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Keeping the legal threats at bay: meet ASAE's main line of defense, the association's new general counsel, Jerry Jacobs.

Jerald A. Jacobs has little time to talk between the legal issues he's battling on behalf of associations. ASAE's new general counsel, Jacobs is staying on top of some stubborn challenges to the association community, most notably the lobby tax. He also has a handle on the full plate of potential problems around the bend. In his "spare" time - when he's not meeting, researching, analyzing, or litigating - he's pouring out advice in a manuscript for an update of his Association Law Handbook, a standard in the profession and one of his eight books on association law. Last year ASAE published a book that Jacobs co-wrote with David W. Ogden, Legal Risk Management for Associations; the two developed an accompanying video.

Jacobs is a partner in the law firm of Jenner & Block in Washington, D.C. He heads the firm's Association Practice Group, which represents 250 national trade associations, professional societies, anti other nonprofit organizations.

Jacobs is a longtime volunteer to ASAE. He served on the board of directors, co-founded the association's government affairs program, and founded its Legal Section. In 1990, he received the Academy of Leaders Award, ASAE's top honor for associate members.

In this interview with ASSOCIATION Management, Jacobs hits the highlights of his past and current efforts - and the work he sees ahead - to keep the legal threats to associations at bay.

ASSOCIATION MANAGEMENT: What has been your involvement with ASAE's fight against the lobby tax, and where does that issue stand?

Jacobs: Jenner & Block filed on behalf of ASAE in December 1993 a constitutional challenge to the law declaring lobby expenses nondeductible for business corporations and declaring nondeductible that portion of members' dues paid to associations that corresponds to lobbying expenses. ASAE argued that there are three features of the law that are unique for associations and particularly onerous.

One is the requirement that the association estimate in advance - and give members advance notice of - the percentage of dues nondeductibility. We believe that has the effect of inhibiting and limiting an association's lobbying activities throughout the following year, particularly should those lobby activities risk exceeding the estimates given earlier to members.

Also, there's an allocation rule under the law which requires that all lobbying expenses be allocated to dues income for determining the dues nondeductibility percentage. A far more logical, intuitive, and reasonable approach would have been to take lobbying expenses as a percentage of all expenses and use that percentage to decide what portion of dues are nondeductible. We think that the allocation rule results in discrimination and unfairness in terms of how it affects associations versus business corporations, which arguably compete in the lobbying arena.

Finally, there is the alternate proxy tax at a flat 35 percent. This is the kind of tax on speech that the Supreme Court has been willing to strike down on First Amendment grounds in the past.

Unfortunately, when we filed in 1993, we had to seek an injunction, and we thought we had adequate reasons for fitting into some exceptions under the 1867 law called the Anti-Injunction Act, which, except in unusual circumstances, prevents courts from enjoining the collection of taxes. In April of 1994, Judge Stanley Sporkin, of the U.S District Court for the District of Columbia, decided that we did not meet the exceptions. Thus, based on merely this procedural ground, the judge dismissed our case to the extent it sought an injunction.

ASAE then paid its proxy tax, sought a refund of it, and waited the mandatory six-month period. In May of 1995, ASAE refiled its suit, essentially identical to the 1993 suit but without the request for an injunction and instead seeking a refund order. That case is pending before Judge Sporkin in the same court. The arguments have been briefed on both sides, and we're awaiting a hearing.

ASSOCIATION MANAGEMENT: With that issue on hold, what other issues are at the forefront of the association community?

Jacobs: One is certainly the Internal Revenue Service's apparent attempts to tax the dues of associate members of associations in certain circumstances.

We're working closely with the IRS on the matter. It's a big challenge, and in many ways it is similar to the Federal Election Commission issue where they defined member differently from the way most associations have long defined member. We're hoping that the impetus of the recent court of appeals decision against the FEC definition will help influence the IRS to view the associate member dues issue in a way that is more beneficial to associations.

ASSOCIATION MANAGEMENT: Would you explain that decision involving the FEC?

Jacobs: In November, the United States Court of Appeals for the District of Columbia determined that a lower court ruling regarding the Federal Election Commission's definition of member in the association context had been inaccurate. Federal District Court Judge Charles Ritchie had decided in a case brought by the U.S Chamber of Commerce and the American Medical Association that the chamber and AMA did not have standing to challenge the FEC definition of member. The federal appellate court not only turned Judge Ritchie's decision around - reversed it and said, no, these parties do have standing to challenge the FEC definition of members - but what is more, said that Judge Ritchie should have struck down the definition of member, because it is inconsistent with the law and with Supreme Court decisions.

This is a complete win for the association community. The Federal Election Commission had said that there must be voting rights and participation in governance or some substantial financial ownership or participation by an individual or a company before it could be considered a member, and therefore solicited for PAC contributions or sent partisan political communications. The appellate court has now stricken that and said no, the Federal Election Commission is wrong.

