Vol. II, No. 1
April 4, 1994
Action Needed to Stop Bad Lobbying Regulation
Immediate Action is needed by advocacy
groups to stop the imposition of yet more burdensome
regulation. Some may think that, like "Truth in Lending,"
how could anyone be opposed to "Lobbying Disclosure"? Yet
within the bill now racing through Congress, advocacy groups
have a lot to oppose. The Lobbying Disclosure Act (H.R. 823;
S. 349) is set to go to Conference Committee. This is a top
legislative priority for advocacy groups.
If enacted, this bill would require all
nonprofit organizations that lobby to file an entire set of
reports on all legislative contacts they have with the
Congress and all regulatory contacts they have with the
agencies. This would be in addition to the information
already filed on IRS Form 990.
Nonprofits are now faced with a situation
in which the House has passed the bill (March 24, 1994) and
the Senate passed a similar bill (May 6, 1993). The
provisions of each bill are sufficiently different that
there is room for the Conference Committee to make
adjustments which could improve the situation.
FSC has been working with the Independent
Sector and the Alliance for Justice to exempt all nonprofits
from these burdens. Originally, FSC sought an amendment
which would have allowed nonprofits which lobby to file with
the Justice Department the same Form 990 that they already
file with the IRS, in full compliance with the new
bill.
Unfortunately, Independent Sector and
Alliance for Justice, groups that focus on the needs of
section 501(c)(3) organizations, have decided to support an
amendment which would throw advocacy organizations over the
side, requiring advocacy groups to be subject to the double
reporting of legislative activity under the act, while
exempting section 501(c)(3) organizations. The rights of
advocacy groups and considerations about the impairment of
the First Amendment right to petition government are
apparently negotiable.
Interestingly, the lobbying "abuses" that
have driven Congressional action were not undertaken by
section 501(c)(4) organizations, but by 501(c)(3)
organizations that would be exempted under the Independent
Sector's "preemptive surrender" approach.
Unless there is a shift in the policy of
these other groups, FSC will be forced to take a different
approach. The FSC will continue to oppose the bill in its
present form, but is not interested in compromising away the
rights of any group. If it cannot be amended, we will shift
gears to work for the defeat of the entire bill.
Advocacy groups must make their views
known to the House Conferees: John Bryant (D-TX), Dan
Glickman (D-KS), Mike Synar (D-OK), George Dekas (R-PA), and
Hamilton Fish (R-NY). Senate Conferees have not been named,
but are expected to include John Glenn (D-OH), Carl Levin
(D-MI), David Pryor (D-AR), Bill Roth (R-DE), and Thad
Cochran (R-MS). Please call FSC Lobbyist Howard Segermark at
(202) 547-2222 to receive by fax an updated list of
conferees, addresses and telephone numbers, as well as
arguments to use.
Congress returns from its Easter recess
on Monday, April 11, 1994. Please use this week effectively
to make your views known.
FSC Testifies against FEC Limitations on Advocacy
Organizations
FSC Co-counsel William J. Olson
testified on March 8, 1994 before the Subcommittee on
Elections, of the Committee on House Administration, of the
U.S. House of Representatives, on the subject of the FY 95
budget request of the Federal Election Commission. This
hearing provided a perfect opportunity for advocacy groups
to make their views known about three recent FEC regulatory
actions which threaten the First Amendment activities of
these groups and their members.
The new FEC regulations which dictate
that all advocacy organizations having a separate segregated
fund (SSF) or making partisan communications must confer
specific voting rights on their members are an unnecessary
intrusion into the organizational structures of these
groups.
The proposed FEC regulations which
effectively abolish the right of advocacy organizations to
spend their treasury funds on independent expenditures are
contrary to the decision of the U.S. Supreme Court, which
has expressly recognized that right.
Lastly, the FEC regulations which
preclude any organization from using the name of any
candidate for public office in the name of a "special
project" to support or oppose that elected official are
completely without justification.
Only four organizations testified before
the Subcommittee at these hearings. Three groups testified
that the FEC needed to be more aggressive. Only the Free
Speech Coalition defended the constitutional rights of
citizens to participate in the electoral process. (Please
call 703-356-6912 for a copy of the FSC testimony.)
