Alliance for Justice Nonprofit and Foundation Advocacy
Initiative
Foundation Advocacy Bulletin - July 2008
July 2008
This issue of Foundation Advocacy Bulletin is a special report
on major policy issues Alliance for Justice has been following
that impact foundation and nonprofit advocacy. Alliance for
Justice continues to monitor and, when appropriate, influence
these and other proposals.
This edition of the Bulletin does not include regular features,
such as our "Spotlight" grantmaker interview or our technical
assistance question, but we will resume our regular format with
the next issue.
This Report on Policy Issues Discusses the Following Topics:
Political Activities
New Form 990-N (E-Postcard)
Form 990 Re-design
Lobby Reform
Campaign Finance Reform
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Political Activities
Issue
Beginning in 2004, the Internal Revenue Service stepped up its
enforcement of the ban on partisan electoral activity by
501(c)(3) public charities and religious organizations. It
created a fast-track program called the Political Activity
Compliance Initiative (PACI).
One of the organizations investigated under PACI was All Saints
Church of Pasadena, California. The Church led a highly
publicized defense of its activities (including the challenged
sermon).
Status
All Saints Church
In September 2007, the IRS closed the investigation against All
Saints Church. The IRS asserted that the Church had intervened
in the 2004 presidential election, yet chose not to take any
adverse action. The Church continued to dispute the IRS's
conclusion-and sought an apology from the IRS. For more
information on the Church's position and the history of the
investigation, see the church's website at:
http://www.allsaints-pas.org/site/PageServer?pagename=IRS_Exam_splash .
Continuation of PACI
The PACI program continues during the 2008 presidential election
season. On April 17, 2008, the IRS Tax Exempt and Government
Entities Division issued a letter
[http://www.irs.gov/pub/irs-tege/2008_paci_program_letter.pdf]
providing guidance on how it will treat certain activity in the
2008 political campaign season. The letter stated the goals of
the PACI task force in the 2008 election season and provided
limited guidance on PACI's enforcement of 501(c)(3)s engaging in
election-related activity in two specific areas:
501(c)(3)-501(c)(4) websites and issue advocacy.
According to the letter, PACI's 2008 goals include educating the
public and relevant community, providing guidance on the
prohibition of political campaign intervention by section
501(c)(3) organizations and maintaining a meaningful enforcement
presence. Through PACI, the IRS will continue to investigate
allegations of egregious violations of campaign intervention
throughout the course of this election year.
The letter specifically addressed two types of
activities-501(c)(3)-501(c)(4) websites and issue advocacy-and
details how the IRS will deal with each.
As for websites, the letter was helpful in clarifying where PACI
will be focusing its enforcement for this election cycle. The
IRS will distinguish between organizations that are related
(e.g., Alliance for Justice and Alliance for Justice Action
Campaign), and those that are not. At this time, the IRS will
not pursue investigations of links between the website of a
related 501(c)(3) and 501(c)(4) organization. While guidance on
this area can be expected in the future, this will not be the
focus of any PACI investigations in 2008.
With respect to a 501(c)(3) organization that links to content
of an unrelated 501(c)(4) organization the IRS will use a facts
and circumstances analysis to determine whether the 501(c)(3) is
promoting, encouraging, recommending or otherwise urging viewers
to use the link to get information about candidates and their
issues. If the facts and circumstances suggest that the
501(c)(3) is using the links to the 501(c)(4) in this manner, a
PACI investigation will ensue.
The guidance on issue advocacy is less clear. While Revenue
Ruling 2007-41 [http://www.irs.gov/pub/irs-tege/rr2007-41.pdf],
released in June of 2007, offered some explanation of
permissible issue advocacy for 501(c)(3) organizations active in
an election year, the guidance is not necessarily helpful to
every situation an organization may face. Examples discussed in
the revenue ruling are limited to the facts and circumstances of
those specific examples, and, the IRS warns, may not be
applicable in a broader context. The IRS anticipates challenges
from 501(c)(3) organizations conducting issue advocacy activity
that falls outside of the revenue ruling examples. In those
instances, the IRS will analyze the context within which the
issue advocacy communication is distributed, and whether the
manner of distribution and other facts and circumstances
surrounding the communication tips the scale toward support or
opposition of a candidate. The letter cautions that 501(c)(3)
organizations need to be careful about tying their issue
advocacy to a candidate's position on the same issues. Given
this lack of clear guidance on issue advocacy, groups conducting
issue advocacy should work closely with legal counsel on all
issue advocacy communications.
