How to Navigate the Proposed Form LM-2 Changes

On October 13th, the Office of Labor-Management Standards (“OLMS”) of the Department of Labor (“DOL”) published proposed changes to current Form LM-2 reporting, and proposed the establishment of a Form LM-2 Long Form (“LF”), with the indicated goal of continuing to provide transparency about the financial activities of labor organizations to union members, the DOL, and the public by mandating that labor organizations provide additional and more detailed information in their reporting.

In this article, we will highlight some of the more significant changes to the existing Form LM-2, as well as discuss the introduction of the new Form LM-2 LF, which applies to labor organizations with annual receipts of $8,000,000 or more.

Key changes that are proposed to the existing Form LM-2 include the following:

• An additional reporting item for a union to indicate whether it is in trusteeship, which would allow the DOL to cross-reference and ensure that the appropriate trusteeship reports (for example, Form LM-15) are also being filed.
• A new question requiring disclosure when an officer or employee receives $10,000 or more from the reporting labor union and also receives payments from another labor union in excess of $10,000 annually. If the response is yes, the labor union is required to provide additional information including the name of the officer or employee, the amount paid by the other labor organization, and its name and OLMS file number.
• Expansion of existing question 13 to include whether the union experienced a loss and/or discovered a loss (the previous language was only “discovered a loss.”) The new language is intended to force a perpetrator who also signs or prepares the Form LM-2 to self-report their theft.
• The schedule of sales of investments and fixed assets will be divided into two schedules- one for investments and one for fixed assets. In the sale of investments schedule, additional information is required, including the name and address of the purchaser or financial management firm and the date of the sale. The sale of fixed assets schedule includes the same information, and in the case of automobiles, the make, model, year and VIN must also be disclosed.
• The schedules of purchases of investments and fixed assets have the same changes proposed as noted directly above for sales transactions.
• Instead of having one disbursement schedule for Representational Activities, dividing it into two- one for Contract Negotiations and Administration and one for Organizing.
• Instead of having one schedule for Political Activities and Lobbying expense, dividing it into two- one for Political Activities and a second one for Lobbying.
• Reporting on the Schedules of All Officers and Disbursements to Officers has a few changes:
  • Elimination of reporting officer time estimates, which removes the requirement to allocate time and report by functional category for each officer in the form.
  • Per the OLMS discussion within the proposed rulemaking, benefits provided to officers (previously reported in Schedule 20, in the aggregate), will now be reported individually in new Schedule 13 by officer. However, the proposed instructions do not specify this treatment as drafted, so there may be additional clarification on this.
  • Indirect payments to or for officers and employees for public transportation and temporary lodging paid directly by the union or with a credit card will be reported on new Schedule 13 (associated with the relevant individual) instead of in the functional expense schedules, as is the current treatment.
• The same changes noted above for officer reporting also apply to reporting of employees.
• The DOL is seeking comment on whether to raise the threshold for filing the Form LM-2 from its current $250,000 level to $300,000.

As mentioned above, the Form LM-2 LF is being contemplated to replace the Form LM-2 for labor organizations with annual receipts of $8,000,000 or more. The Form LM-2 LF includes all the changes mentioned above (however schedule numbers may vary between the Form LM-2 and LM-2 LF), as well as these additional key changes:

• A new question on the Form asking whether a union has a separate strike fund, and if so, additional information about the fund is requested, including the amount of strike funds.
• Itemization schedules are proposed for additional categories of receipts, including Dues and Agency Fees; Per Capita Tax; Fees, Fines, Assessments, Work Permits; Sale of Supplies; Rents; On Behalf of Affiliates for Transmittal to Them; and From Members for Disbursements on their Behalf. These schedules would provide additional information for individuals or entities from whom the labor union has received $5,000 or more (similar to the information in the existing Form LM-2 for cash disbursements.)
• The DOL is seeking comment on whether to establish a new schedule for a labor union to complete if it engages in transactions with a foreign entity or foreign individual. It requires reporting any individual receipt of $5,000 or more, or total receipts from a single foreign entity or individual that aggregate to $5,000 or more during the reporting period.

The above discusses some of the more significant changes to the existing Form LM-2, as well as those that would be implemented with the proposed Form LM-2 LF. For information on all proposed changes, please refer to this attachment.

The proposed changes will take effect 30 days after publication and apply prospectively to labor organizations’ fiscal years beginning on or after the effective date. Public comments are due on or before December 14, 2020, and must be made electronically through the Federal eRulemaking Portal https://www.regulations.gov/.

Authors: Caroline Kettering, CPA, Partner | [email protected] and Ashleigh Hall, CPA | [email protected]