Legislative Affairs Report

Legislative Affairs Report

NEAHP Board of Directors Meeting of December 14, 2018

Submitted by Richard P. Solomon, CFRE

1. Nonprofits Decry Latest Proposed Postal-Rate Increases (from Chronicle of Philanthropy, 10.18.18) by Julian Wyllie

Nonprofits say a proposed postal-rate hike slated for next year, most notably a 10 percent increase for first-class stamps and a 2.5 percent increase for marketing mail and periodicals, would make a significant dent in their net fundraising results.

"The increase will have a negative impact on the whole nonprofit sector," reads a statement from the American Lung Association, which urged the Postal Service to strengthen its support for nonprofits by keeping postage rates affordable.

The American Red Cross said that the proposed changes "could also reduce net revenue from our direct-mail program, the equivalent of providing tens of thousands of days of emergency shelter for people impacted by disasters big and small." The Red Cross said it has budgeted a 4 percent increase for postage in the next fiscal year.

The Postal Service did not respond to requests for comment. It is reportedly accepting comments about the proposed rate increases until Monday.

If the proposal passes, the new rules would be implemented on January 27. Among the largest price shocks proposed by the Postal Regulatory Commission would be a 10 percent increase for a first-class stamp, rising from 50 to 55 cents.

The American Lung Association says direct mail provides about 20 percent of its revenue, which funds research and programs for more than 33 million Americans living with lung diseases.

Power of Direct Mail

Some nonprofits stressed that online fundraising is not yet a replacement for traditional direct-mail fundraising.

"Yes, the shift to online giving is growing every year, which will make fundraising more efficient over all for nonprofits since reaching out to a donor digitally is less expensive than through the mail. Whether online gains will make up for potential losses, though, is still unknown," the Red Cross said in a statement. "Direct mail is still a very strong fundraising vehicle for the Red Cross, in particular for donors who prefer to mail in their donations via checks."

Tracey Burgoon, director of direct marketing at Disabled American Veterans, said her organization did not budget for a 10 percent increase because past increases were 2 percent. "Electronic [mail] cannot even touch our direct-mail program. It accounts for about 6 percent of our income," she said.

However, not all big-name organizations expect to be hit hard by the changes. Ken Euwema, vice president and comptroller for United Way Worldwide said "United Way actively uses digital channels to communicate. As a result, our donor engagement no longer relies on direct mail."

Other estimated price changes from the proposal include a 2.5 percent increase for products like marketing mail, periodicals, and package services. Stephen Kearney, executive director for the Alliance of Nonprofit Mailers, said those changes may disproportionately affect nonprofits, rather than larger corporations like credit-card and insurance companies.

"We only expected it to go up 1 or 2 cents. Instead, it went up 5 cents," he said of the increase, which would be higher than inflation.

2. Charitable Giving and Public Policy: What We Know (from Independent Sector, 11.14.18)

The 2017 tax bill significantly changed the structure of the tax code, generating a great deal of anxiety and uncertainty across the sector. In October 2018, Independent Sector partnered with Tax Policy Center to convene national experts in tax policy and philanthropy from across the country to help us answer the question:

What do we know about this issue and how can we take action now?

Participants spanned political ideologies and technical expertise, including researchers, academics, federal agency personnel, and nonprofit staff. The roundtable discussed a broad range of topics where opinions differed. However, this diverse group of experts were able to agree upon a few key points on giving and public policy that we know for sure:

  • Giving Incentives Work: Tax incentives play a powerful role in encouraging charitable giving, both directly and by signaling that our society values giving as a building block for strong communities.
  • Donations Expected to Drop: The 2017 tax act will reduce annual charitable giving by approximately $15
  • Fewer Households Give: There is widespread concern about the continued decline in the number of donors and the increased concentration of giving at the very top of the income spectrum. Household giving dropped by 11 percent between 2000 and 2014.
  • Congress Needs to Act: Changing tax policy, such as expanding charitable giving incentives to all taxpayers, could combat these trends and create a fairer tax code that helps charities serve all members of their community.

