Vol. II, No. 1 • April 4, 1994

Action Needed to Stop Bad Lobbying Regulation
Immediate Action is needed by advocacy groups to stop the imposition of yet more burdensome regulation. Some may think that, like "Truth in Lending," how could anyone be opposed to "Lobbying Disclosure"? Yet within the bill now racing through Congress, advocacy groups have a lot to oppose. The Lobbying Disclosure Act (H.R. 823; S. 349) is set to go to Conference Committee. This is a top legislative priority for advocacy groups.

If enacted, this bill would require all nonprofit organizations that lobby to file an entire set of reports on all legislative contacts they have with the Congress and all regulatory contacts they have with the agencies. This would be in addition to the information already filed on IRS Form 990.

Nonprofits are now faced with a situation in which the House has passed the bill (March 24, 1994) and the Senate passed a similar bill (May 6, 1993). The provisions of each bill are sufficiently different that there is room for the Conference Committee to make adjustments which could improve the situation.

FSC has been working with the Independent Sector and the Alliance for Justice to exempt all nonprofits from these burdens. Originally, FSC sought an amendment which would have allowed nonprofits which lobby to file with the Justice Department the same Form 990 that they already file with the IRS, in full compliance with the new bill.

Unfortunately, Independent Sector and Alliance for Justice, groups that focus on the needs of section 501(c)(3) organizations, have decided to support an amendment which would throw advocacy organizations over the side, requiring advocacy groups to be subject to the double reporting of legislative activity under the act, while exempting section 501(c)(3) organizations. The rights of advocacy groups and considerations about the impairment of the First Amendment right to petition government are apparently negotiable.

Interestingly, the lobbying "abuses" that have driven Congressional action were not undertaken by section 501(c)(4) organizations, but by 501(c)(3) organizations that would be exempted under the Independent Sector's "preemptive surrender" approach.

Unless there is a shift in the policy of these other groups, FSC will be forced to take a different approach. The FSC will continue to oppose the bill in its present form, but is not interested in compromising away the rights of any group. If it cannot be amended, we will shift gears to work for the defeat of the entire bill.

Advocacy groups must make their views known to the House Conferees: John Bryant (D-TX), Dan Glickman (D-KS), Mike Synar (D-OK), George Dekas (R-PA), and Hamilton Fish (R-NY). Senate Conferees have not been named, but are expected to include John Glenn (D-OH), Carl Levin (D-MI), David Pryor (D-AR), Bill Roth (R-DE), and Thad Cochran (R-MS). Please call FSC Lobbyist Howard Segermark at (202) 547-2222 to receive by fax an updated list of conferees, addresses and telephone numbers, as well as arguments to use.

Congress returns from its Easter recess on Monday, April 11, 1994. Please use this week effectively to make your views known.

FSC Testifies against FEC Limitations on Advocacy Organizations
FSC Co-counsel William J. Olson testified on March 8, 1994 before the Subcommittee on Elections, of the Committee on House Administration, of the U.S. House of Representatives, on the subject of the FY 95 budget request of the Federal Election Commission. This hearing provided a perfect opportunity for advocacy groups to make their views known about three recent FEC regulatory actions which threaten the First Amendment activities of these groups and their members.

The new FEC regulations which dictate that all advocacy organizations having a separate segregated fund (SSF) or making partisan communications must confer specific voting rights on their members are an unnecessary intrusion into the organizational structures of these groups.

The proposed FEC regulations which effectively abolish the right of advocacy organizations to spend their treasury funds on independent expenditures are contrary to the decision of the U.S. Supreme Court, which has expressly recognized that right.

Lastly, the FEC regulations which preclude any organization from using the name of any candidate for public office in the name of a "special project" to support or oppose that elected official are completely without justification.

Only four organizations testified before the Subcommittee at these hearings. Three groups testified that the FEC needed to be more aggressive. Only the Free Speech Coalition defended the constitutional rights of citizens to participate in the electoral process. (Please call 703-356-6912 for a copy of the FSC testimony.)

FSC Opposes Additional IRS Burdens on Advocacy Organizations
FSC Co-Counsel Mark B. Weinberg has briefed the IRS on the view of many advocacy groups that no new burdensome disclaimer requirements are necessary. The IRS sought comments on proposed new disclaimers aimed at preventing for-profit firms from deducting their contributions to IRC section 501(c)(4) organizations. FSC has also filed written comments with the IRS on these proposed regulations.

