|
Vol. IV, No. 1
January - February
1996
FSC Opposes IRS Proposed Intermediate
Sanctions
On January 24, 1996, FSC delivered
letters to Senator Bill Roth, Chairman, Senate Finance
Committee, and to Rep. Bill Archer, Chairman, House Ways and
Means Committee, opposing the Treasury Department's request
that Congress give the IRS power to impose new tax
penalties, called Intermediate Sanctions, on nonprofit
charities and advocacy groups. These sanctions would be in
addition to current IRS revocation powers.
One of the Administration's intermediate
proposals is the excess benefits tax. This provision would
impose an excise tax on any "insider" or other disqualified
person who received a benefit from an IRC Section 501(c)(3)
or (c)(4) organization that the IRS found to be "excessive."
It would also penalize any trustee or manager who approved
excessive benefits.
The IRS already can punish excess
benefits by revoking the tax-exempt status of offending
nonprofits. However, the IRS requested the power to punish
nonprofits intermediate sanctions because, in the case of
"small" violations, where revocation would be excessive, IRS
imposes no sanction. Interestingly, the IRS did not request
a system of alternative sanctions in the case of excess
benefits, which could be a reasonable approach. Rather, the
IRS sought a system of double sanctions. Under the proposal,
the IRS can both revoke the organization's tax-exempt status
and assess the punitive excess benefits tax (this proposal
has been incorporated in recent legislation). If the IRS
want an alternative penalty, it should ask for just that.
The IRS should be barred from imposing double penalties on
nonprofits.
Avrahami v. U.S. News & World Report: Direct Mail
Recipient Suffers Setback
There was a procedural victory in a
court case dealing with a challenge to the ability of an
organization to rent, sell, or exchange names on its mailing
list. U.S. News & World Report won Round One in the case
of Avrahami v. U.S. News & World Report. A district
court judge in Virginia dismissed the case for lack of
jurisdiction.
In this case, Mr. Ram Avrahami, a U.S.
News & World Report subscriber, received a solicitation
from Smithsonian magazine, which received Mr. Avrahami's
name through renting a subscriber list from U.S. News. Mr.
Avrahami sued under a Virginia statute that most believed
was originally intended to protect against the
commercialization of a celebrity's name. He argued that the
statute should be construed broadly to protect individuals
from having their names placed on lists which are rented or
exchanged without their permission.
The dismissal has not dissuaded Mr.
Avrahami, whose attorney told the Free Speech Coalition that
the case is about "protecting consumer's property rights"
and "forcing companies to seek permission before they use
someone's name." The case now shifts to a higher county
court, where U.S. News seeks a declaratory judgment that its
action was proper.
If Mr. Avrahami wins this suit, the court
decision could impose, by the back door, the kind of mailing
list regulation that has been discussed or adopted in other
states (see FSC Members' Memo of Feb. 12, 1996 on this
subject). A for-profit or nonprofit business operating in
Virginia that rents, exchanges, or even sells customer,
contributor, or other lists could be prohibited, or legally
liable, for using individuals' names without permission.
New Congressional Bill To Stifle Public Speech
The Clean Congress Act of 1995, H.R.
2566, may be the next "Mom and Apple Pie" bill that all
members of Congress will be afraid to criticize.
Unsurprisingly, this pie contains two poisoned
apples.
One provision would greatly expand the
Federal Election Commission's authority to govern advocacy.
The term "express advocacy" is defined extremely broadly, to
include voter guides, or any publication criticizing the
public policy positions of an office holder or a candidate
near an election.
Under another provision, an organization
would be deemed to have made a "contribution" to a candidate
if it surveyed a candidate on his or her position on the
issues.
In the name of creating a "Clean
Congress," the bill's authors seek to grant the FEC two
broad powers which may lead to abuse. The Free Speech
Coalition will inform the House Oversight Committee, and the
Senate Rules Committee (both of which plan to hold hearings
on this legislation) on the inherent dangers in this
proposed legislation.
Lobbying Disclosure Act Becomes Law
The Lobbying Disclosure Act of 1995 was
signed by President Clinton on December 19, 1995, and is now
law. It took effect January 1, 1996. Knowing violations of
the new law are punishable by civil fines of up to
$50,000.
The Act imposes new lobbying registration
and reporting requirements. The scope of "lobbying" has been
broadened to include contacts with congressional staff and
certain executive branch officials. A "Lobbyist" is defined
as someone who spends at least 20 percent of their time on
"lobbying contacts" and lobbying activities, including time
spent preparing research to be used for lobbying.
