Nonprofit Law Matters

Top 25 Comments on IRS Proposed Political Activity Rules: #13 — Center for Competitive Politics

Posted in Tax Treatment of Lobbying & Political Activities, Unions, Associations, Clubs & Other Tax-Exempt Organizations

“A rule should respect Supreme Court precedent, comport with the Internal Revenue Code, provide clear guidance, be simple to understand and implement, and provide for equitable enforcement.”

The Center for Competitive Politics submitted thorough comments that address multiple constitutional concerns, and include their very own proposed rules for consideration by the IRS.  CCP’s rules outline clear-cut expenditure limits for 501(c)(4)s, providing that non-social welfare activities (including candidate, social club, or business activities) must not “equal or exceed 50% of total program service expenses.”

CCP’s guiding standard in these comments is Buckley v. Valeo, the 1976 Supreme Court case that interpreted the validity of campaign expenditure limits under the Federal Election Campaign Act, among other things.  The Court in Buckley narrowly defined political expenditures as funds spent to disseminate a viewpoint by “expressly calling for a candidate’s election or defeat” using specific word combinations — what is now commonly referred to as “express advocacy.”  CCP’s proposed rules similarly define political activity as expenditures for communications using express advocacy.

However, the CCP’s comments fail to take full account of Regan  v. Taxation with Representation, or Branch Ministries v. Rossotti, federal court decisions which contain lower constitutional standards of review for legislation that determines which activities will and will not be subsidized by tax-exemption.  Thus, IRS regulations could properly go beyond express advocacy and limit political speech by tax-exempt organizations that favors or disfavors candidates.

In fact, the reality of modern campaign advertising is that very few messages aimed at voters and designed to shape the candidate’s image use words of express advocacy.  A 2000 Brennan Center study on television campaign advertising tellingly documented the absence of express advocacy in campaign messages.  Of all the major categories of campaign ads, according to that study, none employed terms of express advocacy like “vote for” or “elect” with any frequency. Only 2% of campaign ads in the 2000 federal elections sponsored by party committees and outside groups used terms of express advocacy.  Even candidates themselves rarely employed express advocacy, using such terms in only 10% of their ads.

Thus, drawing the line at express advocacy ultimately may not be much of a “line” at all.


Top 25 Comments on IRS Proposed Political Activity Rules: #14 — Funders’ Committee for Civic Participation

Posted in Private Foundations, Tax Treatment of Lobbying & Political Activities, Unions, Associations, Clubs & Other Tax-Exempt Organizations

“The revised proposal should apply universally to all tax categories and make clear that nonpartisan civic engagement is not considered political activity.”

The Funders’ Committee for Civic Participation (FCCP), an Oregon-based coalition of grantmakers, provides a concise summary of the overarching dangers of adopting the proposed rules in their current form.  FCCP’s focus is on the importance of nonpartisan civic engagement as a “fundamental foundation to a healthy democracy.”  55 prominent philanthropic organizations signed on to the FCCP’s comments.



Proposed San Francisco Ordinance Would Impose Significant New Disclosure Obligations on Nonprofits That Interact with City Officials

Posted in Private Foundations, Public Charities, Unions, Associations, Clubs & Other Tax-Exempt Organizations

A recent proposal by San Francisco Board of Supervisors President David Chiu would impose significant new disclosure obligations on nonprofits that have business with the City and County of San Francisco.  Apparently intended to target communications and expenditures made by or on behalf of certain developers seeking to influence public officials, the proposal in its current form is actually much broader in scope.

The current proposal, which would amend San Francisco’s Campaign and Governmental Conduct Code, redefines the term “lobbyist” to include any individual who “(1) makes five or more contacts in a calendar month with officers of the City and County on behalf of the individual’s employer; or (2) makes one or more contacts in a calendar month with an officer of the City and County on behalf of any person who pays the individual or the individual’s employer for lobbyist services.”  In contrast, current law defines “lobbyist” as a person who receives (or is promised) consideration of at least $3,000 within three consecutive months for making at least one lobbying contact.

“Contact” is defined in current law (which the proposed ordinance does not change) to include, with a host of exceptions not applicable to most nonprofit communications, “any communication, oral or written, including communication made through an agent, associate or employee, for the purpose of influencing local legislative or administrative action.”

Consequently, under the proposed ordinance, a nonprofit employee who works regularly with city officials on public programs that require legislative or administrative action could qualify as a “lobbyist,” even if the compensation attributable to those contacts is extremely small.  If so, then the lobbyist must register with the City’s Ethics Commission and submit monthly disclosures providing details of every contact with a City official related to the legislative or administrative action(s) in question.

