U.S. Federal Issues: May 2004 Public Policy Update
Postal Service Regulations -- Exclusive Purpose Test
The United States Postal Service (USPS) has issued proposed regulations that would make it harder for charity fundraising mail pieces to qualify for lower, Standard Mail rates.
The proposed rule sets up a new "exclusive purpose" test for advertising or fundraising that contains personal information. Under the proposal, personal information would only be permitted in letters where:
- Advertising and solicitation is the exclusive purpose of the letter, and
- The personal information included in the letter is directly related to the advertising or solicitation, and is used only to increase the effectiveness of the advertisement or solicitation.
The proposed rule would prohibit charities from mailing letters with dual purposes (e.g., education and fundraising) if it contains personal information about an individual other than a name and address. If a nonprofit mailing piece is personalized beyond name and address, the mailing could only be used for fundraising purposes. Otherwise, the letter would have to be sent First Class, forcing the charity to incur costs as much as 20 cents per letter.
The proposed rule would be extremely burdensome for many charities that include educational materials with their solicitation letters. The proposal would also be a difficult standard to enforce, as it could be argued that some educational material is critical for the solicitation activity so donors can understand why charities need the money. In addition, the definition of "personal information" under the proposal is any information specific to the addressee, which is also problematic.
Comments to the USPS are due by June 18, and AFP encourages all members to write a letter to the USPS encouraging it to revise the proposal.
In addition, a sample letter is included below that members can use to create their own letter to send to the USPS.
Your letter should focus on three points:
- Who you are and how your organization uses the Nonprofit Standard Rate to further your mission. How much your organization spends on postage annually and what that amount represents in your budget. (For many mailers that figure represents one of the top expenditures faced every year.)
- Use your own words and show exactly how this change would impact your mission. The USPS has expressed an interest in seeing sample mailpieces to show how you rely upon multiple use fundraising mailpieces.
- Ask the USPS to support efforts that will address the personal /personalized issue without harming the nonprofit community¡¦s access to the preferred postal rate for multiple purposed fundraising and educational campaigns.
Address Letter to: Sherry Freda Manager, Mailing Standards US Postal Service 1735 N Lynn St, Room 3025 Arlington VA 22209-6038
As [TITLE] of the [ORGANIZATION], I want to call your attention to a very serious problem. Under the proposed USPS rule of April 19, [ORGANIZATION] would not be able to use the preferred nonprofit postal rate to raise funds and disseminate information or share other important program-related materials to our constituents. [How do you use the mail?]
In this time of budget cuts and belt-tightening, the [ORGANIZATION] and other groups like us are more necessary than ever before. We rely upon the mail to raise funds to address our mission. A rule change that prohibits the use of Nonprofit Standard rates would severely hurt our programs and negatively impact the people we serve in [YOUR CITY] and throughout America.
In drafting the new rule, we are concerned that the USPS was not aware of how charities approach their mail campaigns. Nonprofit development campaigns usually serve multiple purposes -- to raise awareness, educate the public or to motivate action, for example. These multiple purpose appeals are often the only contact a donor has with a charity and may be the sole impetus for giving. This rule would prove extremely costly to charities because they would have to sort their mailings into education and fundraising categories, increasing expenses at a time when the public and donors are encouraging charities to be as cost-efficient as possible.
In addition, the proposed ruling flies in the face of AICPA SOP 98-2, which allow charities to allocate costs for a mailing jointly among program, fundraising and administrative expenses. In order to allocate costs jointly among program, fundraising and administrative expenses, this new rule dictates an exclusive purpose test that would prevent us from using any "personal information" like a donor's contribution history or other relevant giving information in our multiple purpose campaigns -- or we must mail at the First-Class rates.
The new rule would harm the nonprofit community¡¦s access to the preferred postal rate for multiple purposed fundraising and educational campaigns. Please consider a revision that would protect nonprofit access to the preferred rates of nonprofits so that we may continue using the mail to further our good work.
For Government Relations Chairs: The proposed postal regulation would have a dramatic negative effect upon fundraising costs for many charities that use Standard postal rates. Chairs are encouraged to pass along the sample letter to chapter members and urge them to write a letter to the Postal Service.
CARE Act and Charity Provisions on Donations of Vehicles, Intellectual Property
In May, the Senate passed S. 1637, the Jumpstart Our Business Strength (JOBS) Act, which includes provisions to limits deductions for charitable contributions of vehicles and intellectual property.
The JOBS Act was also a potential vehicle to move the Charity Aid, Recovery and Empowerment (CARE) Act. The CARE Act had been offered by Sens. Rick Santorum (R-PA) and Joseph Lieberman (D-CT) as an amendment to the JOBS bill, but it was never considered on the Senate floor.
However, the JOBS bill does include an amendment that changes the rules for valuing and reporting donations of vehicles (including boats and airplanes). For such gifts, donors would only be able to claim as a donation the actual sales price received by the charity -- not the fair market value permitted under current law.