FSC Opposes Additional IRS Burdens on Advocacy
Organizations
FSC Co-Counsel Mark B. Weinberg has
briefed the IRS on the view of many advocacy groups that no
new burdensome disclaimer requirements are necessary. The
IRS sought comments on proposed new disclaimers aimed at
preventing for-profit firms from deducting their
contributions to IRC section 501(c)(4) organizations. FSC
has also filed written comments with the IRS on these
proposed regulations.
FSC Investigates Challenge to AICPA Exposure Draft
The FSC is looking into the possibility
of a legal challenge to proposed action by the American
Institute of Certified Public Accountants (AICPA) modifying
the rules for the allocation of joint costs by nonprofit
organizations where fundraising is part of the expenditure.
The AICPA last year circulated for comment a document
(Exposure Draft) containing the proposed new changes, and
the FSC and many others submitted comments in opposition.
(Please call 703-356-6912 for a copy of the FSC
comments.)
The Exposure Draft, if adopted, would
effectively revolutionize the accounting rules relative to
joint costs incurred by nonprofit organizations,
particularly those involved in direct mail fundraising. It
sets forth a set of proposed procedures which many have said
are inconsistent with the realities of accounting for
nonprofit organizations, particularly advocacy
organizations, and which have been criticized as not
allowing accountants to accurately reflect the relative
proportions of various activities for such
organizations.
It is hoped, with the reported volume of
opposition to such changes, that the Exposure Draft will be
withdrawn. In the event that it is not, however, and if it
is adopted and becomes part of "generally accepted
accounting principles" (GAAP), FSC is exploring possible
legal action.
Such a suit could be based on the fact
that the new standards are arbitrary, that they are
internally inconsistent (they would produce financial
statements that were not prepared in accordance with any
reasonable accounting principles), that they have no
reasonable foundation, that they embody certain factional
(and even self-interested) views, and that -- because of the
widespread authority of the AICPA -- they would wrongfully
force accountants (and thus the clients of accountants) to
follow them. The Exposure Draft could allow AICPA, acting as
a quasi-governmental body, to undo, through the back door,
many Constitutional protections for nonprofits identified by
the U.S. Supreme Court in the Village of Schaumburg trilogy
of cases.
Many consequences would flow from the
distorted reporting of fundraising costs mandated by the
Exposure Draft. Requiring an organization to allocate
virtually all joint costs to fundraising would materially
and adversely impact further support. For IRC section
501(c)(3) organizations applying for participation in the
Combined Federal Campaign, an auditor's report identifying
more than 25 percent of expenditures for non-program costs
is virtual assurance of rejection.
New Ways To Penalize Nonprofit Organizations
Congressman "Jake" Pickle (D-TX) held
hearings Wednesday, March 16, 1994 on the topic of finding
new ways to punish nonprofit organizations that violate IRS
regulations, but don't deserve to have their status revoked.
Testimony was received only from Assistant Secretary of the
Treasury for Tax Policy, Leslie Samuels. For a copy of the
Samuels testimony, please call 703-356-6912. This testimony
outlines the Clinton Administration's desire to strengthen
the hand of the IRS, which, our friends on the Hill say,
without a lot of work, will likely be adopted by the
Committee in any tax bill to be acted upon this year.
Here's one of the problems. In the case
of "private inurement" there would be a special excise tax
imposed on the nonprofit organization. Most people think of
private inurement as pay to employees that didn't earn or
deserve it, or "sweetheart" deals with officers and
directors. But there are provisions in their proposal which
would regulate contracts and other economic transactions
that, in the mind of any IRS official, may not be in the
best interest of the nonprofit organization.
The problem is that the definition of
"private inurement" is extremely vague. Some speculate that
a disgruntled employee or political enemy can complain to
the IRS that a group is in violation of the law because it
contracted with a printing firm that wasn't the lowest bid
(even though it may have given the best service). In
response, the IRS might try to tax your organization 10
percent of the value of that contract.
The proposal is a Pandora's box for
conducting activities; nonprofit organizations will have to
check with their lawyer every time they buy office supplies
from the high-cost shop around the corner instead of the
discount place in the suburbs.
The Free Speech Coalition has been in
direct contact with the Pickle Subcommittee staffers and has
been asked to prepare comments and alternative legislative
language which would improve this proposal. FSC's
co-counsels are reviewing the Treasury testimony and will
report back regarding the text of the Clinton
Administration's bill as soon as the Treasury releases it
later in April. If the bill cannot be improved, FSC will
work to defeat it.
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 programs and
membership information, please call 703-356-6912.
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