Nonprofit Law Podcast #29: Unrelated business income

Nonprofit Law Podcast #29 looks at one of the rare times nonprofits face a tax... unrelated business income.

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Breaking: Dean Zerbe to resign

Who is Dean Zerbe, you ask? He's the chief tax attorney for Sen. Charles Grassley, and to put it bluntly... not a friend to nonprofits, in my opinion. As the Chronicle of Philanthropy notes, he was a driving force behind many recent legislative efforts involving nonprofits in recent years. It will be very, very interesting to see if this impacts Sen. Grassley's efforts in the future.

Nonprofit Law Podcast #28: Nonprofit mail rates

Nonprofit Law Podcast #28 turns its attention to the USPS and nonprofit mail rates.

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Nevada church accused of illegal electioneering

Americans United filed a complaint with a top IRS official, accusing a pastor of a Nevada church of illegally endorsing Barack Obama this past Sunday. More details at the Nonprofit Law Prof blog... the complaint (PDF) is interesting... the IRS gives some leeway to pastors and other religious leaders for endorsements in their individual capacity, but not when they use church resources to do so. This pastor made the comments during a sermon.

This situation reminds me of a moment in a documentary I just watched with the late Jerry Falwell speaking before his student base at Liberty University (a 501(c)(3) as is his church)... paraphrasing: "the IRS says Liberty University can't endorse George Bush. But I can." This was followed by a long litany of reasons to vote for George Bush. The event was held in a university arena by the head of the university... there are other factors to weigh here in a facts and circumstances analysis, but I don't recall any IRS action aimed at Falwell for that event.

What does this say? There's technically illegal actions and illegal actions that receive IRS scrutiny. Since the process is ruled by "facts and circumstances" analysis, it's totally subjective and it can be difficult to rectify in one's mind why one case receives sanctions and the other does not.

Nonprofit Law Podcast #27: Reporting Changes to the IRS

The latest Nonprofit Law Podcast is on the air... in number 27 we take a look at reporting changes to the IRS.

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File your 990s

If you don't file your Form 990 - assuming you're required to (some organizations are exempt) - you may have more than the IRS to answer to. You might find yourself at the other end of a press expose. The latest example? The 50-year old civil rights organization Southern Christian Leadership Conference just had its failure to file spread across the pages of the Atlanta Journal-Constitution. This is a PR blow you don't want you or your clients to take... just a reminder, if your nonprofit follows an end of the calendar-year fiscal year, your 990 is due May 15th...

IRS reports on its problems serving nonprofits

The IRS released the National Taxpayer Advocate's 2007 Annual Report to Congress this week, and it had some very interesting revelations:

The most serious problems encountered by taxpayers

* * *
13. Exempt Organization Outreach and Education. The U.S. tax-exempt sector consists of more than 1.6 million organizations (not including most churches). These exempt organizations (EOs) are diverse in size, ranging from large hospitals and universities to small volunteer-run charities. Approximately half of all EOs have all-volunteer staffs and another third have fewer than ten employees. Smaller EOs frequently lack professional tax guidance. The IRS has increased enforcement actions against EOs and the resources dedicated thereto. However, resources devoted to EO education and outreach, which were never adequate, have continued to decline. Existing IRS outreach and education programs for EOs are beneficial. However, the National Taxpayer Advocate believes the IRS can and should do more to help EOs, particularly small organizations, comply with the complex requirements to which they are subject. The National Taxpayer Advocate urges the IRS to conduct research to assess the service needs and preferences of the spectrum of EOs and to develop a strategic plan to enhance the scope and effectiveness of its outreach to these organizations.

14. Determination Letter Process. Unreasonable delays in the processing of applications for exemption from federal income tax have persisted for several years. Three years after the National Taxpayer Advocate raised concerns about these delays in the 2004 Annual Report to Congress, the processing time for many organizations’ applications still exceeds the IRS’s goal. These delays can have a serious, detrimental effect on charitable organizations’ finances and activities. The IRS has employed a number of measures to fix the problem but must do more to eliminate processing delays and keep organizations informed about the status of their applications.

The determination letter process has surpassed, in my opinion, the mere annoyance stage. At what point will these applications take more than a fiscal year to process? (I'm sure there are examples already out there) Thankfully, the report includes a recommendation to extend the advance ruling periods for cases of extreme delay, but it seems Congress would have to act on that recommendation for it to become reality. More exciting for smaller nonprofits is the recommendation to create a 1023-EZ of sorts for non-private foundations that will pull in gross receipts of not more than $25,000 in a year. I know a lot of groups that would have loved that option in the last year alone...

Check out the executive summary (PDF) for more.

Bad news for advocacy nonprofits

See this article in the Chronicle of Philanthropy on fundraising trends. Most interesting to advocacy groups:

Advocacy organizations, however, reported the worst results of any type of charity in the survey. They recruited a median 21.8 percent fewer new donors in the first three quarters of last year, on top a 14.2-percent decline during the same period in 2006, while the number of total donors also dropped by a median 12 percent.

Combine that with the usual issues with giving during an election year (more competition than off years) plus the spectre of a recession... this isn't the best of news.

"Dirty tricks" against churches alleged

Time has a great piece on some letters being sent to Iowa pastors supporting Mike Huckabee... the Iowa winner suggested before the caucuses tonight that these were a part of a voter suppression gambit by the authors. As you'll see in the article, if they're vote suppressors, they probably need some grammar lessons as well...

Pastors and other religious leaders are allowed under IRS interpretation of tax law to engage in partisan activities in their personal capacity, so long as the church or religious institution is not used. Many toe right up to the line during election season, but the IRS has recently tried to push back a bit and given some additional guidance (Check out Rev. Rul. 2007-41).

Watch those trademarks!

It doesn't come up often in the nonprofit world, but every once in a while there will be a trademark dispute... Check out this story regarding a "Big Sister" issue in Boston.

Be mindful that trademark and copyright laws apply to nonprofits just as much as a for-profit corporation!

"Anti-Poverty Group Refuses to Name Donors"

A charity's nonpartisan advertisement is drawing the attention of some in the reform community. The ONE Campaign's ad is
described by the NY Sun:

At issue is a brief sequence in ONE's television ad showing simulated campaign buttons for 14 presidential hopefuls from both major parties. "Ask each presidential candidate if they're on the record fighting global poverty and disease," the ad's narrator intones. "One voice, plus yours and millions of others. They will hear."

