Home » 2012 Issues » December 26, 2012 » LAW-52-12-00013-P Contents of Annual Financial Reports Filed with the Attorney General by Certain Nonprofits
LAW-52-12-00013-P Contents of Annual Financial Reports Filed with the Attorney General by Certain Nonprofits
12/26/12 N.Y. St. Reg. LAW-52-12-00013-P
NEW YORK STATE REGISTER
VOLUME XXXIV, ISSUE 52
December 26, 2012
RULE MAKING ACTIVITIES
DEPARTMENT OF LAW
PROPOSED RULE MAKING
HEARING(S) SCHEDULED
I.D No. LAW-52-12-00013-P
Contents of Annual Financial Reports Filed with the Attorney General by Certain Nonprofits
PURSUANT TO THE PROVISIONS OF THE State Administrative Procedure Act, NOTICE is hereby given of the following proposed rule:
Proposed Action:
Addition of sections 91.6, 91.5(c)(2)(iii) and 91.7(b)(2)(iv); amendment of section 91.3; and renumbering of sections 91.6-91.12 to sections 91.7-91.13 of Title 13 NYCRR.
Contents of annual financial reports filed with the Attorney General by certain nonprofits.
Purpose:
To require certain nonprofits to disclose information regarding election advocacy to the Attorney General and the public.
Public hearing(s) will be held at:
11:00 a.m., January 15, 2013 at 250 Broadway, 19th Fl., Rm. 1923, New York, NY; 11:00 a.m., January 29, 2013 at Legislative Office Bldg. Roosevelt Hearing Rm. C, 2nd Fl., Albany, NY; 12:00 p.m., February 20, 2013 at Central Library, One Lafayette Sq., Buffalo, NY; and 11:00 a.m., February 27, 2013 at Nassau County Legislative Bldg., Legislative Chambers, 1550 Franklin Ave., Mineola, NY.
Interpreter Service:
Interpreter services will be made available to hearing impaired persons, at no charge, upon written request submitted within reasonable time prior to the scheduled public hearing. The written request must be addressed to the agency representative designated in the paragraph below.
Accessibility:
All public hearings have been scheduled at places reasonably accessible to persons with a mobility impairment.
Text of proposed rule:
13 NYCRR Sections 91.6-91.12 are renumbered to sections 91.7-91.13.
A new section 91.6 is added to title 13 to read as follows:
91.6 Annual Disclosure of Electioneering Activities by Non-501(c)(3) Registrants
(a) Definitions. For purposes of this section:
(1) “Annual Financial Report” means any report filed pursuant to section 91.5 or 91.7 of this part.
(2) “Covered organization” means any organization that is: (i) registered or required to be registered with the Attorney General pursuant to Article 7-A of the Executive Law and/or Article 8 of the Estates, Powers and Trusts Law; and (ii) not prohibited by Internal Revenue Code section 501(c) from participating in, or intervening in, any political campaign on behalf of, or in opposition to, any candidate for public office.
(3) “Election” means any general, special, or primary election for federal, state or local office, or at which any proposition, referendum or other question is submitted to the voters in any state or any locality in the United States.
(4) “New York Election” means only those general, special, or primary elections conducted by a New York state or local government entity for New York state or local office, or any election at which any New York state or local constitutional amendment, proposition, referendum or other question is submitted to the voters.
(5) “Election related expenditure” means (i) any expenditure made, liability incurred, or contribution provided for express election advocacy or election targeted issue advocacy; or (ii) any other transfer of funds, assets, services or any other thing of value to any individual, group, association, corporation whether organized for profit or not-for-profit, labor union, political committee, political action committee, or any other entity for the purpose of supporting or engaging in express election advocacy or election targeted issue advocacy by the recipient or a third party.
