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Archive
2006 Issue 2
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New FEC Rules on Internet Activity New Certification Process for Congressional Travel IRS Releases Warning Against 501(c)(3) Campaign Activity Charities and Employment Taxes: Withhold for Your Employees Greenpeace and Greenpeace Fund Audit Concluded, Important Take-Home Lessons State Laws and Ballot Measure Advocacy: Don't Be Caught Off-Guard Harmon Curran Welcomes New Attorney New FEC Rules on Internet Activity After weeks, if not months, of hype from bloggers and advocates, both pro- and anti-regulatory, the FEC issued final revised rules on the treatment of Internet activities to a reaction of deafening silence. No outrage from those claiming that a broad exemption will subvert the intent of the law, and no angry reaction from bloggers jealously guarding against any incursion on their right to speak freely in cyberspace. It appeared that the Commission had found a wise compromise and crafted a rule that carefully balanced the competing interests. Some time later, however, news reports have started to characterize the new rules as a "loophole" likely to unleash a torrent of political e-mail. So which is it, really? And what do organizations need to know about the new rules? In the original rules promulgated under the Bipartisan Campaign Reform Act, the FEC entirely excluded Internet communications from its definition of "public communications" and therefore from the reach of many key regulatory provisions that hinge on this term. However, a legal challenge overturned this determination and forced the FEC to revisit the issue. The new rules, which went into effect May 12, now bring Internet communications within the Commission's regulation to a limited extent. The regulations continue to exempt the majority of online political activity from campaign finance regulation. Only communications placed on the web site of another person for a fee, i.e. paid political advertising, are considered public communications. Anything posted on one's own web site or placed somewhere else for free is excluded. All e-mail communications are also excluded from the definition of public communications. However, the rules do require that PAC web sites and bulk e-mails (500 or more substantially similar messages) must include the same "paid for by" disclaimer language that other PAC materials must carry. Because an organization's own web posting or e-mail is defined out of the term "public communication," messages sent via those communications media cannot be captured under the FEC's rules on coordinated communications, which are treated as in-kind contributions to the candidate or party they are coordinated with. This means that groups can talk about federal candidates freely via the Internet without worrying that they will be charged with making an illegal contribution. Indeed, as some observers have noted, there is the theoretical possibility for wealthy donors and outside groups to spend large sums of money on e-mail campaigns coordinated with political candidates so long as they avoid endorsements or other "magic words" expressly advocating a candidate's election or defeat. The regulations also modify existing rules for use of corporate equipment. An organization may now allow employees to use computer equipment and internet access for personal volunteer political activities so long as the use does not interfere with the employee's ability to carry out his or her usual work duties or increase the organization's overhead or operating costs. Previously, use of such "corporate facilities" had been limited to no more than one hour per week or four hours per month- limits that still apply to non-Internet activities. These new rules take a largely hands-off approach to the Internet, successfully quieting the fears of the blogging community that government regulation would destroy its developing medium. Whether the new rules have opened a significant loophole is an open question. In theory, candidates can work with outside groups and donors to send unlimited e-mail messages, but a burgeoning political spam phenomenon may prove ineffective or even counterproductive with the voters it is intended to influence. By Beth Kingsley  New Certification Process for Congressional Travel In the wake of the Abramoff scandal, Congress is re-evaluating the rules governing gift-giving- especially gifts of travel. As the House and the Senate struggle to reconcile competing versions of the legislation, the House Committee on Standards of Official Conduct established an interim, voluntary certification process to allow sponsors to seek pre-approval for congressional trips. Acceptance of uncertified travel is not necessarily a violation of House rules, but the voluntary process does offer security for wary sponsors and House members. In order to obtain travel certification, sponsors must provide the Committee on Standards with detailed information about the proposed trip, including the participants, itinerary, activities, cost, and the sources of funds used. The committee needs to know if any federally registered lobbyist, lobbying firm or foreign agent provided some of the funds and whether any source earmarked funds to pay for the trip. The information should be submitted as early as possible prior to travel. Certification is granted only if two-thirds of Committee members, present and voting, approve. More details are on the Committee's website at www.house.gov/ethics/m_travel_rules_advisory.htm. At this time, the Senate offers no such certification process. The Nonprofit Navigator will keep readers up to date on legislative developments. By Sara Tosdal IRS Releases Warning Against 501(c)(3) Campaign Activity The IRS has released its customary election-year bulletin reminding 501(c)(3) organizations that they may not conduct political campaign activities. As in previous election years, the bulletin notes that a (c)(3) "may not endorse candidates, distribute statements for or against candidates, raise funds for or donate to candidates or become involved in any activity that would be either supportive or opposed to any candidate." The bulletin comes as the IRS is again conducting its Political Activity Compliance Initiative (PACI) to investigate complaints of 501(c)(3) campaign intervention. The new IRS bulletin refers to both the recent report on the 2004 PACI project and to the recently released IRS Fact Sheet 2006-17, which provide further guidance for 501(c)(3) organizations. The bulletin is available online at http://www.irs.gov/newsroom/article/0,,id=157879,00.html. By Damon King Charities and Employment Taxes: Withhold for Your Employees While Section 501(c)(3) organizations are exempt from Federal Income Tax, they should remember that under federal law, they are still liable for most employment and payroll taxes. The importance of paying these taxes was emphasized at a recent hearing by the Oversight Subcommittee of the House Committee on Ways and Means. The hearing raised the specter of new penalties to ensure that charitable organizations comply with these laws. Employers are required to withhold taxes, including Federal Income Tax Withholding, Social Security, and Medicare, from their employees' paychecks and remit these amounts to the IRS with the appropriate