501(c)(3) Campaign Restrictions – Still Up in the Air

As of this moment, 501(c)(3) charitable organizations are strictly prohibited from any campaign activities, i.e., supporting or opposing any federal, state, or local candidates for elected office. That’s the way it’s been for decades, and that’s the way most nonprofits (other than evangelical churches) want it to stay. But an effort by the Trump Administration and Republicans in Congress could upend that law, and open the door to unduly politicizing the charitable sector. I first wrote about this in my March 2017 E-Bulletin, and since then efforts to repeal what is known as the Johnson Amendment have narrowly failed on numerous occasions thanks to reluctance by the Senate.

Perhaps one of the most obvious implications of a Democratic takeover of the House this coming Tuesday would be to protect 501(c)(3) organizations from further attacks on the Johnson Amendment. But Republicans will have one last chance in a lame-duck session after the election, so now is not the time to let your guard down. Keep urging Senator Collins and Senator King to keep the 501(c)(3) campaign prohibition intact.

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New IRS Guidance on UBTI

In my January 2018 and May 2018 E-Bulletins, I wrote about how the new federal tax law will affect nonprofit organizations, including new rules regarding Unrelated Business Taxable Income. IRS Notice 2018-67, issued on August 21, 2018, provides additional guidance on the UBTI issues, including the treatment of parking and other transportation fringe benefits. For a summary of this Notice, see here and here. In general, nonprofits continue to face a surprising new tax on these transportation benefits, and efforts continue to try to repeal this portion of the law.

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Disclosure of Nonprofit Organization Donors

There’s been a flurry of activity over the past few months at the federal and Maine levels regarding tax-exempt organizations’ duties to disclose their donors. Here’s a recap of what’s happening.

Maine – A new law (2018 P.L. Ch. 418 (LD 1865)) went into effect in early October, requiring certain “major contributors” to ballot initiatives and referenda disclose their purpose and their largest funding sources.  A major contributor is defined as an entity (including a nonprofit corporation) that contributes more than $100,000 to a Political Action Committee or Ballot Question Committee regarding a specific initiative or referendum. Once this $100,000 threshold is crossed, the donating entity must file a report with the Maine Commission on Governmental Ethics and Election Practices. The report must identify the five largest sources of funds received by the organization within the past six months, excluding any funds received by the organization that are restricted to purposes unrelated to the referendum or direct initiative. Overall, this is a helpful transparency law, and few Maine nonprofits are large enough to be making such substantial contributions on ballot initiatives. It will mostly apply to business corporations and large, out-of-state nonprofits.

Federal Election Commission Reporting – A recent federal court decision invalidated a Federal Election Commission regulation, and consequently any person (including nonprofit corporations other than section 527 political committees) that makes an “independent expenditure” of more than $250 for any given federal election must report the names and amounts given by any donor who gave over $200. An independent expenditure is defined as an expenditure for a communication that expressly advocates the election or defeat of a clearly identified federal candidate, and is not coordinated with a candidate, candidate’s committee, or party committee. This development should have no impact on 501(c)(3) organizations, because as of now (see above) they are prohibited from engaging in any campaign activities and thus may not make any independent expenditures. But other tax-exempt organizations (especially 501(c)(4) social welfare organizations and 501(c)(6) business leagues) can and often do engage in campaign activities, and these organizations will want to pay close attention to the new reporting requirements. A summary by the FEC can be found here. To be clear, the court decision is great news for supporters of campaign finance transparency and opponents of “dark money” influencing our politics.

Form 990 Schedule B – In July, the IRS issued Revenue Procedure 2018-38, which changes a Form 990 reporting rule for tax-exempt organizations other than 501(c)(3) charities and 527 political organizations. These types of organizations, which include 501(c)(4), 501(c)(6), and others, no longer must include  the names and address of contributors donating more than $5,000 in the tax year on their Schedule B’s. However, the organizations still must maintain their Schedule B lists internally and make them available to the IRS upon request. The reason for the rule change is to minimize the inadvertent disclosure of donors’ names, as the Schedule B is generally not subject to public disclosure rules in the first place. But the rule does not affect 501(c)(3)’s and 527’s, which still must complete and file the full Schedule B. That said, even though all 501(c)(3)’s must file the fully completed Schedule B, only private foundations are required to publicly disclose those lists. Public charities may continue to keep their Schedule B’s private.

Does all this talk of disclosure sound scary to your 501(c)(3)? It shouldn’t. Keep in mind that 501(c)(3) organizations should not go anywhere near campaigning for a candidate, but they can and should engage in issue advocacy. For a summary of the rules that apply, click here.