Vol. V, No. 5November - December 1997

FSDEF Rallies Support For Challenge to Utah Statute
26 Nonprofits and Companies Sign On To FSDEF Amicus Brief
The Free Speech Defense & Education Fund, Inc. (FSDEF) and 26 other nonprofits and companies filed an Amicus Curiae brief in support of American Target Advertising's challenge to the Utah charitable solicitations statute (ATA v. Giani, U.S. District Court, District of Utah, Central Division, Civil Case No. 2:97-CV-610B).

A 501(c)(3) nonprofit located in Washington, D.C. retained ATA, a Virginia corporation, to assist them in preparing nationwide mailings. When the nonprofit attempted to register with the State of Utah, Francine A. Giani, who directs the office enforcing the Utah Charitable Solicitations Act, demanded that ATA also register with the State before the nonprofit could mail into Utah.

ATA refused to register with the State of Utah for these and other reasons:
• ATA is located in Virginia, not Utah;
• ATA has no office or personnel in Utah;
• ATA does not mail into the State of Utah;
• ATA has no contract with the State of Utah; and
• ATA does no business with anyone in the State of Utah.

In response to ATA, Giani denied the nonprofit's registration, and would not allow it to mail into the state until ATA registered with her office, the Division of Consumer Protection (the "Division"). Later, the Division granted the nonprofit a license, but required it to agree not to correspond with Utah residents using any materials that ATA helped develop or conduct any fund-raising based on ATA's advice and consultation.

ATA sued Giani and the State of Utah for violating their constitutional rights, and those of their client. ATA argued, as FSDEF also argued in its amicus brief, that the Utah Act is unconstitutional, violating the First Amendment, due process of law guaranteed by the 14th Amendment, and the Commerce Clause.

ATA filed a motion for summary judgment. Giani opposed this motion, and filed her own cross-motion for summary judgment. Such motions allow the Court to decide the case without a trial if the judge chooses to do so.

Meanwhile, the National Association of Attorneys General (NAAG) and the National Association of State Charitable Officers (NASCO) took interest in the case. If Utah were to win, other States could continue to pass and confidently enforce similar laws. But if ATA were to win, an important precedent would be set that could threaten all state charitable solicitation laws that require out-of-state fund-raising counsel to register.

NAAG appeared confident that Utah would win. At their annual convention, NAAG made the case a centerpiece of discussion, having Francine Giani as a keynote speaker. Initially the states decided that they were not going to file an amicus brief.

FSDEF Files an Amicus Curiae brief.
FSDEF and the Free Speech Coalition recognized that invalidation of the Utah statute would benefit all agencies who help nonprofits that mail nationally, as well as the nonprofits themselves. After reviewing ATA's case filings, they found that ATA had the facts and constitutional law strongly on their side.

One member of FSC, Bruce Eberle of Eberle Communications, Inc., decided to take a stand in support of ATA. He instructed his attorney, F. Hayden Codding, Esquire, to write an amicus brief. Other FSC members realized that, if many nonprofits and agencies joined together as co-amici and filed another brief, important constitutional arguments could be raised and supported.

On October 14, 1997, at a lively FSDEF luncheon, many groups agreed to file the amicus brief, and pledged to give or raise funds to finance the brief. A follow-up luncheon to review the draft brief was held on November 13, 1997.

FSDEF co-counsel Bill Olson and Mark Weinberg, with the assistance of Herb Titus, wrote a clear and well-reasoned amicus brief. It was well received and 26 nonprofits and agencies joined FSDEF to file the brief. Of the 27 co-amici (including FSDEF), twelve were 501(c)(3) charitable/educational organizations; eight were 501(c)(4) social welfare organizations; and seven were for-profit direct mail agencies or vendors assisting nonprofits with their educational and fund-raising programs.

States Decide to File Amicus Brief. After the FSDEF Amicus Curiae brief was filed on November 25, 1997, a number of states decided to file amicus briefs. Apparently they are now more concerned that ATA might win the case.

We'll keep you posted on the status of the case.

To receive a copy of the FSDEF Amicus Curiae brief, please contact the Free Speech office at 703-356-6912.