Read the full summary at: https://www.taxpolicycenter.org/publications/reforming-charitable-tax-incentives-assessing-evidence-and-policy-options/full.

3. Election Results May Give Charities a Shot at Tax-Law Changes (from Chronicle of Philanthropy, 11.7.18) by Alex Daniels and Julian Wyllie

Nonprofits have some hope that the new Congress will pursue small tax-law changes to their liking following the outcome of Tuesday’s elections, congressional observers said, but bigger tax changes that would help charities remain an uphill climb.

Meanwhile, the ban on nonprofit politicking, which President Trump and many other Republicans have been pushing to repeal, appears more likely to survive.

With leadership of the House shifting to the Democrats, and Republican control of the Senate strengthened, it is unlikely a divided Congress will enact sweeping tax changes that affect nonprofits, according to tax-policy experts.

Now that the highly charged midterm contests are behind them, however, members of Congress may be more inclined to work together to make tweaks to tax policy, said Hadar Susskind, senior vice president for government relations at the Council on Foundations.

Many nonprofits are concerned that last year’s tax cut, which doubled the standard deduction, will sharply curtail fundraising.

"I don’t think we’re going to see any kind of full-scale repeal of the tax bill in the short term," Susskind said. "But we can look for ways to empower the sector, not necessarily by making massive changes that impact billions and billions of dollars but through small, smart changes to help the sector maximize its impact."

Fringe Benefits

The most urgent policy change pushed by Susskind and other nonprofit advocates is to delay implementation of a tax on fringe benefits, such as parking and transportation, that nonprofits offer their employees. The change was included in last year’s tax law.

On October 26, more than 100 tax-exempt organizations wrote to congressional leaders urging them to delay the 21 percent unrelated-business income tax on transportation benefits, and ultimately exempt nonprofits from the levy. The group estimated that 250,000 organizations work in localities that mandate such benefits. The full cost to nonprofits is unclear: Independent Sector has commissioned a study on the matter.

Subjecting nonprofits to the tax "diverts funds that would otherwise go toward valuable mission services," the groups wrote.

Struggling to Be Heard

Nonprofits have struggled to be heard during the first two years of the Trump administration, with both the White House and Congress under Republican control. The tax law in particular was a significant defeat for nonprofits.

Doubling the standard deduction individuals can take eliminated the tax incentive for giving for most taxpayers. Only wealthy and upper-income donors can now use charitable gifts to reduce their tax burden. The change, some predict, will lead to a significant decline in giving.

During the tax-bill debate, nonprofits tried to include a "universal deduction" that would allow all taxpayers to deduct charitable gifts from their taxable income, on top of the standard deduction. That effort went nowhere.

David Biemesderfer, president of the United Philanthropy Forum, said it is possible that Congress will revisit a universal deduction. However, the issue won’t get any traction unless lawmakers see data showing that the increased standard deduction has hurt nonprofit fundraising, he said.

"If it shows there’s an impact on charitable giving, that’s an opportunity to bring that issue back," he said.

Ben Kershaw, director of public policy and government relations at Independent Sector, agreed that nonprofits need to persuade lawmakers that the new tax law has made their work more difficult.

"This universal charitable deduction would not only stem that potential tide of decreased giving and increase giving beyond that baseline, it would also send a powerful message about the role that every American, whether they itemize or not on their taxes, has to play in investing in their community," Kershaw said.

Politicking Rule

One key victory for many nonprofits so far during the Trump administration has been repelling GOP efforts to water down the "Johnson Amendment," a provision dating to the 1950s that bars nonprofits from endorsing candidates and spending money on partisan campaigns. Proponents of repealing the measure say it infringes on freedom of speech, particularly of religious leaders talking from the pulpit. Many nonprofit leaders and their allies in Congress, mainly Democrats, warn that its repeal would flood political "dark money" into hastily set-up churches and ultimately erode public trust in nonprofits.