(6) “Express election advocacy” means any communication made at any time that:
(i) contains express words such as “vote,” “oppose,” “support,” “elect,” “defeat,” or “reject,” which call for the nomination, election or defeat of one or more clearly identified candidates, the election or defeat of one or more political parties, or the passage or defeat of one or more constitutional amendments, propositions, referenda or other questions submitted to voters at any election; or
(ii) otherwise refers to or depicts one or more clearly identified candidates, political parties, constitutional amendments, propositions, referenda or other questions submitted to the voters in a manner that is susceptible of no reasonable interpretation other than as a call for the nomination, election or defeat of such candidates in an election, the election or defeat of such political parties, or the passage or defeat of such constitutional amendments, propositions, referenda or other questions submitted to the voters in any election.
(7) “Election targeted issue advocacy” means any communication other than express election advocacy made within one hundred eighty days of an election that:
(i) refers to one or more clearly identified candidates in that election;
(ii) depicts the name, image, likeness or voice of one or more clearly identified candidates in that election; or
(iii) refers to any political party, constitutional amendment, proposition, referendum or other question submitted to the voters in that election.
(8) “Communication” means:
(i) paid advertisements broadcast over radio, television, cable, or satellite;
(ii) paid placement of content on the Internet or other electronic communication networks;
(iii) paid advertisements published in a periodical or on a billboard;
(iv) paid telephone communications to one thousand or more households;
(v) mailings sent or distributed to five thousand or more recipients; or
(vi) printed materials exceeding five thousand copies.
(9) “Covered donation” means any contribution, gift, loan, advance, or deposit of money or any thing of value made to a covered organization that is available to be used for a New York election related expenditure.
(b) Disclosure of Election Related Expenditures.
(1) The annual financial report filed by any covered organization shall include the amount and the percentage of total expenses during the reporting period that are election related expenditures.
(2) The annual financial report filed by any covered organization that has made New York election related expenditures in an aggregate amount or fair market value exceeding ten thousand dollars during the reporting period shall include an itemized schedule disclosing information related to each New York election related expenditure, unless the information is exempt from disclosure pursuant to paragraph d of this section. Such information shall include for each New York election related expenditure: (i) the amount or fair market value of any funds, services or assets provided, and any liabilities incurred; (ii) the date that such funds, services or assets were provided, and that any liabilities were incurred; (iii) the name and address of the recipients of the expenditure; and (iv) a clear description of the expenditure and its purpose, including support for or opposition to a candidate, political party, referendum or other question put before the voters in an election.
(c) Disclosures of Donations Related to New York Elections.
(1) The annual financial report filed by a covered organization that has made New York election related expenditures in an aggregate amount or fair market value exceeding ten thousand dollars during the reporting period shall include an itemized schedule disclosing information related to each covered donation it has received during the reporting period, unless the information is exempt from disclosure pursuant to paragraph d of this section. Such information shall include: (i) the name and address of each donor who made covered donations in an aggregate amount of one hundred dollars or more during the reporting period; (ii) the employer of each such individual donor, if reasonably available; and (iii) the date and amount of each such covered donation.
(2) If a covered organization keeps one or more segregated bank accounts containing funds used solely for New York election related expenditures, and makes all of its New York election related expenditures from such accounts, then the annual financial report must only include information specified in the preceding subparagraph concerning donations deposited into such accounts.
(d) Exceptions for Disclosures to Multiple Agencies. The annual financial report filed by a covered organization is not required to include the information specified by subparagraph two of paragraph b of this section, or paragraph c of this section, if: (i) any law or rule requires that such information be disclosed to any other government agency that makes such information available to the public, and (ii) the covered organization is in compliance with the requirements of such law or rule at the time it files the annual financial report.
(e) Schedule to be Provided by the Attorney General. Upon adoption of this regulation, the Attorney General shall make available a schedule (“Electioneering Disclosure Schedule”) to the Annual Filing for Charitable Organizations and if necessary amend existing forms to allow covered organizations to make the disclosures required by this section.
(f) Guidance to be Provided by the Attorney General. Upon adoption of this regulation, the Attorney General shall make available to the public guidance concerning compliance with this rule.
