IRS Will No Longer Require Disclosure of Certain Nonprofit Donor Information

Source: David H. Carpenter, Congressional Research Service, Legal Sidebar, LSB10187, August 14, 2018

In July 2018, the Internal Revenue Service (IRS) announced that certain organizations that are exempt from paying federal income tax (tax-exempt organizations or EOs) under the Internal Revenue Code (IRC), including social welfare organizations, labor unions, and trade associations, will no longer be required to disclose the names and addresses of their “substantial” donors in Schedule B of their annual Form 990 returns to the IRS. Charitable tax-exempt organizations described in IRC Section 501(c)(3), which are statutorily required to disclose certain donor information, were not impacted by the July 2018 policy.

The IRS noted several reasons for making the change, including reducing administrative burdens and protecting sensitive, nonpublic personal information. In opposition, some have argued that the IRS’ policy change will reduce transparency over the funding sources of EOs’ political activities and make it more difficult for the IRS to enforce tax laws. At least one state has filed a lawsuit seeking to have the new policy set aside, alleging that the IRS implemented the policy in violation of the Administrative Procedure Act (APA).

This Sidebar will first provide background on the statute and regulations regarding EOs’ disclosure of contributor information. Next, the Sidebar will discuss the justifications of and reactions to the new policy, including the views of proponents and opponents of the new policy. The Sidebar will then discuss the litigation Montana has filed against the policy. Finally, the Sidebar will provide considerations for Congress…..