Legislators (Yet Again) Can’t Come to Agreement on State Budget

Nearly three months into the state’s new fiscal year, legislators have yet to approve a state budget for FY2023-25 (H.B. 259). Legislators returned to Raleigh this week to vote on a final version of the budget, but leaders of the NC Senate and NC House of Representatives could not agree on whether to include a provision to allow casino gambling in North Carolina, so there was no agreed-upon budget on which lawmakers could vote.

Because of the disagreement on the casino gambling provision, legislative leaders have begun to raise the possibility of not passing a state budget this year. North Carolina law allows state government operations to continue at their current funding levels if legislators and the Governor are unable to agree on a new state budget, so a state budget is not technically a “must pass” bill since the state government would not shut down without a new state budget. However, the lack of a budget would have a variety of consequences for state government operations, for nonprofits, and for North Carolinians. The state budget includes a wide variety of legislators’ policy priorities for the year, including Medicaid expansion, income tax cuts, pay raises for state employees and public school teachers, and increased spending for many nonprofits and state programs.

To help your nonprofit understand the implications of the budget impasse, the Center has prepared an analysis of what the lack of a state budget means for nonprofits.

New Law Helps Nonprofits by Modernizing NC’s Charitable Solicitation Process

Yesterday, Governor Roy Cooper signed into law a bill (S.429) that makes three important reforms to the state charitable solicitation licensing statute: 

• Make automatic extensions of charitable solicitation filings identical to those for IRS Form 990. The IRS currently allows nonprofits to receive an automatic six-month extension of their filing deadline for 990s. The North Carolina charitable solicitation statute only allows for a three-month automatic extension, and further extensions may be made at the discretion of the NC Secretary of State. Practically, this creates situations where some nonprofits are unable to file their charitable solicitation paperwork in a timely manner if their Forms 990 have not yet been completed. This change is effective immediately.
• Exempt more small nonprofits from needing charitable solicitation licenses. Currently, nonprofits are exempt from having charitable solicitation licenses if they receive less than $25,000 in contributions per year (which generally includes foundation grants but not government grants and contracts) and do not pay compensation to fundraisers. The $25,000 threshold was established when the Internal Revenue Service (IRS) had a threshold of $25,000 in annual expenses for filing Form 990 (the annual information return for tax-exempt entities). Because the IRS threshold is now $50,000 (and organizations below that threshold now need to file the simple, online Form 990-N), some small nonprofits need to have charitable solicitation licenses – and spend significant time completing paperwork and preparing financial statements – even though they are exempt from basic filing requirements from the IRS. This change will take effect on October 1, 2023.
• Count charitable solicitation forms as timely filed if they are postmarked by the filing deadline. This change could help prevent nonprofits from being identified as out of compliance if there are mail delays. This change will also take effect on October 1, 2023.

The Center has advocated for this bill to be filed based on input from many nonprofits and from attorneys and accountants who work with nonprofit organizations. The Center is appreciative of the many nonprofits, attorneys, and accountants who provided input on the substance of the bill over the past five years and of the bill’s legislative champions, especially Representative Brandon Lofton (D-Mecklenburg), Senator Tim Moffitt (R-Henderson), Senator Mike Woodard (D-Durham), and Representative Harry Warren (R-Rowan). Their combined efforts will help make the charitable solicitation licensing process a smoother experience for North Carolina nonprofits. 

Have Questions about Nonprofits and the 2023 Election? We Have Answers!

Have you been wondering what types of election-related activities your nonprofit can and cannot do between now and Election Day? Or perhaps you are wondering when Election Day is this year in your city or town (or if you even have an election this year)? You are not alone. The Center has been fielding questions about what types of election-related activities are legal and advisable for charitable nonprofits, and we have posted answers to 31 of the most common questions we are hearing. We have included the information on several new state election laws that could affect your nonprofit and the people you serve, including the new requirement to show a photo ID when voting . Let us know of other questions you have about your nonprofit’s engagement in the 2023 election.

Federal Government Shutdown Looming in Two Weeks

The new federal fiscal year begins on October 1. That means that over the next two weeks, Congress needs to either:

1. Pass 12 appropriations bills to fund the federal government through September 30, 2024; or
2. Pass a stopgap spending bill known as a “continuing resolution” to provide temporary funding for the federal government and give the U.S. Senate, U.S. House of Representatives, and the White House more time to negotiate full details of an appropriation plan.

If Congress is unable to take either of these actions, large parts of the federal government will shut down beginning on October 1. Government shutdowns can harm nonprofits and the communities they serve by causing delays in nonprofits’ payments from federal agencies and creating disruption in the delivery of federal benefits.

While Congress and the White House agreed to spending levels in June as part of the Fiscal Responsibility Act, both chambers appear to be ignoring that agreement, with the Senate proposing significantly more spending, and the House asking for greater spending cuts. Negotiations are more challenging than usual this year because a small group of House members are poised to block any spending plan or continuing resolution that does not include severe spending cuts and controversial policy provisions that are unlikely to meet the Senate’s approval.

The Center will let you know if there are opportunities this month for your nonprofit to take action to urge Congress to prevent a federal government shutdown.  

SBA Seeking Nonprofits Input on Proposed DOL Overtime Rule

Two weeks ago, the U.S. Department of Labor (DOL released new proposed regulations on the salary threshold under the Fair Labor Standards Act (FLSA). The proposed regulations would increase the salary threshold for overtime pay by nearly 55% over the current level to $55,068 per year. The Center anticipates that this change would affect thousands of North Carolina nonprofits, and we have prepared an analysis of the proposed regulations and their potential impact on nonprofit organizations.