Efforts to repeal the Johnson Amendment have resurfaced in this year’s negotiations over the annual spending bills Congress must pass to keep the government open. House appropriators included a repeal in their spending legislation; Senate appropriators did not. The two chambers have yet to work out their differences over the spending bill.

If the politicking ban survives in the current House-Senate appropriations negotiations, it’s a safer bet that Democrats will be able to protect it for at least the next two years while they are in control of the House, said Biemesderfer.

New Leaders

Both chambers of Congress will see new leaders at the helm of the tax-writing committees during the next session of Congress. Rep. Richard Neal, a Massachusetts Democrat, is poised to take over the House Ways and Means Committee, and Sen. Charles Grassley, an Iowa Republican, is expected to lead the Senate Finance Committee.

Sandra Swirski, executive director of the Alliance for Charitable Reform, expects Neal to be responsive to concerns raised by nonprofits, particularly on the taxation of fringe benefits and the hit that charitable giving took in the rewrite of the tax code last year.

Swirski said she hopes Grassley will also work to provide more incentives to give in the tax code. But on other issues, it’s unclear where Grassley’s priorities lie, she said. "He has not given a road map of his agenda," she said.

For instance, it is unclear whether Grassley will try to impose payout requirements on donor-advised funds. In recent years, critics who believe the funds warehouse money meant for social change have pressed for requirements that donors direct money they give to the funds to charitable organizations within a certain time frame.

Susskind, of the Council on Foundations, said the group opposes a payout requirement.

However, he said, "there’s a robust conversation about whether a payout rate would be a bad thing," particularly among community foundations.

Jeff Hamond, who directs the philanthropy practice at law and lobbying firm Van Scoyoc Associates, says he sees little appetite in Congress for imposing new requirements on donor-advised funds, especially if new members and their staffs learn more about community-foundation work.

"I don’t think there’s going to be a rush to make major changes," he said.

More Social Spending?

Many nonprofits hope a divided government will weaken efforts to cut federal spending on social programs such as the Supplemental Nutrition Assistance Program.

But Steve Taylor, counsel for public policy at United Way, sees little reason for optimism.

"The political environment over the next two years, I’m sorry to say, is not likely to be any better," Taylor said. "With the presidential election starting day one, really, after this midterm election, you may see things ramp up."

Taylor added that it’s not too soon for both large and small nonprofits to start looking ahead to the 2020 elections and letting their representatives know that they’re watching.

David L. Thompson, vice president for public policy at the National Council of Nonprofits, agreed, adding that nonprofits should not overlook important state and local policy debates that they might be able to influence.

"Gridlock doesn’t mean the end of all things," Thompson said.

On a local issue Tuesday that's received national attention, San Francisco voters approved a business tax that will raise $300 million a year to help the homeless. It was a high-profile battle between philanthropist and tech star Marc Benioff, the Salesforce CEO, who supported the measure, and Jack Dorsey, the head of Twitter and Square, who opposed it. The measure passed with 60 percent of the vote. However, it could get hung up in court action over whether state law requires a two-thirds vote to raise taxes.

4. Senate Votes to Overturn Trump Administration Donor Disclosure Rule for “Dark Money” Groups (from The Washington Post, 12.12.18) by Michelle Ye Hee Lee (with Jeff Stein)

The Senate on Wednesday voted 50 to 49 to overturn a Trump administration policy that allows politically active nonprofits to withhold from the government the identities of their donors, underscoring a growing unease among Democrats over the influence of wealthy donors and foreign actors in U.S. elections.

The Senate move is unlikely to survive the GOP-led House, which must vote on the resolution before the end of the year, or receive the support of President Trump, whose Treasury Department enacted the rule earlier this year.

Still, Sens. Jon Tester (D-Mont.) and Ron Wyden (D-Ore.), who pushed for the resolution, cheered the vote, which was made possible with unanimous support from Democratic senators and the backing of one moderate Republican senator, Susan Collins of Maine.

