Center Submits Comments Supporting Proposed Improvements to OMB Uniform Guidance

On Monday, the Center submitted public comments in support of the proposal from the White House Office of Management and Budget (OMB) to make significant improvements to its Uniform Guidance, the rules that govern federal grants to nonprofits. The proposed changes include:

1. Increasing the de minimis indirect cost rate on federal grants from 10% to 15% of modified total direct costs. OMB explains: “This change would allow for a more reasonable and realistic recovery of indirect costs, particularly for new or inexperienced organizations that may not have the capacity to undergo a formal rate negotiation, but still deserve to be fully compensated for their overhead costs.”
2. Clarifying that federal agencies cannot force nonprofits receiving grants to use an indirect cost rate lower than the proposed 15% de minimis rate unless a lower rate is required by statute. 
3. Clarifying that nonprofits with federally negotiated rates must receive these indirect cost rates even when federal funds flow through state and/or local governments.
4. Raising the federal single audit threshold from $750,000 to $1 million.
5. Requiring federal agencies to eliminate program reports that are not necessary for the effective monitoring of grants.
6. Revising the Notice of Funding Opportunities to make postings simpler and easier for nonprofits to navigate.
7. Encouraging federal agencies to take a variety of steps to make their grantmaking process more equitable and inclusive.

The Center’s comments highlight how these proposed changes – and some further reforms to federal grantmaking rules – could address several of the longstanding challenges North Carolina nonprofits have experienced with their federal grants. The Center also added our support to the more comprehensive public comments from the National Council of Nonprofits. The National Council of Nonprofits also has prepared a helpful analysis of the proposed improvements to the OMB Uniform Guidance.

More Nonprofits Will Need to File IRS Information Returns Electronically Next Year

A new federal regulation requires employers, including nonprofits, that file 10 or more “information returns” in a calendar year to file these forms electronically. The “information returns” included in this new electronic filing requirement include the Form 1099 series (typically used for nonprofit contractors), Form W-2, and Affordable Care Act information returns like the Form 1094 series and Form 1095-C. Practically, this means that many nonprofits, including any organization with a total of 10 or more employees and independent contractors, must file these forms electronically next year. The Internal Revenue Service can impose significant financial penalties for employers that don’t comply with electronic filing rules. 

Nonprofits already must file their Forms 990 electronically. However, in the past, nonprofits were only required to file most other information returns electronically if they filed 250 or more of any specific form per year. Nonprofits that have not filed information returns electronically in the past will likely need to register with the IRS to e-file in 2024. Nonprofits that use third-party providers to process their payrolls may want to check with these providers to confirm that they are filing Forms W-2 electronically (hint: they probably are).

More Than 1,000 Nonprofits Ask Congress to Pass Charitable Act

The Charitable Act (S. 566/H.R. 3435) is a federal policy solution to help offset the recent decline in charitable giving. The Charitable Act would create a universal charitable deduction that would encourage people to give more generously to nonprofits. Specifically, the Charitable Act would create an above-the-line tax deduction for non-itemizers who make charitable contributions. The deduction would be capped at one-third of the standard deduction (about $4,600 for individuals and $9,200 for couples).

Last week, a coalition of nonprofits sent a letter to leaders in Congress asking them to pass the Charitable Act. More than 1,000 nonprofits from all 50 states signed on to the letter, including the Center and 107 other North Carolina nonprofits (more than any other state). The Center is sharing this letter with our North Carolina congressional delegation and asking them to pass a year-end tax bill that includes a universal charitable deduction. Thank you if your nonprofit signed on to the letter!

DHHS Publishes Materials to Help Nonprofits Provide Outreach on Medical Expansion

Medicaid expansion began in North Carolina on December 1. The NC Department of Health and Human Services (DHHS) expects that at least 300,000 North Carolinians will be automatically enrolled in Medicaid and that about another 300,000 may be eligible for coverage under Medicaid expansion. DHHS launched a website to help with community outreach on Medicaid expansion, including basic information on eligibility for Medicaid coverage, details of costs and coverage, and free materials to help nonprofits provide clear and accurate information about Medicaid and Medicaid expansion to their clients and communities. Please share this information widely, especially with clients who may now be eligible to apply.

U.S. House Committee to Hold Hearing on Nonprofits’ Election-Related Activities

A subcommittee of the U.S. House of Representatives Ways and Means Committee has scheduled a hearing for Tuesday, December 13 on “Growth of the Tax-Exempt Sector and the Impact on the American Political Landscape.” The hearing appears to be a follow-up to the Committee’s “request for information” about election-related activities of 501(c)(3) charitable nonprofits and 501(c)(4) social welfare organizations from this summer. In September, the Center submitted a written response to the Committee highlighting 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.”

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.

IRS Denying More Than 20,000 ERTC Applications

The Internal Revenue Service (IRS) announced this week that it is denying more than 20,000 claims for the Employee Retention Tax Credit (ERTC) in its effort to combat potentially fraudulent or incorrect claims for the credit. The IRS denied these claims either because the entities didn’t exist or because they didn’t have any paid employees during their eligibility period. If your nonprofit receives an ERTC denial letter and believes that your organization was actually eligible for the ERTC, you have the right to submit additional information to the IRS supporting your eligibility and/or to file an administrative appeal. 

In September, the IRS announced that it is not processing 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 with pending ERTC applications that were submitted prior to the moratorium should expect delays during this moratorium period because the IRS is processing existing claims at a much slower pace than usual.

Center Offers 2023 Legal Compliance Checklist for North Carolina Nonprofits

The Center’s weekly Nonprofit Policy Update (i.e., the email you are reading right now!) provides updates on new and proposed legislation and regulations that might affect your nonprofit’s operations and mission. The Center also recognizes that it is helpful for nonprofits to review the many federal and state laws (some new, some longstanding) that are necessary for your nonprofit to remain compliant. With this in mind, the Center has published its annual Legal Compliance Checklist for North Carolina Nonprofits, a comprehensive summary of laws affecting NC nonprofits’ tax exemption, governance, finances, advocacy, human resources, and fundraising – and how to comply.

The Legal Compliance Checklist is included as part of membership in the Center. If your nonprofit is a Center member, all of your staff and board members have access (download it here). The checklist is also available for purchase for nonprofits and others that are not Center members (purchase it here). Any 501(c)(3) nonprofit can also become a Center member to get free access to the Legal Compliance Checklist and a wide range of other resources and services.

Center Offers Analysis of Impact of New Law on Nonprofit Training Programs

A new state law (S.364) that took effect on December 1 could affect some training programs offered by North Carolina nonprofits. The law prohibits any “state employee training program” from promoting 13 specific concepts, most of which are related to race and gender. Over the past few months, nonprofits have asked the Center a variety of questions to assess whether the law will apply to training programs their organization offers and, if so, what changes they may need to make to be compliant. To help your nonprofit better understand the law and its possible implications for your training programs, the Center has posted a synopsis of some of the questions we received – along with our best attempts at answers.

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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.

©2023 North Carolina Center for Nonprofits