The U.S. Small Business Administration (SBA) announced yesterday that its Office of Advocacy is hosting virtual roundtables for small employers (including nonprofits) on September 26 and 27 (both are from 1-3 p.m.) to get input on the proposed DOL overtime rule. The Center plans to participate and share input on the potential impact of the overtime rule on North Carolina nonprofits. For more information, including details on how to RSVP for one of the roundtables, check out the SBA’s announcement.

Nonprofits and others have until November 7 to submit public comments on the proposed rule. After DOL receives and reviews these comments, it could make some changes to the proposed regulations before issuing final regulations. The salary threshold in the final regulations be even higher than the level in the proposed regulations – possibly as high as $60,209 per year.  The new salary threshold will likely take effect sometime in 2024.

New Poll Shows Strong Public Support for Universal Charitable Deduction

A new public opinion poll suggests that there is broad public support for tax incentives for charitable giving like the Charitable Act (H.R. 3435/S. 566). The poll found that:

• 87% of voters support restoring the universal charitable deduction permanently for all taxpayers including 51% of voters who strongly support this giving incentive.  
• 82% of voters support expanding the universal charitable deduction to up to $4,500 for all Americans, including at least 80% of Republicans, Democrats, and Independents.  
• 53% of voters say they would donate more to nonprofits if they were able to claim the charitable deduction.

Restoring and improving tax incentives for charitable giving remains a high priority on the Center’s policy agenda. We will work with our national partners to use this new polling data to help advocate for Congress to pass the Charitable Act and other similar legislation.

Center Submits Comments to U.S. House Committee on Nonprofits’ Election-Related Activities

Last week, the Center submitted a written response to the U.S. House of Representatives Ways and Means Committee’s recent “request for information” about election-related activities of 501(c)(3) charitable nonprofits and 501(c)(4) social welfare organizations. Federal tax law prohibits 501(c)(3) nonprofits from engaging in partisan election-related activities like endorsing or opposing candidates for public office or making financial contributions to political campaigns. However, longstanding guidance from the Internal Revenue Service makes clear that 501(c)(3) organizations can participate in nonpartisan voter registration, voter education, and get-out-the-vote work.

In addition to responding to the Committee’s 10 questions, the Center response highlights that:

1. Charitable nonprofits support the provision in Section 501(c)(3) of the Internal Revenue Code that protects the public’s trust in nonprofits by requiring charitable organizations to operate in a nonpartisan manner.
2. The rules on permissible nonpartisan election-related activities for 501(c)(3) are already quite clear. Nonprofits have access to plenty of information about these rules, both in the form of formal guidance from the IRS (e.g., IRS Revenue Ruling 2007-41) and in the form of free, user-friendly materials from the Center and other partners (e.g., the Center’s answers to common questions about nonprofits and elections and many great resources from Nonprofit VOTE).
3. It is important for Congress to continue to allow 501(c)(3) nonprofits to engage in nonpartisan voter education activities. We explained that: “Charitable nonprofits engage in nonpartisan voter education not because it is profitable (it isn’t) or because they want to influence partisan election outcomes (they don’t), but rather because they see this type of nonpartisan civic engagement as a necessary public service to their clients and their community, and therefore something that is complementary to their charitable missions.”

The Center also shared its responses with Congressman Greg Murphy (R-NC), who serves on the House Ways and Means Committee.

IRS Halting Processing of New Employee Retention Tax Credit Applications

The Internal Revenue Service announced yesterday that it will not process new Employee Retention Tax Credit (ERTC) applications until at least 2024 because of the recent proliferation of ERTC scams. This means that nonprofits that were eligible for the ERTC for 2020 or 2021 and have not yet filed for the tax credit will need to wait until at least early 2024 for the IRS to process their applications. Nonprofits that have pending ERTC applications should expect delays during the moratorium period, because the IRS is processing existing claims at a much slower pace than usual. The IRS also issued new questions and answers about ERTC eligibility yesterday to help nonprofits and businesses better assess whether they meet the qualifying standards for the ERTC, which can help them avoid scams.

NC Senate Could Vote on Bill That Would Set Dangerous Precedent on State Investigations of Nonprofits

Next week, the NC Senate could vote on a bill (H.B. 361) that would require Disability Rights North Carolina, a 501(c)(3) that does not receive state appropriations, to provide the General Assembly with significant reports about its programs, activities, and advocacy work. The stated reasoning behind the mandate is that the activities of the nonprofit directly impact the state budget, presumably through its litigation against and settlements with various state agencies. Some nonprofits that provide services to people with disabilities support the bill as a way to make public more information about litigation related to their clients and services. If the bill becomes law, Disability Rights NC would have to provide the General Assembly with reports about its past 10 years of activities by December 1, 2023 and would then need to submit reports to the General Assembly twice every year. This unfunded mandate could create significant financial and personnel costs for the private nonprofit. 

The Center recognizes that other nonprofits may have interest in obtaining the information that would be made public through the reports mandated by the bill, and we are supportive of identifying other means of obtaining appropriate information without burdening a non-state entity. When the bill was last in committee in June, the Center expressed its concern that the bill sets a precedent of allowing legislators to impose burdensome information requirements on any 501(c)(3) nonprofit, even organizations that receive no state funding. Several legislators have echoed the Center’s concerns about the precedent the bill could create for other nonprofits without state appropriations and noted this precedent could have a chilling effect on advocacy nonprofits. 

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Nonprofit Policy Update is North Carolina Center for Nonprofits' weekly newsletter of state and federal policy issues that affect all 501(c)(3) nonprofits. Learn about the Center's public policy priorities and agenda, or contact David Heinen, Vice President for Public Policy and Advocacy, for more information.