The legislation only required a simple majority to pass under the Congressional Review Act.

“These dark money forces are a threat to our democracy, and they must be reined in,” Tester said in a statement. “Today’s action sheds more light on the wealthy few who are trying to buy our elections and drown out the voices of regular folks. We must wrestle our country back and continue to bring transparency and accountability back to political campaigns.”

Opponents of campaign finance restrictions criticized the resolution, saying donors should be able to participate in politics without fear of reprisal.

“No one should be the subject of intimidation or retaliation based on their personal beliefs,” said Brent Gardner, chief government affairs officer for Americans for Prosperity, the political arm of the network of groups supported by billionaire industrialist Charles Koch and like-minded donors.

The resolution is a “blatant attempt to stifle free speech and serves no purpose in the enforcement of tax regulations,” said Nathan Nascimento, executive vice president of Freedom Partners Chamber of Commerce, another Koch-backed group.

The legislation affects the information politically active nonprofits are required to provide to the Internal Revenue Service in their tax filings, not what they must disclose publicly.

Such groups are permitted to raise and spend unlimited amounts of money to try to influence elections as long as politics is not their primary focus.

Previously, these nonprofits would report their donors’ names, addresses and donation amounts to the public, and the IRS would then redact the names and addresses for public release.

In July, the Treasury Department released a new rule that no longer required nonprofits to share their donors’ names or addresses in their tax filings to the IRS. The groups were still required to retain the donor information and provide it to the IRS if the agency requests it.

Democrats and advocates for more restrictions on campaign finance had criticized the move, arguing it would make it easier for foreign actors to funnel money into the political system — a hot-button issue at a time when intelligence agencies are warning of foreign efforts to interfere in U.S. elections.

On the Senate floor, Tester criticized “our broken campaign finance system” and called on his colleagues to support the resolution to increase transparency: “When you don’t know who’s contributing the money, how do we know it’s not the Russians, that it’s not the Saudis, or other nations that are infiltrating our elections?”

Wyden, the ranking Democrat on the Senate Finance Committee, said in a statement that Wednesday’s vote was a “huge first step in America’s fight against anonymous political insiders looking to tighten their grip on Washington.”

A Senate Democratic aide, speaking on the condition of anonymity to speak freely about negotiations, said Democrats had sought out Collins to persuade her to vote yes by “making the argument that this is an IRS enforcement issue. The Tester-Wyden resolution is all about giving back to the IRS a tool that allows them to take action on suspicious activity.”

“Senator Collins believes that any organization that engages in political advertising should be required to disclose its donors,” said Annie Clark, Collins’s spokeswoman. “She has long supported efforts to fairly increase disclosure requirements for campaign activity.”

Some free-speech advocates have long expressed concerns that the names and addresses may be used by the government to politically target the donors, noting previous scandals that found the IRS targeted tea party and progressive groups.

They also note the risk of donor information being released by accident, either by the IRS or by the nonprofits.

As a presidential candidate, Trump repeatedly criticized the role of big money in politics, particularly undisclosed donations.

“I want transparency,” he told Time magazine in August 2015. “I don’t mind the money coming in. Let it be transparent. Let them talk, but let there be total transparency.”

The Treasury Department and the White House did not immediately respond to requests for comment.

5. New Tax Bill Would Remove UBIT on Fringe Benefits for Nonprofit Employees (from Association of Fundraising Professionals, 12.5.18)

House Republicans have introduced a “tax extenders” bill, designed to address and extend different tax initiatives and provisions, but the legislation has little impact on the charitable sector.

As drafted, the bill does not include a universal charitable deduction or any other provision related to giving. However, the legislation does address the issue of unrelated business income (UBIT) that charities now have to pay on transportation and parking benefits they provide to employees. That requirement was enacted through last year’s major tax bill, but the new bill would eliminate the provision entirely.

