Federal Tax Issues for Associations and Members
“ASAE opposes any increased or additional federal income tax burden on associations. ASAE supports the ‘relatedness test’ — continuation of the present system for determining areas of tax-exempt organization activity that are taxable because they are not related to the purposes for which exempt status was granted. Association activities, which benefit not only association members but also the entire United States economy and society, include education, publications, government affairs, conventions, trade shows, standards-setting, credentialing, research, joint marketing, charitable and community service, and other products and services. Any new tax for associations would threaten those activities and might require replacement of the programs by tax-supported government programs.” – ASAE Board Approved Position Statement #5a
Tax Reform In December Congressional Republicans passed the most sweeping overhaul of the tax code since 1986. Throughout the legislative process, ASAE and many other associations opposed a number of provisions that ended up being stripped from the final bill. The three most important provisions that were successfully removed were: taxation of royalty income; eliminated non-qualified deferred compensation plans; and applied intermediate sanction rules to 501(c)(6) groups.
Taxation of royalty income was included in the original Senate bill but was removed after opposition from ASAE and hundreds of other associations. ASAE and others contended that royalties should not be taxed when the organization has entered into a licensing arrangement for use of its name or logo but is not actively involved in the marketing or administration of the product or service connected with the arrangement.
A provision impacting non-qualified deferred compensation plans was originally in both the House and Senate bills and would have eliminated 457 plans for associations and other nonprofit employers. ASAE and others made the case that these deferred compensation arrangements are offered to many employees of tax-exempt organizations as a means of supplementing their retirement income. Since nonprofit employers can’t offer performance stock options to key employees, 457 plans are an important benefit in attracting top talent. The provision was removed from both bills before passage.
ASAE is still working on a possible change to address the excise tax on executive compensation over $1 million. ASAE has advocated for a grandfather clause that exempts existing contracts for tax-exempt organizations, as was provided to their for-profit counterparts. While this is a fairness issue that many policymakers say they understand and support, it’s not clear yet whether some member(s) of Congress will champion this change.
The final bill also subjects tax-exempt organizations to UBIT on the value of certain employee fringe benefits including transportation, parking and on-premises athletic facilities. The bill also stipulates that no deduction is allowed for activities generally considered to be entertainment, amusement or recreation. ASAE is seeking clarifying language on a provision that eliminates the deductibility of membership dues paid to clubs which are exempt from tax under Internal Revenue Code Section 501(c)(7) or which are for-profit entities. We believe this provision is aimed at membership to country clubs or other private clubs, and is not intended to impact the deduction of membership dues paid to a trade or professional association, but we prefer to see the language clarified and not left to interpretation by the IRS.
The final legislation also included a provision that unrelated business taxable income be separately computed for each business activity. In other words, associations are prevented from offsetting losses from one business with income from another business. ASAE and its CPA firm Tate & Tryon recently prepared an article to help tax-exempt organizations understand a provision in the new tax law that requires separate reporting of taxable income from different business activities. The article, written by Deborah Kosnett, CPA, and Lisa Heller, CPA, both with Tate & Tryon, recommends that exempt organizations start taking a look at their unrelated business income activities, and start making contingency plans for potentially adverse future guidance from the IRS.
Additional Tax Issues:
Johnson Amendment Last year President Trump signed an executive order which eases restrictions on political activity by churches, charities and other 501(c)(3) groups. Trump’s executive order attempts to neutralize the Johnson Amendment. While Trump’s executive action does not change current law, administration officials said Trump will direct the Internal Revenue Service to exercise “maximum enforcement discretion” and not investigate religious leaders and other nonprofit groups that express political views and endorse or oppose political candidates during campaigns.
A provision in the House tax reform bill would have effectively repealed the Johnson Amendment. The provision was removed from the final bill because it conflicted with the Senate’s Byrd rule, which prevents reconciliation bills from containing provisions that aren’t fiscal in nature. Efforts to repeal the Johnson Amendment to allow church leaders and others to engage in political speech are expected to continue.
ASAE is in favor of keeping the Johnson Amendment intact. “Public trust is critical to the credibility and effectiveness of donor-based nonprofits,” said ASAE President and CEO John Graham, IV, FASAE, CAE. “While ASAE is fully supportive and will vigorously defend the First Amendment rights of nonprofit groups to advocate on public policy issues that impact their missions, the Johnson Amendment exists to ensure nonpartisanship in organizations that receive tax-deductible contributions. Opening nonprofits up to partisan politics would undermine their purpose and ability to effectively address community needs.”
