PUBLIC POLICY UPDATE - SUMMER 2010
IRA Rollover Provision Extension Remains in Limbo
The IRA Rollover provision expired on Dec. 31, 2009. Congress has been working on a tax extenders bill that would extend several expiring tax provisions, including the IRA Rollover. The bill would extend the provision through Dec. 31, 2010. Unfortunately, the Senate has lacked the votes necessary to move this bill forward.
None at this time.
On March 10, 2010, the Senate passed a bill (H.R. 4213) that extends several expiring tax provisions through the end of 2010, including the IRA Rollover provision. Late last year, the House passed its version of the bill. The House and Senate had been trying to reconcile their two versions of the bill, but the Senate was unable to find enough votes to pass the amended version of the bill (opposition to the bill is completely unrelated to the IRA Rollover provision itself).
The IRA Rollover provision allows donors age 70½ or older to exclude from taxable income any funds withdrawn from an IRA (up to $100,000) and transferred directly to a charity. AFP has been advocating to remove the gift limit, allow planned gifts and make the provision permanent.
It is hoped that Congress will take up the bill again when it returns from its August recess.
Lawmakers in the U.S. and Canada Seek to Restrict Nonprofit Salaries
In an unprecedented move, governments in both the U.S. and Canada are seeking to cap nonprofit salaries. AFP strongly opposes these proposals.
Bill C-470 was introduced by Albina Guarnieri, Liberal MP for Mississauga East-Cooksville, as a Private Member's Bill. The bill would allow the Minister of National Revenue to deregister any charity, private foundation, or public foundation that paid ANY employee more than $250,000 a year. The $250,000 would not just be salary, but would include taxable and non-taxable benefits (e.g., pension plan contributions, professional association fees, etc.). The Minister would also be authorized to publish the top five salaries paid by any organization. It is important to note that the Minister would not be obliged to deregister such an organization, but would have the option to do so.
AFP urges its Canadian members to contact their MP's and Senators and urge them to oppose this bill. An e-blast was sent to all of AFP's Canadian members last Friday. That e-blast can be viewed here.
To assist you, AFP has drafted these talking points.
In addition, you can find more in-depth talking points here.
You can find your MP and their contact information by providing your postal code here.
Federal and local governments are contemplating unprecedented restraints on nonprofit compensation. A provision in New Jersey's recently passed budget includes a limit on what nonprofit groups can pay their chief executives if they are providing social services under state contracts. Other states are considering similar measures. Federal lawmakers have expressed concern as well. Senator Charles E. Grassley, Republican of Iowa, has told Treasury Secretary Timothy F. Geithner that he is concerned that the Internal Revenue Service is not tough enough in policing pay in the nonprofit sector and that regulations governing compensation are too weak, reports The New York Times.
None at this time, but AFP will keep members apprised of any legislation proposing salary caps, either federal or local.
AFP opposes caps on charities' executive compensation for a number of reasons. First, charities and their boards need the freedom to make decisions about staffing and compensation that are in the best interest of the communities they serve, and to be held accountable for those decisions through the transparency measures that are already in place.
We also believe that compensation caps represent discrimination against charities, as private companies that receive public funds do not face compensation caps.
It is worth noting that many charities are multi-million dollar organizations, tackling intractable economic, social, and environmental challenges, and dealing with extremely complex management issues. They operate in the same international market as all other employers. If the market dictates that a certain combination of skills, experience, and responsibilities merits a particular level of compensation, then charities-like any other employer-need to take this into account when making their compensation decisions. In other words, sometimes larger salaries are justifiable, particularly at larger charitable organizations.
Salary caps will lead to a loss of talented employees
It makes sense, then, that a salary cap likely would drive highly qualified individuals out of the charitable sector and into the for-profit world where their careers would not be limited by an artificial, government-imposed compensation ceiling. This could lead to a serious drain of talent from the sector at a time when the labor market is tightening and charities are increasingly competing with the public sector, the private sector and international organizations for talent.
Furthermore, the charitable sector has been struggling to attract young talent and develop a new generation of leaders. The proposed arbitrary cap will have a chilling effect on this effort by establishing a clear career ceiling and sending a negative message about maintaining a career in the sector. Salary caps would be a deterrent to young new graduates wanting to enter into the charitable sector at a time when charities need to attract the best talent.