(g) Public Disclosure. The Attorney General shall make information contained in the completed Electioneering Disclosure Schedule available to the public on the Attorney General’s website, except for:
(1) information exempt from disclosure pursuant to any state or federal law;
(2) information related to any covered donation received prior to the effective date of this rule; or
(3) information the Attorney General deems exempt from disclosure pursuant to paragraph (h) of this section.
(h) Exemption from Public Disclosure.
(1) Notwithstanding paragraph g of this section, the Attorney General may, upon application by a donor or covered organization to be made in a form and manner prescribed by the Attorney General, grant an exemption and refrain from disclosing any information to the public related to any covered donation if the applicant shows by clear and convincing evidence that such disclosure will cause undue harm, threats, harassment or reprisals to any person or organization.
(2) An application for such exemption shall be submitted no later than forty-five days prior to the due date for the applicable annual filing. The Attorney General will inform the applicant and may inform other persons or organizations to which the exemption would apply, in writing, whether the application for exemption has been granted or denied. Any denial issued by the Attorney General shall include a statement of findings and conclusions, and the reasons or basis for the denial.
(3) The submission of an application does not relieve the covered organization of its obligation to timely file annual financial reports, including an Electioneering Disclosure Schedule disclosing all donors for which the covered organization has not sought exemption.
(4) To the extent permitted by federal and state law, the Attorney General will exempt from public disclosure all materials submitted in support of an application for an exemption; provided that the Attorney General may disclose such materials to a court in response to any judicial subpoena or court order. The Attorney General may publicly disclose that a covered organization has submitted one or more applications for an exemption, or that one or more of a covered organization’s requests for an exemption has been granted or denied.
(i) Severability. If any provision in this section or the application of such provision to any persons or circumstances shall be held invalid, the validity of the remainder of the provisions and/or the applicability of such provisions to other persons or circumstances shall not be affected thereby.
Section 91.5(c)(2)(iii) is added to title 13 to read as follows:
Schedule EDS (Electioneering Disclosure Schedule) or a successor form is required for covered organizations that must file such form pursuant to section 91.6 of this part.
Section 91.7(b)(2)(iv) is added to title 13 to read as follows:
Schedule EDS (Electioneering Disclosure Schedule) or a successor form is required for covered organizations that must file such form pursuant to section 91.6 of this part.
The introductory paragraph to section 91.3 of title 13 is amended to read as follows:
Certain organizations are exempt from registration with the Attorney General. Unregistered organizations that are exempt from registration are not required to submit an exemption request to the Attorney General, except that an organization that receives a failure to register notice from the Attorney General but believes it is exempt from registration must claim an exemption from registration. Organizations that wish to request exemption from registration under Article 7-A or the EPTL or both, shall claim such exemption by completing the appropriate registration, amended registration or reregistration statement form, defined in sections 91.4, 91.[7]8 and 91.[8]9, respectively, of this Chapter, or a successor form, including the exemption request section of such form, and attaching Schedule E (Request for Exemption for Charitable Organizations) or a successor form along with all required attachments listed in both the registration and exemption request forms.
Text of proposed rule and any required statements and analyses may be obtained from:
Gregory M. Krakower, Counselor to the Attorney General, Department of Law, 120 Broadway, New York, NY 10271, (212) 416-8030, email: gregory.krakower@ag.ny.gov
Data, views or arguments may be submitted to:
Same as above.
Public comment will be received until:
March 6, 2013
Regulatory Impact Statement
1. Statutory Authority. Article 7-A of the Executive Law (hereinafter “Article 7-A”) and Article 8 of the Estates, Powers & Trusts Law (hereinafter “EPTL”) require certain organizations and trusts to file annual financial reports and other disclosures with the Attorney General, and require the Attorney General to establish and maintain a register of such disclosures. Section 177(1) of the Executive Law and section 8-1.4(h) of the EPTL empower the Attorney General to make rules and regulations necessary for the administration of these provisions.
