Vol. III, No. 3
August-September 1995
FSC Holds Legislative Briefing With
Congressman, Staff on Nonprofit Regulation
The Free Speech Coalition held a
Legislative Briefing on Friday, July 21, 1995, in the Gold
Room of the Rayburn House Office Building. The briefing,
attended by a Subcommittee Chairman and four key
Congressional aides, lasted almost two hours.
Congressman Dave McIntosh (R-IN),
Chairman of the House Regulatory Subcommittee, interrupted
his attendance at an Appropriations Subcommittee Hearing to
attend the FSC briefing, where he spoke and answered
questions about his proposal to curb advocacy by nonprofit
groups which receive federal grants. Rep. McIntosh stated
that, while he and Congressman Ernest Istook (R-OK)
initially had sought a total ban on any advocacy by
nonprofit groups receiving federal funds, they later
modified their position. Reps. McIntosh and Istook now seek
to limit advocacy expenditures by nonprofit groups receiving
federal grants to 5 percent of income, so individuals who
inadvertently or minimally engage in advocacy do not imperil
themselves and their organizations through such minor
lobbying activities. The congressman noted that no bill has
been offered that would change the present tax code.
Rep. McIntosh expressed his interest in
understanding other views and asked for input from the
nonprofit representatives present. He was candid in his
discussion of his amendment to the HHS Appropriations bill,
noting that the House rules must be waived for the amendment
to be adopted as part of that measure.
Damon Tobias, assistant to Senator Larry
Craig (R-ID), told the briefing attendees that a bill _
which would prohibit 501(c)(4) organizations from receiving
any federal grants, had been introduced that very day. FSC
Co-Counsel Mark Weinberg, Esquire, noted that the
tax-exemption under Internal Revenue Code section 501(c)(4)
has served as a hodge-podge of different kinds of nonprofits
which are not clearly defined elsewhere in the tax code.
Discussion focused on the thousands of 501(c)(4)
organizations, such as volunteer fire departments, which do
not engage significantly in advocacy, and whether there was
a desire to preclude them from receiving federal
grants.
Melissa Patack, counsel to Senator Mitch
McConnell (R-KY), outlined Sen. McConnell's alternative to
the Levin Lobbying Disclosure bill. The Free Speech
Coalition has announced its support for Sen. McConnell's
alternative bill.
John Ladd, assistant counsel to the House
Constitution Subcommittee Chairman, Congressman Charles
Canady (R-FL), reported on that subcommittee's activities.
He expressed optimism that the Subcommittee would send a
lobbying disclosure bill to the floor of the House before
the end of the year, and said that added hearings would be
held after Congress' August recess. (Note: Ladd subsequently
reported that the Senate-passed Lobbying Disclosure bill may
be taken up by the full House and passed without action by
the Canady panel).
Beth Vance, former staff director of the
Oversight Subcommittee of the House Ways and Means
Committee, and current chief Democratic staff member on that
panel, reported that the question of intermediate sanctions
against nonprofit groups is still high on the agenda of that
Subcommittee. The proposed bill, drafted by the full
Committee last year and put onto the House version of the
GATT treaty agreement, would impose excise taxes on
violations of private inurement rules by officials of
nonprofit groups. Such taxes are expected to raise
approximately $26 million per year, which, while small
compared to other federal revenue raising provisions, may be
attractive enough to elicit inclusion in any future tax
bill. The Free Speech Coalition has expressed skepticism
about these proposals, because of the potential of
delegating too much power to IRS bureaucrats.
FSDEF President Testifies on House Lobbying Reform
Bill
Edythe Ledbetter, Vice President of the
Center for Marine Conservation, and President of the Free
Speech Defense and Education Fund, testified last May before
the House Judiciary Committee. Ms. Ledbetter testified that
the House of Representatives' new lobbying reform bill would
impose requirements which would over-burden current
nonprofits and prevent new nonprofits from forming.
Ms. Ledbetter, responsible for ensuring
that the Center for Marine Conservation complies with all
lobbying registration and filing regulations, and that it
accounts for all resources devoted to lobbying activities,
told the committee that the new lobby reform bill, H.R.119,
"would result in excessive and wasteful reporting
requirements and provide the public and the Congress with no
useful information concerning nonprofit organizations." She
pointed out that IRS Form 990, which all nonprofits must
file annually, already describes how much money was used for
lobbying activities and where the money was spent. "It is
available to any member of the public that requests it,"
said Ms. Ledbetter.
H.R.119 would require lobbying groups to
register separately with a new agency, to be created if the
bill passes. Ms. Ledbetter says this duplicative
registration would double the effort and costs of regulatory
compliance. She warned that the new bill might discourage
formation of new groups of citizen activists, because "the
regulatory threshold might be so high as to stifle
legitimate and important communication." She told the
committee that "the groups you are hurting most are the
groups that you most want to hear from, the smaller, newer
groups that can least afford or pay for the massive costs of
H.R.119."
