Washington Snapshot - October 7, 2016
News from the Hill
Bill to Delay Overtime Regulations Passes the House
Last week, we reported that the Regulatory Relief for Small Businesses, Schools, and Nonprofits Act (HR. 6094) was introduced to delay the Department of Labor (DOL) overtime rules from taking effect until June 1, 2017. Late last week, that bill passed the House—moving to the Senate for consideration.
Even if this bill moves through the Senate to the President’s desk for signature, the Obama Administration has made it clear that it would be met with a veto.
Bill Introduced to Remove Restrictions on Nonprofits Political Speech
Late last week, Representatives Steve Scalise (R-LA) and Jody Hice (R-GA) introduced the Free Speech Fairness Act (H.R. 6195).
This bill would alter the long standing prohibition on political intervention by churches and other nonprofits under the Johnson Amendment of 1954. Specifically, Section 501(c)(3) of the Internal Revenue Code says that charitable organizations, including foundations, may “not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office.”
The bill as proposed would have several implications on the nonprofit sector:
- It would amend the Code to allow for speech that is made “in the ordinary course of the organization’s regular and customary activities.” This would essentially allow organizations to make statements that are political in nature, or express a view about a particular candidate or policy.
- It would apply to all 501(c)(3) organizations, not just churches.
- Organizations would be allowed to incur a “de minimis” (or, insubstantial) expense for speech that would occur in the “ordinary course” of business, but the prohibition on making financial contributions to campaigns for candidates or parties would stand.
Executive & Regulatory News
Tax Exempt & Government Entities Division Releases 2017 Work Plan
Last Friday, the Tax Exempt & Government Entities Division of the IRS released its work plan for fiscal year 2017. Within the Exempt Organizations (EO) Division, there will be 5 strategic issue areas of focus:
- Exemption: Issues include non-exempt purpose activity and private inurement;
- Protection of Assets: Issues include self-dealing, excess benefit transactions, and loans to disqualified persons;
- Tax Gap: Issues include employment tax and Unrelated Business Income Tax liability;
- International: Issues include oversight on funds spent outside the U.S., including funds spent on potential terrorist activities, exempt organizations operating as foreign conduits, and Report of Foreign Bank and Financial Accounts (FBAR) requirements; and
- Emerging Issues: Issues include non-exempt charitable trusts and IRC 501(r).
Additionally, the EO Division will undertake several long-term projects in the upcoming fiscal year, including: improve the process for EO determinations, and leveraging feedback to improve the Form 990, 990-EZ, and 990-PF.
Happening in the States
Exclusive from our colleagues at the National Council of Nonprofits.
New Jersey Bill Seeks to Protect Property Tax Exemptions from Third-Party Challenges
Foundation and nonprofit property owners in New Jersey would gain significant protection from third-party challenges to their property tax exemption under bills pending in both the State Assembly and Senate.
The legislation addresses a vulnerability that surfaced last year, in a case involving Princeton University that is proceeding to trial this month. In a procedural ruling in that case, a New Jersey Tax Court judge held that residents have legal standing to challenge the determination by the local government that the university is tax exempt. The judge also ruled that the nonprofit university bears the burden of re-proving its eligibility for tax-exemption, even when the municipality has been satisfied and the challenge is brought by third parties.
According to Linda Czipo of Center for Non-Profits in New Jersey, the “ruling leaves thousands of non-profit property owners of all sizes … vulnerable to arbitrary legal challenges by residents that would be extremely costly and time-consuming to defend, diverting scarce resources away from essential programs and services.” In testimony before an Assembly committee last week, she testified that the current law in the state puts at risk of third-party challenges not just large institutions, but “supportive housing organizations, homeless shelters, schools for people with developmental disabilities, shelters for victims of domestic violence, drug treatment centers, mental health facilities, or countless others that could be considered unpopular or controversial.”
The legislation prohibits a taxpayer from appealing an assessment or exemption that is granted to another taxpayer. The bill also prevents third-party challenges of financial agreements between tax-exempt organizations and local governments, such as negotiated fee arrangements or payments in lieu of taxes (PILOTs). The Assembly committee approved the legislation after Czipo’s testimony. The New Jersey Legislature remains in session year round, so further action on the bill is possible later this fall.