Restraints on compensation do not lead to transparency
Finally, a compensation cap would not enhance transparency. In both Canada and the U.S., provisions are in place to provide transparency around executive compensation. In the U.S. where a charity's highly-paid employees already are listed in schedule A of the Form 990, and in Canada, charities are required to report their top ten salaries by range. Imposing a salary cap in either country would not increase scrutiny or increase transparency-it would simply set an artificial (and arbitrary) ceiling on wages.
New York State Caps Charitable Deductions for the Wealthy
The State of New York recently passed its budget into law that would limit tax deductions for people who earn more than $10-million annually. Those affected would only be able to write off 25 percent of their charitable contributions on their state income taxes rather than the current 50 percent. The provision in the budget plan run for three years, including the current 2010 tax year.
AFP's New York members are urged to contact their Senators and Assembly member and insist that the state legislature repeal this provision. A position paper is available here.
According to The Chronicle of Philanthropy, this provision would affect about 3,500 taxpayers in the state.
AFP is concerned that this provision will cause a loss of significant contributions. Moreover, there is a concern that other states, and even the federal government, will emulate this strategy.
AFP is working with a coalition of groups such as the DMA Nonprofit Federation, NCDC and others in hopes of having the charitable deduction provision repealed. For more information on the new law, see this article in The Chronicle of Philanthropy.
IRS Offers One-Time Filing Relief Program for Small Charities
Small nonprofit organizations which failed to file required returns for the three consecutive years 2007, 2008, and 2009 can preserve their exempt status by filing returns with the IRS by October 15, 2010.
If your organization is a small nonprofit organization that failed to file the required returns for three consecutive years (from 2007-2009), two types of relief are available: (1) a filing extension for the smallest organizations (annual revenues less than $25,000) required to file the Form 990-N, Electronic Notice (e-Postcard) and (2) a voluntary compliance program (VCP) for small organizations eligible to file the Form 990-EZ, Short Form Return of Organization Exempt From Income Tax. The relief program is not available to larger organizations required to file the Form 990 or to private foundations that file the Form 990-PF.
On a special page of IRS.gov, the agency posted the names and last-known addresses of at-risk organizations, along with guidance about how to come back into compliance. The organizations on the list have return due dates between May 17 and October 15, 2010, but the IRS has no record that they filed the required returns for any of the past three years.
Find more information about the filing relief program on IRS.gov website.
AFP Submits 2010 Pre-Budget Consultation Brief in Canada
This month, as part of the Standing Committee on Finance's Pre-Budget Consultations, AFP submitted testimony calling on Parliament to implement a stretch credit to encourage charitable giving, eliminate the capital gains tax on gifts of land and real estate and enact National Philanthropy Day legislation.
None at this time.
AFP noted in its brief that all three of its recommendations would do much to enhance charitable giving during an economic time when charities are struggling. Each of these recommendations would do much to enhance charities capacity to fulfill their philanthropic missions.
AFP plans to testify before the committee about this issue later this year.
AFP Submits Consultation Brief Regarding British Columbia's Society Act
For the first time since 1977, the British Columbia (BC) government's Ministry of Finance is taking steps to update the BC Society Act. As defined by the province, the Act is the statute that provides "rules for the registration and corporate governance of not-for-profit entities." In response, AFP submitted comments to the BC government regarding this issue.
None at this time
In its comments, AFP supported the much-needed modernization of the BC Society Act since much has changed in the charitable sector over the past 30 years. We did, however, caution the government to avoid making any changes to the Society Act that would implement any one-size-fits-all regulatory approach due the diversity and complexity of the nonprofit sector.
Along those lines, AFP supported the recommendations found in the British Columbia Law Institute's "Report on Proposals for a New Society Act." Many of the recommendations in that report strove to streamline and modernize administrative and procedural issues, often by aligning the Society Act with the Business Corporations Act.
It is AFP's hope that a modernized Society Act will streamline the compliance process for nonprofit organizations, diminish existing bureaucracy and maintain a regulatory balance that will not unduly burden the sector.