Initiative (PACI), which was launched in February to expedite investigations into claims of improper political activity by nonprofits. The article also discusses a new report released by OMB Watch that criticizes PACI and predicts a chilling effect on free speech.

Take particular note of the reaction of Representative Adam Schiff (Democratic from California) to both PACI and the recommendations contained in OMB Watch’s report. The article states, “In December, Rep. Adam B. Schiff (D-Burbank) and two Republican colleagues called for the federal Government Accountability Office to investigate the IRS, expressing concern about the 1st Amendment rights of clergy. The GAO turned down their request, citing confidentiality of IRS investigations, Schiff said.

“The OMB Watch report, Schiff said, has motivated him to again seek a response from the IRS and the Treasury Department. He wants the report’s recommendations to be adopted.

“’I think the guidelines are so ambiguous and unclear, anyone standing behind the pulpit has to be wondering what they can say on the most important issues of the day,’ he said.”

PACI is also coming under attack on another front. According to BNA, Marcus Owens, a former head of tax-exempt organizations and the attorney for All Saints Church, sent a letter yesterday to IRS Commissioner Mark Everson. The letter says that an ongoing delegation procedure in which IRS employees below the level of director of exempt organization examinations have been allowed to determine whether a church should be audited is a “clear violation” of Internal Revenue Code Section 7611. This regulation says that an appropriate “high-level Treasury Department official must reasonably believe (on the basis of facts and circumstances) that a church may not be tax-exempt.” Owens is asking the IRS to revisit the “reasonable belief determination” threshold at an “appropriate high level” and reconsider whether any church tax inquiries or audits already under way are warranted.

Federal Grants Disclosure Bill Looks to Have Legs

Today, a Senate Subcommittee held a hearing on S. 2590, the Federal Funding Accountability and Transparency Act. This legislation, introduced by Senators Tom Coburn (Republican from Oklahoma) and Barack Obama, would require the Office of Management and Budget to make information on federal grants publicly accessible through a searchable website. Colburn has asked for quick action on this bill and Senator Susan Collins (Republican from Maine), chair of the committee to which S. 2590 was referred, has promised to act soon. Similar legislation has already passed the House.

Since so many nonprofits receive federal funds, the sector should keep tabs on this legislation to ensure organizations do not become subject to burdensome laws and/or onerous reporting requirements.

Senate Appropriators Ready FY07 Domestic Spending Bill

Tomorrow, the Senate Appropriations Subcommittee on Labor, Health and Human Services, Education and Related Agencies is expected to consider and approve its FY07 appropriations bill. Congressional staff indicate the bill will provide $5 billion above President Bush’s FY07 request, falling $2 billion short of what Senator Arlen Specter, Chairman of the Labor/HHS Appropriations Subcommittee and other moderate Republican Senators had demanded. The companion bill in the House, which cleared full committee on June 13, 2006, provides $4.1 billion above the President's request.

Although the Senate and House will eventually consider FY07 Labor/HHS appropriations bills with more money than requested by the President ($5 billion and $4.1 billion, respectively) many domestic programs will still face decreased funding or, in some case, elimination.

In terms of process and timing, we may be headed for an omnibus bill, which moves after the fall election. For more information on how this might affect your program, please contact me.

More on this later.

Path for Charitable Reforms and Incentives Still Unclear

Ever since a package of tax cut “extenders” were left out of a budget reconciliation bill in May, charitable groups and their lobbyists have been keeping close tabs on pension reform legislation. Such legislation, Congressional leaders told us, might carry the “extenders” package, which in turn might include a number of charitable giving reforms and incentives, namely a package of reforms supported by Senate Finance Committee Chairman Chuck Grassley. While negotiators on pension reform have reported some progress in the past few weeks, the chance of charitable provisions being included in the bill – particularly the incentives – is dwindling as we rapidly head towards August recess.

