ASAE.

For associations, the focus in Congress, the courts, and the agencies throughout the past year has been on tax issues. On the legislative end, much of the early part of 2000 was spent beating back the Clinton administration's proposal to tax the investment income of Section 501(c)(6) organizations. Also this year, the U.S. Supreme Court declined ASAE's request that it hear an appeal regarding the constitutionality of provisions contained in the 1993 lobby tax law. And on the regulatory end, the Internal Revenue Service issued proposed guidelines for the tax treatment of corporate sponsorship payments to exempt organizations.

Other tax issues took center stage for associations, including proposals to scale back the current tax on lobbying expenditures and to loosen the restrictions on retirement savings for employees of exempt organizations. Both of these proposals would have been favorable to associations, but neither was ultimately enacted.

ASAE looks forward to working with the new administration and the 107th Congress, continuing to forge new relationships and educate key leaders about the important activities of associations.

ASAE also plans to build on the success of its first-ever Summit Awards Dinner held September 19. More than 800 attended, including key members of Congress and their staffs, to see the important work of associations honored at a celebratory dinner. The proceeds went to the Associations Advance America Fund, which pays for the efforts of ASAE's legislative counsel and grassroots network, the costs associated with ASAE's activities in the courts, and educational events featuring key national leaders. The next Summit Awards Dinner will take place September 25, 2001, in Washington, D.C.

ASAE also hopes to take advantage of the strong relationship it has with its allied societies to encourage more association executives across the country to become advocates for association issues by joining ASAE's grassroots network.

ASAE's fast-growing political action committee, A-PAC, gave to candidates in almost 100 races during the previous two years. A-PAC looks forward to continued growth during the next election cycle.

Following are descriptions of some of the important public policy issues that ASAE is currently addressing.

Investment tax

ASAE has been successful in leading a major effort in opposition to a Clinton administration budget proposal to tax the investment income of Section 501(c)(6) trade and professional associations. The plan would tax all income received by an association from interest, dividends, rents royalties, and capital gains exceeding $10,000. This tax plan--identical to one proposed and defeated in 1999--would be devastating to the association community, forcing organizations to scale back important jobs-training, standard-setting, and safety programs in order to pay the tax bill.

A Dear Colleague letter, signed by 34 members out of a possible 37 members of the House Ways and Means Committee, was sent to Chairman Bill Archer (R-TX) and Ranking Minority Member Charles Rangel (D-NY) on March 9, opposing this provision. On February 29, ASAE delivered an open letter to Congress, signed by more than 2,200 association executives from all 50 states, opposing this tax. ASAE also submitted the written testimony of President and CEO Michael S. Olson, CAE, to the Senate Finance Committee and House Ways and Means Committee.

Campaign finance and Section 527

Many state PACs were required to file Form 8871 with the IRS by July 31, 2000, and subsequently file periodic reports (Form 8872). The filing obligation came about after the enactment of legislation calling for new disclosures by political organizations. This new law, designed to shed light on the activities of certain secretive groups, was drafted in a way to require some state PACs to essentially duplicate their efforts and make disclosures to both their state regulatory authorities and the IRS.

ASAE has worked to bring to the attention of the IRS and key members of Congress the unnecessary burdens that this new law places on state PACs. While the IRS refused to grant an exemption from the filing requirements for such state PACs, it has created an electronic-only filing option for Form 8872, which should have the effect of lessening the amount of paperwork required to comply with the new law. ASAE will continue to push vigorously for a possible technical correction or other legislative relief.

Below are some specifics regarding the organizations that are covered under this new law. Groups that otherwise fit under Section 527 of the Internal Revenue Code (reserved for political organizations) are not required to file Form 8871, or the subsequent regular reports if any of the following are true:

1. They already must file regularly with the Federal Election Commission;

2. They reasonably expect annual gross receipts to always be less than $25,000 in each taxable year; or

3. They are Section 501(c) organizations that file Form 1120-POL and are covered under Section 527(f)(1) of the Internal Revenue Code. This exception includes those 501(c)(6) organizations that do engage in political activities, but not through a separate segregated fund/PAC. For instance, certain states allow corporate political activity, and in those states 501(c)(6) and other organizations may engage in such activity without using a separate PAC.

It is important to note that these disclosure requirements will apply to state-chartered PACs. Also, the law establishes new annual filing requirements for all PACs, including federally chartered groups. It will soon be necessary for virtually all PACs to file the annual Form 990 and Form 1120-POL, regardless of the amount of interest income earned.

ASAE has supported a legislative solution to do away with the duplicative filing burdens placed on state PACs, backing a bill introduced by Rep. David Vitter (R-LA) that was introduced in the 106th Congress.