forms. Additionally, employers are required to pay Federal Unemployment Tax. While 501(c)(3) exempt organizations are exempt from paying Unemployment Tax and may opt to self-insure instead, they are not exempt from withholding and remitting all other payroll taxes. Among the objectives of the hearing was to determine whether, in the future, the IRS should use tougher penalties against non-compliant charities. Suggestions included exclusion from the Combined Federal Campaign, suspension of eligibility for federal grants, and revocation of exempt status. In this environment of shrinking tax revenues, charitable organizations must not neglect the law and fail to withhold and remit the appropriate taxes for all applicable employees. By Damon King Greenpeace and Greenpeace Fund Audit Concluded, Important Take-Home Lessons The IRS recently concluded audits of Greenpeace and Greenpeace Fund, Inc., finding that both organizations continue to qualify for tax-exempt status. However, the Service did indicate a handful of areas that both organizations must keep an eye on to ensure that they retain their tax exemptions in the future. These guidelines are a helpful reminder to other organizations about certain tax rules and suggest the areas the IRS is most interested in. In reviewing a loan between the two organizations, the Service cautioned that "financial transactions must be entered into on an arm's length basis," and that the interest rate must be adjusted upward as interest rates rise. The interest rate was adequate in 2002, but the IRS was concerned that it must be adjusted periodically to reflect changing market conditions. Exempt organizations must apply to financial transactions with affiliates the same standards that would be used by an outsider. The IRS also drew attention to concerns with public solicitations. When soliciting donations that are not deductible as charitable contributions, an organization is required to disclose this fact. When solicitation is over the phone, the non-deductibility must be communicated to the potential donor in close proximity to the actual solicitation; disclosure in a follow up mailing is apparently not sufficient. For written solicitations this disclosure should be made in a font at least the same size as the primary message of the solicitation. After reiterating the truism that tax payers are required to keep adequate books and records, the IRS looked at two important activities where record keeping is frequently poor. The Service pointed out that an organization must maintain a record of its website's historical appearance, a standard that had not previously been articulated so specifically. In addition, the activities of an organization's volunteers must also be documented. Finally, the IRS is joining state regulators in being concerned about proper reporting of fundraising costs. In what appears to be the first reported instance of detailed examination of financing costs, the IRS cautioned that organizations must be careful when classifying the costs associated with their solicitation expenses under SOP 98-2, a rule promulgated by the accounting profession. Only true program service expenses should be classified as such and all fundraising expenses must be properly allocated. By Scott Macbeth State Laws and Ballot Measure Advocacy: Don't Be Caught Off-Guard Nonprofit organizations seeking to influence the policymaking process by engaging in advocacy surrounding ballot initiatives should first take a careful look at state and local campaign finance laws. Ballot initiative campaigns have enabled organizations- including charitable organizations exempt under Section 501(c)(3)- to support state and local public policy proposals that further their missions and oppose new developments that might harm those that they serve. However, while nonprofits engaging in ballot initiative work have correctly recognized that federal tax law treats this work as permissible lobbying, all too often they do not take note of state campaign finance laws that govern ballot measure work. While these laws may not constitutionally limit the extent to which organizations can advocate for or against ballot measures, they may require timely disclosure of activities and financial transactions (including sources of financial support) to appropriate state agencies. Before participating in ballot measure campaigns or working with organizations engaged in such advocacy, nonprofits should be fully aware of relevant state laws and their implications. Case Study: California One of the more noteworthy examples of a state law that can affect potential ballot initiative activity is California's Political Reform Act. The Act contains a variety of reporting requirements for organizations that participate in, fund, or otherwise support advocacy surrounding ballot initiatives. An organization can trigger the Act's reporting requirements in one of three ways:
While the California law does not limit organizations advocating for or against state and local ballot initiatives, it does force them to disclose to the general public financial information including, most notably, donor identities. Because the law uses a fairly broad definition of "contribution," organizations engaging in educational work or grantmaking activities that might not traditionally be considered advocacy can find themselves saddled with reporting obligations. For example, if an organization produces a formal report and coordinates its publication or release with a ballot measure committee, it is considered to have made a contribution to the committee, even if the report makes no specific mention of the measure. Such contributions may also occur when organizations and committees use common consultants for their respective activities surrounding the same subject. Similarly, nonprofits that make grants to other organizations engaged in a number of activities that happen to include ballot initiative campaigns may be captured by the law unless they include specific prohibitions on the use of funds for the recipients' ballot initiative work. Issues Organizations Should Consider Organizations seeking to become involved with ballot measure campaigns should look closely at state laws and ask specific questions about these laws' implications. Depending on organizations' specific programs, questions to consider include:
By Damon King Harmon Curran Welcomes New Attorney Harmon, Curran, Spielberg & Eisenberg is pleased to announce James Lamb has joined the firm as of counsel. Jim represents federal and state political organizations, candidate committees, PACs, Members of Congress, fundraising consulting firms, media firms, direct mail consultants, national and state issue advocacy organizations, corporations and individuals in the areas of federal and state election law and ethics matters. He is a former campaign manager for federal and state candidates and served as Minority Counsel for the U.S. Senate, Governmental Affairs Committee, Special Investigation of Illegal or Improper Activity in Connection with the 1996 Federal Election Campaign. Jim holds an undergraduate degree from the University of Michigan, with Distinction, and a J.D. from Wayne State University, cum laude. He is admitted to practice law in the District of Columbia and Michigan. 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 | |