Final “Net Investment Income” Excise Regs

Regulations Affecting NPO's

Not to put too fine a point on it: The Tax Cuts and Jobs Act of 2017 was a mess. 

At the time the Senate majority rushed it through Congress in late December 2017, we reported in detail on the chaos, confusion, speed, and rancor that dominated the process. Making matters worse, the leadership omitted the customary transition period between a presidential signature and the law’s taking effect. Even in legislation that is well-crafted and thoughtfully debated, there are inevitably kinks and problems which Congress can quickly remedy with technical-corrections amendments or other relief.  

In the TCJA ’17, the nonprofit sector took quite a hit from several unexpected provisions. These new laws either “fixed” problems that never existed or addressed with a sledgehammer legitimate issues. Almost at once, our sector made pleas to revoke or rework the most troublesome and confusing of these statutes and has continued this pressure in the two and a half years since then.  

We’ve had success on at least one front: In late December 2019, lawmakers retroactively repealed the “hugely unpopular” tax on parking and other transportation-related fringe benefits paid by nonprofits for their employees. It “never made sense to anyone and … forced thousands of front-line nonprofits to divert two years of attention and millions of dollars away from their missions.” This lovely holiday gift was accomplished by legislators quietly tossing it into an eleventh-hour compromise appropriations bill. See Poof! The Nonprofit Parking Tax is Gone (January 7, 2020).

As for the remaining (controversial) changes that directly affect the nonprofit sector, the Treasury Department and the IRS are proceeding, under their lawful regulatory authority, to interpret and implement them.  They have drafted and published proposes regulations, inviting public comment for sixty days or – sometimes – longer.  The philanthropy community, professional advisors, and academics are participating robustly in this process. 

       New: Final 4968 Excise Tax Regs

There have been proposed regulations pending for some time on several items:

  • Excise tax on net investment income of certain higher education institutions (IRC sec. 4968) 
  • Excise tax on excess compensation (IRC sec. 4960)
  • New rules on the unrelated business income tax (IRC sec. 512(a)(6)) 

On September 18, 2020, the federal tax authorities announced release of final regulations for determining the section 4968 excise tax that applies to the “net investment income of certain colleges and universities. The new statute imposes on each “applicable educational institution” an excise tax equal to 1.4% of the institution’s “net investment income.” 

The final regulations under section 4968 “include guidance on the scope of applicable educational institutions to which the excise tax applies, including determining who will be counted as a ‘tuition-paying student,’ which institutions will be treated as ‘located in the United States,’ and which assets will be included in determining whether an institution meets the $500,000 per student threshold in the statute.”

Each of these points was vague and confusing under the language of new section 4968. Without adequate clarification, it would work a hardship on all potentially affected institutions as well as on the government in its monitoring and enforcement efforts.  These final regulations include considerable changes and improvements by the tax authorities over the rules set out in the earlier proposed regulations.

Among the highlights of the concessions made by the government are:

  • Expanding the definition of “student” to include not only those in degree programs but also individuals taking courses for academic credit;
  • Clarifying the definition of “tuition paying”: includes students with 3rd-party scholarships but excludes ones receiving only government grant funds;
  • Making it easier to calculate “net investment income” and differentiating it from the rules that apply to private foundations under section 4940; 
  • Modifying certain “capital gains net income” calculations;
  • Providing guidance on rules for treating specified assets and net investment income of certain related organizations. 

        Conclusion 

These final regulations under section 4968 will apply beginning with the publication date in the Federal Register. 

Still outstanding are the government’s final regulations under Internal Revenue Code sections 4960 and 512(a)(6).  There has been considerable pushback – via the public-comments route – to both sets of proposed rules. 

There is another announcement (unrelated to the Tax Cuts and Jobs Act of 2017) that the nonprofit sector awaits. After about forty years, the government issued a proposed revenue procedure earlier this year revising the existing rules for obtaining and maintaining group tax exemptions.  So far, the reaction – in the submitted public responses reported so far – can fairly be characterized as comprehensive and stinging.  

Nonprofits & CA’s “Take 2” Reopening

CA NPO's Reopening

Throughout the United States, the summer months were a frenzy of rushed “reopenings” followed by all-too-predictable rollbacks as COVID-19 outbreaks surged.  Disease hotspots erupted even in some jurisdictions like California that had imposed early lockdowns.

Now, in September 2020, state and local governments around the nation face wrenching decisions on whether and when to attempt a new round of more careful reopenings. In this post, we’ll focus on California. But there are a number of helpful (and periodically updated) online compilations of U.S. statewide reopening rules and regulations; see, for example, here.  

Where do nonprofit organizations fit into these complex laws and rules that have popped up since the COVID-19 pandemic swept across the United States last spring? As a general rule, tax-exempt organizations are subject to them the same as profit-making entities and individuals because these new provisions are largely health and safety measures. 

       CA Reopening The Second Time Around

California’s governor, Gavin Newsom, took action in mid-March with tough stay-at-home orders designed to – and which did for a while – tamp down the spread of COVID-19. But there was intense pressure to loosen up some of the restrictions. By early May, 2020, Gov. Newsom agreed to a staged reopening plan that went into effect in the following weeks with whiplash-inducing speed. By June, though, the disease spiked in many parts of the state, causing the government to pull back a bit.

One of the (many) problems with the first reopening scheme was that it “relied on local officials to attest to their own readiness to reopen. But instead of requiring counties to meet the benchmarks outlined in his plan, Newsom permitted dozens of counties to move forward as long as local officials said they could increase testing capacity or train more contract tracers in the weeks and months after their businesses opened their doors again.” 

In late August 2020, California’s governor announced a second try at a revamped and more cautious reopening plan. The new effort is called Blueprint for a Safer Economy; that is, the method for reducing “COVID-19 … with revised criteria for loosening and tightening restrictions on activities.”  

The latest and best information is collected at the state government’s COVID-19 master reference site: https://covid19.ca.gov/ (updated almost daily). This plan has four “tiers” and is based on a requirement that counties “… show consistent progress in stemming transmission of the coronavirus before they can advance to the next tier of reopening.  

This more “robust” plan is “designed to correct some of the mistakes made during California’s initial reopening attempt in May.”  The tiers are “ranked by the percentage of positive COVID-19 tests and the number of new cases.”  Generally, the state sets certain rules that are effective within each tier for the counties that are assigned to that tier. But counties and municipal governments have some leeway to impose variations that are stricter than the statewide provisions. 

       Reopening for Each County

On the announcement date (August 28, 2020) the majority of California’s 58 counties were in the most stringent “Tier 1.” Color-coded purple, it represents a “widespread” county risk level in which “many non-essential indoor business operations are closed.”  On that date, all of Southern California was in Tier 1 except for San Diego County which had placed in Tier 2, color-coded red, representing a “substantial” risk level in which “some non-essential indoor business operations are closed.” San Francisco has also been in Tier 2 from the beginning of this new plan.

On the state’s master site, there is an interactive chart to view and understand each county’s current tier status. Another helpful reference source is the Los Angeles Times: Which California counties are reopening? (updated almost daily). There’s been some movement among counties since the first week of this new plan when 38 of the counties were in the most restrictive category. As of September 12, 2020, just 33 counties with some 71% of California’s population are “rated too risky to reopen.” Key changes include Orange County, Santa Clara County, and Santa Cruz County which moved from Tier 1 to Tier 2 while San Diego is in some danger of being sent down to Tier 1 from Tier 2. Changes are scheduled to be announced each Tuesday.

