Treasury Recognizes Importance of Donor Privacy in New Regulation
On July 16, the Department of the Treasury announced that 501(c) tax-exempt organizations, except 501(c)(3)s, no longer have to disclose their donor information on their yearly IRS tax forms. This decision comes amidst growing concerns about donor intimidation and marks an important step forward to protect the right to associational privacy. State legislatures should follow the Treasury Department’s lead and refrain from increasing disclosure for contributions to 501(c) organizations.
The new regulations govern how certain 501(c) (a name derived from section 501(c) of the Internal Revenue Code) tax-exempt organizations file forms with the IRS. In order to maintain their tax-exempt status, 501(c) organizations are required to file a Form 990. As part of Form 990, these organizations had to fill out a section called Schedule B where they disclosed all donors who have contributed more than $5,000. The new IRS regulation removes the Schedule B requirement for 501(c) organizations, except for 501(c)(3)s. The IRS is only required by statute to collect the donor information of 501(c)(3) charitable organizations – hence why the regulation does not revoke the Schedule B requirement for 501(c)(3)s.
U.S. Treasury Secretary Steven T. Mnuchin said of the regulatory change that, “Americans shouldn’t be required to send the IRS information it doesn’t need to effectively enforce our tax laws, and the IRS simply does not need tax returns with donor names and addresses to do its job in this area.” The press release stated that since changes to the federal gift tax in 2015 – making gifts to 501(c) organizations tax-exempt – disclosure by these organizations is redundant.
In a society where harassment is on the rise, protection for an individuals’ right to associate is more important than ever. From the harassment of Department of Homeland Security Secretary Nielsen while she was having dinner last month to the attempted intimidation of comedy video editor Vic Berger by alt-right supporters in May, recent events highlight the environment that would be worsened when the disclosure of personal information can enable intimidators, amplify political harassment and keep individuals from speaking freely. Every-day Americans should not have to consider the risk of harassment when choosing whether to support an organization.
The decision to change the disclosure requirements was informed by the IRS’s misuse of its 501(c) oversight in the IRS targeting scandal in 2013. Senate Majority Leader Mitch McConnell (R-KY) said on the Senate floor that, “It’s particularly welcome news to those of us who are intently focused on defending the First Amendment, for those of us who raised concerns during the last administration about activist regulators punishing free speech and free association.” He continued, “The IRS will no longer pointlessly demand private contributor lists from whole categories of tax-exempt organizations.”
It’s worth noting that some tax-exempt organizations are still required to report their donors to the IRS. While 501(c)(4) public welfare organizations, 501(c)(5) agricultural organizations, and 501(c)(6) professional organizations are all exempted from the Schedule B disclosure, 501(c)(3) charitable organizations, which include churches, schools, hospitals, and similar organizations, are still required to disclose their donors to the IRS. Moreover, Section 527 political organizations, like political parties, political action committees, and organizations primarily engaged in express advocacy, are still required to disclose their donors, expenditures, and political activities. And even the 501(c) organizations covered by the regulation change are required to keep donor records should the IRS need to inspect them.
While the Treasury Department is taking steps to protect associational privacy, some state legislatures are making efforts to increase disclosure by tax-exempt organizations. Legislation introduced in at least six states this year sought to define “electioneering communications” so broadly as to include some day-to-day communications routinely done by 501(c)(3)s. Other states have set up ethics commissions which have unilateral oversight over whether 501(c) organizations must disclose their donors before engaging in activities protected by the First Amendment.
If you are concerned about the impact of legislative activities in your state chipping away at the right to associational privacy in non-profit organizations, reference the ALEC Donor Disclosure Legislative Toolkit for resources on how to identify and address attacks on associational privacy in your state.