· Customer Service Problems Mount at Republican-Starved IRS
· How to Dissolve a Maine Nonprofit Corporation
Customer Service Problems Mount at Republican-Starved IRS
The Internal Revenue Service is struggling more than ever to keep up with its workload, including in the tax-exempt division. I now find myself telling nonprofit clients to expect longer wait times for anything they might need, whether it’s applying for exemption or fixing a mistake on a past filing.
What’s going on? Well, a big part of the problem is that Republicans in Congress have successfully starved the agency of adequate funding for many years. Overall funding for the IRS fell more than 19% on an inflation-adjusted basis from 2010 to 2021 and has resulted in the loss of15,000 employees. Depleted funding, worsened by the repeated waves of covid outbreaks, has led to a variety of harmful impacts, including poorer customer service for nonprofits (as well as individual and business taxpayers). Not to mention, it’s easier than ever for wealthy people or businesses to avoid their fair share of taxes because of a shortage of enforcement agents.
To be fair, I have had mostly positive experiences over the years with the IRS employees, when I could get someone on the phone. But nowadays I know to call the Tax Exempt hotline first thing in the morning to avoid the hour or two of listening to their particularly grating on-hold music. And I pray that my clients haven’t made mistakes in their 990 or other filings, as fixing any problems can take months of waiting. Finally, I know to keep my fax machine at the ready, as the IRS has still not entered the email era.
Please understand, I am not trying to be unduly partisan in blaming Republicans for these problems. But I consider it more in the realm of objective fact than opinion to assert that Republicans have turned an aversion to taxes into a widespread campaign to starve and demonize the IRS. And as more of us experience poor customer service from the IRS, we should be aware that there are people in power, who overwhelmingly if not exclusively belong to the Republican Party, who have made budget decisions that have in large part created the current mess.
How to Dissolve a Maine Nonprofit Corporation
Nonprofits come and go, and that’s a good thing. In a dynamic world, it is perfectly healthy for new organizations to spring forth in response to budding energy around an idea or a need, and for others to be laid down when such energy wanes. As an attorney specializing in nonprofit organizations, I field frequent questions about how to dissolve a nonprofit. Here are some guidance and tips if your nonprofit is considering winding down.
There are two chief ways, formal and informal, to lay down a Maine nonprofit corporation. The formal method involves a series of steps, including a Board decision, filing two specific forms with the Maine Secretary of State (the Statement of Intent to Dissolve and the Articles of Dissolution), and filing a final IRS Form 990. Although not especially difficult, there are enough technical aspect to the Secretary of State filings that it usually is worth it to have the assistance of an attorney if taking the formal approach.
The informal path is one of inaction, whereby the nonprofit is administratively dissolved for failing to file an Annual Report with the Maine Secretary of State, and loses its 501(c)(3) status for failing to file an IRS Form 990 for three consecutive years.
Which approach is better, the formal or informal? There’s no universal answer. For small organizations that are required to file only the Form 990-N e-postcard and not the 990-EZ or full 900, and where there is no debt or other complications, I often recommend the informal approach as the simplest and most economical path. For mid-size or large organizations, the formal approach is usually more appropriate. The filing of a final 990-EZ or full 990 is especially important, because there are financial penalties for failing to file on time, and these penalties would constitute a liability that complicate any dissolution (see below). The 990-EZ and 990 also require reporting certain dissolution information on Schedule N. In contrast, there is no financial penalty for failing to file the 990-N, only revocation of 501(c)(3) status after non-filing for three consecutive years. But if the intent of the organization is to dissolve, then the loss of 501(c)(3) status causes no harm.
Whether the formal or informal approach is taken, it’s important to keep in mind two key principles: First, the nonprofit must make sure to resolve all liabilities and pay off all debts before dissolving. In fact, the forms filed with the Maine Secretary of State include a requirement that there are no outstanding liabilities. Second, any remaining funds and property must be disbursed in accordance with its Bylaws and Articles of Incorporation. For 501(c)(3) organizations, these documents require that such funds be transferred to another 501(c)(3) organization or to a governmental agency. If the organization owns real estate, then there must be a formal deed to convey the property, and the assistance of an attorney is strongly recommended.
Some other dissolution tips:
* The decision to dissolve should also be documented in the minutes of a final Board Meeting, and these minutes should be read aloud and approved at the conclusion of the final meeting.
* If the organization has purchased insurance policies, then the Board might wish to purchase tail policies to cover any claims against the organization or its directors that might arise after the dissolution.
* The Board should craft a plan for who will maintain custody of key records after the dissolution, and this plan should be documented in the minutes of the final Board meeting. Just because the organization is dissolved doesn’t mean it cannot be sued, so maintaining key financial and other records is important. Records can be held by the Secretary, or any other responsible individual, and there should be an online or physically separate backup of any records. I generally recommend that such records be maintained for six years, which covers the applicable statutes of limitations for most Maine and federal legal actions.
* Even after the dissolution forms are filed with the Maine Secretary of State, the Board officers can wind up the affairs of the organization, such as transferring funds, closing bank accounts and other service accounts, etc. So it’s not essential to sequence all of the closing steps prior to the filing of the dissolution forms.
Still looking for more guidance? Here are a few additional resources:
In this Issue:
· Remote Membership Meetings Authorized Under New Maine Law
· Nonprofit Dark Money Wins At U.S. Supreme Court
· Time to Give a Nudge to Donor Advised Funds
· E-Bulletin Information
Remote Membership Meetings Authorized Under New Maine Law
During the pandemic some Maine nonprofits have been twisted into knots trying to figure out whether remote Board and membership meetings are permitted. I first wrote about this issue in my May 2020 E-Bulletin.
Fortunately, the Maine Legislature has provided clarity by passing a new law that expressly authorizes full or partial online membership meetings. Note that the new statute only covers membership meetings, and not Board meetings. But Board meetings can already be held remotely under a separate provision of the Maine Nonprofit Corporations Act, so long as everyone can hear each other.
In order for a remote membership meeting to be valid, the nonprofit must establish guidelines and procedures for such meetings. These guidelines must include reasonable measures to: (1) verify that each person participating remotely is indeed a member or proxy holder; (2) ensure that the members have a reasonable opportunity to participate in the meeting and to vote on submitted matters; and (3) to maintain records of any votes or other actions.
I searched online and didn’t find a perfectly suitable set of sample guidelines and procedures for a typical nonprofit membership organization. But this site (see Section II) comes pretty close if the term “members” is substituted for “trustees.” And see here for a great set of best practices on how to prepare for and manage remote membership meetings.
In addition to allowing remote meetings, the statute also allows a Board to override the Bylaws in determining when and where a membership meeting can beheld. This provision is helpful because many Bylaws establish a fixed time and location for such meetings. Although these details might have seemed like a good idea at the time, often they are no longer suitable as the organization has evolved.
Nonprofit Dark Money Wins at U.S. Supreme Court
A recent Supreme Court decision was an unfortunate win for those seeking to expand dark money in the nonprofit sector. In Americans for Prosperity Foundation v. Bonta, the Court held that the State of California could not require organizations to report its major donors to the State Attorney General as part of the charitable solicitation registration process. The state required that all organizations registering to fundraise in California include a copy of its IRS Form 990 Schedule B, a document that lists the names and addresses of any donor who gifts $5,000 or more in the filing year.
Chief Justice Roberts’ six-to-three majority opinion found that the reporting requirement was unconstitutional because it unnecessarily burdened donors’ First Amendment rights and was not narrowly tailored to an important government interest. Although the opinion recognized the importance of preventing fraud in the charitable sector, that goal did not justify requiring the reporting of “an enormous amount of sensitive information collected through Schedule Bs.” The opinion further notes that the State rarely used the Schedule B information to initiate fraud investigations, and could obtain the same donor information in a more targeted way such as by subpoena or audit letter. It also didn’t help that the Attorney General’s lax cybersecurity practices allow for data breaches of the confidential information.
On its own, this decision does not alter the way most states or the IRS regulate the charitable sector. In addition to California, only New Jersey and New York required including Form 990 Schedule B in their charitable solicitation filings. But some of us in the nonprofit world, including me, fear that this decision will have long-term spillover effects that will make it harder to detect fraud and other forms of noncompliance, and easier to hide “dark money” influences on political activities. For instance, the Court’s reasoning might very well pave the way for a challenge to the section of the Internal Revenue Code that requires the confidential reporting of major donors to the IRS on the Form 990 Schedule B. As Justice Sotomayor wrote in her dissent, “Today’s analysis marks reporting and disclosure requirements with a bull’s-eye. Regulated entities who wish to avoid their obligations can do so by vaguely waving toward First Amendment ‘privacy concerns.’” And see here for more on the dark money implications.
Time to Give a Nudge to Donor Advised Funds
Speaking of money, Senator Angus King has recently joined an effort to enact new spending requirements for Donor Advised Funds (DAFs). DAFs were established many years ago as a way for a donor to claim an income tax charitable deduction while not having to commit to a specific charitable recipient. The DAF serves as an intermediate holding organization for the donated funds; the funds can never be returned to the donor but are intended to be passed on to other charities.
