Judge says IRS Change to Donor Reporting is Unlawful

In Rev. Proc. 2018-38, issued July 16, 2018, the IRS eliminated the donor disclosure requirement for all §501(c) organizations [other than 501(c)(3) organizations]. The U.S. District Court of Montana ruled on July 30, 2019 that the IRS decision to eliminate donor reporting requirements for certain tax-exempt organizations is unlawful. Specifically, the court held that the IRS did not follow the notice-and-comment requirements of the Administrative Procedure Act (APA) that would allow for public input prior to adopting the new rule. The court did not address the IRS’s ability to change reporting requirements.

IRS Form 990 Schedule B - CPE for CPAs

IRS Reissues Proposed Regulations to Correct for Judge’s Complaint

On Sep. 6, 2019 the IRS issued proposed regulations that incorporate relief from requirements to report contributor names and addresses on annual returns filed by certain tax-exempt organizations. Following the district court judge’s ruling, this time the Treasury and IRS “welcome public comments on all aspects of these proposed regulations.” The regulations propose allowing tax-exempt organizations an option to apply the regulations to returns filed after Sep. 6, 2019.

Note: The charity must still maintain the names and addresses of donors for IRS inspection on a case-by-case basis during examination or enforcement proceedings.

Penalty Relief for Returns Filed Before Proposed Regulations Issued

Notice 2019-47 provides penalty relief for certain exempt organizations that, consistent with the 2018 guidance from the IRS, did not report the names and addresses of contributors on annual returns for tax years ending on or after Dec. 31, 2018, but on or before July 30, 2019.

Check Your State Rules for Tax Exempt Filings

California law requires nonprofits to disclose donor names to the state’s attorney general. The Thomas More Law Center appealed a 9th Circuit Court of Appeals ruling--which upheld the California law--to the Supreme Court saying that the law violates the group’s constitutional rights. In other words, donor information may not be required for the Form 990, but it may be required by the resident state of the charity.

Who Might Care About the Reporting of Their Donors’ Information?

Donor reporting is of particular interest to social welfare organizations such as the National Rifle Association and the American Civil Liberties Union, labor unions, and business leagues. More than 300,000 organizations are affected by the donor reporting requirement.