In recent weeks, Chairman Grassley has acknowledged that charitable issues are a sticking point in pension reform talks and, as such, has begun looking for alternative legislative vehicles for his package. For example, last month when a telephone excise tax bill came before his committee, Chairman Grassley was successful in attaching a number of his reforms. Next week, another tax bill - one dealing with energy tax credits – will move through Senate Finance, and it's again likely Chairman Grassley will attempt to attach charitable reforms in order to off-set the overall cost of the bill. Congressional staff also indicate that a third tax bill will move through the Committee in late July or early September and that too could present Chairman Grassley with an opportunity to move his reforms.

Complicating matters further, charitable reforms - and, yes, even the incentives - are also prime candidates for inclusion in either a pre-election omnibus tax cut bill or a post-election omnibus appropriations bill. This would depend on the progress of the pension reform bill and certainly wouldn't be decided until September at the earliest.

And so it goes...

House Committee to Act on Troubling "Sunset" Bill

Last night, Representative Todd Tiahrt (Republican from Kansas) dropped H.R. 5766, a new sunset commission bill that combines elements from two previous bills introduced earlier this session. In short, the new Tiahrt legislation would force federal programs to plead their case before an unelected panel that would then recommend to Congress whether programs should be terminated. H.R. 5766 is the result of months of internal negotiations among Republican House members.

OMB Watch has prepared an excellent analysis of the legislation, which the House Government Reform Committee is expected to consider on July 19th.

In June, the Senate Budget Committee approved the Stop Over-Sending Act of 2006 Act (S. 3521), sponsored by Senator Judd Greg (Republican from New Hampshire), Chairman of the Committee. S. 3521 would (among other things) establish a sunset commission.

For more information, please contact me.

Grassley on “Strengthening the Nonprofit Sector”

Today, Senate Finance Committee Chairman Chuck Grassley penned a column in The Hill, outlining “key areas of concern” with regard to the charitable sector. The list – excessive compensation perks, nonprofit groups acting more like for-profit businesses than charities, politically active nonprofits, lack of financial transparency, nonprofit hospitals, etc. – is certainly nothing new. For example, in a June 1, 2006 letter to the IRS, Grassley discussed some of the same issues, calling for "comment and in some cases stepped-up enforcement" from the agency.

In today's column, Grassley said “Congress [must] demand transparency, accountability and good governance from the nonprofit sector. Nonprofit organizations must earn the privilege to keep their tax-exempt status. Tightening the rules and regulations governing the nonprofit sector will help repair the breach of trust that threatens to tarnish even the most reputable charities in America.” To this end, Grassley reminded us that “working with more than 100 charitable groups, I have developed a legislative package of reforms to strengthen America’s deeply rooted tradition of charitable giving and to renew the federal government’s covenant with philanthropic good works for the 21st century.” Just last month, the Senate Finance Committee did approve some of Grassley's reforms.

Grassley also wrote, “I’m not so naive as to believe that enacting a new law will fix these problems overnight, but it’s also clear that merely enforcing current laws won’t get the job done. That’s why I’m working in cooperation with the nonprofit sector and the Internal Revenue Service to build a consensus for balanced, comprehensive reforms that will help weed out bad actors and bad practices that give the nonprofit sector a black eye.”

Hearing on Transparency Bill Set for Next Week

Next week, a Senate Subcommittee will hold a hearing on "What You Don't Know Can Hurt You: S. 2590, the Federal Funding Accountability and Transparency Act of 2006." The hearing will examine the merits of legislation introduced by Sens. Tom Coburn (Republican from Oklahoma), Barack Obama (Democrat from Illinois), Tom Carper (Democrat from Delaware) and John McCain (Republican from Arizona), which would require the Office of Management and Budget (OMB) to make information on federal contracts and grants publicly accessible through a searchable website. Nonprofits, of course, routinely receive federal grants, and the sector should stay on top of this legislation.