FSC Investigates Challenge to AICPA Exposure Draft
The FSC is looking into the possibility of a legal challenge to proposed action by the American Institute of Certified Public Accountants (AICPA) modifying the rules for the allocation of joint costs by nonprofit organizations where fundraising is part of the expenditure. The AICPA last year circulated for comment a document (Exposure Draft) containing the proposed new changes, and the FSC and many others submitted comments in opposition. (Please call 703-356-6912 for a copy of the FSC comments.)

The Exposure Draft, if adopted, would effectively revolutionize the accounting rules relative to joint costs incurred by nonprofit organizations, particularly those involved in direct mail fundraising. It sets forth a set of proposed procedures which many have said are inconsistent with the realities of accounting for nonprofit organizations, particularly advocacy organizations, and which have been criticized as not allowing accountants to accurately reflect the relative proportions of various activities for such organizations.

It is hoped, with the reported volume of opposition to such changes, that the Exposure Draft will be withdrawn. In the event that it is not, however, and if it is adopted and becomes part of "generally accepted accounting principles" (GAAP), FSC is exploring possible legal action.

Such a suit could be based on the fact that the new standards are arbitrary, that they are internally inconsistent (they would produce financial statements that were not prepared in accordance with any reasonable accounting principles), that they have no reasonable foundation, that they embody certain factional (and even self-interested) views, and that -- because of the widespread authority of the AICPA -- they would wrongfully force accountants (and thus the clients of accountants) to follow them. The Exposure Draft could allow AICPA, acting as a quasi-governmental body, to undo, through the back door, many Constitutional protections for nonprofits identified by the U.S. Supreme Court in the Village of Schaumburg trilogy of cases.

Many consequences would flow from the distorted reporting of fundraising costs mandated by the Exposure Draft. Requiring an organization to allocate virtually all joint costs to fundraising would materially and adversely impact further support. For IRC section 501(c)(3) organizations applying for participation in the Combined Federal Campaign, an auditor's report identifying more than 25 percent of expenditures for non-program costs is virtual assurance of rejection.

New Ways To Penalize Nonprofit Organizations
Congressman "Jake" Pickle (D-TX) held hearings Wednesday, March 16, 1994 on the topic of finding new ways to punish nonprofit organizations that violate IRS regulations, but don't deserve to have their status revoked. Testimony was received only from Assistant Secretary of the Treasury for Tax Policy, Leslie Samuels. For a copy of the Samuels testimony, please call 703-356-6912. This testimony outlines the Clinton Administration's desire to strengthen the hand of the IRS, which, our friends on the Hill say, without a lot of work, will likely be adopted by the Committee in any tax bill to be acted upon this year.

Here's one of the problems. In the case of "private inurement" there would be a special excise tax imposed on the nonprofit organization. Most people think of private inurement as pay to employees that didn't earn or deserve it, or "sweetheart" deals with officers and directors. But there are provisions in their proposal which would regulate contracts and other economic transactions that, in the mind of any IRS official, may not be in the best interest of the nonprofit organization.

The problem is that the definition of "private inurement" is extremely vague. Some speculate that a disgruntled employee or political enemy can complain to the IRS that a group is in violation of the law because it contracted with a printing firm that wasn't the lowest bid (even though it may have given the best service). In response, the IRS might try to tax your organization 10 percent of the value of that contract.

The proposal is a Pandora's box for conducting activities; nonprofit organizations will have to check with their lawyer every time they buy office supplies from the high-cost shop around the corner instead of the discount place in the suburbs.

The Free Speech Coalition has been in direct contact with the Pickle Subcommittee staffers and has been asked to prepare comments and alternative legislative language which would improve this proposal. FSC's co-counsels are reviewing the Treasury testimony and will report back regarding the text of the Clinton Administration's bill as soon as the Treasury releases it later in April. If the bill cannot be improved, FSC will work to defeat it.

The Free Speech Coalition, Inc. is a nonpartisan, nonprofit organization which educates, lobbies, and litigates to defend the rights of advocacy organizations and their members. FSC needs your support to continue its fight to protect the rights of citizens to associate together and exercise their First Amendment right to petition their government for redress of their grievances. Contributions to the Free Speech Coalition, Inc. are not tax-deductible. For information on FSC programs and membership information, please call 703-356-6912.