March 2, 2020
Purchase of the .ORG Domain: A couple weeks ago Ethos Capital, the prospective purchaser of Public Interest Registry (PIR) and the .Org domain, established a $10-million Community Enablement Fund to support the .ORG community. According to this new proposal, it includes “legally-binding measures that enforce price limits, safeguard against censorship and protect personal data” through an amendment to PIR’s Registry Agreement with the ICANN that allows PIR to operate the .ORG top-level domain. The amendment is arranged in what is known as a Public Interest Commitment (PIC). We urge you to add your name or your organization to that effort today- Save Dot Org.
New Online Form 1023: The Internal Revenue Service (IRS) has revised Form 1023 to allow electronic filing of the form which started at the end of January. The IRS expects the online Form 1023 to improve processing times in the same way that Form 1023-EZ, which is also filed electronically, has helped to speed up the application process for small organizations. Application opened at the beginning January 31, 2020. Applications for recognition of exemption on Form 1023 must be submitted electronically online at Pay.gov. The IRS will provide a 90-day grace period during which it will continue to accept paper versions of Form 1023 (Rev. 12-2017). The required user fee for Form 1023 will remain $600 for 2020 which can be paid here at Pay.gov.
Community Reinvestment Act: The Office of the Comptroller of the Currency and Federal Deposit Insurance Corporation (FDIC) have proposed revised rules under the Community Reinvestment Act that are raising concerns of community activists. Currently, the law requires banks to work with nonprofits, small businesses, local officials, and community groups where they are physically located, specifically to serve low-to-moderate income neighborhoods. The proposed regulations may decrease public accountability and expand the types of activities that qualify as a CRA investment. Concerns from the National Community Reinvestment Coalition state, “We can’t allow banks to cherry-pick where they lend – and where they don’t lend at all. We can’t allow banks to ignore the credit needs of distressed and vulnerable communities. We can’t allow a reboot of redlining.”
After School Programs: The President’s proposed budget would eliminate dedicated federal funding for 21st Century Community Learning Centers (21st CCLC), which is largely run by nonprofits, and create a single block grant to support nearly 30 existing education programs. The move could cause more than 1.7 million young people to lose a safe place to go after school while parents finish work. “21st CCLC is a public-private model that encourages partnerships, leverages local resources and expands opportunities for millions of young people in their communities,” according to Ridgway White, President and CEO of the Charles Stewart Mott Foundation. He continued: “Research shows every dollar invested in afterschool programs saves $3 by improving kids’ performance at school.” According to the YMCA of the USA, “Out-of-school time programs … enhance what kids learn during the school day and create new experiences that give them opportunities to explore STEM careers, participate in service learning projects and develop decision-making, problem-solving, critical thinking and communication skills, and so much more.”
February 25, 2020
Fixing the Rules Governing Government Grants
The Issue: Governments at all levels rely on nonprofit organizations to build strong and supportive communities by providing services to individuals at all stages of their lives. Yet, many governments have not been good partners when it comes to reimbursing nonprofits for the costs of providing those services. However, the federal government recently proposed revisions to the primary law governing government grantmaking – the OMB Uniform Guidance – that could result in greater reimbursements for indirect costs, reduce administrative burdens, and increase transparency.
Why it Matters: The 2014 rules expressly stated that governments and other pass-through entities using federal funds must pay nonprofits for their legitimate indirect costs obtained when providing services on behalf of governments. It also dictated procedures to enable nonprofits to protect their rights. Although these regulations seem beneficial and long over-due, the mandate as originally worded was interpreted in ways that gave too much power to the federal government and imposed unreasonable, unnecessary, and costly burdens on the nonprofits they hired to provide vital services in communities.
Status: The proposed regulations would expand and strengthen the guarantee that nonprofits receive reimbursement of their indirect costs. They would also prohibit several tactics used by some to avoid the protections of the OMB Uniform Guidance. Furthermore, the draft proposes numerous changes to federal regulations related to data collection and enforcement, as well as updates to federal rules to conform to several new laws and Executive Orders.