Charitable Deduction The final tax bill increases the adjusted gross income (AGI) limit on the charitable contributions deduction from 50% to 60% for cash gifts. However, the final bill roughly doubles the standard deduction to $12,000 for individuals and $24,000 for couples. With a higher standard deduction, fewer taxpayers will itemize their deductions on their tax returns and therefore won’t receive a benefit for giving to charity, which some charities fear could reduce giving.
Nonprofit Organization Employee Benefits
“ASAE supports quality, affordable, accessible health care for all Americans. ASAE supports national uniform standards for funding benefits and employee protections. ASAE further believes that association health care plans possess many years of proven experience in the delivery of benefits through purchasing coalitions. As such, association health care plans can lead the way to the reform goals of providing the efficient delivery of quality health care to more citizens.” – ASAE Board Approved Position Statement #6
Health Care In February ASAE submitted comments on the Department of Labor’s proposed rules to expand association health plans (AHPs). The proposed rule grew out of an executive order issued by President Trump last October, and would broaden the type of groups that could form association health plans with the goal of expanding affordable coverage options for small businesses and the self-employed.
ASAE’s comments focus on what types of organizations should qualify as an “employer” for the purposes of establishing an AHP (and who could participate in these AHPs), as well as the complexities associated with state regulation of AHPs. Importantly, the proposed rule released last month would not preempt any current state regulations. Because the laws vary from state to state, AHP formation would be challenging without addressing state regulation, ASAE has said.
While state preemption is a critical issue, who is eligible to form AHPs and who could join for coverage is another. ASAE has pointed out that the proposed rules assume that the members of an association are employers, when more than half of all associations are professional societies with individual members. ASAE also suggests the administration adopt some additional restrictions on the formation of AHPs by start-up organizations where there is not already a membership nexus. The comment period closed on March 6. DOL has not announced an anticipated timeline for the final rule.
ASAE has long believed that association health plans could expand health care choices for small businesses and franchise owners if federally regulated. But how the administration defines an association and how DOL and other agencies rewrite existing rules will be important questions to answer.
Cadillac Tax An issue of concern to the association community is the Cadillac tax, a 40 percent non-deductible excise tax on high-cost health plans in the Affordable Care Act that was set to go into effect in 2018. The tax was delayed by Congress in 2015. In January Congress again passed a two year delay of the tax. Postponing the start of the Cadillac tax from 2018 to 2022 should lessen the incentive for employers to make changes immediately to their benefit plans and give opponents additional time to repeal the tax altogether. The tax is projected to raise $87 billion over the next ten years. President Trump has said he would sign a bill to repeal the tax, but legislation on this issue hasn’t progressed recently.
Overtime Rule ASAE submitted comments in August to the Department of Labor (DOL) as it prepares to revise regulations for overtime eligibility. The overtime rule has been identified as a major area of concern for nonprofit employers. In 2017, Labor Secretary Alexander Acosta said the salary threshold proposed by the department under the Obama administration was excessive and too burdensome on many employers. The Obama-era rule would have doubled (to $47,476) the salary threshold under which virtually all workers are guaranteed overtime pay if they work more than 40 hours per week. Acosta has suggested, however, that the current minimum salary level of $23,660 should be updated and the DOL’s request for comments is considered to be a first step in the agency’s plan to revise the regulations. The overtime rule was last adjusted in 2004.
ASAE’s comments focus on how potential changes to overtime eligibility would impact associations and other nonprofit employers. As it did with the Obama-era rule, ASAE emphasized that it’s not against increasing the overtime salary threshold, but that creating a “one-size-fits-all” salary threshold for overtime eligibility across the country – inconsiderate of cost of living differences – would not be workable for many employers. Based on the federal government’s inflation calculator, ASAE has suggested that an inflation-adjusted minimum salary level of $30,830 would be an appropriate threshold for overtime eligibility moving forward.
This was an issue that greatly concerned and mobilized ASAE’s members across the country. ASAE also took this issue to Capitol Hill as part of American Associations Day. ASAE also submitted extensive written comments to the Department of Labor and met face-to-face with DOL and Office of Management and Budget (OMB) officials to share our concerns that the new rule would adversely affect many nonprofit organizations and other employers with limited revenues, and could harm many affected employees as well.