Perhaps even more significant, the proposed ordinance seeks to force disclosure of relationships between any developer seeking City approvals, and every nonprofit organization (defined to include corporations formed under California’s Nonprofit Corporation Law as well as any organization described in Section 501(c) of the United States Internal Revenue Code) to which the developer has made significant contributions.

To this end, the proposal requires a developer of a project for which the Planning Commission has certified an Environmental Impact Report to disclose within 30 days of certification of the Report, “(a) … (4) The name, business address, business telephone number and website of any nonprofit organization to whom the developer has made cumulative donations of $5,000 or more since the date one year before the application for environmental review of the project was filed with the Planning Department [and] (5) For each nonprofit organization reported pursuant to Subsection (a)(4), the date and amount of each donation the developer made to the nonprofit during the reporting period.”  Similar disclosures are required of the developer every subsequent calendar quarter.

Note that these disclosure requirements capture contributions that have nothing to do with the project before the City, and would require public disclosure of contributions to nonprofits (not just charities) far and wide who happen to count San Francisco developers among their supporters.

Organizations with staff that communicate frequently with San Francisco officials, and those that have, or may have, contributors with development projects in San Francisco should review the proposed ordinance and consider its potential implications for them.  The ordinance will be up for a vote by the Board of Supervisors in the coming weeks, so now would be a good time to let your views about it be known.

Top 25 Comments on IRS Proposed Political Activity Rules: #15 — FEC Commissioners

Posted in Tax Treatment of Lobbying & Political Activities, Unions, Associations, Clubs & Other Tax-Exempt Organizations

We take this opportunity to combine two very different comments, both from members of the Federal Election Commission.

Three (Republican) FEC Commissioners

“In our experience, both as FEC Commissioners and in our previous roles as counsel to participants in the political process, we cannot emphasize enough the need to comply with the congressional call for ‘expert, uniform enforcement’ of laws regulating federal campaign finance.”

FEC Chairman Lee E. Goodman, Commissioner Caroline C. Hunter, and Commissioner Matthew S. Peterson submitted joint comments that urge the IRS to harmonize its policies and definitions with respect to candidate-related political activity with FEC policies, definitions, and agency precedent.  The Commissioners point out that the Federal Election Campaign Act requires the FEC and IRS to “consult and work together to promulgate rules, regulations, and forms which are mutually consistent.”

Two (Democratic) FEC Commissioners

 “The proposed rules outlined in the NPRM contain only limited cross-references to the FEC’s regulations, leaving most important determinations in the hands of the IRS.  This is a reasonable approach.  We encourage the IRS to pursue clear guidance that represents the best of its independent judgment.”

Vice Chair Ann M. Ravel and Commissioner Ellen L. Weintraub submitted comments which do “not reach the specifics of the proposed rules,” but rather make “two general points based on [their] perspective as FEC Commissioners.”  First, they urge the IRS to consider the important public interest in disclosure of candidate-related political spending, quoting Justice Antonin Scalia: “Requiring people to stand up in public for their political acts fosters civic courage, without which democracy is doomed.”

Their second point differs distinctly from the position taken by three of their Republican co-Commissioners.  Commissioners Ravel and Weintraub state that “the IRS should not feel obligated to defer to the FEC in determining how to apply section 501(c)(4)’s ‘primary purpose’ test or in determining what constitutes ‘political activity.’”  The Commissioners otherwise applaud the IRS — like many other commenters — for attempting to provide clarity to an otherwise ambiguous regime.

Any Shared Sentiments?

As noted, the two groups of Commissioners come out diametrically opposed on the necessary level of IRS deference to FEC definitions.  Still, they do share some similarities.  For example, the Commissioners view the rules through an exclusively federal lens, neglecting to address their impact at the non-federal level.  The IRS, however, will need to make rules that work effectively at the state and local levels, as well as at the federal level.  One should not presume that every aspect of the federal regime would be welcome or workable in the thousands of non-federal elections held across the country in which tax-exempt organizations may be engaged.


Top 25 Comments on IRS Proposed Political Activity Rules: #16 — Some Religious Perspectives

Posted in Religious Institutions, Tax Treatment of Lobbying & Political Activities, Unions, Associations, Clubs & Other Tax-Exempt Organizations

Evangelical Council for Financial Accountability

“While the Treasury and the IRS seek greater clarity by further restricting the types of permissible political activity of tax-exempt organizations, the Commission [on Accountability and Policy for Religious Organizations] would achieve greater clarity by allowing more freedom for tax-exempt organizations to engage in political speech—while simultaneously preserving the long-held public policy of not allowing tax-exempt funds to be expended for political purposes.”