[Update 9/16/20 : San Diego County has received official notice it may be moved back to purple next week if numbers continue in the wrong direction. A major spike is related to an outbreak on the SDSU campus. The County asked Governor Newsom to separate out the SDSU cluster for purposes of evaluation of the county-wide tier status. So far, the answer is no.]

The only counties currently in Tier 3 (nine) and Tier 4 (two) are in the most rural northern and eastern parts of the state. The Los Angeles Times’s chart has a section called “How it shakes out” with a color-coded map of the entire state.

        What About Nonprofits? 

The Los Angeles Times’s chart includes another useful section titled “What’s open in your county?” The default section is Los Angeles County which started out and remains in Tier 1; you can type in your own county to bring up that information. 

What’s particularly helpful with this chart is that it lists the rules for certain activity categories including a number of ones that are mostly nonprofit in nature. For instance, there is information about: libraries, museums, zoos, places of worship & cultural ceremonies, higher ed, K-12 schools, and – of course – “nonessential business offices.” 

These charts also indicate when there is a “stricter” variation in a county from the state’s standard within a particular tier.  Check, too, with your local government’s websites for information about variations closer to home.

        Conclusion

A final note for now: Just because the government permits you to reopen doesn’t necessarily mean it’s a good idea to make that move at the earliest allowable opportunity. There are many considerations including liability issues and well as the nonprofit board’s fiduciary duties to its own personnel as well as the general public. We’ll take a stab at those topics in upcoming posts. 

 

 

Paycheck Protection Program: Most Recent Developments

The Paycheck Protection Program (PPP) was a much-heralded part of the CARES Act, the first substantive Congressional response to the COVID-19 outbreak in the United States. Signed into law on March 27, 2020, the PPP was open not only to the business community but also to small- and mid-size 501(c)(3) organizations.  See Nonprofit Guide to the CARES Act (Including Those Loans You’ve Been Hearing About to Cover Payroll and That Don’t Need to Be Paid Back (March 31, 2020) Ofer Lion, Esq., Seyfarth Shaw LLP.

Though the original amount of money plunked into the PPP pot was huge, everyone acknowledged (even back then in March) that it would not stretch to fit the needs of all potentially eligible applicants in this period of colossal economic upheaval. It was to be offered immediately  – a good move – but on a first come first serve basis – a move almost certain to cause trouble.

  Paycheck Protection Encounters Trouble

“The rollout was,” according to  Forbes’s tax guru, Peter J. Reilly, CPA, “a source of much tsuris.”

Mr. Reilly – (somewhat unexpectedly) – employed this colorful Yiddish-derived word that is dictionary-defined as “trouble” or “distress” but is best understood from the context and circumstances. Here, applicants for the PPP jammed the government website immediately. It crashed early and often. The lender-banks expected to fund the program were not ready in time. Many banks dealt first and only with their existing customers. No one really understood the program which involves only partially forgivable loans and only if certain ambiguous conditions are met. 

Tsuris abounded… and continued through April and May. 

   Confusion and Disappointment

Congress replenished the funds a few weeks after the original PPP rollout. This second round was also a chaotic mess. And – again – it was not nearly enough for the vast number of increasingly worried small-business owners and nonprofits needing funds to survive. See, for instance, Despite $322 billion in new loans, the Paycheck Protection Program still falls short (April 26, 2020) The Editorial Board, The Washington Post; Bankers Rebuke S.B.A. as Loan System Crashes in Flood of Applications (April 27, 2020) Stacy Cowley, The New York Times.

In an effort to answer the many questions and ambiguities in the original PPP, the Small Business Administration issued a series of confusing explanations and guides in the Program’s first months.  Ruth McCambridge and Steve Dubb, of The Nonprofit Quarterly, took the opportunity to sum up the frustration; see The Rulemaking on PPP Loans Continues: What You Need to Know Today (May 27, 2020):

We here at NPQ are pretty darned sure that the fourteenth set of Interim Final Rules for the Paycheck Protection Program (PPP)—issued last Friday by the Small Business Administration (SBA) and Treasury Department as a dense, 18-page Memorial Day gift to financial advisors and managers—is no more final than the prior thirteen sets of Interim Final Rules, which weighed in at 26 pages….

Paycheck Protection Program: New Flexibility

In order to meet the increasingly dire needs of American businesses and nonprofit organizations, the House of Representatives passed the HEROES Act by the third week in May. Part of that large legislation would have included fixes to the PPP and extensions of time. But that bill stalled completely as Senate Majority Leader Mitch McConnell refused even to bring it to the floor of the Senate. See Financial Aid Expected for Struggling Nonprofits: The HEROES Act and Accessing PPP Loans (May 18, 2020) William Powers, Esq., & Anna Tang, Esq., Nossaman LLP.

Bipartisan help arrived, though, in early June in a standalone bill: H.R. 7010, the Paycheck Protection Program Flexibility Act of 2020.

We reported on this development in UPDATE: Paycheck Protection Program Flexibility Act (June 4, 2020) [“The bill provides borrowers with additional flexibility and time to use PPP loan funds and still have the loan forgiven.”] See also Senate Unanimously Approves PPP Flexibility Bill: What Does It Include? (June 4, 2020) Ruth McCambridge & Steve Dubb, The Nonprofit Quarterly: [Senate adopted it unanimously after House approved it a few days earlier by 417-1 vote].

See as well, Paycheck Protection Loan Forgiveness Just Got Easier (June 3, 2020) Peter J. Reilly, CPA, Forbes: [“…[T]here was a lot of concern about how hard forgiveness was going to be, so the passage of this act is a big relief….Among the highlights are: the amount of time borrowers had to spend the money was increased from eight weeks to twenty-four weeks.”]

Also to achieve full forgiveness a somewhat complicated head-count test had to be met by June 30. That has been extended to December 31, but more significant is relief in the event the borrower is unable to get people back. – How you gonna keep down on the burger grill after they got $600 per week unemployment?. The other possible source of relief is an inability to get back to the same level of business because of all that social distancing stuff. 

   Additional PPP Extension

The latest development in the Paycheck Protection Program saga is an extension until August 8, 2020, of the original June 30th deadline for new applicants. This significant change was signed into law over the July 4th weekend. See Senate reaches deal to extend Paycheck Protection Program hours before it was set to expire (June 30, 2020) Jonathan O’Connell, et al, The Washington Post; Trump signs extension of business relief fund (July 5, 2020) The Associated Press, The San Diego Union-Tribune. 

Of the total $660 billion authorized to date for the PPP, some $130 billion reportedly remains available.  And in the next days and weeks, there may be more funds allocated to the PPP as well as to new and different programs that will help nonprofits. 

The House-passed HEROES Act is still languishing in the Senate Majority Leader’s inbox. But recent events suggest that Congress can and may move from “no” to “go” in less than sixty seconds. First, consider the quick and almost unanimous support for the Paycheck Protection Protection Flexibility Act of 2020 just days after the HEROES Act House bill was apparently left to wither on the vine in mid-May 2020. Second, on July 7th, Leader McConnell suddenly indicated that he is now open to more emergency COVID-19 financial-aid legislation. Earlier, he said he was not interested in moving forward with any assistance package when the Senate returns from its current two-week recess.