Finally, the IRS also noted that it will be watching to ensure
that 501(c)(4) organizations are paying their appropriate tax on
political expenditures (as required under section 527(f)) and
ensuring that they are not exceeding permissible limits on
political activity. Partisan political activity must be the
secondary function of a 501(c)(4) organization. To the extent
that a 501(c)(4) organization engages in partisan political
activity, it owes tax on the lesser of the expenditures for the
partisan political activity or the organization's investment
income.
New Form 990-N (E-Postcard)
Issue
As a result of the Pension Protection Act of 2006, small
organizations have a new filing requirements beginning in 2008.
Tax-exempt organizations that normally have annual gross
receipts of $25,000 or less and do not have to file Form 990 or
990-EZ now must file a new electronic form-Form 990-N, more
commonly known as the e-Postcard. Previously, these
organizations were not required to file with the IRS.
Status
The e-Postcard is due by the 15th day of the fifth month after
the close of the organization's tax year. For those
organizations whose tax year ends on December 31, the next
filing is due on May 15, 2009.
The e-postcard must be filed electronically on an annual basis.
It requires very basic information, including:
Organization's legal name
Any other names the organization uses
Organization's mailing address
Organization's website address (if applicable)
Organization's employer identification number (EIN)
Name and address of a principal officer of the organization
Organization's annual tax period
A statement that the organization's annual gross receipts are
still normally $25,000 or less, and
If applicable, a statement that the organization is terminating
(going out of business).
Organizations complete and submit the "postcard" online at
http://epostcard.form990.org/ . They will receive an email
confirming whether the form has been accepted.
Form 990 Re-design
Issue
In 2007, the IRS undertook a massive revision of Form 990, the
form used by 501(c) and 527 organizations to report annually to
the IRS. The new version was intended to: enhance transparency,
promote tax compliance, and minimize the burden on reporting
organizations. Tax-exempt organizations will use the new form
for the 2008 tax year.
Status
The IRS released-in final form-the new Form 990 in December
2007. Alliance for Justice submitted comments on an earlier
draft, and is pleased that the IRS heeded many of its
suggestions. The IRS is in the process of finalizing the
instructions that provide the much needed definitions and
guidance for filers.
Lobby Reform
Issue
In September 2007, President Bush signed into law the Honest
Leadership and Open Government Act of 2007 (HLOGA) which amended
[http://www.afj.org/assets/resources/nap/recent-congressional-lobbying-and-ethics-reform-memo.pdf]
the federal Lobbying Disclosure Act of 1995. In addition to
lowering the lobbying registration threshold and changing the
reporting requirements to quarterly, the law also adds a
semiannual requirement that lobbyists report their political
contributions and requires organizations to certify that their
lobbyists comply with the Congressional ethics and gift rules.
Status
The Secretary of the Senate and Clerk of the House has issued
guidance
[http://www.senate.gov/legislative/resources/pdf/S1guidance.pdf]
on the scope and breadth of these changes to federal lobbying
disclosure. The Secretary and Clerk do not have any authority to
issue regulations interpreting HLOGA. In lieu of regulations,
their guidance is critical to an organization's compliance and
understanding of their new obligations which went into effect on
January 1, 2008.
One-stop, electronic filing
The Secretary of the Senate and the Clerk of the House have
streamlined their filing requirements and developed a single
filing process. Previously lobbyists had to file separately with
both the Senate and House and follow their separate filing
procedures.
The forms that enable simultaneous filing with the Clerk and
Secretary may be downloaded from the House
[http://lobbyingdisclosure.house.gov] or Senate
[www.senate.gov/lobby] websites. All lobbying registration and
reporting forms must now be filed electronically.
Contribution reports (LD-203)
As a result of HLOGA, lobbyists now have additional disclosure
and reporting requirements under the federal Lobbying Disclosure
Act. Organizations that are registered and report lobbying
activity and their employee lobbyists must disclose certain
contributions and certify that they understand and have complied
with congressional gift and travel rules.
Every registrant and every individual lobbyist (including
employee lobbyists) must complete and sign their own Form LD-203
to certify that they have read and understand the gift and
travel rules that now apply through HLOGA and that they have not
violated these rules. For that reason, it is important for
organizations to file LD-203 on behalf of the organization and
to also inform the lobbyists listed on the organization's 2008
LDA lobbying disclosure forms (LD-2) that they must
electronically file form LD-203 for this semi-annual period. The
law recognizes the privacy rights of individual lobbyist's
political activity. Individual lobbyists report their
contributions directly to the Clerk of the House and Secretary
of the Senate-not their employers.