Attorneys for the Campaign Legal Center suggest this ad falls under the disclosure provisions of BCRA, while Jim Joseph, the attorney who represents the ONE Campaign says it's purely an issue advertisement that doesn't support or oppose any candidate, and is therefore outside of the requirement's scope. When all is said and done, is this really the type of advertisement that the law was supposed to target? Is this a "sham issue ad"? It appears on its face to be precisely the type of ad that should not be regulated (and I put disclosure of donors in the "regulated" column). If the law does demand disclosure, I would suggest it's another indication of the problems with BCRA.

UPDATE... Jim Joseph on the election law listserv gave an update:

I am counsel to The ONE Campaign and certainly had my comments taken out of context in the NY Sun article. The reporter seemed to be questioning ONE about why it had not registered as a political committee, which led to my response explaining how The ONE Campaign is not a political committee and how its ads do not support or oppose any candidates. When I finally realized that what he really was talking about was filing the Form 9, I explained that ONE was filing the form within 24-hours of the FEC regulations becoming final on Dec. 26. ONE never raised funds for electioneering communications, but used general treasury funds for these ads. The regulations provide very clearly that donor names do not need to be included on Form 9 under these facts. The reporter's claim of ONE "boasting" of its ad buy was a simple press release stating that it was releasing an ad and buying $1.8 million in air time. The ads were set to end before December 26 and were paid for well before then, so there is probably an argument that the regulations that became effective on Dec. 26 did not apply, but I explained to the reporter that we wanted to file the form even if there might be argument that ONE was not required to file. We even filed before the FEC released a revised Form 9; the current form does not match up to the new regulations, that is for sure. Obviously, none of this comes out in the article. Given the "faux" issue ads that are out there, you would think the press would not be focusing on such non-issues as this.

Totally agreed on the last point!

Late gift from the FEC

The FEC is in the midst of a serious political squabble that will essentially shut down new business starting January 1st. Thankfully, before the lights went out the Commission released the Explanation and Justification document (PDF) on their new electioneering communications rules (PDF). AFJ has the summary here. Recommended reading if you're a nonprofit that uses broadcast ads at all during election season!

Creative Commons licensing primer

A preview of sorts for the upcoming New Media screencast that I'll have available... here is a screencast on Creative Commons licensing. The interesting aspect of this screencast is that it is an example of a remix of a creative commons licensed work. The original was a static comic with a script here. How is this important to nonprofits? It's useful to know what kinds of artwork, music and other works are available for you to use without paying premium license fees. It's also helpful to support the (usually) independent artists that use these licenses as a way of getting their work out to the world.

Enjoy the screencast and feel free to pass it along... after all, it's a Creative Commons licensed video!

Nonprofit law Podcast #25: End of the year guide to recordkeeping

The podcast got a nice mention by Texas Nonprofits in an article on their site... check it out here.

This is all just in time for the latest Nonprofit Law Podcast... in number 25 we take a look at end of the year recordkeeping tips for nonprofits.

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More audits on the way for nonprofits?

That's a shudder you hear from every person who would be responsible for handling an audit of a nonprofit. Reuters has the scoop here.

IRS regulation of nonprofits

Steven Miller, IRS Director of Tax Exempt and Government Entities, gave a speech recently on nonprofits. As the Nonprofit Law Prof blog reports, the most provocative part of the speech:

Please understand that I am not saying that no valid differences exist between the non-profit and for-profit sectors. I am asking something more nuanced: to what degree has the non-profit sector drifted toward the commercial sector, and to what extent should it be taxed like the for-profit sector? And even where the exempt sector acknowledges unrelated commercial activity, why are so many organizations declaring losses on these endeavors? It seems as if the IRS needs to police this Drift Line.

Newcomers to the nonprofit world are often surprised to the extent nonprofits (particularly 501(c)(3)s) are able to engage in commercial-like activities. Will the IRS start taking a harder line?

'Tis the season...

... of articles on shady nonprofits. Check out MSNBC. It's also the season of calls for more nonprofit regulation... the question is whether or not the few bad apples should put more burdens on the good nonprofits? Balance is key.

"Nonprofits Become A Force in Primaries"

The Washington Post reports on the importance of nonprofits in the 2008 election cycle. be sure to check out the response to the article by AFJ and Chronicle of Philanthropy as well.

Justice Talking

NPR's Justice Talking covers the tricky speech vs. election regulation topic this week:

The presidential election is less than a year away and a Supreme Court ruling could change the kinds of advertisements we see and hear in the days running up to an election. Also, some are questioning whether reporters need a law to protect them from being forced to reveal their sources. On this edition of Justice Talking: how the First Amendment affects political campaigns, blogs, corporations and journalists. Parts of this program were taped in front of an audience at the annual convention of the National Communication Association.

Check out the audio here (mp3).

File this under, "don't do it"

The Chronicle of Philanthropy reports...

The Internal Revenue Service has revoked the tax-exempt status of a California charity after the agency determined that the charity was funneling money to the campaign fund of a former state official.

That's pretty much the #1 no-no under tax law. Some of the folks in the now-former charity have some explaining to do to law enforcement, I suspect...

Nonprofit Law Podcast #24: Charitable solicitation registration

Nonprofit Law Podcast #24 is up.... this week we cover some aspects of charitable solicitation registration. Check out the shownotes and resources at nplawcast.com!

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Lots of great nonprofit resources

This month's edition of Harmon Curran's Navigator is full of great information:

IRS Releases Variety of New Guidance for Exempt Organizations

IRS Issues New Guidance on Valuing Donated Property

IRS Publishes FAQ Sheet for E-Postcard Filing

IRS and Independent Sector Issue Good Governance Guidelines for Charitable Organizations

Check it out at harmoncurran.com/navigator.

Nonpartisan candidate questionnaire

I've spoken about some of the best practices on nonpartisan candidate questionnaires by 501(c)(3)s in Nonprofit Law Podcast #16. For a little real-life example on how to craft a cover letter to candidates laying out the ground rules, check out the letter to presidential candidates by Midwest Democracy Network. Specifically:

First, we intend to communicate your answers fully, accurately, and without
edits, including spelling and grammar errors. All candidate responses will be released at one time—on October 31.