Another interesting development just reported in the media in the last day or so may also have some effect on loosening Congressional purse strings. 

This new story is a follow-up to earlier reports that certain well-heeled entities and institutions applied for and received PPP funds while other businesses and nonprofits were denied relief. See, for instance, What Did Paycheck Protection Loans Go Toward—and Who Gave Theirs Back? (April 20, 2020) Ruth McCambridge, The Nonprofit Quarterly; see also Lakers pay back $4.6 million received from coronavirus rescue loan program (April 27, 2020) Tania Ganguli, The Los Angeles Times. Some of these recipients were successfully shamed by this media exposure into paying back the money to the U.S. Treasury.  

Pressure then grew on the government to come clean about the identities of all PPP recipients. After initial pushback – [see Treasury Secretary Steven Mnuchin refuses to disclose recipients of coronavirus aid (June 14, 2020) Associated Press, The Los Angeles Times]the information is now seeping out. We’re learning the full extent to which the PPP funds were grabbed up by enormously rich and/or politically well-connected companies or institutions. See, for instance, PPP Recipient List: Reading between the Lines Reveals Big Holes for Nonprofits (July 7, 2020) Ruth McCambridge, The Nonprofit Quarterly; ‘McCongressman’ Gets a Large Order of PPP (July 7, 2020) Timothy L. O’Brien, Bloomberg

   Conclusion

In light of these developments as well as the enormous and ongoing need of the nonprofit community, its workers, and its beneficiaries, the National Council of Nonprofits has just revised and reissued an earlier letter to lawmakers that it hopes nonprofits around the nation will sign and submit by close of business on Friday, July 10, 2020. See Time to Tell Congress: Include Urgent Nonprofit Policy Priorities in COVID-19 Legislation (July 7, 2020). According to NCN, “Congress is expected to pass its last piece of COVID-19 legislation this month – July 2020” adding a plea that “nonprofits tell the House and Senate to include nonprofit policy solutions in the final package.”]

Group Exemptions: Rules Changes Proposed

For many decades, affiliated nonprofit organizations have enjoyed the “administrative convenience” offered by the Internal Revenue Service’s special group exemption procedures. While the program will continue, there are important changes on the horizon; the 4,000 or so “parent” groups in the United States and their more than 440,000 “subordinates” should know about and understand them. 

On May 1, 2020, the IRS issued Notice 2020-36, unveiling a proposed new revenue procedure to supersede the long-standing group-exemption rules of Revenue Procedure 80-27 adopted in 1980. 

The government has asked for – and encouraged – public comments that are due on or or before August 16, 2020. 

  Group Exemptions: The Old Rules

The 1980 revenue procedure which is about to be modified was – itself – an update to earlier rules for how the federal tax agency handled the tax exemption applications “on a group basis for subordinate organizations affiliated with and under the general supervision or control of a central organization.” 

In Group Exemptions: A Primer (April 22, 2016), we explained that a “group exemption letter” is a “variation of the usual and customary procedure of recognizing tax-exempt status on individual organizations. In appropriate circumstances, the IRS will officially recognize ‘a group of organizations as tax-exempt if they are affiliated with a central organization.’”  

This greatly streamlined path to obtaining and maintaining federal tax-exempt status is particularly popular with, among others, religious groups around the nation as well as disease research and support organizations which often have a national parent and affiliates in local communities. Under this format, each subordinate member of the group is listed on the parent organization’s group-exemption application. There is no need, then, for any of the subordinate organizations to apply for tax exemption separately and submit individual documentation and information. “A group exemption letter has the same effect as an individual exemption letter except that it applies to more than one organization.” Rev. Proc. 80-27 also includes a simplified path to certify and maintain the group exemption on an ongoing basis. 

In Group Exemptions: New Procedure (May 2, 2019), we alerted readers to an “important, but not widely publicized, procedural change in the annual reporting requirements.”  Under Rev. Proc. 80-27, a parent organization must “submit certain information to the IRS annually in advance of the close of its accounting period. 

To facilitate the provision of information under this requirement, the IRS historically mailed each central organization a list of its subordinate organizations for verification and return.” Beginning January 1, 2019, though, the IRS stopped automatically mailing out these lists on grounds that this convenience was (1) not required and (2) imposed a significant administrative burden on the agency whose budget had been slashed left and right in recent years. 

  Group Exemptions: In With the New

The IRS has been “upfront” that, while the group-exemption path to tax exemption is certainly a welcome favor to hundreds of thousands of U.S. nonprofits, this convenience was “instituted to relieve the Service from the burden of individually processing a large number of applications involving the exempt status of organizations that are affiliated with each other, and also are organized and operated for the same purpose.”

What the agency giveth, the agency can taketh away. 

No, the group-exemption program is not disappearing.  But it’s been forty years since the last major overhaul of the procedures: There has been tinkering around the edges, with “interim guidance and notices that have accumulated over many years.” And there have been changes in tax-exemption statutes and rules in the interim that relate in some way to the group-exemption rules. 

In Notice 2020-36, the agency explains that it “has considered how to reduce the administrative burden and increase the efficiency of the group exemption letter program, to improve the integrity of data collected for purposes of program oversight, to increase the transparency of the program, and to increase compliance by central organizations and subordinate organizations with program requirements.”  

The result “…[caps] a group exemption review project that has spanned more than a decade.” Many of the agency’s goals for the program, it notes, “are attainable only by updating the procedures currently described in Rev. Proc. 80-27.” For that reason, that Notice includes a proposed new revenue procedure, subject – though – to helpful transition and grandfather rules for existing group-exemption holders. 

The 63-page document Notice 2020-36 does not contain – as do many popular articles in newspapers and magazines these days – a convenient advisory at the top letting you know that it is a “4-minute read” or a “7-minute read” or otherwise how it will involve just a modest disruption of your usual quarantine schedule. It’s a heavy – but important read – for the affected organizations and their professional advisors. 

The accounting folks over at Ernest & Young LLP have published a helpful and more easily digestible summary of the key provisions; see After 40 years, IRS updates and modifies group exemption program with proposed revenue procedure (May 8, 2020).

They note that “…[f]or many central organizations, the new rules would have very little impact, due to the extensive grandfather rule. But the revenue procedure would create additional administrative burdens for many other central organizations, limit the types of organizations that would qualify as new subordinate organizations, and consequently would likely reduce the total number of group exemptions and subordinates.”

More specifically, “the proposed revenue procedure would add two requirements that a central organization would need to meet (subject to the transition period…) to obtain and maintain a group exemption: (1) have at least five subordinate organizations to obtain a group exemption and at least one subordinate organization thereafter; and (2) maintain only one group exemption.”

In addition, “[c]onsistent with Revenue Procedure 80-27, the proposed revenue procedure would require a central organization to establish that each subordinate organization included in the group exemption be affiliated with the central organization and subject to its general supervision or control. Unlike Revenue Procedure 80-27, however, the proposed revenue procedure defines, and would require subordinates to meet (subject to the grandfather rule …) the conditions of affiliation, general supervision, and control.” (emph. added)

  Comments Requested

“The Internal Revenue Service (IRS) is issuing this guidance in proposed form to provide an opportunity for public comment because the IRS recognizes that, if finalized, the proposed revenue procedure would make substantial changes to the procedures set forth in Rev. Proc. 80-27 and that the application of these new procedures may impose an additional administrative burden on central organizations with group exemption letters in existence on the date the final revenue procedure is published in the Internal Revenue Bulletin ….” 

