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July 13, 2020

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New York State Codifies the Johnson Amendment

On October 23, 2019, Governor Andrew M. Cuomo, signed legislation incorporating the federal Johnson Amendment into New York law. As previously described, the Johnson Amendment denies tax-exempt status under section 501(c)(3) of the Internal Revenue Code (the “Code”) to (and imposes excise taxes on) any organization that engages in political campaign activities. The new legislation amended section 1116 of New York Tax Law, which will now deny tax-exempt status for N.Y tax purposes to any organization that engages in political campaign activities, either on behalf or in opposition of any candidate for public office.

Governor Cuomo stated that this new legislation is a response to President Trump’s statements and actions since taking office about the President’s intention to repeal the Johnson Amendment, including the signing of an executive order that directs the executive branch to limit its enforcement of the Johnson Amendment.[1] A repeal of the Johnson Amendment would allow section 501(c)(3) organizations to engage in political campaign activities. As a result of the executive order, section 501(c)(3) organizations that engage in political campaign activities are not subject to loss of federal exemption or punitive federal excise taxes. As a result of the new legislation, if the Johnson Amendment is repealed from federal law, tax exempt organizations that conduct activities in New York will lose their exempt status and thus be subject to N.Y. state (and local) income, sales, and property tax. Governor Cuomo expressed hope that this new legislation will further protect New Yorkers’ right to free and fair elections without unjustified interferences.[2] Generally, a tax-exempt organization that conducts no activities in New York, other than contributing to political campaigns, would not be affected by this new legislation.

The Johnson Amendment provides that tax exempt organizations must “not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office” in order to qualify as tax exempt. Section 4955 imposes a 10% punitive excise tax on the political expenditures of section 501(c)(3) organizations (and additional excise taxes on the organization and its management) if the expenditure is not corrected). Prohibited activities include contributing funds to a political campaign and making public statements, either oral or written, endorsing or opposing a candidate for public office.  However, engaging in non-partisan activities like voter education activities and other activities that encourage individuals’ participation in the electoral process are not prohibited activities.

Prior to the amendment, section 1116 of New York Tax Law prohibited tax exempt organizations “to participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of any candidate for public office.”[3] The new legislation added language to section 1116 of New York Tax Law to also prohibit tax exempt organizations from opposing a candidate for public office.[4] Most importantly, the new legislation specifically provides that the prohibition regarding political campaigning would be interpreted consistently with how section 501(c)(3) of the Code has been interpreted as of October 23, 2019.[5]

[1] New York State, Pressroom, Governor Cuomo Signs Legislation Restricting Non-Profit Corporations from Endorsing or Opposing Any Political Candidate.

[2] Id.

[3] N.Y. Tax Law § 1116(a)(4).

[4] Id.

[5] Id.

© 2020 Proskauer Rose LLP. National Law Review, Volume IX, Number 315


About this Author

Amanda Nussbaum, Tax Attorney, Proskauer Rose Law Firm

Amanda H. Nussbaum is a Partner in the Tax Department and also is a member of the Private Investment Funds Group. Her practice concentrates on planning for and the structuring of domestic and international private investment funds, including venture capital, buyout, real estate and hedge funds, as well as advising those funds on investment activities and operational issues. She also represents many types of investors, including tax-exempt and non-U.S. investors, with their investments in private investment funds.

David S Miller, Proskauer, derivatives issuance lawyer, cross border lending transactions attorney

David Miller is a partner in the Tax Department. David advises clients on a broad range of domestic and international corporate tax issues. His practice covers the taxation of financial instruments and derivatives, cross-border lending transactions and other financings, international and domestic mergers and acquisitions, multinational corporate groups and partnerships, private equity and hedge funds, bankruptcy and workouts, high-net-worth individuals and families, and public charities and private foundations. He advises companies in virtually all major industries, including banking, finance, private equity, health care, life sciences, real estate, technology, consumer products, entertainment and energy.

David is strongly committed to pro bono service, and has represented more than 300 charities. In 2011, he was named as one of thirteen “Lawyers Who Lead by Example” by the New York Law Journal for his pro bono service. David has also been recognized for his pro bono work by The Legal Aid Society, Legal Services for New York City and New York Lawyers For The Public Interest.

Yomarie S Habenicht, Proskauer, Tax Legal Matters Lawyer, New York attorney

Yomarie Habenicht is an associate in the Tax Department. She works primarily on U.S. federal corporate, partnership and international tax matters, including mergers and acquisitions, domestic and cross-border financings, debt restructurings and securities issuances. She is also fluent in Spanish.

She earned her J.D. from Boston University, where she was an executive editor of the Review of Banking and Financial Law and co-president of the Latin American Law Students Association. She also earned her LLM in taxation from New York University.

Prior to joining Proskauer...