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2006 Issue 4
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IRS Announces Inflation-Adjusted Rates for 2007 Public Charity Classification and the Pension Protection Act of 2006 FEC Finds that Sierra Club's Voter Guides Contained Express Advocacy Implications of the Minority Staff Report on Jack Abramoff's Use of Tax-Exempt Organizations Many IRS Form 8872 Late Notices to 527 Organizations Are Incorrect New Reporting Requirements for Small Exempt Organizations Under the Pension Protection Act of 2006 District of Columbia to Revise Nonprofit Legislation Harmon, Curran Announces Two New Partners IRS Announces Inflation-Adjusted Rates for 2007 Recently, the IRS announced new inflation-adjusted rates for the 2007 tax year, which will be of interest to individuals and nonprofit corporations. Low Cost Article The unrelated business income of certain exempt organizations does not include proceeds from the distribution of "low cost articles" related to charitable solicitations. For the 2007 tax year, the value of a "low cost article" is $8.90 or less. 2006: $8.60 2007: $8.90 Other Insubstantial Benefits In Revenue Procedure 90-12, the IRS provided guidelines for charitable organizations on the amount deductible from contributions made by contributors who receive something in return for their payments. The original guidelines stated that the value of benefits received by a donor in return for a fully deductible charitable contribution may be disregarded under one of two circumstances:
2006: $8.60/$43.00/$86.00 2007: $8.90/$44.50/$89.00 Mileage Effective January 1, 2007, the mileage rate for business use of a vehicle increases to 48.5 cents per mile from the 44.5 cents per mile rate for 2006. The mileage rate for medical use of a vehicle also increases: the new rate is 20 cents per mile, up from 18 cents per mile in 2006. The standard mileage deduction rate for volunteer or charitable use of a vehicle remains at 14 cents per mile, as set by Congress. It is important to note that the special mileage deduction rates for those providing relief related to Hurricane Katrina will expire on December 31, 2006. That rate is 32 cents per mile. 2006: 44.5 ¢/mile 2007: 48.5 ¢/mile Reporting Exemption for Lobbying Expenditures In 1998, the IRS issued Revenue Procedure 98-19, which established the amount of annual dues that section 501(c)(4) social welfare organizations may receive from a person, family, or entity without being subject to the reporting requirements under section 6033(e) of the Internal Revenue Code. Section 6033(e) requires a tax exempt organization incurring non-deductible lobbying expenditures to notify its members of the organization's reasonable estimate of the portion of dues allocable to lobbying expenditures. Such notification must occur at the time that the dues are assessed or paid. The 2007 annual dues limitation for the reporting exception for organizations with nondeductible lobbying expenses is $95 or less. 2006: $91 2007: $95 Non-Member Dues For the 2007 tax year, dues paid by an individual to 501(c)(5) agricultural or horticultural organizations and 501(c)(6) organizations will not be subject to UBIT despite the organization providing benefits and privileges to its members, provided the dues are less than $136. 2006: $131 2007: $136 Annual Gift Exclusion As was the case in 2006, the first $12,000 of gifts to any person -- aside from gifts of future interests in property -- will not be included in the total amount of taxable gifts made during the 2007 tax year for gift tax reporting purposes. 2006: $12,000 2007: $12,000 Itemized Deductions The income threshold for the overall limitation on itemized deductions will increase from $150,500 in 2006 to $156,400 in 2007. On separate returns for married individuals, the income threshold will be $78,200, up from $75,250 in 2006. The allowable amount of deductions is reduced for taxpayers with adjusted gross income above that amount. 2006: $150,500 2007: $156,400 By Sara Tosdal  Public Charity Classification and the Pension Protection Act of 2006 Responding to changes affecting supporting organizations under the recently enacted Pension Protection Act of 2006, the IRS has provided those Section 501(c)(3) tax-exempt organizations classified as public charities under Section 509(a)(3) with a new procedure for changing their public charity status. The Pension Protection Act made two significant changes to the law that may prompt some supporting organizations to consider switching to a different public charity classification. First, the new law discourages grants from private foundations to some 509(a)(3) organizations. Second, provisions permitting certain tax-free donations to charities from a donor's Individual Retirement Account (IRA) do not apply to gifts made to supporting organizations. IRS Announcement 2006-93 describes requirements for a written request for reclassification that 509(a)(3) public charities seeking to change their public charity status must file with the IRS. Among the other requirements, any such request