The agency “requests comments on all aspects of the proposed revenue procedure, including applicable grandfather and transition rules.” In particular, though, the IRS invites thoughts – see page 20-21 of the Notice – about three specific matters:

  • “the administrative burden imposed by” certain of the information-gathering requirements by and between parents and subs;
  • “factors indicating that a subordinate organization is affiliated with a central organization …” and
  • “whether central organizations with more than one preexisting group exemption letter would benefit from procedures permitting the consolidation or transfer of one or more preexisting group exemption letters.”

Public comments are due on or before August 16, 2020; instructions are included on pages 20-21. 

  Conclusion

Until the publication of any new and final revenue procedure in the Internal Revenue Bulletin –  (whether or not the agency adopts the proposed language in full or makes changes based on the public comments] – Revenue Procedure 80-27 continues in force and effect. “However, the IRS will not accept any requests for group exemption letters beginning June 17, 2020, until publication of the final revenue procedure or other guidance.”

 

Nonprofit Postal Rates: Action Alert

Postal Rates Increase

In September 2018, we reported the alarming news that some of the most popular postal-rate discounts long enjoyed by nonprofits may be on the chopping block. See Possible Rate Hike for Some Nonprofits’ Mail

What was only a strong possibility back then has turned into a near-certainty now. And there’s just a short window – on or before February 3, 2020 – for the nonprofit community to act to avert or mitigate it. 

Taking the lead in this uphill battle is the Alliance of Nonprofit Mailers (ANM). This organization was formed by and for nonprofits in 1980. It “exclusively represents and informs nonprofits that rely on affordable, effective postal mail to raise funds, communicate with donors, advocate, deliver publications, and achieve our missions.” ANM “asserts … the sector’s … postal rights at the USPS, via the Postal Regulatory Commission, on Capitol Hill, and in federal court.” 

The ANM staff, assisted by outside experts, have waded through the legal quicksand on this urgent issue on behalf of the nonprofit sector. Having emerged from this deep and almost incomprehensible muck, the Alliance of Nonprofit Mailers now continues to focus heavily on the preparation and presentation of  the critical legal-argument prong of the opposition. 

But there is an important direct-action task ANM now urges the nation’s nonprofit organizations to take. The Postal Regulatory Commission wants and needs to hear, by the February 3rd deadline, from individual organizations about how much they rely on reasonably discounted postal rates to accomplish their goals that are so important to American society. (More about the action steps, including sample letters, below.) 

  Postal Rates: Setting the Stage  

The most well-known and highly prized perk offered to 501(c)(3)s is, of course, the federal tax deduction. For many organizations, though, discounted postal rates are nearly as important as the donation write-off incentive to their overall success. 

Unfortunately, the fate of these special reduced rates for nonprofits is trapped in an epic tug-of-war between a “regulated monopoly” – the United States Postal Service (USPS) – and an “independent” executive-branch oversight agency – the Postal Regulatory Commission (PRC).  And there has long been – (what else?) – a strong political-ideology undercurrent to this battle. 

Traditionally, the important “obligation to provide postal services to bind the Nation together” was carried out by the (cabinet-level) United States Postal Office Department. After a huge labor strike, Congress made a big change, enacting the Postal Reorganization Act of 1970. That statute created the United States Postal Service (USPS), a “corporation-like independent agency with an official monopoly on the delivery of mail.” 

The 1970 Act also authorized a newly formed Postal Regulatory Commission (PRC) to oversee the USPS. The president appoints five commissioners, on a staggered basis, to serve six-year terms each. At any given time, no more than three commissioners may be from the same political party.

There were major changes again a few decades later with the amendment of the 1970 Act by the Postal Accountability and Enhancement Act of 2006 (PAEA). The latter is peppered with terms like  “competitive product” and “market-dominant product.” While PAEA includes initial safeguards and cost-of-living-increase caps to safeguard the mailing public (including the nonprofit sector), that law also mandates a review of this “Market Dominant rate and classification system” after ten years. Depending on the findings about the financial sustainability of the USPS, the Postal Regulatory Commission has power to approve significant changes including big rate hikes. 

A controversial provision plunked down in the 2006 Act – requiring the USPS to pre-fund its future retirees’ health benefits – makes the sustainability goal much more difficult than it would be without that requirement that isn’t generally imposed on other entities.   

  Postal Rate Hikes: Now  

The mandatory ten-year review began in December 2016. 

There were earlier trial balloons from the Postal Regulatory Commission; most notably, these preliminary proposals included smashing through the cost-of-limit caps established in PAEA in 2006. There were opportunities for public comment; the response was overwhelmingly negative. 

This takes us to right now. 

On December 5, 2019, the Postal Regulatory Commission formally issued its latest (and likely) final “Revised Notice of Proposed Rulemaking.” The full text of Statutory Review of the System for Regulating Rates and Classes for Market Dominant Products” is here

It’s a 354-page monster. 

To a large extent, this length and complexity is understandable. There are, after all, decades of complex legal precedent governing generally how regulated monopolies and their watchdog-agency overlords interact. Overlaying all that are the specific federal statutes and regulations comprising modern postal law, a daunting legal niche if ever there was one. 

Jump in at your own risk; the jargon alone will drag you down into unrescuable depths. You may never be heard from again. 

Instead, take a quick look at the helpful trove of materials from the Alliance of Nonprofit Mailers: 

  • ANM Alliance Report, December 12, 2019: Postal Regulator Again Proposes Massive Surcharges (7 pages, including a comparison of the earlier proposals with the current one) 
  • Comments of Alliance of Nonprofit Mailers, Association for Postal Commerce, and MPA – The Association of Magazine Media (March 20, 2017) (at 86 pages, this comprehensive package in response to the earlier proposal is a heavy lift. Skim it to get an idea of what’s at stake, then turn to the much more manageable action items for right now)

  Action Steps 

The Alliance of Nonprofit Mailers prepared and sent to its members on January 15, 2020, an updated analysis and plan for action. While “at first blush,” according to ANM executive director Stephen Kearney and his staff in December, the current Postal Regulatory Commission proposal appeared just as bad for the nonprofit sector as the earlier one, they now conclude it’s “worse.” 

“There are two differences this time,” he writes.  “First, the PRC seems very confident it has the votes, with three new Commissioners, to push the anti-mailer proposition through.  And second, they added some complicated formulas to enable potentially even higher increases if mail volume falls more, and to try to make it appeal-proof by feigning expertise that the court would defer to.  Because of the formulas, the rate hikes could easily range higher than the five-year increases of 28% to 40% of the first proposal.”

According to Mr. Kearney, the PRC staff “want to hear directly from nonprofit mailers.”  He adds: “There is evidence that the Commissioners do read and are affected by individual letters.” 

ANM has provided three sample letters from the last round, here, here, and here. (“Some are very detailed, others not so.  But, each helps illustrate the unique place of nonprofits in the mailing community.”)  