As we've previously reported, also pending in Congress is a competing bill introduced by Sen. John Ensign (Republican from Nevada), S. 2718, the Website for American Taxpayers to Check and Help Deter Out-of-control Government Spending Act or WATCHDOGS Act. This legislation - like S. 2590 - would require OMB to create a searchable website but would establish additional reporting requirements for federal grantees, including nonprofit organizations. According to an analysis by OMB Watch, S. 2718 would "federalize a contractor or grantee if the entity receives 10% of its business expenditures or annual budget from federal funds. In doing this, the contractor or grantee would be subject to the Freedom of Information Act (FOIA) and to laws that apply to government employees regarding travel, such as the allowable per diem for housing and meals or mileage allowances."

Proposed Rule Removes Lobbying Certification Requirement, Good News for Nonprofit Advocacy

As I discussed before the holiday, the Office of Personnel Management issued a proposed rule, which would make significant changes to the “eligibility requirements and public accountability standards” for charities participating in the Combined Federal Campaign. (The CFC is a fund-raising drive conducted every fall that allows Federal employees and military personnel to donate money directly to charities — 22,000 in 2005 – of their choice through workplace solicitation.) The proposed rule makes an important and much welcomed change as it relates to lobbying by (c)(3)s.

Currently (see 5 CFR 950.202(c)), organizations seeking inclusion in the CFC have to “certify that the organization has no expenses connected with lobbying and attempts to influence voting or legislation at the local, State, or Federal level or alternatively, that those expenses would classify the organization as a tax-exempt organization under 26 U.S.C. 501(h).” This certification requirement is unclear and seems to discourage nonprofits from engaging in legally-permissible lobbying if they want to participate in the CFC. Also, the existing regulation arguably reads that if a (c)(3) is not a 501(h) elector, then they cannot engage in any lobbying if they want to participate in the CFC.

The proposed rule would remove this certification requirement in its entirety. The proposed rule states, “OPM proposes to remove this standard because it is already a requirement for charitable organizations to qualify as a tax-exempt entity under section 501(c)(3) of the Internal Revenue Code and to maintain that status with the IRS. In addition, some applicant organizations have misinterpreted the standard to mean that no lobbying is permitted, when, in fact, lobbying is permissible if consistent with Internal Revenue Code requirements.”

Recess

Congress is in recess this week, so we'll also take a short break. Check back early next week though as we expect a busy July once lawmakers return to town.

Eligibility Requirements, Accountability Standards for CFC Charities Likely to Change

Yesterday, the Office of Personnel Management (OPM) issued a proposed rule, which would make significant changes to the “eligibility requirements and public accountability standards” for charities participating in the annual Combined Federal Campaign (CFC). The proposed changes, in part, put more responsibility on donors to research the charities where they direct their money. A summary of the proposed rule states the changes "are intended to streamline the significant eligibility requirements and public accountability standards and other administrative areas to reduce the burden on applicant charitable organizations seeking to qualify for the CFC, simplify the administrative process of determining whether charitable organizations are eligible to participate in the CFC and facilitate modernization of the CFC program.” OPM will accept comments on the proposed rule until August 14, 2006.

The CFC is a fund-raising drive conducted every fall that allows Federal employees and military personnel to donate money directly to charities of their choice through workplace solicitation. During the 2005 campaign, the CFC gave more than 22,000 charities access to the federal workplace and collected more than $250 million in donations. In May, the House Ways & Means Oversight Subcommittee held a hearing on a Government Accountability Office report, which examined if CFC charities have unpaid taxes, if CFC charities are abusing the federal tax system and if OPM screens charities for federal tax problems before allowing them to be listed with the CFC. The proposed rule is a likely result of the GAO report and increased Congressional attention.

Chairman Grassley Pushes Through Charitable Reforms... But No Incentives

Yesterday, the Senate Finance Committee approved tax legislation (S. 1321), which includes a number of charitable reforms that aim to improve the transparency and governance of tax-exempt groups. Finance Committee Chairman Chuck Grassley focused on one provision in particular, which would double the fines and penalties for nonprofit groups engaged in inappropriate political activity. He said, “We’re seeing more and more charities used in the best interests of lobbyists and special interests, not the public. Some people are exploiting vagueness in the laws or a lack of enforcement to enrich themselves rather than serve the public. It’s unseemly for tax-exempt groups to function this way. It’s also unfair to the taxpayers who subsidize that behavior. That’s why I continue to try to tighten the laws governing tax-exempt groups and encourage the IRS to step up enforcement of the existing laws and go after bad actors.”

