Recent Developments in Exempt Organization Taxation

Tax Professionals' Resource
January 2, 2013 — 1,129 views  
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New York State’s attorney general has pledged to come down hard on tax-exempt organizations that spend big dollars on political campaigns. Word on Wall Street said that Governor Andrew Cuomo ordered New York Attorney General Eric Schneiderman to clamp down on non-profits by ordering them to release the names of donors.

In New York, the attorney general has the power to unilaterally issue new rules governing non-profits. Schneiderman is expected to target non-profits that will be joining the fight over two constitutional amendments to expand casino gambling and change the state’s redistricting process. Hydraulic fracking ballot measures will also come under the attorney general’s heel, according to an article in the New York Times.

It’s expected that the new rules will demand that tax-exempt groups from other states will be particularly hammered hard and forced to disclose the names of donors. Sources say that Cuomo was miffed at out-of-state groups that backed Republican candidates for the New York state senate.

The Times reported that Schneiderman was stymied from investigating state and national non-profit organizations that poured money into state political campaigns. Schneiderman claims that certain social welfare charitable groups are exempt from federal rules that would classify them as super PACs. This exemption thwarted Schneiderman from determining if these groups were complying with state charity laws.

The proposed new regulations would require tax-exempt organizations to reveal how much of their total spending was poured into political activities. The regulations would also supersede IRS rules that define political spending. Non-profit groups that spend more than $10,000 in local and state elections would be required to post the names of individual donors who gave more than $100.

These regulations mirror similar rules proposed by Cuomo and his hand maidens at the state ethics commission. The new rules would apply throughout the state and concentrate the power to regulate non-profits into the governor’s office. For example, the New York City Campaign Finance Board requires that donor information be revealed a few weeks before the election. The new regulations would nullify that local government initiative and require that donor information be revealed six months before an election.

Tax-exempt groups dealt out hundreds of millions of dollars in the 2012 election. The new rules have been backed by congressional Democrats. They claim that non-profits use these organizations to bundle donations while hiding the names of donors. Congressional Republicans oppose these regulations, claiming that disclosure is an invasion of privacy and makes donors targets for retaliation by radical democrat groups. Political analysts expect that these new rules will be challenged in court.

Tax Professionals' Resource