The ECFA is an association of more than 3,000 501(c)(3) churches and related evangelical organizations.  Their comments take a unique stance on the proposed rules that urges a loosening of existing standards as applied to 501(c)(3)s.  We think it important to include a religious perspective in our Top 25, and this is one that comes from a particularly intense and passionate group.  From 2011 to 2013, the ECFA facilitated a Commission on Accountability and Policy for Religious Organizations that published a report last August entitled Government Regulation of Political Speech by Religious and Other 501(c)(3) Organizations.  The Commission, like many others, was displeased with the vague and uncertain “facts and circumstances” approach presently used by the IRS.  Instead, it posed a bright-line alternative that would draw the line at express advocacy for expenditures but would allow “no-cost” political communications — even for speech expressly advocating a candidate’s election or defeat.

The ECFA’s comments thus focus on the effect that the proposed rules would have on 501(c)(3) charities if extended beyond 501(c)(4).  In particular, the ECFA, adopting the Commission’s stance, urged the IRS to permit political campaign activity by 501(c)(3)s as long as such activities do not involve the expenditure of funds.  This position would constitute a serious departure from current law, which absolutely prohibits 501(c)(3)s from engaging in any partisan campaign activity, regardless of expense.  The ECFA did not comment on the application of this approach to 501(c)(4)s.


“The last thing America or our churches, denominations, and charities need is to divide our communities along political lines, which will significantly exacerbate these concerns. The prospect of ‘Romney’ churches and ‘Obama’ churches, of ‘Republican’ denominations and ‘Democratic’ denominations, and of ‘charities’ divided along partisan lines unrelated to their core mission, would be a terrible loss to the commonwealth of our nation and to the spirit of comity, tolerance and unity so needed in our houses of worship and the charitable sector.”

The ECFA’s position received substantial objection from other religious groups, portions of which can be read on the website of the Commission on Accountability and Policy for Religious Organizations.  Notably, a group of influential religious leaders of various faiths (Ingrid Mattson, Rabbi David Saperstein, Sayyid M. Sayeed, Rabbi Julie Schonfeld, Siva Subramanian, and Steven Woolf) strongly opposed the ECFA’s proposal to lift the ban on political speech for churches and religious nonprofits.  The Jewish Federations of North America and the Islamic Society of North America both reaffirmed their belief that the current prohibition on political campaign intervention by 501(c)(3) organizations should be retained as currently structured and as interpreted in the Internal Revenue Service.


Top 25 Comments on IRS Proposed Political Activity Rules: #17 – The League of Women Voters of the United States

Posted in Tax Treatment of Lobbying & Political Activities, Unions, Associations, Clubs & Other Tax-Exempt Organizations

“In a democratic country, where government is based on the consent of the governed, there is a vital role for 501(c)(4) organizations to play in providing truly nonpartisan services to voters.”

Many state chapters of the League of Women Voters filed comments.  We note the comments of the national umbrella organization here for the organization’s historic prominence, for its  stance on banning candidate-related activity by all 501(c) organizations, and for its suggestions on how to draw a clear line defining political intervention activity.  While the League clearly promotes nonpartisan voter activity, it comes out strongly in favor of prohibiting partisan political activity across all 501(c)s, preferring to see it confined to 527 organizations subject to donor disclosure.

Further, the League would define candidate-related political activity in finer lines than the proposed rules do, reaching all paid public mass media communications that refer in any way to a candidate within the year before an election, but excluding communications to an organization’s members.  The League is otherwise content with the current IRS “facts and circumstances” approach that has been applied to various election-year forms of voter engagement over the last decades, which many other comments deplore as vague and unworkable.

As our Top 25 list unfolds, various proposals emerge attempting to draw clear lines defining political intervention.  On the one hand, groups like the League of Women Voters and Representative Chris Van Hollen advocate a total prohibition on partisan political activity by 501(c)(4)s; while other groups, like the Evangelical Council for Financial Accountability or the ACLU (keep an eye on our countdown to see if these groups make the list), urge the IRS to relinquish much of its regulatory role and give 501(c)s more leeway to engage in partisan political speech.  A third category of comments also emerges: those that endorse bright-line rules permitting a balance of political speech by 501(c)s that neither advocates a total ban nor a broad abandonment of IRS regulation.  Stay tuned as these expertly crafted comments come to the forefront.

Top 25 Comments on IRS Proposed Political Activity Rules: #18 — Nonprofit VOTE, Project VOTE, and Rock the Vote

Posted in Tax Treatment of Lobbying & Political Activities, Unions, Associations, Clubs & Other Tax-Exempt Organizations

 “It has never been more important, since the Supreme Court declared in Citizens United that election laws cannot prohibit corporations from independent political spending, for our tax laws to plainly identify what may and may not be funded with tax-free money.”

