Vol. II, No. 2
May 17, 1994
Lobby Disclosure Bills, H.R. 823, S. 349
FSC legislative activities in the past
month have been concentrated on the proposed Lobby
Disclosure Act. This bill, now passed by both the House and
Senate, was rolling along toward passage, but it hit a snag
when Senator Paul Wellstone intervened. Last year, the
Senate Government Affairs Committee adopted strict limits on
meal, travel, and entertainment gifts for staff and members
of Congress, as well as covered executive branch officials,
in the Senate-approved Lobby Disclosure bill. Recently,
Wellstone and others urged that the Senate include even more
stringent provisions. On May 11th, the Senate passed the new
restrictions. The bill is now in conference.
FSC met with a large number of trade
association and corporate representatives who are concerned
about the proposed legislation. Though many are worried
about the impact of limiting gifts, most were concerned as
is FSC about the onerous regulatory burdens such new laws
place on nonprofit organizations. Several representatives
suggested that nonprofits were drawn into this bill
primarily by mistake arguably, the legislation was
originally intended to target strictly business
corporations.
If the bill is passed, the new
legislation could cost individual nonprofits thousands of
dollars annually in accounting costs or force them not to
engage in advocacy at all. It only takes an opponent to
suggest irregularities in your organization's accounts to
make your organization subject to an audit by the Office of
Lobbying Registration. Your lack of understanding, your
attorney's lack of understanding, and your accountant's lack
of understanding as to the definition of "legislative
activity" is no defense. This law would put hundreds of
smaller organizations in legal jeopardy, while placing
others in great financial straits.
FSC members have been requested by fax to
contact the members of the House-Senate conference
committee. We urge all those who may have members or donors
whose Senators or Representatives are on the conference
committee to contact such members or donors, and ask them to
urge their representatives to delete nonprofits from the
final bill, or at least that the double record-keeping
requirement be dropped. (Please call Howard Segermark if you
can help in this area, or if you need a copy of the list of
Conferees 202-547-2222).
Membership Campaign Announced|
After a recent meeting of the FSC Executive Committee, it
was announced that FSC would immediately begin a three-month
membership campaign. FSC retained Howard Segermark to
supervise this effort. Segermark will work with FSC members
and the Membership Committee co-chaired by Bruce Eberle
(Bruce W. Eberle and Associates, Inc.) and Harriet Trudell
(Feminist Majority). Segermark said he is anxious to hear
suggestions from members and prospective members as he moves
into this project (telephone 202-547-2222).
Welcome to New FSC Members
Since our last newsletter, the following
nonprofit organizations, and others, have joined FSC: the
Southern Poverty Law Center, the National Right to Life
Committee, the Law Enforcement Alliance of America, Inc.,
and the Coalition to Stop Gun Violence.
State Regulators Seek Broad Powers to Attack Nonprofit
Organizations
The National Association of State
Charity Officials ("NASCO") is an association of state
regulators who oversee nonprofit organizations. In January
1994, NASCO sent a proposal to the House Ways and Means
Committee (Subcommittee on Oversight) that can only be
considered a frontal attack against nonprofit organizations,
particularly tax-exempt IRC 501(c)(3) and (c)(4)
organizations. In its proposal, NASCO exhibited a degree of
hostility to the nonprofit organizations its members
regulate. Its proposal was later incorporated in a
resolution adopted by the National Association of Attorneys
General ("NAAG"), at its 1994 spring meeting in Washington,
D.C. NASCO and NAAG want to give state regulators
unprecedented access to the confidential federal tax records
of exempt organizations and greatly expand the list of
federal penalties that could be imposed on exempt
organizations.
The NASCO/NAAG proposal begins with the
broad, unsubstantiated accusation that "there us a great
deal of fraud and abuse by tax exempt organizations
"
This is the sort of unproven generalization that bureaucrats
and regulators always seem to employ to justify increasing
their power. The NASCO/NAAG proposal would make available to
state regulators the information and results of examinations
and audits of tax-exempt organizations conducted by the
Internal Revenue Service ("IRS"). According to the proposal,
such information, which currently under federal law may not
be disclosed (except under certain carefully prescribed
circumstances), would always be available to certain state
regulators and enforcement officials. This would be a
dramatic change, which goes beyond any reasonable
requirement of enforcement and into the area of public
policy, and which could easily result in confidential tax
information becoming available to the general public.
The proposal emanated from a 1993 meeting
of NASCO in Santa Fe, New Mexico, in which nonprofit
organizations were excluded from many of the working
sessions. Most of the meetings of the various state
regulators took place secretly, behind closed doors, and saw
no input from the nonprofit community NASCO's members
regulate. Indeed, nonprofit organizations would have argued
most strenuously against adoption of a plan, such as
NASCO's, which would throw tax-exempt organizations (alone)
back to the days when confidential tax information could be
used to try to intimidate and embarrass the taxpayer.