must explicitly reference the Pension Protection Act as the reason for the request. For more information regarding changes made by the Pension Protection Act of 2006 that affect public charities (both supporting organizations and others), please see "Rules for Charities Changing Again" in Issue 3 of the 2006 Nonprofit Navigator. By Robert Johnson FEC Finds that Sierra Club's Voter Guides Contained Express Advocacy The Federal Election Commission recently announced that it had reached an agreement with the Sierra Club on charges that the environmental group engaged in express advocacy in the 2004 presidential election. The Commission's aggressive pursuit of this matter and the position it took in the conciliation agreement indicate a desire to expand the scope of its authority to regulate speech about federal candidates beyond the familiar "magic words." Nonprofit organizations will want to pay close attention in designing issue advocacy pieces, and especially in the area of voter guides. The FEC reviewed four different Sierra Club documents submitted with a complaint. Three were determined to be permissible, unregulated communications. The fourth became the focus of contention. Headlined "Let Your Conscience Be Your Guide…and Let Your Vote Be Your Voice," the pamphlet consisted of two checklists comparing the environmental records of President Bush and Senator Kerry, as well as of two 2004 Senate candidates, Mel Martinez and Betty Castor. In the document, President Bush received one checkmark on his environmental record, while Mr. Martinez received none. By contrast, both Senator Kerry and Ms. Castor were awarded checkmarks in every category. The FEC decided that the publication qualified as express advocacy. It reasoned that the combination of the language in the document -- in both the title and the narratives attached to the checklist categories -- "exhorting readers to vote for the candidates clearly favored by the Sierra Club" and the checkmarks constituted "an explicit directive to vote" for Kerry and Castor. The FEC concluded that the communication was "unmistakable, unambiguous, and suggestive of only one meaning, and reasonable minds could not differ as to whether the pamphlet [encouraged]" individuals to vote for candidates or take some other kind of action. After the FEC voted 4-2 to find probable cause that a violation had occurred, the Sierra Club agreed to settle the matter rather than pursue it in court. In finding that the organization had improperly spent its corporate (not PAC) funds on this piece, the FEC relied on a second definition of express advocacy contained in its regulations. Since those regulations were adopted, several appeals courts have found this definition unconstitutional, permitting the Commission to regulate only speech containing the familiar "magic words" such as "vote for" or "vote against." For years the regulation remained on the books but unenforced. However, the FEC has apparently decided to try again to apply this "reasonable minds" standard to determine whether voter education materials have crossed the line and must be paid for by a PAC. This broader standard poses particular difficulties for a voter guide, which inherently must contain an electoral reference. The small piece of good news for advocacy groups hidden in this ruling may lie in the documents that the FEC did not object to. For instance, a document encouraging the reader to "dig deeper for the facts about the candidates" did not unambiguously encourage voting one way or another because it encouraged an alternate action -- learning about the candidates -- and provided the address of the group's web site for more information. This may provide a valuable hint about ways to introduce non-electoral calls to action and thus avoid express advocacy. Nevertheless, nonprofit organizations engaging in advocacy should be careful with issue advocacy publications and voter guides in particular. Groups can often protect themselves by including a non-voting call to action on advocacy pieces. In borderline cases, it is always best to consult a knowledgeable attorney. View the Complaint here. View the Conciliation Agreement here. Other documents in the case can be viewed by visiting the FEC Enforcement Query System and entering 5634 as the case number. By Sara Tosdal Implications of the Minority Staff Report on Jack Abramoff's Use of Tax-Exempt Organizations The minority staff of the Senate Finance Committee recently released a report on lobbyist Jack Abramoff's alleged use of tax-exempt organizations to provide lobbying, public relations, and money laundering services to his clients. This report includes a handful of policy prescriptions for the nonprofit sector. The following is a list of the principal recommendations: 501(c)(3) Organizations
The following are a sampling of the potential consequences of what is being proposed by the minority staff report:
