Vol. III, No. 3 • August-September 1995 FSC Holds Legislative Briefing With Congressman, Staff on Nonprofit Regulation The Free Speech Coalition held a Legislative Briefing on Friday, July 21, 1995, in the Gold Room of the Rayburn House Office Building. The briefing, attended by a Subcommittee Chairman and four key Congressional aides, lasted almost two hours. Congressman Dave McIntosh (R-IN), Chairman of the House Regulatory Subcommittee, interrupted his attendance at an Appropriations Subcommittee Hearing to attend the FSC briefing, where he spoke and answered questions about his proposal to curb advocacy by nonprofit groups which receive federal grants. Rep. McIntosh stated that, while he and Congressman Ernest Istook (R-OK) initially had sought a total ban on any advocacy by nonprofit groups receiving federal funds, they later modified their position. Reps. McIntosh and Istook now seek to limit advocacy expenditures by nonprofit groups receiving federal grants to 5 percent of income, so individuals who inadvertently or minimally engage in advocacy do not imperil themselves and their organizations through such minor lobbying activities. The congressman noted that no bill has been offered that would change the present tax code. Rep. McIntosh expressed his interest in understanding other views and asked for input from the nonprofit representatives present. He was candid in his discussion of his amendment to the HHS Appropriations bill, noting that the House rules must be waived for the amendment to be adopted as part of that measure. Damon Tobias, assistant to Senator Larry Craig (R-ID), told the briefing attendees that a bill _ which would prohibit 501(c)(4) organizations from receiving any federal grants, had been introduced that very day. FSC Co-Counsel Mark Weinberg, Esquire, noted that the tax-exemption under Internal Revenue Code section 501(c)(4) has served as a hodge-podge of different kinds of nonprofits which are not clearly defined elsewhere in the tax code. Discussion focused on the thousands of 501(c)(4) organizations, such as volunteer fire departments, which do not engage significantly in advocacy, and whether there was a desire to preclude them from receiving federal grants. Melissa Patack, counsel to Senator Mitch McConnell (R-KY), outlined Sen. McConnell's alternative to the Levin Lobbying Disclosure bill. The Free Speech Coalition has announced its support for Sen. McConnell's alternative bill. John Ladd, assistant counsel to the House Constitution Subcommittee Chairman, Congressman Charles Canady (R-FL), reported on that subcommittee's activities. He expressed optimism that the Subcommittee would send a lobbying disclosure bill to the floor of the House before the end of the year, and said that added hearings would be held after Congress' August recess. (Note: Ladd subsequently reported that the Senate-passed Lobbying Disclosure bill may be taken up by the full House and passed without action by the Canady panel). Beth Vance, former staff director of the Oversight Subcommittee of the House Ways and Means Committee, and current chief Democratic staff member on that panel, reported that the question of intermediate sanctions against nonprofit groups is still high on the agenda of that Subcommittee. The proposed bill, drafted by the full Committee last year and put onto the House version of the GATT treaty agreement, would impose excise taxes on violations of private inurement rules by officials of nonprofit groups. Such taxes are expected to raise approximately $26 million per year, which, while small compared to other federal revenue raising provisions, may be attractive enough to elicit inclusion in any future tax bill. The Free Speech Coalition has expressed skepticism about these proposals, because of the potential of delegating too much power to IRS bureaucrats. FSDEF President Testifies on House Lobbying Reform Bill Edythe Ledbetter, Vice President of the Center for Marine Conservation, and President of the Free Speech Defense and Education Fund, testified last May before the House Judiciary Committee. Ms. Ledbetter testified that the House of Representatives' new lobbying reform bill would impose requirements which would over-burden current nonprofits and prevent new nonprofits from forming. Ms. Ledbetter, responsible for ensuring that the Center for Marine Conservation complies with all lobbying registration and filing regulations, and that it accounts for all resources devoted to lobbying activities, told the committee that the new lobby reform bill, H.R.119, "would result in excessive and wasteful reporting requirements and provide the public and the Congress with no useful information concerning nonprofit organizations." She pointed out that IRS Form 990, which all nonprofits must file annually, already describes how much money was used for lobbying activities and where the money was spent. "It is available to any member of the public that requests it," said Ms. Ledbetter. H.R.119 would require lobbying groups to register separately with a new agency, to be created if the bill passes. Ms. Ledbetter says this duplicative registration would double the effort and costs of regulatory compliance. She warned that the new bill might discourage formation of new groups of citizen activists, because "the regulatory threshold might be so high as to stifle legitimate and important communication." She told the committee that "the groups you are hurting most are the groups that you most want to hear from, the smaller, newer groups that can least afford or pay for the massive costs of H.R.119." Ms. Ledbetter pointed out