Ms. Ledbetter pointed out another costly
burden imposed by H.R.119, which is identical to a bill
passed by the House last year: a cloudy definition of
lobbying. "In that bill, `lobbying' seems to have included
all communications regarding federal contract administration
matters. If a nonprofit administers a federal grant, were
you `lobbying' if you discussed it with federal officials?"
Ms. Ledbetter asked members of the House Judiciary
Committee. Ms. Ledbetter said that if H.R.119 becomes law,
it will eventually force judges to define what ongress meant
by "lobbying." "The technicalities are so confusing that no
one will know how to conform, and one could only hope that
some people get charged with violations soon and legal cases
settle some of the issues. We do not want to live under such
a cloud _ a cloud which would choke off much needed and
important communication with our lawmakers," Ms. Ledbetter
said.
Ms. Ledbetter suggested that the
Judiciary Committee consider approaches which would be less
burdensome to nonprofits: "Require non-profit groups that
lobby to file their IRS Form 990s with all appropriate
lobbying registration offices." "Exempt nonprofits from the
bill, since they are already reporting to the IRS and
disclosing to the public similar information about their
lobbying and grassroots lobbying activity." Since the
desired reporting is already required under law, no further
regulation of nonprofits appears necessary.
Ms. Ledbetter's testimony sent a clear
message to one member of the House Judiciary Committee who
supports increased communication: if this bill is passed
into law, communication with lawmakers would become
restricted to only those organizations who could afford to
communicate.
FSC Considers Challenge to AICPA Rule
The Litigation Committee of the Free
Speech Coalition is evaluating a legal challenge to the
anticipated establishment of a new rule by the American
Institute of Certified Public Accountants (AICPA). This new
rule would modify the existing standards for the allocation
of joint costs by nonprofit organizations where fundraising
is part of the expenditure, by requiring virtually all such
joint costs to be characterized as fundraising costs.
In 1993, the AICPA circulated its
proposed new rule (known as the Exposure Draft) for comment.
By early 1994 it had received more than 300 sets of written
comments for or against the proposal. Reportedly, 90 percent
of the individuals and organizations (and 98 percent of the
nonprofit organizations, including FSC) filed comments which
generally opposed the Exposure Draft. Since those comments
were filed, the AICPA has taken no official action. However,
FSC was recently informed that the AICPA intends to
disregard the opposition and establish the new rule,
notwithstanding overwhelming opposition to the proposal, and
the long passage of time, without any action by the
AICPA.
Adoption of the Exposure Draft would
revolutionize the accounting rules governing joint costs of
nonprofit organizations involved in fundraising, and
dramatically affect nonprofits. For example, the resultant
dramatic increases in fundraising expenditures reported in
financial statements would severely limit opportunities for
fundraising (audits which report that more than 25 percent
of a 501(c)(3)'s expenditures went to administrative costs
virtually ensure rejection of applications to participate in
the Combined Federal Campaign), and, combined with a
constant barrage of media attacks on nonprofits, would only
serve to chill the flow of private donations.
Many commentators have characterized the
proposed new rule's procedures as inconsistent with the
realities of accounting for nonprofit organizations,
particularly advocacy organizations. The procedures are also
criticized as preventing accountants from accurately stating
the actual proportions expended on various nonprofit
activities; 77 percent of those filing comments reportedly
objected to the Exposure Draft for this reason alone. The
AICPA's silence regarding the Exposure Draft led many to
hope that the volume of opposition to the proposed changes
had caused the Exposure Draft to be withdrawn. Now, if the
AICPA approves the new rule, as expected, FSC, possibly
working with other nonprofit organizations, is considering
taking legal action to try to prevent the new rules from
being implemented.
Such a legal challenge to new accounting
standards promulgated by the AICPA, which has been likened
to a quasi-governmental body, would be analogous to
challenging an invalid government regulation.
Eye on the Bureaucracy
(Chip Heartfield of Squire &
Heartfield Direct compiles this update on state
activities.)
Illinois
After filing in Illinois for a two year period in
mid-1993, one professional fundraising counsel (PFC)
received a notice 18 months later announcing: YOUR
ORGANIZATION IS NOT REGISTERED ... WITH THIS OFFICE. It
turns out that the state had just gotten around to
determining that the 18-month-old application was allegedly
incomplete. The application had not contained a notarized
affidavit stating that the PFC did not have access to, or
control of, the funds raised, even though this fact was
spelled out in the contract.
Michigan
Perhaps Michigan should contact a professional direct
marketing firm for help with its regulatory mailing
procedures. In May, a professional fundraising counsel
received renewal materials from the state in a plain brown
envelope, with no identifying language, no request for
forwarding or return, and no return address anywhere.
The Free Speech Coalition, Inc. is a
nonpartisan, nonprofit organization which educates, lobbies,
and litigates to defend the rights of advocacy organizations
and their members. FSC needs your support to continue its
fight to protect the rights of citizens to associate
together and exercise their First Amendment right to
petition their government for redress of their grievances.
Contributions to the Free Speech Coalition, Inc. are not
tax-deductible. For information on FSC legislative programs
and membership, please call 202-544-1114.
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