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Federal Tax

House Committee Advances Bills to Increase Transparency of Exempt Org Spending, Funding

Maureen Leddy  

· 5 minute read

Maureen Leddy  

· 5 minute read

The House Ways and Means Committee reported three bills aimed at increasing the transparency around tax-exempt organization spending and receipt of foreign funds at a May 15 markup. The committee also fiercely debated a bill that would limit election administration funding by exempt organizations, eventually voting to advance that measure.

Exempt organization spending.

Lawmakers on both sides of the aisle widely supported two of the bills, the Foreign Grant Reporting Act (HR 8290), sponsored by Representative Lloyd Smucker (R-PA), and the No Foreign Election Interference Act (HR 8314), sponsored by Representative Nicole Malliotakis (R-NY). Those bills, which both target exempt organization spending, advanced with votes of 38-0 and 39-1, respectively.

The Foreign Grant Reporting Act would require 501(c) organizations to provide in their tax returns information on grants made to foreign entities. Details required include the name and address of the foreign entity grantee; the aggregate grant amount; and whether the foreign entity is recognized as a charity in the country where it is organized, is a 501(c)(3) organization, and is an organization described in Code Sec. 4945(d)(4)(A).

Bill sponsor Smucker said the goal of the legislation is increased “transparency” around how exempt organizations “spend dollars.” Smucker said the bill would close a loophole in the Tax Code, explaining that under current law, US exempt organizations do not need to disclose grants to foreign entities.

The No Foreign Election Interference Act would establish a penalty for exempt organizations that make disqualified political committee contributions — defined as contributions by organizations that have received a “contribution or gift” from a foreign national — of twice the amount of the contribution. It also would bar tax-exempt status for organizations that make more than two disqualified political committee contributions. Impacted organizations are those with gross receipts of $200,000 or more in the taxable year, or assets of $500,000 or more at the close of the taxable year.

Sponsor Malliotakis explained that though foreign nationals are prohibited from donating money to political committees, there is a loophole in the Tax Code that allows them to donate to an exempt organization, that then sends the money to a PAC. Representative Ron Estes (R-KS) agreed, saying that “transparency is needed” to prevent foreign nationals from skirting campaign contribution laws.

Exempt organization funding.

A bill targeting exempt organization funding, the American Donor Privacy and Foreign Funding Transparency Act (HR 8293), advanced with a 23-16 vote. That legislation, introduced by Representative David Schweikert (R-AZ), calls for exempt organizations to report foreign-sourced funds. Schweikert called it a “baby step” in modernizing Form 990 — something that he feels needs to be done in a bipartisan manner.

The bill would require that certain 501(c) organizations provide on their returns information about contributions from foreign sources, including details on the aggregate amount of the contributions, the country of citizenship or principal place of business of those contributing sources, and a listing of foreign contributions grouped by source country. The bill also would require Treasury to make foreign-source contributor information available in a public database. The information reporting requirement would apply to organizations with gross receipts of $200,000 or more in the taxable year, or assets of $500,000 or more at the close of the taxable year.

Election funding.

The most controversial bill, which was debated at length, was the End Zuckerbucks Act (HR 8291). Favorably reported to the House, 23-17, the bill would bar 501(c)(3) status for organizations that provide funding to state and local government for the administration of an election. Exception would be made for organizations that donate space to be used as a polling place.

Under Code Sec. 501(c)(3), exempt organizations are not permitted to participate or intervene in a political campaign on behalf of a specific candidate. That includes explicit support of a candidate through campaign contributions or volunteer assistance, as well as implicit intervention. It does not, however, include activities like voter education — provided it is done so in a nonpartisan, neutral manner.

According to the End Zuckerbucks Act’s sponsor, Representative Claudia Tenney (R-NY), the legislation is aimed at organizations like Facebook CEO Mark Zuckerberg’s Center for Tech and Civic Life, which Tenney says “flooded” left-leaning counties with funds for election administration purposes in 2020. Tenney said that though the organization purported to be making voting safe during the pandemic, only 1% of the $419 million spent went to personal protective equipment.

Representative Terri Sewell (D-AL) said private funding for election administration should be eliminated only after gaps in funding are closed and elections can be “adequately and equitably” administered in every cycle. She described long lines and insufficient services, largely in low-income communities and communities of color. Sewell also disputed Republican claims that election administration funds are distributed in a partisan manner, noting that the Federal Election Commission found no evidence of wrongdoing on the part of Center for Tech and Civic Life — donations were “apolitical” and “widely provided” across jurisdictions, said Sewell. She called for support of her John R. Lewis Voting Rights Advancement Act (HR 14), which would address what she called the real issue — inadequate public funding of elections.

Representative Gwen Moore (D-WI) seconded concerns with inequities in election administration, noting that in Milwaukee — a city that is about one-third Black — polling sites were reduced from 182 to five in 2020. She called the bill “a slippery slope” where a billionaire’s 501(c)(3) could lose its status because of the “type of people it is helping.”

Bill sponsor Tenney explained that she simply intended to “keep partisans out of the elections” and “stop them from doing an end-run around IRS laws.” To that Moore said, “if the NRA wanted to fund [ballot] drop boxes in Wisconsin, I would be happy to see them.”


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