By Robert Johnson Many IRS Form 8872 Late Notices to 527 Organizations Are Incorrect The IRS recently sent "Late Notices" to a number of 527 organizations indicating that they had failed to file reports of contributions and expenditures for a reporting period ending October 31, 2006. The problem is that no such reports were required. Several 527 organizations report receiving notices from the IRS that they failed to file a Form 8872 report for the period ending October 31. The late report was supposedly due on November 20. In election years, however, no such report is due. Instead, all 527 organizations are required to file a pre-election report on October 26 for the period ending October 18, and a post-election report on December 7 for the period ending November 27. Calls to the IRS confirm that the notices received by 527 organizations were in error. The IRS is investigating the matter to avoid similar problems in the future. 527 organizations that have received such notices are advised to respond by notifying the IRS in writing that they are not required to file for an October 31 reporting period. A copy of the Late Notice should accompany the organization's response. View the 2006 Form 8872 filing deadlines here. By Sara Tosdal New Reporting Requirements for Small Exempt Organizations Under the Pension Protection Act of 2006 The Pension Protection Act of 2006 has amended the tax code to require small nonprofits with annual gross receipts of less than $25,000, previously excused from Form 990 reporting requirements, to file an annual notice electronically with the IRS. For tax years beginning after 2006, those tax-exempt organizations that are covered will have to provide the IRS with the organization's legal name, any other name under which the organization operates, its mailing address, its web address (if applicable), its EIN, the name and address of the organization's principal officer, and evidence of the continuing basis for the organizations exemption from filing Form 990. This filing will be due in 2008. Those organizations that fail to file for three consecutive years will have their exempt status revoked. The IRS has not yet released procedural information on how to comply with this new provision of the Pension Protection Act, but the Nonprofit Navigator will be sure to inform its readers when details become available. By Robert Johnson District of Columbia to Revise Nonprofit Legislation On November 30, 2006, DC Councilmember Phil Mendelson announced that the Council would postpone legislation amending the DC Nonprofit Corporation Act until next year. A draft deemed controversial by some in the nonprofit community has been tabled. The DC Council welcomes participation and input from the nonprofit community and intends to include revisions supported by many in the nonprofit community. Changes to the DC Nonprofit Corporation Act will affect corporations that conduct business in the District as well as those formed in DC. Anyone who is interested in commenting on new provisions to the Act can find contact information for the DC Council below. Nonprofit Navigator will report on any changes to the situation. DC Council John A. Wilson Building 1350 Pennsylvania Avenue, NW, Suite 5 Washington, DC 20004 Email: dccouncil@dccouncil.us Telephone: (202) 724-8000 Legislative Information Services: (202) 724-8050 By Sara Tosdal Harmon, Curran Announces Two New Partners Harmon, Curran, Spielberg & Eisenberg LLP is pleased to announce that Paul Murphy and John Pomeranz will become partners of the firm effective January 1, 2007. Both Paul and John specialize in providing tax and election law advice to nonprofit organizations. Paul joined Harmon, Curran, Spielberg & Eisenberg in October 2000. While attending law school, Paul served as a law clerk in the Office of General Counsel of the American Federation of State, County and Municipal Employees. He also worked as a law clerk in the legal departments of Gore 2000 and Clinton/Gore '96, where much of his effort was devoted to compliance with Federal election law. In 1997 and 1998, Paul served as a legal intern on the Minority Staff of the U.S. Senate Governmental Affairs Committee's Special Investigation of illegal or improper activities in connection with the 1996 Federal election campaigns. Prior to moving to Washington, DC to attend law school, Paul worked over five years as a commercial insurance underwriter for Liberty Mutual Insurance Group outside of Boston, Massachusetts. Prior to joining Harmon, Curran in 2004, John was Nonprofit Advocacy Director at the Alliance for Justice, where he worked with nonprofits around the country to enhance their capacity to participate in the policy process. John is a nationally recognized expert on the law governing lobbying and election-related activity by tax-exempt organizations. He has conducted hundreds of popular workshops on the subject and promoted policies to support nonprofit advocacy in Congress, the IRS, and the FEC. Before joining the Alliance, John taught at the Harrison Institute for Public Law at the Georgetown University Law Center. He has also worked as a lobbyist for a group representing the interests of consumers of legal services. By Barbara Delatos 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 | |