Take Action: As a nonprofit you may be wondering what these changes will mean for you nonprofit in particular or if the revisions will be suitable to fix the problem. Well, the OMB is asking for your feedback to help them understand how they can make revisions that will be most beneficial to all nonprofits. Make your nonprofit’s voice heard by submitting a public comment. All comments are due by March 23, 2020. You can also ask your CEOs, CFOs, Grants Managers Program Managers, Government Affairs Professionals, or other important members of your nonprofit register to participate in a webinar, Tuesday, March 10, 2020 at 3pm Eastern. This free program is presented by the networks of the National Council of Nonprofits and the National Human Services Assembly, all you have to do is register.
Unrelated Business Income Tax (UBIT): “Trade or Business (Silo-ing)”
The Issue: On December 22, 2017, President Trump signed new provisions regarding unrelated business income tax (“UBIT”). The first provision, Section 512(a)(6), directs nonprofits “with more than 1 unrelated trade or business” to compute their unrelated business income (and related losses) earned “separately with respect to each such trade or business,” but the law did not clearly provide any definition about what constitutes a “separate” trade or business, which created uncertainty about how to document, compute, report, and pay such a tax. Regulations based on prior law provided that, in determining unrelated business taxable income, an organization that operates multiple unrelated trades or businesses could aggregate all revenues and expenses from all such activities and compute UBIT liability on the aggregate income. This permitted an organization to use a loss from one unrelated trade or business to offset income from another, thereby reducing total unrelated business taxable income.
Why it Matters: The new provisions for unrelated business income taxes (UBIT) on nonprofits took effect on January 1, 2018 making these organizations apply these new liabilities during the fiscal period. Consequently, this required different cost allocation and tax treatment within the same accounting period, adding to the burden and costs of compliance. Many were forced to make quarterly estimated payments to the IRS by mid-April 2018 based on their best guess of what their new tax liabilities might be since no guidance had been issued. The new Section 512(a)(6) of the Internal Revenue Code changes the way nonprofits calculate UBIT; instead of aggregating all of their profits and losses from unrelated business activities, nonprofits must now “silo” their revenues and expenses for each “separate” “trade or business” and pay UBIT on each. Neither of the quoted terms is defined in the law, causing nonprofits, foundations, accountants, and tax lawyers to demand relief and clarity.
Status: On August 21, 2018, the Treasury Department and Internal Revenue Service issued a “Request for Comments” notice asking for organizations to explain their interpretations of the major liability changes that took place to nonprofit’s unrelated business income tax (UBIT) included in federal tax law. In the Notice, Treasury and the IRS acknowledge the frustration and confusion that nonprofits are experiencing, stating: “There is no general statutory or regulatory definition defining what constitutes a ‘trade or business’ for purposes of the Internal Revenue Code.” The initial request for comments was issued in August 2018 and comments were due December 2018. The Treasury Department and IRS are likely in the next month to issue proposed regulations on unrelated business income taxes on separate trades or businesses – the so-called silo-ing.
Take Action: The Notice provides a way for nonprofits to comply with the new law and the opportunity to recommend changes to the proposed rule that fix any shortcomings. The first step for any nonprofit potentially affected by this tax is to review the NAICS codes and compare your unrelated business revenue streams to determine which categories apply neatly, and which codes don’t make sense. Reach out to your legislators, with any questions, comments, and concerns.
Charitable Giving Incentives/Deductions
The Issue: Our culture of giving is currently at risk. The tax laws in many states encourage individuals to give to charitable organizations whose missions they support by providing an itemized deduction or tax credit. Tax reform efforts in recent years in some states have sought to cap or eliminate charitable giving incentives. Reduction or removal of charitable giving incentives threaten the ability of nonprofit organizations to serve people in need and to continue to strengthen work in communities.
Why it Matters: Limitations on state charitable deductions and other giving incentives effectively remove motivations for donations to nonprofit organizations. Nonprofit organizations in every state are dedicated to the public good; their work improves lives, strengthens communities and the economy, and lightens the burdens of government, taxpayers, and society. Maintaining the value of the charitable giving tax incentive is essential to the ongoing work of nonprofit organizations in delivering essential services, enhancing quality of life, and uplifting local communities both mentally and physically.
Status: At the end of 2017, the federal Tax Cuts and Job Act was generating a bill at the state level through which legislators are seeking either to conform state law to the revised federal tax code or to create variances from the federal law. Lawmakers in several states have introduced bills to reduce or limit the expected adverse impact of the federal tax law on charitable giving resulting from the near doubling of the federal standard deduction to $12,000 for individuals and $24,000 for couples. Nationwide, the Tax Cuts and Jobs Act is predicted to cause 28.5 million fewer taxpayers to claim itemized deductions.