Upon their inception, DAFs seemed like a promising charitable vehicle, another tool in the philanthropic toolbox. But over time, many in the nonprofit world have come to view them as a disservice to the charitable sector. The problem is that DAFs are not required to make any distributions to charitable organizations according to any time schedule. Thus, donors are parking massive amounts of money (upwards of $140 billion) in these holding organizations for years on end. Meanwhile, the DAFs can be run by reputable organizations such as the Maine Community Foundation, or by big-business entities such as Fidelity or Schwab. In either case, the DAFs have no incentive to make gifts to working charities unless requested by the original donors, both because they earn management fees on the parked funds and because they wish to maintain good relations with the donors. So the money just sits there, indefinitely warehoused and doing no good for the charitable sector.
Recently, a group of philanthropists has formed the Initiative to Accelerate Charitable Giving in order to push for reforms of DAFs and private foundations. You can read here about the Initiative’s proposed reforms, which include a 15-year time limit for DAFs to disburse donations to working charities. In turn, Senator King has stepped forward with a Republican colleague to sponsor the Accelerate Charitable Efforts Act, which by and large follows the Initiative’s proposals. Please take a moment to thank Senator King for co-sponsoring this important bill that would benefit working charities, and let Senator Collins know you’d like her to follow suit.
Over the years, I’ve fielded countless questions about fiscal sponsorship, a type of arrangement has become a growing part of the nonprofit world. Recently, I collaborated with the Maine Association of Nonprofits to establish a sparkling new and improved Maine Fiscal Sponsorship Agreement Annotated Template.
As the term is generally used, fiscal sponsorship refers to an arrangement whereby a recognized 501(c)(3) nonprofit provides certain fiscal services for an organization that is not a 501(c)(3). The chief reason animating most fiscal sponsorships is to allow the non-501(c)(3) organization to piggyback on the501(c)(3)’s eligibility to apply for private foundation grants and to offer charitable deductions to individual and business donors.
Although there is very little formal law that guides fiscal sponsorship, the overriding concern of the Internal Revenue Service is that the arrangement not be a simple “conduit” or “pass-through,” whereby the Sponsor collects checks or signs grant applications and then simply passes on any money received from donors or grant funders. Rather, the IRS requires that the Sponsor provide meaningful oversight of the Sponsored Organization’s activities, to ensure that these activities further the tax-exempt charitable (or educational, religious, etc.) purposes of the Sponsor. In IRS legalese, any funds collected and disbursed by the Sponsor must be “subject at all times to the ultimate direction and control” of the Sponsor. Thus, the Sponsor legally assumes responsibility for the proper expenditure and accounting of all funds received and disbursed for the Sponsored Organization’s activities. For those seeking extra credit, you can read the three IRS rulings from the 1960s that establish the fundamentals of these concepts: RR 63-252, RR 66-79, and RR 68-489.
For accounting purposes, all funds received are usually placed in a restricted account or sub-account maintained by the Sponsor, and disbursed either to the Sponsored Organization or directly to third parties for expenses of the Sponsored Organization. All such funds received by the Sponsor must be reported as the income of the Sponsor for both tax and financial reporting purposes, which means that such income might tip the Sponsor into new reporting requirements. For example, if these additional funds bring the Sponsor over the $50,000 threshold in average annual revenue, it must start filing a full Form 990-EZ or 990. Likewise, if the Sponsor has more than 35 Maine donors contributing over $35,000 per year, it must obtain a charitable solicitation license under Maine law. Meanwhile, funds transferred to the Sponsored Organization are typically reported as grant expenses by the Sponsor. The Sponsor typically charges an administrative fee for its services, generally in the 5% to 15% range.
The above summary describes only the most common kind of fiscal sponsorship arrangement, but there are many different variations. Sometimes, the fiscal sponsorship can be with an individual or an unincorporated association instead of a nonprofit corporation, although these arrangements can carry additional risk for the Sponsor. For a thorough overview of the various types of fiscal sponsorships, I recommend the book Fiscal Sponsorship:6 Ways to Do it Right. Additional resources can be found at fiscalsponsordirectory.org and fiscalsponsorship.com. A Boston-based organization that serves as fiscal sponsor for many organizations throughout New England is TSNE MissionWorks.
Not exactly breaking news, but many nonprofit organizations are still not aware of newfound eligibility for the Employee Retention Tax Credit (ERTC) in the December 2020 Covid relief bill. Previously, if an organization received a Payroll Protection Program loan or grant, it could not also receive the ERTC.T hat prohibition was eliminated retroactively, so many nonprofits who were ineligible should now check to see if they can benefit from the ERTC.
The ERTC is refundable tax credit against the employer’s share of Social Security tax for a percentage of the qualified wages they pay to employees in 2020 and the first two quarters of 2021. Qualified wages are capped at 70% and limited to$10,000 per employee per calendar quarter in 2021. Thus, the maximum employee retention credit available is $7,000 per employee per calendar quarter, for a total of $14,000 for the first two calendar quarters of 2021. That said, there can’t be any double dipping, i.e., claiming PPP forgiveness and the ERTC for the same payroll expenses.
For all the important details, see this essential summary from the Maine Association of Nonprofits.
As you may recall, the original federal Covid relief bill established a $300universal (“above-the-line”) charitable deduction for non-itemizers in 2020. In the December 2020 relief bill, Congress extended this deduction through 2021and expanded the cap to $600 for joint filers. There will likely be pressure to make this universal charitable deduction permanent, so stay tuned for more updates. Although most donors are motivated by a desire to do good and not by tax deductions, charities might wish to promote this extended and expanded benefit in communications with your supporters, as an extra enticement. More details here.
I send the Maine Nonprofit Law E-Bulletin 3 or 4 times per year to provide updates and analysis on legal and policy matters respecting Maine nonprofit organizations. I do my best to keep the messages brief, timely, and useful to nonprofit staff, board members, volunteers, advisors, and donors. At the same time, no one may rely on these E-Bulletins as legal advice, and I encourage you to consult a qualified attorney for advice on any particular situation.
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Heads up to all Maine nonprofit employers having 11 or more employees: Maine’s earned paid leave law takes effect on January 1. I wrote about the basics of the new law in the May 2019 E-Bulletin. Maine’s law is the first in the nation to provide paid leave for any reason—including vacation—and not just sick leave. Over the past year, the Maine Department of Labor has been working on administrative rules to flesh out the details, and the Final Rules and a detailed Frequently Asked Questions are hot off the press. Here are five key takeaways:
Most Maine nonprofit organizations have leave policies that are more generous than the provisions of the new law, both in terms of total earned leave time and carryover of unused time from prior years. But in any event, many policies will need at least some tweaking to conform to the details of the new law, and the time to ensure compliance is now, not in January. Penalties of up to $1,000 per violation apply, with each improper denial for each employee treated as a separate violation.
Meanwhile, when Covid showed up last March, one of the initial responses by Congress was the Families First Coronavirus Response Act, which established a temporary Covid-related paid leave law that applies to all employers, nonprofit and otherwise. The law requires up to 80 hours of fully paid leave for an employee who is quarantined or has Covid symptoms, or 80 hours at two-thirds rate for an employee who has to care for an individual subject to quarantine or for a child whose school is closed or switched to remote learning. In addition, employees employed for at least 30 days are eligible for up to 10 more weeks of paid family leave to care for a child under certain circumstances related to Covid, including schools that have transitioned to fully or partial remote learning. This federal paid leave law overrides any state employment laws, and is in effect until December 31, 2020, unless extended by Congress, which is certainly a possibility given the continued impact of Covid.
However, subsequent guidance (see Questions 58 and 59) issued by the federal Department of Labor established a limited exemption for employers having fewer than 50 employees. To claim this exemption, the employer must internally document that it meets at least one of the following three criteria:
Claiming the exemption should not be undertaken lightly, as an employee can challenge the employer’s claim of such an exemption with the Department of Labor, in which case certain penalties could apply. See here for a smart take on the nuances of claiming the exemption.
Most nonprofit administrators know that if they pay an independent contractor (including an attorney) more than $600 in a calendar year, they must report the income to the IRS and the contractor on the Form 1099-MISC. But starting for the 2020 tax year, the IRS is rolling out a new Form 1099-NEC (Non-Employee Compensation) for these payments. The rest of the 1099-MISC will stay the same. The filing deadline for the 1099-NEC will be February 1, 2021. So don’t be caught flat-footed come January, and order your 2020 1099-NEC’s now.
The covid crisis has affected Maine nonprofit organizations in countless ways. Among the most common questions coming to the Maine Association of Nonprofits these days is whether Board, membership, and committee meetings can be held via conference call or online videoconference. The good news is that for the vast majority of organizations, conference call and video meetings are indeed allowed. Here are some questions you’ve asked, from easy-peasy to mind-bending.
