U.S. Federal Issues -- June/July 2004 Public Policy Update
- Senate Finance Hearings/Roundtable
- CARE Act
- Junk Fax Prevention Act
- Do Not Email List
- Contributions of Conservation Easements
- IRS Guidance on Vehicle Donations
1. Senate Finance Hearings/Roundtable
Charity issues have been the subject of two Senate Finance Committee meetings over the past month and a half. On June 22, the committee held an official hearing about what it termed "charity abuses" -- illegal tax shelters, credit-counseling groups, in-kind contributions, insider transactions and board accountability. Representatives from the government, academia and the charitable sector testified about ways to prevent future abuses from occurring.
The key theme coming from charities during the hearing was that the Internal Revenue Service needed additional resources to better regulate the sector. As AFP noted in its written comments to the committee, there are already enough laws on the books, most the IRS simply doesn't have the funding and manpower to enforce those laws.
The hearing was sparsely attended by Senators, and Sen. Rick Santorum (R-Penn.) echoed many of the charities' comments when he encouraged the committee to move slowly in its deliberations and not let the actions of a few organizations smear the good work that most charities were performing.
During the hearing, IRS commissioner Mark W. Everson asked senators to pass President Bush's budget request for the agency, which includes a 17 percent increase over last year¡¦s budget for audits of nonprofit organizations. Everson reported that the IRS now has the resources to only conduct audits on less than one-half of a percent of all charities in the country.
As part of the hearing, the committee released a draft discussion document containing numerous proposals focusing on improving regulations and curbing abuses in the sector. The proposals covered such areas as donor-advised funds, credit-counseling agencies, reforms to the Form 990, board accountability and foundation compensation.
The discussion document was not addressed during the hearing, but was the subject of a July 22 informal roundtable discussion by the committee. Eighteen organizations, including AFP, were asked to submit written comments about the paper and deliver a short oral presentation about the proposals. The roundtable discussion was by invitation only and closed to the media to encourage candor among organizations.
During the roundtable, the committee heard comments on several overall areas related to charity regulation and accountability, including
Tax-exempt status reforms, including a proposal for the IRS to review a charity's tax-exempt status every five years;
Additional limitations on insider and "disqualified" persons, including applying private foundation self-dealing rules to public charities and increasing penalties for self-dealings;
Reforms related to foundation grants and expenses;
Increased coordination of regulation between federal and state agencies;
Changes to the Form 990;
Board governance, including restrictions on board size and composition and disclosure of new documents. AFP was strongly opposed to many of these proposals.
While AFP's written comments encompassed many of the proposals in the draft documents, AFP's oral presentation, given by President and CEO Paulette V. Maehara, CFRE, CAE, focused on percentage-based compensation by professional fundraisers. "Few new initiatives could do as much to limit future fundraising abuses as outlawing percentage or commission-based fundraising," she said. Her proposal to have Congress prohibit percentage-based compensation was mentioned by Senate staff as an idea that needed additional attention.
During the roundtable discussion, Finance Chair Charles Grassley (R-Iowa) made it clear that while he supported the good work of charities, legislation including some of the proposals would probably be introduced later this year.
It is quite possible that Grassley will introduce legislation related to some of the proposals in the draft document. However, it's not clear at this point what specific proposals will be covered. Some of the proposals will require additional discussion and analysis and simply are not ready for serious consideration.
Ironically, if legislation is introduced, it could boost the chances for passage of the CARE Act, or at least some of the provisions in the legislation. Combining some of the proposals from the discussion document with provisions from the CARE Act would create a "compromise" approach that contains both incentives for charitable giving and additional regulatory requirements, keeping all sides relatively happy.
LINKS: Senate Finance Committee Draft Discussion Document: http://finance.senate.gov/hearings/testimony/2004test/062204stfdis.pdf
AFP Roundtable Written and Oral Comments (in Attachments section at the bottom of the page): /Audiences/PublicPolicyIssueDetail.cfm?ItemNumber=1302
For Chapter G.R. Chairs: Members should be made aware of the draft discussion document and its availability on the Senate Finance Committee website. Most of the proposals don't directly affect fundraising, but many members may still feel their impact if they become law. The AFP Public Affairs Department is always interested in feedback about the document. Members can email email@example.com with any comments.
2. The CARE Act
The Charity, Aid Recovery and Empowerment (CARE), S. 476, and its House counterpart, the Charitable Giving Act (H.R. 7), have seen little action over the past couple of months, but are still receiving consideration.
If the bills (or portions of the bills) are going to pass Congress this year, they will probably be attached to the Jumpstart Our Business Strength (JOBS) Act, H.R. 4520 or S. 1637. The JOBS bill is one of Congress' priorities before it adjourns for the year. The bill has already passed both houses of Congress and is scheduled to be considered by a conference committee where the House and Senate can resolve their differences with the legislation.
Sens. Santorum and Joseph Lieberman (D-Conn.) continue to press the Senate to include the CARE Act into the JOBS bill. In a letter to Senate conferees on the JOBS bill, Santorum and Lieberman argued the charitable provisions were within the scope of the legislation, because both House and Senate versions included provisions tightening rules on charitable deductions for donations of automobiles and patents. Some Senate staff have been reported as being receptive to the idea, but a decision won't be made until Congress returns from its August recess.
Links: Information on the CARE Act /Audiences/content.cfm?ItemNumber=3125&navItemNumber=675
For G.R. Chairs: The key message: The CARE Act is not dead! Lots of political maneuvering occurs at the end of a legislative session, and it is still quite possible that the CARE Act could be included in the JOBS bill. AFP will send out a legislative alert when the conference committee is close to meeting and encourage members to send letters to Senators who are serving as conferees.