What happens next? The Federal Election Commission has the right to seek review to the United States Supreme Court. In the meantime, it's necessary for the FEC to withdraw its definition. Unless it seeks review and wins, the FEC likely will end up changing the definition in ways that the association community, represented by ASAE, had urged.

I actually testified on behalf of ASAE on this issue about two years ago before the Federal Election Commission, and my comments were totally ignored. ASAE also attempted to file a brief amicus curiae before Judge Ritchie, which he rejected. So in many ways the court of appeals reversal is a vindication for ASAE as well as for the chamber and AMA.

ASSOCIATION MANAGEMENT: What steps have you been taking with music licensing?

Jacobs: ASAE and three other organizations in the meeting planning industry - Meeting Professionals International, the Professional Convention Management Association, and the Religious Convention and Meetings Association - have a coalition on this issue. We've been meeting with ASCAP [American Society of Composers, Authors, and Publishers, New York City] and BMI [Broadcast Music Incorporated, New York City] to attempt to influence them toward creating a much more favorable music licensing contract for use in the association community.

Jenner & Block has filed amicus briefs on behalf of ASAE in three cases involving the use of copyrighted music by exhibitors at conventions. ASAE has argued in those briefs that the sponsor of a trade show or exhibition has no responsibility for music licensing violations by exhibitors, as long as the sponsor does not participate in, encourage, or approve of use of copyrighted music by exhibitors, and as long as the sponsor avoids using copyrighted music in the common areas without a license.

Our brief in one case in the Southern District of New York City was particularly effective in that the court, in deciding the case in favor of the trade show sponsor, cited the brief extensively. There is today ample legal precedent for a trade show sponsor not being responsible for music use by exhibitors.

ASSOCIATION MANAGEMENT: As part of a service agreement that ASAE has with your firm, members can call Jenner & Block for a free telephone consultation on basic legal questions regarding nonprofit organizations. What kinds of calls are you getting?

Jacobs: The calls often involve associate member dues, the lobbying tax, PACs and political activities, meeting planning issues, trademark issues, and issues with technology.

It's the rare association within our clientele that is not thinking about or already implementing some sort of World Wide Web home page or Internet program. This is so new, and the intellectual property - copyrights and trademarks - ramifications are so untested, that it presents a lot of questions.

The Prodigy case that was widely reported in the press suggested at one point that the operator of the computer network online program has some responsibility for information - such as libelous information - that might be communicated on that program. That depends, of course, on whether or not the operator assumes some responsibility for monitoring the program.

ASSOCIATION MANAGEMENT: Do you have any overall guidance about monitoring online information at this point?

Jacobs: No, there aren't clear answers yet. The law is beginning to suggest that if you take responsibility for monitoring, you might assume legal responsibility for wrongdoing that occurs in the use of the program. But if you take no responsibility for monitoring, there's a risk that the program will deteriorate and become useless or perhaps even offensive to members. That's a tough decision for associations to make, and the law doesn't yet make a compelling case either for monitoring or not.

ASSOCIATION MANAGEMENT: How do you go about identifying potential problem areas and trying to do something about them before they erupt into legal dilemmas?

Jacobs: ASAE has a large and effective government affairs staff, which watches not only government affairs but legal matters on behalf of the association community. The ASAE Legal Section has a council composed of lawyers and association executives who watch legal issues closely. Through both of those means, as well as by watching what the government is doing and picking up information from members who call or write ASAE, we're usually in front of most legal issues that are flowing through the courts and agencies.

ASSOCIATION MANAGEMENT: What is the worst potential threat today to the association community, the one that would pose the toughest legal challenge?

Jacobs: Congress and the IRS together have consistently been attempting to devalue and diminish tax exemption for membership organizations. From unrelated business income tax to advertising and insurance income to the lobby tax to associate member dues, the government seems to regard any real or perceived abuse or excess by a tax-exempt organization as reason enough to punish all of them.

In 1988 both houses of Congress voted to tax the investment income of Section 501(c)(6) associations. ASAE's efforts led to killing that attempt in conference, and it never became law. This year (c) (4) organizations were told that they cannot both lobby and receive government grants or contracts. If things continue to go in this direction, the day may come when it will make sense for many exempt organizations to consider "going taxable," although the current law makes it unwise for most membership organizations to give up exemption voluntarily. Saving and preserving federal income tax exemption, much less enhancing it, may well be the central legal problem for associations in the future.

ASSOCIATION MANAGEMENT: What continues to interest you about the rather unusual legal specialty of representing associations?

Jacobs: Associations attract the best and the brightest in their fields; it's always fun and always a challenge to work with association executives and volunteers. Associations deal with broad issues not specific to individuals or companies - often national policy issues. Whether in legislative, administrative, or judicial forums, it's more rewarding to help solve problems for the entire constituency of an association.

Gerry Romano, CAE, is senior editor of ASSOCIATION MANAGEMENT.
COPYRIGHT 1996 American Society of Association Executives
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Title Annotation:American Society of Association Executives
Author:Romano, Jerry
Publication:Association Management
Article Type:Interview
Date:Apr 1, 1996
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