Good question. Let’s start with § 705(2) of the Maine Nonprofit Corporation Act, which states that unless expressly restricted by the organization’s Bylaws or Articles of Incorporation, any Board or committee meeting can be attended in whole or in part by “conference telephone or similar communications equipment” so long as everyone can hear each other. “Similar communications equipment” presumably includes videoconference services such as Zoom, but would not allow meetings where there is no live audio, such as chat rooms, instant messaging, or email (although see below for making decisions outside of meetings by email).
Most Bylaws include language that mirrors this statutory provision. Others are silent on the question of conference call or video meetings, but that’s not a problem because the statute fills that silence with its default provision allowing them. The only trouble would arise is if an organization’s Bylaws expressly prohibit video or telephone Board or committee meetings, but in my 17 years of practice I have yet to come across an organization with this problem.
I’m glad you asked. Section 602(1) of the MNCA provides that “Meetings of members, if any, may be held at such place, either within or without this State, as may be provided in the bylaws. In the absence of any such provision, all meetings shall be held at the registered office of the corporation in this State.”
Hopefully, your Bylaws have a provision that allows for maximum flexibility for membership meetings, something along the lines of “Membership meetings may be held at such time and place as the Board of Directors may determine.” In that case, the Board would have the appropriate authority to hold a membership meeting online. Of course, membership meetings typically involve many more attendees than a Board or committee meeting, so the individual or group managing the meeting should take care to do advance planning on how to ensure a smooth flow. See below for some tips.
Granted, this is a trickier situation. There’s no perfect answer. On the one hand, it’s a violation of the Governor’s Restarting Plan for people to gather in groups greater than 10 (tentatively rising to 50 in June, but only where social distancing can occur in accordance with rigorous guidelines). On the other hand, your Bylaws have a specific requirement to meet in person, and sometimes they even specify a particular month of the year. Either way, your organization has to violate something – either the Governor’s order or your Bylaws. One violation risks the spread of a deadly disease, possible criminal penalties, and possibly even civil liability under tort law if people were to get sick from a meeting; the other is substantively harmless, and might generate a few disgruntled complaints. I think you can see where I’m going with this…
As I see it, here are your two chief options:
What, you have more questions? Go ahead, I have time for two more…
Ooh, good question. How to respond to tech snafus is a judgment call by the President or whoever is running the meeting, based on a number of factors, including the importance of the subject matter and the scope of the tech issue (is it just one person failing to hear, or a widespread problem?). In some cases, it might be perfectly reasonable to continue with the meeting and everyone does their best. In other circumstances, it might be best to reschedule the entire meeting, or at least postpone an agenda item that is particularly thorny or controversial.
Excellent question. Just because you can have an online meeting doesn’t mean it will be easy. As we’ve all learned over the past couple months, virtual meetings take a bit more forethought and planning. Here’s a comprehensive guidebook from Board Source, and here are some more useful tips.
Everyone’s heard about the Paycheck Protection Program loans offered through the Small Business Administration as a result of the CARES Act, but a few other charity-related provisions might have passed you by as you were trying to stay alive the past few months. In particular:
One question that comes up rather often in my practice is whether Board Directors or members can vote by email or some other electronic means. In general, the answer is yes, but let’s break things down in detail.
First off, electronic voting by members or Directors should not become the norm for nonprofit organizations dealing with complex issues. Rather, email voting should be used only for time-sensitive, noncontroversial matters. For any issue where an exchange of ideas would inform the decision, votes should be taken at a meeting (which can be partially or fully held by conference call or video chat). If there’s any doubt about whether an issue may be controversial or benefit from live discussion, I would err on the side of caution and not proceed with an email vote.
With this caveat in mind, let’s take a closer look at what Maine law has to say on the topic.
Membership Votes – This one’s easy: Under the recently enacted 2019 P.L. Ch. 200 (L.D. 894), membership votes can occur by email or other electronic means if allowed in the Bylaws or by the Board of Directors (ideally, by a simple Board resolution approved in advance of the email vote).
Board or Committee Votes – Email voting by Directors (as opposed to members) is not explicitly authorized or prohibited by the Maine Nonprofit Corporations Act. That said, there are two different provisions that implicitly allow email voting.
First, Section 707 of the Act allows decisions that would typically require a Board or committee meeting and vote to occur by unanimous signed written consent of the Directors or committee members. And Maine’s Electronic Transaction Actallows an electronic signature to qualify as a signed writing. Thus, an email that includes the sender’s name (either as a signature image or simply typed in a signature line) constitutes a signed writing. If obtaining every Director’s email approval is easily accomplished, then you can ask for unanimous written consent via this process.
The problem is, quite often one or more Directors fails to respond to an email request for any number of reasons – in the hospital, surfing in the Azores, practicing digital minimalism. So obtaining unanimity can be very difficult. That’s where the second provision comes in. Section 708 of the Act authorizes “informal” or “irregular” actions that are taken outside of meetings, a category that presumably includes email voting. The wording of Section 708 is rather convoluted, but it implicitly allows for email voting so long as all of the Directors are provided notice and no Director objects to the process. If the corporation has members, then the members either have to be informed of the specific action and no member objects to the process, or else the process must be according to a custom known generally to its members. One obvious way of making a custom generally known to its members is to include it in the Bylaws.
Are you still with me? Here’s a recap: Board or committee email voting is implicitly allowed, and organizations can and should include a specific Bylaws provision to flesh out the details. Putting all of these pieces together, when I draft Bylaws for Maine nonprofits, I include the following language:
I like a 75% supermajority because it demonstrates widespread agreement without requiring unanimity. In addition, a Director can object to the email voting process within 48 hours, which is a reasonable time frame to hold open an email vote.
The federal Department of Labor recently issued a final rule that raises the salary threshold below which an employee is automatically entitled to overtime if she/he/they works over 40 hours in a work week. The new rule takes effect January 1, 2020, and because Maine’s overtime law is tied to the federal law, it affects all Maine employers, including nonprofits.
The new rule raises this threshold from the current $455 per week (equivalent to $23,660 per year for a full-year worker) to $684 per week (equivalent to $35,568 per year). In other words, any employees earning below this level will be entitled to overtime, even if they might otherwise qualify for an exemption (e.g., the executive, administrative, or professional exemptions).
For more details, including a few other minor changes to the overtime rules, see here.
The New York Attorney General’s recently settled enforcement action against the Trump Foundation offers invaluable governance lessons for nonprofits. The AG had charged the Foundation with a variety of abuses and violations of federal and state laws regarding tax-exempt organizations, including self-dealing and breach of fiduciary duties. After a state court declined to dismiss the charges, the Foundation saw the writing on the wall and settled the case in November. Under the terms of the settlement, the Foundation agreed to dissolve itself and to pay $2 million in damages. Furthermore, Trump’s children were ordered to take a nonprofit board training session, and President Trump agreed to restrictions against serving on other New York nonprofit boards. In my view, these harsh results are entirely appropriate, as the Foundation’s misdeeds are the most blatant that I have seen in my 17 years of practice in the nonprofit arena. For more on the settlement, see here.
In May I wrote about Maine’s passage of an historic earned leave time requirement for employers having at least 11 employees. Since then, the Legislature and Governor have passed several other changes to state employment laws that will affect all employers, including nonprofit organizations. All of these laws take effect on September 18, 2019. Overall, these are progressive statutes that will help Maine workers and we should celebrate their passage. Here are the highlights:
Ever heard of a “Benefit Corporation”? You might start seeing this phrase in the coming years, now that Maine has enacted a statute officially establishing this new kind of for-profit business. A Benefit Corporation is required to have a purpose of not just economic profit, but also a material positive impact on society and the environment. Following in the footsteps of 35 other states, the Maine Legislature passed and Governor Mills signed 2019 P.L. Ch. 328, which authorizes the formation of Benefit Corporations.
Any newly forming business corporation can incorporate as a Benefit Corporation, and any already existing business corporation (i.e., organized under Title 13-C of the Maine Revised Statutes) can amend its articles to become a Benefit Corporation. Electing Benefit Corporation status is not to be undertaken lightly. The statute sets forth a rigorous set of requirements, including:
Although there is some overlap between the two, a Benefit Corporation is not to be confused with a B Corp. The former is any corporation that is established under a particular state’s benefit corporations law, while the latter is any business that has been certified by the national nonprofit B Labs as meeting a detailed set of public benefit criteria. At present there are six Maine companiesthat have earned B Corp status. A Maine business that’s set up as a business corporation can be either a Benefit Corporation or a B Corp, or can aim for both categories. Unfortunately, if a business is set up as a Limited Liability Company, it cannot elect for Benefit Corporation status under Maine’s new statute, although it could still apply for B Corp or low-profit limited liability companystatus.