This is a good way of demonstrating that there is no filter of bias by the organization... what the candidates write down (including typos) end up the report.

Second, the Network will not publicly critique, comment on, or editorialize about your or any other candidate’s answers; the job of evaluating, comparing, contrasting and judging responses to the questionnaire will be left entirely to individual voters, readers, journalists and opposing candidates.

This is critically important... some 501(c)(3)s will continue advocacy simultaneously with their publication of these nonpartisan voter guides, and that can become problematic from a tax law perspective (remember, no partisan electioneering allowed for 501(c)(3)s).

Third, if you fail to submit a completed questionnaire by October 15 or leave certain questions unanswered, those omissions will be noted in a neutral and non-judgmental way in the Network’s published and web-based reports and press materials.

This paragraph gives notice that the results will be published even if some candidates don't respond. This was important because only 2 of the primary candidates responded.

And finally, we ask that you respect the word limits specified in the questionnaire’s “comment” sections as determined by the word count feature of your computer software.

Some candidates will write a treatise if you don't lay down some rules. This is a good idea.

Check out the questionnaire and responses over at Midwest Democracy Network.

More on Oral Roberts University

ORU President Richard Roberts resigned yesterday following the continuing scrutiny caused by some very serious allegations that, if true, could spell serious tax problems for the nonprofit university. I've posted before about some of the issues... more to come to be sure.

New 990 on the way

I've posted over the past few months about the soon-to-come new Form 990 that most nonprofits will have to use starting in 2009. The Chronicle of Philanthropy reports that the IRS is implementing changes from the comments filed earlier this year from the nonprofit community. The final version should be available as early as December.

More on FEC ad rules

The Washington Post blog, The Trail, has a nice roundup of voices on the new FEC advertising rules. Save it for halftime of the Lions game tomorrow... or not. Happy Thanksgiving!

UPDATE... more here from The Hill.

UPDATE from the election law listserve, an interesting observation from Brian Svoboda:

The FEC is simply setting itself up for the same dialectic that has long characterized its enforcement process: (1) agency gives example of what is prohibited; (2) sponsor crafts ad to hew away from the prohibited example; (3) reform advocates deride supposed toothlessness of agency prohibition; (4) agency responds by targeting sponsors; thus prompting (5) continued reform community derision, and howls from the regulated about the lack of fair notice.

Sounds about how it will go.

Seen But Not Heard: Strengthening Nonprofit Advocacy

Gary Bass and Kay Guinane of OMB Watch co-authored Seen But Not Heard: Strengthening Nonprofit Advocacy along with other OMB Watch staffers... the book's topic was the subject of Jeffrey Birnbaum's column in yesterday's Washington Post. I've known Gary and Kay for several years, dating back to my AFJ days. I'll definitely be picking up a copy...

FEC weighs in on WRTL with rulemaking

The FEC today voted on a rule to harmonize federal law with the ruling in Wisconsin Right to Life... broadcast ads mentioning federal candidates near set times prior to elections can only be regulated, under the ruling, if there is "no reasonable interpretation other than as an appeal to vote for or against a specific candidate."

So, this leaves the door wide open for more issue ads during elections. Bob Bauer has a good post on the matter... I tend to side with his point of view on this issue.

Nonprofit Law Podcast #23: Should we file an amended tax return?

Nonprofit Law Podcast #23 goes over a few scenarios where your nonprofit may want to file an amended tax return. Check out the shownotes and resources at nplawcast.com!

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New lobbying disclosure forms online

This does not apply to the vast majority of nonprofits, but for those readers that engage in a fair amount of lobbying of members of Congress, you'll want to read on. AFJ reports:

The U.S. House of Representatives and Senate recently announced new federal lobbying disclosure report filing procedures that will allow lobbyists to make one single electronic filing.

In September of this year the President signed into law the Open Government Act of 2007, which amends the federal Lobbying Disclosure Act of 1995 (see our analysis of the lobbying and ethics changes). Previously, lobbyists had to file separately with both the Senate and House and follow their separate requirements. The Secretary and the Clerk have streamlined the requirements and as a result lobbyists may file their forms at a single electronic location.

The new forms that enable simultaneous filing with the Clerk and Secretary will be available beginning December 10, 2007. These forms may be used for the 2007 Year End filing period and may be downloaded from the House or Senate websites. The Secretary and Clerk will accept previously issued registration and reporting forms until March 15, 2008, after which you must use the new forms and file electronically.

So, if you're a covered nonprofit, get ready and download those reporting forms!

More on 501(c)(4) donations

The Chronicle of Philanthropy picked up on the LA Times article I posted the other day on 501(c)(4)s getting more attention from donors who wish to have more impact (anonymously) with their donations. It will be interesting to see if the reform community turns their attention to 501(c)(4)s if there is perceived abuse.

IRS gearing up for new Form 990

Check out today's New York Times article on how the 990-N will "weed out deadwood" charities"...

Nonprofits and elections

Great article in the L.A. Times today on the impacts 501(c)(4)s and 527s may have on upcoming elections... the key is the lack of donor disclosure. There are many good reasons for protecting the anonymity of donors to nonprofits, but there are equally good reasons to require disclosure for political activities. There will likely come a time when we see some attempt to strike the balance. It would not be a good idea, in my opinion, to require broad donor disclosure on nonprofits as a class simply because they can be used in electoral contexts. More to come on this for sure.

Nonprofit Law Podcast #22: Help! I lost my 501(c)(3) letter!

Nonprofit Law Podcast #22 answers the age-old question: how to replace your missing determination letter. Check out the shownotes and resources at nplawcast.com!

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Hasen on Colbert and corporate cheese

Stephen Colbert may be out of the running in South Carolina, but the impact of his attempted run still has people in election law circles talking. Rick Hasen weighs in over at FindLaw with Stephen Colbert's "Hail to the Cheese" Presidential Candidacy: Why the Comedian's Campaign Raises Serious Questions about the Role of Corporate Money In Elections. Remember that most nonprofits are corporations subject to federal election law, so this exercise in humor actually has some application!

Gift tax and 501(c)(4)s

Someone on the election law listserve asked a question that pops up all the time for 501(c)(4)s... do major donors to (c)(4)s have to pay gift tax? Answer... because 501(c)(4)s aren't exempt from gift tax (like 501(c)(3)s and 527s) contributions over $12,000 are subject to the tax. Now, as Beth Kingsley stated in her response on the listserve, the IRS isn't exactly pulling out all the stops to collect this tax, so practically speaking it goes largely uncollected. A big issue? Not really... only if you have a person giving more than $12k!