3. Junk Fax Prevention Act
The U.S. House of Representatives passed legislation (H.R. 4600) that would restore the "established business relationship" provision in the Federal Communications Commissions' (FCC) regulations.
Without the provision, charities would have been required to obtain "prior written consent" from all individuals before faxing them documents. The provision had been in effect for 10 years until the FCC repealed it earlier in 2004 as part of its new do-not-fax rule.
The rule did not contain any exemptions for 501(c)(3) organizations and donor/member relations, so all types of fax communications (membership forms, legal forms for gifts, etc.) would have been impermissible without the individual¡¦s express written consent. Additionally, the rule required that whenever an individual changed fax numbers, written consent would have to be re-established.
H.R. 4600, the Junk Fax Prevention Act of 2004, also requires a mandatory "opt-out" for unsolicited faxes sent to individuals under the rubric of the "established business relationship." Thus, even individuals who have given their written consent to a charity must still be given the opportunity with every fax to be placed on the charity's do-not-fax list. In addition, the bill allows the FCC to waive the opt-out provision for tax-exempt organizations faxing members on issues related to their exempt purpose.
A companion bill in the Senate has been referred to the Commerce, Science and Transportation Committee. A mark-up of the bill has not been scheduled yet but is expected soon.
LINKS: Copy of H.R. 4600: http://thomas.loc.gov (search on "hr 4600")
For G.R. Chairs: Without passage of this bill, life could be very difficult for charitable fundraisers, who would need to get an individual's explicit written permission before faxing them almost anything. There is a large majority in Congress who believe the FCC went too far in writing its do-not-fax rules, so this bill should be passed fairly easily (and hopefully this year). AFP will continue to inform members about this issue through eWire and may distribute a legislative alert if necessary.
4. Do-Not-Email List
In June, the Federal Trade Commission (FTC) declared that a do-not-email list would be ineffective and that it would not proceed with an email registry similar to the do-not-call list that has been so popular with the American public.
When it passed the CAN-SPAM law in 2003, Congress ordered the FTC to report on the feasibility of allowing email users to place their email addresses on a registry for those who do not want unsolicited messages.
The FTC found that none of the plans it was considering could be enforced. Thus, they would be ineffective because only legitimate companies would use them, thus possibly reducing the amount of email that may be of real interest to the consumer. Spammers, who use techniques to avoid detection, however, would ignore the list, which might lead to the impression among the public that spam is actually growing.
The report suggested that the most promising way to reduce spam was to create new technology that can verify that an email message was sent from the address that it claims to be. The FTC said it would defer to the private sector on which verification standard should be employed. If a standard does not emerge, the commission proposed creating a federal advisory committee to encourage the adoption of a standard.
For G.R. Chairs: This is good news for charities and fundraisers. Even if charities were exempted from a do-not-email list (as they were for the do-not-call list), enforcing the list would have been nearly impossible.
5. Contributions of Conservation Easements
The Internal Revenue Service (IRS) is moving to disallow improper deductions for transfers of easements on property to charities, as well as for transfers of easements in connection with purchases of property from charities.
A conservation easement is a legal agreement between a landowner and a charity, land trust or government agency that permanently limits uses of the land in order to protect its conservation values. The property owner continues to own the land, and the transfer of an easement can qualify for a charitable deduction. The amount of the donation is the difference between the land's value with the easement and its value without the easement.
In Notice 2004-41, issued on June 30, 2004, the IRS announced its intention to impose penalties on donors, appraisers, promoters and others involved in instances where inappropriate deductions were claimed for easements that did not qualify as qualified conservation contributions.
The IRS has indicated that it might challenge the tax-exempt status of any charity involved in any inappropriate easement transfers based on the charity's operation for a substantial nonexempt purpose or impermissible private benefit.
LINKS: IRS Notice 2004-41 http://www.irs.gov/pub/irs-drop/n-04-41.pdf.
For GR Chairs: This issue will be of interest to members working for environmental/conservation groups and other entities likely to receive these types of contributions.
6. IRS Guidance on Vehicle Contributions
The Internal Revenue Service (IRS) has released two new publications to help donors and charities avoid confusion with respect to donations of vehicles.
The first publication, Publication 4302, A Charity's Guide to Car Donations, focuses on the issues charities need to know in order to properly manage car donation programs. The second publication, Publication 4303, A Donor's Guide to Car Donations, provides information to individuals who make such donations and advises taxpayers to take the following steps when contributing a vehicle to charity,
The two publications were written in conjunction with state and charity officials as part of a continuing effort by the state and federal officials to work together to educate taxpayers and charities. Both publications are intended to assist individual taxpayers and those operating car donation programs to comply with tax law.
There are provisions in the JOBS Act (see number II, above) related to donations of vehicles. However, the Senate and House versions of the provisions are quite different. For more information, go to: /Audiences/PublicPolicyIssueDetail.cfm?ItemNumber=1279
LINKS: Publication 4302, A Charity's Guide to Car Donations http://www.irs.gov/pub/irs-pdf/p4302.pdf
Publication 4303, A Donor's Guide to Car Donations http://www.irs.gov/pub/irs-pdf/p4303.pdf
For G.R. Chairs: These publications may prove useful to any organization that operates or is thinking about starting a vehicle donations program.
Related AFP ResourcesAFP, Nonprofit Coalition Urge Congress to Preserve Charitable Tax Deduction
Help AFP Fight Proposals That Would Limit Charitable Deductions
House Passes IRA Rollover
January/February 2008 Public Policy Update
Charity Provisions Stripped From Tax Reconciliation Package, But Still Alive