In general, a Benefit Corporation is structured more like a business than a nonprofit corporation. A Benefit Corporation still has a profit motive, and is owned by one or more shareholders, whereas a nonprofit may only have specific nonprofit purposes and is not owned by anyone. Moreover, a Benefit Corporation is governed by all of the general laws that apply to business corporations in Title 13-C, the Maine Business Corporation Act. Thus, the Benefit Corporation requirements function as an overlay on these background business corporation laws. In contrast, nonprofit corporations are governed by Title 13-B, the Maine Nonprofit Corporation Act, which has very different governance rules. Furthermore, charitable or educational nonprofit corporations that achieve 501(c)(3) status can qualify for federal and state income tax exemption, offer charitable deductions to donors, in some cases achieve property tax exemption, and apply for foundation grants. But Benefit Corporations are not eligible for these tax incentives, with the possible limited exception of foundation grants.
So how do the arrival of Benefit Corporations and B Corps in Maine affect the nonprofit sector? Here are a few implications that come to mind right off the bat:
For more about Benefit Corporations and B Corps:
The Maine Legislature is poised to enact a historic bill that would require paid leave for employees of any business or nonprofit with 11 or more employees. The bill, L.D. 369, was amended in the Labor and Housing Committee at the urging of Governor Mills. The original bill would have established paid sick leave and would have applied to employers with 6 or more employees, while the amended bill establishes a broader category of paid leave and ups the threshold to 11 employees.
Here are some key details:
The paid leave statute will accelerate a general trend of employers converting from separate vacation and sick leave policies to a unified paid leave policy. Employers and employees alike report more satisfaction with unified policies. They tend to be administratively simpler, while employees do not feel pressure to lie about taking “sick” days for other purposes.
The vast majority of Maine nonprofits already provide more than 40 hours of paid vacation and/or sick leave, so the bill will not cause radical changes in the sector. However, nonprofit employers with 11 or more employees will want to review their employment handbooks to ensure compliance with the law. Furthermore, even employers with 10 or fewer employees should consider switching to a unified paid leave policy, in order to remain competitive and consistent with larger organizations.
A bill is working its way through the Maine Legislature that would authorize electronic voting by members of Maine nonprofit corporations. L.D. 894 was recently voted Ought to Pass by the Judiciary Committee, a propitious signal of its eventual passage. The bill allows votes by members to be conducted electronically (e.g. by email), as opposed to the current in-person or snail mail procedures.
Electronic voting by directors (as opposed to members) is not addressed by the legislation. The existing provisions of the Maine Nonprofit Corporation Act do not explicitly authorize or prohibit electronic voting by directors. In my practice, I often include language in Bylaws to authorize electronic voting by directors, with certain safeguards included to make sure decisions are well documented and decided by a supermajority.
To be clear, electronic voting by members or directors should not become the norm for nonprofit organizations dealing with complex issues. Rather, email voting should be used only for noncontroversial matters. For any issue where an exchange of ideas would inform the decision, votes should be taken at a meeting (including a meeting that is partially or fully held by conference call or video chat).
On a related note, a recent decision of the Maine Supreme Court affirmed earlier case law that a nonprofit corporation’s bylaws constitute a binding contract among its directors and members. Scott v. Fall Line Condominium Ass’n, 2019 ME 50. Thus, it’s important for an organization to review its bylaws every few years to ensure that it complies with each of the provisions, especially those pertaining to voting and other forms of decision making.
The nonprofit world continues to brace for the taxation of parking and other transportation benefits included in the 2017 tax bill. May 15 is the deadline for many tax-exempt organizations to file their IRS Form 990 for 2018, although a six-month extension is easily obtained. This filing is where the rubber will hit the road for many organizations, as they find themselves owing money for the first time due to this new tax.
In December, the IRS issued Notice 2018-99, providing interim guidance on the taxation of transportation benefits. The tax-exempt sector is clamoring for the law to be repealed, and there is bipartisan support. But given Congress’ general dysfunctional, I’m not holding my breath.
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.
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.
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.
In my January E-Bulletin, I gave an overview of how the new federal tax law will affect nonprofit organizations. Now that we’ve had a bit more time for the dust to settle, here are a few links that dig a bit deeper into various nonprofit issues:
And if you’re fed up with watching Congress and the Maine Legislature put the needs of the nonprofit sector on the back burner, get out of the stands and onto the court. Start by attending a special MANP advocacy training on June 7 in Portland.
In December, the Maine Supreme Court held in Huff v. Regional Transportation Program that an individual who received mileage reimbursement but no other compensation was not an “employee” for the purposes of Maine’s worker compensation law. The plaintiff had been seriously injured in an accident incurred while driving for the nonprofit Regional Transportation Program. I wrote about the facts and the implications of this case in my June 2017 E-Bulletin, where I generally advocated for the dismissal of the plaintiffs action. Thus, as a general matter I am pleased with the court’s decision.
At the same time, this case raises interesting questions about how to make sure that nonprofit volunteers have some level of protection in case they suffer an injury. Keep in mind that the court’s decision in Huff means that the plaintiff, who most likely is struggling financially, will not be able to access funds to pay for health care costs. A commercial general liability policy, the most common kind of insurance for nonprofit organizations, typically provides very modest “Medical Payments” coverage of $5,000 to $20,000 for injuries incurred by volunteers. But the occasional CGL policy adds an endorsement that eliminates this coverage, so organizations will have to check their policy to know for sure.
Nonprofits that want to provide coverage beyond the CGL Medical Payments should inquire with their insurance agents about Volunteer Accident policies. The policies pay for medical care on a reimbursement basis and can supplement the volunteer’s personal health insurance. Coverage is usually affordable (a few hundred dollars per year) unless your organization has a large volunteer staff or engages in especially risky activities (e.g. sports related programming). In addition to paying for medical expenses, the policies usually cover death and dismemberment and a limited income replacement.
Well, the tax bill is in the books, like it or not. If you ask me, it’s one of the worst pieces of legislation our country has enacted in years, for all kinds of policy reasons. But let’s focus on how it affects nonprofit organizations.
What Didn’t Make It Into the Bill:
Distracted driving has been in the news in Maine. In August, the Legislature just missed overriding Governor LePage’s veto of a bill that would have banned handheld devices while driving. Expect some version of this bill to pass sooner or later, especially once we have a new governor. Texting-while-driving is already prohibited by Maine law. Meanwhile, also in August, the Maine Supreme Court issued a decision that makes it easier for the police to enforce existing distracted driving laws. The Court ruled that for civil actions (as opposed to criminal matters) law enforcement officers do not have to prove what specifically distracted a driver, only that she was distracted.
What does any of this has to do with your nonprofit organization? Well, potentially quite a lot if your organization owns vehicles. Or even if it has employees who conduct business while driving their own vehicles (which is just about every organization, right?). There’s a doctrine of tort law called vicarious liability, by which an employer can be liable for the acts of an employee conducted while that person is working. Keep in mind that most commercial general liability policies, the most common kind of insurance protection for nonprofit organizations, do not cover auto accidents. And separate from liability concerns, there’s a more fundament reason to have a distracted driving policy: to prevent accidents.
The federal Occupational Safety and Health Administration (OSHA) encourages all employers to enact distracted driving policies, and more and more businesses and nonprofits are doing so. Nowadays whenever I draft or review an Employee Handbook, I strongly urge my clients to include a policy prohibiting distracted driving. At the very least, such a policy should prohibit texting and other handheld devices. And ideally even hands-free devices should be prohibited. Studies indicate that the use of a hand-held phone, especially if it is being used to text, can increase the crash risk by a factor of 23, but even hands-free devices increase risk by a factor of four.
According to the federal Department of Transportation, 3,477 people in the U.S. were killed and 391,000 injured in motor vehicle crashes involving distracted drivers in 2015, with the numbers increasing every year. Don’t let your nonprofit become complicit in one of these tragedies: enact and enforce a distracted driving policy.
Devoted readers of this E-Bulletin will of course remember my June 2017 write-up of the Huff v. Regional Transportation Program case before the Maine Supreme Court. This case addresses the question of whether an individual who was treated as a volunteer by a nonprofit organization could nevertheless be deemed an employee for the purposes of Maine’s workers’ compensation law. Although the court proceeding is still pending, the Maine Legislature has clarified the issue in P.L. Ch. 117 (LD 1530).
This bill clarifies that a “nominal fee or stipend” as well as “reasonable benefits” paid by an employer (whether nonprofit or for-profit) for charitable volunteer service are not wages for the purposes of Maine’s unemployment compensation law. To qualify as a volunteer, the person must be serving for “civic, charitable or humanitarian reasons,” must offer her services “freely and without pressure or coercion, direct or implied, from an employer,” and must not “be otherwise employed the same employer or governmental entity to perform the same type of services as those for which the individual proposes to volunteer.”
The new statutory language is similar to the federal Fair Labor Standards Act and is consistent with Maine’s wage and hour laws. This change protects Maine’s nonprofits and businesses when they provide a stipend for volunteers. Without this clarification, employers that pay a stipend to volunteers might have been required to pay unemployment taxes in certain circumstances.
A case currently pending before the Maine Supreme Court will tackle the question of whether an individual who was treated as a volunteer by a nonprofit organization could nevertheless be deemed an employee for the purposes of Maine’s workers’ compensation law. The case is Huff v. Regional Transportation Program, and the Court has asked interested persons to submit amicus briefs by July 14.