Nonprofit Law Podcast #21: Nonprofit Insurance

Nonprofit Law Podcast #21 answers a listener question on D&O insurance and some of the broader issues related to nonprofits and insurance coverage. Check out the shownotes and resources at nplawcast.com!

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IRS seeks guidance from nonprofits

The Chronicle of Philanthropy reports:

The Internal Revenue Service is looking for eight volunteers to fill vacancies on an advisory committee that focuses on matters affecting nonprofit groups.

The committee — called the Advisory Committee on Tax Exempt and Government Entities — offers recommendations and reactions on administrative policy.

Lobbying disclosure briefing

I'm sitting at the AFJ lobbying disclosure briefing I mentioned a few posts ago... If you are out of town and signed up for the teleconference, call in! zI'll post a brief summary of the highlights later today.

The highlights:

Lobbying disclosure... civil penalties are skyrocketing to $200,000 max and criminal penalties are as high as 5 years in prison

New compliance certification requires lobbying disclosure reporting entities to verify they are not engaging in any knowing violations of the new law

Because there are steeper consequences of filing, the former best practices of filing "just to be safe" may not be the right call anymore.

Coalitions face different rules. Now every group that contributes to the formal lobbying coalition must have their names/addresses reported by the coalition if they participate in any of the running of the coalition.

Gift and travel rules... if you're a nonprofit, you cannot give gifts to members of Congress the same way you used to. The rules have become tremendously more complicated.Rather than outline them here, take a look at the AFJ report here (pdf).

Nonprofit Law Podcast #20: voter registration and GOTV

Nonprofit Law Podcast #20 concludes the month-long series on election season and nonprofits with an overview on voter registration and get-out-the-vote activities. Check out the shownotes and resources at nplawcast.com!

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Comedy Central: Colbert run legal

The corporation that airs Stephen Colbert's television show is confident that his run for president on the South Carolina ballot will not violate federal election law prohibiting corporate contributions to a federal candidate. I'm pretty much begging for this to end up at the FEC, if only for the sheer entertainment value...

A recent poll suggests this comedic stunt might be doing more than generating buzz on blogs...

In one match-up, Clinton gets 45% to Giuliani's 35% and Colbert's 13%.

Rasmussen notes that Colbert gets 28% of 18-29 year olds in this match-up, more than Giuliani does! Same in the race with Thompson. It thus appears that young Republicans are abandoning their party for Colbert. Is this a reflection on the fact that they do not want to vote for the Republican after 8 years of Bush, but are weary of voting for a Democrat, so they jump on whoever runs as a three-way candidate?

Colbert's character lampoons conservative talk show hosts. Interesting to see how and from where he draws!

More on Colbert's run

Slate has this piece on the potential election law hurdles facing one Stephen Colbert.

All Saints and a political IRS?

Donald Tobin at Ohio State wrote an interesting column on the law school's election law blog regarding the All Saints church in Pasadena's claim that political influences via the Justice Department intervened to control the IRS investigation against them.

While I think All Saints played its hand almost flawlessly in this controversy, I think it has overplayed its hand with regard to the alleged political intervention by the Justice Department. There is simply no evidence that the Justice Department attempted to influence this case for political reasons. But thanks to All Saints Church's decision to make all documents public, you can decide for yourself.

I have, for years, stated that the IRS was politically insulated when it comes to nonprofits and particularly their audits. All Saints' claim seems to suggest otherwise, but I think Don has it right... we have a rare opportunity to see the documents in an otherwise closed process, allowing the public to determine where the truth lies.

Colbert '08

This isn't really directly relevant to nonprofits per se, but most readers of this blog know I'll delve into campaign finance and election laws from time to time since these laws can impact nonprofits.

Ok, that was a prime example of a sentence that rocks the circular logic. In any event, the Stephen Colbert presdential candidacy (a fake news guy running for real in South Carolina) has created an interesting bit of analysis amongst election law commentators. First was this piece in Politico, and now, a post from Bob Bauer... best line:

All of this, from an election lawyer’s point of view, would be highly entertaining. And perhaps good for more than just a laugh.

All well worth the read... Colbert's candidacy could force the FEC to confront some pretty big issues. Since Colbert seems intent on running for real, this could be interesting.... But if Colbert thinks he'll get the coveted Chuck Norris endorsement, he's sadly missed out.

Nonprofit Law Podcast #19: ballot measures

Nonprofit Law Podcast #19 continues the month-long series on election season and nonprofits with a surface-scratching review of ballot measures. Check out the shownotes and resources at nplawcast.com!

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Federal lobbying disclosure briefing

This just hit my mailbox... if you are out of DC, you can call in. This is a very confusing new law, particularly as it applies to nonprofits... I plan on attending!

Nonprofit and Foundation Advocacy Speaker Series

Join Alliance for Justice for a briefing on how recent changes to federal lobbying disclosure, gift and travel rules impact nonprofits.

Mike Trister and Holly Schadler from Lichtman, Trister & Ross will discuss changes to the federal lobbying disclosure under the Honest Leadership and Open Government Act of 2007 as well as new congressional gift and travel rules.

Tuesday, October 30, 2007
2:00-3:30 p.m.

Location: TBD, Washington, DC

Space is limited so please RSVP by calling Jeff Prior at 202-822-6070 or sending an e-mail to jeff@afj.org

This briefing will be made accessible to participants outside of D.C. only via a conference call. Call-in information will be provided via e-mail prior to the event.

FEC hearings begin today

CQPolitics has the story... it's a busy day in DC today, as the Attorney General nomination hearings are happening at the same time. More coverage on the FEC hearings in the blog tomorrow...

Pay out requirement for colleges and universities?

The Senate Finance Committee is considering adding a pay-out requirement to colleges and universities following news of wildly successful endowment fundraising at some of the nation's top universities. The AP has the story here. The payout provision would be similar to private foundations, which are required to spend a certain percentage of their assets every year toward their exempt purpose. Currently, educational institutions are considered public charities, and do not have this requirement.

