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Archives
September 2003
IRS Website Provides Searchable Database of Political Organizations
Thanks to a relatively new online search feature, obtaining access to information filed by Section 527 political organizations is easier than ever before. The IRS website now allows online visitors to search a database of Forms 8871, 8872, and 990 filed by 527 organizations using basic, advanced, and "popular" search features.The basic search engine will list all database entries based on the name (or partial name) or the organization, its EIN, or the date its forms were posted. The advanced search option enables considerably more complex searches and includes fields for searches based on a whole range of information contained in the form, including officer and contact names, relevant addresses, and the organization's purposes. This would allow, for example, a search for all 527 committees with the purpose of supporting any candidate in a particular state. The "popular" search feature adds a number of additional useful features, including the ability to quickly locate records of organizations receiving contributions or making expenditures over a specified amount during the current year, current month or past month; it also allows searches for any individual making contributions or receiving payments over specified amounts.
The advent of this online database is a boon for researchers seeking information on 527 organizations. However, while it may promote accountability, the new database should also serve as a reminder to political organizations to exercise caution to complete these forms fully and accurately, because the information is now more "publicly available" than ever before. The address of the search homepage is http://forms.irs.gov/politicalOrgsSearch/search/basicSearch.jsp, which features clearly marked tabs for the basic and advanced search functions. To access the "popular" search engine, click on the "Advanced" tab and then select the "Popular Search" hyperlink directly below the tab.
By Josh Sadlier
Reminder: Nonprofits Must Be Wary of Coordinating their Messages with Candidates The fate of the Bipartisan Campaign Reform Act (BCRA) is currently being decided by the U.S. Supreme Court. Until there is a decision, however, BCRA remains in effect, and so does its directive that the FEC draft new regulations defining when a communication will be deemed to be coordinated with a candidate or party resulting in a possibly illegal in-kind contribution. The FEC issued its new regulations on coordinated communications at the end of 2002. For a full discussion of the details of the regulations, see NN 01/03. As the primary elections approach (the first one is to be held in the District of Columbia on January 13, 2004), we thought it would be a good idea to flag a few circumstances where these regulations could limit a nonprofit organization's advocacy activity in unexpected ways.
Discussed below are a few areas of concern raised by the coordination regulations. This is not a list of prohibited activities, but rather a description of situations where a nonprofit should seek legal advice in order to avoid problems.
ISSUES FOR NON-ELECTORAL ORGANIZATIONS
Nonprofits that do not engage in electoral advocacy, such as 501(c)(3) organizations, may be accustomed to working closely with legislators on lobbying efforts without having to worry about campaign finance laws. These new regulations change that. Most advocacy communications can still be made, but they may have to be structured to avoid reference to specific candidates or parties, or be crafted without communication with certain people (e.g., the staff or former staff of a legislator who is currently a candidate).
• Covered communications
In addition to some communications that are obviously election-related (express advocacy messages, "electioneering communications", and re-publication of campaign materials), the rules apply to public communications that refer to a political party or clearly identified candidate, are publicly disseminated 120 days or fewer before a convention, caucus, or primary or general election, and generally are directed to the voters in the jurisdiction where the election takes place. "Public communications" include TV, cable and radio ads, newspaper and magazine ads, direct mail, phone banks, street canvasses, etc. They do not include communications over the internet. By the end of September 2003, a public communication referring to any of the Democratic presidential candidates (even if a current elected official) could not be made in any state holding a primary in January, 2004 by a 501(c)(3), if the communication is coordinated with a candidate or party.
• No 501(c)(3) exception
Unlike the FEC regulations on "electioneering communications," these rules do not contain an exception for 501(c)(3) organizations. This means that even though your 501(c)(3)'s public communications comply with the IRS prohibition on intervention in political campaigns, your organization still needs to worry about the FEC rules.
• No exception for PSA's
Also unlike electioneering communications, there is no exception for communications that you do not pay to have run. Thus, if an elected official agrees to make a PSA for your organization (which in and of itself makes the communication "coordinated"), it will be problematic if run within 120 days of an election where that person is on the ballot.
• Lobbying messages
The FEC declined to adopt an exception that would except the popular name of a bill from being considered a reference to a clearly identified candidate. Thus, a radio spot run in July, 2004 that discusses the Smith-Jones bill refers to a candidate if Congresswoman Jones is seeking reelection in the fall. If the organization's staff has worked with the Congresswoman's legislative staff in preparing the message, it may be considered a contribution to her campaign. If the spot only refers to H.R. 6666, it would not meet the content standard.
ISSUES FOR ALL ORGANIZATIONS
Organizations intending to run lobbying, independent expenditure, or issue advocacy campaigns should be particularly aware of two specific avenues of coordination addressed in the regulations. The concerns raised by these coordination rules are manageable, but should be taken into account ahead of time in making staffing and other decisions.
• Commercial vendors
A covered communication will be considered coordinated if 1) the organization contracts with a vendor to create, produce or distribute the communication; 2) the vendor has also provided certain services to a candidate, her opponent, a party, or an agent of any of them during the current election cycle; and 3) the vendor conveys or uses information about the candidate or party's campaign plans, or information the vendor used in providing services for the candidate or party. This does not prohibit use of common vendors, but may make it advisable to try to create walls within firms of consultants, or at least ask for written agreements that the vendors will not use or convey any insider information.
• Former employees or independent contractors
The regulations also provide that a covered communication can be coordinated through information used or conveyed by someone who is a former employee or independent contractor of a candidate or party any time during the current election cycle. For Senate candidates, that could be as far back as November 4, 1998. Thus, it is important to consider whether any staff involved in creating, producing, or distributing public communications for your organization meets this criterion. If so, consider limiting that person's duties so she is not involved in communications that refer to the person or party she worked for. Alternatively, consider adopting a written policy prohibiting the person from sharing or using any inside information she may have about campaigns plans or needs.