If any Maine nonprofit corporation is interested in joining or supporting such an amicus brief, please let me know right away, as I am considering whether to draft a brief.
Here’s what happened in the case: In 2011, Lawrence Huff became a volunteer driver for the nonprofit Regional Transportation Program (RTP), which provides transportation services to clients of social service agencies in Cumberland County. Huff signed a memorandum of understanding indicating that he was a volunteer, and used his own vehicle to drive RTP constituents. He was reimbursed for expenses at a rate of 41 cents per mile, the then-current IRS rate for employee reimbursement. Because he volunteered almost full-time, the reimbursements amounted to $700 to $800 per week, and Huff claimed to have pocketed half this amount as income net of his vehicle expenses, although that figures apparently didn’t include insurance and depreciation. Unfortunately, in 2012 Huff suffered a life-threatening accident while driving for RTP. He later claimed workers’ compensation benefits as an RTP employee. The Workers’ Compensation Board denied his claim, determining that he was a volunteer and not an employee. The Appellative Division affirmed, and Huff has now appealed to the Maine Supreme Court.
The crux of Huff’s argument is that because RTP’s mileage reimbursement rate matched the IRS’ rate for employees, and is much higher than the 14 cents federal mileage rate that volunteers can receive on a nontaxable basis, he must be considered an employee for workers’ compensation purposes. However, this argument is not very persuasive in light of the fact that the volunteer mileage rate has not been changed since 1997, as it takes an act of Congress to do so. Thus, it is widely acknowledged that the volunteer rate does not reflect the true cost of driving and maintaining a vehicle, and many nonprofits choose to reimburse at the higher employee mileage rate, even if the amount over 14 cents must be reported as income by the volunteer.
If the Maine Supreme Court were to agree with Huff and reverse the Board’s decision, it could have widespread implications for Maine nonprofit organizations. Many Maine nonprofits benefit from volunteer drivers in the same way that RTP does, and a reversal would mean that these organizations would either have to reduce the reimbursement rate to the artificially depressed IRS charitable rate, or else pay high workers’ compensation costs for driving volunteers. An outcome in favor of the plaintiff could also increase nonprofits’ liability exposure and insurance costs in a variety of other contexts, such as the Maine employment law violations, Maine unemployment compensation, and anti-discrimination laws. The decision could also have similar spillover effects for nonprofits in other states, as there is little to no case law on this issue across the nation. Although volunteers should of course be treated fairly by nonprofits, that does not mean that volunteers should have standing to claim the protection of these various employee protection laws.
Once again, if any Maine nonprofit corporation is interested in joining or supporting such an amicus brief, please let me know right away, as I am considering whether to draft a brief.
Another recent Maine Supreme Court opinion, Lalonde v. Central Maine Medical Center, 2017 ME 22, is a good reminder to Maine nonprofit Board directors and employees to understand the indemnification provision in their bylaws. Indemnification can be a big, scary word for non-lawyers (and even some lawyers). Let’s unpack the concept a bit and see how it recently played out in this Maine Supreme Court case.
In short, to indemnify someone is to promise to compensate that person if she is found to be responsible for monetary damages to a third party or has to pay attorney fees to defend herself in a legal proceeding. Many kinds of contracts, including nonprofit bylaws, include indemnification provisions to protect individuals or entities in the event something goes wrong and a lawsuit is brought by another party.
A grasp of how the Maine Nonprofit Corporation Act treats the issue provides helpful context for understanding a bylaws indemnification provision. Under the MNCA (see 13-B M.R.S. § 714(2)), a nonprofit corporation must indemnify a director, officer, employee or agent for expenses (including attorney’s fees) if that person is successful on the merits in defending any court action or administrative proceeding against him. In contrast, a nonprofit corporation is prohibited from indemnifying a director, officer, employee or agent who is found by a court or administrative official not to have acted in good faith in the reasonable belief that his action was in the best interests of the corporation, or in certain criminal-related contexts.
Are you with me so far? To paraphrase, if a director or employee is ultimately judged to have acted without fault, then the nonprofit is obligated to indemnify that person. On the other hand, if a director or employee is ultimately judged to be in the wrong, then the nonprofit cannot indemnify. But there are many situations in which a lawsuit or administrative proceeding never reaches a final determination in favor of or against an accused person. And even if a final determination is reached, there is a usually a significant lag time between when the suit is initiated and when it is resolved. Thus, the details of the bylaws indemnification come into play in these situations, in particular by spelling out whether a nonprofit must or may advance funds for a defendant’s legal expenses, and when no ultimate decision on the merits or the individual’s wrongdoing is reached.
The key decision in a bylaws indemnification provision is whether to make indemnification mandatory or discretionary in these gray areas not expressly covered by the MNCA. Most nonprofits have a mandatory indemnification provision with respect to its volunteer directors and officers, so as to be able to recruit the best talent for the Board and reassure potential directors about any liability concerns. (Directors and Officers insurance can also help with recruitment, because an indemnification provision without the means to back it up is somewhat of an empty gesture.)
As for employees, in my experience some nonprofits offer mandatory indemnification, while others offer only discretionary indemnification, where the Board can choose whether to indemnify based on the circumstances of the dispute. Although there are valid reasons to go one way or the other, I generally prefer the latter approach, because in many contexts where an employee has been sued or is the subject of an administrative proceeding, there is a valid accusation of wrongdoing.
That’s exactly what happened in the Lalonde case. CMMC, a hospital in Lewiston, hired Lalonde as a physician in 2005. CMMC fired Lalonde in 2012 and shortly thereafter notified the Board of Licensure in Medicine of its “concerns about his clinical competence and behavior.” The Board of Licensure then initiated an investigation of Lalonde. In 2014, the Board dismissed the complaint without action, although it’s unclear whether the Board’s dismissal was based on a successful defense on the merits of the claim or on some other grounds. Lalonde then filed suit against CMMC to indemnify him for all expenses, including attorney’s fees, incurred during the Board’s proceeding. In its defense, CMMC pointed to the broad immunity provisions of the Maine Health Security Act, 24 M.R.S. §§ 2501-2988 (2016). However, the trial court and then the Maine Supreme Court held that CMMC’s mandatory indemnification of employees via its bylaws was not trumped by the immunity provisions of the Health Security Act. The bottom line: CMMC had enough concerns about Lalonde’s competence to fire him and file a complaint before the regulatory body, but still had to pay Lalonde’s legal fees in defending against this complaint.
To avoid this kind of result, here is the indemnification language that I typically use when drafting bylaws for a Maine nonprofit corporation that does not have members (language is slightly different for membership organizations):
As you can see, this provision includes mandatory indemnification for directors and officers and discretionary indemnification for employees. If CCMC had used this provision in its bylaws, then it likely would not have been required to indemnify Lalonde unless the record showed that the Board of Licensure dismissed the complaint against him based on a successful defense on the merits.
After all this legal mumbo jumbo, here’s some good news: Because lawsuits and administrative proceedings against nonprofit directors or employees are exceedingly rare, most nonprofit Boards never have to resort to their indemnification provision. But in the one-in-a-million situation where it does come into play, you’ll want to know that your bylaws say what you think that they should say.
Maine’s new recreational marijuana law is now in effect, although retail sales will not be permitted until February 2018. The law was passed by voters in the November 2016 election, then tweaked by the Maine Legislature in January. In general, the law allows adults (21 and over) to possess up to 2.5 ounces of marijuana and to use it in private settings.
What does the new law mean for Maine’s nonprofit employers? I’ve already received an inquiry from one client, and I’m sure many others are curious. Indeed, there are some particular issues that require careful consideration, as the law impacts employers’ hiring, misconduct, workplace safety and substance testing policies.
The law includes a little-noticed provision that prohibits any Maine employer (nonprofit or otherwise) from discriminating against an age-21-or-over employee or prospective employee for using marijuana outside of the employer’s property. However, an employer may prohibit employees from using, possessing, or being under the influence of marijuana at work. That said, some employers are concerned because, unlike with alcohol, there is no objective test available to determine when one is under the influence of marijuana. In any event, the Maine Legislature delayed the effective date of these employment-related provisions until February 1, 2018, giving employers additional time to amend their policies and practices.
Most, if not all, employee handbooks contain prohibitions against the use of illegal drugs, in the workplace, and many go even further by prohibiting illegal drug use outside of the workplace. Furthermore, many employers require drug testing for all or certain employees. Thus, most handbooks and policies will require changes to comply with the new law, even though possessing and using marijuana remains a federal crime. Furthermore, conversations with employees about any policy changes are always a prudent step, as there remain many misconceptions about the new law. See here for an overview of Maine’s substance abuse testing laws.
Federal law strictly prohibits any campaigning for or against federal, state or local candidates for elected office. It’s a big no-no, one of the key things I tell any client who is launching a 501(c)(3) organization. Rarely have I heard any objection to this warning, as most people involved in charities appreciate this bright line prohibition against campaigning. (Note: We’re talking about campaigning, not lobbying. Charities do enjoy leeway to engage in lobbying activities up to a certain level, but that’s a subject for another day.)
