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Archives
August 2005
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FEC Rulemaking on Broadcast Communications IRS Regulations Clarify Reporting Requirements For Intellectual Property Contributions California Case Finds Widespread Sexual Favoritism Constitutes Harassment IRS Clarifies Tax-Exempts May Influence Judicial Nominations House Requires Lobbyists to File Reports Electronically FEC Rulemaking on Broadcast Communications After many of its regulations implementing the Bipartisan Campaign Reform Act of 2002 ("BCRA") were overturned in court, the FEC has headed back to the drawing board. Most recently, it announced proposed new rules on broadcast ads, which potentially could affect a large number of nonprofit organizations. In order to address the perceived problem of "sham" issue ads, BCRA prohibited the use of corporate or union funds for broadcast ads that refer to a clearly identified federal candidate and run within 30 days before a primary or 60 days before a general election. The FEC's original implementing rules limited this to ads placed "for a fee," thus effectively excepting unpaid public service announcements ("PSAs"). They also expressly exempted ads placed by 501(c)(3)s. Both of these provisions were overturned in court. In its newly proposed regulations, the FEC is considering whether it can reinstitute the 501(c)(3) exception. It has expressly indicated that it would like to hear whether 501(c)(3)s have actually taken advantage of the exemption, or alternatively whether any of the "sham issue ads" analyzed in studies that formed part of BCRA's legislative history included ads by 501(c)(3)s. Organizations interested in running broadcast ads on legislative issues within the 30/60 day window may want to weigh in, or risk being unable to name specific legislators in those lobbying messages. Of broader concern to the sector is the possibility of broad regulation of PSAs. It is not uncommon for elected officials and other office holders to record such announcements for nonprofits. If those people are or become candidates for public office, and if the PSAs air during the 30/60 day window, the nonprofit could face serious penalties, even if it had little or no control over the timing of the broadcast. A restrictive rule might discourage elected officials from recording such PSAs at all, rather than risk an inadvertent infraction. The memorandum accompanying the proposed rules indicates that the FEC could benefit from hearing from organizations out in the "real world" about the practical effect of the regulations they may adopt. The Commission is clearly concerned about complying with the dictates of the court decision, while not unreasonably restricting organizations' ability to run non-electoral ads. Comments will be accepted through September 30, 2005. The complete text of the proposed regulations, a detailed explanation, and information on filing comments can be obtained at http://www.fec.gov/law/law_rulemakings.shtml. Look under "electioneering communications" in the list of ongoing projects. By Beth Kingsley  IRS Regulations Clarify Reporting Requirements For Intellectual Property Contributions In our November 2004 issue, we reported that the American Jobs Creation Act, which President Bush signed into law last October, contained several provisions regarding charitable contributions. One of these provisions concerns the deductibility of donations of certain kinds of intellectual property such as patents, trademarks, copyrights, trade secrets, and software, known as "qualified intellectual property." The Act requires recipients of intellectual property contributions to file information returns with the IRS and imposes a notification requirement on donors of such property. On May 23, the IRS published Temporary Regulations that provide guidance on making these filings. Under the new law, donors of qualified intellectual property are allowed to take an initial charitable deduction equal to the lesser of the fair market value of the property or the donor's basis in the property (the basis is usually the cost of creating the property or the amount for which the donor purchased it). Donors may also deduct, in the year of the contribution and in subsequent years, amounts based on a percentage of the net income received by the donee that is allocable to the qualified intellectual property. At the time of the donation, the donor must notify the charity that he or she intends to take additional deductions. After the tenth year following the contribution, the donor may no longer take any deductions. Donors also may not take deductions for intellectual property contributions after the expiration of the property's legal life. Donees who receive income through the use of intellectual property contributions are required to report this income and other information about the intellectual property on an annual information return, Form 8899, which is currently being developed by the IRS. The Temporary Regulations describe in detail the information that will be requested on the form. Donees will have to provide contact information for both donor and donee, a description of the donated intellectual property, the date of the contribution, and the amount of net income from the property. The report must be filed on or before the last day of the month following the close of the donee's fiscal year. The donee must also provide the donor with a copy of the return on or before the due date for filing with the IRS. According to the Jobs Creation Act, the new rules affect all intellectual property contributions made after June 3, 2004. If the IRS has not yet published Form 8899 by the time a donee organization is required to file, the organization must provide the donor with the information which would be provided on the form on or before the date the form would have been due. However, the organization does not need to file the form with the IRS until the last day of the second full month following the release of the form. By Lizzie Hubbard California Case Finds Widespread Sexual Favoritism Constitutes Harassment No manager wants to police the personal relationships of subordinate employees, but in the wake of a recent California Supreme Court case, some employers are thinking twice. In the California case, Edna Miller et al. v. Department of Corrections et al., the Supreme Court of California ruled that widespread favoritism in the workplace due to sexual relationships between employees and their supervisors creates a hostile work environment. Employees working in such an environment, even if they have not been personally subjected to sexual advances, have grounds to sue their employers for sexual harassment. Edna Miller filed suit against the California Department of Corrections, claiming that she experienced sexual discrimination and harassment while employed at the Department of Corrections. Lewis Kuykendall, the warden of the women's prison where Miller