Form LD-203 must be completed and submitted electronically to
the Clerk of the House and the Secretary of the Senate by July
30, 2008 for the first semi-annual period (January 1-June 30,
2008). There are no provisions for filing extensions.
Instructions and electronic logins and passwords are available
at https://ld.congress.gov:4433/LC/ .
Contributions that must be disclosed on Form LD-203 include:
1. Contributions of at least $200 to federal candidates or
officeholders, political parties or leadership PACS;
2. Payments for an event to honor or recognize a covered
legislative or executive branch official;
3. Payments to an entity that is named for a covered legislative
branch official or to an entity or person in recognition of such
official;
4. Payments to an entity that is established, maintained or
controlled by a covered legislative or executive branch official
or to an entity designated by such official;
5. Payments for a meeting, retreat, conference or similar event
that is held by or in the name of a covered legislative or
executive branch official; and
6. Donations of at least $200 to a presidential library
foundation or presidential inaugural committee.
Campaign Finance Reform
Issue
Since its enactment in 2002, the Bipartisan Campaign Reform Act
(BCRA), also known as McCain-Feingold, has been causing
confusion among organizations about what they can and cannot do,
say, and spend regarding federal elections. The Act, as well as
the sets of regulations promulgated by the Federal Election
Commission to interpret the Act, has been repeatedly challenged
in court.
Status
Electioneering Communications
The FEC adopted regulations
[http://www.fec.gov/law/cfr/ej_compilation/2007/notice_2007-26.pdf]
that implement the Supreme Court decision in FEC v. Wisconsin
Right to Life. In June 2007, the Supreme Court determined that
the "electioneering communications" ban that prohibits
corporations from airing broadcast ads which refer to a federal
candidate within 30 days of a primary or convention and 60 days
of a general election is unconstitutional as it applies to
grassroots lobbying communications.
The new rule allows corporations and labor unions to air ads
that mention federal candidates as long as the ad serves a
purpose other than encouraging people to vote for or against a
federal candidate. It creates a "safe harbor" for ads that do
so. The safe harbor permits corporations and unions to run ads
that:
1. Do not mention any election, candidacy, political party, or
voting;
2. Do not take a position on any candidate's or officeholder's
character, qualifications, or fitness for office; and
3. Either:
Urge a candidate to take a particular position or action
with respect to the matter or issue, or
Urge the public to adopt a particular position and to
contact the candidate with respect to the matter or issue; or
Propose a commercial transition (such as purchase of a book
or movie).
This safe harbor protects the broadcast of grassroots lobbying
ads.
Ads that fall outside the safe harbor may still be allowed. The
FEC will look at several factors to determine whether, on
balance, the communication is susceptible of no reasonable
interpretation other than as an appeal to vote for or against a
clearly identified federal candidate. Only those communications
susceptible of such an interpretation can be prohibited.
Corporations and unions that spend more than $10,000 in a
calendar year on electioneering communications must adhere to
disclosure rules. The rules require disclosure of the names of
donors who contribute $1,000 or more for the purpose of
furthering electioneering communications; general donors to
organizations need not be disclosed.
Coordinated communications and federal election activity
On Friday, June 13, 2008, in Shays v. Federal Election
Commission, the U.S. Court of Appeals for the District of
Columbia struck down several sets of regulations. The FEC must
now either appeal the decision or rewrite the regulations
defining "coordinated communications" and "get-out-the-vote
activity" and "voter registration activity," and a regulation
allowing federal candidates to solicit soft money at state party
fundraisers.
Coordinated communications
BCRA mandates that any expenditure 1) made for the purpose of
influencing an election and 2) made in cooperation with a
federal candidate, federal candidate committee, or any political
party must be treated as an in-kind contribution to that
candidate, candidate committee, or party. This means all such
expenditures are subject to all of the limitations,
prohibitions, and reporting requirements of federal election
law.
Federal election law treats certain coordinated activities as
in-kind contributions. The FEC promulgated regulations to define
what constituted a "coordinated communication" and thus a
campaign contribution subject to federal contribution limits
(referred to as "hard money"). The regulations do not require
any formal collaboration with a candidate, candidate's
committee, or political party; instead, the FEC developed a
three-pronged test to determine when coordination occurs. This
test looks at: a) who paid for the communication, b) the content
of the communication, and c) the conduct of the parties
involved. Both the content and conduct prongs were at issue in
this case.