The absolute prohibition against campaigning might be compromised if the President and Republicans in Congress have their way. In early February, the President announced, in his grandiloquent fashion, that he will “totally destroy” the provision of § 501(c)(3) that prohibits campaign activities (known as the “Johnson Amendment”). That same day, Congressional Republicans introduced the Free Speech Fairness Act.
For many years certain churches (in particular right-leaning Christian Evangelical churches, but also a few left-leaning churches) have chafed at the absolute ban on campaigning. Pastors and other religious leaders have decried the ban as a curb on their free speech rights, and many have openly defied the law by endorsing a candidate at election time. Because of budgetary constraints and political pressures, the Internal Revenue Service has not strictly enforced the ban for quite some time. Many churches and socially conservative organizations have sought to repeal the ban for a long time, and they finally have a sympathetic ear in the current President.
Now is a good time to take a look under the hood and see what the Free Speech Fairness Act would accomplish. On the whole, the bill (H.R. 781 in the House and S. 264 in the Senate) as currently written would weaken but certainly not destroy the 501(c)(3) prohibition against campaigning. The bill adds a new subsection to § 501(c)(3) that maintains the general prohibition against campaign activities but allows an exception for any campaign statement that is both “made in the ordinary course of the organization’s regular and customary activities in carrying out its exempt purpose” and “results in the organization incurring not more than de minimis incremental expenses.”
While churches are really the only organizations that have targeted the ban, weakening it will politicize the entire charitable sector. Politicians at all levels will actively seek the endorsement of all kinds of § 501(c)(3) organizations, not just churches. The requirement that any endorsement be made “in the ordinary course” of an organization’s activities would be virtually impossible to enforce, and the distinction between nonpartisan 501(c)(3) charities and partisan 501(c)(4) social welfare organizations would begin to break down. Although leaders of some organizations might relish the opportunity to speak freely for or against candidates, they should be careful what they wish for.
Then there’s the campaign finance issue. Many have expressed fears that allowing 501(c)(3) organizations to campaign for and endorse or oppose candidates will create yet another avenue for the wealthy to influence our political system. Although the requirement that any expenses on campaigning be de minimis (i.e., so minor as to merit disregard) appears to be a safeguard against this possibility, it could very well prove to be a slippery slope for many organizations and for IRS enforcement.
For all of these reasons, most organizations representing the nonprofit sector as a whole have come out strongly against this bill, including the Maine Association of Nonprofits, the Independent Sector and the National Council on Nonprofits. At press time it was not clear if any of Maine’s four Congressional delegation members had taken a public position on the issue, so if you or your organization feel strongly about this issue, now would be a good time to reach out to them.
Date: March 28, 8:30 am – 4:45 pm
Location: Hilton Garden Inn, Freeport
Sponsor: Maine State Bar Association
Spend the morning learning about the fundamentals of tax-exempt organizations. Or come for the afternoon sessions where we dig deeper into the more complex issues. Or go for a double header. This course will provide comprehensive information covering governance best practices, insurance issues, political activities, ethics, and more. An experienced team of attorneys (including Rob Levin) will show you how to handle the challenges and opportunities that arise in every tax exempt organization.
If Donald Trump and the Republicans were your candidates of choice, then congratulations indeed. May you be correct in placing your faith in them. If you view Tuesday’s elections as apocalyptic, then read on for more reasons to be concerned. In particular, what does this new regime mean for charitable organizations? With the caveat that everything here is speculation, and that a Trump presidency is going to be wildly unpredictable, here are some initial thoughts, all of them rather sobering.
The federal Department of Labor’s revised overtime rules take effect on December 1, 2016. Now is the time for nonprofits to make sure that they understand how the new rule affects their staff. Because Maine’s overtime law is tied to the federal Fair Labor Standards Act, the new federal rules apply to all Maine employers and employees, with no exception for nonprofit organizations. For more information, see http://www.nonprofitmaine.org/blog/dol-overtime-rule-latest/. It remains to be seen whether the new administration or Congress will attempt to overturn the new rule, but there’s little doubt it will take effect on December 1.
Over the past few years the Maine Legislature has gone back and forth on how the Maine income tax treats charitable contributions. The latest state of play is that there is a $27,500 cap on all itemized deductions, including the charitable giving deduction and the mortgage interest deduction. This means that many Mainers, especially homeowners, can no longer claim the full amount of their charitable deductions on their Maine tax returns. Nonprofits statewide, with the assistance of the Maine Association of Nonprofits (MANP), are urging the Legislature to return to the previous legislative regime in which itemized deductions claimed on one’s federal return (including charitable deductions and the mortgage interest deduction) flow through completely to the Maine return.
A bill has been introduced in the current legislative session to accomplish this change. See L.D. 1519, An Act to Amend the Tax Laws To Strengthen Charitable Institutions, Encourage Home Ownership and Manage Medical Expenses. I recommend getting in touch with MANP if you would like to be part of the effort to support passage of this bill.
Some good news for charities with older donors – which includes just about every Maine charity. As part of a year-end tax bill, Congress and President Obama agreed to permanently extend the tax-free treatment of Individual Retirement Account distributions to 501(c)(3) charities for individuals age 70 ½ and older. There is an annual cap of $100,000 per taxpayer, and both Roth and traditional IRA’s are covered by this rule. As in past years, this tax benefit was set to expire for distributions taken in 2015 or later, but instead of extending it for another year or two, as it has done for the past decade or so, the bill makes the rule permanent.
Congress also enacted new rules for 501(c)(4) organizations as part of the same year-end tax bill. Section 501(c)(4) encompasses a broad category of tax-exempt organizations that typically conduct significant political activities and therefore do not qualify as 501(c)(3) charities. Occasionally a 501(c)(3) organization will set up an affiliated 501(c)(4) organization to advance political goals, and these new rules should be noted in those circumstances.
Until now, 501(c)(4) organizations could fly under the radar by “self-declaring” and not filing any application of tax-exempt status with the IRS. Under the new law, a 501(c)(4) must file a notice with the IRS within 60 days of its formation. Existing 501(c)(4) organizations that had not filed a Form 1024 or Form 990 series return on or before December 18, 2015 (the bill’s date of enactment) must provide the notice required by June 15, 2016. However, the IRS is still working on creating the new notice form and so an extension of these deadlines is likely. For more information and updates on the form’s availability, check here.
Finally, the new law clarifies that gift taxes do not apply to contributions to 501(c)(4), (c)(5), and (c)(6) organizations. The IRS had never collected gift taxes on such contributions but had made noises about doing so, and some donors were getting nervous. The law now provides greater certainty to donors to such organizations.
Overtime laws are currently in the news because the U.S. Department of Labor has proposed significantly expanding the number of employees who qualify for overtime pay under the Fair Labor Standards Act. This proposal presents a ripe opportunity to review the overtime laws for Maine charitable organizations, especially because I have encountered much confusion over this topic in recent years.
To begin, everyone should understand that there are two overlapping but distinct overtime laws: the federal law, as set forth in the Fair Labor Standards Act (which also covers federal minimum wage, recordkeeping, and child labor laws), and Maine law, as set forth in the Maine Employment Practices Act. One area in which these two laws differ is in their application to nonprofit charitable organizations. In general, charitable organizations are exempt from the FLSA but are subject to the Maine law. In my experience, many charitable organizations do not realize that they are exempt from the FLSA, and are not familiar with the intricacies of Maine’s overtime law.
The FLSA covers only those charitable organizations that generate annual gross volume of sales made or business done of at least $500,000. Income from contributions, membership fees, grant, dues, and other donations used in the furtherance of charitable activities do not apply toward the $500,000 threshold. Rather, only typically commercial activities fall within this cap. The typical small or mid-sized charitable organization does not have anywhere near this level of commercial activity and thus is exempt from the FLSA. An exception could be if an organization operates a gift shop or provides services in volume for a fee. Although the FLSA is an important law that provides a fundamental set of protections for employees across the nation, it does simplify compliance matters for charities to know that this law does not apply to them. For more on the FLSA charitable exemption, see here. (Note that special rules apply for schools, and faculty members are generally subject to the FLSA.)
In contrast, ever since 2008 the Maine overtime law (as well as the minimum wage law) has contained no exemption for charitable organizations. Maine’s law requires payment of 1 ½ times the regular hourly rate for all hours actually worked in excess of 40 hours in that week. But the law does not apply to a “salaried employee who works in a bona fide executive, administrative or professional capacity” and whose regular compensation , when converted to an annual rate, exceeds the higher of either Maine’s specific threshold or the FLSA threshold. (26 M.R.S. § 663(3)(K))
This language is a bit tricky, so let’s parse it. First, any hourly employee, no matter what their wage rate, is eligible for overtime. But the reverse is not true; only certain salaried employees, and not all of them, are exempt from overtime. To be exempt, a salaried employee must meet two separate conditions: (a) she must work in a “bona fide executive, administrative or professional capacity,” and (b) she must earn more than the Maine or FLSA minimum. The first part of this test tracks the language in the FLSA, and there is federal guidance on what constitutes an “executive, administrative, or professional capacity.” When a new salaried employee is hired or an existing employee changes positions, the organization must determine whether the position meets at least one of these three categories. If not, then the employee must be eligible for overtime.
