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Public Policy
Independent Sector Policy Update
December 22, 2005
Congress Adjourns for the Year, Budget Issues Remain Unresolved
The House and Senate adjourned late in December after weeks of heated debate on spending reconciliation and appropriation bills. On the spending reconciliation front, the House approved a bill (S. 1932) by a vote of 212-206 to cut $39.7 billion in spending over five years. On December 21, the Senate approved the package by a close vote of 51 to 50, requiring Vice President Dick Cheney’s tie-breaking vote. Just prior to the final vote, however, the Senate failed to waive a budget point of order raised by Senator Kent Conrad (D-ND) and, as a result, certain sections of the bill that were deemed irrelevant to the budget were stricken, requiring the bill to go back to the House for reconsideration. The House is expected to vote on the package shortly after returning on January 31.
Although the revised version of S. 1932 would cut spending less than the House’s initial spending reconciliation proposal (H.R. 4241), it still contains significant spending cuts to programs including Medicare and Medicaid. In addition, S. 1932 includes changes to a Medicaid “transfer of assets” provision, which members of the charitable sector fear could discourage many older Americans from making charitable contributions by penalizing those who make charitable donations up to five years before requiring long-term care.
Meanwhile, a conference to resolve differences between the House and Senate’s tax reconciliation bills (H.R. 4297/S.202) was postponed. S. 2020 contains several charitable reforms and charitable giving tax incentives, including an IRA rollover and new deduction for non-itemizers. According to Senate Finance Committee Chair Charles Grassley (R-IA), a conference to reconcile differences between the bills will likely occur during the weeks of February 6 and 13.
Read more about the charitable incentives and reforms in S.2020.
Ways and Means Oversight Subcommittee Reviews Charities’ Response to Hurricane Katrina
The Oversight Subcommittee of the House Ways and Means Committee held a hearing on December 13 to review the response by charities to Hurricane Katrina. While the efforts of charities and volunteers were praised, the shortcomings were also highlighted as well as lessons for the future. Witnesses included Representative Jim McCrery (R-LA) and representatives from the American Red Cross, the Salvation Army of America, and the Baton Rouge Area Foundation.
Read more about this hearing
Testimony is posted on the Ways and Means Committee website.
FEC Drops Issue Ad Exemption for 501(c)(3)s
The Federal Elections Commission issued a final rule on electioneering communications on December 21, 2005, dropping a 501(c)(3) exemption that had been challenged in court. Electioneering communications are broadcast ads that refer to a federal candidate that are aired within 30 days of a primary or 60 days of a general election. FEC previously exempted 501(c)(3) groups from the rule because they are already barred by tax law from intervening in political campaigns on behalf of or in opposition to any candidate. After the court’s decision and a second attempt to revise the rule, the FEC concluded that comments submitted by the public did not demonstrate that the IRS restriction on political activity by 501(c)(3)s was sufficiently compatible with the Bipartisan Campaign Reform Act (BCRA) law to allow the exemption. IS filed comments in September 2005 urging the FEC to keep the exemption without a new "promote, support, attack, oppose" restriction. The Commission also questioned the need for the exemption since no commenters provided any examples of broadcast ads by 501(c)(3)s that referred to a federal candidate. The final rule also changes the definition of electioneering communications so that it will now include public service announcements as well as communications that are broadcast for a fee.
Final rule (PDF)
More on this issue
IRS Clarifies Vehicle Donation Exception
The IRS announced it will not recognize certain deductions claimed by taxpayers for donated vehicles sold at auction. Although in most cases tax deductions for charitable vehicle donations of over $500 are limited to the sale price obtained by a nonprofit, donors may claim a fair market value deduction if the vehicle is given or sold to a needy individual at a price significantly below fair market value. The IRS announced that it has become aware of charities that sell donated vehicles at auction and then incorrectly claim the sales are to needy individuals at prices below fair market value. The IRS will, therefore, no longer consider vehicles sold at auction as qualifying for the fair market value deduction. Read the IRS announcement
Meanwhile, Senate Finance Committee Chair Charles Grassley (R-IA) sent a December 19 letter (PDF) to the IRS urged the agency to curtail abuses by some charities reselling donated cars to low-income consumers and requesting clarification about when charitable organizations must sell vehicles donated to the groups to comply with new IRS vehicle donation rules. The IRS issued an announcement on December 22 clarifying questions about timing of the vehicle sales and reminding donors of the need for written acknowledgment from the charity.
JWOD Governance Standards Reconsidered
The Committee for Purchase From People Who Are Blind or Severely Disabled, which administers the Javits-Wagner-O'Day (JWOD) Act, is considering proposing governance standards and executive compensation guidelines for nonprofit agencies awarded contracts under the JWOD program. The proposal is similar to one which was proposed in 2004 then subsequently withdrawn. The Committee issued an Advance Notice of Proposed Rulemaking to gather information about governance standards and executive pay before initiating a formal rulemaking. Comments are due January 31, 2006. More
Postal Rates Will Increase in January
Postal rate increases will go into effect on January 8. An across-the-board rate increase of 5.4% was approved for most mail; however, the standard nonprofit rate will increase by only 3%. The Commission also recommended that the discount rate for nonprofit in the future adhere to the established 40% less than regular class mail. An additional increase is expected in 2007.
IRS User Fees Will Increase in 2006
The IRS released a new user fee schedule for 2006, including fees for determination letters for exempt organizations. Effective July 1, 2006, the fee for initial applications for exemption under Section 501 will increase from $150 to $300 for organizations with annual gross receipts under $10,000 and from $500 to $750 for organizations whose receipts exceed $10,000. The fee for group exemptions will increase from $500 to $900. The IRS noted that many user fees had not changed in years and that the new fee structure more accurately reflects resources expended.
IRS notice
Fee changes for exempt organizations (PDF)
FCC Requests Comments on Fax Rules
The Federal Communications Commission is requesting comments on two matters related to fax regulations: 1) a proposed rule to implement the “existing business relationship” (EBR) exemption that Congress passed in July 2005, and 2) a petition to preempt a California fax law that conflicts with federal law. The comment periods are short – ending January 18 and January 13 respectively. The EBR exemption relieves fax senders from obtaining a prior written permission from a recipient in order to fax an advertisement. Nonprofits will not have to first to obtain a member’s prior permission in order to send faxes promoting conferences, publications, or membership solicitations, for example. More on this issue.
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