ANM’s suggested bullet points include: 

  • Briefly describe the organization’s mission and beneficiaries
  • Describe the organization’s reliance on mail for fundraising and communication
  • Relate the impact of the recession on the organization’s fundraising, membership, publications, and programs and the role of predictable, modest price increases in aiding recovery
  • Most important, describe in real-world terms what immodest price increases and reductions in funds raised would do to those you serve (fewer animals saved; fewer meals provided; shorter clinic hours; etc)

  Conclusion

Be sure to cite Docket No. RM 2017-3. 

Letters submitted via U.S. mail should be addressed to: Postal Regulatory Commission, 901 New York Avenue, NW, Suite 200, Washington, DC 20268. They must be received by February 3, 2020, so ensure enough time for delivery. Alternatively, they can be submitted online on or before the deadline, but you’ll need to apply for a temporary account with the PRC, here

Artificial Intelligence & Nonprofits: A Primer

Artificial Intelligence and Nonprofits

Most people expect to understand and be comfortable with Artificial Intelligence (AI) about as soon as they conquer – say – ancient Sanskrit.

It’s one more weird technology thing, many fear: a science fiction nightmare that will take over our lives or – worse still – replace us altogether. It’s tough to work up enthusiasm for, much less welcome, a scary new storm cloud like that rolling in from the horizon. 

But AI is neither new nor likely to render humans obsolete. 

  What is Artificial Intelligence?

Although we’ve been hearing a lot about Artificial Intelligence only recently, technology nerds have been studying and developing its potential applications for over six decades. There were repeated “cycles of wild prediction and enthusiasm” followed by disillusionment when results were a dud. But we now seem to be in a period of (likely sustained) popularity.

So what changed? 

What makes AI possible at all is computing power with “vast networks and memories”; in recent years, computer technology has advanced dramatically and costs have tumbled, and the pace of progress is rapidly accelerating. What the brilliant experts could only dream about earlier is now possible because the technology has caught up with their ideas.  

And why won’t people be pushed aside by computers? Artificial Intelligence is different than human intelligence; it doesn’t work by “mimicking the complexity of the human brain” which it can never achieve. AI’s purpose and success comes from using the unique tools of computers, namely, “huge memory capabilities and calculating power” that are far greater than the human brain can ever achieve.  

Artificial Intelligence is “simply creating computer software that can accomplish tasks (at least with some level of competence and usefulness) that seem to require intelligence in humans.” These tasks include, for instance, “communicating in everyday “natural” language, solving problems, recognizing images and patterns, learning new skills, and making decisions and plans.” But AI systems lack the “context” that humans have: that is, “knowledge that human beings readily bring to bear that stems from our ‘simply’ living in the world with our wealth of impulses and experiences.” So computers are incapable of “understanding humor, exhibiting basic ‘common sense,’ and working with ambiguity….” 

The role of computers in AI applications, “as idiot savants,” can be illustrated by an example. “A computer program may beat the world’s best chess player, master the game of Go, play Jeopardy, or cite quotations from a library a million times larger than the works of Shakespeare. But that same program will be unable to perform even the most basic human task, like understanding the point of a story you would tell your 3-year-old child.”

The reason Deep Blue bested Gary Kasparov in a chess match is not that the supercomputer became a “better player”; instead the machine successfully searched “billions of possible moves.”  

  How Nonprofits Use Artificial Intelligence

AI use “still has a long way to go to make it into the mainstream for nonprofits, according to a new survey discussed in The Nonprofit Times on July 22, 2019. Of the survey respondents, only about 42% say they are “researching AI” but just 28% report that “AI is either deployed, in the implementation phase, or experimental.”

Despite AI still being in its “infancy” in the nonprofit sector, there is already such a breathtaking range and scope of Artificial Intelligence applications in use that it’s tough to cubbyhole them in neat little categories especially for an introductory post like this. 

Computer scientist, Lisa Rau, Ph.D., explains it in her article (cited extensively throughout this post) noting “there are a wide variety of nonprofit organizational tasks that AI can help to solve, especially for any organization either with lots of data that is handled repetitively or that requires “significant analysis across many pieces of data.”  

For instance, “any nonprofit where people analyze images” can benefit from the rapid advances in image-processing technology. Examples include “the analysis of aerial images to calculate deforestation, coastal erosion, pollution emitted from smokestacks, bleaching of the coastal reefs or glacial melting.” She also points out that facial-recognition technology can help analyze a mountain of digital photos taken at a gala to tag them individual attendees. 

Another example applies to a nonprofit that has its staff try to large amounts of free text “routinely stored and used in decision making, reporting or analysis.” That organization can benefit from natural-language processing technology which is developing rapidly.  

An additional valuable use of AI involves “predictive analytics” tools that use “machine learning” to analyze “a set of legacy data” to “discover what factors in the legacy data can predict other pieces of data.” For instance, it can help with questions like: “Which donor is most likely to give a gift of over $1,000? Which students are most likely to drop out of school? What program design is most likely to achieve the desired outcomes? Which volunteer will be most successful to lead an advocacy initiative? What actions are most likely to increase constituent engagement?”

Dr. Rau particularly likes AI for use in “decision-making” because “humans are notoriously bad decision makers, afflicted with over 100 different kinds of cognitive biases. She cautions, though, that while “computers are excellent at making decisions based on data,” certain biases can be programmed in if the human beings – “still the ‘brains’ of the operation – aren’t careful. 

Allyson Kapin, of digital agency Rad Campaign, presents the enormous possibilities of AI for nonprofits through the prism of four categories: Field work, Fundraising, Understanding campaign content gaps, and Leveraging data from personal stories.

For instance, in the field-work category, Ms. Kapin points to the Rainforest Connection’s use of Google’s TensorFlow to help in its “mission to protect forests from illegal logging.” This AI application can “detect illegal logging in vulnerable forest areas by analyzing audio-sensor data.” With this information, the organization is creating a large dataset that “lets scientists compare month over month, year over year changes to our planet’s most endangered ecosystems” for use in policymaking and allocation of resources, and in Rainforest Connection’s project to reintroduce species into reserves.  

In the fundraising category, she cites the example of the nonprofit Charity: Water using the AI tool, Persado, to “understand understand which content and images on Facebook would generate more recurring donors for its monthly program called The Spring. After seeing the data, Charity: Water was able to act on the data and experienced a 32% increase in donation conversions.”

  There May Be New Jobs 

In The charity jobs that could soon be enhanced by AI, Chloe Green (who writes for the UK’s Charity Digital) addresses the “…fair amount of scare-mongering around Artificial Intelligence and the future of employment” including predictions that AI “could take over 40% of jobs by 2035.” 

She asserts that “a lot of this is a misconception at best, or simply overblown. Instead, “for charities, it means there is a huge opportunity to augment their operations with efficiency-driving tools that will leave humans to focus on the things they’re best at: coming up with new ideas and carrying out the core work that will drive their missions and impact more lives.” 

Ms. Green gives intriguing examples and then refers readers to the (somewhat tongue-in-cheek) late-2017 blog post by Rhodri Davies: Charity 2037: 13 Jobs We Might All Be Doing In 20 Years’ Time.  There, Mr. Davies suggests that our reactions to the AI revolution – especially in terms of the employment prospects for charity workers in the future – should land somewhere in the middle of the spectrum of opinion from “this is all sci-fi nonsense” to “I for one welcome our new robot overlords.”  