Now, as for the minimum threshold, because Maine voters in 2016 approved an increase in the state minimum wage to $12 per hour by 2020, the Maine threshold will increase gradually over the next few years from its current $22,500 to $36,000. However, the state threshold will become irrelevant if the U.S. Depart of Labor’s new overtime rule takes effect, because the federal minimum threshold of $47,476 is higher than the state threshold and thus takes precedence. [December 2016 Note: The DOL’s overtime rule is currently suspended from taking effect due to a federal court ruling. The future of the rule is uncertain, depending on how the courts resolve the matter, and given the priorities of the incoming Trump Administration.]
I have seen many Maine charities’ personnel policies that broadly classify any salaried employee as exempt from overtime. This simple treatment does not comply with Maine law, and such organizations risk certain penalties if they fail to pay overtime to a salaried employee who does not fit within an exemption. Finally, Maine law does not allow an employer to substitute comp time for overtime, which comes as a surprise to many employers.
In a little-notice provision of a transportation bill signed by the President in July, for tax years starting after December 31, 2015, the IRS Form 990 will now have a single automatic 6-month extension period for organizations that use a calendar year as their fiscal year. The current first 3-month automatic extension and additional 3-month discretionary extension has been eliminated. A calendar-year Form 990 filer with an original return due date of May 15 will now have an automatic extension until November 15. To be clear, the extension is automatic but it still must be preserved by filing Form 8868 by May 15. For more information, click here.
Date: Tuesday, October 6 at 1:00 – 2:00 PM
Sponsor: Maine Association of Nonprofits
Is your organization soliciting donations in Maine? Does it have the proper license to do so? Join MANP for this informative webinar that will help you ensure that your nonprofit is in compliance with Maine’s Charitable Solicitations Act and laws in other states. Presented by attorney Robert H. Levin.
This Event Will Cover:
At the end of the recent session, the Maine Legislature passed L.D. 921, and it has been chaptered into law as 2015 Public Law Chapter 343. This legislation makes two important changes to employment laws that affect all Maine employers, including nonprofit organizations of any size. There’s just one little catch. This bill is caught up in the dispute between the Legislature and the Governor about whether he can still exercise a veto. I expect the Maine Supreme Court to side with the Legislature, in which case this law will become effective on October 14.
The first part of the law increases penalties for employers that fail to comply with already existing law (see 26 M.R.S. § 850) that requires an employer to grant reasonable and necessary leave from work to employees who are victims of violence, stalking, and other acts that would support a court order for protection. The Maine Department of Labor will be able to fine noncompliant employers up to $1,000 per occurrence, above the current $200 ceiling, and the employer must also pay damages of three times the fine. Moreover, if the employee is terminated in connection with exercising his rights under this law, he or she can demand re-employment and back wages.
The second part of the law has a more widespread day-to-day application, because it places strict limits on an employer’s ability to demand or even request access to an employee’s (or applicant’s) social media accounts. Social media accounts are defined broadly to include e-mail, videos, blogs, texts, and websites. But the law does not apply to those accounts set up at an employer’s behest, such as a workplace e-mail account. In summary, an employer cannot demand or request passwords or other access to any social media accounts, and cannot make employment decisions based on an employee or applicant’s refusal to provide such access. Nonprofit organizations should review their personnel policies to ensure consistency with this new law, assuming it does indeed go into effect.
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The good news is that the Governor’s proposal to weaken the property tax exemption for charitable organizations appears to be on the ropes. The Taxation Committee unanimously rejected the plan earlier this month, after a February hearing in which not a single municipality testified in favor of the scheme. However, that’s not the end of the story altogether, as legislators on both sides of the aisle are still considering other bills that would affect different kinds of charities.
One bill, L.D. 565, was unanimously rejected by the Taxation Committee and appears unlikely to pass. This bill would have established service charges on organizations owning properties valued at over $1 million in a municipality and that paid relatively high salaries to its executives. In practice, the service charges in this bill would have applied primarily to larger charitable organizations such as hospitals and universities. Another bill, L.D. 724, would authorize municipalities to create municipal fire districts to charge service charges as an alternative to property tax revenue for fire protection. The State and Local Government Committee issued a divided report and the bill appears unlikely to reach the House floor for a vote. Yet another bill, L.D. 1148, targets land trusts for property taxation, but there does not appear to be widespread support for this approach.
Although none of the above bills appears to have legs, members of the Taxation Committee have stated an intention to come up with their own bill that would encourage or require some level of property taxation for nonprofit organizations. This could be through service charges or PILOTs (payments in lieu of taxation) or some other mechanism. Nonprofit volunteers and staff are encouraged to be in touch with their legislators, especially if they sit on the Taxation Committee, to impress upon them the many ways in which nonprofits contribute to the economy and provide public benefit.
Meanwhile, the fate of the Maine itemized charitable contribution deduction is still up in the air. It’s been quite a roller coaster on this issue. Here’s a quick catch-up for those of you just tuning in: For many years, any federally itemized charitable contribution deductions automatically flowed through to a taxpayer’s Maine income tax return. Thus, if someone claimed $5,000 in charitable giving on her federal Form 1040, she could also claim a $5,000 deduction on her Maine tax return. However, in 2013 the Legislature voted to impose a $27,500 cap on all itemized deductions, including the mortgage interest deduction and the charitable giving deduction, retroactive to January 2, 2013. This meant that many Mainers, especially homeowners, could no longer claim the full amount of their charitable deductions on their Maine tax returns. Due to a groundswell of opposition from Maine’s charitable community, in 2014 the Legislature backtracked and passed LD 1664, which carved the charitable giving deduction out of the overall cap starting in 2017. Problem solved!
Well, not so fast… The Governor’s proposed budget would repeal L.D. 1664 and go even farther by eliminating all itemized deductions, including the charitable deduction. If approved, the elimination of the charitable deduction will impact an estimated 142,000 Mainers (almost one quarter of residents) who report deductions, according to the Maine Philanthropy Center. The Maine Association of Nonprofits is advocating against the Governor’s proposal, and the latest news (as of April 10) is that the Taxation Committee was divided on the issue. Six Committee members recommended adopting the Governor’s proposal to eliminate itemized deductions, while another six recommended retaining the itemized deductions, but lowering the current cap from $27,500 to $15,000 and carving out charitable giving. The issue is now before the Appropriations Committee, before going to the full House and Senate floors. At the same time, the Democrats in the Legislature have issued a taxation plan that would eliminate the itemized deduction entirely, but the details are thin and it’s unclear if there would be any carve out for charitable deductions.
In Turcotte v. Humane Society Waterville Area, 2014 ME 123, the Maine Supreme Court recently affirmed that most Maine nonprofit corporations are not subject to the Maine Freedom of Access Act, and consequently corporate records do not have to be disclosed and meetings are not required to be open to the public.
This case arose when Gina Turcotte lost her cat and later came to believe that it was the same cat she saw on the Humane Society Waterville Area (HSWA) website, where it was shown as being placed for adoption with another family. Turcotte filed a Maine Freedom of Access Act (FOAA) complaint against HSWA to obtain all HSWA records pertaining to the cat. As the opinion notes, the details concerning the cat and HSWA’s actions are not at issue in this case, and HSWA successfully defended a separate lawsuit in which Turcotte sought to have the cat returned to her. Turcotte addressed only whether HSWA was subject to FOAA and therefore had to turn over its records.
In several earlier cases, the Maine Law Court held that nonprofit corporations generally are not subject to FOAA because they are not “public agencies.” Only in exceptional cases where a nonprofit is organized and operates similar to a public agency will FOAA apply. The opinion in Turcotte follows these earlier cases by considering four factors: “(1) whether the entity is performing a governmental function; (2) whether the funding of the entity is governmental; (3) the extent of governmental involvement or control; and (4) whether the entity was created by private or legislative action.”
The Law Court held that HSWA did not meet any of the four factors that might justify public agency status. First, HSWA did not perform a traditional governmental function; its contracts with various municipalities to provide food, shelter, and medical services to stray animals was not enough, on its own, to qualify under this factor. Next, the Court found that HSWA was funded primarily by private donations, although it did receive some funding through its municipal contracts. Third, the Court held that being subject to certain licensing requirements and contractual obligations did not amount to significant governmental involvement in or control over HSWA. Finally, HSWA was created by private action and not by statute.
Turcotte builds on earlier Maine Law Court jurisprudence holding that a chamber of commerce was not a public agency (Dow v. Caribou Chamber of Commerce and Indus., 2005 ME 113), whereas a hospital was a public agency (Town of Burlington v. Hosp. Admin. Dist. No. 1, 2001 ME 59. In the latter case, the Court noted several factors that do not apply to the typical Maine nonprofit corporation: the hospital directly provided a governmental health care function, it had the power to tax and issue bonds, its management staff was determined by elected citizens of the town, and it was created by an act of the Maine Legislature. Meanwhile, although not a FOAA case, in Holland v. Sebunya, 2000 ME 160, the Law Court affirmed the right of a nonprofit corporation to exclude or eject members of the public from its meetings.