Nonprofit Law Podcast #18: Renting mailing lists

Nonprofit Law Podcast #18 continues the month-long series on election season and nonprofits with a look at renting mailing lists. Check out the shownotes and resources at nplawcast.com!

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WRTL and the FEC

Two great articles today on the upcoming FEC hearings on how it will handle the WRTL ruling on electioneering communications (Chronicle of Philanthropy || The Hill). You'll recall that the law limited nonprofits (amongst others) from broadcasting communications featuring the name or liekness of federal candidates near primary or election time. Confronted with a case where ads designed to lobby federal officials who were also running for reelection, the Court held that unless an advertisement can only be seen as an attempt to influence the election, campaign finance laws can't regulate.

The FEC needs two days to hear from all of the parties on this one... the Court's opinion leaves open a question on whether these ads still trigger disclosure requirements. I may try to sit in on some of the testimony, but I'll certainly post about it next week.

ORU update

ORU officials are denying allegations made by former professors (see my earlier post for details). Interesting development according to this CNN piece is that the IRS has already begun investigating whether the 501(c)(3) university engaged in illegal electioneering...

Claim Democracy 2007 Conference

University of DC's College of Law is hosting an election reform conference November 9-11... the speakers will assuredly have a lot to say about nonprofits' roles in election activity, so it might be worth the time to check out.

Details are at claimdemocracy.com.

Oral Roberts University in big trouble?

Hot off the election law listserve... a pointer to a Tulsa World article regarding a lawsuit by professors that allege facts that, if true, could be a major problem for Oral Roberts University. The lawsuits suggests that university leaders forced professors to work on a mayoral campaign and that someone has filed a complaint with the IRS. The IRS won't comment on the complaint (they never do as a matter of internal policy), but you can bet they'll take a look to see if there's fire where that smoke is...

Colleges and universities like ORU are 501(c)(3) public charities, prohibited from engaging in anything that supports or opposes candidates for office.

Law review note on blogging

As I'm getting set to record my audio guide on the laws impacting nonprofits' use of new media, I noticed Rick Hasen's pointer to this excellent student note (PDF) on the FEC's approach to blogging. Worth the read if you want to delve more into the nuts and bolts!

Nonprofit Law Podcast #17: Debates & forums

Episode #17 of the Nonprofit Law Podcast continues the month-long series on election season and nonprofits with a look at debates and forums. Check out the shownotes and resources at nplawcast.com!

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Gingrich's 527 excuse?

Newt Gingrich blamed McCain-Feingold as a major factor in his decision not to run for president... a lot of folks have questioned this as a front, and Politico suggests the legal reasoning was, well... off.

Light blogging this week

I'm on another bandwidth-limited excursion, so posts may be limitedthis week. In the meantime, check out the latest episode of the podcast on voter guides...

Nonprofit Law Podcast #16: Voter guides

Episode #16 of the Nonprofit Law Podcast continues the month-long series on election season and nonprofits with a look at voter guides. Check out the shownotes and resources at nplawcast.com!

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Turf

Really interesting article in today's New York Times regarding foundation funding of a youth activist network run in part by MTV. The problem? Idealist and others have asked for this type of funding before... and they're not happy that a for-profit got the nod.

Nonprofit playing "mystery" role in California ballot measure

The San Francisco Chronicle reports:

[Charles] Hurth is the registered agent for Take Initiative America, a tax-exempt group formed Sept. 10, 2007, according to the organization's incorporation documents. A day later, the group made its hefty donation to fund petition-gathering that would get the so-called Presidential Election Reform Act on the June ballot.

The donation was the only reported contribution to the ballot-measure campaign, according to financial documents released earlier this week.

The proposed ballot measure would change the winner-take-all election rules for the 55 electoral votes in Democratic-leaning California. It would allocate the electoral votes based on the popular vote winner in each individual congressional district - providing an unexpected windfall for Republicans.

Leading Democratic presidential candidates and Democratic National Committee Chairman Howard Dean have charged that the effort is a Republican dirty trick to change the election rules in the middle of the 2008 presidential campaign.

But Hurth's utter lack of connections to politics in California has raised cries of foul play and suggestions that a major GOP presidential candidate could be behind the matter.

Democrats say Hurth violated the spirit if not the letter of California campaign finance laws because he would not disclose the source of his group's funding.

"Under the law, you're prohibited from making a contribution through an intermediary without disclosing the true donor," said San Francisco attorney James Harrison, representing Californians for Fair Elections, a Democratic group opposing the measure. "That's considered money laundering."

Jonathan Wilcox, the spokesman for the Missouri-based Take Initiative America group, said Hurth's organization is a nonpartisan, grassroots effort working for election reform. But he insisted, "We have a national network of donors ... and we will comply with all disclosure laws."

Roman Porter, spokesman for the state Fair Political Practices Commission, when asked Wednesday about the Democrats' charges, said. "We're aware of the concern regarding this situation, and we're reviewing it."

This is another example of where a nonprofit appears to be following all disclosure laws, but is still being asked to do more. You may recall that there were calls for Sen. Edwards to disclose funders from a nonprofit he was heavily involved in before his presidential run. It will be interesting to see if there is a movement that spawns from these types of activities to change disclosure rules for nonprofits that engage in certain election activities.

UPDATE: Apparently the folks behind the initiative aren't doing so well.

Tax Exempt Law Student Blog

Check out Jed Bodger's blog focusing on tax-exempt issues... Jed's an LLM student and a Nonprofit Law Podcast listener. The blog has some great information for anyone interested in this area of law.

California church off the hook - IRS punts

All Saints Church in Pasadena, California had been under an IRS investigation since a 2004 sermon sparked the agency to investigate whether the church had violated the prohibition on electioneering in the presidential race. The IRS has reportedly dropped the investigation, but has told All Saints in a letter that it still believes the church has violated the law. Unfortunately, the IRS is not willing to share with All Saints, or anyone else in the regulated community for that matter, why it is taking that stand.

This is frustrating. An IRS investigation is - and I'm sure the church leaders would agree - nearly as bad as being found in violation. It is invasive, expensive and irritating. After all the church went through, it is apparent that the IRS would investigate on these facts again, but would presumably not find a violation? If the IRS is intent on helping the nonprofit community follow the law, it has to give us better guidance than "facts and circumstances" standards and a handful of hypotheticals in a fact sheet.

UPDATE... more from the AP via The Washington Post.