The FEC's regulations prohibit coordinated communications that
refer to a clearly identified Congressional candidate in that
candidate's jurisdiction 90 days or fewer before that
candidate's election and those that refer to a clearly
identified Presidential or Vice Presidential candidate beginning
120 days before that candidate's election. Prior to the 90/120
day prohibited windows, only those coordinated advertisements
that contain express advocacy or republish a candidate's
campaign material are impermissible. Thus, under the FEC
regulation, an organization and candidate could work together on
a communication as long as the communication does not contain
express advocacy or use material from a candidate's campaign and
the ad is run outside of the 90/120 day windows.
In its decision, the Court allowed the regulation of
communications during the 90/120 day windows but held that
communications outside the window must be further regulated. The
Court considered the regulation of those communications that
contain express advocacy or republish candidate material only to
be "functionally meaningless," determining that many other
communications likewise are intended to influence federal
elections. "Thus, the FEC's rule not only makes it eminently
possible for soft money to be 'used in connection with federal
elections, but it also provides a clear roadmap for doing so,
directly frustrating BCRA's purpose." Id. at 19 (citing
McConnell, 540 U.S. at 177 n. 69). According to the Court "Under
the present rules, any lawyer worth her salt, if asked by an
organization how to influence a federal candidate's election,
would undoubtedly point to the possibility of coordinating
pre-window expenditures." Id. at 24.
The conduct prong of the regulation limits the use of a common
vendor or former employee between an organization and candidate.
It "prohibits vendors and former employees from using 'material
information' about 'campaign plans, projects, activities, or
needs,' or sharing such information with the person funding the
ad, for 120 days." Id. at 25. The Court objected to the 120 day
limit, believing information holds value for more than 120 days.
Since the FEC failed to show "reasoning and evidence" that 120
days is adequate in preventing coordinated communications, the
Court rejected the rule. Id. at 26-27.
The Court did uphold the portion of the conduct test that allows
vendors and organizations to create "firewalls" to separate
those working on a campaign from those working for the
organization. In upholding the firewall safe harbor, the Court
says that it "makes it easier for candidates and organizations
to engage in protected speech by helping them hire consultants
and employees without fear of false accusations of
coordination." Id. at 30.
Federal election activity
Under BCRA, all "federal election activity" must be paid for
with hard money or other limited contributions. BCRA defines
federal election activity as "get-out-the-vote activity" and
"voter registration activity," but does not define those terms.
The Court rejected the FEC's definitions of "get-out-the-vote
activity" and "voter registration activity" as being too narrow.
The definitions apply to those activities that assist people in
voting or registering people to vote only (rather than also
applying to activities that encourage voting or registering
people to vote) and require that the contact must be
individualized, such as phone calls or in person visits (rather
than allow mass communications targeted to many people, such as
radio or TV ads). Id. at 32. The Court believes the restricted
definitions create loopholes in the rules for funding "federal
election activity" that "will allow the use of soft money for
many efforts that influence federal elections..." Id. at 33-34.
The FEC may either rewrite its regulations or appeal this case
to the U.S. Supreme Court.
Upcoming Events
Visit our exhibit booth at the Association of Small Foundations
conference in Denver.
Participate in an Alliance for Justice training from the
convenience of your office. We will be conducting one hour
workshops on the legal rules for foundation support for advocacy
and how foundations can evaluate advocacy grants and help build
their grantees' advocacy capacity. Our 2008 web training
schedule is:
Thursday, September 18, 2008: A Funder's Guide to Supporting
Advocacy
Tuesday, September 23, 2008: Advocacy Capacity Assessment and
Evaluation
Tuesday, November 18, 2008: Advocacy Capacity Assessment and
Evaluation
Thursday, December 11, 2008: A Funder's Guide to Supporting
Advocacy
Web workshops last approximately one hour. To register for any
of the above workshops, please call Jeff Prior at 202-822-6070.
Registration cost is $25 per attendee.
Visit our website for a full schedule of workshops
[http://www.afj.org/for-nonprofits-foundations/workshops-and-events/]
for grantmakers.
Download
[http://www.afj.org/assets/resources/nap/workshop-brochure-2008.pdf]
a description of workshop curricula for grantmakers offered by
Alliance for Justice. If you would like to schedule a workshop
for your foundation's staff or trustees, or if you would like
more information about our training program, send an email to