If you have concerns related to any of these points, please seek legal advice. It is likely that your organization can engage in the advocacy it wants to do, but a few precautionary steps taken in advance may avoid headaches later on.
By Paul Murphy
More on Grants to Individuals
Making grants to individuals, such as researchers, writers, or artists, is an effective way for organizations
to support for many worthy causes. However, as we have previously discussed, private foundations should
be aware of special rules governing certain common kinds of grants to individuals.
(NN 6/01).
Unlike private foundations, public charities do not need to get advance approval for grant-making
to individuals, but they do have a responsibility to ensure that their funds are used for purposes
consistent with their charitable purposes, and should have procedures in place to ensure proper use
of funds by individual grantees. The Foundation grant-making rules provide a good starting point
for a charity seeking to conduct a responsible grant-making program.
Individual grants for travel, study and other similar purposes
Any payment that a private foundation makes for grants to an individual for "travel, study, or other
similar purposes" is subject to a penalty tax unless the foundation obtains pre-approval from the IRS
for the grant program. In this context, "grants" include loans for charitable purposes and program
related investments.
The concept of "travel, study and other similar purposes" covers a broad and somewhat ill-defined range
of individual grants. Generally speaking, if a grant is intended to finance future endeavors of the
recipient, then it requires advance IRS approval. To obtain approval, the foundation must:
1) Demonstrate that grants will awarded on an objective and nondiscriminatory basis.
This generally involves establishing a disinterested grant committee and setting forth
reasonable criteria and procedures for awarding grants.
2) Describe its reporting and record keeping procedures.
The foundation needs to obtain reports from grant recipients to
ensure that the money is properly spent.
3) Explain its procedure for exercising supervision over grants.
The foundation needs to follow up with the grantee to obtain information
to supplement any inadequate reports from the grantee and use reasonable
efforts to recover any misdirected funds.
The IRS has abolished the fee for requesting approval of a foundation's grant making procedures
under these rules.
Individual grant programs that do not require pre-approval
Although sometimes it may be worth the effort to obtain prior approval for their individual
grant programs, in other circumstances organizations may meet their objectives more
effectively by making grants that are not subject to the pre-approval requirement. Among
the significant exceptions are: awards for past achievement; grants for purposes other than
travel, study etc.; certain scholarships for study at educational institutions; and grants to
support individual grant programs operated by public charities.
Awards in recognition of past achievement
Grants to individuals made with no requirement that the selected individuals perform any further activity
or use the money for any particular purpose, such as prepare a report or attend school, are not grants
for travel, study or other similar purposes. Foundations are not required to obtain pre-authorization
from the IRS to make these grants. For example, in a recent private letter ruling, the IRS responded
to an application by foundation that made payments to basketball coaches and schools based on the school
team's overall win/loss record, the grade point average of the team, and total community service hours
of the players. The IRS determined that because the grant program did not carry any requirement that
the grant recipients perform any further activity or any requirement that the money be used for any
particular purpose, the grants were not subject to pre-approval.
Payments for purposes other than travel, study etc.
Grants for specific activities that are not travel, study or "similar purposes" are not subject to the
pre-approval requirement. Generally, grants and loans made in response to a sudden, identifiable emergency,
are not made for study, travel, or similar purposes. A grant to meet basic needs also does not require
pre-approval; for example, a payment to an indigent person to purchase furniture, clothing or other needs
is not a payment for travel, study or similar purposes. Even if an emergency grant is made to permit
a person to travel in response to exigent circumstances, it would not be a grant for the purpose of
study, travel, or the like. Thus, a payment by a foundation that allows a seriously ill patient
to fly to another city for treatment would not be need to be part of a pre-approved grant program.
Foundation grants to organizations that administer their own grant programs
Unlike private foundations, public charities are not required to obtain pre-approval for individual
grant programs. Foundations may make grants to public charities to support the individual grant
programs of those organizations without obtaining pre-approval.
A foundation using this alternative would not be able to designate specific
recipients of the individual grants. A foundation cannot circumvent the
individual grant rules described above by requiring that the monies granted to
another organization go to a particular individual. The public charity, not the
foundation, must make the final decision.
However, IRS rules would allow a foundation to exert some influence.
A foundation could require that the grant be used to support a grant program for individuals.
The foundation could also specify general criteria for determining recipients of the grant money.
The foundation could even consult with the charity on the selection process and make non-binding
recommendations about recipients.
Qualified Scholarships
Foundation grants to individuals that are excluded from the recipient's taxable income as
"qualified scholarships" under section 117 of the Code are not subject to the pre-approval requirement.
The regulations contain detailed rules for determining whether a scholarship is qualified. Foundations
must determine whether their scholarship programs qualify under the these rules to determine whether
to seek IRS pre-approval.
Conclusion
It is important to emphasize that the pre-approval requirement for certain foundation grants
to individuals is intended to ensure that foundation grant programs serve appropriate charitable,
and not private, purposes. This basic requirement applies to all grants and other activities by
foundations and public charities; even grants not needing pre-approval most conform with this fundamental
principal. Although public charities need not conform to the "travel study and other similar purposes"
rules applicable to private foundations, all charitable organizations should adopt some sort of
procedures to ensure that grants to individuals do not result in prohibited private benefit and
are used for charitable purposes. The substantive (but not the procedural) requirements for
foundation grant pre-approval (awards made on an objective basis, sound reporting and recordkeeping,
and supervision to ensure funds are used properly) are a good place for any organization to start
structuring a program.
By Paul Tanis
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.
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