Taken together, Turcotte and these earlier cases stand for the notion that a typical nonprofit organization operating in Maine is not subject to FOAA. The two most obvious implications of being beyond the scope of FOAA are that nonprofits are not required to disclose their private records and are not required to open their committee or board meetings to the general public.
That said, sometimes disclosure of records and allowing guests at meetings makes good programmatic and strategic sense. As a general matter, nonprofits will benefit from a certain level of transparency, and often the best approach is to welcome and grant such records or meeting attendance requests. Moreover, certain nonprofits are set up as membership organizations, and as such minutes (as well as all of the “books and records of accounts” of the organization), must be made available for inspection to any voting member, which is often tantamount to public disclosure. Also, in certain legal contexts records disclosure will be required, such as to the IRS or the Maine Attorney General, or to an opposing party in a lawsuit. For more on these issues, click here.
A recent Massachusetts case highlighted the legal requirement that nonprofit corporations and charitable trustees adhere to a diversified investment strategy unless there is a legitimate reason not to. In Woodward School For Girls v. City of Quincy, 469 Mass. 151 (Mass. 2014), the Massachusetts high court held that a municipal trustee of a charitable trust had breached its duty of prudence by investing the trust’s assets solely in bonds and not considering the impact of inflation on the trust’s principal. The City stuck to the bonds-only investment strategy for years, even against professional advice it had received. The case turned on the state’s Prudent Investor Act, which applies to trustees of trusts, and Maine has a similar statute as part of its trust code.
A typical Maine charitable organization is not set up as a charitable trust but rather as a nonprofit corporation. Thus, the Uniform Prudent Management of Institutional Funds Act (UPMIFA) and not the Prudent Investor Act will apply, although the two statutes are similar in terms of investment standards. UPMIFA imposes certain requirements and standards on the management of funds (endowment funds, board-restricted funds, and ordinary investment account funds) held by charitable organizations. UPMIFA is very clear in promoting a diversified investment policy, stating that “An institution shall diversify the investments of an institutional fund unless the institution reasonably determines that, because of special circumstances, the purposes of the fund are better served without diversification.” 13 M.R.S. § 5103(5)(D). Although this recent Massachusetts case is not binding precedent in Maine, it is worth noting here because Maine courts often cite cases in Massachusetts and other states as persuasive authority.
In early August, the Maine Supreme Judicial Court issued a landmark property tax exemption decision in Francis Small Heritage Trust, Inc. v. Town of Limington, 2014 ME 102 (Me. 2014). The opinion puts to rest several arguments that municipalities have raised over the years in denying property tax exemption applications by land trusts. Although the bulk of the opinion addresses issues particular to land conservation and similar environmental organizations, one key issue has widespread applicability to all Maine nonprofits seeking property tax exemption. I was pleased to play a role in this process by co-authoring a joint Land Trust Alliance – Maine Coast Heritage Trust amici brief in support of FSHT.
First and foremost, the Law Court held that land conservation is indeed a charitable purpose within the meaning of 36 M.R.S. § 652(1)(a) and that the typical land trust preserve is eligible for property tax exemption. The Court quoted extensively from three Maine statutes (the Natural Resources Protection Act, the Land For Maine’s Future enabling act, and the Growth Management Act) in declaring that “the Legislature has enunciated a strong public policy in favor of the protection and conservation of the natural resources and scenic beauty of Maine.” Because FSHT assists the state in achieving these conservation goals, its land conservation activities are charitable. This analysis follows the traditional “lessen the burdens of government” prong for demonstrating that an activity is charitable. Significantly, the Law Court distinguished the typical Maine land trust preserve, where public access is permitted and encouraged, from the facts of a troublesome older case, Holbrook Island Sanctuary v. Inhabitants of the Town of Brooksville, 161 Me. 476 (Me. 1965), involving a wildlife sanctuary where public access was heavily restricted and discouraged.
In a part of the opinion that has widespread applicability to Maine nonprofits, the Law Court dispensed with the Town’s contention that a section of FSHT’s Articles of Incorporation reflected a non-charitable purpose. The key disputed phrase was that FSHT’ purposes included “protect[ing] appropriate uses such as logging, farming and other compatible commercial activities.” Because there was no evidence that FSHT engaged in any purely commercial activities, the Law Court did not find this language disqualifying. In a key footnote, the court noted that even if an organization engages in incidental non-commercial activities, language in the Articles that authorizes these activities will not defeat an otherwise legitimate exemption request. This holding should be very helpful in preventing municipalities from denying exemptions based on minor drafting ambiguities.
The process of applying for property tax exemption, and disputing a negative decision by a town assessor, can be very confusing for Maine nonprofit organizations. Many organizations give up in the face of resistance by towns, when in fact if they persisted they would likely prevail in obtaining exemption. The Maine Association of Nonprofits has recently posted a white paper that I wrote that offers information on this process. Click here for the paper, entitled A Primer on Property Tax Exemption Procedural Choices. In addition, MANP has also posted a shorter piece on whether an organization is eligible for property tax exemption.
In July, the IRS issued the new Form 1023-EZ, a streamlined application for small nonprofits to obtain a 501(c)(3) determination letter. The Form 1023-EZ is just over two pages, and is much simpler than the full Form 1023. For example, an organization using the 1023-EZ no longer has to provide a narrative description of the organization’s activities or any financial information. And the filing fee for the 1023-EZ is $400 (as compared to $850 for the full Form 1023). Anecdotal reports suggest that 1023-EZ applications are being processed and approved by the IRS in a matter of 2-4 weeks, a much faster turnaround than the full Form 1023.
To be eligible for the Form 1023-EZ, an organization must:
Have gross receipts of $50,000 or less and total assets of $250,000 or less
For more information and links to the form and instructions, click here.
Who says the LePage Administration can’t get anything right? The Department of Professional and Financial Regulation (DPFR) is supporting a bill that would dramatically alter the Maine Charitable Solicitations Act (CSA) by dropping all of the statute’s filing requirements for charities. If passed, only professional fundraising solicitors would have any filing requirements under the CSA. This is welcome news to those us who believe that the paperwork burdens of the CSA are not justified by the small likelihood of actually preventing or penalizing any charitable solicitations-related fraud.
The bill, LD 1799, came at the behest of the Maine Attorney General’s office and has bipartisan sponsorship. The proposal to scale back the CSA was introduced in the wake of a December 2013 incident at the Red Barn restaurant in Augusta where their fundraising activities attracted the attention of the DPFR and revealed various ambiguities in the law. Furthermore, both the Maine AG and the DPFR appear to realize that if a citizen is suspicious about an organization’s fundraising practices, she can turn to a number of public sources of information to learn more about that organization (or to file a complaint), including the Internal Revenue Service, the Maine Secretary of State, the Maine Attorney General, and Guidestar.
At this point, the bill has been assigned to the Committee on Labor, Commerce, Research and Economic Development and a public hearing was scheduled for March 6. It is unclear if there will be any opposition at the committee or full Legislature level. If your nonprofit organization would like to support or keep track of this bill, please e-mail Brenda Peluso (email@example.com) at the Maine Association of Nonprofits to be added to her interested persons list.
Meanwhile, the fate of LD 1664 is still unclear. As I reported in the November 2013 Maine Nonprofit Law E-Bulletin, last spring the Maine Legislature voted to impose a $27,500 cap on all itemized deductions, including the mortgage interest deduction and the charitable giving deduction, retroactive to January 2, 2013.
LD 1664 would carve the charitable giving deduction out of the overall cap. It is currently being worked by the Taxation Committee. A work session for this week was recently postponed. The Maine Association of Nonprofits is strongly supporting this bill and is urging people to contact their legislators to let them know how important the charitable deduction is to Maine charities. For more information, see www.NonprofitMaine.org/LD1664.
In November, the Internal Revenue Service proposed new rules that would significantly restrict “candidate-related political activity” by section 501(c)(4) social welfare organizations.
The proposed rules have been met with much criticism by conservative organizations, and even by some liberal groups, as being too restrictive. The IRS received over 122,000 comments on the rules, most of them in opposition, by the time the comment period closed in late February. In the face of this headwind, it remains to be seen whether the IRS will drop the proposed rule altogether or will narrow its scope. It seems unlikely that the rule would be approved as proposed.
One particular criticism is that the proposed rule would make it more difficult for 501(c)(4) organizations to conduct nonpartisan voter registration drives or “get out the vote” drives, as well as nonpartisan candidate forums within 30 days of a primary election or 60 days of a general election. Note that the proposed rules would not affect 501(c)(3) organizations, which generally can engage in such nonpartisan activities. But the IRS did request comments on whether the proposed 501(c)(4) rules should be extended to other section 501(c) organizations
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