   Conclusion

This introductory post is just the tip of the iceberg in any dive into the vast depths of information about Artificial Intelligence. While we develop future posts on the topic, may we suggest that you take a peek at Beth Kantor’s recent post, Artificial Intelligence for Good: A Few Good Articles To Read. Take a peek also at another article by the profilic Rhodri Davies from 2018, , Where are the charities in the great AI debate? 

 

Who are the Funders Funding?

There’s new information separating fact from myth about where American charitable foundations are making grants these days and for what purposes, courtesy of San Francisco-based Fluxx

“Fluxx is the cloud platform that powers giving and impact in philanthropy.” Its vision is to “democratize philanthropy.” Through a free app, “givers and doers” are connected. “[H]undreds of the world’s largest foundations and tens of thousands of nonprofits rely on Fluxx to streamline their funding processes, get data driven insights, and drive more impact.” Among its foundation clients are powerhouses Ford, Knight, and MacArthur.

Recently, Fluxx researchers took its large bank of customer information to study current trends and patterns in charitable grantmaking in the United States. The firm published the results in State of Giving (July 24, 2019).   Twelve pages long, this report makes conclusions based on “foundation grants totaling $3.6 billion facilitated through the Fluxx Grant-maker platform in 2018 to nonprofits and individuals in all fifty states, the District of Columbia, and Puerto Rico.” Report authors acknowledge this data doesn’t include “all giving in philanthropy,” but believe it’s “directionally aligned” [enough] with overall trends in the United States to make its use valid for the study purposes.

The authors say there some surprises in the study findings that present the philanthropy sector with challenges as well as opportunities. 

  Foundation Funding Results

For this analysis, researchers wanted to “see how foundation giving varied by location and category.” The team reviewed data showing which states’ nonprofits received the highest or lowest amount of grants, and which types of philanthropic missions were awarded the most and least of this foundation-grant funding in 2018. 

The key takeaway:  There’s a “significant disparity in giving amounts going to the top and bottom 10 receiving locations” ranging from 73% (or 2.6B of grant dollars analyzed) down to just 0.82% (or a relatively paltry $29M). 

There’s also a notable difference in the categories of philanthropy funded. In the top ten “receiving locations,” the main focus is the environment and the arts. In the bottom ten, the most funds are granted for shelter and food activities.  But one category of philanthropy funding gets the top spot across all locations: education. 

The report also shows that “foundation giving in the United States is highly concentrated in a handful of states and cities, with nearly half of all grant dollars going to recipient organizations in New York, California, and Washington, D.C.”  More specifically, New York grant recipients raked in $636.3M of the $3.6B total grant-money pie. California followed at $550.7M.  While the nation’s capital was in third place, its $414.2M is not exactly chump change.  Combined, these three “receiving locations” accounted for almost 45% of the hefty national total. And it’s clear from the data that New York, California, and D.C. dominate even when considered only as part of the top-ten-locations category; they take in about 61% of funds awarded to that lucky group.

Analyzed somewhat differently – (jurisdiction by jurisdiction, instead of by “receiving location”) – the top ten (including Colorado, Illinois, Maryland, Massachusetts, Michigan, Missouri, and Oregon – along with New York, California, and D.C.) managed to slice off 73% of the total foundation-funding pie. By comparison, there were only crumbs left – just 0.82% of the total funding – for the bottom ten jurisdictions (including Nebraska, Puerto Rico, and West Virginia). 

The State of Giving report has helpful charts and graphs that illustrate and further breakdown these findings. 

In summary, grant funding varies dramatically across the United States. Sadly, the “data shows that more basic needs, such as housing and food, are being supported by grant funding in locations receiving fewer grants.” These locations at the bottom of the funding ladder also have poorer populations (with fewer extra dollars available for individual charitable donations) and are concentrated in areas with financially strapped state and local governments.

More Funding-Related Study Results

Another study released in July 2019 is from Civis Analytics. This one also uses fairly current data (that is, from 2018 IRS sources) from over 350,000 nonprofits around the U.S., giving a “fascinating snapshot of important national, state and even some local nonprofit trends—including funding.” 

 “If you’ve been wondering how a nonprofit organization you work with,” writes Anne Eigeman in The Nonprofit Quarterly, “fits into the bigger picture of work being done in your geographic area, new visualization maps produced by Civis Analytics might provide an answer.” That this substantial amount of timely information was so quickly available is thanks in no small part to the recent move by the Internal Revenue Service toward publicly available, machine-readable, Form 990s

At Civis, the mission is “to democratize data science so organizations can stop guessing and make decisions based on numbers and scientific fact.” The firm helps public and private sector organizations “find, understand, and connect with the people they care about, so they can stop guessing and start using statistical proof to guide decisions.” 

“As an introduction to this study, Civis explains that at the end of 2018, they were looking at some 990s and thought it would be cool to share their findings more broadly with the general public (they are data people).”  They applied a “topic-modeling method” to analyze the mission statements of the surveyed organizations based on key words and phrases. “The team then assigned each nonprofit to one or more categories and then compared the financials of organizations by category and location.”

According to Ms. Eigeman, “some of the results might not come as a surprise.” For instance, according to this study, organizations that serve “vulnerable populations” are the “most common” category in the majority of states.” However, “more surprising” is that [otherwise] “youth character development organizations” are in the lead on the West Coast, while economic development organizations dominate in North Dakota, Wisconsin, Maryland, Virginia, and Michigan. In Lousiana and Indiana, the focus is on affordable housing. 

Among the benefits of the Civis study is that it “highlights issues related to funding and draws attention to the challenging fact that the most common organizations are not always the best funded.”  

Conclusion

You’ll have to take your own deep dive into these reports to further compare and contrast their findings. 

And – according to the NPQ’s Anne Eigeman – keep in mind that “this new data capacity is the people’s” so “nonprofits should be asking themselves what questions they’d want to see posed.” That’s an important and intriguing challenge for the sector to democratize its research and analysis efforts for the future.

 

The Census Citizenship Question & the Supreme Court Cliffhanger

In 13 Famous TV Cliffhangers That Still Get Fans Talking, we’re reminded that Hollywood executives take delight in leaving fans over the long hot summer with the agony of worrying about the fate of a beloved (or hated) television-series character. 

Perhaps the most sensational cliffhanger in TV history is the final scene of the 1979-80 season of the CBS hit, “Dallas.” J.R. Ewing, played by the late Larry Hagman, was the scion of an oil-business clan who schemed and double-crossed his way across the Texas landscape. When he is shot by an “unseen assailant” outside his office, anyone and everyone (family, friends, business associates, and commercial rivals) is a plausible suspect. Some 350 million viewers worldwide tuned into that episode. Among the fans left waiting and wondering about the answer to the mystery were President Gerald R. Ford and the U.K.’s Queen Mother, Elizabeth.  In the new Fall season, the producers revealed that the shooter was Kristen, J.R.’s villainous sister-in-law and mistress, but J.R. didn’t press charges because she was pregnant.