2. Legislative Objectives. The rule requires certain organizations that are registered with the Attorney General and that may participate or intervene in political campaigns (hereinafter “covered organizations”) to disclose information concerning expenditures and donations related to such electioneering in annual financial reports that are submitted to the Attorney General. The rule does not apply to organizations exempt from taxation under section 501(c)(3) of the U.S. Internal Revenue Code. The rule aims to, among other things: enhance detection and deterrence of illegal conduct by covered organizations and related individuals; inform and protect prospective donors to such organizations; protect the integrity and reputation of nonprofit organizations that do not intervene in political campaigns; maintain the anonymity of donors to covered organizations if their donations are restricted to purposes unrelated to influencing elections; protect the public interest in transparent financing of state and local elections; shield donors to covered organizations that intervene in political campaigns from public disclosure if it will cause undue harm, threats, harassment or reprisal; and ensure that there is clear guidance to covered organizations and related individuals concerning compliance.
3. Needs and Benefits. New York donors should know how nonprofit organizations that solicit donations from them are likely to use those funds. However, covered organizations, many of which enjoy tax-exempt status on the basis that they act to promote social welfare, may utilize funds solicited from the public to engage in direct and indirect electioneering activities. Donors to nonprofit organizations may be unaware that their donations to a charitable, social welfare or similar organization can be used to directly or indirectly influence elections. Furthermore, such organizations can solicit funds without disclosing critical information about the political nature of their expenditures or sources of funding. There is substantial evidence in the public record that some nonprofit organizations are increasingly raising and spending funds to influence elections. The lack of transparency in this area creates the potential for covered organizations and related individuals to: mislead donors about the uses of their donations; violate tax and other laws without detection by regulators or law enforcement; and evade state and local campaign finance laws in a manner contrary to the public interest. The rule will, among other things:
(A) Better enable regulators to enforce tax and other laws and rules that restrict electioneering and other political activities by covered organizations, and deter illegal conduct;
(B) Protect donors from fraudulent, false or misleading solicitations by covered organizations;
(C) Protect the integrity and reputation of charities and other nonprofits that refrain from impermissible or excessive electioneering;
(D) Assist regulators in ensuring that charities, including organizations exempt from taxation pursuant to section 501(c)(3) of the U.S. Internal Revenue Code, do not illegally transfer assets to covered organizations to be used for electioneering purposes, and deter such illegal conduct;
(E) Inform potential donors that contributions to covered organizations may be used to advance particular outcomes in elections, and provide relevant information to allow donors to take into account the political goals, interests and activities of the organization and related individuals when contributing or responding to a solicitation;
(F) Protect the public interest in transparency in the electoral process by disclosing contributions that covered organizations transfer directly to candidates for elective office in New York or otherwise use to influence New York state and local elections;
(G) Maintain the anonymity of donors to covered organizations if their donations are restricted to purposes unrelated to influencing New York state and local elections;
(H) Protect donors to covered organizations from disclosure if they will be unduly harmed by such disclosure; and
(I) Provide clear guidance to covered organizations and related individuals concerning compliance.
4. Costs. Covered organizations that do not engage in electioneering will face de minimus costs associated with the rule. Covered organizations that choose to devote over $10,000 of their expenditures in any fiscal year to influencing New York state and local elections, that are not otherwise required to disclose those activities to other state or local agencies, might bear small costs associated with tracking and accounting for funds raised and spent for purposes related to election advocacy. Some covered organizations that engage in election advocacy may choose to deposit donations available for electioneering activities into a segregated bank account or establish a separate political action committee to address the needs of donors who wish to restrict the ability of the covered organization to use donated funds for electioneering purposes. Such measures are not required by the rule but could entail small costs if taken by covered organizations that engage in electioneering. The Department of Law will also incur de minimus costs associated with processing filings of the new disclosure schedule by covered organizations, and with reviewing and making determinations concerning any applications for exemption from disclosure, as provided in the rule.