Section 6103 of the Internal Revenue Code
places strict restrictions on disclosure of tax information,
including returns and audit information. Generally, tax
returns of exempt organizations may be disclosed to certain
government officers only under very limited circumstances.
Examination materials (which include audit information) are
disclosed within the context of a very limited tax
examination, criminal investigation or other very narrowly
defined circumstances only where there is cause. The
NASCO/NAAG proposal would change this by allowing
unaccountable state officials to obtain the most
confidential and privileged information of a tax-exempt
organization regardless of whether there were reasonable
grounds.
The federal returns (IRS Form 990) of
tax-exempt organizations are already available to the
public. Many states also require submission of other
detailed financial and corporate information, including
other information about individuals involved with the
nonprofit organization. The NASCO/NAAG proposal would open
the floodgates to allow state officials access to IRS
examinations of all information available from a nonprofit
organization, even the names of donors, and even if that
information is unnecessary for the purposes of state
registration of such organizations. This flies in the face
of our most basic Constitutional protections.
Other aspects of the NASCO/NAAG proposal
are also disturbing. NASCO/NAAG is asking the IRS to inform
the state regulators about actions it is taking against
nonprofit organizations that have been referred to the IRS
by state regulators. In the first place, the IRS generally
does not favor this type of referral because of the
potential for abuse. State regulators who are investigating
an organization should not be able to "sic the IRS" on the
organization either. Furthermore, once the IRS does begin an
investigation, it generally does not disclose to third
parties what action it has taken. NASCO/NAAG wants to change
this, and effectively to be able to "use" the IRS by
obtaining for state investigations all of the tax audit
information gathered by the IRS.
Another item in the NASCO/NAAG plan is
the proposed establishment of a task force between state
regulators and IRS regional exempt organization offices.
Again, the purpose is clear. The state regulators wish to
involve the federal government in the states' own
enforcement activities. NASCO/NAAG wants to take the tag
team approach to regulating nonprofit organizations.
The NASCO/NAAG proposal has a further
provision affecting 501(c)(3) organizations only. It would
require that the Internal Revenue Code be amended to require
minimum levels of direct charitable services which must be
provided by 501(c)(3) organizations. In other words, to
retain tax-exempt status, a 501(c)(3) organization would
need to comply with some nebulous requirement of "providing
services," which has the ring of an arbitrary standard and
which in any event could radically affect existing
educational (and other) tax-exempt organizations.
The NASCO/NAAG plan would also include
more aggressive imposition of fines and penalties for
inaccurate or incomplete Forms 990, and would require
unspecified changes to that form. In a related proposal,
NAAG has suggested an even higher level of federal
involvement in regulating tax exempt organizations. It seeks
the involvement of the United States Postal Service, the
Federal Trade Commission and other federal agencies in this
area, in an effort to add more federal regulation and to
further stifle nonprofit organization activities.
On May 5, the Oversight Subcommittee
asked the IRS to study these recommendations.
Overzealous state regulators will not
stop until the nonprofit community is completely
overburdened with restrictions that meet the approval of the
state regulators. It is time for the nonprofit community to
stand up to the regulators. It would have a tremendous
impact if every nonprofit organization would contact its
local state representatives, as well as its federal
congressional representatives, to inform them that it
objects to this move by the state regulators to abuse the
rights of the nonprofit community. The FSC will continue to
monitor these developments and mobilize opposition to
unreasonable proposals.
Federal Legislation Watch
1. The proposals to tax nonprofit
organizations for acts of "private inurement" are still on
the front burner in the House Ways and Means Committee. The
IRS wants to tax the recipient, the nonprofit, and the
nonprofit's officers if such "inurement" occurs.
The FSC has made its case to the House Ways and Means
Oversight Subcommittee: we seek clear definitions of these
terms, not another law which grants arbitrary powers to IRS
officials. Many critics see the IRS as having too much power
already to go on "fishing expeditions." The cloudiness of a
new law and concomitant regulation would force nonprofit
organizations into costly compliance measures, diluting
their ability to do the good works they were created to
accomplish.
2. Congressman Bill Clay's proposal to
require any nonprofit organization that lobbies to file with
and disclose its donors to the FEC (as if it were a
Political Action Committee!) could return and endanger the
confidentiality of membership lists.
3. Senator David Pryor's planned hearings
on "deceptive mailing practices" have not yet been scheduled
this year. We'll monitor it and keep members
informed.
4. Senator Ted Stevens' proposal to curb
the eligibility of nonprofits that lobby to use special
third-class mailing rates could come up whenever the Senator
sees an opportunity.
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.
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