Accountability and Oversight

June 5, 2003

Jerome M. Lease, Mailing Standards
U.S. Postal Service
1735 N. Lynn Street, Room 3025
Arlington, VA 22209-6038

Re: Request for Comments on Cooperative Mail Rule (68 Fed.Reg. 23938) May 6, 2003

Dear Mr. Lease:

INDEPENDENT SECTOR very much appreciates the opportunity to comment on the May 6, 2003 U.S. Postal Service request for comments regarding the proposal to eliminate the application of the cooperative mail rule to mailings by authorized nonprofit organizations seeking monetary donations. INDEPENDENT SECTOR opposes the USPS proposal because it leaves room for abuse of the nonprofit rate.

We are proposing that the USPS retain some safeguards in order to limit the circumstances under which such abuse typically occurs. Rather than eliminating the current rule for cooperative mailings, IS recommends that the USPS adopt the attached alternative proposed rule, which has also been endorsed by the Alliance for Nonprofit Mailers and the Association of Fundraising Professionals.

INDEPENDENT SECTOR is a coalition of more than 700 national organizations and companies
representing the vast diversity of the nonprofit sector and the field of philanthropy. IS members
include many of the nation’s most prominent nonprofit organizations, leading foundations, and
Fortune 500 corporations with strong commitments to community involvement. IS members work
globally and locally in human services, education, religion, the arts, research, youth development,
health care, advocacy, democracy, and many other areas.

Nonprofits rely on the preferred rate for communicating with donors and the public about issues
and causes, and therefore have a strong interest in preserving its legitimate use by nonprofits. IS
urges the USPS to require that certain safeguards remain in place to ensure that it is in fact the
nonprofit, and not a for-profit entity, that controls a nonprofit mailing. Some of the key safeguards
that we propose are:

• A requirement that no officer, director, or key employee of the nonprofit organization have primary responsibility or be related to someone with primary responsibility at the for-profit entity;
• A requirement that the donations go directly to the nonprofit;
• A requirement that the donor list remain the property of the nonprofit;
• A requirement that the board of the nonprofit organization has approved a written contract governing the solicitation effort.

We are hopeful that this proposal will result in clearer guidelines, increased compliance, and consistent enforcement of the cooperative mail rule.

INDEPENDENT SECTOR supports the attached proposal because it allows nonprofits freedom to contract with commercial entities in fulfilling their charitable purposes, yet prevents the potential
abuse of the nonprofit rate by for-profit entities that exercise control over nonprofits. IS has a
long-standing commitment to ensuring the proper level of government oversight of the nonprofit
sector, while recognizing that nonprofits are responsible for ensuring that their business dealings
are not only within the law, but are held to the highest ethical standards. The enclosed proposal
strikes a fair balance between nonprofit accountability and appropriate regulation of the use of the
nonprofit rate by the USPS.

INDEPENDENT SECTOR provides resources to nonprofits to help them not only obey the law, but also live up to the highest standards of ethical practice and responsible stewardship. For example, IS has updated and reissued its publication, Obedience to the Unenforceable, which urges all nonprofit and philanthropic organizations to adopt an organizational code of ethical practices. Another IS publication, Intermediate Sanctions – What You Need to Know About the IRS Regulations, assists nonprofits in complying with regulations regarding conflicts of interest and excess benefit transactions. This latter publication will be particularly useful as nonprofits examine their business dealings, such as cooperative mailings.

Maintaining the nonprofit standard mail rate is of vital importance to charitable organizations and
the people they serve. We look forward to working with the U.S. Postal Service on this issue.

Sincerely,

Patricia Read
Vice President, Public Affairs
INDEPENDENT SECTOR
 

ALTERNATIVE PROPOSED RULE

Add the following to Domestic Mail Manual section E670.5.3: “Exception: this standard does not
disqualify mailings by a nonprofit organization authorized to mail at Nonprofit Standard Mail rates
soliciting monetary donations and not promoting or otherwise facilitating the sale or lease of any
goods or service, provided that the arrangement with any commercial fundraiser or other
participant in the solicitation who is ineligible for nonprofit rates (‘ineligible participant’) satisfies all
of the following tests:

(a) No officer, director, principal, or fiduciary of any ineligible participant or corporate affiliate thereof, or any close relative of any such individual, serves the nonprofit organization as officer, director, or key employee.

(b) The arrangement is governed by a written contract, and the contract has been signed by a board member or officer of the nonprofit organization.

(c) The funds generated by the solicitation are deposited in a bank account under the exclusive control of the nonprofit organization.

(d) The ineligible participant has no ownership or control of the use of the donor list generated by responses to the solicitation, beyond the right to a contingent security interest in the donor list rental income in case the nonprofit organization fails to perform its obligations under the contract.

(e) The ineligible participant retains no ownership rights to any intellectual property in the
fundraising package developed at the nonprofit organization’s expense.
 
(f) If the ineligible participant extends credit to the nonprofit organization, the repayment period, interest rate and other material terms of the credit are not conditioned on the continued employment of the ineligible participant by the nonprofit organization.

To qualify a mailing under this exception, the nonprofit organization and each ineligible participant
must certify in writing, on the Form 3602 or other entry statement for the mailing, that (1) the mailing satisfies each of the above conditions, and (2) the mailing does not involve an excess benefit transaction. In the previous sentence, the term ‘excess benefit transaction’ shall be defined by the IRS regulations implementing Section 4958 of the Internal Revenue Code, except that the regulations shall be deemed to apply to all nonprofit organizations, not just 501(c)(3) and 501(c)(4) organizations.”