A donor of a vehicle must get a written acknowledgement from the charity indicating for how much it had sold the vehicle. If the charity did not sell the vehicle, it must provide a receipt for the vehicle within thirty days. To receive the deduction, the donor must include the acknowledgement or receipt with his or her tax return.
Also included in the JOBS Act is a provision that would limit a donor's deduction for gifts of intellectual property to the extent of the donor's basis in the property. In addition, no deduction would be allowed for the gift if the donor still had an interest in the property and continued to receive payments from the charity after donating it, unless it was a qualified interest.
Under the bill, a qualified interest is defined as a "a right to receive from the donee [charity] a percentage (not greater than 50 percent) of any royalty payment received by the donee..." In addition, an interest would only be considered a qualified interest if the donor has no right to receive any sort of payment either after the legal life of the property expires, or 20 years after the date of the contribution, whichever comes first. Payments to a donor based on a qualified interest do not qualify for a deduction and are treated as taxable income.
The House of Representatives is in the process of considering its own version of the JOBS Act and is discussing additional legislative options related to gifts of vehicles and intellectual property. Rep. William Thomas (R-CA), the chairman of the Ways and Means Committee, has introduced a proposal that would disallow charitable deductions for donated vehicles unless the donor had the vehicle appraised.
AFP is especially concerned about the impact the Senate provision would have on charitable vehicle donation programs. The association will be working with other organizations to see more balanced provisions regarding donations of vehicles and intellectual property in the final legislation.
For Government Relations Chairs: AFP will be working to get the CARE Act (or possibly just a few provisions such as the IRA Rollover Act) included in the House version of the JOBS Bill. AFP is also participating in a coalition of organizations working to modify the provision related to donations of vehicles. While no action is needed immediately, AFP may be issuing a legislative alert in the coming weeks related to the CARE Act and the House of Representatives. If an alert is issued, chairs are encouraged to follow up with their chapter members.
Federal Election Commission -- Regulations on Political Committees, Activity
In May, the Federal Election Commission (FEC) decided not to impose new regulations that would limit 501(c) nonprofit organizations in their ability to advocate and communicate with the government, donors and the public.
The proposed regulations were intended to affect nonprofit entities organized under Section 527 of the Internal Revenue Code. Section 527 organizations are unrestricted in how much money they can receive and spend on influencing political elections. However, the rules proposed by the FEC were so broad as to possibly include 501(c) organizations. The FEC had specifically requested public comments as to whether the rules should apply to 501(c) groups.
The FEC will probably revisit the issue later this year, probably after the November elections.
AFP submitted its own comments to the FEC, arguing that the Commission has no authority to change its regulations to affect 501(c)(3) organizations and that the nonprofit sector already has sufficient rules in place through the Internal Revenue Code.
For Government Relations Chairs: AFP received many contacts by members about this issue, so it will be important to update the chapter on this development. No further action is needed on this item, although as noted above, the issue will probably resurface later this year. There is still much opposition to the proposal, so it remains to be seen whether it will be approved should the FEC reconsider it.
Federal Trade Commission -- CAN-SPAM Regulations
After President Bush signed the CAN-SPAM Act into law in 2003, the FTC was given the responsibility of developing regulations to implement the law's requirements. In May, AFP responded to the FTC's proposal regulations regarding the distribution of unsolicited commercial emails.
In its request for comments, the FTC specifically asks whether nonprofit organizations should be exempt from the proposal, which would restrict the distribution of unsolicited commercial emails. Because the law affects only emails of a commercial nature, most emails sent by a charity will be exempt from the requirements.
In discussions with Capitol Hill staffers during development of the bill, it was clear that the bill was not directed at nonprofit organizations. However, the final version of the CAN-SPAM Act did not provide an exemption for email from nonprofit organizations.
The law is stricter than other privacy bills, requiring an organization to receive explicit permission from an individual before sending an email of a "commercial nature." Thus, a charity that has a pre-existing relationship with a donor might still need to receive the permission of the donor before sending an email regarding an event, product or service deemed to be of a commercial nature.
AFP submitted its comments to the FTC in April, arguing that the Commission does not have jurisdiction over nonprofits and therefore cannot apply the proposed rules to the nonprofit sector. A response from the FTC is expected later this year.
For Government Relations Chairs: AFP is relatively optimistic that the FTC will not try to cover nonprofit emails in its regulations. The FTC would face both jurisdictional (legal) and feasibility issues if it tried to included nonprofit emails. However, AFP will be closely monitoring the FTC's work on this issue and will notify members when the FTC expects to release another version of its proposal.
Related AFP ResourcesAFP Offers Tax Incentive Recommendations to Finance Committee
AFP Political Action Committee Fact Sheet and Q&A
IRS Issues Revised Instructions on New Form 990
IRA Rollover Provision Introduced by Key Senators
AFP Urges Congress to Include IRA Rollover in Stimulus Package