another costly burden imposed by H.R.119, which is identical to a bill passed by the House last year: a cloudy definition of lobbying. "In that bill, `lobbying' seems to have included all communications regarding federal contract administration matters. If a nonprofit administers a federal grant, were you `lobbying' if you discussed it with federal officials?" Ms. Ledbetter asked members of the House Judiciary Committee. Ms. Ledbetter said that if H.R.119 becomes law, it will eventually force judges to define what ongress meant by "lobbying." "The technicalities are so confusing that no one will know how to conform, and one could only hope that some people get charged with violations soon and legal cases settle some of the issues. We do not want to live under such a cloud _ a cloud which would choke off much needed and important communication with our lawmakers," Ms. Ledbetter said. Ms. Ledbetter suggested that the Judiciary Committee consider approaches which would be less burdensome to nonprofits: "Require non-profit groups that lobby to file their IRS Form 990s with all appropriate lobbying registration offices." "Exempt nonprofits from the bill, since they are already reporting to the IRS and disclosing to the public similar information about their lobbying and grassroots lobbying activity." Since the desired reporting is already required under law, no further regulation of nonprofits appears necessary. Ms. Ledbetter's testimony sent a clear message to one member of the House Judiciary Committee who supports increased communication: if this bill is passed into law, communication with lawmakers would become restricted to only those organizations who could afford to communicate. FSC Considers Challenge to AICPA Rule The Litigation Committee of the Free Speech Coalition is evaluating a legal challenge to the anticipated establishment of a new rule by the American Institute of Certified Public Accountants (AICPA). This new rule would modify the existing standards for the allocation of joint costs by nonprofit organizations where fundraising is part of the expenditure, by requiring virtually all such joint costs to be characterized as fundraising costs. In 1993, the AICPA circulated its proposed new rule (known as the Exposure Draft) for comment. By early 1994 it had received more than 300 sets of written comments for or against the proposal. Reportedly, 90 percent of the individuals and organizations (and 98 percent of the nonprofit organizations, including FSC) filed comments which generally opposed the Exposure Draft. Since those comments were filed, the AICPA has taken no official action. However, FSC was recently informed that the AICPA intends to disregard the opposition and establish the new rule, notwithstanding overwhelming opposition to the proposal, and the long passage of time, without any action by the AICPA. Adoption of the Exposure Draft would revolutionize the accounting rules governing joint costs of nonprofit organizations involved in fundraising, and dramatically affect nonprofits. For example, the resultant dramatic increases in fundraising expenditures reported in financial statements would severely limit opportunities for fundraising (audits which report that more than 25 percent of a 501(c)(3)'s expenditures went to administrative costs virtually ensure rejection of applications to participate in the Combined Federal Campaign), and, combined with a constant barrage of media attacks on nonprofits, would only serve to chill the flow of private donations. Many commentators have characterized the proposed new rule's procedures as inconsistent with the realities of accounting for nonprofit organizations, particularly advocacy organizations. The procedures are also criticized as preventing accountants from accurately stating the actual proportions expended on various nonprofit activities; 77 percent of those filing comments reportedly objected to the Exposure Draft for this reason alone. The AICPA's silence regarding the Exposure Draft led many to hope that the volume of opposition to the proposed changes had caused the Exposure Draft to be withdrawn. Now, if the AICPA approves the new rule, as expected, FSC, possibly working with other nonprofit organizations, is considering taking legal action to try to prevent the new rules from being implemented. Such a legal challenge to new accounting standards promulgated by the AICPA, which has been likened to a quasi-governmental body, would be analogous to challenging an invalid government regulation. Eye on the Bureaucracy (Chip Heartfield of Squire & Heartfield Direct compiles this update on state activities.) Illinois After filing in Illinois for a two year period in mid-1993, one professional fundraising counsel (PFC) received a notice 18 months later announcing: YOUR ORGANIZATION IS NOT REGISTERED ... WITH THIS OFFICE. It turns out that the state had just gotten around to determining that the 18-month-old application was allegedly incomplete. The application had not contained a notarized affidavit stating that the PFC did not have access to, or control of, the funds raised, even though this fact was spelled out in the contract. Michigan Perhaps Michigan should contact a professional direct marketing firm for help with its regulatory mailing procedures. In May, a professional fundraising counsel received renewal materials from the state in a plain brown envelope, with no identifying language, no request for forwarding or return, and no return address anywhere. 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 legislative programs and membership, please call 202-544-1114.