Status in Virginia: As of 2019, five states, including Virginia, considered legislation to allow individuals to elect to itemize charitable contributions as deductions on their state tax filings regardless of whether they elected to itemize on their federal tax filings in 2019. Virginia also proposed a separate bill that would provide a nonrefundable tax credit (capped at $250 individual/$500 couple) to those who do not itemize deductions on their federal tax returns. However, none of these bills were enacted into this session.
What Nonprofits Can Do: Help protect charitable giving now and in the future by sharing your story with your state association of nonprofits and contacting your legislators to tell them how the giving incentive allows nonprofits to make a positive impact in your community.
Did You Know…Nonprofit Impact Matters
Currently in America, there are 1.3 million charitable organizations that impact the public in both seen and unseen ways however, operating a nonprofit these days is not easy. Luckily, we can face our challenges together! With both internal and external problems for our various organizations, we need to tap into the power of the nonprofit network so we can continue to improve lives and create more thriving communities.
Nationwide there are 12.3 million nonprofit employees and more than 64 million nonprofit board members and other volunteers. Nonprofits employ more than 10% of America’s private workforce- which is more jobs than in manufacturing, construction, or finance. The nonprofit sector earns more than 80% of its revenue through fees for services and government contracts and grants, receiving another 14% of its revenue thanks to donations by individuals (10.2%), foundations (2.9%), and corporations (0.9%). However, less than 3% of nonprofits advocate or lobby to advance their missions when they 100% have the legal right to do so.
All nonprofits, just like for-profit businesses, need a reliable and supportive public policy environment. Policy threats occur not just at the federal level, but also at the state and local levels. A change in federal law can impact nonprofits negatively, but changes in a state’s laws can be just as consequential for the nonprofits in that state. Data shows the odds of policy changes being made are much greater at the state than the federal level. Nonprofit missions are vulnerable to actions by policymakers who, whether intentionally or not:
Since nonprofits see the solutions to the community’s challenges firsthand, nonprofits should be sharing their insights with policymakers to help them make informed decisions. Policymakers need and deserve to hear the voices of their nonprofit constituents. Nonprofit’s strength is in our collective numbers. Therefore, if every nonprofit were to make advocacy efforts, elected officials would be forced to hear our needs as we speak on behalf of the public good. Here is helpful infographic provided by the National Council of Nonprofit to emphasize how nonprofit impact matters – click here.
2020 Primary Election
As much as nonprofits would like to maintain their nonpartisan status during the election year, it is important to note that politics still raise issues for nonprofits. Therefore, voter and candidate engagement are of the utmost importance in keeping the voices of the people heard throughout our government. We understand that keeping up to date on public policies and reaching out to our legislators may be a last priority, but once nonprofits and their constitutes stop engaging with politics during the election year, you relinquish your right to influence and advocate for the laws that protect our services and community. Here are some helpful tips on how your nonprofit can exercise your influence (these are nonpartisan engagement suggestions):
Nonprofit Sector Trends: Protecting Nonprofit Nonpartisanship
The Johnson Amendment, passed in 1954, prohibits all 501(c)(3) organizations, including houses of worship, from endorsing political candidates. This has been crucial in establishing the nonprofit charitable sector as the one of the only platforms of nonpartisan civic engagement in the United States. Eliminating this amendment would expose these organizations and establishments to partisan political activity which could endanger their ability to achieve their missions without political pressure from donors, board members, volunteers, or politicians. In 2017, previous legislation with budget deals and federal tax laws included provisions that would have significantly undermined the protection granted to nonprofits through the Johnson Amendment. Due to charitable advocacy efforts, the repeal of the amendment was prevented, although this issue stands to be continually raised in the future and bills may be reintroduced with the 116th congress that will weaken its protection. It is important to remember that nonprofits are still able to engage with public policy while maintaining their nonpartisan status. National nonprofit organizations are working to continually educate lawmakers and the sector to make sure the Johnson Amendment remains in place and obtain clearer policies to help 501(c)(3) organizations to participate in the public policy process in accordance with their tax-exempt status. In the meantime, your community can call or email your local representative and elected officials and simply say, “”Nonprofits are successful in our communities because they are nonpartisan. Protect the Johnson Amendment against all challenges.” To find your who you legislator is and how to get in touch with them- Click Here.