worked, was involved in sexual relationships with several of his subordinates. All of Kuykendall's paramours received preferential treatment, including promotions, special assignments, and work privileges. In one instance, Miller was denied a promotion because one of Kuykendall's paramours was chosen for the position instead, despite having a lower rank, less education, and less experience than Miller. When Miller and another female Department of Corrections employee complained about the favoritism, first to Kuykendall and later to his superiors, the two women suffered retaliation at the hands of Kuykendall and his paramours. Eventually, the situation became so unbearable that both women resigned and sued. In many cases, courts have ruled that isolated instances of sexual favoritism, while they may be unfair, do not constitute sexual harassment or sexual discrimination, as both men and women are equally disadvantaged by the situation. In Miller however, the California Supreme Court ruled that Kuykendall's sexual favoritism was so severe that it created an atmosphere that demeaned women by sending the message that female employees are "sexual playthings". The federal trial court in D.C. reached a similar conclusion in 1988 in Broderick v. Ruder. In that case, Catherine Broderick sued her employer, the US Securities and Exchange Commission ("SEC"), arguing that the SEC's managers' widespread practice of sexual favoritism regarding subordinates constituted sexual harassment. The court ruled in Broderick's favor. In light of these decisions, employers may want to be extra cautious about workplace relationships, especially in situations involving a supervisor and a subordinate. Employers are understandably reluctant to police their employee's personal lives for fear of violating the employee's privacy. However, some safeguards may help prevent a situation in which sexual favoritism leads to a lawsuit. A policy prohibiting romantic relationships in the workplace, either just between supervisors and their subordinates or between any two colleagues, may help, although it may be difficult to enforce. An employer may also institute a policy requiring that, when a romantic relationship develops between two colleagues, one of the two must be transferred to a different department. If managers become aware of sexual favoritism being displayed it should be reported immediately to senior management or to the Board. By Lizzie Hubbard IRS Clarifies Tax-Exempts May Influence Judicial Nominations The IRS has recently issued guidance on its website, entitled "Attempts to Influence Judicial Appointments by Exempt Organizations", regarding the permissibility of this activity for various types of exempt organizations. Attempts to influence the confirmation of federal judicial and executive branch appointments do not constitute campaign intervention, but are considered lobbying. Such activity is permissible, but the rules vary depending on the status of an exempt organization under the Internal Revenue Code. 501(c)(3) Organizations 501(c)(3) organizations are permitted to carry out activities to influence the Senate confirmation process if such activities further their exempt purposes. However, because these activities are considered lobbying, (c)(3)'s may only engage in them in limited amounts. The amount of lobbying a (c)(3) may conduct is limited under the Internal Revenue Code, which states that "no substantial part" of a (c)(3)'s activities may be for the purpose of influencing legislation (including confirmation votes). Because the IRS has never clearly defined what "substantial" means in the context of lobbying, many (c)(3)'s elect to have their lobbying governed under section 501(h) of the Code. Section 501(h) provides a formula that a charity can use to determine the amount of lobbying it can do as a fraction of its total yearly expenditures, with a cap of $1 million. 501(c)(4) Organizations 501(c)(4) organizations (social welfare organizations) may engage in unlimited lobbying in furtherance of their exempt purposes, and thus, do not face restrictions on the extent to which they can attempt to influence the confirmation process. However, the dues paid to these organizations are not deductible as business expenses to the extent they are spent on lobbying. Organizations with members who deduct dues as business expenses generally must notify them of the nondeductible portion of their dues allocable to lobbying or pay a proxy tax at corporate rates on their lobbying expenditures. 527 Organizations 527 political organizations are required to engage in exempt function activities. These include expenditures for the purpose of influencing the appointment of an individual to public office. Thus, 527's may engage in unlimited lobbying to influence judicial confirmations. Other Obligations Organizations planning to engage in activities surrounding judicial nominations should be aware that in addition to meeting the conditions of the Internal Revenue Code, they may need to comply with the Federal Lobbying Disclosure Act or similar state laws. Under the Act, organizations whose staff make oral or written contact with members of Congress, high level executive branch officials, or executive appointees concerning certain matters (including Senate confirmations) may have to register employees who make such contacts as lobbyists with the Secretary of the Senate and the Clerk of the House of Representatives. Organizations with registered employees must then file semi-annual reports with the Senate and the House estimating their lobbying expenditures. By Damon King House Requires Lobbyists to File Reports Electronically In July, the Clerk of the House of Representatives announced that starting January 1, 2006, all Lobbying Disclosure Act filings will have to be submitted electronically. The Lobbying Disclosure Act ("LDA") requires many organizations whose employees engage in lobbying activities to register these employees as lobbyists and file semi-annual reports with the Secretary of the Senate and the Clerk of the House. As of next year, the Clerk of the House will require all registrations, amended registrations, and reports for reporting periods beginning no earlier than July 1, 2004, to be filed online. Electronic filing is currently available, although it is not required. Downloadable forms for electronic filing can be found at http://clerk.house.gov/pd/index.html. Filers should visit the Web site in advance to obtain a digital signature. Also, keep in mind that electronic filing allows for easier public scrutiny-- one more good reason to be careful with LDA filings. By Lizzie Hubbard This publication is designed to provide accurate and authoritative information about the subject matter covered. It is not distributed with the intent to render legal, accounting, or other professional advice. The services of a competent professional should be sought if legal advice or other expert assistance is required. Newsletter Home | HarmonCurran Home | |