 |
 |
 |
 |
 |
 |
 |
Archives
January 2004
Supreme Court Upholds Campaign Finance Law: What the Decision Means for Nonprofits
By now, Nonprofit Navigator readers have no doubt heard that the Supreme Court has upheld the Bipartisan Campaign Reform Act ("BCRA", also known as McCain-Feingold) almost in its entirety. While constitutional scholars debate the wisdom and long-term implications of the Court's decision, nonprofits heading into a federal election year can take some comfort in knowing that, at least for now, the rules governing campaign finance are relatively certain.BCRA contained a number of provisions with a particular effect on nonprofits, and nearly all remain in effect in the wake of the Supreme Court's decision. This also means that the FEC regulations implementing and amplifying those provisions will stay in effect, at least until challenges specific to those regulations make their way through the courts.
Issue Ads
Pre-existing campaign finance law prohibits corporations, including nonprofits, from making contributions or expenditures in connection with a federal election. Beyond direct gifts, these terms had been limited to cover payments for public communications only when they expressly advocated the election or defeat of a clearly identified candidate (the "express advocacy" standard). [For more background on key concepts in federal election law and the changes implemented by BCRA, see NN 3/02.]
BCRA added a new concept, "electioneering communications," which are broadcast ads referring to a clearly identified candidate and appearing within 30 days before a primary or 60 days before a general election. The Court upheld BCRA's prohibition on use of corporate and union funds to pay for these communications as well as those containing express advocacy. Like other corporations, nonprofits remain free to use "hard" PAC dollars to fund these issue ads.
The exceptions to the ban established by the FEC in its regulations are still in place. [See NN 11/02.] These include a blanket exception for ads run by 501(c)(3)s, presumably on the theory that tax rules already prohibit any sort of electioneering by 501(c)(3)s. In terms of strategic planning, this means that a nonprofit organization with a related 501(c)(3) and 501(c)(4) that wants to run genuine lobbying ads within the relevant window before an election should plan to do so out of the 501(c)(3). Of course, it is important to seek legal advice to ensure that the ads do not violate the prohibition on 501(c)(3) intervention in a political campaign.
Qualified nonprofit corporations, also known as "MCFL organizations," are also allowed to pay for electioneering communications with general treasury rather than PAC funds. FEC regulations created an exception for these groups, a small subset of 501(c)(4)s that do not accept corporate or union funding, and the Supreme Court confirmed it.
Unincorporated 527 Organizations
Because BCRA's regulation of electioneering communications applies only to incorporated entities (and unions), unincorporated nonprofits that do not accept money from those sources may still pay for these issue ads using unlimited contributions from individual donors. At least, that is the understanding as of the writing of this article. A pending FEC ruling will address a large number of questions related to 527 "political" organizations, including the possibility that if they operate primarily to influence federal elections they will be treated as PACs and subject to PAC contribution limits. [For more on 527 organizations, see http://www.irs.gov/charities.political.index.html.
Express Advocacy
An important part of the Supreme Court's ruling from a legal perspective was the clarification that "express advocacy" is not a constitutionally required limitation on Congress's ability to regulate electoral activity. This finding was necessary to allow the Court to uphold the issue advocacy provisions of BCRA. However, it does not mean that the current understanding of independent expenditures has changed. These are still defined only as communications which expressly advocate the election or defeat of a clearly identified candidate. Congress may later try to regulate other communications that fall short of express advocacy or electioneering communications, but the Court's ruling did not overrule its prior case law that imposed the express advocacy limitation on independent expenditures.
Soft Money Fundraising Restrictions
The Court upheld BCRA's restrictions on fundraising by federal candidates and officeholders. [See NN 3/02; NN 7-8/02]. These rules prohibit raising soft money to be used in federal elections, and limit the ways candidates and officials may solicit for nonprofits that are engaged in any electoral activity.
One small piece of BCRA that the Court did not uphold is the prohibition on national parties making contributions to nonprofits. The Court felt that an absolute prohibition would be unconstitutional, so construed the provision to ban only soft money contributions from parties to outside nonprofits. As a practical matter, this is unlikely to have a far-reaching effect. However, it may make it a little easier to structure some transactions between party committees and nonprofits. Under the previous understanding of BCRA, a contribution from a party to a nonprofit or from a nonprofit corporation to a party would be illegal, so it was critical to be sure that any deal (for instance, a list rental) entailed an exactly equal exchange of value. Now there is room to create a margin of safety by erring on the side of the party making a small contribution to the nonprofit.
Conclusion
Whatever the long-term implications of the Supreme Court's ruling, for now the rules that most organizations had been planning around remain in place. While further action by the FEC or Congress may change the playing field in the future, at this point organizations can feel confident making their plans based on the FEC regulations promulgated to implement BCRA's changes in the law. [See NN 7-8/02 (soft money); NN 11/02 (electioneering communications); NN 1/03 (coordinated communications); NN 3/03 (reporting regulations).]