Thompson reverses field on election law changes

CNN has the scoop on a very public flip-flop:

"The part that has not worked out and really was a mistake were the attempts to place limitations on campaign ads in certain parts of the process," the former 'Law & Order' actor said. "The Supreme Court has got better things to do then to hear a hundred different cases on a hundred different kinds of ads," he said of a process he feels has spawned a large amount of bureaucracy, diverted resources, and put "unfair limitations" on people. "I don't think that part of it was a good idea."

Thompson was a major supporter of McCain-Feingold, and if memmory serves did not have this opinion on the electioneering communications regime that the Supreme Court tossed earlier this year. No comment, other than to say two words... political expediency.

UPDATE... apparently Thompson once asked the bill to be called McCain-Feingold-Thompson. Not anymore, I guess...

Nonprofit Law Podcast #15: Kicking off the election season series

Episode #15 of the Nonprofit Law Podcast is up and at 'em... this week I begin a month-long series on election season and nonprofits with a basic overview of the rules. Check out the shownotes and resources at nplawcast.com!

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Word from the IRS...

As reported in the AFJ Advocacy Digest:

"The number of tax-exempt organizations charged with violating Internal Revenue Service rules by engaging in prohibited political activities is likely to continue growing during 2008's presidential campaign, a top IRS official said Sept. 19. Lois Lerner, director of exempt organizations for IRS, made the remarks during a panel discussion at the annual meeting of the Council on Governmental Ethics Laws (COGEL)," reports BNA Money & Politics (subscription required).

I'll be starting a month-long election related activity series starting Sunday on the Nonprofit Law Podcast so your nonprofit can avoid things that will catch the eye of the IRS...

Nonprofit Law Podcast #14: Who gets to see what?

Episode #14 of the Nonprofit Law Podcast is swimming in the Internets... this week I revisit the topic of disclosure in "who gets to see what?". Check out the shownotes and resources at nplawcast.com!

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Comments on IRS Form 990

Alliance for Justice filed comments on the new Form 990... check out the full scoop here (PDF). The highlights are:

1) Lobbying reporting is expanded in confusing and inconsistent ways
2) The definitions of key terms are inconsistent with their current interpretations
3) The IRS questions improperly interfere with the internal governance and management of nonprofits
4) The IRS failed to address special reporting problems that are unique to 527 organizations

We'll see if the IRS addresses AFJ's issues when they respond to comments later in 2007 or early 2008.

Required reading

Lloyd Mayer of Notre Dame Law School has written a great article titled, What is this Lobbying that We are so Worried About? Here is the syllabus:

Lobbying is both an essential part of our democratic process and a source of some of our greatest fears about dangers to that process. Yet when Congress, the public, and scholars consider loosening or, as is more often the case, tightening the restrictions on lobbying, they usually assume that everyone knows what activities are in fact “lobbying.” They therefore overlook the fact that multiple definitions of lobbying currently exist in the various federal laws addressing lobbying. This Article seeks to fill this gap by answering the question of how lobbying should be defined for purposes of the existing federal laws relating to lobbying. The Article first explores the three sets of applicable laws, which tax lobbying, disclose lobbying, and restrict lobbyists. This exploration reveals that all three sets of laws arise out of a common concern regarding the influence of interest groups on government actions. Drawing on the extensive research regarding how interest groups wield such influence, the Article then determines that this research strongly suggests that the vulnerability to interest group methods that raise the greatest concerns varies depending on the type of government actor that an interest group seeks to influence. The Article therefore proposes the adoption of single definition of lobbying that covers all direct attempts to influence government officials and employees in Congress and at the very highest levels of the Executive Branch, while excluding attempts to influence other types of government actors and to influence the public.

Nonprofit Law Podcast Catch-Up

Back from my travels, and time to play catch-up with the Nonprofit Law Podcast... Check out editions number 12 and 13 in your podcatcher of choice, or click on the handy players below. Shownotes and resources for both can be found at nplawcast.com!

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NLP 12: Personal vs. organizational activity


NLP 13: The new IRS return for small nonprofits

Foreign referendums and lobbying

I'm typing this on my iPhone in Costa Rica after an interesting couple of days exploring volcanoes, coffee plantations and... a ballot referendum. All of this reminded me of an interesting quirk in tax law
to post for nonprofit law blog readers.

In a few weeks, Costa Ricans will vote whether or not to join the other Central American countries in approving a set of free trade agreements with North America. In my travels this week, I have seen
campaign signs supporting and opposing the referendum (some decidedly low-tech... like the one on the left here)... Which leads me to the tax law quirk. If you are a US 501(c)(3) public charity, taking a stance on this referendum counts as direct lobbying, even
though it is foreign legislation. It's always been an interesting wrinkle, and rarely applies to most charities, but it's something to
be mindful of if your organization deals with such matters.

See? Even when I try to take week off from nonprofit law, I can't
quite manage to do it! Regular blogging resumes this week, and a new
nonprofit law podcast should be up on Sunday. Have a great weekend!

Judge rejects Shays and Meehan case

Hat tip to AFJ's Advocacy Digest:

A district court judge agreed on Thursday that the Federal Election Commission can continue to police outside 527s on a case-by-case basis, pushing the issue back to Members of Congress, who already face a heaping post-recess legislative plate. The U.S. District Court for the District of Columbia on Wednesday ruled in favor of the FEC, dismissing a case brought by Rep. Christopher Shays (R-Conn.) and former Rep. Marty Meehan (D-Mass.). The suit attempted to compel the agency to issue rules for outside political groups such as the conservative Swift Vets and POWs for Truth and the liberal America Coming Together.

Roll Call reports more here. I'll be out of the country for the next week, so things might be a little quiet here on the blog. I'll post the next edition of the podcast tomorrow... have a great Labor Day weekend!

Nonprofit navigator highlights WRTL

Check out Beth Kingsley's excellent article on WRTL in the latest edition of the Nonprofit Navigator:

The Supreme Court on Campaign Finance: Or, What does Wisconsin Right to Life really mean?

The recent U.S. Supreme Court ruling in FEC v. Wisconsin Right to Life ("WRTL") has been portrayed variously as the death-knell for campaign finance reform, a victory for free speech, an incremental adjustment to the McCain-Feingold regulatory scheme, or opening a loophole in the campaign finance law big enough to drive a truck - or perhaps just a family-sized SUV - through. While scholars debate the effect on stare decisis and the implications for how this court will treat other campaign limitations, nonprofits and political operatives need to know what the case means in more practical terms. What are the rules for this election cycle?