The Long Hot Summer of the Census

When the American public tuned into the final episode of the U.S. Supreme Court season of 2018-19 – (that is, the last week of June) – we learned that the high court had treated us to an intriguing cliffhanger about the fate of the controversial “citizenship question” on the 2020 Census. 

For background on the nonprofit sector’s keen interest in a full and fair census process that encourages, rather than discourages, the broadest possible participation, see our post from May 15, 2019: Why the Census is a Big Deal for Nonprofits

There, we also explained the hasty and irregular push by the Administration, well after the usual deadline to finalize the official census form, to insert a constitutionally unnecessary citizenship question. Census Bureau professionals objected “because the information could be obtained other ways and adding the unnecessary question would decrease the census count, cost taxpayers more, and corrupt the data.”  Commerce Secretary Wilbur Ross, presumably following orders, plunged ahead. 

Opponents, concerned about depressed participation by minority communities (already fearful of harassment and deportation), filed three separate lawsuits. In expedited bench trials, each federal judge blocked the government’s move, on grounds including that “… Secretary Ross violated administrative and/or constitutional law.” 

The U.S. Supreme Court agreed to bypass the circuit-court level and hear an emergency appeal by the government in one of those cases, Department of Commerce v. New York. The justices took this extraordinary step in part because the Administration argued there was a June 30, 2019, deadline to get the final census form to the printers in enough time to produce the massive quantities needed for the 2020 count. Again and again, including at the oral argument on April 23, 2019, government lawyers made unequivocal representations to the justices that this was a hard-and-fast, no-exceptions, we’re-really-not-kidding, deadline. 

Bearing this in mind, the justices may have gotten around to deciding the case before the last minute, but something curious happened in May 2019. Reputable evidence surfaced that Administration officials had lied about the process by which they decided to include the citizenship question and the (purportedly nondiscriminatory) reason they wanted it on the official form. 

In The Census (Non)Decision: What’s Next? (July 2, 2019), we reported that, with just three days left before for the printing “deadline” and no days left before the justices headed off for the summer hiatus, the high court released its final ruling of the term: Department of Commerce v. New York.  By a vote of 5-4, including the apparent eleventh-hour switch of Chief Justice John Roberts from the conservative side to the liberal one, the justices planted a giant red light in the path of the Administration’s late push to include the citizenship question. 

Perhaps the high court’s move is better described as a flashing yellow light that was about to turn red in 72 hours or so. Writing for the majority, the Chief Justice told the government: “Not so fast.”  He took the rare step of characterizing the government’s stated reasons for needing the citizenship question as “contrived.” Notwithstanding the imminent printing deadline, the court prohibited the government from including the citizenship matter on the census questionnaire unless and until it could come up with a better – and more believable – justification for why and how it arrived at the decision that citizenship-related questions must be part of the 2020 Census. 

Faced with the clear futility of presenting new and compelling arguments untainted by the former dodgy representations and rationales –  and with almost no time left – someone high up in the Department of Justice sent the word out that the government was throwing in the towel. 

As described in more detail in news stories like here, the federal judge in one of the related lawsuits wanted to hear definitively that this was the end of the line. In a hearing on Monday, July 1st, DOJ lawyers confirmed that the case was over. But by Tuesday, July 2, 2019, tweets emerged from inside the hallowed walls of the White House, casting doubt on any purported finality and also casually tossing aside the supposed drop-dead printing deadline of June 30th. 

The aforesaid district judge was not amused by the Administration’s shenanigans; he called an emergency hearing for Wednesday, the 3rd, to get some clarification. But there were more tweets and more confusion and contradictions; the judge demanded written assurances by Friday. (We can only guess that if any of the 5 justices voting “no” had turned on the news that week, they would have been miffed as well.) 

The next several days were characterized by a “whiplash-inducing series of developments, including the refusal by many of the Justice Department lawyers to continue to associate their names and reputations with this carnival sideshow. They asked to formally withdraw from representation, but the court denied permission to bail out. 

Over the next week or so, there was less and less chatter about the whole mess. On July 11, 2019, Attorney General Bill Barr and Commerce Secretary Wilbur Ross announced in the Rose Garden that the fight, is, indeed over.  Since then, each of the three federal district judges involved in these related cases has entered formal orders “permanently blocking the Trump administration from using next year’s head count to ask about the U.S. citizenship status of every person living in every household in the country.”

And so, ladies and gentlemen, the Supreme Court end-of-term uncertainty is cleared up: There will be no citizenship issues on the 2020 Census. 

We’re sure of that, right?  No more twists and turns down the road, no surprises or secret plans to flout the court orders or circumvent them? This is – after all – a “Dallas”-type cliffhanger resolution, isn’t it?: all questions answered and loose ends neatly tied up in relatively short order. 

Or is this more like those mind-bending season finales of ABC’s hit “Lost”: Are we stranded on a weird tropical island with polar bears?

Good Census News But Some Dangers 

According to long-standing plans, the federal Census Bureau is partnering with state and local governments to launch the first phase of the census process. These activities include preliminary canvassing to map out exactly where people now live so they can be found early next year to collect the necessary census data. The Census Bureau is already hiring full- and part-time workers. Joining the state and local government personnel are broad coalitions of philanthropic organizations along with activists and advocacy groups dedicated to educating the general public about the need to participate in Census 2020. 

While many states, including California, have budgeted substantial sums for these persuasion and assistance efforts, other states have allocated little or no money at all.  In those places, some city governments, aided by the nonprofit sector, are stepping up to do whatever they can. 

A normal challenge every ten years is to get the public to participate in the constitutionally mandated population count. This time around, a heightened fear in minority and immigrant communities  of harassment and deportation is making this task more difficult, notwithstanding assurances there will no citizenship questions. A bright spot in the face of this ongoing intimidation is the no-holds-barred efforts already underway around the nation starting this month.  A quick glance at hashtags including #Census2020 reveals an extraordinary amount of interest and activity so far.  

Complicating efforts to tamp down fear of participation are confusing reports and rumors that the government has already printed up census forms with citizenship questions.  In Why Is the Census Bureau Still Asking a Citizenship Question on Forms (August 9, 2019) NPR’s national correspondent, Hansi Lo Wang, explains that “a citizenship question won’t be included on 2020 census forms, but other Census Bureau surveys ask about a person’s U.S. citizenship status.” 

The Census Bureau, he writes,  conducts “more than 100 surveys for the federal government,” some of which may continue to ask about citizenship. But “unlike the census, these surveys involve only a sampling of households, and “their results produced anonymized citizenship data that the government has relied on for years to, for example, protect the voting rights of racial minorities.” This, of course, has “…sparked plenty of confusion around the country.”

Compounding this ambiguity, an earlier version of this NPR story “identified the 2020 census questionnaires for American Samoa, Guam, the Commonwealth of the Northern Mariana Islands and the U.S. Virgin Islands” as proof that there are citizenship questions on the official forms.   As soon as Census Bureau personnel saw that news report, they quickly contacted NPR to make clear that the agency is “… removing the citizenship question it was originally planning to include on next year’s island-area census forms.”

Conclusion

Some icing on the cake for opponents of the citizenship question: “When the Trump administration backed down last month on adding a citizenship question to the 2020 census, it didn’t just lose the policy fight. It’s now paying millions of dollars in legal fees to the groups that sued.” 