— Ashley Spillane, Executive Director, Rock the Vote

Together, these three organizations provide an excellent summary of the potential impact of the current proposed rules on organizations whose primary functions are to encourage civic participation through get-out-the-vote drives and nonpartisan election-related education. Nonprofit VOTE provides nonpartisan voter and election materials to nonprofits around the country; Project VOTE mobilizes marginalized and under-represented voters; and Rock the Vote encourages voter registration and engagement by people under 30.  Each of these 501(c)(3) charities would be massively impaired in conducting any of its exempt activities if the current proposed rules were to apply to them.


On Monday, newly-confirmed IRS Commissioner John Koskinen gave us hope that nonpartisan voter engagement would still be a protected non-political activity for exempt organizations.  Commissioner Koskinen told USA Today that

“In all likelihood we will re-propose a redefined rule and ask for more public comment.”

Watch the video interview here.  The six-minute segment is well worth it!



Top 25 Comments on IRS Proposed Political Activity Rules: #19 — National Rifle Association

Posted in Tax Treatment of Lobbying & Political Activities, Unions, Associations, Clubs & Other Tax-Exempt Organizations

“This ‘keep-’em-guessing’ facts-and-circumstance test is intolerable and must be replaced. … Particularly with respect to tax laws that affect First Amendment rights, a system that has clear, comprehensible lines is essential.”

As a threshold matter, the NRA notes in its comments that its ongoing compliance with the tax law has been extraordinarily expensive and time-consuming, in large part because so many of the IRS regulations governing social welfare organizations are “vague and confusing.”  The group then praises the IRS for striving to establish more consistent regulations in this arena.  The first half of the NRA’s comments are devoted to the argument that the current revenue rules on political activity and 501(c)(4) entities (Rev. Rul. 2004-6 and Rev. Rul. 2007-41) are unconstitutionally overbroad and vague:  “The vagueness doctrine requires that the legislative body or agency promulgating rules draw bright lines so that the people being regulated know what they can and cannot do.”

We note in particular that the comments bring attention to an interesting detail regarding “earmarking,” deploring the requirement that contributions to 501(c)(4) organizations must both explicitly prohibit candidate-related political activity, and obtain a written representation from the donee regarding this prohibition.  The NRA notes that this requirement is inconsistent with all other earmarking provisions in the Internal Revenue Code.


Top 25 Comments on IRS Proposed Political Activity Rules: #20 — Rep. Chris Van Hollen, Public Citizen, Democracy 21, Campaign Legal Center

Posted in Tax Treatment of Lobbying & Political Activities, Unions, Associations, Clubs & Other Tax-Exempt Organizations

“Conformity with the statute requires that the IRS amend its regulation to require that § 501(c)(4) organizations pursue promotion of social welfare to the exclusion of other activities, including electoral activity, that do not constitute promotion of social welfare; or, at most, that such non-social welfare activities be de minimis and insubstantial.”

This group had previously filed a lawsuit against the IRS demanding that the Service commence rulemaking to revise the 501(c)(4) regulations, but voluntarily dismissed the suit upon the IRS’s initiation of this rulemaking.  They take the minority position that social welfare organizations are not meant to engage in any candidate-related activity whatsoever, by the plain language of the statute:  “The regulation’s distortion of the language is comparable to that of a person who claims to be in an ‘exclusive’ relationship with someone else because he cheats on her only 49% of the time.”  There is a certain purity to their position, but the IRS has long interpreted “exclusively” for charities to allow an insubstantial amount of non-charitable activity.  Permitting a 49% level of non-exempt activity is probably too much.  Still, stamping out all nonprofit political activity could very well push it out of the tax-exempt system into the shadowy realm of for-profit LLCs, where business interests dominate and the public interest disappears.



Top 25 Comments on IRS Proposed Political Activity Rules: #21 — The Arc of the U.S.

Posted in Tax Treatment of Lobbying & Political Activities, Unions, Associations, Clubs & Other Tax-Exempt Organizations

“We need to ensure that organizations are clearly free to pursue and publicize their legitimate public policy work with lawmakers and on proposed legislation regardless of whether a primary or general election will occur within a certain time period.  We need clear definitions of political intervention that apply consistently across the tax code and that are comprehensible both to those inside the IRS who must enforce the law and to those in the nonprofit sector who must comply with the law.”

The Arc is a 501(c)(3) charity that advocates for people with intellectual and developmental disabilities and includes a network of over 700 chapters across the country, many of which submitted their own comments.  The national branch’s comments are brief, but we note in particular a point raised concerning the difficulty of complying with the 30/60-day election cycle windows in the proposed rules:  “Modern communications, which include social networking that makes content permanently available and re-surfaces it as comments or ‘likes’ increase, would make compliance all but impossible.”