5. Paperwork. As part of their existing annual filing obligations, covered organizations will have to indicate what portion of expenditures were spent on electioneering activities, and covered organizations that spend at least $10,000 in a fiscal year to influence state or local elections in New York will be required to file an additional schedule with the Attorney General disclosing information concerning such election related expenditures and donations, unless they have disclosed this information to another government agency that makes the information publically available.
6. Local Government Mandates. None.
7. Duplications. The rule has been drafted to coordinate with existing state and federal laws concerning disclosure of expenditures and contributions related to electioneering activities. Accordingly, the rule does not require a covered organization to disclose itemized information related to election-related donations and expenditures that is disclosed to other government agencies and made publically available.
8. Alternatives. (A) $10,000 Expenditure Threshold. Thresholds both lower and higher than $10,000 in a year on election related expenditures to trigger additional disclosure under the rule were considered. While establishing a threshold lower than $10,000 would provide benefits with respect to protecting donors from fraudulent solicitations, law enforcement functions, and transparency in New York state and local elections, the Department of Law determined that the added costs to organizations that engage in this level of election related activity outweighed these benefits. The Department of Law rejected establishing a threshold higher than $10,000, because this could reduce benefits that the rule is designed to promote with respect to, among other things, law enforcement, fraud-reduction, integrity of nonprofits, and transparency.
(B) $100 Contribution Threshold. The Department of Law considered and rejected alternatives to the $100 contribution threshold to trigger disclosure of donor information, because this amount is consistent with the contribution disclosure threshold required by Election Law, section 14-102(1). (C) Application to federal elections. The Department of Law considered applying the rule’s itemized disclosure requirements to expenditures and donations in connection with federal campaigns but chose not to address this issue at this time.
9. Federal Standards. Federal tax law requires tax exempt nonprofit organizations to report certain information concerning expenses, donations and donors to the Internal Revenue Service, and federal campaign law requires disclosures of certain federal election-related expenditures and donors to the Federal Election Commission. EPTL article 8, Executive Law article 7-A, and existing regulations require nonprofit organizations regardless of tax exempt status that solicit $25,000 or use a professional fundraiser in New York to register with the Attorney General and submit annual financial reports. For such organizations that are allowed under federal and state tax law to influence elections, the proposed rule requires their annual reports indicate the percentage of the organization’s revenue that is spent on influencing elections. For such organizations that spend $10,000 or more in a fiscal year to influence New York state and local elections, the proposed rule requires their annual financial reports to include information concerning certain expenditures and donations relating to these elections. However, in order to avoid burdensome and unnecessary duplication and multiple filings, the rule does not require the annual financial reports to include specific information related to New York state or local elections that is disclosed to any other agency and made available to the public. The rule requires these additional disclosures, because, while federal law requires such organizations to publically disclose certain types of expenditures and donations relating to federal elections, it does not require a statement of the percentage of expenses used to influence elections, or any disclosures relating to New York state or local elections. And to the extent federal law requires tax-exempt organizations to disclose the total amount of certain election-related expenditures, it defines election-related expenditures in a manner that leaves donors and regulators in the dark about nonprofit activity that could run afoul of New York state tax or charities law, or federal tax law, or that could otherwise constitute deceptive solicitations or practices. The rule accordingly requires these additional disclosures in order to, among other things: help regulators identify when a covered organization might be primarily engaged in influencing elections and thus in violation of federal tax law, state tax law, and other New York state laws; inform donors about election related activities of covered organizations; deter and detect fraudulent solicitations of funds by covered organizations; and support the public’s interest in transparency in regard to nonprofits and elections.
10. Compliance Schedule. Prior to filing annual financial reports with the Attorney General pursuant to Article 7-A and/or the EPTL for the fiscal year beginning on or after the effective date of the rule, covered organizations that made election related expenditures in excess of $10,000 during that year will have to compile the information necessary to make the required disclosures. Should an organization need additional time to file annual reports, the Attorney General may, pursuant to section 172-b(5) of Article 7-A and section 8-1.4(r) of the EPTL, grant filing extensions. Covered organizations wishing to identify and deposit covered donations into a segregated bank account to prevent disclosure of donors who prohibit their donations from being used for election related expenditures will need to open and begin utilizing such segregated accounts if they do not use them already.