Under federal law, the challengers have the right to make that demand, and in early August, the Justice Department reached a $2.7 million agreement with the American Civil Liberties Union and other groups that sued over the citizenship question in federal court in Manhattan.  

Recent Nonprofit Issues: Developments

There are important updates to certain stories we’ve covered in the last several months or so. 

Issue: 2020 Census

In the weeks leading up to the June 28th end of the U.S. Supreme Court’s 2018-2019 term, the controversy over the Administration’s proposed citizenship question on the 2020 Census form was “shaping up to be a mess of historic proportions.” 

On June 27, 2019, the high court issued a ruling that appeared to hand a victory to opponents of the citizenship question, but it wasn’t necessarily a full and final resolution of the matter. We wrote about it in The Census (Non)Decision: What’s Next? (July 2, 2019). 

Within hours, though, came the first of a whiplash-inducing series of events that made almost everyone wonder out loud what in the world was going on. Now, a month or so later, the dust has settled a bit, and the census forms (without the citizenship question) are in the hands of the printers. Is the issue settled – or not? And how do community leaders and government officials plan to aggressively encourage compliance by as many people as possible, despite lingering fear and uncertainty? 

We’ll address that in a separate post next week. 

Issue: Form 990 E-Filing

On June 24, 2019, we posted Mandatory e-Filing for 990s on the Way, reporting that Congress was likely on the verge of passing broad bipartisan legislation that includes a few provisions directly affecting nonprofit organizations and their annual duty to file a Form 990, information return. 

Specifically, the bill was designed to dramatically expand the duty to file the Form 990 electronically to most organizations, to mandate that the IRS post the information publicly in a “machine-readable” format, and to impose a duty on the IRS to notify organizations well in advance of the three-year point at which consecutive delinquent Form 990s trigger an “automatic revocation” of tax exemption. 

By  the end of June, the measure passed both chambers, and was signed into law at the White House on July 1, 2019. The new law, which has broad support in the nonprofit sector, will apply to taxable years after 2019; there will be some transition relief, though, for certain smaller organizations. 

Issue: Ambiguous Tax Act Statutes

In our post, just published, about provisions in the Tax Cut and Jobs Act of 2017 (TCJA ‘17) that affect nonprofits, we mentioned several items of concern that Congress may (or may not) fix when lawmakers return from their summer recess. 

We made brief reference only to two provisions that, while badly drafted and possibly ill-conceived, appear likely to remain in the tax code. The first is the new university endowment excise tax; the second is the new excess compensation excise tax. There has been little sector-wide opposition activity in part because the new taxes affect relatively few 501(c)(3) organizations. 

Endowment Tax 

On July 3, 2019, the Internal Revenue Service released proposed regulations on questions and uncertainties about new section 4968 of the Internal Revenue Code, “Excise Tax Applicable to Certain Private Colleges and Universities.” For the first time, this statute imposes a 1.4 percent excise tax on the net investment income of just a select few private colleges and universities with substantial endowments.

The formal notice was published in the Federal Register; the text of the proposed regulations is here. The public is invited to comment by October 1, 2019.

A press release [IR-2019-120] dated June 28, 2019 includes an overview of the purpose and content of the proposed regulations. There are definitions as well of several [ambiguous and confusing] terms to help an educational institution determine if it is subject to this tax. According to government records, though, the tax should apply to no more than about 40 colleges and universities. Included, too, are clarifications for “affected institutions” on how “to determine net investment income, including how to include the net investment income of related organizations and how to determine an institution’s basis in property.” The proposed regulations “incorporate interim guidance earlier provided in Notice 2018-55 (PDF).” 

An additional helpful explanation is the analysis published by the National Association of College and University Business Officers: Treasury and IRS Propose Regulations on Endowment Excise Tax (July 1, 2019).

Excess Compensation Tax 

In Guidance on Excess Compensation Rules for 501(c)(3) Execs (February 7, 2019) we discussed developments to that date in connection with the ambiguous and confusing new excise tax under Section 4960 of the Internal Revenue Code on excess compensation of certain highly paid executives. 

On December 31, 2018, IRS officials had issued the 90-page Notice 2019-09, presented in question-and-answer format instead of through the typical narrative. While presented as guidance and clarification of the many ambiguities and omissions in new Section 4960, it falls far short of that goal. Officials requested public comments by April 2, 2019, particularly about certain points in the document. 

The IRS intends to issue proposed regulations at some time, but there is no further news.  

Issue: Parsonage Allowance 

In The Parsonage Allowance: Constitutional, Once Again (May 21, 2019), we reported on the highly anticipated appellate-court decision, Gaylor v. Mnuchin, issued on March 15, 2019, by the Seventh Circuit Court of Appeals. 

In that case, plaintiffs-appellees had argued that the housing tax break for clergy codified in Internal Revenue Code section 107(2) is unconstitutional. Titled “Rental Value of Parsonages,” that statute is commonly referred to as the “parsonage allowance” or the “clergy housing allowance.” It has “strong proponents and dedicated opponents.” The Seventh Circuit strongly disagreed with the federal district judge’s finding that the parsonage allowance is unconstitutional, and overruled it. 

Following the ruling, the losing parties could appeal to the United States Supreme Court by mid-June at the latest. Our prediction was no appeal; the current Supreme Court would likely side with the government and the 7th Circuit in support of the constitutionality of section 107(2). 

We were correct, as Forbes Magazine’s Peter Reilly explains in Freedom From Religion Foundation Won’t Take Clergy Housing Case To Supreme Court (June 20, 2019). 

Issue: Monkey Business

We are pleased to report the fate of Ndume, the longtime platonic companion of sign-language-reading, world-famous, Koko. The talented female gorilla is recently deceased but will live on forever in books and PBS specials. 

Ndume will live on at the Cincinnati Zoo after a bitter custody battle with The Gorilla Foundation that we described in Gorillas, Guerrillas, and 501(c)(3)s (March 14, 2019). Ndume was originally from the Zoo, but was loaned out to reside at The Gorilla Foundation’s facility – Koko’s home -after she was shown videos of prospective mates and chose Ndume. The mating thing didn’t work out but they lived together for many years as best friends. Pursuant to the loan agreement, on Koko’s death, the Zoo demanded Ndume’s return, but The Gorilla Foundation balked. It devolved into an ugly court fight, but the wise judge on the case ordered the matter out of the courtroom and into the capable hands of an appropriate mediator to determine “the “best interests of the” gorilla. 

In Court Battle Ends with Return of Gorilla to Cincinnati Zoo & Botanical Garden (June 18, 2019), Julie Euber of The Nonprofit Quarterly explains how “the controversy around Ndume’s rightful home highlights the difficulty of collaboration between organizations with similar missions and vastly different approaches.” But “in the end, [The Gorilla Foundation] cooperated during the transfer, and their response was one of continued doubt but hope for Ndume’s future.”

Conclusion

We’ll write more updates from time to time, but we can’t promise to end each one with a good-news item like a primate finding happiness with the help of of a 501(c)(3) organization. A tale like that doesn’t come along every day. 

Of course, that’s what we thought last year when we told you about Naruto in Monkey Gets Day in Court (July 26, 2018). He’s the world-famous, selfie-taking, crested-macaque monkey from Indonesia whose copyright infringement lawsuit was sponsored by People for the Ethical Treatment of Animals (PETA).