Newt Gingrich, a 527 and a 501(c)(3)... which doesn't fit?

Newt Gingrich's 527, American Solutions, reportedly returned a $50,000 contribution from a 501(c)(3) charity last week. What's remarkable about this is that Newt and his folks were the ones that likely saved the bacon of the folks at the foundation.

As most of you probably know, a 501(c)(3) public charity is prohibited by tax law from giving money to any entity in a manner which supports or opposes candidates for office. A 527, typically, exists solely for political purposes... usually supporting or opposing candidates. There are a few circumstances where a 501(c)(3) could give funds to a 527, but they're few and far between... and susceptible to great IRS scrutiny. It seems the Gingrich folks were pretty sure they couldn't spin $50,000 of anything they did as nonpartisan... so they returned the money to the (c)(3) to save them from themselves (or a sure-to-come complaint). In response, the Hasan Family Foundation, the 501(c)(3), stated:

American Solutions is a nonpartisan effort that is focused upon educating Americans... None of the funds contributed to the organization are going towards politicians or a political party. We would never contribute foundation funds to a political party and/or candidate.

The reality is that tax law is a lot stricter than that... Hasan Family Foundation can do nothing at all that supports or opposes candidates. Giving money to an obviously partisan 527 that will use that money to fund things that support or oppose candidacies (cough-cough... Newt Gingrich's presidential run?) crosses the line. Thankfully for the folks at Hasan Family Foundation, Newt's folks at American Solutions are a little more savvy on the ins and outs of tax law than they are.

Nonprofit Law Podcast #11

I've just posted Episode #11 of the Nonprofit Law Podcast... this week I give the basics on fiscal sponsors. Check out the shownotes and resources at nplawcast.com!

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FEC asks for input on WRTL

Yesterday, the Federal Election Commission released a notice of proposed rulemaking on how it intends to handle the Supreme Court's ruling in WRTL. The Commission has its response narrowed to two options... both allow communications to be paid with corporate or union funds if they are “susceptible of a reasonable interpretation other than as an appeal to vote for or against a clearly identified Federal candidate.” Option one requires disclosure to the FEC if a communication mentions a candidate and falls within 30 days of a primary or 60 days of an election, and the other does not.

I suspect the usual opponents will square off on this during the comment period...

Craigslist Foundation: a nonprofit clearinghouse?

I've been a fan of Craigslist Foundation's work, particularly their bootcamps. Their new direction is very interesting... check out Project Entry Point:

We are transforming the existing Craigslist Foundation website into a comprehensive doorway to the nonprofit sector using a design inspired by craigslist.org and customized to the needs of the sector. Like craigslist.org, Craigslist Foundation's website will connect people to the services they need, to the jobs they seek, and to the peers they want to meet.

If they can pull this off in a useful way, this will be incredibly helpful for the larger nonprofit community... imagine having one-stop internet "shopping" for information on how to deal with issues that others have successfully navigated? This could be a boon for best practices and legal compliance.

Starting a Nonprofit: What You Need to Know

Although it is a little over two years old, this is a nice resource... Starting a Nonprofit: What You Need to Know (PDF) is a manual created by law students at the University of Richmond that outlines some of the basic legal issues for creating a nonprofit organization. It's free and available for download under a Creative Commons license... a nice alternative to the other beginner manuals out there.

Nonprofit Law Podcast #10

Episode #10 of the Nonprofit Law Podcast... recorded live in Saugerties, NY... this edition, we cover the world of restricted funds and lobbying. Check out the shownotes and resources at nplawcast.com!

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Should Nonprofit Organizations Play an Active Role in Election Campaigns?

The Bradley Center has posted the forum on nonprofits and elections here. As always, this is a lively debate topic!

Form 990 junkies, take note...

If you're interested in more on the future of Form 990 (the annual tax return form for many nonprofits), Alliance for Justice has scheduled a telephone conference that might be up your alley...

The call will focus on lobbying, political activities, and corporate governance that will be a part of AFJ's comments to the IRS. RSVP to Kyle Murphy at kyle(at)afj(dot)org by August 20 at 4pm ET. Instructions will be forwarded to all registrants on that date.

Nonprofits and candidates

Eliza Newlin Carney writes in today's Rules of the Game column that nonprofits that are run by current candidates should be subject to greater disclosure rules:

Nonprofits have defended their right to privacy long and passionately, arguing that disclosure of donors would squelch contributions and hurt worthy causes. But such groups enjoy tax-exempt status on the grounds that they work for the public good, not for the good of politicians. Tax-exempt groups that associate themselves with candidates in a high-profile, high-dollar presidential race must be held to a higher standard of disclosure.

While she cites some high profile abuse of charities by politicians, I'm not so sure this rises to the level of crisis portrayed in the article. It is a good - not bad - that high profile people are involved in charitable causes. Would disclosure rules really stop a candidate who is already breaking tax law by supporting a campaign through a charity?

I'm not at all opposed to regulating nonprofits... it just needs to be worthwhile and effective. I'm skeptical that this proposal would do anything to stop malfeasance. It will only create additional reporting requirements for charities that are doing good work with the help of a person who happens to be running for office.

Nonprofit Law Podcast #9

Episode #9 of the Nonprofit Law Podcast is up a little earlier than normal since I'll be on the road tomorrow... this week, we're looking a little more at the big picture: do you really need a nonprofit? Check out the shownotes and resources at nplawcast.com!

And, just because I like to cater to the early-adopting techie types... I have a special page set up to listen to the Nonprofit Law Podcast on your iPhone thanks to the folks over at the Financial Aid Podcast who are way smarter than I am at coding such things!

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On the road

I'll be out and about in upstate New York for the next week or so, so posting might be a little lighter than normal. Those of you who are Nonprofit Law Podcast listeners, the next show will be posted Sunday as usual Saturday night. August seems to bring insane heat and a dearth of news on the nonprofit law front, so enjoy the quiet times!