Did You Know…The Difference Between Advocating and Lobbying
Advocacy is… able to answer the question “Who can I talk to today to advance my organization’s mission?” Advocacy is about educating decision makers about the impact of the public policy decisions they are contemplating, how the people and communities will be impacted, and it’s making sure that decision that are being made about/for us are not being made without us. Here are some examples of everyday advocacy efforts can be made by your nonprofit, board members, and community:
Lobbying is… Communicating with decision makers (elected officials and staff), about existing or potential legislation, and urging a vote for or against. All three components of this definition are required: decision makers, actual legislation, and asking for a vote to go in your favor. Lobbying is a very narrow type of advocacy.
So, what is the confusion? The reason the difference between advocacy and lobbying even matters is because the law that public charities operate under, Internal Revenue Code Section 501(c)(3), is vague and confusing. One of the limits in that section of the law states that tax-exempt status is contingent upon “… no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation” However, the words “no substantial part” leaves some to believe that the safest route is to avoid any lobbying, therefore some nonprofits feel that their advocacy efforts may be attributed to lobbying efforts. Due to this confusion, the IRS has summarized that, “A 501(c)(3) organization may engage in some lobbying, but too much lobbying activity risks loss of tax-exempt status.” As defined above, “lobbying” is a very narrow type of advocacy; satisfying the three-part test is required and rarely is a “substantial part” of an organization’s expenses. But the tax code 501(h) provides some clarity – an objective standard for determining how much is “too much” lobbying.
In short, advocacy is what you are already doing (spreading knowledge about your nonprofit and how it positively impacts the community); lobbying is a narrowly defined activity with a few easy-to-follow steps that come with limits.
The Alliance for Justice has coined a helpful definition of advocacy:
“While all lobbying is advocacy, not all advocacy is lobbying. Advocacy is any action that speaks in favor of, recommends, argues for a cause, supports or defends, or pleads on behalf of others. It includes public education, regulatory work, litigation, and work before administrative bodies, lobbying, nonpartisan voter registration, nonpartisan voter education, and more.”
2020 Public Policy Agenda
The National Council of Nonprofit’s Board of Directors has whole heartedly adopted the 2020 Public Policy Agenda, which addresses concerns of all nonprofits from a federal to a local level. This year’s agenda was constructed into six broad categories with an intended goal to educate policy makers and other elected officials about the role our government plays in impacting the effectiveness of nonprofits. Here is an outline of the 2020 Public Policy Agenda
For more information about how The National Council of Nonprofits plan to enact and enforce these new policies, please read this detailed document, 2020 Public Policy Agenda. Here are some of the way we encourage you to participate with this new agenda.
Tax Repeal on Nonprofit Transportation Benefits: Congress has repealed the tax on transportation benefits provided by nonprofits to their employees. This is definitely something to celebrate as we come to the end of our first month in the new year! It would not have been possible without all the advocating nonprofits have participated in the past couple years, so please encourage your community to continue their advocating efforts so that we can have more to celebrate throughout the year. However, the good news does not end there, the tax was repealed retroactively meaning that nonprofits who provided this tax is eligible to claim a refund.
#SaveDotOrg: Nonprofits rely on the safety, trust, and reliable service that accompany a .org website. Recent news has shared with us that the sale of the .org website could be detrimental to the qualities that nonprofits rely on through their websites. For those of you who may be unaware of the current situation, in November 2019, plans were announced that a for-profit private equity firm would purchase the .org registry for $1 billion to pay off its investors plus profits. This means that nonprofits with a .org domain will be exposed to increased prices, decreased reliability, and censorship. However, through the wonderful advocating efforts of associates with state charitable regulators, congress, various human rights councils, and even the inventor of the World Wide Web the fight to raise awareness of the dangers that would spur out of this purchase are being brought to light. Your nonprofits can join the 701 other organizations and 22,346 people by advocating to save .org domain. It is as simple as signing the petition on Save Dot Org, where you can also learn more information and stay updated on its progress.