FSC Tells Story Behind Headlines on Senate Subpoenas
The U.S. Senate Government Affairs Committee, chaired by Senator Thompson, stopped (at least for now) its abuse of nonprofits which engage in issue advocacy. What began as an investigation into possible illegalities of certain members of the Clinton Administration, progressed into a general review of possible illegal or improper activities by politicians and their contributors in the 1996 federal election campaigns. Then there was open season on selected nonprofits who educated and influenced the public through issue advocacy during 1996. The Committee issued subpoenas to many such nonprofits, especially if they were critical of how incumbent members of Congress voted on issues that concerned the nonprofits.

The subpoenaed nonprofits were bewildered. They had violated no laws, but were coerced by the Committee to present massive amounts of confidential information. Some nonprofits complied, while others resisted because of the intrusive and possibly illegal nature of the subpoenas.

The tide turned in favor of the nonprofits soon after Chairman Thompson subpoenaed the AFL-CIO. The AFL-CIO strongly resisted the subpoena, and its lawyers sent a letter, arguing,

(N)either the legislative nor the executive branch of government has a license to rummage through all of the papers of individuals or their associations…

Inquiries into political activity by its nature works an intrusion on the constitutional rights of free speech and free association that are integral to a free and democratic political system.

The AFL-CIO and all nonprofits subpoenaed had cause for concern. Committee staffers leaked confidential information about certain donors to the press.

Meanwhile, at the request of some of the targeted nonprofits, Mark Weinberg, legal co- counsel to the Free Speech Coalition, and Mike Boos of the National Citizens Legal Network, prepared memoranda of law on the constitutional grounds for and procedure involved in objecting to or resisting the subpoenas.

Although the Committee stopped its investigation of nonprofits who practice issue advocacy for now, the question remains: Was it legal for the Committee to issue the subpoenas?

FEC Proposes New Definition of “Member” for Associations with a PAC
Any nonprofit which has a connected political action committee (PAC) is limited in the persons it can solicit for contributions. The largest class of persons it may solicit is the members. The FEC's definition of the term "member" therefore is critical. In the past, the FEC has evidenced hostility toward membership groups with connected PACs, and whenever policies change, nonprofits need to watch out. Now the Federal Election Commission has crafted a new definition of "member" that it plans to apply to nonprofit organizations with connected PACs. The proposed rule change will be published in the Federal Register on December 22, 1997, followed by a 30-day comment period. The Free Speech Coalition will inform its members of the specifics of the proposal by memorandum.

Postal Service's Final Rule on “Back-End” Premiums
Members of the Free Speech Coalition were notified when the Postal Service announced its final rule specifying the minimum requirements for nonprofit mailings that offer "back-end" premiums. (See "Eligibility Requirements for Certain Nonprofit Standard Mail Rate Matter," Federal Register, November 14, 1997, or call FSC at 703-356-6912 for a copy). After receiving input from nonprofit representatives, the Postal Service lessened somewhat its requirements for "back-end" premiums.

The final rule states that a nonprofit can mail offers of premiums at Nonprofit Standard Mail rates so long as the contribution (or membership dues) requested in the mailing is: 4 TIMES the cost of the premium item, AND 2 TIMES the represented value of the premium in the mailpiece. These rules apply when the premium advertised is not directly related to the "qualifying purposes" of the organization. BOTH criteria must be met. For example, if a nonprofit asks for a contribution of $100, then the cost of the premium offered cannot exceed $24.99, and the stated value of the premium cannot exceed $49.99.

When a nonprofit advertises a product that is directly related to its "qualifying purpose," the restrictions do not apply and the nonprofit may continue to use Nonprofit Standard Mail rates.

IRS Contemplates Raising Threshold to File Form 990
The Internal Revenue Service is considering raising the income threshold to allow many more nonprofits to be exempt from filing a Form 990 each year. But there's a catch. The I.R.S. wants nonprofits to suggest "less burdensome alternative methods" that would provide them with "information necessary to maintain and update computer lists of exempt organizations." The deadline for comments is February 23, 1998.

The current rule is that if a nonprofit's annual gross receipts exceed $25,000, then the nonprofit must file a Form 990. The IRS is considering raising the threshold to $40,000, or even to $100,000.

Comments should be mailed to: CP:E:EO:P:1 (#97-114), Room 6033, Internal Revenue Service, 111 Constitution Avenue, NW, Washington, DC 20224; or transmitted to the web site: http//www.irs.ustreas.gov/prod/tax_regs/comments.html.

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. However, contributions to the Free Speech Defense & Education Fund, Inc., a 501(c)(3) public charity, are tax-deductible.