According to The Chronicle of Philanthropy, additional charitable reforms approved by the Senate Finance Committee yesterday would:

Require nonprofit groups to file their Form 990 tax returns electronically.

Force nonprofit groups that receive less than $25,000 annually in income to provide the Internal Revenue Service with basic information about their organizations every three years. Such groups are exempt from filing informational tax returns with the IRS.

Increase penalties for taxpayers who deliberately overvalue items donated to charity so they can get bigger tax write-offs than they deserve. In addition, the legislation would tighten the definition of who is qualified to appraise the value of donated items to avoid conflicts of interest and other problems.

Levy higher penalties on top officials at private foundations or charities who engage in illegal financial transactions with the organization, and stiffen the penalties for nonprofit officials who approve such transactions.

Allow the IRS to share with state regulatory officials more information about actions taken against nonprofit organizations in an attempt to improve enforcement of charity laws.

Abolish privacy rules that make it illegal for the IRS to tell the public when it has denied or revoked an organization's tax-exempt status, and allow the agency to make public documents in the organization's IRS file supporting that action.

Chairman Grassley unexpectedly rolled these reforms into S. 1321 though a manager’s amendment. Chairman Grassley’s action - moving select charitable reforms in a piecemeal fashion – likely illustrates his frustration that comprehensive legislation to crack down on nonprofit abuses of tax law has stalled in the Senate and not moved in the House due to fierce opposition from many in the nonprofit sector. This piecemeal approach, however, threatens to leave behind many of the charitable giving incentives that have been paired with charitable reforms in the past.

It is likely the full Senate will take up and pass S. 1321, including the charitable reform provisions. Right now, however, it is unclear if this will happen before the August recess, before the elections or in a lame duck session, although some point before the elections is most likely since Republicans will want to campaign on the legislation, which also eliminates an excise tax on telephone service. Technically, there is a companion bill in the House (H.R. 1898), which would also repeal the telephone excise tax, but it does not contain any of Chairman Grassley’s charitable provisions, and House Ways & Means Chairman Bill Thomas has not indicated if he will act on the legislation. However, now that these provisions have cleared the Senate Finance Committee, we can certainly expect Chairman Grassley to find some legislative vehicle to try to move them through Congress and to the President.

Private Foundation Excise Tax Dropped in Favor of Other Reforms

As I indicated yesterday, the Senate Finance Committee considered legislation to repeal the telephone excise tax this morning. Although Chairman Grassley originally sought to include unrelated language expanding the private foundation excise tax base, the provision was pulled, likely because of fierce opposition from the nonprofit sector. However (and this is a big however), Chairman Grassley was successful in attaching several other charitable reforms to the tax bill. A JCT summary of the reforms is available. It looks like the relevant sections are: Title 2, Sections Q and R (pages 22-24), Title 3, Section L-N (pages 51-61), Title 4, Section A (pages 62-64) and Title 6, Section N (pages 117-125). MORE ON THIS LATER.

Chairman Grassley To Move Another Revenue Raiser?

Tomorrow morning the Senate Finance Committee is scheduled to meet for executive session to consider pending tax legislation. We have just learned that Finance Committee Chairman Chuck Grassley (Republican from Iowa) intends to attach a provision to this bill, which will increase the amount of excise taxes that foundations are required to pay.

Under current law, the net investment income of a private foundation is subject to an excise tax. The provision we expect Chairman Grassley to offer tomorrow, however, would expand the current definition of “capital gain net income” to include gains from the disposition of all assets which produce investment income (e.g. interest, rents and dividends). According to the Alliance for Charitable Reform, this provision “creates an enormous disincentive for private foundations to continue serving their communities. Under this provision, there would be no incentive for these organizations to offer below-market rent to other non-profits rather than other commercial interests. Subjecting these exempt assets to tax removes money from an already limited pool of assets available for charities to serve those in need.”