Regulatory Flexibility Analysis
By virtue of its subject matter, the proposed rules do not apply to local governments or small businesses. The rule requires nonprofit organizations that are registered with the Attorney General and that are legally allowed to engage in election-related advocacy to include in their annual financial report a calculation of the percentage of total expenses spent on such election advocacy. The rule also requires nonprofit organizations that spend over $10,000 in any fiscal year to influence state or local elections in New York to include an additional schedule in their annual report filed with the Attorney General that itemizes specific information regarding expenditures and donations related to such election advocacy, unless the information is reported to another public agency and made available to the public. Accordingly, while the rule imposes minor recordkeeping and compliance costs on such nonprofit corporations, the rule does not impose recordkeeping or compliance costs on small businesses or local governments, and will not have any adverse economic impact on small businesses or local governments.
Rural Area Flexibility Analysis
1. Types and estimated numbers of rural areas. The rule applies uniformly throughout the state, including all rural areas. Executive Law, Article 19-F Rural Affairs Act, Section 481(7) defines a rural area as a county with a population of less than 200,000. New York currently has 44 counties that would constitute rural areas. The rule applies to nonprofit organizations that are registered with the Attorney General and that are legally allowed to participate or intervene in political campaigns. Such organizations may exist or engage in activity in all areas of the state.
2. Compliance requirements. The rule requires nonprofit organizations in rural areas and elsewhere that are registered with the Attorney General and that are legally allowed to engage in election-related advocacy to include in their annual financial report a calculation of the percentage of total expenses spent on such election advocacy. The rule also requires nonprofit organizations that spend more than $10,000 in any fiscal year to influence state or local elections in New York to include an additional schedule in their annual report filed with the Attorney General that itemizes specific information regarding expenditures and donations related to such election advocacy, unless the information is reported to another public agency and made available to the public.
3. Compliance costs. (A) Nonprofits located in rural areas and elsewhere that are registered with the Attorney General and that are allowed to engage in activities to influence an election will be subjected to de minimus compliance costs associated with calculating and reporting the percentage of their expenditures, if any, that are spent on influencing elections in a fiscal year. (B) Nonprofits located in rural areas and elsewhere that are registered with the Attorney General and that spend more than $10,000 in any fiscal year to influence New York state and local elections will bear small costs associated with tracking and reporting information on donations and expenditures related to such election advocacy, unless the information is reported to another public agency and made available to the public.
4. Minimizing adverse impact. The rule will not adversely impact rural areas in any way. Relatively few nonprofits in New York State will be impacted by the rule's additional filing or disclosure requirements because (a) a substantial portion of nonprofits are not allowed to participate in election activities at all; and (b) few nonprofits will spend more than $10,000 or more in any fiscal year to influence New York state and local elections. In any event, the costs of complying are de minimus or negligible even for those nonprofits that spend this amount to influence elections, and the rule exempts them from having to file itemized information related to New York State and local elections if they have provided such information to other government agencies that make the information available to the public. Thresholds both lower and higher than $10,000 on election related expenditures to trigger additional disclosure under the rule were considered. While establishing a threshold lower than $10,000 would provide some benefits with respect to protecting donors from fraudulent solicitations, law enforcement functions, and transparency in New York state and local elections, the Department of Law determined that the added costs to organizations in rural areas and elsewhere that engage in this level of election related activity outweighed these benefits. The Department of Law rejected establishing an amount greater than a $10,000 threshold because of the reduction in benefits with respect to law enforcement, fraud-reduction, and transparency in New York state and local elections that the rule is designed to promote.
5. Rural participation. In order to ensure that nonprofits and other interested parties in rural areas have an opportunity to participate in the rule making process, a copy of the rule will be posted on the Attorney General's web site, members of the public will have the opportunity to comment on the rule in writing, and four hearings will be held in different regions of the state concerning the proposed rule.