Permissible Political Activity by Tax-Exempt Organizations
“ASAE opposes expanding the definition of candidate-related political activity by tax-exempt organizations to include candidate forums and issue-related communications sent out close to elections. Recent efforts to restrict political activity by 501(c)(4) social welfare groups would regulate far more speech and advocacy than is warranted and could create a chilling effect on the role nonprofit organizations play in fostering civic engagement and democracy. ASAE also opposes any extension of new restrictions on 501(c)(4) political activity to trade associations and professional societies.” – ASAE Board Approved Position Statement #1
Prior Approval ASAE is helping to lead a coalition to address the Federal Election Commission’s prior-approval requirement for trade associations. The Prior Approval Reform Coalition is working to achieve legislation to amend the Federal Election Campaign Act to eliminate the requirement that trade associations have prior approval from member companies before soliciting their eligible employees. The coalition believes the requirement is inequitable and restricts First Amendment rights. In addition, ensuring compliance with the regulation is costly and burdensome.
In 2017 Rep. Mark Amodei (R-NV) introduced the Prior Approval Reform Act, HR 2101. The legislation would repeal the prior approval requirement. There are currently 16 cosponsors. Last year over 100 associations signed on to the Prior Approval Reform Coalition letter urging Members of Congress to cosponsor the legislation.
In addition, an amendment to defund FEC enforcement of the prior approval requirement was included in the base text of the Financial Services and General Government (FSGG) bill for FY18. There is now an effort by the coalition to have the language included in the omnibus bill for the remainder of FY18. ASAE will continue to monitor this issue closely.
Travel and Meetings
“As the association community depends on a viable travel and tourism industry and vice versa, ASAE supports advancing domestic and international travel initiatives that balance the need for homeland security with the business needs of associations. ASAE also acknowledges the particular needs of the meetings industry and understands the importance of sustaining fundamental relationships when negotiating, developing and executing events. – ASAE Board Approved Position Statement #10
Federal Employee Travel to Conferences and Meetings After more than six years of work to educate Congress and the administration about the value of government employee attendance at association meetings, ASAE continues to see perceptions trending toward the positive on this important issue.
In late 2016, the Obama administration relaxed guidelines on federal employee attendance at conferences. The updated guidance issued by the Office of Management and Budget (OMB) reflected changes to the rules issued by the White House in 2012 that drastically reduced government travel after inappropriate conference spending by federal agencies was first reported and investigated by Congress.
The updated M-12-12 memo makes three major changes to the conference approval process. First, the memo focuses on approval and oversight on agency-sponsored or hosted conferences and not outside conferences. This provides agencies with more flexibility for approval. The memo also allows for pre-approval of known reoccurring conferences, especially conferences not sponsored by the government. Finally, the updated memo does not extend the funding caps that expired at the end of the 2016 fiscal year in September.
This update provides many of the process changes that members of the association community have been asking the administration to make since 2012. ASAE and the association community support changes to agency guidance that reduce the paperwork requirements for agency travel and attendance at association conferences.
In June OMB Director Mick Mulvaney issued a memo to federal agencies proposing to roll back the M-12-12 memo. Still, many appropriations bills include sections that codify these memos, and those have not been modified.
While we’ve seen real progress in terms of senior government officials and lawmakers recognizing the value of meetings, we’ll need to continue to emphasize and cultivate this understanding with the Trump administration.
Diversity and Inclusion
“In principle and in practice, ASAE values and seeks diverse and inclusive participation within the field of association management. ASAE promotes involvement and expanded access to leadership opportunity regardless of race, ethnicity, gender, religion, age, sexual orientation, nationality, disability, appearance, geographic location, or professional level.” – ASAE Diversity and Inclusion Statement
Travel Ban In December the Supreme Court allowed the Trump administration’s revised travel ban to be enforced while legal challenges proceed in the lower courts. The Trump administration’s latest travel ban bars people from entering the U.S. from Syria, Libya, Iran, Yemen, Chad, Somalia, North Korea and Venezuela. The administration crafted the latest travel ban after courts ruled that the previous two versions were unconstitutional attempts to ban Muslims from the country and violated the Constitution. The Supreme Court will take up the current version of the ban this spring.
