Washington Snapshot - March 27, 2015

News from the Hill

As a reminder, the issues that impact charitable organizations and individual donors fall within the “business” and “individual” working groups. The business working group, which will address tax provisions that impact the business and operations of charitable organizations, is co-chaired by Senators John Thune (R-SD) and Ben Cardin (D-MD). The individual working group, which will address giving incentives for individuals, is co-chaired by Senators Chuck Grassley (R-IA), Mike Enzi (R-WY), and Debbie Stabenow (D-MI). Just to clarify, if Congress decides to forgo comprehensive tax reform and pursue business-only tax reform, charitable provisions could still be included in that legislation. It’s important that you continue to tell your lawmakers why this legislation is important and how it impacts the work you do, whether that be at events like Philanthropy Week in Washington just last week, out in your districts, or in comments you submit to the committee.

We encourage our readers to submit comments to lawmakers regarding your tax policy priorities (the private foundation excise tax, the charitable deduction, donor-advised funds, etc.) and provide stories of how these impact your organization and those you serve. Comments can be very brief and concise, and do not have to be formal. Our public policy team is happy to review your comments before you submit them or offer suggestions on what to include. For information on how to submit comments, including comment criteria, please see the Senate Finance Committee website.

The Council’s public policy team is drafting Council comments for the working groups. We will share these with our readers once they are finalized. If your organization submits comments and is willing to share them with the Council, we would like to highlight excerpts in future editions of Washington Snapshot.

Senate Minority Leader Reid to Retire

This morning, Senate Minority Leader Harry Reid (D-NV) announced that he will retire when his seat is up in 2016. Senator Reid announced his retirement in a YouTube video.

USA Today reports that Reid’s retirement will kick off a fight for his seat in 2016, a seat the Republicans have a very real chance of picking up. Sources are also reporting that this could make it extremely difficult for the Democrats to win back the Senate in 2016.

We want to thank Senator Reid for his leadership during his long career in Washington and wish him the best. We will continue to monitor the changes to the Senate leadership that will result from this announcement.

Trending in Legal Affairs

Charitable Purpose and Economic Development Grants

Grantmakers wishing to make economic development grants face a number of questions before the first check is written. The most important question foundations must assess is whether a particular project is truly charitable. Recently, the Council’s legal team was asked whether a chamber of commerce, a registered § 501(c)(6), could establish a field of interest fund, the purpose of which was to fund awareness projects they were engaging in to increase tourism in their community.

A § 501(c)(6) may establish a field of interest fund limited to the charitable activities that they plan to pursue. While § 501(c)(3) which explains the scope of charitable activity, does not expressly list “economic development” as a charitable activity, the accompanying Treasury Regulations (Treas. Reg. § 1.501(c)(3)-1(d)(2)) expands on the term “charitable,” by listing several purposes that have been deemed to be through judicial decisions. This list includes:

• Relief of the poor and distressed or of the underprivileged;
• Advancement of education or science;
• Erection or maintenance of public buildings, monuments or works;
• Lessening of the burdens of Government; and
• Promotion of social welfare by organizations designed to accomplish any of the above purposes, or . . . to lessen neighborhood tensions . . . eliminate prejudice or discrimination . . . or to combat community deterioration.

With this list in mind, Legal Affairs indicated that economic development could be considered a charitable activity of the chamber’s project, if it sought a broader public purpose than just to help private businesses. Increasing tourism can be part of economic development, but when grants are made from a community foundation fund, the foundation would need to review the proposed activities and determine on a case-by-case basis whether the grant purpose is charitable. The legal team added that goals such as reducing crime and increasing civic pride would make an activity more likely to be considered charitable.

For more information on this or any other tricky legal matters, please contact the Council’s Legal Affairs team at legal@cof.org.

Access to the Council’s legal team is a valuable member benefit. Council attorneys are available to discuss your legal questions and to provide legal information by telephone, email and through our various publications and newsletters. This information is intended for educational purposes and does not create an attorney-client relationship. The information is not a substitute for expert legal, tax or other professional advice tailored to your specific circumstances, and may not be relied upon for the purposes of avoiding any penalties that may be imposed under the Internal Revenue Code.

Philanthropy News and Op-Eds

IRS Form 1023-EZ Update

In July of 2014 the IRS introduced a new version of Form 1023 – the form used to apply for 501(c)(3) tax-exempt status. We covered the introduction of and commentary on the new form called the 1023-EZ. The new form is significantly shorter and was designed to streamline the application process and reduce the backlog at the IRS.

An article this week in The Chronicle of Philanthropy examines new numbers released by the IRS. The numbers show that in fiscal year 2014, the IRS approved more than double the number of applications as it had in the previous two years. Smaller nonprofits are facing substantially shorter wait times when they apply for 501(c)(3) tax exempt status.

Critics have argued that the new form is too simple and could allow organizations that would have been denied under the old form to now be approved. Ruth Madrigal, a Treasury Department official, told Bloomberg BNA(Subscription Only) the agency may revise IRS guidance for grantors and contributors who deduct contributions to public charities based on the 1023-EZ Form.

We’ll continue to monitor updates around this debate.

Fight to Keep Charitable Deduction in Maine

Back in January, Governor LePage in Maine introduced a new budget proposal. The proposal contained a provision to overturn LD 1664 which exempts the charitable deduction from an overall cap on itemized deductions. It would also allow municipalities to collect property taxes from large nonprofits.

An opinion piece posted this week by Peter Korn, in the Bangor Daily News, argues for keeping nonprofits tax exempt. He writes, “public policy on nonprofit taxation isn’t broken. Please, let’s not try to fix it.”

This message is remarkably similar to the message the Council’s Senior Vice President for Public Policy and Legal Affairs, Sue Santa, delivered at the Alliance for Charitable Reform’s Summit for Leaders last week. The message is simple: the charitable deduction works.

Our colleagues at the National Council of Nonprofits, also keep a very close eye on what is happening at the state level. You can keep tabs on individual states on their website.

Keep in Touch!

Please feel free to reach out to any of us on the public policy team with any comments or concerns, or to share an issue, article, event, or op-ed you’d like to see covered in a future Washington Snapshot.