In addition to fixing technical errors in the tax law, the bill would extend about 30 tax breaks that are at risk of expiring and provide tax relief for victims of the California wildfires and other natural disasters that occurred this year, according to the American Society of Association Executives.

Looking Ahead

The bill’s chances of successful passage are strong in the House but unclear in the Senate. AFP is investigating whether House Ways and Means Chairman Kevin Brady (R-TX) is open to accepting amendments on items related to the charitable sector, such as a universal charitable deduction.

The House change hands next year with Democrats taking control. Incoming House Ways and Means Chairman Richard Neal (D-Mass.) has indicated an interest in addressing tax policy to offset the potential reduction in charitable giving resulting from tax reform’s expansion of the standard deduction. AFP has met with Rep. Neal’s tax staffer, and we continue to engage Rep. Henry Cuellar (D-TX), who co-sponsored a universal charitable deduction bill with Rep. Chris Smith (R-NJ).

The Charitable Giving Coalition, which AFP chairs, will send letters to each new member of Congress to educate them about the coalition and the need to enact a universal charitable deduction.

If you have questions about this legislation or any other aspect of public policy, contact AFP at paffairs@afpglobal.org.

6. AFP Submits Comments on IRS Proposal Limiting Charitable Deduction for State and Local Tax Credits (from Association of Fundraising Professionals, 10.26.18)

AFP has submitted comments to the Internal Revenue Service (IRS) about a proposed rule that would clarify the relationship between the federal charitable deduction and state and local tax credits.

Under the proposed regulations, a taxpayer who makes payments or transfers property to an entity eligible to receive tax deductible contributions must reduce their charitable deduction by the amount of any state or local tax credit the taxpayer receives or expects to receive.

For example, if a state grants a 70 percent state tax credit and the taxpayer pays $1,000 to an eligible entity, the taxpayer receives a $700 state tax credit. The taxpayer must reduce the $1,000 contribution by the $700 state tax credit, leaving an allowable contribution deduction of $300 on the taxpayer’s federal income tax return. The proposed regulations also apply to payments made by trusts or decedents’ estates in determining the amount of their contribution deduction.

The proposed regulations provide exceptions for dollar-for-dollar state tax deductions and for tax credits of no more than 15 percent of the payment amount or of the fair market value of the property transferred. A taxpayer who makes a $1,000 contribution to an eligible entity is not required to reduce the $1,000 deduction on the taxpayer’s federal income tax return if the state or local tax credit received or expected to be received is no more than $150.

AFP is very concerned about the impact of the rule on charitable giving in states that have long-standing state and local tax credits to incentivize charitable giving.  Given the potential negative impacts of the proposed rule on states with long-standing SALT credits, AFP recommended either rescinding the proposed rule or amending it to ensure that it does not decrease charitable giving incentivized by these tax credits.

The text of AFP’s submission is below:

Ms. Merrill D. Feldstein and Ms. Mon Lam
Office of Associate Chief Counsel
Income Tax & Accounting
Internal Revenue Service
CC:PA:LPD:PR (REG-112176-18)
Room 5203
P.O. Box 7604
Ben Franklin Station
Washington, D.C. 20044

Re: Notice of Proposed Rulemaking/Contributions in Exchange for State and Local Tax Credits

Dear Ms. Feldstein and Ms. Lam:

On behalf of the Association of Fundraising Professionals (AFP), I am writing to provide comments regarding the proposed rulemaking/contributions in exchange for state and local tax credits (REG-112176-18). We appreciate the opportunity to comment on this proposal and look forward to collaborating with you to address these issues.

Since 1960, AFP has inspired global change and supported efforts that generated over $1 trillion in charitable contributions. AFP's nearly 31,000 individual and organizational members raise over $115 billion every year, equivalent to more than one-quarter of all charitable giving in North America and millions more around the world. AFP also has the only enforceable code of ethics in the fundraising profession, and all members are required to affirm their support of it annually.