Lower courts around the country have attempted to block certain provisions of the travel ban. Last year federal judges in Maryland and Hawaii had blocked implementation of the ban for travelers from those countries who have a “bona fide relationship” with a person or entity in the U.S. Those injunctions were lifted in the Supreme Court opinion in December, without any disclosure of the court’s reasoning.
Last month a Virginia federal appeals court ruled that the latest version of President Trump’s travel ban is unconstitutional. The court’s ruling follows a similar finding last December by a panel of the 9th Circuit Court of Appeals.
ASAE President and CEO John Graham, IV, FASAE, CAE, said ASAE is more concerned about the administration’s stringent regulations for determining who is allowed to enter the country. “ASAE remains concerned that policies like the travel ban are giving foreign visitors pause as they weigh whether to come to the U.S. right now,” Graham said. “We are hopeful that the government factors into its decision-making our well-deserved reputation as a welcoming destination for foreign visitors.”
ASAE’s position on travel has been consistent – we understand and support the need for strong screening processes, but we don’t want to make it so difficult to enter the country that we discourage international visitors from traveling to the U.S.
In January, ASAE joined the U.S. Travel Association and other pro-travel groups to launch the Visit U.S. Coalition, whose aim is to work with the administration to reverse the decline in international travel to the U.S.
Research prepared by U.S. Travel shows that while global travel has increased 7.9 percent from 2015 to 2017, the U.S. market share has fallen from 13.6 percent to 11.9 percent over the same period. That decline in international travel resulted in a loss of $32.2 billion in visitor spending and 100,000 hospitality jobs. In the coming weeks, the Visit U.S. Coalition will work to advance policy recommendations aimed at reversing the decline in inbound travel to the U.S.
State Religious Freedom Protection Laws ASAE has been active in numerous states urging elected officials to defeat or veto legislation that would effectively permit discrimination against the LGBTQ community. ASAE is tracking a variety of other “religious freedom” or “bathroom bills” that have been introduced in states across the country.
Texas In August the Texas Legislature special session concluded without the passage of discriminatory legislation that ASAE and many in the community were monitoring. ASAE commends Texas legislators, in particular Speaker Joe Straus, for having the courage to block any so-called bathroom bills from being passed in this 30-day special session.
The special session and the inclusion of bathroom restrictions on the agenda comes after a divisive, months-long debate on the issue. Opponents of bathroom restrictions, including ASAE and numerous other corporate and hospitality interest groups, have argued that the proposals are discriminatory and would have dire economic consequences for the state.
ASAE was an active member of the “Keep Texas Open for Business” coalition that included the Texas Association of Business and major corporations in Texas including Amazon, American Airlines, Apple, Marriott, and United Airlines, among others.
ASAE thanks its members and industry partners in Texas who joined ASAE in opposing legislation that would deny public accommodations to members of the LGBTQ community. Convention and visitor bureaus, hospitality executives and corporate leaders in Texas have been united in opposing legislation we view to be discriminatory and contrary to our diversity and inclusion commitment.
This is an issue that could emerge again when the Texas Legislature reconvenes in 2019 or perhaps sooner, or in other states where associations hold meetings or conduct business. With the support of ASAE’s Board of Directors, ASAE will remain vigilant in opposing all legislation that we view to be discriminatory against segments of our community.
State and Local Association Issues — Washington, DC
Paid Leave Efforts to amend Washington, DC’s paid leave legislation seem to be stalled. In February DC Council Chairman Phil Mendelson announced he was dropping an effort to make changes to the legislation before it goes into effect.
If unchanged, all DC employers will be subject to the 0.62% payroll tax on all employees on July 1, 2019. Employees would not be able to access the paid leave benefit until July 1, 2020 at a minimum, but very likely longer as technical delays are common with new government programs.
ASAE is working with a wide ranging coalition of other large DC organizations including the DC Chamber of Commerce and the Consortium of Universities of the Washington Metropolitan Area to support legislation that will best serve employees and employers. ASAE is supportive of aspects of an employer mandate alternative, but we do not support additional taxes that may be levied upon employers who provide their own leave. ASAE also has strong concerns regarding the complicated nature of the enforcement provisions in the legislation and the unnecessary burden they would create for employers.