Lobbyists and lobbying firms must
register separately for each client, filing a semiannual
report with the Clerk of the House of Representatives and
the Secretary of the Senate. Organizations must register and
list the lobbyists they employ. If a lobbying firm works for
a nonprofit, that firm must register and list the nonprofit
as a client. However, nonprofit organizations do not have to
register if all costs related to lobbying do not exceed
$20,000 in the semiannual period. For outside lobbyists and
lobbying firms employing a lobbyist, registration is
required if expected revenues exceed $5,000 from lobbying
each six-month period. In both cases, the registration
requirements would be contingent on at least one individual
working for a particular client/employer on lobbying
activities at least 20 percent of the time spent for that
client, and making more than one lobbying contact.
Therefore, each registrant must file semiannual reports
(February 14 and August 14) with the Secretary of the Senate
and the Clerk of the House of Representatives on its
lobbying activities during the preceding six-month
period.
Organizations that fall under the
reporting and registration requirements must register within
45 days of making their first lobbying contact or when they
are hired to make such contacts. That means February 15,
1996, for all engaged in lobbying on January 1.
New House and Senate Gift Rules
The House and Senate have amended their
rules governing acceptance of gifts. The new rules, which
became effective January 1, 1996, are extremely strict.
Senate Resolution 158 states that each gift must be less
than $50, and the total value of gifts from each source must
be less than $100 in a calendar year. In other words, two
$49.99 meals a year could be accepted. Most gifts, including
meals, of $10 or more count toward the total limit.
New House Rule 52, which governs every
Member, officer, and employee of the House, is even more
strict. No gift (including meals) may be accepted unless it
is a specific exception stated in the rule (e.g., hors
d'oeuvres at a reception).
The new gift rules are intricate. It is
important to seek guidance whenever there is any question
regarding the propriety of a transaction. The best way to
get an answer to any question you may have is to contact the
House Committee on Standards of Official Conduct or the
Senate Ethics Committee, and ask for specific guidance.
Barriers to New Charities Almost Insuperable
Is it the role of democratic government
to inhibit its citizens from exercising their constitutional
rights? Placed into the context of all of the other
"start-up" costs and requirements of a new nonprofit, the
list of federal, state and local requirements makes the
exercise of such rights more difficult and more
expensive.
The association needs a formal
organizational structure and, to limit the possible
liability of its volunteer workers, would usually
incorporate. Even nonprofit corporations are highly
regulated. Most associations must hire legal counsel for
advice regarding the organizational structure, and to draft
the legal documents (articles of incorporation, bylaws,
resolutions, etc.) involved.
Incorporation in most states involves a registration
fee, an annual report requirement, and an annual filing fee.
Sometimes paid registered agents are used. Nonprofits must
register to do business in other states in which they have a
presence.
The organization must pay local and state property,
income, sales and other taxes in many jurisdictions.
The association usually will desire IRS recognition
of its tax-exempt status. An application to the Internal
Revenue Service is required, which includes an application
fee (currently $465), plus administrative time and effort
involved, and additional legal fees.
By the time that tax-exempt status is recognized by
the IRS, most nonprofits have expended a few thousand
dollars, often before any fundraising has begun.
Few nonprofits can survive without systematic
fundraising -- even with completely volunteer staffs.
Compliance with postal regulations and seeking to mail at
third-class nonprofit rates involves time, effort, and
sometimes legal fees. Direct mail consultants must comply
with state charitable solicitation laws and then pass on
those costs in their fees
Fundraising subjects the fledgling nonprofit to the
charitable solicitation statutes of the various states,
counties, and municipalities. To mail out (or conduct by
telephone) a nationwide fundraising solicitation &endash;
even where the fundraising is incidental to the transmittal
of an important programmatic message &endash; the potential
costs are enormous. The requirements include:
1. Determining the various state, county and municipal
requirements, filling out forms, making and gathering copies
of required documentation, and filing with the
jurisdictions, often paying an attorney or accountant to
assist in the process;
2. Paying several thousands of dollars in registration fees
(for example, in 1994, potential registration fees in five
states alone, Maryland, New York, Pennsylvania, Tennessee,
and Virginia, were almost $2,500).
3. Spending substantial administrative time and paying CPAs
to conduct an independent audit of the organization's books
and records, required by the charitable solicitation
statutes of many jurisdictions.
4. Repeating the above process every year.
The Free Speech Coalition, Inc. is a
nonpartisan, nonprofit 501(c)(4) 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.
|