Also on the PAC front, ASAE is leading a coalition of trade associations in an effort to overturn the current prior-approval restrictions placed on trade association PACs. The coalition is also seeking legislative repeal of the current provisions of election law that state that corporate members of trade associations may only allow one trade association PAC to solicit the companies' staff each year. For more information about this coalition or to become a member, call ASAE's Public Policy Division at 202-626-2703.

Association lobbying tax

On May 15, 2000, the U.S. Supreme Court denied ASAE's petition for writ of certiorari in its First Amendment lawsuit, effectively ending the association's constitutional challenge to the special lobbying tax provisions imposed on associations in 1993.

ASAE argued that the 1993 law that established a tax penalty on association activities amounts to a government restriction on association free speech, and mounted a legal challenge in an attempt to have the onerous provisions stricken from the law.

As is customary when the Supreme Court reviews petitions, no reason was given for denying ASAE's appeal. Lower court rulings in the case seemed to circumvent the constitutional arguments ASAE presented, and offered unrealistic suggestions for side-stepping the burden.

Despite the outcome of the suit, ASAE's legal challenge does appear to have had some positive effect on the enforcement and interpretation of the tax provisions. The IRS, for example, has been permitting underestimated lobbying amounts to be rolled over, and informally permitting overestimated lobbying amounts to be subtracted from the following year's calculation--issues that ASAE's lawsuit brought to the fore.

ASAE Beacon Award winners and longtime association supporters Reps. Sam Johnson (R-TX) and Ben Cardin (D-MD) have again introduced their proposal to stop the government from taxing an organization's advocacy at the state level.

Sen. Craig Thomas, CAE, (R-WY) introduced a bill on June 13 to restore the deduction for lobbying expenses in connection with state legislation. The bill was co-sponsored by Sens, John Breaux (D-LA), Kent Conrad (D-ND), Harry Reid (D-NV), and Richard Shelby (R-AL). Sen. Breaux and Sen. Conrad are both members of the Senate Finance Committee, where the bill has been referred.

ASAE has received an estimate from the Joint Committee on Taxation concerning how much tax revenue would be lost if the tax deduction for lobbying at the state level were restored (a proposal that has been introduced in past congressional sessions). The committee estimated that the measure would cost more than $500 million across five years.

In addition to support for complete repeal of the lobby tax as it applies to state lobbying, ASAE has also focused its legislative work recently on possible incremental reforms that would at least ease the significant administrative burdens this law poses to associations.

Association health plans

A major health care reform package was not expected to see final action by the time the 106th Congress adjourned. Included in that package were House-passed provisions that would have encouraged the creation of association-sponsored health plans.

Reps. Jim Talent (R-MO) and Cal Dooley (D-CA) were the primary supporters of the association health plans proposal, first introduced in 1999 as the Small Business Access and Choice for Entrepreneurs Act of 1999. ASAE is participating in a coalition in support of association health plans for the 107th Congress.

During the October 11 presidential debate, Republican presidential nominee George W. Bush announced his support for association health plans legislation as a means of reducing the number of Americans without health insurance. Bush remarked: "... to make health care more affordable, allow business associations like the National Federation of Independent Business or the Chamber of Commerce or the National Restaurant Association to write association plans across jurisdictional lines so that small business have got the capacity of national pooling to drive the cost of insurance down."

Corporate sponsorship

The IRS issued proposed regulations regarding corporate sponsorship income received by exempt organizations. These proposed regulations implement a 1997 law that states that payments received by an exempt organization from a corporate sponsor will not be taxable as unrelated business income to the exempt organization as long as the sponsor does not receive advertising or any other "substantial return benefit" for the payment. The proposed regulations state that a substantial return benefit is any benefit other than a use or acknowledgment of the payor's name or logo in connection with the exempt organization's activities, or certain goods or services that have an insubstantial value under existing IRS guidelines. ASAE has submitted comments and provided testimony to the IRS regarding areas of concern about the proposed regulations.

Association pension plans

The House voted on July 19, 2000, by an overwhelming 401-25 margin to approve a sweeping bill that would raise contribution limits for individual retirement accounts, 401(k) plans, 403(b) annuities, and defined benefit plans. Despite the clear bipartisan support in the House, the proposal did not see action in the Senate. The administration has not yet signaled whether President Clinton would sign the bill and has issued a policy statement saying it is "strongly opposed" to the House measure.

The proposal, based for the most part on the comprehensive pension bill supported by Reps. Rob Portman (R-OH) and Ben Cardin (D-MD), includes a number of important and favorable provisions for exempt organization employees. The bill would Increase the dollar limit on annual elective deferrals under Section 401(k) plans, Section 403(b) annuities, and salary reduction plans in $1,000 annual increments until the limits reach $15,000 in 2005, The proposal would incrementally increase the dollar limit on deferrals under qualified Section 457 plans to $15,000 in 2005. For purposes of counting whether an individual has reached his or her limit on annual 401(k) and other elective deferrals, the amount deferred under Section 457 qualified plans would no longer be included.