By Elizabeth Kingsley
Charity Ride Organizer Saved from Suit by Medical Waiver of Liability The U.S. District Court for the District of Columbia recently upheld a medical waiver of liability signed by a participant who died during a bicycle ride to raise money for AIDS charities. The case, Jaffe v. Pallotta Teamworks, serves as an example of why organizations holding events in which injury is possible should consider liability waivers.
On the first day of the ride, the participant checked into a medical station complaining of nausea and dizziness. After she was initially treated by on-site medical personnel, she was transported to a local hospital, where she died a short time later. The participant's mother sued the ride's organizer and medical provider for wrongful death and negligent treatment of her daughter. The wrongful death claim against the medical provider was dismissed because the statute of limitations applicable to it had expired by the time the suit was filed. The remaining claims, however, were thrown out because the participant had signed an explicit waiver of liability arising from any negligence on the part of the organizer or medical personnel.
The participant's mother asked the court to disregard the waiver of liability. She argued that the case should be treated like ones in California, Tennessee, and Michigan, where liability waivers that released hospitals from claims of negligence during medical operations had been invalidated. The court refused. It found the cases cited by the mother were distinguishable because the uneven bargaining power present when an ill patient is confronted with a decision to sign a waiver in a hospital setting is not present where a healthy person voluntarily signs a waiver in choosing to participate in a charity event. The court noted that the waiver the daughter had signed was unambiguously worded and contained a total release of liability for all negligence claims, including those for medical negligence. She had participated in the ride the year before and knew the risks, and her signature was knowing and voluntary. Because the law in D.C. requires waivers that clearly demonstrate the signer's intent to be honored, the court dismissed the suit.
While the district court's decision in the case may still be appealed, it highlights the value of written waivers of liability. Individual state laws differ, but such waivers are generally enforceable where the risks are spelled out, the wording is unambiguous, and no uneven bargaining relationship exists between the parties. Organizations hosting events where they may need to provide medical care - bike rides, charity walks, or even community clean-up days - should consider, along with qualified counsel, whether a similar waiver would be of assistance in their situation.
By Eric Tars
IRS Issues 2004 Inflation-Adjusted Rates
The IRS has released inflation-adjusted figures for the 2004 tax year,
which will be of interest to individuals and nonprofit organizations.
Low Cost Article
The unrelated business taxable income of certain exempt organizations does not include
proceeds from the distribution of "low cost articles" in connection with charitable
solicitations. For the tax year beginning in 2004, a "low cost article" is any article which
costs $8.20 or less.
2003: $8
2004: $8.20
Other Insubstantial Benefits
The IRS established guidelines in Rev. Proc. 90-13 to provide charitable organizations with help in advising their patrons of the deductible amount of contributions when the contributors are receiving something in return for their contributions. The original guidelines state that the value of benefits received by a donor in return for a fully-deductible charitable contribution may be disregarded if either: 1) for a contribution of $25 or more, the contributor did not receive something in return that costs more than $5 (or the rate for a "low cost article" listed above); or 2) the fair market value of all of the benefits received in connection with the payment is not more than 2 percent of the payment or $50, whichever is less. The $5/$25/$50 schedule is annually adjusted for inflation and this year has been increased to $8.20, $41, and $82, respectively.
2003: $8 / $40/ $80
2004: $8.20 / $41 / $82
Mileage
The standard mileage deduction rate for business use of an automobile has increased
to 37.5 cents/mile. The figure for volunteer or charity work remains at the 14 cents/mile
rate in effect last year.
2003: 36¢/mile
2004: 37.5¢/mile
Reporting Exemption for Lobbying Expenditures
Rev. Proc. 98-19 set at $75 or less - annually adjusted for inflation - the amount of annual dues that social welfare organizations may receive without becoming subject to I.R.C. § 6033(e). Section 6033(e) requires a tax-exempt organization that incurs nondeductible lobbying expenditures to notify its members, at the time the dues are assessed or paid, of its reasonable estimate of the portion of the dues that is allocable to those expenditures. In 2004, the annual dues limitation to qualify for the reporting exception regarding certain exempt organizations with nondeductible lobbying expenses is $86 or less.
2003: $85
2004: $86
Non-Member Dues
In 2003, dues paid by an individual to 501(c)(5) agricultural and horticultural
organizations and 501(c)(6) organizations will not be subject to UBIT provided
they do not exceed $124.
2003: $122
2004: $124
Annual Exclusion for Gifts
The first $11,000 of gifts to any person (other than gifts of future interests in property)
is not included in the total amount of taxable gifts made during that year. This rate remains
the same as the previous year.
2003: $11K
2004: $11K
Itemized Deductions
The income threshold for the overall limitation on itemized deductions,
which rises slightly each year, has risen to $142,700,
or $71,350 for a married individual filing separately. The allowable amount of deductions
is reduced for taxpayers with adjusted gross income above that amount.
2003: $139.5K
2004: $142.7K
By Eric Tars
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