Americans have a rich tradition of supporting charitable organizations and gave more than $400 billion to philanthropic causes in 2017, according to Giving USA. In many cases, that charitable giving is incentivized because we as a country believe that charities have a critical role to play in society. Charities can often offer programs and services that government cannot offer or can be offered more effectively and efficiently through a charity.

These incentives are important because they encourage people to give. But in addition, research has shown that incentives play a role in deciding how much a donor gives, especially as the size of the gift being considered grows. Thus, limiting or denying giving incentives can significantly impact charitable giving.

Accordingly, we are very concerned about the impact of the proposed rule on state and local tax (SALT) credits to incentivize giving that were enacted many years before passage of the Tax Cuts and Jobs Act. These types of tax credits have positively affected communities in those states, funding charitable programs and services affecting a variety of issues, including education, healthcare, housing, and many more. Limiting these existing state tax credits will have a detrimental impact on the level of charitable giving in those states.

Given the potential negative impacts of the proposed rule on states with long-standing SALT credits, we recommend either rescinding the proposed rule or amending it to ensure that it does not decrease charitable giving incentivized by these tax credits.

We understand that state legislatures are considering or adopting proposals to create new SALT credit programs with the aim of enabling taxpayers to claim charitable contributions that are fully deductible for federal tax purposes, while also providing the taxpayer with a dollar-for-dollar offset of SALT liabilities. It is noted that there is a concern regarding potential significant revenue losses that would “undermine and be inconsistent with the limitation on the deduction for state and local income taxes adopted by Congress in section 165 (b)(6).” However, the proposed regulations should be narrowly crafted to address these new programs without undermining pre-existing programs that have effectively served communities for years.

AFP supports balanced regulations. However, the proposed new regulations, as currently drafted, would fail to maintain that balance by restricting already existing SALT credits, leading to decreased charitable giving that would affect the lives of many people who depend on philanthropic services. Therefore, we urge you to either rescind the proposed regulations or narrowly tailor them to preserve the charitable giving spurred by long-standing SALT credits dedicated to promoting charitable and philanthropic organizations.

7. Test Site Launched to Make State Charity Registration Easier (from Chronicle of Philanthropy, 10.2.18), by Timothy Sandoval

BALTIMORE – A test website for the Single Portal Initiative — a central electronic system that would allow charities to register in multiple states — went online Monday, announced state charity officials at a conference here.

The new effort allows nonprofit officials to test the site and enroll their organizations to solicit donations in Connecticut and Georgia.

Charities should be able to register with more states by mid-February 2019 during a second testing phase, said Chad Canfield, operations manager for the charitable-trust section of the Office of the Attorney General of Michigan.

As more states join and charities provide their feedback, the site will be improved, he said. "What you see today or what you see tomorrow when you go back and look isn’t what the project is going to look like in six months or a year from now," Canfield said.

Testing, Testing

The idea for the Single Portal Initiative has been in the works for many years, Canfield noted. The goal of the project is to provide a central online registration system for charities and professional fundraisers to fill out for their annual registrations in multiple states.

The system would save charities time and money, officials say, because nonprofits would only have to enter in certain data and submit key documents — such as an informational tax form 990 — once. For many charities, the system would replace the bureaucratic labyrinth of completing applications — and often submitting the same documents — for multiple states.

The test website launched Monday allows only charities to register, not third-party fundraisers — a feature the project’s developers expect to add. Other features they hope will come later include an analytics tool that will help charity regulators detect fraud and negligence, said Joshua Goldstein, vice president for product at CityBase, which is part of the development team on the site for state officials.

State officials also want charity data to be automatically entered from the Forms 990 that organizations file with the Internal Revenue Service, he said.

Faster Registration

Currently, the test site has separate fields to enter some of the same data for registration in both Connecticut and Georgia, Goldstein noted — though the goal is for charities to enter each piece of information only once to register with many states.

The bigger aim, he said, is for the registration process to become much faster. "If you’re a charity and you decide to register in a state, you should be able to complete that registration same day, if not same hour," he said, "and that’s our ambition."