As this issue went to print, it seemed highly unlikely that the lame-duck 106th Congress would pass any tax legislation before adjournment. There is a strong chance that any tax legislation that receives serious consideration early in the 107th Congress will include the favorable nonprofit pension provisions as part of the package.

Spouse travel and deductibility of business meal expenses

A House minimum wage proposal that received serious consideration in the 106th Congress included a provision directed at small businesses that would raise the deductibility of business meal expenses. An increase in the tax deduction for business meals and entertainment expenses has also been the subject of other recent proposals. The spouse travel deduction was part of a Democrat-backed minimum wage hike proposal that received some consideration in 2000.

Nonprofit mail

On October 27, 2000, President Clinton signed S. 2686 into law, stabilizing nonprofit postal rates at a percentage of the rates charged to other classes of mailers. The proposal will lower some nonprofit rates, but its primary benefit will be to prevent huge future rate hikes by locking the nonprofit rates in with commercial rates. This law will also maintain a preferred rate for nonprofit periodicals, which had been in jeopardy.

Just weeks after its enactment, the significant nonprofit rate reform legislation had a tremendous impact--the Postal Rate Commission recommended lower rate increases than what was initially requested by the U.S. Postal Service (USPS). On November 13, the commission issued recommended rate hikes that were, on average, about half of USPS's proposed increases for periodicals and more than 25 percent lower for nonprofit standard rates.

Nonprofit "enhanced carrier route" rates will rise by an average of 18.3 percent under the recommendation. The increase would have been almost 42 percent under the earlier proposal. These changes are due in large part to the enactment of the new law that essentially ties nonprofit rates to commercial mail rates. The recommendation will be considered next by the USPS Board of Governors.

According to the Alliance of Nonprofit Mailers, the legislation includes a framework agreed upon by nonprofit mailers, commercial mailers, and the USPS, including the following:

* Nonprofit periodical rates would be set at 95 percent of the commercial counterpart rate. Excluding the advertising portion, nonprofit mailers would receive a 5 percent discount off the commercial rate.

* The revenue per piece for nonprofit Standard A mail would reflect a 40 percent discount over the revenue per piece received by commercial Standard A mail.

* Library rates and classroom rates would be set at 95 percent of the rates for the commercial counterpart subclass of Standard B mail.

Intermediate sanctions 

On July 30, 1996, President Clinton signed the Taxpayer Bill of Rights 2, legislation including a provision that would allow the IRS to impose intermediate sanctions (excise taxes) against Section 501(c)(3) and 501(c)(4) organization managers and insiders who conduct excess benefit transactions. The legislation covers any transaction in which an economic benefit is provided to, or for the use of, any insider (called a "disqualified person") if the value of the benefit exceeds the value of consideration received by the organization for providing such benefit, and any transaction in which the amount of any economic benefit to an insider is determined in whole or in part by the revenues of the organization.

Organization managers subject to the tax are those who participate in the transaction knowing that it is an excess benefit transaction. Organization manager refers to any officer, director, or trustee of the organization, or any individual having powers or responsibilities to those of officers, directors, or trustees. The bill does not allow for the imposition of an excise tax directly on the association, only on the managers and insiders.

The IRS released proposed regulations on the intermediate sanctions provisions on July 31, 1998. The proposed regulations include a number of definitions of terms in the statute, such as disqualified person, organization manager, and excess benefit transaction. Although the proposed regulations are quite detailed, there are some areas that could be clarified, such as the question of what types of incentive-based compensation will be allowed under these provisions, and the issue of how these rules will affect 501(c)(6) organizations that have 501(c)(3) subsidiaries.

ASAE submitted comments to the IRS on these issues November 2, 1998. ASAE also testified at a March 16, 1999, IRS hearing concerning its proposed regulations. The IRS has not yet released a final version of the regulations.

Form 990 issues

ASAE has submitted comments to the Department of Treasury and the Joint Committee on Taxation (JCT) on the issue of whether exempt organization disclosure is sufficient under current laws. Both JCT and the Department of Treasury were directed to conduct studies on the issue by the Internal Revenue Service Restructuring and Reform Act of 1998.

The JCT's study was completed and released in January 2000. It recommends sweeping new disclosures for exempt organizations--suggesting, for example, that an exempt organization's Form 990-T for unrelated business income should be disclosed to the public. ASAE has submitted comments to the House Ways and Means Committee protesting some of the more burdensome JCT staff recommendations. The Department of Treasury has still not released its report.