Wiki on the new Form 990

If you're interested in collaborating with others regarding the new Form 990, think about heading over to the National Center for Charitable Statistics and Guidestar's wiki. If you're not familiar with wikis, they are collaborative websites which can be edited by anyone. Sounds like a disaster, but usually they work quite well (like Wikipedia... usually). This is a great resource if you want to learn more about the revision or add your two cents to the discussion on how it can be improved.

Thanks to Gene Takagi's Nonprofit Law Blog for the pointer...

Nonprofit election activities forum

The Chronicle of Philanthropy has an article on last week's forum on election year activity by nonprofits... the consensus seems to be that the IRS and lawmakers need to give the nonprofit community more guidance. Best line quoted in the article... "The IRS confuses itself with the Centers for Disease Control... [i]n cutting out the tumor, they tend to cut out vital organs."

Nonprofit boot camp

Craigslist is great for searching for jobs and perhaps a used Mac... but the folks over there have also formed a foundation that helps nonprofits. The Craigslist Foundation's nonprofit boot camps are outstanding opportunities to learn and network... check out the upcoming ones in Berkeley (Saturday, August 18th) and NYC (Saturday, September 15th). DC's is right around the corner, and I hope to be able to attend... I'll post details when they announce the dates.

But, there's more... past boot camps have audio and other online resources. Check out the information from 2006's boot camp in San Francisco. One lecture of interest to readers of this blog is IRS audit manager Joe Kroll's rundown on the laws of 501(c)(3)s. The lecture can be found here, complete with a snazzy online player.

Correcting nonprofit reporting

This post is in response to a commentary piece today on wired.com that has misreported the lobbying rules for a nonprofit... it's an attempt to set the record straight on the law, and yet another plea from yours truly that reporters and bloggers need to contact people that actually know nonprofit law when commenting or reporting on the matter.

Wired.com posted a comment today regarding alleged illegal lobbying by SoundExchange, a nonprofit that has been designated by Congress and the US Copyright Office as the collector of digital royalties (iTunes sales, for instance) for music artists and record labels. SoundExchange is a 501(c)(6) trade association (see GuideStar here, but you'll need an account) and, according to its site, has been granted the exclusive authority to collect these royalties under the Copyright Act.

Any 501(c)(6) has the right to engage in lobbying activity under the tax code (see Revenue Ruling 1961-177) (PDF). One normally sees a lot of lobbying activity by trade associations, particularly if they are based in DC as SoundExchange is. However, the Copyright Act specifies the uses for the royalty money, and lobbying is not one of those uses that got the thumbs up from Congress (see section 114(g)). Guess who is a major funder of the lobbying group, MusicFIRST Coalition? You guessed it... SoundExchange.

The Wired commentator, Eliot Van Buskirk, asserts that SoundExchange has violated the law by funding a lobbying organization... but that's wrong. My read of the statute says that SoundExchange can only use the royalty money for administration of royalty collection, dealing with disputes in royalties, and dealing with the narrow issue of recordings made by entities that have a license to broadcast a performance. That's it... lobbying's not on the list. But the key here is that the use of the royalty money is restricted. SoundExchange can use other sources of money and legally use that as the source for lobbying. SoundExhange's general counsel told Van Buskirk:

Funding provided by SoundExchange to musicFIRST is authorized by copyright owners and performers who have chosen to become members of SoundExchange. These contributions come only from our members and not from non-member royalties, and were unanimously approved by the SoundExchange board.

So... the funds are coming from member dues, not from royalties, therefore the Copyright Act restrictions do not apply. Van Buskirk consulted an intellectual property professor and a music attorney to find out if there was specific legal authority for a nonprofit to lobby, and was told there is no specific statute authorizing the activity.

Of course, this is nonsense. Trade associations are free to lobby pursuant to their status under Section 501(c)(6) of the tax code, and have since 1961 (PDF). A little research, like googling "501(c)(6) lobbying" leads to a host of information on this legal point. The IRS has plenty of information in Political Campaign and Lobbying Activities of IRC 501(c)(4), (c)(5), and (c)(6) Organizations (PDF). On page 2. Asking an IP law professor and a music lawyer who don't look anyplace except one section of the Copyright Act won't give the right answer... Mr. Van Buskirk should have spoken with someone who knows nonprofit law, but more to the point, these two attorneys should have said they had no expertise in nonprofit law rather than lead Mr. Van Buskirk to believe SoundExchange was acting outside of the law.

Perhaps as a safety cushion on the point, Van Buskirk suggests that even if the lobbying was legal it was still out of bounds because "Congress intended to keep SoundExchange out of the lobbying business." That's simply not what the statute says. Congress clearly intended to keep SoundExchange out of the lobbying business with royalty money... and that's not semantics... it's what Congress said in the law.

Before I close out on this... don't take my post here as defense of the music industry or their trade associations on substantive issues or what they lobby for... I'll keep my thoughts on that to myself. However, the law's pretty clear on all of this, and I wish it had been reported correctly.

Nonprofit Law Podcast #8

Episode 8 of the Nonprofit Law Podcast is now available... this week there's math, so pull out the calculators as we go through calculating public support. Check out the shownotes and resources at nplawcast.com!

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Ethics reform passes Senate

The ethics bill I mentioned the other day just passed the Senate and is on the way to the President's desk... where it meets an uncertain fate. The White House is not happy with certain provisions in the bill, but has not commented on the part that impacts nonprofits (which, admittedly, is a very minor piece of the legislation).

Bauer on WRTL

Bob Bauer has two entries on his blog reviewing Rick Hasen's WRTL article... as one would expect, he finds flaws in his theoretical and practical analysis. And, as one would usually expect, i find the truth somewhere in the middle. I suspect we'll see a lot of ads that fall within the Supreme Court's newly created safe harbor addressing some kind of legislative issue that might also be seen to have campaign impacts. How prevalent these ads become remains to be seen... ultimately the ads will have to achieve their desired effect on the ad consumer. If they work in the way the ad producers want, you can bet you'll see more of them. In other words, the focus groups (i.e. John and Jane Doe turning dials in some windowless conference room in Des Moines and Manchester) will ultimately decide how many ads that have electoral impact see the light of day.

Ethics bill and charities

The freshly-passed ethics bill includes a provision of interest to some charities. The bill imposes additional reporting requirements on lobbyists who make contributions to charities that are controlled by members of Congress. The bill does not limit or prohibit a lobbyist from supporting a charity maintained, established or controlled by a member of Congress.